Q3 2021 AES Corp Earnings Call
Yeah.
Hello, and welcome to the Aes.
Corporation third quarter 2021 final reveal my name is and I will be coordinating your call. Today. If you would like to ask a question in the presentation. You may do so by pressing one on your telephone keypad I will now hand over to your host Ahmed Pasha robotic threshold, Vice president of Investor Relations to begin.
Lee.
Go ahead.
Thank you operator, good morning, and welcome to our third quarter 2021 Financial review call. Our press release presentation and related financial information are available on our website at Aes Dot com today, we will be making forward looking statements. During the call. There are many factors that may cause future reserve.
To differ materially from these statements.
These are discussed in our most recent 10-K and 10-Q filed with the SEC.
Reconciliations between GAAP and non-GAAP financial measures can be found on our website along with the presentation.
Joining me. This morning are Andres <unk>, our president and Chief Executive Officer, Steve Hoffman, Our Chief Financial Officer, and other senior members of our management team with that I will turn the call over to Andres on this.
Okay.
Good morning, everyone and thank you for joining our third quarter financial review call.
Before discussing our progress since our last call.
Want to introduce our new Chief Financial Officer.
Feed cost.
Steve has been with a yes for 14 years and has served in a variety of roles include.
Including as CEO of affluent.
And most recently.
Head of both strategy and financial planning.
I am happy to report that we're making excellent progress on our strategic and financial goals.
And remain on track to deliver on our 7% to 9% annualized growth.
Adjusted EPS and parent free cash flow through 2025.
We had a strong third quarter with adjusted EPS of <unk> 50.
A 19% increase versus the same quarter last year.
We expect to deliver on our full year guidance.
Even with a seven cent noncash impact from an updated accounting interpretation related to the equity units will convert we issued earlier this year.
Steve will provide more details shortly.
Today, I will discuss both the growth in our core business as well as the <unk>.
Strategy and evolution of our innovation business called Aes next.
We see ourselves as the leading integrator of new technologies.
The two parts of our portfolio are mutually beneficial to one another.
And enable us to deliver greater total returns to our shareholders.
More specifically and as we have proven.
Our core business platforms provide the optimal environment for.
Exponentially growing technology startups.
At the same time, our Aes next businesses provide us with unique capabilities that enable us to offer customers the differentiated product.
<unk> to achieve their sustainability goals.
Turning to slide four.
I will provide you with an update on our core business.
Including our growth in renewables.
And an update on the overall macroeconomic environment.
Beginning with renewables.
We continue to see great momentum in demand overall as.
As we speak we have senior members of our team at <unk>.
Pending the Cop 26 climate conference in Glasgow.
Meeting with government organizations and potential customers.
Since our last call in August we have signed an additional one one gigawatts of renewable ppas.
Bringing our year to date total to four gigawatt.
Additionally, we are in very advanced discussions for another 850 megawatts of wind solar and energy storage.
Based on our current progress we now expect to sign at least five gigawatts this year.
Versus our prior expectations of four Gigawatts.
This represents the largest addition in our history.
And 66% more than in 2020.
With our pipeline of 38 gigawatts of potential projects.
Including 10 gigawatt that are ready to bid in the U S.
We are well positioned to capitalize on the substantial opportunity.
Our success is a result of our strategy.
Working with our clients on long term contracts that provide customized solutions.
Their specific energy and sustainability goals.
As such almost 90%.
Of our new business has been from bilateral negotiated contracts with corporate customers.
This allows us to compete on what we do best.
Providing differentiated innovative solutions.
One example of our work with major technology companies to provide competitively priced renewable energy netted on an hour by hour basis.
As we announced earlier this week, we signed a 15 year agreement to provide around the clock renewable energy to power Microsoft's data centers in Virginia.
Year to date, we have signed almost two gigawatts of similarly structured contracts.
With a number of tech companies.
Integrating and mix of renewable sources and energy storage.
Outside the U S. We have a similar strategy.
Focusing on bilateral sales with corporate customers.
Which has enabled us to sign long term U S dollar denominated contracts with investment grade customers.
