ReneSola Ltd (NYSE:SOL) Q2 2022 Earnings Conference Call September 7, 2022 5:00 PM ET Corporate Participants Yujia Zhai - Investor Relations Yumin Liu - Chief Executive Officer Ke Chen - Chief Financial Officer Conference Call Participants Philip Shen - ROTH Capital Partners Pavel Molchanov - Raymond James Amit Dayal - H.C. Wainwright Donovan Schafer - Northland Capital Markets Operator Hello, ladies and gentlemen. Thank you for standing by for ReneSola Power’s Second Quarter 2022 Earnings Conference Call. ...

Financial Data and Key Metrics Changes - Revenue for Q1 2022 was $3.5 million, in line with guidance, driven by IPP assets in China and the U.S. [6][14] - Gross margin was 32.5%, higher than the full-year guidance range of 20% to 25% [14] - Adjusted EBITDA for the quarter was $0.6 million [6] - GAAP net loss in Q1 2022 was $1.7 million, with a net loss per ADS of $0.03 [15] - Cash balance was $223 million, slightly lower than the end of Q4 2021 [16] Business Line Data and Key Metrics Changes - The company sold a 24 megawatt solar project in the UK, recorded as investor income of $0.7 million [14] - Operating expenses in Q1 were $3.4 million, down from $8.7 million in Q4 2021 [15] Market Data and Key Metrics Changes - In Europe, PPA prices for solar increased by 27.5% year-over-year due to rising energy prices from the Ukraine conflict [10] - In the U.S., solar installations increased 11% year-over-year, but utility-scale installations slowed due to supply chain challenges [11][12] - In China, COVID lockdowns in April and May impacted economic activities and supply chains, affecting project targets [12] Company Strategy and Development Direction - The company aims to grow its mid to late-stage pipeline to 5 gigawatts by the end of 2024, with significant growth expected from Europe [13] - The company is benefiting from favorable policies in Europe aimed at accelerating renewable energy growth [8][9] - The company plans to focus on small to medium-sized utility-scale and community solar projects in the U.S. [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in revenue ramp-up towards the end of the year, driven by a strong project pipeline [7] - The company anticipates challenges in the U.S. and China due to supply chain disruptions but remains optimistic about long-term trends in renewable energy [12] - Management expects to achieve a minimum of 30% growth in both top and bottom lines for 2023 [28] Other Important Information - The company has completed the repurchase of $20 million of ADS shares, with $30 million remaining [17] - The company is selectively pursuing projects in China based on profitability criteria [44] Q&A Session Summary Question: Guidance on revenue distribution between Q3 and Q4 - Management indicated that most sales will occur in Q4, with an estimated $20 million in Q3 and the remainder in Q4 [21] Question: Risks of project delays - Management expressed high confidence in closing deals based on current plans and milestones, despite potential pandemic-related delays [23] Question: Growth expectations for 2023 - Management expects strong growth from both the product pipeline and bottom line, targeting a minimum of 30% growth [28] Question: Demand in Poland post-Russian gas supply loss - Management confirmed strong demand in Poland, which constitutes about 30% of the pipeline [32] Question: Impact of tariff waivers on guidance - Management noted that while there may not be immediate changes to guidance, the certainty around tariffs will help with bids [41]

PART I [Key Information](index=5&type=section&id=ITEM%203.%20KEY%20INFORMATION) The company faces principal risks in solar project development, business conduct in China, international markets, and its American Depositary Shares (ADSs) - The company's auditor, Grant Thornton, is subject to PCAOB inspection limitations in China, which under the HFCAA could lead to a trading prohibition of the company's ADSs[16](index=16&type=chunk)[181](index=181&type=chunk)[183](index=183&type=chunk) - The company faces significant risks related to **PRC government intervention**, which could materially change operations and hinder its ability to offer securities to investors[22](index=22&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) [Risk Factors](index=5&type=section&id=D.