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Edited Transcript of SOL earnings conference call or presentation 8-Apr-19 12:30pm GMT

Q4 2018 ReneSola Ltd Earnings Call

Jiashan, Zhejiang Apr 10, 2019 (Thomson StreetEvents) -- Edited Transcript of ReneSola Ltd earnings conference call or presentation Monday, April 8, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ella Li

ReneSola - Investor Relations Manager

* Xianshou Li

ReneSola Ltd - Chairman & CEO

* Xiaoliang Liang

ReneSola Ltd - CFO

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Conference Call Participants

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* Justin Lars Clare

Roth Capital Partners, LLC, Research Division - Director & Research Analyst

* Gary Thomas Dvorchak

The Blueshirt Group, LLC - MD of Asia

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by for the ReneSola Fourth Quarter and Full Year 2018 Earnings Conference Call. Please note that we are recording today's conference call.

I will now turn over the call to Mr. Gary Dvorchak, Managing Director of The Blueshirt Group Asia. Please go ahead, Mr. Dvorchak.

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Gary Thomas Dvorchak, The Blueshirt Group, LLC - MD of Asia [2]

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Thank you, operator, and hello, everyone. Thank you for joining us on this conference call to discuss ReneSola's fourth quarter and full year 2018 results. We distributed the press release earlier today. It is available on the company's website and from Newswire services. Furthermore, this call includes a short presentation deck, which you can also download from our website at renesolapower.com.

On the call with me today are Mr. Xianshou Li, Chief Executive Officer; Mr. Xiaoliang Liang, Chief Financial Officer; Mr. Doran Hole, Group Vice President of Strategy; Mrs. Jessie Zhang, Director of Financial Reporting; and Mr. Ella Li, Investor Relations Manager. Ella will read Mr. Li's prepared remarks regarding ReneSola's operating highlights and Mr. Liang will then review our fourth quarter and full year financial results.

Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, as shown on Slide 2. Forward-looking statements involve inherent risk, uncertainties, such that company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's annual report on Form 20-F and other documents filed with the U.S. SEC. ReneSola does not assume any obligation to update any forward-looking information.

Please note that 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 Ella, who will translate Mr. Li's prepared remarks. Ella?

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Ella Li, ReneSola - Investor Relations Manager [3]

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Thank you, Gary. The following are Mr. Li's prepared remarks. Thank you, everyone, for joining our call this morning. We appreciate your interest in ReneSola.

To get started, I will provide a summary of our first quarter financial performance and review our operating highlights. I will then turn the call to our CFO, Xiaoliang Liang, who will cover financial results for the first quarter and full year 2018 and provide guidance for 2019. We will then open the call to questions.

I am pleased with our 2018 results. The solid financial and operating results reflect our business momentum and continued execution of the company's transformation to a pure-play global solar project developer.

While revenue for the year 2018 declined 6% year-over-year, we meaningfully improved profitability. Operating profit more than doubled and the net profit grew 59% year-over-year.

Additionally, we maintained a healthy balance sheet, providing the financial flexibility to drive growth.

Operationally, we connected 27.2 megawatts of DG projects in China, 58.4 megawatts of DG projects in Europe and 6.8 megawatts of solar power projects in the U.S.

During the year, we increased our global late-stage pipeline by 41% to 772.5 megawatts. And our overall solar power project pipeline remains solid at around 1.7 gigawatts.

Q4 revenue was below our guidance range because of delays in recognizing revenue related to the sale of a 7.7 megawatts project in Hungary and a 14 megawatts project in Poland. Due diligence work on both assets took longer than anticipated. Mr. Liang will go over these and other details of our financial results later on the conference call.

I will now turn our attention to operating highlights. As you know, there are 4 elements to our business. The first is the build and transfer business. We develop and build solar projects then sell those projects to buyers. The second is project right sales. We engage in earlier development stage to secure land or rooftops with interconnection capacity as well as related permits and then sell the project rights at notice to proceed or NTP. The third is the EPC business. We provide in-house and external EPC services. The fourth is our independent power producer or IPP business. We own and operate solar projects and sell the electricity generated. Because of lower capital requirements, we have been focused on the development business, however, we are actively pursuing other segments of the business to reduce our risk and better utilize the capital we have. The development business recycles capital quickly, where operating asset generate stable high margin recurring revenue.

Our development pipeline strong at 1.7 gigawatts of which 772.5 megawatts is late-stage. This late-stage pipeline is spread across the U.S., Canada, Poland, France, Hungary, Spain, India, South Korea, Vietnam and China. Approximately, 40 -- approximately 54 megawatts of the late-stage is under construction, where 1.6 megawatts was connected in Q4. The connected projects were all China rooftop DG. We also connected 30 megawatts of DG projects in Poland and 7.7 megawatts of micro projects in Hungary.