For example in Brazil.
We see demand for more than 25 gigawatts of renewables.
Providing a significant opportunity to earn mid to high teen returns in U S dollars.
At the same time, diversifying our Brazilian portfolio, mostly hydro generation.
To that end.
For the first time ever in Brazil.
We are in very advanced negotiations.
To decide a 300 megawatt U S dollar denominated contract with a large multinational corporation for 15 years.
Turning to slide five.
Our backlog of 9.2 gigawatt is the largest ever.
With 60% in the U S.
These projects represent one of the main drivers for our growth through 2025 and beyond.
With this pace of growth, we were laser focused on ensuring that we have adequate and reliable supply chain.
For several years, we have anticipated a boom in renewable development that could potentially lead to inadequate panel supply.
And as such we took preemptive measures to ensure supply chain flexibility.
Despite current challenges in the market we.
We had non Chinese panels secured for the majority of our backlog, which is expected to come online through 2024.
We have benefited from a number of strategic relationships with various suppliers.
And a clear advantage stemming from our scale and visibility of our pipeline.
More generally we continue to proactively manage potential macroeconomic headwinds.
Including inflation and commodity prices.
As part of our efforts to Derisk, our portfolio over the past decade.
We are taking a systematic approach to risk management.
In fact in places, where we use fuel it is mostly a pass through and therefore, we have limited exposure to changes in commodity prices.
Furthermore, more than 80% of our adjusted pre tax contribution is in U S dollars.
Insulating us from fluctuations in foreign currencies.
We not only remain committed to achieving our long term adjusted EPS.
In fact parent free cash flow targets.
But we also continued to improve our credit metrics.
We're on track to achieve Triple B rating from all agencies by 2025.
Now to slide six we.
We continued to benefit from a virtuous cycle with our corporate customers.
And with our ability to provide innovative solutions.
Leads to more opportunities for collaboration and more projects.
For example.
This quarter, we announced a partnership with Google to provide our utility customers cost savings and energy efficiency features.
As well as opportunities to accelerate their own clean energy goals through nest thermostats.
Moving to slide seven.
<unk> next we integrate new technologies to bring innovation to the industry.
And work with existing and new customers.
Aes <unk> operate as a separate unit within a S, where we develop and incubate new businesses.
Including a combination of strategic investments and internally developed businesses reps.
Representing approximately $50 million of growth capital annually.
As I mentioned, the combination of Aes snacks, and our core business.
Creates the optimal environment for growth.
Whereby we can better create solutions for customers by utilizing our industry insight and operating platforms.
One example of this mutually beneficial arrangement is in the combinations of renewables plus storage.
We first combined solar and storage in 2018 in Hawaii.
And today nearly half of our renewable ppas have an energy storage component.
Another example is.
A prefabricated solar solutions company.
Has patented technology, allowing projects to be built in the third of the time.
And on half as much land.
Being resistant to Hurricane force winds.
We see <unk> technology as a source of current and future competitive advantage for it yet.
Allowing us to build more projects in places, where there is a land scarcity.
Constraints around height or soil disruption.
Or hurricane risk.
Likewise, <unk> benefits greatly from the ability to grow rapidly on our platform.
And we are currently developing projects in the U S. Puerto Rico.
Panama and India.
I am highlighting the next portion of our business because it is increasingly clear.
Yes, essentially has two distinct business model.
Add value to our shareholders in very different ways.
With our core business, we continue to measure our success through growth in adjusted EPS and parent free cash flow.
As well as PPA side.
With snakes these businesses contribute value creation through their extremely rapid growth in evaluation with the potential for future monetization.
Nonetheless, they are.
Are a drag on Aes as earnings.
During their ramp up phase.
In 2021 this drag on earnings is expected to be approximately <unk> <unk> per share.
We assume these losses from Aes snack and our 2021 guidance.
And our 729% annualized growth rate through 2025.
Turning to slide eight as you know well.
Last week Fluence, our energy storage joint venture with Caelum.
Which began as a small business within a S E T.
Came a publicly listed company with a current valuation of around 6 billion.
