ReneSola Ltd announced its unaudited financial results for the third quarter ended September 30, 2018.
Mr. Xianshou Li, ReneSola's Chief Executive Officer, commented, "We delivered another quarter of solid performance, as the effort to execute on ReneSola's transformation over the past twelve months continued to yield results. Revenue was once again at the high end of our expectations, and we meaningfully improved both gross and operating margins. Net income for the third quarter grew significantly, despite the sequential revenue decline of more than 30%, as anticipated. These strong results reflect our accelerating business momentum and improving earnings power."
Li continued, "Our overall solar power project pipeline remains solid at around 1.5GW, and we continue to be optimistic about our opportunities around the world. We believe that our talented team, diversified geographic coverage and track record of success at every stage of project development positions us for profitable growth in the years ahead."
Third Quarter 2018 Highlights
● Revenue was $18.8 million, toward the high end of the guidance range of $15 to $20 million;
● Key constituents of revenue:
- $5.5 million from the Project Development business, mainly from sales of community solar projects in Minnesota, United States and France;
- $3.3 million from EPC services for distributed generation projects in China
- $10.0 million from the sale of electricity
● Gross margin was 46%, compared to 30% in Q2 2018;
● Income before income tax and noncontrolling interests was $3.6 million, compared to $0.4 million in Q2 2018 and $4.0 million in Q3 2017;
● Connected 6.2MW of rooftop projects in China;
● Sold 13.9MW of community solar projects in Minnesota, United States and 6.7MW of projects in France;
● Solar power project pipeline of approximately 1.5GW, of which 783.3MW are late-stage projects.
Third Quarter 2018 Financial Results
Revenue was $18.8 million, compared to $27.8 million in Q2 2018 and $36.3 million in Q3 2017.
Revenue from the Project Development business was $5.5 million, due mainly to sales of 13.9MW of community solar projects in Minnesota, United States and 6.7MW of projects in France.
Revenue from the EPC business was $3.3 million due to EPC services for 3.7MW of distributed generation projects in China.
Revenue from the sale of electricity was $10.0 million. The Company generated 66.1 Million Kwh of electricity from its operating DG projects in China.
Gross profit was $8.6 million, compared to a gross profit of $8.2 million in Q2 2018 and $6.4 million in Q3 2017. Gross margin was 46%, compared to 30% in Q2 2018, mainly due to the seasonality of solar irradiation and better margins in the project development business.
Operating expenses were $2.9 million, up from $2.3 million in Q2 2018 and $2.5 million in Q3 2017. Sales and marketing expenses were $0.1 million, slightly down from $0.2 million in Q2 2018. General and administrative expenses were $2.6 million, slightly down from $2.7 million in Q2 2018.
Operating income was $5.7 million, down from $5.9 million in Q2 2018 and up from $3.8 million in Q3 2017. Operating margin was 30.4%, compared to 21.2% in Q2 2018.
Total non-operating expenses of $2.1 million included interest expenses of $2.6 million, interest income of $0.1 million and foreign exchange gains of $0.4 million, mainly driven by the appreciation of the Polish zloty against the Euro.
Income before income tax and noncontrolling interests was $3.6 million, compared to $0.4 million in Q2 2018 and $4.0 million in Q3 2017.
Net income was $3.6 million, compared to $0.4 million in Q2 2018 and $4.0 million in Q3 2017.
The Company had cash and cash equivalents of $8.1 million as of September 30, 2018, compared to $24.8 million as of June 30, 2018. The decline was mainly due to capital expenditures associated with construction activity for our projects in Poland and Hungary. Long-term borrowings were $73.3 million as of September 30, 2018, compared to $72.7 million as of June 30, 2018. The increase was mainly due to the project loan for Hungarian projects. Long-term failed sale-lease back and capital lease liabilities, associated with the financial leasing payables for rooftop projects in China, were $79.9 million as of September 30, 2018, compared to $85.0 million as of June 30, 2018.
Recent Business Updates
On November 8, 2018, ReneSola announced that it entered into a letter of intent (LOI) to sell its 55MW of solar projects in Poland to Chroma Impact Investment, a global investor in renewable energy that focuses on large-scale solar, B2B and storage projects. ReneSola's 55MW of Polish projects consists of 55 individual projects, each with a capacity of 1MW. These projects will sell power under Poland's Contract for Difference (CFD) regime and are eligible for a 15-year guaranteed tariff.
On September 11, 2018, ReneSola and Nautilus Solar Energy, LLC announced Nautilus's acquisition of a second 13.3MW community solar portfolio developed by ReneSola. Similar to the initial acquisition announced last year, this community solar portfolio also qualified under Xcel Energy's rapidly expanding community solar program in Minnesota.
Operating Assets and Completed Projects for Sale
The Company continues to pursue opportunities in small-scale projects in diversified regions and believes its strategy can capitalize on trends in solar energy development. ReneSola currently owns 232MW of operating rooftop projects, which are concentrated in a handful of eastern provinces in China with attractive development environments. As of September 30, 2018, the Company had approximately 132MW of projects under construction.
As of September 30, 2018, the Company had 14.0MW of completed projects, which are currently for sale.
As of September 30, 2018, the Company had a project pipeline of approximately 1.5GW, of which 783.3MW are late-stage projects. 131.8MW of the late-stage projects are under construction. Late-stage projects include (i) projects with the legal right to develop based on definitive agreements, including the projects held by project SPVs or joint-ventured project SPVs where control can be purchased by the Company once the late stage is reached, and (ii) projects for which a PPA or FiT has been arranged.
The following table sets forth the Company's late-stage project pipeline by location:
In the U.S, the Company has a late-stage pipeline of 347.0MW, 24.0MW of which are under construction and expected to be connected to the grid in the fourth quarter of 2018.
In Canada, the Company has a late-stage pipeline of 7.6MW projects, all under construction and expected to be connected to the grid by the end of 2018. All 7.6MW of projects are eligible for Canada's FiT3 Scheme.
In Poland, the Company has a late-stage pipeline of 41.0MW, which are all under construction. This pipeline is included in the package of projects intended to be sold to Chroma Investment.
In Hungary, the Company grew its late-stage pipeline to 71 "Micro PPs" projects with a total capacity of 42.6MW, all of which are under construction.
In France, the Company formed a strategic partnership with Green City Energy to jointly develop four solar parks with a total installed capacity of 69.0MW. Additionally, the Company was awarded solar projects in France with a combined capacity of 2.5MW in the last tender.
In India, the Company has a pipeline of 236.0MW, which are self-consumption or open access projects with top-rated commercial and industrial off-takers.
In Spain, the Company has a late-stage pipeline of 12.0MW of private PPA projects. In South Korea, the Company has secured a pipeline of 9.0MW.
For the fourth quarter of 2018, the Company's project business is expected to generate revenue in the range of $20 to $30 million and overall gross margin in the range of 20% to 25%.
Adoption of New Accounting Policy
Effective from January 1, 2018, ReneSola adopted the new revenue recognition policy, ASC 606 — Revenue from Contracts with Customers, using the modified retrospective method in accordance with US GAAP ("ASC 606"). As a result of adopting ASC 606, the Company recognized the cumulative effect of initially applying the revenue standard as an increase of approximately USD 0.9 million to the opening balances of retained earnings in the first quarter of 2018. There was no adjustment in the third quarter of 2018.