Emeren(SOL) - 2023 Q4 - Annual Report

Shareholder Letter & Q3 Business Overview This section provides an overview of the company's third-quarter performance, key challenges, strategic project developments, and future outlook Q3 Performance & Key Challenges Q3 revenue was $13.9 million with a 40.8% gross margin and $9.4 million net loss, primarily due to a Hungarian project approval delay now secured for Q4 recognition Q3 Key Financial Metrics | Metric | Amount | | :--- | :--- | | Revenue | $13.9 million | | Gross Margin | 40.8% | | Net Loss | $9.4 million | - The primary reason for Q3 revenue falling below expectations was the delay in government approval for the Hungary 53 MW solar NTP project, which was secured on November 20, 2023, with revenue to be recognized in Q4[1] Impact of One-Time Expenses Third-quarter results were significantly affected by several one-time non-cash expenses, including foreign exchange losses, asset impairment, and expensed development costs One-Time Non-Cash Expenses | Expense Type | Amount (million USD) | | :--- | :--- | | Foreign Exchange Loss | $4.8 | | Asset Impairment and Write-offs | $4.5 | | Development Costs Expensed | $1.3 | - Excluding one-time non-cash expenses, the company's third-quarter performance would have reached breakeven[2] IPP Asset Contribution The company continues to benefit from its IPP assets, particularly the UK 50 MW Branston project and the China 156 MW rooftop solar portfolio, which together contributed $9.4 million in Q3 revenue - IPP assets contributed $9.4 million in Q3 revenue, primarily from the UK 50 MW Branston project and the China 156 MW rooftop solar asset portfolio[2] Strategic Project Developments The company achieved several strategic project milestones in Q3, including grid connection of its first storage project in China, sale of a large battery storage system portfolio in Italy, and continued solar and storage project development in North America China Project Developments The company successfully completed grid connection for its first solar-plus-storage project in China and is advancing its commercial and industrial storage pipeline - Successfully completed grid connection for the China Ningbo 0.6 MW/1.2 MWh solar-plus-storage project, designed for high returns through daily electricity price arbitrage[3] - China's advanced-stage storage project pipeline exceeds 80 MWh, all commercial and industrial scale, with several currently under construction[3] European Storage Project Developments The company successfully sold a significant battery energy storage system portfolio in Italy, expanding its total storage project capacity with Matrix Renewables - Successfully sold a 410 MW five Battery Energy Storage System (BESS) portfolio in Italy to Matrix Renewables, bringing the total storage project capacity with Matrix to 3.8 GWh[4] - This Italian project portfolio is expected to reach "Ready-To-Build" status by the end of 2024[4] North America Project Developments & Storage Strategy The North America team is actively expanding its solar and storage project pipeline through new site acquisitions and advancing existing developments, with a focus on a light-asset IPP strategy - The North America team continues to focus on expanding its solar and storage project pipeline by acquiring new project sites and advancing existing project developments[5] - North America's advanced-stage storage project pipeline has significantly grown to 3.8 GWh since the last quarter[5] - The company plans to further expand its storage project portfolio under a light-asset IPP strategy[5] Pipeline Growth & Future Outlook As of the end of Q3, the company's advanced-stage storage project pipeline has grown to over 10 GWh, with solar project pipeline expected to reach at least 3.5 GW by year-end 2023 - As of the end of Q3, the advanced-stage storage project pipeline has grown to over 10 GWh[6] - The advanced-stage solar project pipeline is expected