Similarly early this year.
Other Aes next business Uplight.
Received the evaluation in a private transaction of $1 5 billion.
The value of our interest in these two businesses is now at least $2 5 billion or.
Or $3 per share.
Compared to the book value of our investments of approximately $150 million.
In my view this massive shareholder value creation.
More than justifies the temporary negative impact to earnings.
In summary, our strategy of being the leading integrator of new technology on our platforms.
Yielded great results.
We have several other innovations in development under Aes next.
As they mature we will continue to take actions to accelerate their growth and so their value.
With that I will now turn the call over to our CFO Steve Calk.
Thank you Andres and good morning, everyone. It's my pleasure to participate in my first earnings call as CFO of it yes, I have been at Aes for 14 years and feel very fortunate to work at a company that is transforming the electric sector. So profoundly along so many talented people in finance and throughout the <unk>.
Company.
With our strategic and financial progress to date Aes is well positioned to continue leading this transformation.
In my previous role I led corporate strategy and financial planning, where we developed our plan to get to greater than 50% renewables at least 50% of our business in the U S and.
And to reduce our coal share to less than 10% by 2025.
All while growing the company, 7% to 9%.
We are committed to those goals and I look forward to continue executing toward them.
Before I dive into our financial performance I want to discuss the adjustments to our accounting that we made this quarter relating to the treatment of the $1 billion in equity units, we issued in the first quarter this year.
Our prior guidance assume that the underlying shares would not be included in our fully diluted share count until 2024 upon settlement of the equity units.
This approach was in line with industry practice and supported by our interpretation of the accounting literature and our external auditors.
We are now subject to an updated interpretation of these instruments and we were adjusting to include these shares in our fully diluted EPS calculations.
This adjustment resulted in an annual impact of roughly seven this year and nine in 2022 and 2023 using a full year of an additional 40 million shares.
It is important to keep in mind that this adjustment has no cash impact and has absolutely no impact on our business or longer term growth rates. As we had included the underlying shares in our projections for 2024 and beyond.
Prior to this adjustment we would expect it to be in the upper half of our 2021 adjusted EPS guidance range, but we now expect to be at the low end of the range.
Now I'd like to cover two important topics our performance during the third quarter and our capital allocation plan.
Turning to slide 11, you can see the strong performance of our portfolio in this quarter.
Adjusted EPS was <unk> 50 for the quarter versus <unk> 42 for the comparable quarter last year.
This 19% increase was primarily driven by improvements at our operating businesses, new renewables and parent interest savings.
These positive drivers were partially offset by lower contributions from South America, largely due to unscheduled outages in Chile.
Third quarter results also reflect an approximate <unk> quarter to date impact from the higher share count due to the inclusion of 40 million additional weighted average shares relating to the equity units as I just mentioned.
Turning to slide 12, adjusted pretax contribution or PTC was $428 million for the quarter.
An increase of $97 million versus third quarter of 2020.
I'll cover our results by strategic business unit over the next four slides beginning on slide 13.
In the U S and utilities SBU.
PTC increased $69 million as a result of our continued progress in growing our U S footprint.
The improvement was largely driven by higher contributions from south one which benefited from higher contracted prices.
Newark, New renewables coming online at Aes clean energy and higher availability at Aes, Puerto Rico.
In California, our two three gigawatt Southland legacy portfolio demonstrated its critical importance by continuing to meet the state's pressing energy needs and its transition to a more sustainable carbon free future.
In fact as you may have heard last month, the state water resource control Board unanimously approved an extension of our 876 megawatt Redondo Beach facility for two years through through 2023 to align with our remaining legacy units.
If the demand supply situation remains tight some of our legacy portfolio could be available to meet California's energy needs beyond 2023 is state energy officials determined a knee, although we have not assumed this in our guidance.
As you can see on slide 14.
At our South America, SBU, lower PTC was primarily driven by unscheduled outages in Chile due to a blade defect impacting six turbines across our fleet that has now largely been resolved.
Our third quarter results were also driven by lower hydrology in Brazil.
