Q1 2020 Earnings Call
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Let me first thank you for taking the time joint clearly Energys first quarter earnings call.
Joining me this morning, as Chad Plotkin, our Chief financial Officer, as well as Craig Cornelius President and CEO of clearly energy group.
Craig will be available for the Q and a portion of our presentation.
Before we begin I'd like to quickly note that today's discussion will contain forward looking statements, which are based on assumptions that we believed to be reasonable as of the state.
Actual results may differ materially.
Please review the safe Harbor in todays presentation as well as the risk factors in our SEC filings.
In addition, we refer to both GAAP and non-GAAP financial measures.
For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures. Please refer today's presentation.
Turning to page four.
For the first quarter of 2020, we achieved CAFTA of $8 million inline with our internal expectations and full year guidance. The PGT contracts continue to perform as PGT works through their bankruptcy process and we're looking forward to their emergence.
As we await the resolution of the PG new process, we're holding our quarterly dividend flat with last quarter at 21 cents per share.
Regarding cobot 19.
First want to take a moment to thank all of our employees within the clear way team for their hard work and focus during this difficult time.
Well the effects of coal the 19 have been felt across the entire country. I am pleased that to date covance effects unclear, we have the minimal with our employees keeping safe and no material effect to operations are revenues.
Given our observations to date and due to the characteristics of the cleared away portfolio. We also currently see no reason for the pandemic to materially impact financial results in the future.
Ignoring operational matters second always effect financial results across our portfolio. Our conventional assets are backed by tolling agreements that are unaffected by an economic slowdown.
Exposure in our renewable portfolio is generally around economic curtailment, they may not reimbursable pursuant to terms of the PPS.
We have not experienced any economic curtailment today related to coven 19 projects subject to on Reimbursable economic curtailment represent approximately 2% of full year casting a relatively immaterial amount.
And the thermal platform our customer profile remains strong with some volume metric impacts the steam and cold water sales experienced in April. This amount is also not viewed as material for the entire enterprise I would only represent around 2% a full year Kathy that persisted every month for the course of a full year.
As I discussed earlier, clearly sees PG needs emerges from bankruptcy on track for June of 2020.
At the ended the first quarter clearly had $148 million of cash we would anticipate would be released in the second half of the year as PGT emerges from bankruptcy.
During the quarter real to sign binding agreements on our next dropdown transaction with clearly group to invest approximately $241 million of capital that when all assets are fully operational should active at approximately 23 million an annual five year average asset level, Kathy garnering a 9.5% asset level CAFTA yield.
C is well positioned to fund their capital commitment given the $148 million of cash restricted in PGT projects that should be available soon after PGS emergence from bankruptcy as well as our current revolver capacity.
As a result of these investments and future capital deployment, clearly is increasing its pro forma outlook to approximately $1.70 of CAFD per share a 5.6% increase from our outlook in February.
Turning to page five I want to discuss the economics of last dropdown transaction.
As illustrate at the top of the page. These transactions will require approximately $241 million of corporate capital numbers 23 million of asset level, Kathy on an average five year basis.
In addition to the $241 million clearly will also pay an additional 27 million in 2031 to clear way group as part of the portfolio financing.
The way group through a strong sponsor support has agreed to obtain a portion of its compensation 11 years from now in order to increase accretion for all see one shareholders, while still preserving for clearly energy a strong long term IR at P 50 results.
This portfolio is a strong mix of projects with a 13 year weighted average contract life and diversification outside of California.
This portfolio of wind projects includes the purchase of clearly groups residual interest in the will Dorado when elbow Creek assets, which are currently fully operational.
The currently under construction 144 megawatt Rattlesnake project with a long did 20 or PA and a repowering of the 55 megawatts cynical project.
The capital required and the associated captive this portfolio or provides under the assumption that the project will chief commercial operation in 2020.
The Rattlesnake wind project is an active construction and on track without any impacts experienced due to the covert 19 pandemic today.
The Pinnacle Repowering project is construction ready at this time, but may be delayed to 2021 out of an abundance of caution for site labor and feasible construction schedule considerations.
In the event Pinnacle's completed in 2021, the full pro forma casting and C. Five year CAFTA yield would be materially maintain as we've done the path. We provide an update to investors if any material variances of these estimates occur.
Page six provides an update to our captive per share growth outlook when factoring in the dropdown investments starting with our Twentytwenty guidance of 310 million our growth outlook was previously at $320 million or $1.61 of CAFD per share.
