Q1 2022 Atlantica Sustainable Infrastructure PLC Earnings Call
Speaker 1: Begin shortly. Please continue to hold.
Unknown Speaker: If any of our key assumptions are incorrect or because of other factors discussed in today's earnings presentation, or because of other factors discussed, including the risk factors section of the accompanying presentation and in our latest reports and filings with the Securities and Exchange Commission, all of which can be found on our website. Atlantic does not undertake any duty to update any forward-looking statements.
Unknown Speaker: Joining us for today's conference call are Atlantic's CEO , Santiago Seage, and CFO Francisco Martinez-Davis. As usual, at the end of the conference call, we will open the lines for the Q&A session. I'll now pass you over to Mr. Seage. Please sir, go ahead.
Santiago Seage: Thank you very much. Good morning and thanks joining the webcast for our first quarter 2022 conference call. I will start with a few key messages. In the first quarter of 2022, revenue has increased by around the 7%, and adjusted EBITDA has increased by close to 5% on a comparable basis, excluding foreign exchange rate effects on [inaudible] current impact last year.
Santiago Seage: We have had a year-over-year [inaudible] growth of a bit more than a 6%, reaching $54 million. Our Board of Directors, following those results, has declared a quarterly dividend of 44 cents per share.
Speaker 3: Our border of Directors, following those results, has declared a quarterly dividend of 44 cents per sha.
Santiago Seage: Regarding growth, this year we have already closed our earmarked investments between $140-$150 million, including acquisitions and construction of new assets, new renewable energy plants.
Santiago Seage: I will now turn the call over to Francisco, who will take you through our quarterly financial results. Francisco, whenever you want.
Francisco Martinez-Davis: Thank you Santiago and good morning to everyone.
Francisco Martinez-Davis: Please turn to slide number four where I'll present our key financials for the first quarter of 2022. Revenue in the first three months of 2022 reached $247.5 million, which represents a 7% growth on a comparable basis, excluding foreign exchange and the effects of the non-recurring solar project that we discussed last year.
Francisco Martinez-Davis: Adjusted EBITDA amounted to $173.6 million representing an increase of 4.8% on the same comparable basis previously mentioned.
Francisco Martinez-Davis: Regarding cash available for distribution, we generated $54.4 million in the first quarter of 2022, an increase of 6.3 year-over-year.
Francisco Martinez-Davis: On the following Slide, number 5, you can see our performance by geography and business sector.
Francisco Martinez-Davis: In North America, revenue increased by 23% to $74.4 million in the first three months of 2022, while EBITDA increased by 45% thanks to the recently acquired assets in the United States.
Francisco Martinez-Davis: In South America, revenue increased by 1% thanks to a higher wind resource and good performance in our assets.
Francisco Martinez-Davis: Revenue in the Mayor region decreased by 20% in the first quarter of 2022, mainly due to foreign exchange impact and the effect of the non-recurring solar project.
Francisco Martinez-Davis: Looking below at the results by business sector, we can see similar results. Let's now please turn to Slide number 6, where we will review our operational performance.
Speaker 5: Let's Now please turn to Slide number 6, where we will review our operational performance.
Francisco Martinez-Davis: Electricity produced by our renewable assets reached 1,094 gigawatt hours in the first three months of 2022, an increase of 81% versus the same period of 2021. The increase was largely due to the contribution of assets recently acquired and higher wind resource in production in our wind assets. This was partially compensated by lower production and solar assets, due mostly to lower solar radiation in some regions.
Speaker 5: Increase was largely due to the contribution of assets recently acquired and higher wind resource in production in our wind assets.
Speaker 5: This was partially compensated by lower production and solar assets, due mostly to lower solar radiation in some regions.
Francisco Martinez-Davis: Looking at our availability-based contracts, we see that, once again, ATP continues to show solid performance. In transmission lines and water, they are the two sectors where our revenue is based on availability, we continue to achieve high availability levels.
Speaker 5: In transmission lines and waters. There are the two sectors where our revenuees is based on availability. We continue to achieve high availability levels.
Francisco Martinez-Davis: Now, please turn to Slide number seven to walk you through our cash flow for the first quarter of 2022.
Francisco Martinez-Davis: Our operating cash flow for the first three months of 2022 reached $137.3 million.
Francisco Martinez-Davis: Change in working capital was negative, which is typical in the first quarter, while in the first quarter of 2021, we had very good collection periods in several of our geographies.
Francisco Martinez-Davis: Investing cash flow in the first quarter of 2022 mainly includes acquisition on new assets and net distribution received from entities under the equity method.
Francisco Martinez-Davis: Financing cash flow was $8.8 million and it mainly includes that scheduled principal repayment of our project [inaudible] now for $43.9 million, dividends paid to shareholders and non-controlled interest for $55.9 million, and the withdrawal of $35 million from our revolving credit facility. I will now turn the call back to Santiago.