Before moving to MGIC I would like to provide an update on the 531 megawatt Alto <unk> Hydro project owned by a subsidiary of Aes <unk> in Chile.
Construction continues to go well and generation is expected to begin in December of this year with full commercial operation of the plant expected in the first half of 2022 in line with our expectations.
<unk> is in discussions with its nonrecourse lenders to restructure its debt to achieve a more sustainable and flexible capital structure for the long term.
A S. Andes has honored its equity commitments to alter my Po and will not be assuming any additional equity obligations we have.
Expect this restructuring to be completed in 2022.
And as Andy has already assumed zero cash flow from Alto <unk>. So we don't see the restructuring impacting our guidance.
Now turning back to our third quarter results on slide 15, the higher PTC at our NTIC SBU, primarily reflects higher LNG sales in Dominican Republic and demand recovery in Panama.
And finally in Eurasia as shown on slide 16 higher results reflect improved operating performance in Bulgaria.
Now to slide 17.
To summarize our performance in the first three quarters of the year, we earned adjusted EPS of $1 seven versus <unk> 96 last year.
As I mentioned earlier in terms of our full year guidance, we are incorporating a <unk> <unk> per share noncash impact from the adjustment for the equity units issued earlier this year.
Prior to this adjustment we would expect it to be in the upper half of our 2021 adjusted EPS guidance range, but we now expect to come in at the lower end of the range of $1 50 to $1 58.
It is important to note that this adjustment does not affect our longer term growth expectations and has no impact on our cash flow.
With three quarters of the year behind us our year to go results will benefit from contributions from new renewables.
Continued demand recovery across our markets reduced.
Reduced interest expense and our cost savings programs.
These positive drivers are offset by the impact of the higher share count and the dilution from our snacks as Andres discussed earlier.
Now turning to our 2021 parent capital allocation on slide 18.
Beginning on the left hand of the slide and consistent with our prior disclosure, we expect approximately $2 billion of discretionary cash this year.
We remain confident in our parent free cash flow target midpoint of $800 million and the $100 billion from the sale of a tableau.
And we received the $1 billion of proceeds from the equity units issued in March.
Moving over to the right hand side. The uses are largely unchanged from the last quarter with $450 million and returns to our shareholders. This year, consisting of our common share dividend and the coupon on the equity units.
We also continue to expect almost $1 $5 billion of investment in our subsidiaries with about 60% going towards renewables globally.
Our investment program continues to be heavily weighted to the U S with approximately 70% targeted for our U S businesses.
The increased focus on U S investments will contribute to our goal of growing the proportion of earnings from the U S to at least half of our base.
Finally, as I ramp up in my new role I've had the chance to speak with many of our internal and external stakeholders.
<unk> continues to successfully execute on our strategy and we remain resilient in the face of volatile macroeconomic conditions.
Continuing to drive the successful execution and delivering on our financial goals is my top priority.
I look forward to getting input from more of our investors and analysts and providing the information you need to understand the great future ahead for Aes.
With that I'll turn the call back over to Andreas.
Thank you Steve.
In summary, we have had a strong third quarter.
With both our core business and Aes next doing well.
We are increasing our target for science renewable ppas from four gigawatts to five gigawatts.
And fluid successfully completed 6 billion dollar IPO.
We remain committed to delivering on our strategic and financial goals.
Including our 7% to 9% annualized growth rate in earnings and cash flow.
And we will continue to create greater shareholder value.
<unk>, the leading integrator of new technologies.
With that.
I would like to open up the call to questions.
And Ken if you would like to ask a question. Please press the star followed by one on your telephone keypad now.
In your mind, please precious followed by tool when preparing a question. Please ensure your phone is on mute locally.
Our first question comes from breaches from Atlanta from JP Morgan. Please wait Chad Your line is now open.
Hi, Good morning, Thanks for taking my questions just wanted to start with the equity units change here.
Look to offset any of the <unk> impact to.
<unk> to 'twenty, two 'twenty, three and just thinking about the incremental positive after the analyst day. This year, so changed the higher renewable signings and will the gondola extension kind of how do you see all of that shaking out with the latest change here.