After accounting for these investments and illustrate a financing clearly analyses growth $1.70 of CAFD per share assuming 340 million of pro forma Kathy.
While capital is fungible as Chad will discuss shortly for purposes of this calculation. We have shown the equity requirement to these investments could be funded entirely by 148 million of PGT related trapped cash with the balance funded by corporate debt well in line with our target credit ratios.
This is a great outcome for clear way and we want to think are clearly grew colleagues for putting together a great transaction the significant growth in CAFD per share is a testament to the strength of the overall platform and ability to set the stage for future dividend growth.
With that I'll pass discussion over to chat jet.
Thank you, Chris turning to slide eight.
During the first quarter fairway Energy's diversified portfolio operated within expectations as reported adjusted EBITDA of $225 million and cash available for distribution, where cap D of $8 million were within the company sensitivity ranges.
As Chris mentioned, our employees and operating partners have navigated the cobot 19 pandemic exceptionally well with our projects continuing to operate both safely in real reliably.
During the quarter, where rate did not experience any material impact to its consolidated financial results due to Kobin 19.
We also do not anticipate future impacts from the pandemic to create a deviation outside of the company's normal full your sensitivity ranges as provided in the appendix section of today's presentation.
Given first quarter results were inline with expectations and the impacts from covert 19 are not expected to lead to material impacts during the year. Today. We are also reiterating full year financial guidance of $310 million and cash available for distribution.
As a reminder, financial guidance assumes the achievement of full year P 50 median renewable energy production.
Kathy guidance also includes the contribution from the projects impacted by the PGT bankruptcy, including unconsolidated affiliates that have not been able to distribute cash as a result of the technical event of default under the project credit agreements.
Despite the volatility in the capital markets during the quarter. We have also continue to focus on our growth objectives, including capital formation requirements for the company's investments.
Given our view of the company's perspective liquidity. We're pleased to say that are available resources are sufficient to meet our current committed growth investments and.
Including the $241 million needed for the latest Dropdowns.
First during the quarter, we enhanced overall liquidity by utilizing the county TM program.
As noted on the slide the company raised over $10 million at a weighted average price of $21.42 per share.
This represents an approximate 7.3% cap yield at current guidance foreign accretive level relative to recent growth investments.
Next because the projects and investments impacted by the PGT bankruptcy had been subject to project dividend restrictions since the beginning of last year, where we have not been able to accept the excess cash at these projects.
As of the ended the first quarter, we estimate this amount to be approximately $148 million.
Assuming this excess cash and allocated to the latest dropdown commitment of $241 million $93 million that remaining capital was still require.
While the company will generate excess cash in normal operations as noted on the slide clearly also has as of the ended the first quarter $253 million available under the revolving credit facility.
Providing temporary financing capacity to meet this remaining capital requirements.
With these available resources were way can be patient with accessing the capital markets and most importantly, we can do so while managing the corporate balance sheet.
Based on the company's committed growth investments in funding plans, we estimate that our pro forma corporate leverage ratio will continue to be within our ratings target at a 4.0 to 4.5 times range with that I will turn the call back to Chris for closing remarks.
Thanks, Chad.
Turning to page 10, as we move forward into Twentys, Lenny comma 19, as a new challenge that we are all facing and our number one goal is to keep employees have clearly safe and healthy while maintaining safe and reliable operations.
In terms of our financial commitments, we have reiterated or 2020, Kathy guidance with a first quarter numbers in line with expectations.
While also focusing on near term goals. We are also targeting growth in long term caf two for share with the recent agreement to purchase a portfolio assets from clearly group at attractive terms.
Clearly energy is constantly working with Cooley group to expand the ROFO pipeline as well as working with our thermal division to develop additional organic growth in our systems. This combined with third party M&A activity will allow clear way energy to continue its dividend growth goals into the future.
Finally, we look forward to the normalization of our dividend growth upon resolutions BG new bankruptcy expects in the summer 2020. Thank you operator, please open the lines for questions.
Thank you Sir.
I'd like to ask a question. During this time you continue to press Star one of your telephone keypad began to Taiwan and your telephone keypad quick question for two of your question its capacity.
Our first question, it's been Julien Dumoulin Smith from Bank of America Go ahead. Your question. Please.
Hey, good morning, Thanks for the time, guys keep a quick and high level here.
