Emeren Group Ltd (SOL) Earnings Call Transcript & Summary

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

Thank you, operator, and hello, everyone. Thank you for joining us today to discuss the fourth quarter and full year 2024 results. We released our shareholder letter after the market closed today, and it's available on our website at ir.emeren.com. We also provided a supplemental presentation that's posted on our IR 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. Enrico Bocchi, Executive Vice President of Europe. Yumin and Ke will provide an overview of our business performance and financial results, followed by a Q&A session, during which Enrico will also be available to answer questions. Before we continue, please turn to Slide 2. 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 Emeren 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 Emeren Group's filings with the SEC. Please do not place undue reliance on these forward-looking statements, which reflect Emeren Group's opinions only as of the date of this call. Emeren Group is not obliged to update you on any revisions to forward-looking statements. In addition, please note that all financial numbers discussed on this call are unaudited. Also, 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 Mr. Yumin Liu. Yumin, go ahead.

Thank you, Gary, and thank you, everyone, for joining today. Let me start with a brief overview of our Q4 and full year results before discussing our business outlook and key financial catalysts. After that, Ke will take you through a detailed breakdown of our financial performance and 2025 guidance. 2024 was a year of resilience and disciplined execution and strategic growth for Emeren. Despite currency headwinds and project sale delays, we successfully monetized renewable energy assets, expanded our energy storage footprint and generated positive free cash flow in Q4. Our IPP and DSA segments provided high margins and stable cash flows, while strategic project monetization strengthened our financial position. For the full year, we generated $92.1 million in revenue and $24.1 million in gross profit with a 26% gross margin. We reported an operating loss of $0.5 million, while noncash and unrealized foreign exchange loss resulted in a $12.5 million net loss attributed to Emeren Group. However, operating cash flow improved significantly towards breakeven, reaching negative $4.2 million compared to negative $23.4 million a year ago. And adjusted EBITDA rose to $6.9 million, demonstrating disciplined financial execution. Turning to Q4 specifically. We maintained strong financial discipline and cash flow generation, delivering $34.6 million in revenue and $4.8 million in gross profit with a solid 14% gross margin. While foreign exchange losses due to U.S. dollar strength impacting net income, our operating loss improved by 35% year-over-year in Q4, reflecting strong cost control. We also generated over $5 million in free cash flow in Q4, reinforcing our strong liquidity position. Our capital-light model and early-stage monetization strategy continue to support financial strength. We ended the year with $50 million in cash, up 40% sequentially, positioning us well for growth in 2025. With a strong pipeline, expanding energy storage initiatives and disciplined execution, we are positioned to scale profitably and drive long-term shareholder value. Turning to our key milestones in Q4. We successfully closed several strategic transactions, further solidifying our leadership in renewable energy monetization and energy storage across Europe, the U.S. and China. In Europe, we successfully completed the COD sale of our 17-megawatt solar project portfolio in Poland with 50 megawatts under a PPA, reinforcing our strong foothold in the region. We also expanded our energy storage footprint in Italy, executing a 462-megawatt DSA for battery energy storage system with Arpinge, further strengthening our leadership in the growing energy storage market. Additionally, we finalized the sale of 65 megawatts of solar projects in Germany to Trina through a mixed DSA/SPA structure, underscoring the strength of our development partnerships. In the United States, we made further progress in distributed generation by closing the COD sale of our 2.8-megawatt community solar project to Altus Power, demonstrating our ability to capture opportunities in the U.S. community solar market. Meanwhile, in China, we advanced our energy storage strategy with the successful commissioning of 18-megawatt hour of BESS projects, which are now fully integrated into Huaneng Power International's Virtual Power Plant platform. This integration enhances grid stability and further strengthens our presence in China's evolving energy storage sector. These achievements highlight our ability to execute across multiple regions, efficiently monetize projects and expand our renewable energy portfolio while reinforcing contracted cash flow generation. Now turning to our core business segments. Our high-margin DSA model remains a key driver of stable revenue and early-stage project monetization. In 2024, we recognized $19 million in DSA revenue, primarily from Italy and Germany. As of year-end, we had DSA contracts with 9 partners covering 40 projects totaling over 2.8 gigawatts with approximately $84 million in contracted revenue expected to be realized over the next 2 to 3 years as well as more than $100 million in uncontracted revenue currently under negotiation. Meanwhile, our IPP segment played a crucial role in supporting stable cash flow, contributing 31% of the total revenue and 64% of the total gross profit. In Q4, we optimized our portfolio across Europe and China while further advancing energy storage integration to enhance long-term profitability. Complementing these efforts, our solar development business continued to generate strong monetization opportunities. In 2024, we successfully monetized about 200 megawatts of solar PV projects across Germany, France, Spain, Poland, China and the U.S., alongside 1.3 gigawatts of BESS projects. These achievements reinforce the strength of our capital-light development model and our ability to efficiently recycle capital for future growth. Looking ahead, we remain very confident in our ability to execute our growth strategy and drive profitability in 2025. While project sales timing delays impacted Q4 revenue recognition, these projects remain on track to close in the first half of 2025, reinforcing near-term revenue visibility. Key drivers for our 2025 financial outlook include, our strong contracted revenue base provides a solid foundation for future growth. We have $84 million in contracted DSA revenue with an additional $100 million under negotiation, strengthening long-term cash flow visibility and revenue stability. Overall, with 75% of our DSA pipeline concentrated in Europe, we are positioned to capitalize on demand growth across key markets. Building on this momentum, our high-margin DSA and IPP businesses continue to generate strong gross margin and predictable cash flows, supporting sustainable and profitable expansions. Additionally, our robust monetization pipeline positions us well to capitalize on growing market demand. With approximately 4.3 gigawatts advanced-stage storage pipeline and 2.4 gigawatts of solar PV projects, we have a clear path for long-term growth in key regions. Further strengthening our outlook, the opening of China merchant power market in 2025 presents a significant opportunity. Our BESS assets are strategically positioned to capture new revenue streams through energy arbitrage, reinforcing our leadership in energy storage and grid services. With that, let me turn the call over to our CFO, Ke Chen, to provide a more detailed breakdown of our financial performance and 2025 guidance. Ke?