Well you know as you know we have a.
We're a portfolio.
And so we have you know plus.
Pluses and minuses overall, you know it's a portfolio that has shown its great resilience over the last two years.
So right now we're not ready to give guidance for next year.
But you know we're committed to the 7% to 9% growth rates in earnings and free cash flow. So you know we will be getting back to you on that but as you correctly pointed out you know there are positives and then we had the drag of the.
Additional shares and we will be working with that.
I'd say overall you know we feel we're in an excellent position, we had a very strong quarter and year to date.
You know one of the things I'd like to highlight is that we had a design malfunction in steam turbines in Chile.
And this required them to undergo maintenance at 50000 hours instead of 100000 hours and this happened during the worst drought in Chile's history. So you know we were short energy when energy prices were high.
But nonetheless, if it weren't for the accounting we would have been you know.
You know well within the mid or upper region of our earnings. So you know this is the way to our portfolio works. So I don't know, Steve you want to add something sure yeah, no. Thanks, Andreas and thanks for the question so.
Look as I said in my script really this is just a recalculation. So it's just a different denominator on on the capital.
On the equity units that we raised earlier this year. So it's purely just math frankly.
And looking ahead, we do see we have many levers as Andre said.
So we're fully committed to the 7% to 9%. These shares were already incorporated as of 2024. So it has no impact on that longer term growth rate and then looking looking ahead, we have a number of value accretive opportunities in the portfolio. So we're in the midst of our planning process at this point.
Well, we'll give 2022 guidance.
In February but.
We feel very confident in the overall growth rate and there is definitely things that we can do to stay within stay within that range going forward.
Understood. Thank you for the color there and then maybe just switching gears to the C&I side and the progress.
With the Microsoft deal curious, if you could speak a little bit to the two gigawatts excited a similarly structured solutions signed year to date, how that compares to initial expectations and then just kind of broadly any near term limitations to your ability to further rollout this around the clock product.
How you think about the scalability there overall thank you.
Sure.
I think we're rolling it out very well we have said from the beginning when we did the first Google one that this was a product that was there was a lot of interest from other large corporate customers.
So we feel good that this is not the last deal will do I think the key here is really the ability to provide around the clock and so this is 100% renewable for 15 years. So the product keeps getting more sophisticate now to do that.
You really need to be able to model all possible situations in a given.
Area of service integrating also.
Batteries and different forms of renewable power. So we've been very flexible on that we're very excited about that and what we see.
Additional opportunities going forward.
I think as we mentioned you know 90% of the deals we have signed.
In the last.
Year to date had been with corporate customers.
And so we really see the type of structured project product really being a competitive advantage for us. So you know stay tuned we think there is something that we've been talking about and we're really seeing it come to fruition.
Understood. Thank you for the time today.
Thank you.
Thank you. The next question comes from broadcast so platinum Evercore ISI placed our gas your line is now open.
Hey, good morning, Andreas and Steve Welcome and look forward to working with you.
So a couple a couple of questions from my end first just under if you you made a comment that the majority of the backlog to 2024 is now secured.
Can I just ask you to clarify when you say that that means wind solar storage everything.
We were basically talking about solar panels, but we also have a you know.
The balance of plant. So we feel very secured about it but you know the.
One that's been let's say more in the press and more top of mind for everybody has been solar panels. So you know we.
Oh.
Our very early on you know started switching buying from Chinese panels to buying panels made in Malaysia Vietnam.
And in the future you know Cambodia.
And we've also I think be leaders and getting our suppliers to certified that there's.
No.
Let's say up poly silicon coming from Western China and in the debt.
That could be questionable in terms of the labor practices. So we feel very comfortable we have the supplies. We have let's say flexibility and we've also by a number of U S. Panels are made in the U S. So without polysilicon by the way. So altogether, we feel very comfortable that we have enough to meet our.
But that backlog you know through through 2024 and that includes the balance of the plant and that includes of batteries.
Got it I mean, I guess in the last quarter Andres you had mentioned something around maybe 90% of the equipment needed for your den stated backlog of like I think it was eight five gigawatts are you in that similar.