Theres been some degree of concerning the renewals space amongst.
With respect to supply chain on on the current year and impacts just to execute operationally I'd be curious on your reaction to that.
Across any wind solar et cetera, and then related we'd be curious on your thoughts with respect to financing markets.
And the status there in around.
Any financing into.
Looking at given wider spreads et cetera.
Theres been a unique investor focus there of late although it's less clear shall we say in terms of.
What the ramifications are for for you and others in terms of practical.
All in financing costs, given the low risk free rate.
Hi, Thanks, Julien So all kind of answer the second question first in terms of financing markets and then I'll, let Craig it's kind of address the supply chain question unless you're asked I think in terms of financing markets actually view them, a pretty constructively I think when cobot 19, first half and obviously as youre well aware the capital markets were very volatile we've seen kind of our bonds.
Come down pretty significantly in terms of yield Oliver trading north of par today. So I think from a debt perspective, we actually see things is pretty constructive.
On the equity side, obviously, theres a bit of volatility there depending on the situation during that Dave, but overall still there pretty constructive equity levels. So from a capital markets perspective in terms of financing both debt and equity seem to be in good position that being said as we talked a lot about on the call out really we view the trapped cash infusion.
He is our primary source of liquidity to help basically fund the acquisitions, we just talked about so just to make sure while the capital markets are conducive. We really are looking to that cash to help fund. The majority of those investments are Craig if you don't mind the supply chain question.
Sure.
Thanks for asking Joanne, Yes, I mean, I think what we're finding is that an environment like this one is one where.
In the enterprise with our relative scale and depth of experience.
Can outperform relative to some of our peers, what we've found so far.
Is that all of our major construction activities have been able to stay on track.
That's partly it.
Function of the fact that we.
We are pleased to remain the key priority for our suppliers and we've worked proactively with them to assure.
That the components, we require for our projects has gone through adaptive supply chain planning.
And our construction crews both are adequately protected.
But their activities had been tentatively planned.
And also because of the fact that we'd set our projects up.
In ways that we're cautiously planned in relation to see say key tax credit question.
So we've been able to come through this.
Really what projects remaining largely on track relative to what we'd expected.
With respect to capital formation for new projects that were developing.
I think that's also part of what you're asking about what we've seen is continued preference among.
The major project lenders.
Pre tax equity investors or major developers on whom they can rely to complete projects and to whom I think they can look to for substantial volumes of business in the future so while surely.
There is an increased level of focus on risk mitigation and transactions what we're finding is.
Basic quality that is.
Durable in the projects that are being developed in the reliability of a sponsor matter quite a lot in these markets and that that those things are reporting.
Excellent and if I could follow up very nicely on a more clearly specific question that mine.
With respect to dividend, obviously, we're getting very close here to ultimate resolution of the PGT bankruptcy.
Imminently would might argue.
How are you thinking about.
Jack tree in given growth baseline et cetera.
You talked about normalizing, but as you would be very clear about what that means sort of in the near term and in the longer term to be very clear about it.
Sure I think not eminent enough, but fair enough Joanne.
From Arpus are your and has spent a long time, so from our view of our payout ratio remains at 80, 85% in terms of our target with a long term dividend growth goals of 5% to 8% on a per share basis are the same that we talked about basically in September of 2018, so that really hasn't changed at all as we've stated previously depending on exactly when PG emerges from bankruptcy and the timing of the cash released thereafter.
Are there maybe a slope to how the dividend hits those metrics that we anticipate having that normalized dividend to then grow in the future for the second half of 2020, So I think our goals hasn't changed at all from what we explained back in September of 2018.
I think as we've talked about over the course of this year and a half the resumption of a normalized dividends would happen sometime in the back half of 2020 basically given exactly when the PGT cashes result.
Got it sort of nail you a little bit further on this.
Say, presumably if you're on course VPG bankruptcy resolution, usually conceivably get that by these late 20, and therefore by Fourq you be able to follow through your payout ratio guidance.
On a run rate basis as of that quarter, presumably not towards your amounts per se, but that seems to be would you say, yes made to answer your question Little differently. If you are saying would that happen in 2021 that answers now that happened in 2020.
Yes, Okay fair enough. Thank you.
Thank you. Our next question is from Colin Rusch Open hybrid go ahead. Your question. Please.
Thanks, So much guys just maybe another question for Craig as you guys look at opportunities for.
Building out the portfolio.