Thank you, Yumin, and thanks, everyone, again for joining us on the call today. In Q4, we delivered $34.6 million in revenue, down 23% year-over-year primarily due to project delays pending government approvals. However, it surged 169% quarter-by-quarter, driven by successful project monetization. While timing delays in the U.S. and Europe impact Q4 revenue recognition, this project remains on track to close in the first half of 2025, providing strong near-term visibility. Gross profit was $4.8 million compared to $5.6 million in Q3 2024 and $5.1 million in Q4 2023. Gross margin was 13.9%, down from 43.8% in Q3 2024 but up from 11.3% in Q4 2023. The year-over-year improvement reflects the continued strength of our high-margin IPP and DSA business. Operating expenses were $9.2 million, up from $3.5 million in Q3 2024 but down from $11.8 million in Q4 2023. The annual decline was primarily due to reduced write-offs and the absence of asset impairment losses. Net loss attributed to Emeren Group Ltd. common shareholder was $0.8 million compared to net income of $4.8 million in Q3 2024 and a net loss of $2 million in Q4 2023. The increase in net loss was primarily due to nonoperational foreign exchange losses. Diluted net loss attributed to Emeren Group Ltd. common shareholder per ADS was $0.23 compared to diluted net income of $0.09 in Q3 2024 and diluted net loss of $0.04 in Q4 2023. From a cash flow perspective, we generated $10.4 million in operating cash flow and over $5 million in free cash flow, further enhancing our financial flexibility. Cash used in investing activity was $5 million, and the cash provided by financing activity was $2.8 million. We ended Q4 2024 with $50 million in cash and cash equivalents, up 40% sequentially from $35.8 million in Q3 2024, reinforcing our strong liquidity position. Our debt-to-asset ratio at the end of Q4 2024 was around 11.2% compared to 10.2% at the end of Q3 2024. The majority of our debt was nonrecourse project financing. In 2024, Europe contributed over 70% of our total revenue and China contributed 19%. Both generate positive operating cash flow. We are seeing a strong execution and steady growth in both regions. Turning to our 2025 outlook. We expect full year revenue to be in the range of $80 million to $100 million with a gross margin of 30% to 33%. IPP revenue is anticipated to be between $28 million and $30 million with around 50% gross margin. DSA is expected to contribute $35 million to $45 million in revenue. IPP and DSA contribute -- will be expected to contribute over 70% of total revenue in 2025. Additionally, we anticipate achieving positive operating cash flow in 2025. For the first half of 2025, we anticipate revenue in the range of $30 million to $35 million, with a gross margin of approximately 30% to 33%. With that, let's open up the call for any questions. Operator, please go ahead.

