ReneSola Ltd (NYSE:SOL) Q3 2022 Earnings Call Transcript December 1, 2022
ReneSola Ltd beats earnings expectations. Reported EPS is $0.05, expectations were $0.01.
Operator: Hello, ladies and gentlemen. Thank you for standing by for the ReneSola Power's Third Quarter 2022 Earnings Conference Call. Please note that we are recording today's conference call. I would now like to turn the call over to Mr. Yujia Zhai, Managing Director of the Blueshirt Group. Please go ahead, Mr. Zhai.
Yujia Zhai: Thank you, operator, and hello, everyone. Thank you for joining us today to discuss our third quarter 2022 results. We released our shareholder letter after the market closed today and is available on our website at ir.renasolapower.com. There is also a supplemental slide deck posted on our website that we will reference during our prepared remarks. On the call with me today are Mr. Yumin Liu, Chief Executive Officer; Mr. Ke Chen, Chief Financial Officer; and Mr. John Ewen, CEO of North America. Before we continue, please turn to slide two. Let me remind you that the remarks made during this call may include predictions, estimates or other information that might be considered forward-looking. These forward-looking statements represent ReneSola Power's current judgment for the future.
However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under Risk Factors and elsewhere in ReneSola Power's filings with the SEC. Please do not place undue reliance on these forward-looking statements, which reflect ReneSola Power's opinions only as of the date of this call. ReneSola Power is not obligated to update on any revisions to these forward-looking statements. Also, please note, unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to Mr. Yumin Liu.
Yumin Liu: Thanks, Yujia, and good day, everyone. Thank you for joining our call today. I'll give a high level summary of our third quarter results and then elaborate our recent strategic initiatives as well as provide an update our guidance. Then Ke, our company CFO, will review our financial results for Q3 in detail. After that, we'll be joined by our U.S. CEO, John for Q&A. Beginning with our financial performance, Q3 results outperformed the high end of our guidance range and represents one of our best quarters in the last three years. Revenue grew 86% year over year to $28.9 million, gross margin was 29.6% and net income was $3 million compared to $711,000 a year ago. We achieved these results despite economic challenges and a strong dollar, which negatively impact our revenue and earnings from Europe and China by approximately $3 million.
Excluding this foreign exchange impact, results would have been even stronger with nearly $32 million revenue and over $5 million in net income. These results were driven by solid performance of our project pipeline and our IPP solar assets in the U.S. and China and the recently acquired 50 megawatt solar farm in Branston, U.K. We closed acquisition of Branston on September 30, the total transaction value was $41 million, of which $20 million was cash and $21 million was nonrecourse project finance. This acquisition marks the beginning of our European IPP strategy, which will add predictable and stable cash flows to complement our product sales business. PPA prices have been trending strongly across Europe due to energy shortages and favorable regulatory conditions.
In fact, we have already signed attractive multiyear PPA for Branston project through March 31, 2017, which we estimate will provide over $25 million EBITDA by the end of 2026. In addition to Branston, we completed the acquisition of Emeren on October 10, through an all cash deal of $16 million with earn out provisions. Emeren is an Italian based utilities scale solar power and battery storage company. They have over 2.5 gigawatts of projects under development in different stages, including over 2 gigawatt of solar projects and over 500 megawatt of storage projects. As part of our European IPP strategy, we decided to withhold 110 megawatt of project sales in Poland and Hungary that we originally planned to sell at NTP stage in Q4 2022. We will now construct these projects and operate them in our European IPP portfolio.
In October, we completed the first 10 megawatt across two solar farms in Hungary and expect the remaining 100 megawatt will be energized by Q3 of 2023. Because of the shift from sale to IPP, we will forego over $20 million revenue and $5 million to $6 million of net income in Q4 2022, but will gain significantly higher lifetime revenues and stable cash flows. We estimate the payback period for this IPP projects to be four years or less, while still retaining the optionality to sell these IPP assets in the future. Due to the strategic shift in Poland and Hungary and approximately $6 million of unexpected negative foreign exchange impact, we now expect our 2022 full year revenue to be in the range of $85 million to $90 million. We expect 2022 gross margin to be 25% to 30%.