Percentage wise for this update at 9.2 gigawatt number.
Yes.
Okay perfect. Thank you and then just obviously great execution five gigawatts year to date, you know you have a target of three to four going to five up through 2025, right like five Gigawatts a year 125. So as you sort of you don't have this momentum can you talk about sort of your margins and profitability.
Castlerock irons, and you're seeing cost pressures.
Yeah.
Sure Great question look we are achieving.
Achieving targeting and achieving.
Low teen returns in the U S.
And we are targeting and achieving mid to higher teens outside of the U S.
So those are the those are really our hurdle rates that we are achieving we feel very good about that now realize you know theres a lag between signing a PPA and commissioning the project. So this year.
Commission North of one and a half gigawatts, maybe as high as to next year, we should be somewhere between three and a half and four gigawatts. So this this momentum will continue so we see them.
So it's not just the number of megawatts, we have to make sure that we're earning.
On average the right returns.
Perfect. Thanks for the time guys.
Thank you. Our next question comes from David <unk> from Wolfe Research. Please David go ahead.
Yeah, Hey, good morning, guys.
So just back to the to the different accounting treatment for the equity units you guys made the point to mention that it was consistent with other peers in the auditors have signed off so I guess I'm just wondering what specifically changed that you're now subject to this new interpretation.
Yes. This is Steve I'm kind of happy to describe it a little more detail so.
We issued 1 billion of equity units back in March and as I said.
It was the treatment that we use was very well vetted by our accountants by our external auditors and external advisers. So.
At that point, we were using a treasury stock method for the for the treatments. So it didn't show up in the share count.
So.
There's a number of companies that have used similar instruments and in consultation with our auditors.
FTC had done a review of the treatment of these types of instruments.
And has.
Informed our auditors that they see a different interpretation.
So, although we haven't had direct communications with the SEC.
We felt it was most prudent that we go ahead and update the interpretation. So we're really just taking the prudent course of action here.
This conversion was already assumed in the 2024 share counts. So it is just an interim impact to the calculation.
You know Theres no new transaction here, it's just at this.
This recalculation of the shares.
So ultimately that's the source of it and we're just trying to be as prudent as we can in terms of in terms of the treatment.
Oh, great I appreciate the detail there.
Another question I had just kind of switching gears and appreciate the slide in the deck that you.
Showing the value is created through fluids to not play in and I guess now that the influence public would be a little bit more curious to hear about up light in terms of how you think about the value of that company today.
Versus when you got the value Mark and going forward, you know, particularly because I think I just saw that did up like completed an acquisition recently.
Yeah. Thanks for the question.
Look we see up light in terms of its.
A maturity two to three years behind fluids.
But we're very happy with the progress that Uplight is made.
And you know.
Very happy with what we've done with eight S. Next because if you look at our capital contribution and today's valuation that's a 20 X.
So that's you know some of this has been an even though we're working for example on batteries for for a long time, but really in terms of having a business. Its been you know rough.
Roughly about three years, three or four years.
So this has created a lot a lot of value for our shareholders.
And it's a it's very interesting because there are two sides of the business.
The App is next is really a value play, especially during this rapid growth phase.
Because you have to expense a lot of your investments really are but at the same time there are helping us grow. So you know when you talk about the.
Structured products are products that we're selling to.
Corporations.
Having a S next and and the Knowhow from there.
It's been extremely helpful. So.
You know as I said, you know stay tuned we have others in the works you know the most mature probably is <unk> are we.
We think <unk> has a lot of potential.
Because of what it offers it offers you know speed of build it offers less use of land.
And hurricane resistant it is very important hurricane wind resistant is.
It is very important so I'm very.
Very happy with the progress there and very happy about the relationship between the <unk> core business and a S. Next.
Great and then just last one quickly just point of clarification, you said a S. Snacks is roughly a six cent drag today, but as we get out into the outer years of your plan I guess 24, and 25 or are you expecting it to be contributing at that point or or would it still be a drag.
