ReneSola Ltd (NYSE: SOL),
Third Quarter 2015 Highlights
- Sold 35.0 MW of projects, project pipeline at 515 MW
- Sequential revenue growth broad-based, with growth across all product lines
- Stable gross margin as mix shifts to project sales from equipment
- Operating expense control drives strong operating profit growth
- Net income attributable to holders of ordinary shares swings to profit
- Balance sheet improves during quarter with cash up, working capital and debt down
“Our strategic shift to project development, which we initiated approximately two years ago, is already starting to show results,” said Mr. Xianshou Li, ReneSola’s Chief Executive Officer. “Revenue surged sequentially as we monetized our projects in the UK and Japan, resulting in higher gross profit, operating income and earnings per ADS.”
Li continued, “We are making an intense effort to build a portfolio of high-quality projects in attractive jurisdictions. Our early success in the UK is indicative of what we can achieve around the world. We are focused on developing projects especially distributed generation projects in Europe, North America and Japan, that should yield attractive returns in the coming year.”
Third Quarter 2015 Financial Results
Revenue of $368.2 million was up 37.2% q/q and down 1.1% y/y. Revenue performance was broad-based, with sequential increases across all of the Company’s product lines.
Gross profit of $59.3 million was up 33.6% q/q and 3.9% y/y. Gross margin expanded to 16.1% when compared to the third quarter of 2014, but was down slightly sequentially.
Operating expenses of $47.9 million were 13.0% of revenue, slightly down from 13.1% in Q3 of 2014, but up from 12.6% in Q2 of 2015.
Operating income was $11.4 million, an increase of 8.9% q/q and 34.0% y/y.
Non-operating expenses of $2.6 million include net interest expense of $10.4 million, offset by foreign exchange gains of $5.7 million and gains on the repurchase of convertible bonds of $1.9 million.
Net income was $8.6 million, which compares to a net loss of $2.3 million in Q2 of 2015 and a net loss of $11.7 million in the prior-year period. Earnings per ADS were $0.08.
Balance Sheet, Liquidity and Capital Resources
The Company achieved meaningful progress in its effort to strengthen its balance sheet. Cash and equivalents, including restricted cash, increased during this quarter to $233 million, while total debt declined to $750 million. During the third quarter, the Company generated positive operating cash flow of $60.5million, which compares to $11.6 million of operating cash outflow in the prior quarter. The Company successfully accelerated inventory turnover days and held days-sales-outstanding of receivables flat at approximately 30 days. The cash generated enabled the Company to reduce accounts payable and debt. During the quarter the company repurchased$36.0 million notional amount of its convertible notes due on March 15, 2018 with a put option on March 15, 2016. The Company has approximately $26.1 million in convertible bonds outstanding.
Third Quarter 2015 Operating Highlights
Since disclosing its strategic shift to project development at the start of the year, the Company has focused its efforts on developing, operating and selling high-quality solar power projects. Activity is centered on building a pipeline of distributed generation and utility-scale projects in attractive geographies worldwide. In the third quarter the Company continued to execute on the monetization phase of the development cycle.
The Company recognized revenue of $64.6 million from the sale of solar power projects. The revenue was comprised of new sales in the quarter of two projects representing 35.0 MW of generating capacity. The sales generated gross margins above the Company average. Subsequent to the end of the quarter, the Company also announced the sale of another 16.5 MW utility scale project in the UK. In addition, the company expects to sell another project of 0.9MW in Japan in Q4 2015.
The Company owns and operates certain projects it has developed. Projects are kept as operating assets when the Company determines that the project can generate attractive rates of return in stable jurisdictions with positive long-term outlooks. The Company considers its operating projects to be economically attractive, because they produce a steady stream of high margin recurring revenue. The company now owns and operates four solar power-producing projects.
As of quarter end, the company had 515MW of projects in various stages of development. The geographic distribution of projects is outlined the table below.
75MW under construction
29MW under construction
During the quarter, the Company announced its United States development strategy, in which it formed a joint venture with Pristine Sun, LLC, and under the terms of the agreement, the Company will hold a majority equity interest in the joint venture. The joint venture, named Baynergy, intends to develop, build and operate over 88 MW of solar projects in the coming year.
Modules and Wafers
The Company continues to fully utilize its capacity and provide high quality products with lower cost to its selective customers by improving conversion efficiency and its supply chain management.
During the third quarter, total solar module shipments were 405.5 MW, representing an increase of 25.9% from Q2 2015. Total wafer shipments were 341.6MW, up 21.3% q/q and 69.4% y/y.
During the third quarter, the Company introduced several high-demand, project-focused LED products. The products enable both distributors and electrical contractors to achieve higher return-on-investment goals. During the quarter, ReneSola’s LED business reached revenue of $3.6 million and delivered gross margin of over 30%.
For Q4 2015, the Company expects revenue in the range of $275 to $295million and gross margin in the range of 17% to 18%. The revenue outlook reflects the redirection of OEM module production away from external sales and toward proprietary project development to pursue high profit. Based on the current development status of its pipeline, the Company intends to sell the 16.5 MW in UK which was already announced in October and the project of 0.9 MW in Japan as well.