to reach at least 3.5 GW by the end of 2023[6] - The company plans to monetize approximately 400 to 500 MW of solar projects in 2024 and beyond[6] Full Year & Q4 2023 Financial Guidance The company has adjusted its full-year 2023 guidance, projecting revenue between $110 million and $113 million, net profit of $3 million to $4 million, and a gross margin of 25% to 28% Full Year 2023 Financial Guidance | Metric | Range | | :--- | :--- | | Revenue | $110 - $113 million | | Net Profit | $3 - $4 million | | Gross Margin | 25% - 28% | Q4 2023 Financial Guidance | Metric | Range | | :--- | :--- | | Revenue | $50 - $53 million | | Gross Margin | 21% - 25% | | Net Profit | $4 - $5 million | Strategic Outlook & Shareholder Value Despite global uncertainties, the company remains confident in the long-term growth of the solar industry and is committed to becoming a leading global solar and storage developer - The company is confident in the long-term growth of the solar industry and is well-positioned with its strong project pipeline[8] - $4 million was returned to shareholders in Q3 through the share repurchase program, with continued market activity planned for Q4[8][22] Q3 2023 Financial Highlights This section provides a detailed overview of the company's key financial metrics, revenue breakdown by business segment, and regional revenue contributions for the third quarter of 2023 Key Financial Metrics Overview Q3 gross margin reached 40.8%, exceeding guidance, while revenue decreased 42% year-over-year and 59% quarter-over-quarter, resulting in a net loss of $9.4 million Q3 2023 Key Financial Metrics (million USD, unless otherwise specified) | Metric | Q3'23 | Q2'23 | QoQ Change | Q3'22 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $13.9 | $33.8 | -59% | $23.9 | -42% | | Gross Profit | $5.7 | $12.7 | -55% | $4.5 | +26% | | Operating Income/(Loss) | ($4.0) | $5.0 | -178% | $1.0 | -490% | | EBITDA | ($6.8) | $8.8 | -177% | $2.3 | -402% | | Adjusted EBITDA | ($0.2) | $9.3 | -102% | $2.7 | -108% | | Net Income/(Loss) Attributable to Emeren Group Ltd | ($9.4) | $8.3 | -212% | ($1.1) | -777% | Revenue Breakdown by Segment In Q3, the IPP business was the largest contributor, accounting for 67% of total revenue ($9.366 million), followed by project development at 17% and EPC at 15% Q3 2023 Revenue Breakdown by Business Segment | Business Segment | Q3'23 Revenue (thousand USD) | Percentage of Total Revenue | | :--- | :--- | :--- | | Project Development | $2,300 | 17% | | IPP | $9,366 | 67% | | EPC | $2,109 | 15% | | Other | $173 | 1% | | Total | $13,948 | 100% | Revenue Breakdown by Region Third-quarter revenue was primarily driven by Europe, contributing 68% ($9.462 million) of total revenue, with China accounting for 30% and the US for 2% Q3 2023 Revenue Breakdown by Region | Region | Q3'23 Revenue (thousand USD) | Percentage of Total Revenue | | :--- | :--- | :--- | | Europe | $9,462 | 68% | | China | $4,155 | 30% | | United States | $331 | 2% | | Total | $13,948 | 100% | Project Pipeline & IPP Assets This section details the company's solar development and storage project pipelines, along with its IPP asset portfolio as of September 30, 2023 Solar Development Project Pipeline As of September 30, 2023, the company's total solar development project pipeline was 7,762 MW, comprising 2,894 MW in advanced stages and 4,868 MW in early stages, with Europe holding the largest share By Region Europe holds the largest share of the solar project pipeline, with 6,075 MW in total, followed by the United States with 1,603 MW Solar Project Pipeline by Region (as of Sep 30, 2023) | Region | Advanced Stage (MW) | Early Stage (MW) | Total (MW) | | :--- | :--- | :--- | :--- | | Europe | 1,503 | 4,572 | 6,075 | | United States | 1,307 | 296 | 1,603 | | China | 84 | - | 84 | | Total | 2,894 | 4,868 | 7,762 | By Country Spain and Germany represent significant portions of the solar project pipeline, with 2,814 