Yeah No no. We are so I mean, I think there's just to see if there's a near term dilution of around of a similar level say for 2022, and then that gradually reduces and soap so by 'twenty 'twenty four 'twenty five or expecting positive contributions and then significant acceleration and the positive contribution from that point.
Great. Thank you guys.
Thank you.
Thank you. The next question comes from Julien Dumoulin Smith from Bank of America. Please Julien Your line is now open.
Hey, good morning team congratulations on everything well done.
So just to come back to this aes Nexstar again kudos there as you guys think about the drag here you talked about 21, having a fixed contract.
Through the 25 period here, how are you thinking about the cadence of that drag to a wall here by the time you get to 25, what is that reflected in your expectations here.
And then maybe I'll throw in another sort of nuanced.
EPS question.
When you're thinking about the converts here, obviously, you were able to offset that would be at the top end of 'twenty. One what does that say about them by the time you get to 'twenty five considering that the converts admittedly would've been sort of effectively fully diluted by then in terms of where you stand within your range as well.
Against the backdrop of all your successes at origination or otherwise.
Sure.
Steve and I will answer this one.
Let me take the second one so it's definitely within our 25 numbers.
It was assumed that they would convert and so that was the share count.
It is different is that we have a higher share count 'twenty, one and 'twenty two 'twenty three that that is the only difference.
In these calculations regarding you know a S next.
You know that the one that's producing the largest drag as fluids quite frankly influence as it matures.
You know and it has.
At.
It's made all these investments in new designs in gearing up to be able to meet that supply.
In terms of guaranteeing supply of batteries around the world you know and as sales increase you know your this will you know.
I always say gradually turn positive and so I think maybe Steve you want to yes.
Obviously I was understood I led fluids.
<unk> its first two and a half years, so I'm very familiar with the company and its trajectory and look you know the opportunity for fluids, just gotten massive I mean more massive than EBIT, we predicted when when I started there.
So you know going out and raising this capital was was clearly targeted to go big and go much bigger and so you know this this.
Some ways it what it does is it increases the near term dilution deliberately because where we're investing to accelerate the scale of the company.
And we know that it can be successful if we accelerate so but its also then significantly increasing the upside when you get out into 'twenty four 'twenty five periods. So putting this capital to work is going to be near term dilutive, but it's tremendously value accretive.
And we've already seen some recognition of that.
It is today and we think it's only going to go significantly upward from here. So you know in our in our numbers it turns positive and it turned significantly positive by by 2025.
And that's that's significantly positive as reflected in that 25 number today.
Understand like how much of the earnings and Kevin Yes, Yeah. So it is reflected in I would say you come from from the level of dilution today, its going to flip flopped to being at least that level a positive.
By that point.
And when you say at least that level of positive that is E. S. Next in entirety right not just luck.
Yeah, I think fluids will be at that point, you know uplight will have grown too, but I would expect fluids would likely be the.
You have had to be the largest driver, but I would say at least <unk> positive.
From from from next by 2025.
Right. Okay got it excellent. Thank you for the clarity there and then if I can just one more strategic question here also again against you backed off of 25 numbers.
California's extension, you've only reflected this new members through.
Reflecting this through 'twenty five that seems like a further upside whether its redon Doe or were there for the entirety of the legacy portfolio.
And ultimately you have.
What do you think about the portfolio altogether at this fossil transition again kudos on transition how are you thinking about some of the lingering assets and especially some of the renewed interest across the marketplace for instance, LNG.
Yeah.
So I'll take the cell phone question, then I'll turn it over to Andrew but I'm. So that's correct Chilean the Southland extension.
Is that done two extension it provides some upside so we had the alamitos Huntington Beach East through 2023, we have the recent decision that's now upside for Redondo Beach, but at this point everything it's just through 2023 and not beyond that so to the extent there is an opportunity beyond that that would be upside to our guidance and in.
Addition, this year in the third quarter, we've seen in the numbers we had there.
The margin favorability from the from the hedges.
There that those assets have legacy assets are quite valuable and we see the potential for further Q3.
Our value recognition in our assets, which would also be upside to the guidance going forward.