[Operator Instructions] First question comes from Philip Shen of ROTH Capital Partners.

I wanted to talk about the '25 guide. Specifically, can you share what the mix is between DSA revenue and IPP revenue and if there's any other revenue in the third bucket?

Phil, we just talked about this. IPP revenue will be between $28 million to $30 million in 2025, and we did mention gross margin will be around 50%. DSA revenue will roughly be between $35 million to $45 million. So added up, IPP and DSA contribute almost -- will contribute almost 70% of our revenue.

Great. Sorry, I missed that. And you talked about how there's another incremental $100 million of DSA revenue that you're negotiating now. Do you have a sense for what the geographic mix of that DSA revenue is? Is it also European-concentrated? And then does it have similar -- do you expect high margins for that incremental $100 million? And then when do you think you could start to close the bulk or majority of that $100 million? Is that in the coming months? Or do you think it might take most of '25 to secure the $100 million?

We target to close all of them within this year. And a couple of them are -- several of them are in the final stage to be closed within the next 2 to 3 months and more is coming as you see that we do have a very welcomed product pipeline on both solar and storage. We have built up the strong track record on the DSA position. And that is why that we are super confident on our 2025 guidance. Two reasons. One is, as Ke just mentioned that the 70% of the revenue and margin will be coming from the contracted IPP and DSAs. And another confidence is coming from the to-be-built DSA positions. And at least 5 to 6 contracts are being finalized and to be inked in the next 2 to 3 months, and more are coming.

Yes. Phil, in terms of breakdown, I think Europe will be around 70% and the U.S. will be 30%.

Great. Okay. And then can you talk about the types of counterparties for the $100 million that you're negotiating? Are there any repeat customers or partners? Or are they mostly new customers and counterparties?

I think it's about half are existing customers repeated and another half are the new customers.

Okay. That's good. And then for 2025, sorry if I missed this, but did you guys share what your cash generation or free cash flow outlook might be? If you haven't, perhaps you can give us some color.

Yes. We're certainly talking about we expect positive operating cash flow in 2025. So we ended in 2024 $50 million. So we truly believe we should have a higher cash at the end of 2025.

[Operator Instructions] We have a follow-up question from Philip Shen. Philip, did you have a follow-up question?

Yes. Can you guys hear me?

Yes.

Great. Okay. So let's talk about the delays. You've consistently had pretty -- a number of delays that unfortunately result in expectations or results that are weaker than expectations. So do you think -- the delays in Europe and the U.S. for government approvals and so forth, do you think we've seen the worst of it? Or do you think it could get worse from here? And if it's -- if we've seen the worst of it, how much could it improve? Do you expect to see improvements in '25? Or do we have to wait for '26?

This is a very good and interesting question. What we see here is that the -- for example, in Spain, we could not close the deals as of the government approval. Those 2 major transactions we could not close, none of them. And one of them, we already waited for 18 months, and we still have not got it. But there is a deadline. The government published deadlines for 12 months and additional 3 months, additional 3 months, and deadline is coming, and we see that is ending in less than 3 months. So that is one thing. I see that the European governments are moving faster as, for example, Spain, they have to have the strong supporting policies to support renewable energy, including storage. That's one example. Only uncertainty we could not foresee is in the U.S. But the good part is our DSA structure. Also, let me comment another one on European DSA structure. We normally split the DSA payments into 3 to 4 milestones or sometimes even 5 milestones. As we go through all the milestones in 2025, I mean this year, we do see the impact from the government approvals on the DSA milestones is very minimal. That's why we have the certainty or high confidence we will deliver in 2025. Interconnection approval delays in the U.S. is expected. But the most DSAs we are signing in the U.S., we are expecting only milestone 1 payments in 2025. Some expect milestone 2, which related to interconnection approval, and we are getting them and actually want to be signed within this month, next 2 weeks. So we see in the future maybe if the government in the U.S. slows down the process of approvals, that may impact our '27, '28 DSA milestone payments, but we don't see near-term impacts even in the U.S.