On that project and we're seeing some smaller developers that are running into.
Actual challenges can you talk a little bit about opportunity set clear way.
And the competitive dynamics her for acquiring some of that's broken projects and how you're still see yourselves position in that situation.
Sure.
So first I think we do expect.
That opportunity set to emerge we've organized our controlled pipeline to create room for us to manage.
Okay completion incremental project activity in 2021, when we'd expect.
But the principal cod vintage for some of that disruption to be available.
And as you could imagine have sort of active in growing dialogue with.
The tier of developer who would benefit from a company that has our wherewithal I think the principal factors that.
That in order to the benefit of a company like ourselves R&D ability to bring.
Harbor equipment for multiple safe Harbor vintages tick there.
For wind projects and solar projects, both and we've got a multi gigawatt safe Harbor program that allows us to do that.
The ability to a range project financing for projects, which.
He is becoming more challenging for more thinly capitalized developers.
And the ability to complete revenue contracting processes in short order to the extent that developers have it yet organized revenue contracts for projects that they intend to build during the next 24 months and were seeing opportunities that kind of check those boxes right now.
Including projects that folks had hoped to build this year, but more likely now we'll need to move to next year.
You know, reaching a conclusion that that is a choice. The developer has to make takes a little while.
But based on our experience in similar situations of disruption over the last decade, I think we expect.
That to occurred during the latter half of this year and and we look forward to transacting on opportunities as they present themselves.
Okay. That's super helpful. And then then thinking around.
Distributed generation and potential changes and usage patterns.
How far down the line are you guys in terms of understanding what some of those usage patterns might look like.
A more detailed way it and how it's some of the opportunities might emerge in terms of either acquiring additional portfolios are actually bidding on projects or new sets are projects to meet some of the more localized.
Great.
Yes.
Chris do you want me to take that first yes.
Okay.
Well I.
I guess a couple observation so within our operating fleet today, there's sort of too.
Right suppose three families of distributed generation assets. The first is.
The remaining residential solar portfolio.
Assets owned by cleaner energy, Inc., which NRG originally put together.
Second and more substantially.
Yes, onsite behind the meter distributed generation projects, which serve as commercial industrial customers and then third.
Virtual metered community solar projects, which are sort of.
So call it decentralized utility scale power plants, which so two to customers.
That are municipalities are are seeing that customers are residential customers.
In in any case, a really all three.
They historically have been size to account for for you know substantially less than 100% of the total load for those customers. So.
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We haven't seen really in the case of any materiality.
Situation, where projects on the burn being able to produce and sell all the power they can make.
And you know as we look ahead I think what we're finding is that.
For a lot of the commercial industrial customers that have been driving growth of renewables, including for some of those asset classes.
Their commitments to sustainability purchasing.
Remain as strong as ever and.
And the value proposition, we're able to make up to them from.
The projects that were principally developing today, which are large scale projects or community solar projects is as good as ever so.
Our disclosures noted the Gigawatts worth of.
Projects, where we have active awards or shortlisted offerings, and what we're finding for customers in the in that commercial industrial segment, I think you're really asking about is that.
They.
They they are are very bullish on continuing to procure and I think we find ourselves that's position we've concluded to deliver to them through.
The combination of large wholesale contracts and virtual that metered projects, which play to our stuff.
Yeah.
Because actually Super helpful guys. Thanks, so much.
Our next question is from David Fishman of Goldman Sachs. Your line.
Hi, good morning.
Just.
Quick clarification on the impact on.
And it only on the small pinnacle or potential delay on small clinical and.
Irene.
Just from our standpoint, when we think about how you structure the contract are the economics.
Intended to remain intact, even if theres delay so we might see a shift in the timing of the deferred payment or something like that or should we think if this is just a one quarter delay or something like that largely the same.
I think they would largely be the same or it might be like a 10th of a point difference in coffee or something like that but I think if there was something material, how we'd obviously update everyone, but I think to the point, we don't really anticipate significant shift and economics, if one at all.
Okay.
And then on the 241 million financing illustration, just so we know right now it's showing the first quarter 2020, PCG cash and the remainder of being financed with 5% debt and is that.
Roughly kind of the cash first step mix, you're thinking of or would you show. If you have more cash on the next quarter higher amount of pro forma because of less interest expense.
Overall, yes, I mean monies fungible to be fair to your question it depends exactly what order. It gets the scores from the various project financings, but as a generalization you're correct.
