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Hello, ladies and gentlemen. Thank you for standing by for Emeren’s Group Limited Third Quarter 2023 Earnings Conference Call. Please note we are recording today's conference call. I will now turn the call over to Mr. Yujia

Thanks, operator, and hello, everyone. Thank you for joining us today to discuss our third quarter of 2023 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; and Mr. Ke Chen, Chief Financial Officer. Before we continue, please turn to slide two. Let me remind you that remarks made during this call may include predictions, estimates, and 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 of differ materials. Those risks are described under risk factors and elsewhere in Emeren Group's filings with 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 obligated to update you on any revisions to these forward-looking statements. 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?

Thank you, Yujia. Thank you everyone for joining our call today. I will start by giving you a big picture look at how we perform in the third quarter of 2023. Then I'll delve into our project pipeline and our guidance. Following that, Ke will provide a detailed rundown of our financial results for Q3. We closed Q3 with revenue of $13.9 million, gross margin of 40.8%, and net loss of $9.4 million. Our revenue was below our guidance, mainly due to the timing of our final government approval for our 53 megawatt solar NTP product portfolio in Hungary. We expected to receive the approval based on the government official processing timeline before mid-August. Had we received approval within their standard timeline? Our revenue would have been near the low-end of our guidance range. The good news is that we received government approval yesterday on November 20, 2023, and we will recognize the revenue in Q4. Our Q3 results were further impacted by several one-time non-cash expenses. First, we recorded a $4.8 million foreign exchange loss as a result of a strong dollar. Second, we recorded a $4.5 million one-time expense from impairment and write-off of assets of several pending projects as a result of permitting challenges. In addition, we expensed $1.3 million of development costs related to our pretier projects that previously would have been capitalized under our old tiering system. Excluding these items, our bottom line performance would have been breakeven. Of our $13.9 million revenue for the quarter, we continued to benefit from our IPP assets, particularly our U.K. 50 megawatt Branston project and our China 156 megawatt portfolio of rooftop solar assets, which combined, generated $9.4 million revenue in the quarter with strong margins. All over in Q3, we successfully completed the grid connection of our first solar storage project in Ningbo,

Thank you, Yumin, and thanks everyone for joining us on the call today. I will now go over our financial results for the third quarter. Our revenue of $13.9 million decreased 42% year over year from Q3 2022 and 59% sequentially from Q2 2023. The lower-than-guided revenue was primarily due to extended permit approval process for a 53 megawatt NTP project in Hungary, which was elaborated by Yumin earlier. Gross profit was $5.7 million, compared to $12.7 million in Q2 2023 and $4.5 million in Q3 2022. Gross margin was 40.8%, above the high end of our guidance, recording a gross margin of 37.4% in Q2 2023 and 18.9% in Q3 2022. Operating expenses were $9.6 million, up from $7.6 million in Q2 2023 and up from $3.5 million in Q3 2022. The year-over-year increase primarily from $4.5 million of onetime expense from impairment and write-off of assets of several pending projects as a result of permitting challenges. In addition, we expensed $1.3 million of development costs related to our pre-tier projects that previously would have been capitalized under our old tiering system. Net loss attributable to Emeren Group Ltd's common shareholders was $9.4 million, compared to net income of $8.3 million in Q2 2023 and net loss of $1.1 million in Q3 2022. Diluted net loss attributable to Emeren Group Ltd's common shareholders per American Depositary Share, or ADS, was $0.17, compared to diluted net income of $0.14 in Q2 2023 and diluted net loss of $0.02 in Q3 2022. Turning to our cash flow statement. Cash used in operating activities was $4.6 million; cash provided by investing activities was $10.1 million; and cash used in financing activities was $6.7 million. In terms of cash position, cash and cash equivalents at the end of Q3 2023 were $59.2 million compared to $60.5 million in Q2 2023. Net asset value, or NAV, is approximately $5.77 per ADS. Our debt-to-asset ratio at the end of Q3 2023 was about 9.9% compared to 10.1% in Q2 2023. Furthermore, during the third quarter, we purchased approximately $4 million ADS and plan to continue to execute on the share buyback program, which has approximately $11 million remaining in authorization. With that, we would like to open up the call for any questions. Operator, please go ahead.

