Q2 2024 Algonquin Power & Utilities Corp Earnings Call

August 9, 2024

Speaker Change: Hello and welcome to the Algonquin Power & Utilities Corp. 2nd Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Operator: 2nd Quarter 2024 Earnings Conference Call All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press Star 1 on your telephone keypad. I will now turn the conference over to Mr. Brian Chin, Vice President of Investor Relations. Please go ahead.

Unknown Executive: If you'd like to ask a question during this time, simply press star one on your telephone t-pad.

Speaker Change: If you'd like to ask a question during this time, simply press Star 1 on your telephone keypad.

Brian Chin: I will now turn the conference over to Mr. Brian Chin, Vice President of Investor Relations. Please go ahead. Thanks and good morning, everyone.

Speaker Change: I will now turn the conference over to Mr. Brian Chin, Vice President of Investor Relations. Please go ahead.

Brian Chin: Thanks and good morning everyone. Thank you for joining us for our second quarter 2024 earnings conference call. Speaking on the call today will be Chris Huskilson, Chief Executive Officer, Darren Myers, Chief Financial Officer, Jeff Norman, President of Renewables, and Sarah McDonald, Chief Transformation Officer. To accompany today's earnings call, we have a supplemental webcast presentation available on our website, algonquinpower.com. Our financial statements and management discussion analysis are also available on the website, as well as on CDER Plus and EDGAR.

Unknown Executive: Thank you for joining us for our 2nd quarter of 2020. We have 24 earnings conference calls.

Speaker Change: Thanks and good morning, everyone. Thank you for joining us for our second quarter 2024 earnings conference call. Speaking on the call today will be Chris Huskilson, Chief Executive Officer, Darren Myers, Chief Financial Officer, Jeff Norman, President of Renewables, and Sarah McDonald, Chief Transformation Officer.

Brian Chin: Speaking on the call, today will be Chris Huskilson, Chief Executive Officer, Darren Myers, Chief Financial Officer, Jeff Norman, President of Renewables, and Sarah McDonald, Chief Transformation Officer. To accompany today's earnings calls, we have a supplemental webcast presentation available on our website, AlgonquinPower.com. Our financial statements and management discussion analysis are also available on the website, as well as on Cedar Plus and EDGAR. We would like to remind you that our discussion during the call will include certain forward-looking information and non-GAAP measures. Actual results differ materially from any forecast or projection contained in such forward-looking information. Certain material factors and assumptions were applied in making the forecast and projections reflected in such forward-looking information.

Speaker Change: To accompany today's earnings call, we have a supplemental webcast presentation available on our website, algonquinpower.com. Our financial statements and management discussion analysis are also available on the website, as well as on CDER Plus and EDGAR.

Brian Chin: We would like to remind you that our discussion during the call will include certain forward-looking information and non-GAAP measures. However, actual results could differ materially from any forecast or projection contained in such forward-looking information. Certain material factors and assumptions were applied in making the forecasts and projections reflected in such forward-looking information. Please note and review the related disclaimers located on slide 2 of our earnings call presentation in the investor relations section of our website at algonquinpower.com.

Speaker Change: We would like to remind you that our discussion during the call will include certain forward-looking information and non-GAAP measures. Actual results could differ materially from any forecast or projection contained in such forward-looking information.

Speaker Change: Certain material factors and assumptions were applied in making the forecasts and projections reflected in such forward-looking information. Please note and review the related disclaimers located on slide 2 of our earnings call presentation at the Investor Relations section of our website at algonquinpower.com.

Brian Chin: Please note and review the related disclaimers located on slide two of our earnings call presentation at the Investor Relations section of our website at AlgonquinPower.com. Please also refer to our most recent MDNA file on Cedar Plus and Edgar, and available on our website. We will provide additional important information on these items, including the material factors that could cause actual results to differ materially and the factors and assumptions applied in making such forecasts and projections.

Brian Chin: Please also refer to our most recent MD&A filed on CDERplus and EDGAR and available on our website for additional important information on these items, including the material factors that could cause actual results to differ materially and the factors and assumptions applied in making such forecasts and projections. On the call this morning, Chris will provide an update surrounding the Renewable Sales Agreement, which was press-released this morning, and on the company's ongoing strategic transition to a pure-play regulated utility.

Speaker Change: Please also refer to our most recent MD&A filed on CDERplus and EDGAR and available on our website for additional important information on these items, including the material factors that could cause actual results to differ materially and the factors and assumptions applied in making such forecasts and projections.

Brian Chin: On the call this morning, Chris will provide an update surrounding the Renewables Sales Agreement, which was pressed release this morning, and on the company's ongoing strategic transition to a peer-play regulated utility. Then Darren will review key highlights pertaining to our regulated and renewables business groups and our second quarter financial results. Darren will also provide some color on the financial outlook following the expected sales of Renewables business, and then Chris will close with some final remarks.

Speaker Change: On the call this morning, Chris will provide an update surrounding the Renewable Sales Agreement, which was press released this morning, and on the company's ongoing strategic transition to a pure play regulated utility.

Speaker Change: Then Darren will review key highlights pertaining to our regulated and renewables business groups and our second quarter financial results.

Speaker Change: Darren will also provide some color on the financial outlook following the expected sales of the renewables business. And then Chris will close with some final remarks.

Brian Chin: We will then open the lines for the question-and-answer period. We ask that you kindly restrict your questions to two, then re-cute if you have any additional questions to allow others the opportunity to participate.

Speaker Change: We will then open the lines for the question and answer period. We ask that you kindly restrict your questions to two, then re-queue if you have any additional questions to allow others the opportunity to participate. With that, I'll turn it over to Chris.

Brian Chin: Then Darren will review key highlights pertaining to our regulated and renewables business groups and our second quarter financial results. Darren will also provide some color on the financial outlook following the expected sale of the renewables business, and then Chris will close with some final remarks. We will then open the lines for the question and answer period. We ask that you kindly restrict your questions to two, then refrain if you have any additional questions to allow others the opportunity to participate. With that, I'll turn it over to Chris.

Christopher Huskilson: With that, I'll turn it over to Chris.

Christopher Huskilson: Thank you, Ryan, and good morning, everyone. After being in the CEO role for a year, I'm more convinced than ever that our current path towards a pure-play regulated utility supports our goals to create long-term value, increase our quality of earnings, and bring increased focus to improving our execution.

Christopher Huskilson: Thank you, Brian, and good morning, everyone. After being in the CEO role for a year, I'm more convinced than ever that our current path towards a pure play regulated utility supports our goals to create long-term value, increase our quality of earnings, and bring increased focus.

Chris: Thank you, Brian , and good morning, everyone.

Speaker Change: After being in the CEO role for a year,

Chris: I am more convinced than ever that our current path towards a pure-play regulated utility

Chris: Supports our goals to create long-term value, increase our quality of earnings, and bring increased focus.

Christopher Huskilson: A year ago, I set three priority goals to sell the Renewables business, optimize the value of AY, and to get the regulated business up and running. Today, I'm pleased to announce the successful sale of our Renewables business at a valuation of $2.5 billion. As we set out to accomplish in our 2023 Strategic Review, we've achieved a deal at a compelling value for our platform business with strong assets and scale. As we set out to accomplish, sorry. This agreement between Algonquin and LS Power for the company's non-hydro renewable energy business, consisting of $2.28 billion in cash proceeds and $220 million in an urnode agreement relating to certain wind assets.

unknown: For more information, visit www.fema.gov. A year ago, I set three priority goals: sell the renewables business, Optimize the value of AY and to get the regulated business up and running. Today, I'm pleased to announce the successful sale of a renewables business at a valuation of $2.5 billion. As we set out to accomplish in our 2023 Strategic Review, we've achieved a deal at a compelling value. For a platform business with strong assets. As we set out to accomplish, sorry, excuse me.