%20Risk%20Factors) - Business risks are centered on the challenges of solar project development, including **operational risks**, potential for cost overruns or delays, and reliance on project financing[18](index=18&type=chunk)[19](index=19&type=chunk)[30](index=30&type=chunk) - Risks of doing business in China include potential **delisting under the HFCAA**, difficulties for overseas regulators to conduct investigations, and potential government intervention in operations[21](index=21&type=chunk)[181](index=181&type=chunk)[186](index=186&type=chunk) - Risks related to ADSs include **high market price volatility**, substantial influence of principal shareholders, and potential dilution from future capital raises[25](index=25&type=chunk)[239](index=239&type=chunk)[242](index=242&type=chunk) [Information on the Company](index=47&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) Following a 2017 restructuring, the company operates as an asset-light solar project developer focused on high-growth US and European markets - Completed a significant business restructuring in September 2017, divesting its manufacturing businesses to become a **pure-play downstream solar project developer** and operator[277](index=277&type=chunk)[279](index=279&type=chunk)[493](index=493&type=chunk) - The company's business model is divided into two main segments: **Project Development** (selling projects) and **IPP** (owning and operating solar plants to sell electricity)[287](index=287&type=chunk)[289](index=289&type=chunk)[293](index=293&type=chunk) Project Pipeline and Operating Assets (as of Dec 31, 2021) | Category | Capacity | Key Details | | :--- | :--- | :--- | | **Late-Stage Pipeline** | **2.2 GW** | Primarily in the USA (728 MW), Poland (594 MW), Spain (286 MW), and UK (214 MW) | | **Operating Assets** | **~180 MW** | Includes 156 MW of projects in China | | **2021 Project Sales** | **128 MW** | Projects sold in the U.S, Poland, Hungary, and Spain | [History and Development of the Company](index=47&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) - The company was incorporated in the British Virgin Islands in 2006, listed on the NYSE in 2008, and executed a **non-cash restructuring in 2017** to focus on the project business[272](index=272&type=chunk)[276](index=276&type=chunk)[277](index=277&type=chunk) - To fund its growth, the company raised significant capital, including **$45 million in 2020** and a total of **$290 million** through two offerings in January 2021[278](index=278&type=chunk)[283](index=283&type=chunk) [Business Overview](index=49&type=section&id=B.%20Business%20Overview) - The company's Project Development business utilizes two models: **Build-Transfer** (selling grid-connected projects) and **Project Rights Sale** (selling projects at the 'notice to proceed' stage)[289](index=289&type=chunk)[290](index=290&type=chunk) - The IPP (Independent Power Producer) business primarily operates in China, selling electricity under **gross or net metering schemes**, with plans to strategically dispose of these assets[293](index=293&type=chunk)[295](index=295&type=chunk)[302](index=302&type=chunk) - The company is expanding into utility-scale and **solar-plus-storage projects**, adding 200 MW to its pipeline through a 2020 acquisition[341](index=341&type=chunk) Late-Stage Project Pipeline by Location (as of Dec 31, 2021) | Region | Capacity (MW) | | :--- | :--- | | USA | 728.0 | | Poland | 594.0 | | Spain | 286.0 | | UK | 214.0 | | France | 100.0 | | China | 114.0 | | Italy | 57.0 | | Hungary | 52.0 | | Germany | 37.0 | | **Total** | **2,182.0** | [Organizational Structure](index=83&type=section&id=C.%20Organizational%20Structure) - ReneSola Ltd is a holding company incorporated in the British Virgin Islands that conducts its global business through a network of subsidiaries in key markets[272](index=272&type=chunk)[489](index=489&type=chunk) [Operating and Financial Review and Prospects](index=84&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) Fiscal 2021 revenue grew 8% to $79.7 million, with gross margin expanding to 39.4% and a significantly strengthened liquidity position - The company's growth strategy is focused on Europe, the U.S, and China, aiming to expand its project pipeline to **3 GW by the end of 2022**[512](index=512&type=chunk)[514](index=514&type=chunk)[515](index=515&type=chunk) - The company's liquidity position significantly improved, with cash and cash equivalents rising to **$254.1 million** at year-end 2021, primarily due to **$272.7 million** in net proceeds from equity issuances[562](index=562&type=chunk)[563](index=563&type=chunk)[577](index=577&type=chunk) Financial Highlights (2021 vs. 2020) | Metric | 2021 | 2020 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $79.7 M | $73.5 M | +8% | | Gross Profit | $31.4 M | $16.7 M | +88% | | Gross Margin | 39.4% | 22.7% | +16.7 p.p. | | Operating Income | $12.7 M | $6.8 M | +87% | | Net Income | $6.9 M | $2.8 M | +147% | | Adjusted EBITDA | $25.9 M | $16.4 M | +58% | [Operating Results](index=84&type=section&id=A.