MW and 1,558 MW respectively, across various development stages Solar Project Pipeline by Country (as of Sep 30, 2023) | Country | Advanced Stage (MW) | Early Stage (MW) | Total (MW) | | :--- | :--- | :--- | :--- | | Poland | 538 | - | 538 | | Hungary | 49 | - | 49 | | United Kingdom | 100 | - | 100 | | Spain | 135 | 2,679 | 2,814 | | Germany | 106 | 1,452 | 1,558 | | France | 107 | 44 | 151 | | Italy | 468 | 397 | 865 | | United States | 1,307 | 296 | 1,603 | | China | 84 | - | 84 | | Total | 2,894 | 4,868 | 7,762 | Solar Storage Project Pipeline As of September 30, 2023, the company's total solar storage project pipeline was 17,282 MWh, with 10,288 MWh in advanced stages and 6,994 MWh in early stages, led by Europe in advanced capacity By Region Europe leads in advanced-stage storage capacity with 6,440 MWh, contributing to a total regional pipeline of 10,398 MWh Solar Storage Project Pipeline by Region (as of Sep 30, 2023) | Region | Advanced Stage (MWh) | Early Stage (MWh) | Total (MWh) | | :--- | :--- | :--- | :--- | | Europe | 6,440 | 3,958 | 10,398 | | United States | 3,765 | 3,036 | 6,801 | | China | 83 | - | 83 | | Total | 10,288 | 6,994 | 17,282 | By Country Italy and Poland hold the largest advanced-stage storage capacities, with 2,708 MWh and 3,556 MWh respectively, contributing significantly to the overall pipeline Solar Storage Project Pipeline by Country (as of Sep 30, 2023) | Country | Advanced Stage (MWh) | Early Stage (MWh) | Total (MWh) | | :--- | :--- | :--- | :--- | | Poland | 3,556 | 1,200 | 4,756 | | Hungary | - | - | - | | United Kingdom | 170 | 190 | 360 | | Spain | - | 100 | 100 | | Germany | - | - | - | | France | 6 | - | 6 | | Italy | 2,708 | 2,468 | 5,176 | | United States | 3,765 | 3,036 | 6,801 | | China | 83 | - | 83 | | Total | 10,288 | 6,994 | 17,282 | IPP Asset Portfolio As of September 30, 2023, Emeren owns and operates 240 MW of IPP projects, with the majority located in China (156 MW), followed by Europe (60 MW) and the United States (24 MW) Operating Assets Capacity The company's operating IPP assets total 240 MW, with China's distributed generation (DG) projects representing the largest share Operating Assets Capacity (MW) as of Sep 30, 2023 | Region | Capacity (MW) | | :--- | :--- | | Europe | 60 | | United States | 24 | | China DG | 156 | | Total | 240 | Detailed Q3 2023 Financial Results This section provides an in-depth analysis of the company's revenue, gross margin, operating expenses, net income, cash flow, financial position, and share repurchase activities for the third quarter of 2023 Revenue and Gross Margin Analysis Third-quarter revenue was $13.9 million, a 42% year-over-year and 59% quarter-over-quarter decrease, primarily due to delays in the Hungarian project license, while gross margin significantly improved to 40.8% - Q3 revenue was $13.9 million, a 42% year-over-year and 59% quarter-over-quarter decrease, mainly due to the extended licensing approval process for the Hungary 53 MW NTP project[20] Revenue and Gross Margin | Metric | Q3 2023 | | :--- | :--- | | Revenue | $13.9 million | | Gross Profit | $5.7 million | | Gross Margin | 40.8% | - Gross margin was 40.8%, higher than Q2 2023's 37.4% and Q3 2022's 18.9%[20] Operating Expenses and Net Income Operating expenses increased to $9.6 million, driven by $4.5 million in asset impairment and write-offs and $1.3 million in expensed development costs, leading to a net loss of $9.4 million attributable to Emeren Group Ltd - Operating expenses were $9.6 million, increasing both year-over-year and quarter-over-quarter, primarily due to $4.5 million in asset impairment and write-offs and $1.3 million in expensed development costs[21] Net Income (Loss) | Metric | Q3 2023 | | :--- | :--- | | Net Loss Attributable to Emeren Group Ltd Common Shareholders | $9.4 million | | Diluted Net Loss per ADS | $0.17 | Cash Flow, Financial Position, and Share Buyback Q3 saw a $4.6 million cash outflow