Chris: to improving our execution.

Chris: A year ago, I set three priority goals.

Chris: to sell the Renewables business.

Chris: Optimize the value of AY.

Chris: and to get the regulated business up and running.

Chris: Today, I'm pleased to announce the successful sale of a renewables business at a valuation of $2.5 billion.

Chris: As we set out to accomplish in our 2023 Strategic Review,

Chris: We've achieved a deal at a compelling value for our platform business with strong assets and scale.

Chris: As we set out to accomplish... Sorry. Excuse me.

Christopher Huskilson: This agreement between Algonquin and LS Power for the company's non-hydro renewable energy business, consisting of $2.28 billion in cash proceeds and $220 million in an earn-out agreement relating to certain wind assets. I just want to take this moment to thank the team from across Algonquin for the tireless efforts that they put in. It was a great job, team. Thank you very much.

Chris: This agreement between Algonquin and LS Power for the company's non-hydro renewable energy business.

Chris: consisting of $2.28 billion in cash proceeds.

Chris: and $220 million in an earn-out agreement relating to certain wind assets.

Christopher Huskilson: I just want to take this moment to thank the team from across Algonquin for the tireless efforts that they put in. There's a great job team. Thank you very much.

Speaker Change: I just want to take this moment to thank the team from across Algonquin.

Speaker Change: for the tireless efforts that they put in.

Speaker Change: It was a great job team. Thank you very much.

Christopher Huskilson: This major milestone, coupled with our previously announced support agreement to sell our Atlantic shares, delivers on our plan to transform Algonquin into a pure play regulated utility. Optimize our regulated business activities, strengthen our balance sheet, and enhance our quality burdens. As Darren will touch on shortly, we expect to use the proceeds upon close in late 24 or early 2025 to recapitalize our balance sheet and position ourselves for future growth. We're also making progress on our goal to get the regulated business up and running. We reorganized along commodity lines to improve operational efficiency. We recently completed the implementation of our customer-first enterprise platform, which promises to deliver value to our customers and substantial efficiencies.

unknown: This major milestone, coupled with our previously announced support... The Cellar, Atlantic Assure, delivers on our plan to transform Algonquin into a pure play regulated utility, optimize our regulated business activities, strengthen our balance sheet, and enhance our quality of earnings. As Darren will touch on shortly, we expect to use the proceeds upon close in late 2024 or early 2025.

Speaker Change: This major milestone, coupled with our previously announced support agreement,

Speaker Change: to sell our Atlantica shares, delivers on our plan to transform Algonquin into a pure-play regulated utility.

Speaker Change: Optimize our regulated business activities.

Speaker Change: Strengthen our balance sheet and enhance our quality of earnings.

Speaker Change: As Darren will touch on shortly, we expect to use the proceeds upon close in late 2024 or early 2025 to recapitalize our balance sheet and position ourselves for future growth.

Christopher Huskilson: 3 Capitalizer Balance Sheet and position ourselves for the future. We're also making progress on our goal to get the regulated business up and running. We're currently reorganized along the commodity lines to improve operational proficiency. We recently completed the implementation of our customer-first enterprise platform, which promises to deliver value to our customers and substantial efficiency. We added three new experienced board members with extensive infrastructure and regulated utility experience.

Darren: We're also making progress on our goal to get the regulated business up and running.

Darren: We reorganized along commodity lines to improve operational efficiency.

Darren: We recently completed the implementation of our customer-first enterprise platform, which promises to deliver value to our customers and substantial efficiencies.

Christopher Huskilson: We added three new experienced board members with extensive infrastructure and regulated utility experience. We're implementing fundamental changes to how we operate the company with increased accountability.

Darren: We added three new experienced board members with extensive infrastructure and regulated utility experience.

Christopher Huskilson: We're implementing fundamental changes to how we operate the company with increased accountability. This is the beginning of a multi-year journey to unlock the value of our regular jobs. In addition, we're making changes at the executive level. Yesterday, the company appointed Sarah McDonald as Chief Transformation Officer. In her new role, Sarah will assume responsibility for utility operations & Customer Service. Sarah is a lawyer by training and has more than two decades of legal, human resources, and operational experience.

Darren: We're implementing fundamental changes to how we operate the company with increased accountability.

Christopher Huskilson: This is the beginning of a multi-year journey to unlock the value of our regulated business.

Darren: This is the beginning of a multi-year journey to unlock the value of our regulated business.

Christopher Huskilson: In addition, we're making changes at the executive level. Yesterday, the company appointed Sarah McDonald as Chief Transformation Officer. In her new role, Sarah will assume responsibility for utility operations and customer service. Sarah is a lawyer by training and has more than two decades of legal human resources and operational experience. She has a broad background having worked in the utility sector for more than 20 years, including roles in utility construction as president and CEO of the AmeriCorps European and as president of Tico Services. As part of this announcement, Chief Operating Officer Johnny Johnson has left the company.

Darren: In addition, we're making changes at the executive level.

Speaker Change: Yesterday, the company appointed Sarah McDonald as Chief Transformation Officer.

Speaker Change: In her new role, Sarah will assume responsibility for utility operations and customer service.

Speaker Change: Sarah is a lawyer by training and has more than two decades of legal, human resources, and operational experience.

Christopher Huskilson: She has a broad background, having worked in the utility sector for more than 20 years, including roles in utility construction, president and CEO of AmeriCaribbean, and as president of TECO Service. As part of this announcement, Chief Operating Officer Johnny Johnston has left the company. I'd like to personally thank Johnny for his dedication, service, and commitment as we wish him the best for his future endeavors.

Speaker Change: She has a broad background, having worked in the utility sector for more than 20 years.

Speaker Change: including roles in utility construction as President and CEO of AmeriCaribbean.

Speaker Change: and as President of TECO Services.

Speaker Change: As part of this announcement, Chief Operating Officer Johnny Johnston has left the company.

Christopher Huskilson: I'd like to personally thank Johnny for his dedication and service, and his commitment as we wish him the best for his future endeavors.

Speaker Change: I'd like to personally thank Johnny for his dedication.

Speaker Change: and Service and his commitment as we wish him the best for his future endeavors.

Christopher Huskilson: As we look forward, we're focused on delivering value to our shareholders in a more self-sufficient manner. We see tremendous value in the business from investments we have made for our customers that are not yet in rates. We need to improve our recoveries, reduce our regulatory lag, and absorb our growth. As a result, we will be reducing our regulated CAPEX for 2025. Also, as part of our objectives to be more self-sufficient, the board has decided to right-side the dividend, so we're not chasing a high pay-out ratio and excessive equity raises. These are necessary steps that we expect to unlock more value in the long term for our shareholders.

Christopher Huskilson: As we look forward, we're focused on delivering value to our shareholders in a more self-sufficient manner. We see tremendous value in the business from investments we have made for our customers that are not yet in rates. We need to improve our recoveries, reduce our regulatory lag, and absorb our growth. As a result, we will be reducing our regulated CAPEX for 2025. Also, as part of our objective to be more self-sufficient, the board has decided to right-size the dividends.

Speaker Change: As we look forward, we're focused on delivering value to our shareholders in a more self-sufficient manner.

Speaker Change: We see tremendous value in the business from investments we have made for our customers that are not yet in rates.

Speaker Change: We need to improve our recoveries, reduce our regulatory lag, and absorb our growth.

Speaker Change: As a result, we will be reducing our regulated CapEx for 2025.

Speaker Change: Also, as part of our objective to be more self-sufficient, the Board has decided to right-size the dividend.

Christopher Huskilson: So we're not chasing a high payout ratio and excessive equity. These are necessary steps that we expect to unlock more value in the long term for our shareholders. Now, let me provide more details on the business. Starting with the investments, but not yet.