Thank you. We will now conduct a Q&A session. [Operator Instructions] Our first question comes from Philip Shen from ROTH MKM.

On the impairment, you had $4.5 million of a one-time expense due to our permitting challenges. Can you quantify the megawatts or gigawatts impacted? And also talk us through which continent was that driven by? More U.S. or Europe? And then also on a go-forward basis, do you think there could be more impairments as we look into Q4 and through 2024. Thanks.

Again, for the impairment, majority of those from U.S. and the write-off of the impairment about 200 megawatts, the utility projects. And at this point, we don't expect any more write-off in Q4.

Okay, thanks. What about 24? Do you think there is greater risk of permitting challenges in ‘24? And what do you attribute these challenges to? Like what were the circumstances that caused these permits to become impaired? Thanks.

I think in general we look very positively in 2024. At this time, not only internally we tightened up the tier system. That is why we did a write-off and also the review in good quality of our whole pipeline. But also we do expect the tailwind from the policy front and from the execution by the team will be stretched in 2024 across the board in both U.S., Europe, and even China.

Okay, got it. Thanks. Is there any way you can give us a little bit of color on what to expect for Q1 and Q2 next year? I know you haven't provided any official guidance, but just from a qualitative standpoint on a year-over-year basis, I got to think Q1 ‘24 is meaningfully higher. Do you think it's -- do we stay at -- is there some seasonality in Q1, so it's a little bit lower, but then Q2 kind of bumps back up. How should we think about the cadence for 2024? Thanks.

Yes, we have not given any 2024 guidance, but we believe Q1 2024 will very strong because of timing of closing this project being pushed up in the first quarter. So at this moment, we're very positive about Q1.

Let me add a little down. Normally Q1 is a slow quarter in the whole four quarters of the year. But as we are pushing conservatively, although we are still working on those closings now, but we expect the -- at least three closings will be pushed from Q4 this year to Q1 next year. That is why instead of a slow quarter in Q1, we expect a very strong quarter in Q1.

Great, okay and then, you know, if you were to look at some of the history do you think very strong is similar to Q2 or do you think it's not that strong? Q2 of ’22?

It will be like Q2, yes.

Q2 of ‘23, okay, awesome guys. Shifting to Europe PPAs there what's the outlook? Do you expect on a go-forward basis to have a little bit less pricing power, more pricing power? You know, we've seen some pullback, but the price is still relatively elevated. So as we get through ‘24, do you think there's risk that pricing power in Europe becomes weaker or stronger? Thanks.

We still see the off-take price remains to be very strong, especially in comparing the same numbers back to three or four years ago. As we know that the CapEx is going down to the level even more competitive than three, four years ago, while the off-take price is compared to three, four years ago even higher. So that gives us a better evaluation of our projects. That's why we feel strong and more positive for the performance of 2024.

Great. And as you think about your 2024 volume, I know there's no guidance, but conceptually, think about your view of ‘24 today versus your view of 2024 two months ago. Is the view incrementally little bit worse or incrementally better or about the same?

In general, it would be a lot better. Not only because we push…

And what's driving that?

Not only because that we will push like three or even four closings from Q4 to Q1 next year. But also we see the speed of execution not only by the team, but also by all level of the governments in Europe and U.S. is picking up.

And, Phil if you look at a pipeline of storage, we started monetizing this year in 2023, but we will see big increase in 2024, so that's where our focus is.

Great. Thanks for taking all the questions. I'll pass it on.

Thank you.

Thank you, Phil.

Next we have Pavel Molchanov from Raymond James & Associates. Please go ahead.

Yes, thanks for taking the question.

Hey, Pavel. I think we lost you.