I want to add, in U.S., we also have this community solar segment, which we believe we are moving along despite the federal uncertainty. So community solar still get approved as normal. So we think those projects we are -- on our pipeline, we will see that execution in 2025.

Okay. So remind us for your U.S. projects, what percentage is community solar and then what percentage might be larger scale in the 100 to 200-plus megawatt level?

See, from megawatt size, as utility scale size is a lot bigger and the community solar size is a lot smaller, so it's hard to really make the monetary judgment or predict the financial results from the megawatt numbers as especially the margin on development fee for big deals will be normally in single digit, and community solar is several times or many times of that margin. So on the megawatt side, I would say the total utility scale and compared to community solar, I would say 80-20.

So 80% community solar...

80% utility and 20% community solar.

Sorry. Okay. Got it, so the inverse, 20% community solar. So what about for the utility-scale solar that's not community solar, do you have any AI or data center-type customers, hyperscaler-type customers that you are currently working with or that you plan to work with in the -- in future DSAs, for example?

We do have some assets in those hot data center spots, and we are building our internal expertise on data center power supply/data center power management. And on that part, we try to combine our -- where our developer head, which is we talk about we are literally a developer and start from a land developer. And then we are also a developer supplying power to our customers. These 2 together, literally, we are a natural fit to support the data center demand. So in the house, we are building that expertise, especially we are doing the analysis in detail to understand the data center demand and AI demand from the power supply point of view. That is also another point. We have several projects in those hotspots. That is also why some customers, they are looking at them and try to sign the DSA with us.

What percentage of the U.S. market is working with DSA frameworks? Do you think it's still very small?

It will not be small anymore. I will say that it quickly can go as big as 1/3 to 50% of our entire portfolio.

I mean, it's big for you, but I mean for the overall market, is it becoming more common for the rest of the market? Or is it more -- yes, go ahead.

I personally don't think so. The reason is, as a listing company, we have to provide numbers to the investors on a quarterly basis. So naturally, it's not really advantageous for us to wait for several years to really finally monetize. That is why in the last 18 months, we strategized the whole operation of the company and put up the DSA strategy across the board. And we are signing many DSAs, as we mentioned in this script, in the Europe, and we will be signing more. But as now, we see that the people are actively signing. But when the new market is coming, we see within the next 12 months, the market will be in favor of the renewable energy and battery storage, I think we don't need to sign DSAs anymore. That applies to many other developers, too.

Interesting. Maybe one more, and then I'll pass it on. As it relates to power prices, what is the base case? Maybe talk about the top 3 countries in Europe. What's the base case you have for those end markets? We hosted a webinar with WoodMac recently and the outlook for retail power prices in Europe in general was maybe a little bit of an increase in '25, but then maybe it's flat or down even for '26 and '27. And so do you expect power prices to remain kind of at current levels? Or do you see upside? Or what's your base case as you develop these projects and sell against them?

We have IPP operation or the COD solar assets in 2 countries now in Hungary and Poland, and we also definitely have in China. China is stable, the power price is stable. And Europe, we see the price remains to be very nice compared to before COVID or before the war, okay? But we do have noticed that in some countries like Spain, the price is going down in the last 12 to 18 months and goes down from as high as $0.08 to $0.09 or $0.08 to $0.09 per kilowatt hour to all the way to below $0.03. And even corporate PPAs only give you about $0.035 to $0.04. But in general, European market is a lot nicer than the U.S. market. The beauty of U.S. is we still enjoy the tax equity of the 30% or 40%, and that helps, while U.S. tariff, as you know, you know better maybe than I do, that we are looking at the $0.04, $0.05, even higher -- $0.04, $0.05 or even higher.

Phil, I just want to add, our Branston project in U.K. is under strong PPA still, is much higher than the current virgin price in U.K. So that's an advantage we have with this strong PPA with our Branston project.

Our next question comes from Sameer Joshi from H.C. Wainwright.