Speaker Change: So we're not chasing a high payout ratio and excessive equity raises.

Speaker Change: These are necessary steps that we expect to unlock more value in the long term for our shareholders.

Christopher Huskilson: Now let me provide more details on the business, starting with the investments not yet in rates. We currently estimate over $1 billion in assets are not yet authorized in rates or receiving optimized regulatory treatment. This represents a rare capital-light path to earnings growth. An example of this is our Sarah Bell Wastewater Treatment Plant in Arizona. The plant is an important and currently operating asset, enabling the local community to grow, but is not yet in customer rates. And other is our customer first SAP program, which, as I mentioned earlier, just completed its final implementation. Our investment in the platform has been approved in six of our smaller jurisdictions, but is not yet reflected in customer rates for the majority of our utilities.

Speaker Change: Now let me provide more details on the business, starting with the investments, not yet in rates.

Christopher Huskilson: We currently estimate over $1 billion in assets are not yet authorized in rates or receiving optimized regulatory treatment. This represents a rare capital-light path to earnings growth. An example of this is our Cerebell Wastewater Treatment Plant in Arizona.

Speaker Change: We currently estimate over $1 billion in assets are not yet authorized in rates or receiving optimized regulatory treatment.

Speaker Change: This represents a rare capital light path to earnings growth.

Speaker Change: An example of this is our Cerebell Wastewater Treatment Plant in Arizona.

Christopher Huskilson: The plant is an important and currently operating asset, enabling the local community to grow, but it is not yet in customer rates. And the other is our Customer First SAP program, which, as I mentioned earlier, just completed its final implementation. Our investment in the platform has been approved in six of our smaller jurisdictions but is not yet reflected in customer rates for the majority of our utilities. Our Customer First Program is a world-class platform designed to facilitate greater operational efficiency and Utility Integration for Improved Customer Service.

Speaker Change: The plant is an important and currently operating asset, enabling the local community to grow, but is not yet in customer rates.

Speaker Change: Another is our Customer First SAP program.

Speaker Change: Which, as I mentioned earlier, just completed its final implementation.

Speaker Change: Our investment in the platform has been approved in 6 of our smaller jurisdictions, but is not yet reflected in customer rates for the majority of our utilities.

Christopher Huskilson: Our customer first program is a world-class platform designed to facilitate greater operational efficiency and utility integration or improved customer service. It's worth calling out that we are now in the typical post-conversion adjustment period for these types of systems. Our system implementation, combined with our most active rate case calendar in our history, is causing some delays in our rate case filings, which we're working through.

Speaker Change: Our Customer First Program is a world-class platform designed to facilitate greater operational efficiency and utility integration for improved customer service.

Christopher Huskilson: It's worth calling out that we are now in the typical post-conversion adjustment period for these types of systems. A system implementation combined with our most active rate case calendar in our history is causing some delays in our rate case filing, which we're working through. In terms of our rate case filings, I also want to call out changes to our expected regulatory calendar in a few of our jurisdictions, namely Missouri, New Hampshire, and California.

Speaker Change: It's worth calling out that we are now in the typical post-conversion adjustment period for these types of systems.

Speaker Change: Our system implementation combined with our most active rate case calendar.

Speaker Change: And our history is causing some delays in our rate case filings.

Christopher Huskilson: In terms of our rate case filings, I also want to call out changes to our expected regulatory calendar in a few of our jurisdictions, namely Missouri, New Hampshire, and California. In respect to these jurisdictions, we're expecting delays of one to two quarters, which will shift the beginning of our recovery closer to 2026. These delays will, of course, impact short-term earnings. While we have some challenges in the short term, the substantial value here is a disciplined, capital-light trajectory to improve returns.

Speaker Change: which we're working through.

Speaker Change: In terms of our rate case filings, I also want to call out changes to our expected regulatory calendar in a few of our jurisdictions, namely Missouri, New Hampshire, and California.

Christopher Huskilson: In respect to these jurisdictions, we're expecting delays of one to two quarters, which will shift the beginning of our recoveries closer to 2026. These delays will, of course, impact short-term earnings. While we have some challenges in the short term, the substantial value here is a disciplined capital light trajectory to improved returns. With that, I'll turn it over to Darren.

Speaker Change: In respect to these jurisdictions, we're expecting delays of one to two quarters.

Speaker Change: which will shift the beginning of our recoveries closer to 2026. These delays will, of course, impact short-term earnings.

Speaker Change: While we have some challenges in the short term, there is substantial value here.

Speaker Change: is a disciplined capital-like trajectory to improve returns.

Darren Myers: With that, I'll turn it over to Darren.

Darren Myers: Thank you, Chris, and good morning, everyone. I'll start with the regulated services group. During the second quarter of 2024, we received the final order for our Belco utility in Bermuda, authorizing a revenue increase totaling $33.6 million over two years. New tariffs became effective on August 1, 2024.

Darren Myers: Thank you, Chris, and good morning everyone. I'll start with the Regulated Services Group. During the second quarter of 2024, we received the final order for our Balco utility in Bermuda, authorizing a revenue increase totaling $33.6 million over two years. New rates became effective on August 1st, 2024. In New York, we filed a joint proposal with the New York Department of Public Services staff, resolving all contested issues in a final order as expected sometime in the third quarter. The regulated services group currently has pending 14 rate reviews totaling $131 million as of quarter end.

Speaker Change: With that, I'll turn it over to Darren.

Darren: Thank you Chris and good morning everyone. I'll start with the regulated services group. During the second quarter of 2024, we received the final order for our Belco utility in Bermuda, authorizing a revenue increase totaling $33.6 million over two years. New rates became effective on August 1st, 2024.

Darren Myers: In New York, we filed a joint proposal with the New York Department of Public Services staff resolving all contested issues, and a final order is expected sometime in the third quarter. The Regulated Services Group currently has pending 14 rate reviews, totaling $131 million as of the third quarter. Turning now to a brief update on our Renewables Energy Group. Our construction trajectory for renewable energy remains on track. Our construction loan balance has fallen to $405 million due to the buyout of New Market Solar and Shady Oaks II projects.

Darren: In New York, we filed a joint proposal with the New York Department of Public Services staff, resolving all contested issues, and a final order is expected sometime in the third quarter.

Darren: The Regulated Services Group currently has pending 14 rate reviews totaling $131 million as of quarter end.

Darren Myers: Turning now to a brief update on our Renewables Energy Group, our construction trajectory for Renewables remains untracked. Our construction loan balances fall into $405 million due to the buyout of the New Market Solar and Shady Oakstool project. By year end, we expect that loan balance to round trip back up to similar level where we started the year through the completion of construction at Carver's Creek and Clearview.

Darren: Turning now to a brief update on our Renewables Energy Group. Our construction trajectory for renewables remains on track. Our construction loan balances fall into $405 million due to the buyout of the New Market Solar and Shady Oaks II projects.

Darren Myers: By year end, we expect that loan balance to round trip back up to a similar level where we started the year due to the completion of construction at Carvers Creek and Clearview. We'll now turn to our financial results. Our second quarter financial performance delivered growth in each of our key financial metrics, EBITDA, Adjusted Net Earnings, and Adjusted Net Earnings per share, with double-digit increases compared to the same period last year. Operating profit growth for both the regulated and renewables business was largely as expected, with regulated growing 7% and renewables growing 31%.

Darren: By year-end, we expect that loan balance to round-trip back up to a similar level where we started the year due to the completion of construction at Carver's Creek and Clearview.