%20Operating%20Results) - Net revenue increased to **$79.7 million in 2021** from $73.5 million in 2020, driven by a **$11.9 million increase** in solar power project development revenue[550](index=550&type=chunk) - Gross margin improved significantly to **39.4% in 2021** from 22.7% in 2020, due to a higher proportion of revenue from high-margin NTP project sales in the USA and Europe[525](index=525&type=chunk)[551](index=551&type=chunk) - Net income attributable to ReneSola Ltd was **$6.9 million in 2021**, a substantial increase from $2.8 million in 2020[499](index=499&type=chunk)[543](index=543&type=chunk)[555](index=555&type=chunk) [Liquidity and Capital Resources](index=97&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) - The company's debt-to-asset ratio improved significantly, decreasing to **10.28%** as of December 31, 2021, from 45.5% at the end of 2020[560](index=560&type=chunk) - In 2021, the company raised **$272.7 million in net proceeds** from the issuance of ordinary shares, driving the $204.6 million net cash provided by financing activities[567](index=567&type=chunk)[577](index=577&type=chunk) Cash Flow Summary (in thousands USD) | Cash Flow Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Operating Activities** | (6,100) | (10,033) | 55,914 | | **Investing Activities** | 19,224 | (3,387) | (1,597) | | **Financing Activities** | 204,641 | 30,177 | (39,306) | | **Net Change in Cash** | 213,706 | 16,033 | 16,098 | [Critical Accounting Estimates](index=101&type=section&id=E.%20Critical%20Accounting%20Estimates) - **Revenue recognition** for solar project development is a critical estimate, involving significant judgment on whether revenue is recognized over time or at a point in time[590](index=590&type=chunk)[591](index=591&type=chunk)[872](index=872&type=chunk) - The company must make significant estimates for EPC services revenue using a **cost-incurred method**, which requires estimating total contract revenues and costs[597](index=597&type=chunk)[598](index=598&type=chunk) - Valuation of deferred tax assets requires management to assess the likelihood of their realization, with a **valuation allowance of $8.7 million** recorded as of December 31, 2021[534](index=534&type=chunk)[605](index=605&type=chunk)[871](index=871&type=chunk) [Directors, Senior Management and Employees](index=104&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's leadership, board structure, executive compensation, and global employee base of 164 people - The senior management team is led by **CEO Yumin Liu**, who has over 20 years of experience in the energy and solar sectors, and CFO Ke Chen[612](index=612&type=chunk)[622](index=622&type=chunk)[623](index=623&type=chunk) - For fiscal year 2021, executives received approximately **$2.0 million in cash compensation** and were granted **7.1 million options** under the 2007 Share Incentive Plan[630](index=630&type=chunk) - As of March 31, 2022, there were **15.6 million options outstanding** under the 2007 share incentive plan, which has 42.5 million shares reserved for issuance[631](index=631&type=chunk)[635](index=635&type=chunk) - As of December 31, 2021, the company had **164 full-time employees**, with 94 in China, 45 in Europe, and 25 in the United States and Canada[656](index=656&type=chunk) [Major Shareholders and Related Party Transactions](index=114&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) Key shareholders include Xianshou Li (23.0%) and Shah Capital (17.9%), with notable related party transactions involving a company controlled by Mr Li - The company engaged in related party transactions with ReneSola Singapore Pte Ltd, controlled by **former CEO Xianshou Li**, which included service agreements and borrowings[668](index=668&type=chunk)[671](index=671&type=chunk) Principal Shareholders (as of March 31, 2022) | Shareholder | Beneficial Ownership (%) | | :--- | :--- | | Xianshou Li | 23.0% | | Shah Capital Management, Inc | 17.9% | | Invesco Ltd | 11.1% | [Financial Information](index=115&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) The company does not plan to pay dividends, retaining earnings for expansion, with distributions also constrained by PRC regulations - The company has **no present plan to declare or pay dividends**, intending to retain earnings to fund operations and business expansion[679](index=679&type=chunk) - Dividend distributions from the company's PRC subsidiaries are restricted by Chinese regulations, which require setting aside funds for statutory reserves[680](index=680&type=chunk) [The Offer and Listing](index=116&type=section&id=ITEM%209.