Okay.
And then.
Is there a normal level of cash that we should think about so actually the PCG.
And you see is resolved you get your restricted cash you have your current cash balances.
What do you think about isn't normal kind of operating level of cash that you want to have on and just so we can think about maybe what your excess capital might be to be deployed for other growth investments.
Challenger just that yes sure.
Obviously, we know there's a seasonality in our business where.
Our cash balances will move I think maybe David the best way to think about it on a normalized basis is if you. If you just wanted to be simple and impute, a payout ratio and we think about a payout ratio relative to cap the effectively that would impede your delta as to what we would assume is available cash in any given year.
Sure. So if you're if you looked at guidance this year of 310 million a cap the assuming you hit all your expectations.
You would say, okay, we're going to have 20% of that should be available in any given year. If you had an 80% payout ratio. So I got the cleanest way to think of available cash.
On any given year.
Okay. So it's more just think about at one might expect ratio thats going to be your incremental cash flow for allocation I think that is the best way to think about yep. Okay. And then just two more quick ones.
Any update on the black start at Marsh lending.
On the potential timing when that might occur.
Or anything out there.
Sure I think we're still working through that process.
Given the filing that we have at FERC.
So all sort of leave it there.
Obviously, our goal is to be able to move forward on a project that works for all stakeholders.
But we're earnestly working through that with US we'll leave it at that and I think given the size of the capital there David I wouldn't suggest that that number is going to be Viking material impact the overall results.
So, but it certainly is a our high quality project that does a lot to enhance the underlying asset that we have.
So we're certainly eager to move it forward, but we're working judiciously to make sure. It works for all the stakeholders.
Okay.
And then last one for me it looks like in the slide deck. The LNR forward wind C or D was pulled forward to 2020.
Just assuming you do have any excess cash is it fair for us to think that you might have appetite for incremental.
Projects during 2020 beyond the binding agreement.
Just to be clear, we always have that yeah. This is where we intend to stop so we always have appetite for projects. So I think your question. We're always looking at projects like that Orbio third party M&A inorganic thermal growth as well.
Yes is the simple answer your question.
Okay, great. Thanks.
Appreciate the time.
Sure.
As a reminder, if you would like to ask the question. If it seems please press star one on your telephone keypad.
Ask your question you could simply press star one of your telephone Keypad next question from their guess itself Brown Evercore ISI. Your line is.
Good morning, guys. Thanks for taking my question.
I actually just one quickly for me some of your utility energy peers have talked about.
Slowdown in renewal activity, specifically indexes. So just wanted to see if you hearing that and in sort of any color anyways I should we think about your development land and if you are seeing slowdown from your from your customers you kind of think about your development plan going forward.
Sure.
Craig wants to take that please.
Sure.
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Yeah, we think what's happening in Texas is actually healthy so for our part we have.
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Substantial project volume that is reflected in the 4.9 gigawatts of advanced intermediate and construction stage projects in our disclosures, which are in Texas, which.
By virtue of our history, as an enterprise, including being within NRG as isn't isn't a placement strength for us.
So we have both.
Solar and wind project.
In a meaningful scale amongst the largest than the state that remain on track for advancement that has been contracted with high quality customers.
And which we are advancing.
For construction over the course of the next two years.
And you know are at the same time glad to see that.
Some of the longer tailed of smaller and.
Less well capitalized developers.
Have needed to push project out in time.
Because it's been challenging for them to organize supply chain for those projects or.
To deliver a comparable value proposition to customers.
For the demand that there that there is out there so why.
We see starting to happen, which I think is a good thing.
Is.
Changes on the project supply side that you know appear to.
To indicate that there should be some reduction in expectations for total new wind and solar construction volumes over the next couple of years, which are ultimately I think favorable for.
The overall health of the Texas market and on and we're still in a position to be able to provide a really attractive economic proposition for the customers that were looking to service their new projects that were developing and.
And I think our further hopeful that some of the other changes that are on going in Texas will mean.
That we're able to find new levels of cost efficiency within the renewables industry as we build projects there during the next few years.
Got it that's all I had guys. Thanks, so much.
Thank you.
Thank you no longer has a question in queue I would like to turn the call back to create settles.
So thanks.
You want to thank everyone for taking the time than ever want to remain tape out there. So I look forward to talking next quarter pickup.
This concludes today's conference call. Thank you all for attending that you may now disconnect.
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