Q2 2023 Enlight Renewable Energy Ltd Earnings Call
Okay.
Good day and thank you for standing by welcome to the unlike Q2, 'twenty 'twenty Suite earnings Conference call.
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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Joseph Let's Great. Please go ahead.
Thank you operator good morning.
Everyone and thank you for joining our second quarter 2023 earnings conference call for enlighten renewable energy.
With me this morning are good.
Oh, and cofounder, then light <unk> CFO and <unk>.
Jason Ellsworth CEO and cofounder of <unk>.
I will provide some opening remarks and will then turn the call over to Jason for a review of our U S activity and then to Nir for a review of our financials and guidance. Our executive team will then be available to answer your questions.
Certain statements made on the call today, including but not limited to statements regarding business strategy and plans for <unk>.
<unk> portfolio market opportunity and potential growth completion of development and the company's future financial and operational results and guidance, including revenue and adjusted EBITDA may be forward looking statements within the meaning of U S. Federal Securities laws, which reflect management's best judgment based on currently available information.
We referenced certain project metrics in this earnings call and a full information can be found in our earnings release. These statements involve risks and uncertainties that may cause actual results to differ from our expectations.
Please refer to our earnings release for more information on the specific factors that could cause actual results to differ materially from our forward looking statements. Although we believe these expectations are reasonable we undertake no obligation to revise any statements to reflect changes that occur after this call.
Additionally, non <unk> financial measures may be discussed on the call. These non <unk> measures should be considered in addition to and not as a substitute for or in isolation from our results prepared in accordance with IRS.
Reconciliations to the most directly comparable <unk> financial measures are available in the earnings release and the earnings presentation for today's call, which is posted on our Investor relations webpage with that I will turn the call over to give up.
Thank you reassess and thank you all for joining us today.
In light delivered rapid growth and increased profitability in the second quarter, we are executing well across some of the largest and most exciting renewable energy projects.
You've seen from our press release.
Do you view in a few minutes, we are reiterating our adjusted EBITDA guidance for the year in the range of one.
$188 million to $198 million.
We are modestly lowering our 'twenty to 'twenty three revenue guidance to a range of 265 million to 275 million, mainly due to lower merchant pricing in Spain, coupled with lower wind speeds.
In this quarter across the <unk>.
They still reflect a strong 41% growth in revenue over 2022.
This does not impact our 2023, adjusted EBITDA guidance or our medium to long term outlook.
We continue to see strong performance and accelerated growth across the business.
Turning to our business, we continue to deliver on our twofold objective of above market growth and above market project, we can do.
During the second quarter, we reached commercial operation on 150 megawatts of generation and 40 megawatt hour of energy storage, including our first operation of the project in the U S and our.
First ever operational energy storage project.
We also secured critical milestones on over two gigawatts of mature projects.
Progress this quarter gives us credit confidence in delivering our plan to reach $4 six gigawatts and three six gigawatt hour of operation and project by the end of 2025 three times, our current operating capacity.
In addition, during the quarter, we demonstrated our ability to deliver strong project weekend.
For example, we secured price increases through amendments on 250 megawatts of power purchase agreements in the U S market.
With an average price increase of 87%.
We also signed 280 megawatts and 1680 megawatts hour of new Ppas.
<unk> prices.
Further in the U S. We are finding ways to squeeze more out of the IRA including with our at risk of project in New Mexico, where we confirm the project should qualify for the energy community Edward.
Across the portfolio, we are executing on our unique formula of delivering both rapid growth and above market returns.
Turning to our results second quarter revenue grew 32% year over year to $53 million.
We shifted from a net loss to $22 million positive net income this quarter and adjusted EBITDA grew 58% to $42 million in the quarter.
We continue to benefit from the ramp up of our operational portfolio.
In comparison to the same period last year, we added 700 megawatts.
We also saw significant growth in our operating cash flow generation and the cash flow from operations was $39 million during the quarter, an increase of 95%, reflecting healthy project and the ramp up of the IBP arm of the business.
Okay.
While revenue growth was lower than expected this quarter, driven by lower wind production and electricity prices at products accounting thing.
Adjusted EBITDA growth remained as expected.
Two lower O&M costs and better results across other projects during the second quarter, we recognized compensation from Siemens Gamesa in relation to project beyond the goods with respect to the recent announcements by Siemens Gamesa regarding issues with its onshore wind turbines, we do not expect either.