%20THE%20OFFER%20AND%20LISTING) The company's ADSs, each representing 10 ordinary shares, are listed on the NYSE under the symbol 'SOL' and have shown significant price volatility - The company's ADSs trade on the NYSE under the symbol **"SOL"**, with each ADS representing 10 ordinary shares following a ratio change in 2017[683](index=683&type=chunk) ADS Trading Price Range in 2021 | Period | High ($) | Low ($) | | :--- | :--- | :--- | | **Full Year 2021** | 35.77 | 4.84 | [Additional Information](index=118&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section details the corporate framework, material contracts, and complex taxation considerations, including potential PFIC status for U.S holders - The company is governed by its memorandum and articles of association and the **British Virgin Islands Business Companies Act of 2004**[690](index=690&type=chunk) - Material contracts include a joint venture to develop up to **700 MW of solar projects** in Europe and a settlement agreement with OCI Company Ltd for **$7.5 million**[712](index=712&type=chunk)[714](index=714&type=chunk) - The company does not believe it was a **Passive Foreign Investment Company (PFIC)** for the 2021 tax year, but notes this is a complex annual determination[740](index=740&type=chunk)[742](index=742&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=129&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risks are unhedged foreign exchange and interest rate exposures from its global operations and borrowings - The company is exposed to **foreign exchange risk**; a hypothetical 10% depreciation of the Renminbi would have resulted in a theoretical gain of RMB 21.8 million as of December 31, 2021[761](index=761&type=chunk)[763](index=763&type=chunk) - The company is exposed to **interest rate risk**; a hypothetical 100 basis point increase in interest rates would have decreased equity by approximately $0.9 million in 2021[766](index=766&type=chunk)[768](index=768&type=chunk) [Controls and Procedures](index=132&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2021 - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2021[777](index=777&type=chunk) - Management assessed the effectiveness of internal control over financial reporting based on the **COSO 2013 framework** and concluded it was effective as of December 31, 2021[779](index=779&type=chunk) [Corporate Governance](index=133&type=section&id=ITEM%2016.%20Corporate%20Governance) The company complies with most NYSE standards but follows home country practices for certain committee composition and compensation plan approvals - The company's board has determined that Tan Wee Seng, an independent director, qualifies as the **audit committee financial expert**[781](index=781&type=chunk) - Audit fees paid to the principal accountant, Grant Thornton, were **$486,450 in 2021**, compared to $427,000 in 2020[783](index=783&type=chunk) - In December 2021, the board authorized a **share repurchase program of up to $50 million**, and by year-end had repurchased 30.9 million shares for $18.4 million[786](index=786&type=chunk) - As a foreign private issuer, the company follows British Virgin Islands law, which **differs from NYSE standards** regarding shareholder approval for equity-compensation plans[788](index=788&type=chunk)[789](index=789&type=chunk) PART III [Financial Statements](index=134&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the audited consolidated financial statements for 2019-2021, with critical audit matters in revenue recognition and credit loss allowances - The independent auditor identified two critical audit matters: **1) Revenue recognition** on the sale of solar power projects and **2) The allowance for credit losses**[803](index=803&type=chunk)[805](index=805&type=chunk) Consolidated Balance Sheet Highlights (in thousands USD) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | 529,268 | 336,942 | | Cash & Cash Equivalents | 254,066 | 40,593 | | **Total Liabilities** | 80,856 | 153,682 | | **Total Shareholders' Equity** | 448,412 | 183,260 | Consolidated Statement of Operations Highlights (in thousands USD) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Total Net Revenues** | 79,662 | 73,503 | 119,117 | | **Gross Profit** | 31,425 | 16,686 | 34,226 | | **Income/(Loss) from Operations** | 12,652 | 6,780 | (964) | | **Net Income/(Loss) Attributed to ReneSola Ltd** | 6,862 | 2,779 | (8,831) | [Exhibits](index=135&type=section&id=ITEM%2019.%20EXHIBITS) This section lists all filed exhibits, including corporate governance documents, material contracts, and required officer certifications

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