Darren Myers: We'll now turn to our financial results. Our second quarter financial performance delivered growth in each of our key financial metrics, EBITDA, adjusting that earnings and adjusting that earnings per share with double digit increases compared to the same period last year. Operating profit growth for both the regulated renewables business were largely as expected, with regulated growing 7% and renewables growing 31%. Adjusted EBITDA was $311 million, up 12% from the same period last year. Adjusted net earnings worth $65.2 million, an increase of 16%. On a per share level, our second quarter adjusting that earnings per share was $0.9, a 13% increase from the second quarter of last year.

Darren Myers: Adjusted EBITDA was $311 million, up 12% from the same period last year. Adjusted net earnings were $65.2 million, an increase of 16%. On a per share level, our second quarter of just an editing per share was $0.9, a 13% increase in the second quarter of last year. Let me briefly discuss individual EPS drivers.

Darren: I'll now turn to our financial results.

Speaker Change: Our second quarter financial performance delivered growth in each of our key financial metrics, EBITDA, Adjusted Net Earnings, and Adjusted Net Earnings Per Share, with double-digit increases compared to the same period last year.

Speaker Change: Operating profit growth for both the regulated and renewables business were largely as expected, with regulated growing 7% and renewables growing 31%.

Speaker Change: Adjusted EBITDA was $311 million, up 12% from the same period last year. Adjusted net earnings were $65.2 million, an increase of 16%.

Speaker Change: On a per share level, our second quarter adjusted net interest per share was 9 cents, a 13% increase from the second quarter of last year.

Darren Myers: Let me briefly discuss individual EPS drivers. First, weather returned to a more normalized level, contributing approximately 3 cents to the upside year over year. Second, a regulated business operating profit grew organically by 2 cents, primarily due to new rate implementations of several of the company's electric, gas, and water utilities. However, this was offset by negative 2 cents year over year due to last year's benefit of the one-time retroactive rate order in California. Renewables also organically grew by 2 cents, driven by contributions from new wind facilities to your Phil 2 and Sandy Rich 2, brought online last year.

Darren Myers: First, weather returned to a more normalized level, contributing approximately three cents to the upside year-over-year. Second, regulated business operating profit grew organically by two cents, primarily due to new rate implementations of several of the company's electric, gas, and water utilities. However, this was offset by a negative two cents year over year due to last year's benefit of a one-time retroactive rate order in California. Renewables also organically grew by two cents, driven by contributions from new wind facilities Deerfield 2 and Sandy Ridge 2 brought online last year.

Speaker Change: Let me briefly discuss individual EPS drivers. First, weather returned to a more normalized level, contributing approximately three cents to the upside year-over-year.

Speaker Change: Second, a regulated business operating profit grew organically by $0.02, primarily due to new rate implementations at several of the company's electric, gas, and water utilities. However, this was offset by a negative $0.02 year-over-year due to last year's benefit of a one-time retroactive rate order in California.

Speaker Change: Renewables also organically grew by two cents driven by contributions from new wind facilities Deerfield 2 and Sandy Ridge 2 brought online last year.

Darren Myers: This was offset by negative penny due to development cost expenses, in part, as a result of the simplification of our JV entity, as discussed in prior quarters. Depreciation contributed negative 2 cents, and interest expense contributed negative penny, excluding the impacts of our empire bond securitization. And lastly, tax credits were a little better this year than we had projected, being flat year over year.

Speaker Change: This was offset by a negative penny due to development cost expenses in part as a result of the simplification of our JV entity as discussed in prior quarters.

Speaker Change: Depreciation contributed negative two cents and interest expense contributed a negative penny, excluding the impacts of our Empire bond securitization. And lastly, tax credits were a little better this year than we had projected, being flat year over year.

Darren Myers: Turning now to key financing activities. During the quarter, the company settled the purchase contracts from its green equity units as expected, issuing approximately 76.9 million common shares for proceeds of 1.15 billion dollars. These proceeds were used to reduce existing indebtedness and for general corporate purposes. We ended the quarter with approximately 767 million shares issued and outstanding. With the conclusion of the equity unit remarketing and as of June 30, 2024, we have refinanced approximately 2.5 billion dollars of our borrowings over the trailing 12 months, and we have simplified our capital structure.

Darren Myers: This was offset by a negative penny due to development cost expenses, in part as a result of the simplification of our JV entity as discussed in prior quarters. Appreciation contributed a negative two cents, and interest expense contributed a negative penny, excluding the impacts of our empire bond securitization. And lastly, tax credits were a little better this year than we had projected, being flat year over year. During the quarter, the company settled the purchase contracts from its green equity units as expected, issuing approximately 76.9 million common shares for proceeds of $1.15 billion. These proceeds were used to reduce existing indebtedness and for general corporate purposes. We ended the quarter with approximately 767 million shares issued and outstanding.

Speaker Change: Turning now to Key Financing Activities.

Speaker Change: During the quarter, the company settled the purchase contracts from its green equity units as expected, issuing approximately 76.9 million common shares for proceeds of $1.15 billion.

Speaker Change: These proceeds were used to reduce existing indebtedness and for general corporate purposes.

Speaker Change: We ended the quarter with approximately 767 million shares issued and outstanding.

Darren Myers: With the conclusion of the equity unit remarketing, and as of June 30th, 2024, we have refinanced approximately $2.5 billion of our borrowings over the 12 trailing 12 months, and we have simplified our capital structure. As Chris mentioned earlier, we are pleased to announce the sale of our renewables business. The transaction proceeds and valuation are compelling. We are pleased to announce the sale of our renewables business. We are pleased to announce the sale of our renewables business.

Speaker Change: With the conclusion of the equity unit remarketing, and as of June 30, 2024, we have refinanced approximately $2.5 billion of our borrowings over the trailing 12 months, and we have simplified our capital structure.

Darren Myers: As Chris mentioned earlier, we are pleased to announce the sale of our renewables business. The transaction proceeds and valuation are compelling. We expect to close the sale in late 2024 or early 2025 and receive net cash proceeds of approximately 1.6 billion dollars after repaying construction financing and other customary adjustments. Proceeds from the renewable sale plus our Atlantic shares will leave us with a very strong balance sheet.

Speaker Change: As Chris mentioned earlier, we are pleased to announce the sale of our renewables business. The transaction proceeds and valuation are compelling.

Darren Myers: We expect to close the sale in late 2024 or early 2025 and receive net cash proceeds of approximately $1.6 billion after repaying construction, financing, and other customary adjustments. Proceeds from the renewable energy sale, plus our Atlantica shares, will leave us with a very strong balance sheet.

Chris: We expect to close the sale in late 2024 or early 2025 and receive net cash proceeds of approximately $1.6 billion after repaying construction, financing, and other customary adjustments.

Chris: Proceeds from the renewable sale, plus our Atlantica shares, will leave us with a very strong balance sheet.

Darren Myers: In addition, as we look forward, we are making changes to be more self-sufficient. We are looking at spending capital at a level just above requisite maintenance, safety, and environmental requirements in order for the company to digest the impacts of investments already made on behalf of our customers. Once we improve our returns to a more appropriate level, we will have the opportunity to increase our capital spending in a disciplined way. With regards to our newly reduced dividend, we see our revised dividend payout as roughly 60 to 70% of our optimized core regulated earnings power on our current assets.

Darren Myers: In addition, as we look forward, we are making changes to be more self-sufficient. We are looking at spending capital at a level just above requisite maintenance, safety, and environmental requirements in order for the company to digest the impacts of investments already made on behalf of our customers. Once we improve our returns to a more appropriate level, we will have the opportunity to increase our capital spending in a disciplined way. With regard to our newly reduced dividend, we see our revised dividend payout as roughly 60% to 70% of our optimized core regulated earnings power on our current assets. And although we are not providing guidance at this time, as described earlier, 2025 earnings will be impacted by rate case time. With that, I'll hand it back to Chris for some closing remarks.

Speaker Change: In addition, as we look forward, we are making changes to be more self-sufficient. We are looking at spending capital at a level just above requisite maintenance, safety and environmental requirements in order for the company to digest the impacts of investments already made on behalf of our customers.