There are short or long term impact to project beyond where.
We were fully compensated for certain lost revenue in the second quarter due to delays in reaching full production relative to the schedule outlined in our agreement. In addition, as of today 56 out of 60 turbines are operational and we expect to reach full production in the <unk>.
<unk>.
Looking at the first half of the year revenue grew 65% to $124 million.
Net income reached $56 million and adjusted EBITDA grew 87% to $95 million.
A record half year results for the group.
In addition, cash flow from operations tripled to $95 million versus first half of 2022.
Moving back to the broader business this quarter, we made significant progress across our core markets.
In the U S. We continue to execute on our largest and most important project benefiting from our interconnection advantage.
The broader backdrop of the inflation reduction Act.
We finalized Cody on apex dollar at 105 megawatts projects in our first to complete in the U S.
Our flagship 364 megawatts and one two gigawatt hour at risk of project in New Mexico is deep in construction and proceeding on schedule.
Financing is advancing steadily with financial close now expected in September 2023, with the goal to optimize the LNG community Edwin.
We also contracted this quarter the remainder of the one two gigawatt <unk> cluster in Arizona the pre.
<unk>, which is one of the largest of its kind in the United States is now fully contracted and includes also 824 megawatts of energy storage.
Moreover, our youth still continues to deliver on project conversion. We are pleased to announce this quarter. The addition of a very exciting project in the U S to a mature portfolio project Roadrunner comprising.
Comprising 250 megawatts 800 megawatts are in Arizona project Roadrunner is due to commence construction mid next year.
In short <unk>.
Across the U S. We are demonstrating a strong neck for execution on project development contracting and construction all at once across a large base of projects.
Moving to Europe , we continue to demonstrate our ability to execute the growth wind solar and storage across our pan European footprint.
We continue to advance <unk> totaling 250 megawatts of solar and 200 megawatt hour of energy storage and expand during the quarter.
We expect to shortly secure the critical environmental permit the final development milestone remaining to reach ready to build statues.
Construction is set to commence by the end of the year with Vod on schedule for the end of 2024.
In addition, during the quarter, we secured 100% ownership and commenced construction on projects proofing and 94 megawatts wind from Serbia.
Propane is HSN two blacksmiths, our one five megawatt operational wind from leveraging the same point of interconnection under our land and expand strategy.
Project is scheduled to COPD in H, two 2025, adding further upside to the 2025 picture.
Finally in Israel, we continue to focus on reaching operations on a near term project, while laying the seeds for future growth in the context of the market broader deregulation.
Genesis with the largest renewable energy project in Israel totaling 270 megawatts was connected to the grid during the quarter 34 out of 39 Fairbanks has completed commissioning and the project is expected to reach COPD as scheduled.
In light of the deregulation of the Israeli electricity market, we signed Ppas with Amdocs, a leading global software and services provider and soda stream, a subsidiary of Pepsico and attractive pricing.
Following deregulation of electricity supply in Israel, we see huge demand for renewable energy from leading multinationals in Israel at significantly higher prices than our previously one fifth option driving a higher product retail environment in Israel.
In short we had a strong Q2 of execution on our projects portfolio amid some volatility in merchant pricing and what looks like periodic lower wind speeds.
At our operational wind from Spain, as well as better than expected performance at some other project.
As the operator of portfolio growth diversification works more and more in our favor and volatility in any specific project fifth to drive the overall business with 32% growth in revenue and 58% on EBITDA, we believe that our growth trajectory is clear.
We are poised to deliver above market growth and above market project return and will continue to focus on strong execution driven by the huge opportunity we see ahead across market.
I will now hand, it off to Jason who will provide more detail on our U S operations.
Thank you <unk> in the U S. We made terrific progress across our large portfolio.
<unk> mentioned the apex is our first U S project to be completed under enlighten apex achieved mechanical completion in June .
And finalized commercial operations within the last couple of weeks.
At both some exciting advances in project technology that we anticipate will minimize downtime and maximize production on.
On the construction front at Frisco solar is progressing on schedule.
While the current project is sized at 364 megawatts and one two gigawatt hours. It has potential to expand by another 120 megawatts and 400 megawatt hours module deliveries are proceeding without interruption. The project's battery supplier has completed work to finalize factory.
Defecation and has initialized battery shipments battery container deliveries are scheduled to begin late in 2023, <unk> mentioned definitive project finance agreements are progressing toward completion.