from operating activities, a $10.1 million cash inflow from investing activities, and a $6.7 million cash outflow from financing activities, with cash and cash equivalents totaling $59.2 million at quarter-end Q3 2023 Cash Flow | Activity Type | Amount (million USD) | | :--- | :--- | | Net Cash Used in Operating Activities | $4.6 | | Net Cash Provided by Investing Activities | $10.1 | | Net Cash Used in Financing Activities | $6.7 | Financial Position | Metric | As of Q3 2023 | | :--- | :--- | | Cash and Cash Equivalents | $59.2 million | | Debt-to-Asset Ratio | 9.93% | - Approximately $4 million in ADSs were repurchased this quarter, with approximately $11 million remaining authorized under the share repurchase program[22] Overall Conclusion Emeren Group Ltd expresses confidence in the future growth of the solar industry, emphasizing its solid strategy and strong track record, aiming to be a leading global solar and storage developer while continuously creating shareholder value - The company is optimistic about the coming quarters, driven by broad social and governmental support for renewable energy that will foster solar project growth[23] - With its expertise in solar project development, strong industry network, and robust balance sheet, the company is progressing towards becoming a leading global solar and storage developer[8] Appendix: Unaudited Consolidated Financial Statements This appendix presents the unaudited consolidated statements of operations, balance sheet, and cash flow for Emeren Group Ltd, providing a comprehensive view of the company's financial performance and position Unaudited Consolidated Statement of Operations The consolidated statement of operations shows net revenue of $13.948 million for Q3 2023, with a net loss of $9.017 million and a diluted net loss per ADS of $0.17 attributable to Emeren Group Ltd Unaudited Consolidated Statement of Operations (thousand USD, except per ADS data) | Metric | Sep 30, 2023 | Jun 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Net Revenue | $13,948 | $33,846 | $23,904 | | Cost of Revenue | ($8,263) | ($21,184) | ($19,388) | | Gross Profit | $5,685 | $12,662 | $4,516 | | Selling and Marketing Expenses | ($74) | ($127) | - | | General and Administrative Expenses | ($6,964) | ($5,329) | ($3,597) | | Other Operating Income/(Expenses) | ($2,606) | ($2,160) | $95 | | Total Operating Expenses | ($9,644) | ($7,616) | ($3,502) | | Operating Income/(Loss) | ($3,959) | $5,046 | $1,014 | | Interest Income/(Expense), Net | ($79) | $375 | ($1,009) | | Investment Income | $57 | $105 | $62 | | Foreign Exchange Gain/(Loss) | ($4,785) | $2,119 | ($391) | | Total Other Income/(Expenses), Net | ($4,807) | $2,599 | ($1,338) | | Income/(Loss) Before Income Taxes | ($8,766) | $7,645 | ($324) | | Income Tax Benefit/(Expense) | ($251) | $37 | ($171) | | Net Income/(Loss), After Tax | ($9,017) | $7,682 | ($495) | | Less: Net Income/(Loss) Attributable to Non-Controlling Interests | $373 | ($666) | $576 | | Net Income/(Loss) Attributable to Emeren Group Ltd | ($9,390) | $8,348 | ($1,071) | | Income/(Loss) per ADS Attributable to Emeren Group Ltd - Diluted | ($0.17) | $0.14 | ($0.02) | Unaudited Consolidated Balance Sheet As of September 30, 2023, the company's total assets were $454.4 million, a decrease from $477.7 million on June 30, 2023, with total liabilities at $93.751 million and total shareholders' equity at $360.7 million Unaudited Consolidated Balance Sheet (thousand USD) | Metric | Sep 30, 2023 | Jun 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and Cash Equivalents | $59,171 | $60,450 | $122,988 | | Short-Term Investments in Treasury Bills | $10,115 | $10,057 | - | | Accounts Receivable, Net | $19,187 | $25,511 | $36,033 | | Unbilled Accounts Receivable | $50,591 | $53,290 | $12,059 | | Project Assets, Current | $42,350 | $33,159 | $20,008 | | Total Current Assets | $213,530 | $229,123 | $211,729 | | Property, Plant and