Yeah, Julien regarding sort of the LNG you know we have a very strong position in the Gulf of Mexico between the Dominican Republic and Panama.
You know we have.
Basically been contracting much more in terms of the Dominican Republic filling up the second taken in the Panama filling up the first thing.
So we see a LNG is it necessary a transition fuel.
And I think what we're seeing a little bit in Europe, and a little bit in China, it's very important to manage.
Manage this transition so well you know we're coming up with new technology is making it possible to put more renewables on the grid make renewables cheaper make them.
More efficient and you know satisfy more what customers want.
We see that in so many places you know L LNG natural gas as the necessary transition fuel so.
You still will work together and as we said you know we are.
You know on our way to filling up our full capacity of the two locations of the three tanks.
Got it so it sounds like literally and perhaps figuratively.
You haven't quite filled the tank on on the incremental contribution from LNG or California, when it comes to twenty-five yet.
More to go.
Yes, that's right that's right there's still more potential you know quite frankly, that's the most profitable thing we can do is to fill up on existing tank.
Yeah, Yeah excellent guys. Thank you best of luck.
Thank you Julien Thanks, Julie.
Thank you Julia as a reminder to ask any further question. Please press the star followed by one year.
Telephone keypad now.
The next question comes from Stephen Byrd from Morgan Stanley. Your line is now open.
Okay. Thanks, very much and congrats on a very constructive update here.
Thank you Steve.
Go ahead.
Oh, yes, Sir I wanted to just explore the Google nest agreement and just talk little bit more about the magnitude if you could and sort of repeat ability of that approach. It looks like a great solution, where you can bring a lot of your skills to bear.
To provide some diabetic, but I'm struggling to sort of thinking about how to how to sort of try to assess the magnitude of the opportunity here.
Well this is through Uplight and you know Uplight has been.
I believe the biggest seller of NES in the U S.
Because it reaches.
Around 100 million final consumers in the U S.
So the idea is to continue to add on that platform more things and improve customers experience and customers.
Capabilities of improving their energy efficiency use now of course, you know Uplight works through.
Utilities.
So that's really how it goes.
I think there is a lot of opportunity there.
I agree with that and.
What uplight has been doing is acquiring additional capabilities by some of these acquisitions, adding onto that platform. So it is really using that platform using that entry into.
Final consumers to provide additional value add services.
Understood and is there a way to think about that value in terms of sort of the per customer value or some other metric in terms of the benefit that utilities would receive from the kinds of services right here.
Oh, I don't have that available right now.
I think the way to think about is as this is the value of the total uplight platform.
And as you know, we partnered with Schneider electric to add more capabilities with more acquisitions.
We're working very closely with our utility customers. So I think the way this value will be reflected in captured is through the value of our plate and as I said I think it's two to three years behind fluids in terms of its evolution.
Okay very clear and then just last question for me just on on LNG.
You've been making great progress you just described on Julians question sort of the you know you're moving towards kind of filling up a number of these resources I was thinking once they're essentially sort of fill to the capacity that you've targeted they're fairly mature assets at that point and there might be a more logical owner with a fairly low discount rate at that point once they're much.
Or are these good monetization of assets when they're mature their reasons you you kind of see further option value essentially around these assets longer term.
Well I think two things as you know we are growing very rapidly in renewables.
We have plans to sell down coal so you know what.
We will continue to manage this portfolio to optimize its value for our shareholders and so we'll see how that develops right now our focus is really on filling up the gas tanks.
Okay understood. Thank you very much.
Thanks, Steve.
Thank you as a reminder to ask any further questions. Please press the star followed by one on your telephone keypad now.
Yeah.
We currently have no further questions I would like to I don't know if that's what Ahmed Pasha for any final remarks.
Thank you thanks, everybody for joining us on today's call as always the IR team will be available to answer any follow up questions. You may have next week, we look forward to seeing many of you at the EI conference. Thanks, again and have.
Have a nice day.
This concludes today's call. Thank you so much for joining you may now disconnect your lines.
Okay.
Yeah.
Yes.
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Yeah.
Uh huh.
Okay.
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