Santiago Seage: A couple of final remarks; in the first months of 2022, we have closed our earmarked investments between $140-$150 million, including the $57 million in acquisitions that includes the 63 mile transmission line that we discussed last quarter and two small PV assets in Italy. Additionally, we have between $80 and $90 million in closed our earmarked investments, including renewable energy projects under the construction. With that, I conclude today's presentation. Thank you for joining us. We will now open the lines for questions, whenever you want operator.
Operator: Thank you. We'll now begin the question and answer the session. If you would like to ask a question, please press star and one on your keypad and wait for your name to be announced and to cancel your question, you can press the hash key. So that's star one on your keypad to ask a question. Your first question today comes from the line of Colton Bean from Tudor, Pickering, Holt & Co. Please go ahead.
Colton Westbrooke Bean: Morning, just starting off from the 2022 investment outlook, can you bridge the prior $60-$70 million of assets in the construction with the updated outlook of $80-$90? I think you had a few assets closed as well as new projects added.
Multiple speakers: Yes, basically it's an update where we include an update regarding the assets we have under construction or we plan to have under construction this year. So it's a slightly higher number because we now expect to build a bit more than last quarter. Okay and any specific projects side to that like, maybe additional solar projects? Yes, we are talking solar and then again, the difference is not that large, but we are doing at this point in time, mostly PV.
Speaker 4: Yes we are talking solar and then again, the difference is not that large, but we are doing at this point in time, or mostly PV.
Multiple speakers: Got it and is that still in South America primarily? Yes.
Colton Westbrooke Bean: Understood and then I think last quarter you mentioned the higher proportion of your growth potentially coming from in-house development. Can you speak to your efforts there to add human capital? How successful have you been in building out that team? Is that a priority for you?
Santiago Seage: So as we have been mentioning, we expect going forward that as you rightly mentioned, investments in projects we have developed or co-developed with partners will gradually become a more significant percentage of our yearly investments. You can see it already in 2022 following your previous question. So we do have this year a meaningful part of our investments that we are doing in projects we have developed or co-developed, and we expect that to continue. So at this point in time, things are progressing the way we expected and we have a number of opportunities in front of us, both for this year, next year, and going forward in the different geographies where we operate.
Speaker 4: that we are doing in projects we have developed or co-developed, and we expect that to continue. So at this point in time, things are progressing the way we expected and we have a number of opportunities in front of us, both for this year, next year, and going forward in the different geographies where we operate.
Colton Westbrooke Bean: And just to clarify that point, so it sounds like you're comfortable with the team as is and you all don't really need to expand your capabilities there.
Santiago Seage: No, in terms of investments in human resources or investments in general, this is not anything significant for us. These are things in general we can do with the resources we mostly have and in many cases with partnerships.
Multiple speakers: Great, appreciate that. Thank you. Your next question comes from the line of Julien Dumoulin-Smith, from Bank of America. Please go ahead.
Multiple speakers: Hey, good morning to you. Thanks the time. Can you hear me? Good morning Julien, we can hear you.
Julien Patrick Dumoulin-Smith: Excellent, thank you again. So just to keep going on this trend here, you all put a big emphasis on the debt amortization in the slides here. Obviously, you do have a good bit of organic amortization. How do you think about your leverage targets over time just set the follow up on-shall we say-the elevated pace FY 2022 [inaudible] growth here?
Francisco Martinez-Davis: Julien, it's Francisco. We have a slide and appendix on Slide 20 and you could see there what exactly you're mentioning. So we expect to reduce our project debt over two billion over the next five years. So you can see that there is a significant--I mean, this is scheduled, this is not planned. All of our debt at the operating level is amortizing, so we're planning to reduce our debt to three billion over the next five years.
Julien Patrick Dumoulin-Smith: And Francisco maybe just to hit at that more directly, when you think about your ideal leverage of considering that $2 billion amortization you guys have kind of in a higher profile way, identified here, does that have any specific shift in as far as your corporate leverage in capitalization targets, especially given the elevated [inaudible] growth?
Francisco Martinez-Davis: No I mean what, what we do Julien, and we have 15 years of contracted cash flows remaining, we have 70% EBITDA margin. You see in the slide that we have our net debt at the corporate level of 3.3, we want to be in the threes as we said. So I think our Board Directors are comfortable with the leverage we have and I think is a leverage that is appropriate to really the high visibility of the projects that we have. But I said, I think the key message here is that there is a deleveraging of our balance sheet implicit on the way we amortize the projects at the project level.
Julien Patrick Dumoulin-Smith: No, I hear you. Just to clarify from the earlier question too, I mean the expedited pace of 2022 growth, you guys had a great 2021, I mean should we be thinking about potentially being biasing higher or structurally here on [inaudible] growth and your expectations there? I mean, you had a successful year or ambitious year should we say, especially considering the latest update here. Any messaging on the longer term?