Speaker Change: Once we improve our returns to a more appropriate level,

Speaker Change: We will have the opportunity to increase our capital spending in a disciplined way.

Speaker Change: With regards to our newly reduced dividend, we see our revised dividend payout as roughly 60 to 70% of our optimized core regulated earnings power on our current assets.

Darren Myers: And although we are not providing guidance at this time, as described earlier, 2025 earnings will be impacted by rate case timing.

Speaker Change: And although we are not providing guidance at this time, as described earlier, 2025 earnings will be impacted by rate case timing.

Christopher Huskilson: With that, I'll hand it back to Chris for some closing remarks.

Christopher Huskilson: Thank you, Darren. In summary, we have achieved several major milestones and are delivering on our plan to transform Algonquin into a pure-play regulated utility. We're reducing our capital spend and dividend to position the company for greater long-term value creation. As we look forward, we expect to have a solid balance sheet, a healthy payout ratio, a capital-light path toward earnings, and ultimately, Dividend Group. All under, for the first time, a focused company with a singular business model. It's a tremendous story, and we're excited. With that, we'll open the lines for calls. Operator.

Speaker Change: With that, I'll hand it back to Chris for some closing remarks.

Christopher Huskilson: Okay, thank you, Darren. In summary, we've achieved several major milestones and are delivering on our plan to transform Algonquin into a pure play regulated utility. For reducing our capital spend and dividend, the position of the company for greater long-term value creation. As we look forward, we expect to have a solid balance sheet, a healthy payout ratio, a capital light path towards earnings, and ultimately dividend growth, all under, for the first time, a focused company with a singular business model. It's a tremendous story, and we're excited for the future.

Chris: Okay, thank you, Darren. In summary, we've achieved several major milestones and are delivering on our plan to transform Algonquin into a pure-play regulated utility.

Chris: We are reducing our capital spend and dividend to position the company for greater long-term value creation.

Chris: As we look forward, we expect to have a solid balance sheet.

Chris: A Healthy Payout Ratio, A Capital Light Path Towards Earnings.

Chris: and ultimately dividend growth.

Chris: All under, for the first time, a focused company with a singular business model.

Unknown Executive: With that, we'll open the lines for calls. Operate.

Chris: It's a tremendous story and we're excited for the future.

Operator: Thank you. If you have a question, please press star 1 on your telephone keypad. To withdraw your questions, simply press star 1 again.

Speaker Change: With that, we will open the lines for calls. Operator?

Unknown Executive: Thank you. If you have a question, please press star one on your telephone keypad. So, withdraw your question; simply press star one again.

Speaker Change: Thank you. If you have a question, please press Star 1 on your telephone keypad.

Speaker Change: So withdraw your question.

Unknown Executive: One moment, please, for your first question.

Operator: One moment, please, for your first question. Thank you. Thank you. And your first question comes from the line of Rupert Merer? [inaudible] From National Bay,

Speaker Change: Simply press star 1 again.

Speaker Change: One moment please for your first question.

Speaker Change: And your first question comes from the line of Rupert Merer.

Rupert Merer: The line is open. Good morning, everyone. Congratulations on getting to the conclusion of that deal. Thank you. So if I can start by asking about the net cash proceeds of $1.6 billion, what does the walk-down look like from the sell price? How much of that difference is related to taxes and transaction fees versus construction debt?

Rupert Mayer: From National Bank.

Rupert Mayer: The line is open. Good morning everyone. Congratulations on getting to the conclusion of that deal.

Darren Myers: So, if I can start by asking about the net cash proceeds of 1.6 billion, what does the walk-down look like from the cell price? How much of that difference is related to taxes, transaction fees versus construction debt repayment? Yeah, I mean, Rupert's primarily the construction loans; there is very little tax friction on the deal, consistent with our original expectations. So, the majority of it would be construction loans and then really just the transaction costs and some of the break fees on the app go bonds would be included in that as well.

Speaker Change: Thank you. Thank you, Rupert.

Rupert Mayer: So if I can start by asking about the net cash proceeds of $1.6 billion, what does the walkdown look like from the sell price? How much?

Speaker Change: Of that difference is related to taxes, transaction fees versus construction debt repayment.

Darren Myers: Yeah, I mean, Rupert, it's primarily the construction loans. There is very little tax friction on the deal, consistent with our original expectations. So the majority of it would be construction loans and then, you know, really just the transaction costs and some of the break fees on the APCO bonds would be included in that as well.

Speaker Change: Yeah, I mean, Rupert, it's primarily the construction loans. There's very little tax friction on the deal consistent with our original expectations. So the majority of it would be construction loans and then, you know, really just the transaction costs and some of, you know, the break fees on the, you know, the APCO bonds would be included in that as well.

Darren Myers: Okay, great. And that construction debt is that debt that's currently off balance sheet or you have to be incurred on your development pipeline? Yes, as I mentioned. So, the balance is lower as of the end of Q2, but we expected to get back to, you know, similar levels that was called up around the 700 million marks or just below that by the end of the year as we continue to build out clear-viewing carvers.

Darren Myers: Okay, great. And that construction debt, is that debt that is currently off the balance sheet or yet to be incurred on your development pipeline? Yeah.

Rupert Mayer: Okay, great. And that construction debt, is that debt that's currently off balance sheet or yet to be incurred on your development pipeline?

Darren Myers: Yes, as I mentioned, the balance is lower as of the end of Q2, but we expect it to get back to, you know, similar levels that it was around the 700 million mark or just below that by the end of the year as we continue to build out clear viewing carvers.

Speaker Change: Yes, as I mentioned, the balance is lower as of the end of Q2, but we expect it to get back to similar levels that it was around the 700 million mark, or just below that by the end of the year as we continue to build out clear view and carvers.

Unknown Executive: Great.

Rupert Merer: Great. And then on the transaction itself, can you walk us through it?

Unknown Executive: 2nd quarter of 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers read the marks, there will be a question-in-answer session. If you'd like to ask a question during this time, simply press star one on your telephone t-pad.

Darren Myers: And then on the transaction itself, can you walk us through your thoughts on the evaluation? How much of this is for your development pipeline versus your operating assets? What's your perspective on the multiple that you're getting on? Yeah, listen, we think it's an excellent multiple in a strong transaction. It's always hard to decipher what you're getting for the platform. But clearly, you know, we see this as a, you know, with the urn out at, you know, 12 and a half times type multiple of next year's, you know, EBITDA, like estimated EBITDA. And, you know, without the urn out, you know, more like a close to 11 and a half.

Speaker Change: Great. And then on the transaction itself, can you walk us through your thoughts on the valuation?

Speaker Change: So for your development pipeline versus your operating assets and what's your perspective on the multiple that you're getting on the deal?

Rupert Merer: We think it's an excellent multiple and a strong transaction. It's always hard to decipher what you're getting for the platform, but clearly, we see this as an earn out at 12.5x type.

Brian Chin: I will now turn the conference over to Mr. Brian Chin, vice president of investor relations. Please go ahead. Thanks and good morning everyone.

Speaker Change: Yeah, listen, we think it's an excellent multiple and a strong transaction. It's always hard to, you know, decipher what you're getting for the, you know, the platform. But clearly, you know, we see this as a...

Unknown Executive: Thank you for joining us for our 2nd quarter of 2020. We have 24 earnings conference calls.

Unknown Executive: Speaking on the call, today will be Chris Huskilson, Chief Executive Officer, Darren Myers, Chief Financial Officer, Jeff Norman, President of Renewables, and Sarah McDonald, Chief Transformation Officer. To accompany today's earnings calls, we have a supplemental webcast presentation available on our website, AlgonquinPower.com. Our financial statements and management discussion analysis are also available on the website as well as on Cedar Plus and Edgar. We would like to remind you that our discussion during the call will include certain forward-looking information and non-gap measures.