Equipment, Net | $151,813 | $155,094 | $161,846 | | Project Assets, Non-Current | $33,846 | $37,078 | $15,940 | | Total Assets | $454,428 | $477,688 | $464,164 | | Liabilities and Shareholders' Equity | | | | | Short-Term Borrowings | $1,015 | $750 | $394 | | Accounts Payable | $3,131 | $5,367 | $6,535 | | Customer Advances | $4,743 | $4,598 | $202 | | Total Current Liabilities | $39,539 | $41,831 | $33,964 | | Long-Term Borrowings | $21,734 | $22,742 | $20,816 | | Total Liabilities | $93,751 | $98,928 | $88,416 | | Total Equity Attributable to Emeren Group Ltd | $322,344 | $340,516 | $335,096 | | Total Shareholders' Equity | $360,677 | $378,760 | $375,748 | | Total Liabilities and Shareholders' Equity | $454,428 | $477,688 | $464,164 | Unaudited Consolidated Statement of Cash Flow In Q3 2023, net cash outflow from operating activities was $4.644 million, net cash inflow from investing activities was $10.118 million, and net cash outflow from financing activities was $6.71 million, with total cash, cash equivalents, and restricted cash at $59.181 million at quarter-end Unaudited Consolidated Statement of Cash Flow (thousand USD) | Metric | Sep 30, 2023 | Jun 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Net Cash Provided by/(Used in) Operating Activities | ($4,644) | ($2,353) | ($7,696) | | Net Cash Provided by/(Used in) Investing Activities | $10,118 | $116 | ($28,598) | | Net Cash Provided by/(Used in) Financing Activities | ($6,710) | $1,160 | ($45,784) | | Effect of Exchange Rate Changes | ($39) | ($5,204) | ($2,961) | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | ($1,275) | ($6,281) | ($85,039) | | Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | $60,456 | $66,737 | $208,032 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $59,181 | $60,456 | $122,993 | Appendix: Non-GAAP Financial Measures This appendix defines and provides the rationale for Emeren Group Ltd's use of non-GAAP financial measures, including a reconciliation of Adjusted EBITDA to GAAP net income Definition and Rationale Emeren Group Ltd utilizes non-GAAP financial measures like EBITDA and Adjusted EBITDA to supplement its GAAP financial statements, offering additional insights for investors to better understand management's financial and decision-making information - EBITDA is defined as net income before income tax expense, interest expense, depreciation, and amortization[27] - Adjusted EBITDA is defined as EBITDA adjusted for China electricity subsidy discounts, share-based compensation, impairment of long-lived assets, gain or loss on disposal of assets, and foreign exchange gain or loss[27] - Management uses these non-GAAP metrics to assess the profitability and efficiency of the business model and analyze the strengths of operations across different periods and over the long term[28] Adjusted EBITDA Reconciliation The reconciliation table shows that for Q3 2023, the company's net loss was $9.017 million, which, after adjustments for income tax, interest, depreciation, amortization, share-based compensation, asset impairment, and foreign exchange, resulted in an Adjusted EBITDA of negative $0.221 million Adjusted EBITDA Reconciliation (thousand USD) | Metric | Sep 30, 2023 | Jun 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Net Income (Loss) | ($9,017) | $7,682 | ($495) | | Income Tax Expense (Benefit) | $251 | ($37) | $171 | | Interest Expense (Income), Net | $79 | ($375) | $1,009 | | Depreciation and Amortization | $1,864 | $1,544 | $1,573 | | EBITDA | ($6,823) | $8,814 | $2,258 | | China Electricity Subsidy Discount | ($35) | $163 | - | | Share-Based Compensation | $391 | $407 | $8 | | Impairment of Long-Lived Assets | $1,325 | - | - | | Loss on Disposal of Property, Plant and Equipment | - | $2,128 | - | | Interest Income from China Electricity Subsidy Discount | $136 | ($87) | - | | Foreign Exchange Loss (Gain) | $4,785 | ($2,119) | $391 | | Adjusted EBITDA | ($221) | $9,306 | $2,657 |