Multiple speakers: Well, I mean we want to put three million to work, Julien, in a year we've had years of where we have exceeded that target. But if we look at what Santiago mentioned on our expect investments in 2022, you see that we already 50% of our target is committed or closed, so I think where we that said $300 million to put the work on a yearly basis, I think that's a target we're shooting for this year. Got it, fair enough. And then just given the US dynamics on renewables, international plans going forward if you will? Should that be an expectation, considering the issues on both [inaudible] and wind development being what they make? Obviously, you're looking for perhaps a little bit more mature profile and assets anyway, but I'm just curious.
Francisco Martinez-Davis: I still said we continue to focus on North America. You saw that last year, I mean, our investment effort was made in North America. We continue to think that North America is our main primary target for growth
Multiple speakers: Excellent. Alright, well, I'll leave it there. Thank guys. Thank you, Julien.
Operator: Thank you. The next question is from the line of Mark Strauss, from JP Morgan, Please go ahead.
Multiple speakers: Thanks very much for taking our questions, most of them have been answered. I want to talk about kind of the size of your funnel, the size of your opportunities, is that increasing? Just given to Julien's point earlier, some of the disruptions, not only from supply chain but interest rates and geopolitics, if that presents an opportunity for you to pick up some of these projects from some of your smaller peers that may be struggling with some of these issues. So I would say two things regarding that in terms of the opportunities, and in terms of investments ahead: 1, regarding what you would call third party acquisition, if you want the money. The money we invest every year in purchasing assets from third parties, we do believe that if you look forward the market should be constructive for companies with our profile, meaning companies with the balance sheet, companies with that track record, and companies that are probably a bit more conservative than others. So we do believe that some of the disruptions you guys are very aware of and the things Julien mentioned before, could represent that for some of the newer developers, more aggressive developers, people who sign PPAs at certain prices and now are discovering that the interest rates do not always go down, that panel prices happen to go up, the Department of commerce is looking at a number of things, that supply chain disruptions are still there probably is going to mean that some of those more aggressive players are going to have difficulties making a return and hopefully we will be finding opportunities to capture value in the midterm.
Speaker 14: the market should be constructive for companies with our profile, meaning companies with the balance sheet, companies with that track record, and companies that are probably a bit more conservative than others. So we do believe that some of the disruptions you guys are very aware of and the things Julien mentioned before, could represent that for some of the newer developers, more aggressive developers, people who sign PPAs at certain prices and now are discovering that the interest rates do not always go down, that panel prices happen to go up, the Department of commerce is looking at a number of things, that supply chain disruptions are still there probably is going to mean that some of those more aggressive players are going to have difficulties making a return and hopefully we will be finding opportunities to capture value in the midterm.
Multiple speakers: Additionally, when we talk about our own pipeline of development or co-development with partners, we tend to be again, a bit more conservative than others, so our objective is not to have the largest pipeline at all. Our objective is to feed ourselves and that's it, and therefore we are not taking some of the risks that some developers who want to flip the assets are probably taking, and that's why many of the things that are happening in the sector are not affecting us, and we don't expect impacts from many of the things that are happening, because the size of those projects and the diversification should help us. In that regard, the fact that we are able to grow in different sectors and different geographies is an additional protection. If suddenly doing PV in the US becomes tougher because of some of the dynamics we described, we would be able to invest in other sectors and geographies. That's very helpful. Thank you.
Multiple speakers: Thank you. The next question comes from the line of Mark Jarvi from CIBC. Please go ahead. Thanks, good morning everyone. Obviously, last year you did very well in the equity deployment tracking all this year, but just curious whether or not the capital market volatility [inaudible] in base rates and spreads and some equity market volatility creates a little bit more, I guess, caution in the near term here and slows you down as you look at the back of this year. I don't think it would be the case, let's say, by definition. I think that we tend to be cautious in any scenario and we are going to be as cautious as we always are. So we will deploy capital if and when we find the right opportunities and we find the right way to finance that opportunity. At this point in time, the market is clearly more volatile but we have good access and resources and our revolving line is there to be used if we find the right opportunity.
Multiple speakers: So we are not worried about the markets at all but we will be cautious on deploying capital when we find opportunities of real value. Understood, and is there anything happening in terms of government intervention or anything modifications in Spain given the high wholesale prices? Do you think something will happen and I guess if it does, are you indifferent to it, given the contract structure of your assets, or is there anything that we need to be mindful of in terms of a pulse intervention that could happen in Spain? So in general, across Europe, and Spain will not be an exception- what you are seeing are temporary measures that, in our case, would seek to compensate the fact that we are collecting, at this point in time, higher revenues when we sell the power in the market than what the regulator expected, and governments and regulators are proposing temporary measures to mitigate that. This is something we obviously counted on. We didn't expect to collect much higher revenues and keep them forever because we are regulated at the end day. So for us in principle and subject to details of what regulators propose, we will be indifferent, meaning that the return we should be obtaining for our investments is regulated, irrespective of whether you get a bit more cast this year, next year, or the following year.