Speaker Change: You know, as a, you know, with the earn out at, you know, 12 and a half times type multiple of next year's, you know, EBITDA, like estimated EBITDA, and, you know, without the earn out, you know, more like a close to 11 and a half.

Darren Myers: So, you know, really strong multiples. And so clearly there was value seen. And, you know, with the teams built over 30 years in the strong development to pipeline and just the strength of the organization. So we're quite pleased with where that ended up. Yeah, and Rupert, I think we said all along that in order for us to get to a sale of this business, we had to see value for the development pipeline. So, you know, we haven't tried to quantify that, but it's pretty clear to us that we did get paid for that.

Speaker Change: So, you know, really strong multiples and so clearly there was value seen in what the team's built over 30 years and the strong development.

Speaker Change: pipeline and just the strength of the organization. So we're quite pleased with where that ended up.

Rupert Merer: Rupert, I think we said all along that in order for us to get to a sale of this business, we had to see value in the development pipeline. So, you know, we haven't tried to quantify that, but it's pretty clear to us that we did get paid.

Unknown Executive: Actual results differ materially from any forecast or projection contained in such forward-looking information. Certain material factors and assumptions were applied in making the forecast and projections reflected in such forward-looking information. Please note and review the related disclaimers located on slide two of our earnings call presentation at the investor relations section of our website at AlgonquinPower.com. Please also refer to our most recent MDNA file on Cedar Plus and Edgar, and available on our website. We will provide additional important information on these items, including the material factors that could cause actual results to differ materially and the factors and assumptions applied in making such forecasts and projections.

Rupert Mayer: And Rupert, I think we said all along that in order for us to get to a sale of this business, we had to see value for the development pipeline.

Rupert Mayer: So we haven't tried to quantify that, but it's pretty clear to us that we did get paid for that.

Rupert Merer: Very good. I'll leave it there and get back in the queue. Thank you very much. Great. Thanks, Rupert. Thank you.

Rupert Merer: Very good. I'll leave it there and get back in the queue. Thank you very much. Great. Thanks, Rupert.

Rupert Mayer: Very good. I'll leave it there and get back in the queue. Thank you very much. Great. Thanks, Rupert.

Sean Steuart: Your next question comes from the line of Sean Stewart from TD Cohen. Line is open. Thanks.

Operator: Your next question comes from the line of Sean Steuart from T.D. Cohen.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Sean Steuart from T.D. Cohen.

Sean Steuart: Thanks. Good morning, everyone, and congrats on getting this over the line.

Speaker Change: The line is open.

Sean Steuart: Thanks. Good morning, everyone, and congrats on getting this over the line.

Sean Steuart: Chris, the 60 to 70% pay rate ratio on EPS, am I to take it that that is from the starting point 2025 post this asset sale, or is that relative to where you would expect EPS to get to? Uh, as, uh... You're... you're uh... Your rate case is normalized, I suppose.

Sean Steuart: Chris, the 60 to 70% payout ratio on EPS, am I to take it that is from the starting point 2025 post this asset sale, or is that relative to where you would expect EPS to get to?

Christopher Huskilson: On the call this morning, Chris will provide an update surrounding the Renewables Sales Agreement, which was pressed release this morning, and on the company's ongoing strategic transition to a peer-play regulated utility.

Darren Myers: Then Darren will review key highlights pertaining to our regulated and Renewables business groups and our second quarter financial results.

Speaker Change: as your

Darren Myers: Yes, Sean. It's Darren here. Let me just jump in. The target payout has been set based on our current REG assets, you know, fully earning or earning, you know, closer to fully earning. You know, clearly, we're, you know, next year will be our first year as a pure play regulated utility. We're on a multi-year journey, and as Chris highlighted in his prepared remarks, we have the most active REG cases we've had in history, plus the implementation of a major system.

Speaker Change: Your rate case is normalized, I suppose.

Unknown Executive: Darren will also provide some color on the financial outlook following the expected sales of Renewables Business, and then Chris will close with some final remarks. We will then open the lines for the question and answer period. We ask that you kindly restrict your questions to two, then re-cute if you have any additional questions to allow others the opportunity to participate.

Darren Myers: Let me just jump in real. The target payout has been set based on our current reg assets; you know, fully earning or earning, you know, closer to the fully earning. You know, clearly, you know, we're, you know, next year will be our first year as a pure play regulated utility. We were in a multi-year journey, and as Chris highlighted through his, you know, prepare remarks, you know, we have the most active rate cases we've had in history, plus the implementation of a major system. So, you know, from a timing perspective, we do expect some delays in 2025 with improvements in 2026, but is for clarity, you know, that dividend rate has been set based on, you know, the current assets, including the billion dollars, you know, getting recover in that billion dollars of investments.

Speaker Change: Yes, Sean, it's Darren here. Let me just jump in. The target payout has been set based on

Speaker Change: are current reg assets.

Speaker Change: You know, fully earning or earning, you know, closer to fully earning.

Speaker Change: Clearly, next year will be our first year as a pure play regulated utility, we're in a multi-year journey.

Christopher Huskilson: With that, I'll turn it over to Chris. Thank you, Ryan, and good morning, everyone. After being in the CEO role for a year, I'm more convinced than ever that our current path towards a pure-play regulated utility supports our goals to create long-term value, increase our quality of earnings, and bring increased focus to improving our execution.

Speaker Change: And as Chris highlighted through his prepared remarks, you know, we have the most active rate cases we've had in history, plus the implementation of a major system. So, you know, from a timing perspective, we do expect some delays.

Darren Myers: So, you know, from a timing perspective, we do expect some delays in 2025 with improvements in 2026. Clarity, you know, that dividend rate is being set based on, you know, the current assets, including the billion dollars, you know, getting, recovering that billion dollars, of investments we've already made that's not in the dividend rate.

Speaker Change: In 2025 with improvements in 2026, but just for clarity, you know, that dividend rate is being set based on the current assets, including the billion dollars, you know, getting recovering that billion dollars of investments we've already made that's not in rates.

Darren Myers: We've already made that's not in rate. Okay. And then the following question there is you've indicated constraints, capital investment and the regulated base and capital light approach, putting these assets that haven't been recognized in the rate base. How long do you anticipate that capital light approach to last, and how does this feed into your expectation of midterm EPS growth off the reset base? Yeah, well, certainly it really depends on how quickly we can advance the rate cases that we need to advance and in our success rate on those. But I think we're talking about a few years.

Christopher Huskilson: A year ago, I set three priority goals to sell the Renewables Business, optimize the value of AY, and to get the regulated business up and running. Today, I'm pleased to announce the successful sale of our Renewables Business at a valuation of $2.5 billion. As we set out to accomplish in our 2023 Strategic Review, we've achieved a deal at a compelling value for our platform business with strong assets and scale. As we set out to accomplish, sorry.

Sean Steuart: And then the follow-on question there is, you've indicated constrained capital investment in the regulated base and capital light approach, putting these assets that haven't been recognized in the rate base. How long do you anticipate that capital light approach to last? And how does this feed into your expectation of midterm EPS growth off the reset base?

Speaker Change: Okay.

Speaker Change: You've indicated constrained capital investment in the regulated base and capital light approach, putting these assets that haven't been recognized into the rate base. How long do you anticipate that capital light approach to last?

Speaker Change: And how does this feed into your expectation of midterm EPS growth off the reset base?

Christopher Huskilson: Yeah, well, certainly, it really depends on how quickly we can advance the rate cases that we need to advance and our success rate on those. But I think we're talking about a few years. I mean, that's the kind of time frame we'd be expecting.