The global financial crisis. I'm curious if you are observing the same level of savings in your input costs, modules, inverters, batteries. How is that shaping on both sides of the Atlantic?

I think I missed the first part of your question, but I understand your question really is about how the CapEx cut or decrease of the CapEx will impact our operation. Is that the case?

Yes, exactly right. Just thinking about the declines in equipment cost?

Okay, as we do have noticed that the CapEx is going down to the level about three, four years ago or even lower. The cost of our module price about 20%, 30% lower than three years ago. So that absolutely helped from our side as we are taking significantly EPC activities in Poland and Hungary right now. As the -- based on our original forecast, we are looking at a module price at least 20% higher than what we pay today. This is very good. Another one is that we do see on global basis, the oversupply of old supply chain is helping us not only cutting the CapEx, but also solidify the expectation from the investors. As we see the value of our product pipeline with the core of our company is going up as of the lower CapEx. Well, as I mentioned earlier, answering Phil's question, not only in Europe, but also U.S., we see the offtake power price is higher even than three, four years ago. That gave us the confidence that our valuation of the portfolio is not only there, but also is going up. The key now is for us, not only the management and the whole team of Emeren is to execute and continue our development activities across the board.

Pavel, I just want to add we are very strong in Poland and the Hungary market. If you look at the merchant price of those two countries today, they're still over EUR100 per megawatt hour. So it's very favorable for us to do party development in those countries.

That's helpful. Let me also ask about your IPP activities. Over the past year, you've kind of clearly diversified your IPP footprint away from China $9 million quarterly revenue in both of the past two quarters. Should we look at that as a steady state for 2024 or will you continue to add assets into your IPP asset base?

Yes the -- our IPP strategy, although we call that light IPP strategy, literally allows us to gain this stable level cash flow. From our IPP projects, across the board, close to about 240 megawatts. And on top of that, if you look at the revenue or the profit from our assets, I will say our IPP only stands for about 30% to 40% of the total. while our NTP and our RTB product sale represent a major portion of our revenue expectation. That's another 40 some percent. And one signing part of the company really goes to storage, which we believe starting 2024, our revenue and income, conservatively 15% to 20% will come from storage, and that one will continue to grow significantly. Hopefully, it can be doubled in '25 or continue going up in the following years.

Got it. Electricity prices have obviously come down substantially in Europe since the PPAs that you were signing 12-months ago. If you were to sign incremental PPAs in places like Poland or Germany over the next several months, would those be attractive economics from a multiyear standpoint?

It is a balanced act that from financing perspective we like to sign up long-term PPAs. But long-term PPA price is not very attractive to us at this time. Short-term PPA price, one to two year PPA price is still pretty high. As Ke just mentioned that across the board in Europe, we see around EUR100 per megawatt hours, okay. That is a very attractive price, which is about 20% to 30% higher, compared to three to four years ago. And if we want to sign up in the countries, as you mentioned, or in the countries we are active pursuing projects or IPP assets, I'm looking at higher than $100 per megawatt hours. That is what I'm talking about, as high as EUR100, EUR120, EUR130 if I want to sign one to two year contract. But at this time, we don't have any concern on that front as we are combining our operating profile from not only the NTP, RTB sale, but also our light IPP strategy. So going forward, we'll combine a shorter-term IPP PPA strategy combined with an expectation of a long term in terms of helping on the financing side.

Pavel, just a reminder, our Branston project in U.K., we have signed four years PPA over GBP150 PPA price. So at this point, we don't need to looking for any short-term PPA right now.

Alright. Thanks very much.

Thank you, Pavel.

Thank you. Our next question comes from Donovan Schafer from Northland Capital Markets. Please go ahead.

Hey, guys. Thanks for taking the question. I first want to ask about the sale of the five battery storage projects to Matrix this quarter. Since in the release and the letter to shareholders today, you talk about how the RTB status of these projects has not been achieved and it's not expected until late 2024, so it's not NTP, not RTB at the time of the sale, but a point of sale much before that. So I was just wondering what kind of pricing do you get when it's a sale this early in the process. I think we've talked about $0.10 to $0.20 RTB. So if you're selling now, is this $0.05 a watt? Something less than that? Just trying to get my understanding here.