In Arizona, we are making significant progress on the L. Bar project, we successfully contracted the remaining 258 megawatts of <unk> and the first 824 megawatt hours of storage with Aps.
The CEO of our project is one of the largest of its kind in the U S. At one two gigawatts and approximately 824 megawatt hours of storage.
Nearly one gigawatt of the project is contracted to SRP with the remainder now on contract with Aps.
SRP at Aps are two of Arizona's largest utilities and a big part of our current and future development work and the Grand Canyon State.
Each solar project is attractively priced with a 20 year bus bar PPA discussions are underway to contract. The additional three two gigawatt hours of storage potential on the interconnection.
<unk> is on schedule to start construction in the fourth quarter of 2023, we currently expect to achieve CRD in phases over the course of 2025 in.
In addition to <unk> our team is negotiating offtake agreements on multiple projects, including several more projects in Arizona with approximately nine five gigawatts of projects through system impact study, we have a strong hand for negotiating agreements across our portfolio.
To that end, we expect a busy second half as we work to finalize multiple off take agreements on that note and by way of announcement. We just last week signed another 20 year bus bar PPA. This time on our new Roadrunner project with Atco in Arizona.
Project is 250 megawatts and 800 megawatt hours and scheduled to commence construction in 2024 with CRD. In early 2026, we are excited about working with Opco and further expanding our work with them and our other utility partners in Arizona.
And in the broader Western U S.
On supply chain, our diversified sourcing strategy continues to deliver we have reliable module supply out of both India and southeast Asia. Since early 2023 modules have been flowing to our projects and volume on time and without interruption on battery our cell supply out of Asia is qualified and now.
Shipping tax for assembly in the U S. We expect to have a source for domestic battery supply qualified and arriving at projects. In late 2024, we are strategic about supply relationships and worked carefully to make supply a competitive advantage as a result, we have confidence in our ability to supply the needs of our large <unk>.
And growing portfolio now and in the future.
With completion of apex construction on Entresto launch of <unk> and rapid growth in off take contracts quickly expanding our mature portfolio by the way.
We are hitting our stride in the U S.
Our interconnection advantages growing project development is blossoming and we have strong and reliable supply chain support for our expanding opportunities. We feel things are headed in the right direction with that I'll turn it over to Nir to review the company's financials.
Thank you Jason in the second quarter of 'twenty, three revenues increased to $53 million, representing a year over year growth rate of 32%.
Growth was mainly driven by the revenue contribution of new operational project as well as the inflation in succession embedded in our PPA for projects that were already operational last year.
In comparison to the same period last year, we added a comma NPR and back to its operational portfolio totaling 700 megawatts.
This project collectively contributed $11 million of revenue. We also benefited from inflation indexation embedded in our PPA, which contributed an additional $3 million of revenue during the quarter. This reflected in average indexation of six 8% it was 590.
Two megawatt of PPA with.
With respect to FX the impact of the strengthening Aero was offset by a weaker shekel with a cumulative negative impact was $1 million.
Net income increased to $22 million transitioning from 1 million loss last year $12 million of the increase was driven by new projects, including $6 million from beyond <unk>.
Largely reflecting the after tax impact of the compensation recognized from Siemens Gamesa.
Digital growth in net income of $11 million was driven by a reduced expectation of.
Payments to be incurred for the acquisition of cleaner for early stage projects not in our mature portfolio of $5 million.
Brian financing income of $6 million.
Adjusted EBITDA grew by 58% to $42 million compared to 26 million for the same period in 'twenty two.
The increase was driven by the same factor, which affected our revenue will increase in the same period as well as $8 million of compensation recognized from Siemens Gamesa due to the delay in reaching full production. It wasn't billing day offset by $2 million, increasing overhead as the team's skills.
To accommodate rapid growth.
Concession from Siemens Gamesa is recognized in our adjusted EBITDA, but not revenue.
In addition, we sold $5 million of electricity and projects treated as financial assets in the quarter, which under Ifr reality.
Wanted to account for not as revenue, but it's financing income other non P&L metrics.
Moving to 'twenty three guidance, we are pleased to reaffirm our outlook for full year, adjusted EBITDA, which is expected to be between 188 and $198 million.
As <unk> mentioned on an adjusted EBITDA level 11, lower imagine prices in Spain. During the second quarter had no net impact.