Speaker Change: Yeah, well, certainly it really depends on how quickly we can advance the rate cases that we need to advance and our success rate on those.

Christopher Huskilson: This agreement between Algonquin and LS Power for the company's non-hydro renewable energy business, consisting of $2.28 billion in cash proceeds and $220 million in an urnode agreement relating to certain wind assets. I just want to take this moment to thank the team from across Algonquin for the tireless efforts that they put in. There's a great job team. Thank you very much.

Darren Myers: I mean, that's the kind of timeframe we'd be expecting. And at the end of the day, what we're really focused on doing is, you know, raising our game when it comes to how we... We work through things with regulators, how we actually make decisions around regulatory investments, and how we just advance this business. There's a substantial amount of work going on to improve the accountability across the business and to improve the ability of our utility leaders to actually run those businesses. And all those things are going to be important parts of all this. John, we have to prove just that to what Chris is saying that we can add more capital in a disciplined way and get appropriate returns with very little regulatory lag.

Speaker Change: But I think we're talking about a few years. I mean, that's the kind of time frame we'd be expecting.

Sean Steuart: And at the end of the day, what we're really focused on doing is, you know, raising our game when it comes to how we work through things with regulators, how we actually make decisions around regulatory investments, and how we just advance this business. You know, there's a substantial amount of work going on to improve accountability across the business and to improve the ability of our utility leaders to actually run those businesses. And all those things are going to be important parts of all this.

Speaker Change: And at the end of the day, what we're really focused on doing is raising our game when it comes to how we work through things with regulators, how we actually make decisions around regulatory investments,

Speaker Change: and how we just advanced this business. There's a substantial amount of work going on to improve the accountability across the business and to improve the ability of our utility leaders to actually run those businesses. And all those things are going to be important parts of all this.

Christopher Huskilson: This major milestone coupled with our previously announced support agreement to sell our Atlantic shares delivers on our plan to transform Algonquin into a pure play regulated utility. Optimize our regulated business activities, strengthen our balance sheet and enhance our quality burdens. As Darren will touch on shortly, we expect to use the proceeds upon close in late 24 or early 2025 to recapitalize our balance sheet and position ourselves for future growth. We're also making progress on our goal to get the regulated business up and running. We reorganized along commodity lines to improve operational efficiency. We recently completed the implementation of our customer first enterprise platform, which promises to deliver value to our customers and substantial efficiencies.

Sean Steuart: Yeah, John, we also have to prove just that to Chris, saying that we can add more capital in a disciplined way and get appropriate returns with very little regulatory lag. And that's, you know, I'm with Chris, probably a few years of restraint, but, you know, we do seek growth after that. And, you know, from the kind of 2025 starting point, we see the ability to really grow earnings without growing capital. So, you know, just by increasing returns and getting more efficient in the business. understood.

Speaker Change: Yeah, John , we have to also, we have to prove, just to add to what Chris is saying, that we can...

John: Add more capital in a disciplined way and get appropriate returns with very little regulatory lag.

Darren Myers: And that's, you know, I'm with Chris for probably a few years of restraint, but, you know, we do see growth after that. And, you know, from the kind of 2025 starting point, we see its ability really to grow earnings without growing capital. So, you know, just by increasing the returns and getting more efficient than the business. Understood.

John: And that's, you know, I'm with Chris and probably a few years of restraint, but, you know, we do see growth after that and, you know, from the kind of 2025 starting point, we see an ability really to grow earnings without growing capital. So, you know, just by increasing the returns and getting more efficient in the business.

Sean Steuart: Okay. That's all I have for now. Thanks, guys.

Unknown Executive: Okay, that's all I have for now. Thanks, guys.

Speaker Change: Understood. Okay, that's all I have for now. Thanks, guys.

Unknown Executive: Okay, thank you.

Unknown Executive: Thank you.

Speaker Change: Okay, thank you.

Unknown Executive: Again, if you'd like to ask a question, press star, then the number one on your telephone keypad.

Operator: Again, if you'd like to ask a question, press star then the number 1 on your telephone keypad. Our next question comes from the line of Nelson Ng, from RBC Capital Market.

Speaker Change: Thank you. Again, if you'd like to ask a question, press star, then the number 1 on your telephone keypad.

Nelson Ng: Our next question comes from the line of Nelson in from our BC Capital Markets. The line's open and go. Thank you. I'm congrats on the transaction. So the first question I just want to have a quick clarification in terms of the 12, 11 and a half to 12 and a half times next year's EBITDA. Is it roughly the run rate EBITDA of the assets, assuming that they're fully constructed and commissioned, and does it exclude the development expenses that you have within that business? Yeah, you got it. Yeah, okay.

Speaker Change: Our next question comes from the line of Nelson Ng from RBC Capital Markets.

Christopher Huskilson: We added three new experienced board members with extensive infrastructure and regulated utility experience.

Nelson Ng: Thank you and congrats on the transaction. So the first question I just want to have a quick clarification. In terms of the 11.5 to 12.5 times next year's EBITDA, are

Nelson Ng: Next year's EBITDA R. Brian Chin, Paul Zimbardo, Rupert Merer, Is it roughly the run rate EBITDA of the assets, assuming that they're fully? Contractor 1 of Corsair Utilities Corporation Patent Hadlee Clark, Inc. Yeah, you got it Nelson. Yep. Okay. Got it. Perfect.

Speaker Change: Is it roughly the run rate EBITDA of the assets, assuming that they're fully...

Christopher Huskilson: In addition, we're making changes at the executive level. Yesterday, the company appointed Sarah McDonald as chief transformation officer. In her new role, Sarah will assume responsibility for utility operations and customer service. Sarah is a lawyer by training and has more than two decades of legal human resources and operational experience. She has a broad background having worked in the utility sector for more than 20 years, including roles in utility construction as president and CEO of the AmeriCorps European and as president of Tico Services.

Speaker Change: constructed and commissioned? And does it exclude the development expenses that you have within that business? Yeah, you got it. Yep. Okay.

Darren Myers: And then the next question is this more about capital allocation, like obviously you will need to start the hydro sales process shortly if you haven't already started. But like with the proceeds, can you just talk about capital allocation in terms of jet reduction, share buybacks, and. And I guess it's utility growth sometime, well, what that's next year or the year after. Yeah, Nelson, I mean, really for us it's around getting that strong balance sheet, you know, right side of the dividend. You know, primarily this is all going to debt, debt repayment. And of course, you know, with that strong balance, we will have some flexibility to make different choices from there.

Nelson Ng: The next question is more about capital allocation. Obviously, you will need to start the hydro sales process shortly if you haven't already started, but with the proceeds... Can you just talk about capital allocation in terms of jet reduction, share buybacks, and utility growth sometime, whether that's next year or the year after that.

Speaker Change: And then the next question is more about capital allocation. Obviously, you will need to start the hydro sales process shortly if you haven't already started, but like with the proceeds

Speaker Change: Can you just talk about capital allocation in terms of debt reduction?

Speaker Change: share buybacks and

Speaker Change: I guess it's utility growth sometime, whether that's next year or the year after.

Christopher Huskilson: As part of this announcement, chief operating officer Johnny Johnson has left the company. I'd like to personally thank Johnny for his dedication and service and his commitment as we wish him the best for his future endeavors.

Nelson Ng: Yeah, Nelson, I mean, really, for us, it's around getting that strong balance sheet, you know, the right size in the dividend, primarily, this is all going to debt repayment. And of course, with that strong balance sheet, we will have some flexibility to make different choices from there. But the primary focus is really to be more self-sustaining, you know, build on what we have today and just be in a position of strength.

Speaker Change: Yeah, Nelson, I mean really for us it's around getting that strong balance sheet, you know, right size and a dividend.