You know, Donovan, that I cannot really release the number for the sale, but it is in the structure of typical so called government Development Service Agreement, and we have the contract with Matrix. We are onboarding up to 1.5 gigawatt, not gigawatt hours, of projects within next, I would say, 12 to 18 months, and we have onboarded almost half of that portfolio. And that is the two announcements, as we talk about cumulative of 3.8 gigawatt hours, okay? We are continuing developing those projects all the way based on the milestones, achieving the final RTB status by late 2024, while in the process, for the next 12 months or so, we will be expecting milestone payments with the progress of the development of the projects.

Okay, that’s helpful. And then so -- on the same -- following along the same thread, you talked about being approached by other top tier renewable energy investment funds about doing something similar on more BESS projects. Is your expectation that anything there -- is some of the interest here coming from this unique structure doing development as a service, and so agreements with them would likely be in a similar type of an arrangement, or is this more just a unique case with Matrix and some of the other ones from Emeren legacy?

It's different. Definitely, we are considering the similar type of Matrix structure that's a DSA structure, and as we do have a big storage portfolio, as you see, by the end of Q3, we already accumulated over 10 gigawatt hours of advanced storage portfolio. And we have projects in all the major market in Europe and U.S. and China. And we do want to develop partnerships, including the DSA type of partnership or even possibly joint venture type of partnership with some major players in the market. And this are being worked out. We hope we can present you guys some good news in the next two, three months.

Okay, that’s helpful. And then again, I'm just digging further into this theme of these DSA agreements and what you've done with Matrix. How does that tie into your talking about a goal of monetizing 400 megawatt to 500 megawatt per year. Is the 400 megawatt to 500 megawatt goal starting in 2024, is that just in reference to solar project capacity, or does it include projects like these? And in that case, then, do you include it on a megawatt basis for 2023, or does it not get included till 2024 because you're getting this DSA revenue? Just trying to think of how to tie -- how these types of arrangements are tied together with the 400 megawatt to 500 megawatt goal per year?

Okay, it's a very good question. In fact, that our 400 megawatt to 500 megawatt goal or monetizing 400 megawatt to 500 megawatt does not include any storage. All the DSA, no matter in megawatt or megawatt hour counting, is not in this 400 megawatt to 500 megawatt counting. As -- go ahead.

And are the 400 megawatt to 500 megawatt, is that strictly project sales or will there be cases where you're counting megawatts, but it's including -- you're doing EPC services? Or is it more COD, more NTP because, of course, that can have a very big impact.

400 megawatt to 500 megawatt is mostly talking about our solar projects. Those are either the NTP/RTB sale or COD sale, or we put into our IPP portfolio, those with so called monetization. And those 400 megawatt to 500 megawatt will be from the 3.5 gigawatt portfolio we are building up. And storage, as I mentioned earlier, starting 2024, even won't be able to be conservative on the storage front it looks like it will contribute a minimum 15% to 20% of the top line, bottom line to the company. But that's not counted in this 400 megawatt to 500 megawatt monetization.

Okay. And then just real quick, I'll ask about for the buybacks. You did $4 million in this quarter. How are you thinking about buybacks going forward? Because on the one hand, we've talked before -- in the past before about how it's nice to have cash on the balance sheet when you're interfacing with grid companies or utilities and give yourselves that credibility that you're not a company that's here today, gone tomorrow, the healthy balance sheet on the one hand and then, of course, on the other hand, the stock price is so low right now versus your tangible book value. So that could make 1 argue for more buybacks. So I'm just curious if you can give any color of how you guys are thinking about things right now.