Our owned and operated portfolio of 232 megawatts generates high-margin recurring revenue. The portfolio consists of 212 megawatts of rooftop in China, 15 megawatts of ground mounted in Romania and 4 megawatts of rooftop in the U.K.

Looking ahead, we have nearly 12 megawatts more of rooftop projects under construction in China. Slide 3 profiles our project business in more detail.

Now let us cover some detail on the various regions. First, China. As shown on Slide 6, we now operate approximately 212 megawatts of rooftop solar concentrated in a number of eastern provinces with favorable development environments. The commercial and industrial electricity prices in those provinces are relatively high and electricity off-takers are generally creditworthy enterprises. Self-consumption DG projects in those provinces are attractive investments. In order to evolve ReneSola into an asset-light solar project developer, we expect eventually to monetize our China DG assets. This will further strengthen our business -- our balance sheet, reduce leverage and improve cash flow.

In addition to DG projects, we intend to develop and monetize 350 megawatts of ground mounted unsubsidized projects, located in the northern provinces in 2019, as shown on Slide 6. The U.S. remains a sizable and important market for us, as highlighted on Slide 7. Our late-stage projects there total 340.2 megawatts of which approximately 119.1 megawatts are community solar in Minnesota and New York. Additionally, we are pursuing small utility scale projects in Utah, Texas, Florida, Arizona, Colorado and California. Of the late-stage projects, 24.1 megawatts are under construction and expected to grid connect in the second quarter of 2019.

In March of 2019, we announced Nautilus Solar Energy's acquisition of our 21.1 megawatts community solar portfolio in Minnesota that was developed by us. As many of you know, Nautilus is a leading U.S. company engaged in solar project acquisition, development and active management. This sale to them represents the third acquisition of community solar assets from us.

Similar to the 2017 and 2018 deals we did with them, this community solar portfolio is also qualified under Xcel Energy's industry-leading community solar programs in Minnesota.

In Canada, shown on Slide 8, we have 7.6 megawatts of late-stage projects, all of which are under construction and should connect to the grid in the second quarter of 2019. All these projects are eligible for the FiT3 scheme.

We show Poland in Slide 9, where we have a total of 81 megawatts in various stages. The main asset is our portfolio of 55 installation of 1 megawatt per -- each. 44 of those are completed, operating and up for sale. The other 11 are under construction.

In addition to the 55 installations, late last year we won the auction of another 26 megawatts of project development rights, which are for sale. All of the projects will sell power under Poland's Contract for Difference or CFD regime and eligible for a 15-year guaranteed tariff. The 26 we won recently are eligible for a 15-year guaranteed tariff of PLN 354.8 to PLN 358.8 per megawatt hours. This is close to the highest auction price of PLN 364.9 per megawatt hours.

Poland is a key market for us, and we are one of the largest project developers in the country. So this recent auction win is a positive development, this win validates our ability to deliver reliable cost competitive distributed power to serve growing energy demand in the region.

Slide 10 shows Hungary. While we continue to invest in small-scale DG projects, our late-stage pipeline has more than 67 micro projects, each with a size of 0.5 megawatts bringing total capacity to approximately 33.6 megawatts. We expect the construction of all of these micro projects to start in the second quarter of 2019.

We announced recently that we entered into a brief financing agreement with Eiffel Energy Transition Fund for our solar projects in Hungary and Poland. Eiffel Energy Transition Fund is a specialized investment vehicle of EUR 350 million, strictly reserved for institutional investors. The fund meets the financial needs of energy transition players focused on renewable energy production and energy efficiency solutions.

Under the term of the agreement, Eiffel Energy Transition Fund will finance our 41.3 megawatts projects in Hungary and 55 megawatts projects in Poland in the amount of EUR 13.4 million. We are very excited to partner with Eiffel. This facility demonstrates the confidence that the capital market put in our ability to successfully develop projects in this geography. We continue to expect both Hungary and Poland to be growth markets for us in the years ahead.

Let's move to India on Slide 11. We have secured a project pipeline of 50 megawatts, most projects that are ground mounted open access projects, similar to U.S. community solar. India projects can sell electricity to different commercial and industrial off-takers under long-term PPAs.

Our strategy in India is a pure-project developer model. We want to develop projects to the shovel-ready stage and then sell the projects rights to investors. This model enables us to leverage our expertise in project development and our global network of solar project investors.

Now turn to Slide 12, where we cover other regions. In France, we formed a strategic partnership with Green City Energy to jointly develop 4 solar parks in the south with a total installed capacity of 69 megawatts. The 4 parks will generate approximately 105 million kilowatt hours of electricity per year. We expect COD for the parks in 2020 and 2021. Additionally, in the last tender, we also won projects with a combined capacity 2.5 megawatts. So our total projects pipeline in France is now 71.5 megawatts. Beyond those geographies I just discussed, we are actively pursuing opportunities in other international markets, including Spain, South Korea and Vietnam.