Speaker 15: Are you different to it, given the contract structure, your assets, or is there anything that we need me mind in terms of a pulse intervention that could happen? Spain, So in general, across Europe , and Spain will not be an exception- what you are seeing are temporary measures that, in our case, would seek to compensate the fact that we are collecting, at this point in time, higher revenues when we sell the power in the market than what the regulator respected, and governments and regulators are proposing temporary measures to mitigate that. This is something we obviously counted on. We didn't expect to to collect much higher revenues and keep them forever because we are regulated at the end day. So for us in principle and subject to details of.
Speaker 14: What regulators propos, we will be in different, meaning that the return we should be obtaining for our investments is regulated, irrespective of whether you get a bit more cast this year, next year or the following year.
Mark Thomas Jarvi: Thanks for that. And then, just as we think, if you do get to the 300 hundred million target that you hope to get to this year, in terms of deployment, the balance of M&A versus organic- do you have a sense of whether it's 50/50, or it tilts one way more than the other as you look at the funnel right now?
Santiago Seage: So we expect to get to a 50/50 not this year, maybe next year or the following, and we are in that trajectory towards that. So our target would be in a couple of years to be around 50/50 and it's going to depend on specific opportunities in any year. It's not a target percent, it's simply sort of a guidance internally and externally.
Multiple speakers: Got it. Okay, thanks everyone. Thank you. The next question is from the line of David Quezada from Raymond James. Please go ahead.
Multiple speakers: Thanks, good morning everyone. Just a quick question here about, I guess it kind of relates to the high power price environment. I'm curious if that improves your ability to extend any of the contracts that you have, any of your PPAs you have coming up in the next few years or just curious if you're having any of those conversations at this point. So, we don't have that many situations where PPA is getting to the end of our life in the short or midterm. We do have one asset in Texas where, whether with our partner we are looking at options. Beyond that, there's basically nothing that comes to an end even in the midterm. Having said that, the environment in general for contracting is better, I would say everywhere, in some cases slightly better, in some other cases way better than what it was a year ago.
Santiago Seage: So I'm sure there will be opportunities for companies like us and, in general, for companies in the sector, given the fact that clients or potential clients these days are clearly more open to better pricing or more favorable pricing.
David Quezada: Okay excellent, thank you. And then maybe just one more for me, kind of a longer-term, forward-looking question. I'm curious what your thoughts are on kind of more emerging asset classes like carbon capture or high degree in hydrogen. I'm curious if you're company would have an appetite for that over the next few years.
Santiago Seage: Yes, in general with newer technologies we will never be a pioneer, if you want, because of our risk profile, but clearly, we are interested, we are spending time on some of the asset classes you mentioned. And we will be deploying capital at some point in time, for example, technologies like hydrogen probably our point of view is that from a technology point of view, it's mature enough. What is not so easy is to find situations where numbers can work both for the client and for the investor. Over time, there should be more opportunities, among other things as the cost of CO2 becomes more evident in all geographies. So my short answer would be yes, but probably it's going to take a bit longer than what some of you write about when you do your work as outside analysts.
Multiple speakers: We think that the market in some of those technologies it's going to take a bit longer if you want to make a return on your initial investments, which is something we would like to do. Excellent, appreciate the color. Thank you. Thank you. Thank you, as a reminder if you would like to ask a question, you can press star one on your keypad. The next question comes from the line of William Grippin from UBS. Please go ahead.
William Spencer Grippin: Great, thank you very much. I appreciate the breakdown on Slide 11 showing the percentage of [inaudible] linked to inflation-based contracts. I'm curious, of the 40% there that you're showing that are linked to an index, how does that sort of breakout by region? Where is the most concentrated piece of that?
Santiago Seage: So out of about 40%, in general, those are linked to US CPIs, even if some of those contracts are not in the US. Obviously, each formula is different and the CPIs used there are different. We have things there in every region and probably South America is the region where the highest percentage of contracts are indexed to CPI.
Multiple speakers: But we do have contracts in North America, we have contracts in [inaudible] as well. Got it. And is there, I guess, just to help us understand, I mean, are those formulas capped at some level of CPI pass-through or is it pretty much one for 1?
Multiple speakers: In general they are not, even though every contract is different. Understood, okay, thanks very much. Thank you.
Operator: Thank you, and there are no further questions at this time, so I'll hand back to the speakers.
Santiago Seage: Great, thank you very much to everybody. Bye, we can close the line operator.
Operator: Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.