For net income, we anticipate full year net income will be approximately $7 million to $8 million. Looking forward to 2023 and beyond, we have many things to be excited about. We have strong presence in the world's fastest growing solar markets, thanks to growing clean energy demand, rising PPA prices and supportive government policies. In Europe we are excited about our newly acquired assets and growing IPP portfolios. For Branston, Emeren and 110 megawatts of IPP projects in Poland and Hungary, we have good visibility into 2023 and expect this assets to contribute approximately $35 million to $40 million revenue and $10 million to $15 million EBITDA. We are also aligning our China strategy to the rest of the world under one strategy of develop, own or sell.
Compared to the original strategy in China as develop, build, own and IPP. In the immediate near term, we are in the process of monetizing certain China projects and expect to close the sale before the year end. For our project development business, we expect to monetize approximately 400 megawatt of our mid to late stage pipeline in 2023. And we are targeting to achieve a total pipeline of 4 gigawatts by end of2023. To conclude, the future looks bright for solar energy and also definitely great for our company. We believe we are well positioned to capitalize on accelerating solar adoption across the world. Given our deep expertise in developing and operating solar projects, our extensive network of industry partnerships, our well-capitalized balance sheet and our unmatched track record in closing financing transactions and profitably monetizing projects, we are progressing steadily in our goal of becoming a leading global solar developer and operator.
With that, I'll now turn the call over to our CFO, Ke Chen. Ke?
Ke Chen: Thank you, Yumin. And thanks everyone again for joining us on the call today. As a reminder, a non GAAP to GAAP reconciliation is included in our shareholder letter. We use non GAAP measures because we believe that provider useful information about our operating performance that should be considered by investors along with the GAAP measures. Revenue was $28.9 million up 252% sequentially and 86% year over year, largely driven by our project development business in the U.S., strong EPC revenue in Poland and IPP solar assets. GAAP gross profit was $8.5 million, up from $3.7 million in Q2 2022 and $6.1 million in Q3 2021. The gross margin was 29.6%. Turning to our operating expenses. Operating expenses were $3.5 million compared to $3.9 million in Q2 2022 and $3.4 million in Q3 2021.
Net income attributable to ReneSola Power common shareholder was $3 million, diluted earnings per ADS was $0.04 compared to diluted net loss per ADS of zero in Q2 2022 and diluted net income per ADS of $0.01 in Q3 2021. Cash used in operating activity was $5.2 million, cash used in investing activity was $31.2 million and cash used in financing activity was $45.7 million. Cash used in operating activity were mainly driven by project expenditure for Poland, Hungary and U.S. NTP projects. Cash used in investing activity were primarily due to Hungary IPP and acquisition of Branston. Cash used in financial -- financing activity primarily related to $42 million share repurchase transact on September 2, 2022 with ReneSola Singapore. Now let's review the balance sheet.
Our cash balance as of September 30, 2022 was $123 million compared to $208 million at the end of Q2, 2022. The decrease was primarily due to the share repurchases, the Branston acquisition and project capital expenditure related to the construction of our IPP assets in Poland and Hungary. Our debt to asset ratio at end of Q3 increased to 12.8% compared to 8.3% in Q2 2022 as a result of nonrecourse debt acquired as part of Branston acquisition. Finally for guidance. We now expect full year 2022 revenue to be $85 million to $90 million, gross margin to be 25% to 30% and net income to be $7 million to $8 million. For Q4, we expect revenue to be $44 million to $49 million and gross margin to be 20% to 25%. Now we would like to open up the call for any questions.
Operator, please go ahead.
To continue reading the Q&A session, please click here.