In Spain, we have a late-stage pipeline of 12 megawatts of private PPA projects. And in South Korea, we secured a 9 megawatts ground-mounted project. In Vietnam, we obtained the land rights for a 200 megawatts ground-mounted project. In summary, we have a globally diversified project portfolio encompassing multiple stages in both rooftop and ground mount. Because of this, we are very optimistic about the opportunity ahead of us.

Before I turn the call over to Mr. Liang, I would like to take a minute to emphasize the attractiveness of our strategy. We are pursuing a global asset-light project development model with a focus on distributed generation and community solar. Revenue comes from the sale of shovel-ready project rights and build and transfer projects after grid connection. We typically achieve high gross margins from monetizing project rights. Downstream projects represent a large opportunity globally for us, and we are excited about our prospects. Our talented team, diversified geographic coverage and record of accomplishments put us in a prime position to grow profitably.

With that, let me now turn the call over to Mr. Liang for comments on our financial performance. Mr. Liang?

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Xiaoliang Liang, ReneSola Ltd - CFO [4]

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Thank you, Mr. Li and Ella. And thank you, everyone for joining us on the call today. I will review our financial performance for the fourth quarter and the full year 2018 and then discuss our outlook.

Please turn to Slide 14. Q4 revenue was USD 5.6 million compared to USD 18.8 million last quarter and $64.8 million in the same period last year. Q4 revenue was significantly below our guidance range of USD 20 million to USD 30 million. As Mr. Li mentioned, the revenue shortfall was due to the delay in recognizing revenue from the sales of a couple of projects in Hungary and Poland. We had anticipated that the project sales would be completed in Q4, but they were delayed because our due diligence work on this asset took longer than expected.

Here is our revenue breakdown by segment in Q4. Project development was USD 2.5 million as we recognized the revenue from the sale of project rights. IPP or electricity sales were $5.4 million mainly from the 37.9 million kilowatt hours of electricity generated by our operating DG project China.

Full year 2018 revenue was USD 96.9 million, down 6% when compared to last year. Had those project sales in Hungary and Poland been recognized as planned, 2018 revenue would have been up 14% year-over-year, representing our second consecutive year of growth after the disposal of our manufacturing business.

Revenue from the project development business was USD 48.8 million. Revenue from the EPC business was USD 18.5 million. Electricity sales was USD 29.3 million.

Q4 gross profit was USD 2.9 million compared to a gross profit of USD 8.6 million last quarter and $6.8 million in the same quarter last year.

Gross margin in Q4 was 51.8%, up from 46% last quarter. The sequential increase in gross margin was attributable to the improved margin from project sales.

Full year 2018 [gross profit] (corrected by company after the call) of USD 28.1 million nearly doubled from last year. Gross margin for full year 2018 was 29%, up from 13.7% in 2017. This represents a significant improvement from last year.

Fourth quarter operating loss was $1.9 million compared to operating income of $5.7 million in Q3 of 2018. Operating margin was negative 34% compared to positive 30.4% in Q3.

Fourth quarter operating expenses were USD 4.8 million, up from USD 2.9 million last quarter and up from USD 1.9 million in the same period last year.

Sales and the marketing expenses in Q4 were $0.5 million, up from $0.1 million in Q3 of 2018.

General and administrative expenses were USD 2.5 million, down slightly from USD 2.6 million in Q3 2018.

Full year 2018 operating income was USD 15.5 million, up from USD 6.6 million in 2017. Operating expenses were USD 12.5 million, up from USD 7.6 million in 2017. Sales and the marketing expenses were USD 0.9 million, down from USD 1.7 million in 2017. General and administrative expenses were USD 10.2 million, up from USD 6.2 million in 2017.

Below the line fourth quarter nonoperating expenses totaled USD 2.6 million, up from USD 2.1 million last quarter.

Q4 nonoperating expenses include interest expense of USD 1.9 million and foreign exchange loss of USD 1.1 million. The ForEx loss was mainly due to the depreciation of Polish zloty against the euro. Full year 2018 nonoperating expenses were USD 10.6 million, which includes interest expenses of USD 8.7 million and foreign exchange loss of $2.5 million.

Q4 net loss was USD 4.3 million compared to a net income of $3.6 million in Q3 2018.

Full year 2018 net income was USD 5.1 million compared to USD 3.2 million in 2017.

Fourth quarter EBITDA was negative USD 1 million compared to $7.9 million last quarter. EBITDA for the full year 2018 was USD 21.1 million, up 82% year-over-year.

Now the balance sheet shown on Slide 15. We had cash and equivalents of USD 6.8 million as of December 31, 2018, a decrease of about $1.3 million during the quarter. We used cash primarily for the construction of our projects in Poland and Hungary in Q4.