So the range for -- range of top line expectation for this year, the DSA seems to be like a wide range of $10 million from $35 million to $45 million. What are the -- like what will it make -- how will it be at the lower end versus the higher end? Are there projects -- big projects that you expect to materialize, and timing is an issue? Or are there some other things at play?

I think the range is because accounting, we have to really -- some of the projects, like we said, is DSA/SPA. So we have to treat this differently. It's SPA and DSA. So that's why there's big range. I believe that's the major reason. So it's mainly accounting category.

Okay. Understood. And then the pushout of the projects from this year into -- fourth quarter into next year -- or rather fourth quarter into the first half, do we know what the size of those projects was? Like if those had materialized, what would the revenue have been for the fourth quarter?

I think it's around $10 million in terms of...

Pretty big chunk. Okay. And then also like the outlook for gross margins. I think you mentioned the gross -- overall gross margins, the IPP gross margins, but I don't think guidance for DSA gross margins was provided. Is there a reason for that? And does it depend on project to project? Or how should we look at that DSA segment gross margin?

In general, as I also mentioned, you may understand our DSA milestone payment structure. In normal case that the milestone -- early milestone have lower margin and later milestone will be having a higher margin. For example, we normally try to book all our cost in the first 2 milestones. So the margin in the earlier payment or early years of the DSA will be lower. And that put our 2025 margin for the DSA for the new ones, newer ones lower. Do you see my point?

Got it. Yes, I understand.

We mentioned we have $84 million remaining DSA contracted revenue. We already recognized $19 million, and that $19 million we recognized in 2024 has a lot lower margin compared to the 35% to 45% we are building in 2025. I will say that at least half of the 35% to 45% margin expected in 2025 will generate higher margin and other half as they are newer or they are milestone 1 payment, that would be a lower margin.

Yes, yes. No, that was a good explanation. And one last one. I know Phil also asked about this, the $100 million that you are additionally negotiating, is there possibility of upside from those projects? Like if you sign those in the next few months, is there any possibility that your revenues for 2025 will be able to recognize some of those revenues? Or is it too early?

We learned the lessons in the last couple of years. We try to understand the market and also precisely make the predictions or guidance for our numbers. The DSA on the revenue and the pricing of the DSA, we are going to close, let's say, within Q2 this year, next 3 months, the price there, the revenue expectation is there for the milestone 1 payment, and those are covers about 5 to 6 DSAs to be signed. But the potential upside may come in the DSAs we are negotiating to be closed in Q3 or late Q2 or June, July, August time frame, okay? We do see possibility that that provides us upside as more DSAs will be coming as the $100 million expectation, if we successfully signed all $100 million, the milestone 1 payment will absolutely help the 2025 revenue. In the guidance, we only consider part of it, which literally speaking, the ones to be closed within the next 2 months.

Got it. Understood. And then just -- actually, this probably will be the last one. Is there a mix of BESS versus only PV that is -- that you're looking at maybe different -- in different geographies? Or how do you see the project mix in your pipeline?

It's a whole mixture. As you see that we presented earlier that we started our storage business our initiative over 2.5 years ago. And the point is almost every single country, we have storage assets. And PV, either big or small, normally big ones in the U.S. and in Europe, we try to sign DSAs. And smaller ones, we try to do it all the way to NTP and sell that with totally risk-free format and make higher margin.

Yes, I think that you will definitely see more storage from U.S. because we launched the first storage last year, and you will see more in U.S. But definitely, again, we have a strong pipeline both from solar and storage. And then you will see more from different country from Europe. We talk about Italy a lot, but you see we launched Germany, France. So you will definitely see more from different countries. And also, again, it's a good mix of solar and storage.

This concludes the Q&A session. I will now hand back to our CEO, Yumin.

Thank you, operator. The global transition to renewable energy continues to accelerate, creating strong tailwinds for solar and energy storage. With disciplined execution, a solid contracted revenue base and a growing presence in high-margin segments, we are well positioned for sustained growth. As we enter 2025, we remain focused on executing our strategy across DSA, IPP and energy storage, reinforcing our leadership in the sector. Backed by a strong financial foundation and a commitment to innovation, we are confident in our ability to seize new opportunities, drive long-term value creation and deliver meaningful returns for our shareholders. Thank you, operator.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.