Lower margin margin revenue versus expectation.
Set by lower than expected.
So it doesn't may be less familiar the Spanish government implemented a week for tax.
Near but generators to reduce the impact of high electricity prices on consumer the drop imagined electricity price during this quarter in Spain, while impacting revenues had no impact on adjusted EBITDA as we paid significantly less windfall tax than expected for the very same reason.
The decline in forward electricity prices and spend for the remainder of the year is expected to be offset in the same way to lower rainfall taxes.
Lower wind production of Tacoma impacted adjusted EBITDA during the quarter, but was offset by the compensation paid by Siemens Gamesa project jewelry. We therefore, we are framing our adjusted EBITDA guidance.
However, with respect to revenue largely driven by lower imagine pricing in Spain for the remainder of the year, coupled with lower production in Spain. We are modestly adjusting our 'twenty three revenue guidance to be between $265 million and $275 million.
Looking forward to 2004, while matching prices have come down in Spain prices generally remained high.
During the second quarter, we signed hedges comprising 22% of expected production at an average price of 97.
Megawatt hour for 'twenty 'twenty four delivery.
This is compared to 77 aerial price we hedge it in 'twenty three.
As Gilad mentioned is our operational portfolio growth, we expect our relative exposure to her gama in quarter to quarter volatility from the asset to decline.
At the end of the quarter, we secured 170 million of revolving credit facility from several of our large Israeli banks.
Affinity provide us with additional financial firepower as well as the flexibility to manage our equity investment in project prior to their respective financial plan as we optimize project financing.
In conclusion, we expect a strong second half of the year, we are executing well and are very excited about the future with that I will turn it over to the operator for your questions operator.
Thank you.
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From the line of Mark chose from Jpmorgan. Please go ahead.
Hi, This is Michael on for Mark.
I wanted to ask within the U S market. It looks like there was an uptick in the storage development portfolio and then I'll.
Also just with the Roadrunner PPA can you provide any color on how you see returns in future portfolio trending in the market. Thank you.
Thank you Mara Jay Stein would you like to take this question.
Yeah, absolutely so on on the storage side, we are seeing tremendous demand on storage, making great progress at a tris go as we have battery packs shipping.
And that project proceeding as planned and on schedule. So we have a lot of confidence in our ability to deliver.
On that growing storage portfolio amidst all of that demand so.
We're excited about what's happening in much of that is in the in the Western U S.
Where there is a maturing demand for capacity.
Also in the Western U S. As you point to Roadrunner Opco.
And that project. We are we're excited about that relationship. It's the first of four.
<unk> that that were working on with Opco.
Others are not nearly as mature and.
And something that that speaks system, some great things to come and generally in terms of our returns and margins.
We have we have found strong.
Strong pricing power ability to price accordingly, given.
The rise in.
In rates.
And in the market and and in fact, the fact that there are the comparative price of energy has gone up.
We're finding ability to price well, including.
Having having had the ability to go back and re price on on projects.
Debt that we're implementing.
Impacted by inflation so.
Again strong ability to price, especially given our the advanced nature of our portfolio with about nine five gigs through system impact study. We are we're hitting our stride with with all of our utility customers as they're looking for something that can deliver.
Deliver in the near term.
Thanks, Jason.
Just to add for you Mark I think Roadrunner is good.
Example of a point that was discussed also during <unk>.
<unk> IPO in MBR.
Our team.
Basically shows our ability not only to develop on greenfield, but also to take on opportunities in the market. The world rather was not included initially in the development portfolio.
Very strong opportunity in Arizona in a market that we will know.
<unk> that we show that we can also.
Do these kind of actions and on the other side again on energy storage.
On a quite sooner or not.
We identified energy storage is a strong demand in the U S. Specifically in Western U S and we see a lot of upsides Omar I would say proactive.
Our strategy in this regard.
Thank you and then just wanted to follow up I was just hoping you could provide thoughts on prospects for the Israeli market just given some of the deregulation.
The recent PPA announcements as well thank you.
Yes, so in the Israeli market in the past.
On the offtake can form a feed in tariff auction for renewable energy alone since renewable energy was very competitive.
Ended up with very low cost low price low tariffs on.
The feed in tariff auctions that were significantly lower than the price in the market that came phone.
Usually from natural gas the Israeli record.
Regulator identified this trend and basically provided us.
With the opportunity to compete in the market in a way of supply license against.