Yes, Donovan, we're very confident about our future, so we continue doing a buyback. So in Q4, until yesterday, we bought additional 700,000 shares, so we're very confident. Secondly, we're also very confident about our cash level going back up from Q3. We are again collecting cash payment in Q4. So our cash level should going back up at least double digit number here. And so we're confident we can do both.

And let me add some color on this one, Donovan. Let me add a couple of points on this one. That the starting Q4, not only we are seeking a very strong Q4 and even Q1 next year, but also we are looking at a very healthy balance sheet. That is cash flow positive -- operating cash flow positive will be achieved starting Q4, and going into Q1 next year. That is very -- we feel very comfortable by presenting those operating cash flow positive situation, plus a very healthy balance sheet, which will start collecting cash from old friends in the U.S. and Europe specifically in the next 5 to 6 months. And that will enrich our balance sheet all the way up from the current level.

Okay, that is very helpful. Okay, great. I appreciate all the color you guys. I’ll take the rest of my questions offline.

Thanks, Donovan.

Thank you.

Thank you. Next we have Amit Dayal from HCW. Please go ahead.

Hi, guys. Good afternoon. Thank you for taking my questions. So, just on this cash topic, guys, how much are you expecting to collect over the next two quarters in cash?

Again, we are expecting here at least $20 million to $40 million minimum.

Okay, alright. Thank you. And then just in relation to the guidance, you're saying three closings pushed out to 1Q '24. Does that amount to roughly the $30 million to $40 million that you were previously expecting to come through in Q4 '23?

Amit, please repeat your question about the revenue number again.

So the three closings for the fourth quarter that are pushed out to the first quarter '24, how much in dollars does that amount to? Is it $30 million to $40 million that was previously expected you were going to come in in the fourth quarter…

Yes, you're right. Yes.

Okay, so nothing has been lost, basically just pushed out.

You're right. We just push out this project closing in Q1.

And these are just -- I don't know if you already mentioned, these are all U.S. projects or European projects.

Yes, I would say half-half. Half from U.S., half from Europe.

Okay, thank you. And then with respect to the storage pipeline, it looks like it's going to be a big year for you in 2024. I know you're saying 15% to 20% of overall revenues. Is that based on attach rates to the projects you have in the pipeline that you expect to close on, or are these separate standalone storage opportunities for you guys?

Those are the standalone independent storage facilities, not including the hybrid solar power storage.

Okay. So there is potential upside, I guess, depending on what type of projects you close, to that number?

I will say yes. The growth of an independent storage portfolio is significant across the board.

Understood. And just -- maybe just a general comment on the industry. These pushouts and any slowdown that you may be seeing, obviously, some of it is related to the interest rate environment. How is the industry grappling with all of this? And do you think next year can be a period of smoother execution for you guys, just from a macro driver perspective, than what you saw in 2023?

I will say that it is the delay of the closing just based on the timing of the projects. For example, that in Europe at least two portfolios will be pushed. The team is still working on it and maybe luckily we can close by the end of the year. But that'll be a happy surprise. But conservatively it will be closed and confidently it will be closed in Q1 next year. And slow execution, I do not think that will be the case, although this year it is happening to almost all sectors. And we do have seen some slower execution from the investors. But we do have seen, as I mentioned earlier, the speed of old friends is picking up.

Amit, a last thing. I think you see this more credit given to the U.S. community solar, like the Treasury just give additional 10% ITC in October. So some of this pushout will help us in terms of profitability to closing next year.

Okay, so some of this pushout is also related to just some of the regulatory aspects of maybe getting more concrete, I guess, going forward.

Exactly. And also, Amit, I have to say that one of the closings in the U.S., we voluntarily decided to push that 1 to Q1 because we decided to change the structure of the sale. Instead of doing NTP sale, we are trying to do a COD sale. But to do COD sale, we have to do the EPC procurement and everything as we do want to benefit from the CapEx savings. So anyway, we do have foreseen that 2024, not only Q1, will be strong, but also the whole year of 2024 will be a good year for the company.

Okay. Thank you, guys. That’s all I have.

Thank you.