Long-term borrowings were approximately USD 41.4 million as of December 31, 2018, down from USD 73.3 million in Q3. The decline was a result of the reclassification of the $40.7 million Poland construction loan from long-term borrowing to short-term borrowings, which are due in December 2019. We have long-term liabilities related to capital leases and failed sale leasebacks of approximately USD 77.9 million, a decrease of USD 2 million during the quarter. These relate mainly to rooftop project in China.

Finally, we will discuss guidance, shown on Slide 18. For 2019, the company expects revenue to be in the range of USD 150 million to USD 170 million, and overall gross margin in the range of 20% to 25%. The company intends to connect 50 megawatts to 100 megawatts of DG projects in China and to monetize approximately 270 megawatts of projects in international markets.

For the first quarter of 2019, we expect the revenue in the range of USD 8 million to USD 10 million, and the gross margin in the range of 0% to 5%.

With that, we would now like to open up the call for any questions that you may have for us. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have the first question from the line of Justin Clare.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [2]

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So first off, I wanted to ask about Q4. You indicated that 2 asset sales were delayed, 1 in Hungary and 1 in Poland. Can you just share what the status of those projects is now? It looks like they're probably not included in your Q1 results. So do you expect to sell them in Q2?

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Ella Li, ReneSola - Investor Relations Manager [3]

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Thank you, Justin. Please wait a minute.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [4]

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Okay.

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Xiaoliang Liang, ReneSola Ltd - CFO [5]

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For the project in Poland and Hungary, now we are - there is this -- some project is still under constructions. So we are going to -- we have some investors to do the due diligence, but still need to have some -- further discuss about the due diligence. And we have ideas about maybe we can sell them and close the deals by the next Q3 in this year.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [6]

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Okay. And then -- so last quarter, it looks like you had 42.6 megawatts under construction in Hungary, you completed 7.7 megawatts of that. So just looking at the remainder, is the rest of that still under construction now? Or did you see some projects fall out of your pipeline?

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Ella Li, ReneSola - Investor Relations Manager [7]

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Okay. Thank you, Justin. Please wait a moment.

Thank you, Justin. In addition to 7.7 megawatts project are also completing, the remaining part is under construction, and we expect at Q2 we can connect the 12 megawatts project, and in Q4, we can connect the 21 megawatts project. Thanks.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [8]

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Okay. Great. And then turning to your guidance, can you share the mix of revenue that you expect from electricity sales versus EPC sales and project sales? Could you share, actually, for Q1 and then also for 2019 overall, the mix of those different elements of your revenue?

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Ella Li, ReneSola - Investor Relations Manager [9]

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Okay. Thank you. Justin, for the Q1 estimation, we expect our NTP business will contribute 58% of revenue and IPP business will contribute 42% of our revenue. For the full year 2019, we expect that the NTP business will represent 24%, BT business will represent 60% and IPP business will represent 16%.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [10]

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16%. Okay. Okay, great. And so can you share then for 2019, how many megawatts of your project sales do you expect to sell at NTP versus COD?

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Xianshou Li, ReneSola Ltd - Chairman & CEO [11]

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(foreign language)

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Ella Li, ReneSola - Investor Relations Manager [12]

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For NTP business, we expect in 2019, we will sell 170 megawatts. For COD -- for our -- for BT business, it will be 100 megawatts. And that we totally -- we expect in 2019, we will sell the 270 megawatts projects. And additionally, in China, we expect to hold an additional 100 megawatts projects.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [13]

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Okay. Got it. And then can you just talk about your strategy for financing the developments and the building of these assets, especially the assets that you're building and holding until COD or holding on the balance sheet? How much capital do you expect to need? And then how do you plan to finance it?

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Ella Li, ReneSola - Investor Relations Manager [14]

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Okay. Thank you, Justin.

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Xianshou Li, ReneSola Ltd - Chairman & CEO [15]

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(foreign language)

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Ella Li, ReneSola - Investor Relations Manager [16]

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I will translate Mr. Li's words. Firstly, he mentioned for China DG projects, we will build these projects to CODs that bid. For this 150 megawatts project, we need financing, project financing. And for BT project, we will need the construction loan for this projects and is expected 100 megawatts. And for NTP business, we will only do the development loan for this type of business.

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Operator [17]

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(Operator Instructions) As there are no further questions at this time, I'd like to hand the call back to Ella.

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Ella Li, ReneSola - Investor Relations Manager [18]

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Okay. Thank you, operator. Let me make some closing remarks on behalf of Mr. Li. We are pleased with our 2018 results, the results of solid execution of our project development strategy. We remain committed to prudently managing our operations and strengthening our financial position. We are optimistic about our opportunities and look forward to discuss the continuing improvement in a few months.

Thank you all, again, for your participation. This concludes our call today. You may all disconnect.