The marginal price in the market in this way today weak.
And off take agreement in the form of corporate PPA directly with.
Consumers in our case, we are using large consumers such as Amdocs and photo streamed at our subsidiary if Pepsi Pepsico.
And still benefit the marginal price of electricity with which is about 30% higher than the previous period auction tariff that we got.
And this is why we are very optimistic right now on the future return that will be able to see in the Israeli market going forward.
Thanks Thats it for me.
Thank you.
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There are no further questions at this time one moment. Please one more question.
From the line of David Paz from Wolfe. Please go ahead, Sir Please go ahead.
Hi, good morning.
Can you hear me okay.
Yes, we can David.
Great. Thank you I was just hoping you could give us an update on.
The commentary you had in the last call in May on expected returns do you still anticipate.
Maybe just give an update on equity financing and particularly.
How are you seeing the tax equity market evolve.
<unk>.
First.
On the return David.
As we articulated in our remark.
We continue to see up up.
And the returns driving from the IRS regulation, specifically on a project we benefit now on the Transco. After finally a class.
Classifying a tree score in energy community.
Which will contribute I think quite significantly to the Levered return of the project and also the fact that we see.
<unk>.
The reduction in solar panel pricing.
And in terms of the equity market I will add to you Sir.
Yes, So I think David to parse your question, it's firsthand a bit of an update on the tax equity position and our access to tax equity and the second part of your question was.
Do we need additional capital to complete our mature projects I am I hearing that right.
Yes, that's about right I just wanted to.
You talked about being able to fund one five gigawatts per year growth.
Essentially through 'twenty six without any equity. So I just wanted to get just to make sure I will still intact and then just how you've seen that.
If you are seeing a shift and say how much she'll funds with tax equity versus.
Cash equity or equity, yes, sure. So the thesis that we outlined I think quite clearly last quarter is very much intact. We added two projects in the mature portfolio this quarter versus last one obviously is roadrunner.
Which is going to start construction towards the middle and back end of next year.
And Putin, which is an additional wind farm in Serbia, which give out discussed.
In his remarks around 100 megawatts, which we commenced construction during the quarter.
Those are additions to the mature project portfolio, but again, the sell down strategy, which we outlined last quarter the ability to sell down minority stakes in our projects and recycle capital.
A critical part of our strategy as we look to recycle capital into growth.
In terms of the tax equity market I don't know give out that Nir. If you wanted to comment on what we're seeing on the tax equity market and the strategy.
In general what I can say is that we are seeing I would say a continuous acceptance in the market of the new regulation of the IRS.
The new option I'll start since variability, we believe that the tax transferability options will open up in the in the next quarter and allow I would say a little bit.
Is this or are more supply in the tax equity markets.
And until then we continue to finance the short term project on the traditional tax equity structure.
Got it great. Thank you maybe just sneak one last quick one on the 87% increase of PPA pricing.
If it can megawatt any sense of how much was still remaining to be.
Reprice, let's say in terms of the Ppas and then.
Any potential.
As expected the price increase among those.
So thanks, Thanks for that question, David So we've got a probably around 300 megawatts give or take that we are still in discussions with.
The 87% number just maybe it's worth explaining why that's the case, obviously there is the offset to inflation and rising cost of finance, but the extent of that number is really to reflect.
The fact that we are benefiting from the IRA and not relaying those benefits to the offtake.
So in this scenario, the offtake or preferred and ITC path.
The project sits in the southwest So obviously would have preferred a PTC track and in order to make us different we needed a more substantial increase in the PPA price to get to the return that we need it so getting back to the thesis I think Jason outlined in his remarks that the interconnection advantage in our near term capacity.
Our projects enables us to really take pricing power in.
In the in the near term portfolio to deliver the above market returns we've been emphasizing.
Got it thank you.
Thank you.
There are no further questions at this time I would like to hand back over to the large.
<unk> remarks.
Yeah. So thank you Sandra and thank you everybody for attending the call we are very happy with.
Strong.
Results and the rapid growth that we continue to show.
The strong trends that we see in the coming quarters towards.
Yes.
The.
I'd say execution of our mature portfolio.
Up to.
2025, we will be happy to take any further question on a one on one.
You would like further clarification. Thank you.
That does conclude our conference for today. Thank you for participating you may now disconnect.
Okay.
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Okay.
Yes.
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Thank you.
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