Speaker Change: You know, primarily, this is all going to debt repayment, and of course, you know, with that strong balance sheet, we will have some flexibility to make different choices from there, but the primary focus is really to

Darren Myers: But the primary focus is really to be more self-sustaining, you know, earn on what we have today and just being in a position of strength. And I'd say, Nelson, we're not ruling out buybacks by the end of the day; it's flexibility that we want and strength in our balance sheet. Those are those are the two things that are that are primarily on our minds. And so you know, at the end of the day, we'll make those decisions as time unfolds. Okay, so primarily debt repayment, but not ruling out buybacks. That's right. Okay, thank you. I'll leave it there and get back in the queue.

Speaker Change: Be more self-sustaining, earn on what we have today, and just be in a position of strength.

Nelson Ng: Yeah, and I'd say, Nelson, we're not ruling out by-backs, but at the end of the day, it's flexibility that we want and strength on our balance sheet. Those are the two things that are primarily on our minds. And so, you know, at the end of the day, we'll make those decisions as time unfolds. And so, you know, we're not ruling out by-backs, but at the end of the day, we'll make those decisions as time unfolds. Okay, so primarily,

Nelson Ng: And I'd say, Nelson, we're not ruling out buybacks, but at the end of the day, it's flexibility that we want and strength in our balance sheet. Those are the two things that are primarily on our minds. And so, you know, at the end of the day, we'll make those decisions as time unfolds.

Christopher Huskilson: As a result, we will be reducing our regulated CAPEX for 2025. Also as part of our objectives to be more self-sufficient, the board has decided to right-side the dividend, so we're not chasing a high-pay-out ratio and excessive equity raises. These are necessary steps that we expect to unlock more value in the long-term for our shareholders.

Nelson Ng: Okay, so primarily debt repayment but not ruling out buyback. Correct. That's right. Okay. Thank you. I'll leave it there and get back.

Nelson Ng: Okay, so primarily debt repayment, but not ruling out buybacks.

Nelson Ng: Correct. That's right. Okay. Thank you. I'll leave it there and get back to you.

Unknown Executive: Okay, thank you.

Mark Jarvi: Thank you. Our next question comes from the line of Mark Jarvi from CIBC Capital Markets.

Speaker Change: Okay, thank you.

Operator: Our next question comes from the line of Mark...

Speaker Change: Thank you. Our next question comes from the line of Mark Jarvi from CIBC Capital Markets.

Darren Myers: The line is open. Can you explain the sort of change in tone around the utility span that originally it was that if the balance sheet was in a better position, you got the proceeds, you could accelerate span. It's kind of going the opposite way here. I get the issues of regulatory lag, but just understand what's kind of transpired a lot. A few months to your recorder that really does have you really cutting back is it's just more challenging regulatory environment to push out into the right cases.

Speaker Change: The line is open.

Mark Jarvi: Can you give us a bit more? Yeah, yeah, lots to unpack here, very busy, that's the deal. Can you explain the sort of change in tone around utility spend? Originally, it was that if the balance sheet was in a better position, you got the proceeds, you could accelerate spending. It's kind of going the opposite way here. I get the issues of regulatory lag, but just to understand what's kind of transpired over the last few months here, a quarter, that really has you really cutting back? Is it just a more challenging regulatory environment, the push out in some of the rate cases? It does seem a bit of a departure from what you guys were signaling before.

Mark Jarvie: Hey, good morning everyone.

Mark Jarvi: Can I, can you give us a bit more, yeah, yeah, lots unpacked here, very busy, that's the deal.

Mark Jarvi: Can you explain the sort of change in tone around utility spend? Originally it was that if the balance sheet was in a better position, you got the proceeds, you could accelerate spend. It's kind of going the opposite way here. I get the issues of regulatory lag, but just to understand what's kind of transpired over the last

Speaker Change: A few months here, a quarter that really does have you really cutting back. Is it just more challenging regulatory environment, the push out in some of the rate cases? It does seem a bit of a departure from what you guys were signalling before.

Darren Myers: It does seem a bit of a departure from what you guys were signaling before. Yeah, well, so we still see that future as has been described as our future. But at the end of the day, we also believe we need to put a substantial amount of discipline into this business. And so, as we work through accountability and how we want to structure and run our utilities, at the end of the day, the main word is discipline. And so we want to be absolutely certain that we understand when we put a dollar of capital in the business, how we're going to recover that dollar of capital and how that's going to advance our relationship with our customers, service to our customers, and ultimately the value for our shareholders.

Christopher Huskilson: And other is our customer first SAP program, which as I mentioned earlier just completed its final implementation. Our investment in the platform has been approved in six of our smaller jurisdictions but is not yet reflected in customer rates for the majority of our utilities. Our customer first program is a world-class platform designed to facilitate greater operational efficiency and utility integration or improved customer service. It's worth calling out that we are now in the typical post-conversion adjustment period for these types of systems. Our system implementation combined with our most active rate case calendar in our history is causing some delays in our rate case filings, which we're working through.

Christopher Huskilson: Yeah, well, so we still see that future as it has been described as our future, but at the end of the day, we also believe we need to put a substantial amount of discipline into this business. And so as we work through accountability and how we want to structure and run our utilities, at the end of the day, the main word is discipline. And so we want to be absolutely certain that we understand when we put a dollar of capital in the business, how we're going to recover that dollar of capital, and how that's going to advance our relationship with our customers, the service to our customers, and ultimately the value for our shareholders.

Speaker Change: Yeah, well, so we still see that future as has been described as our future.

Speaker Change: But at the end of the day, we also believe we need to put a substantial amount of discipline into this business.

Speaker Change: And so as we, you know, as we work through accountability and how we want to structure and run our utilities, at the end of the day, you know, the main word is discipline.

Speaker Change: And so, you know, we want to be absolutely certain that we understand when we put a dollar of capital in the business, how we're going to recover that dollar of capital and how we're going to, how that's going to advance our relationship with our customers.

Christopher Huskilson: And so that's really what we're working on as we speak. And as I said, you know, one of my three original goals was to get the business up and running, the regulated business up and running, as a normal regulated utility. And I've said to people all along for the past year that this utility was cobbled together. It wasn't running the way I would have expected it to run.

Speaker Change: and ultimately, the value for our shareholders. And so that's really what we're working as we speak.

Christopher Huskilson: And so that's really what we're working on as we speak. And as I said, one of my three goals originally was to get the business up and running, the regulated business up and running as a normal regulated utility. And I said to people all along for the past year that this utility was cobbled together. It wasn't running the way I would have expected it to run. And as we learn more about how it runs and the discipline that it needs in order to be a good solid investment for folks, that's really what we've come to.

Christopher Huskilson: In terms of our rate case filings, I also want to call out changes to our expected regulatory calendar in a few of our jurisdictions, namely Missouri, New Hampshire and California. In respect to these jurisdictions, we're expecting delays of one to two quarters, which will shift the beginning of our recovery closer to 2026. These delays will, of course, impact short-term earnings. While we have some challenges in the short term, the substantial value here is a disciplined capital light trajectory to improve returns.

Speaker Change: And as I said, you know, one of my three goals originally was to get the business up and running, the regulated business up and running as a normal regulated utility.

Speaker Change: And I've said to people all along for the past year that this

Speaker Change: Utility was cobbled together. It wasn't running the way I would have expected it to run.

Christopher Huskilson: And as we learn more about how it runs and the discipline that it needs in order to be a good, solid investment for folks, that's really what we've come to. And that opportunity to do capital-light growth is one that is pretty unique, and we're happy to be able to take advantage of that. And Mark, maybe just to add to that, nothing has changed from our view that we originally came out with, which is the ability to invest a billion dollars a year in this business.

Speaker Change: And as we, you know, learn more about how it runs and the discipline that it needs in order to be a good, solid investment for folks.

Darren Myers: And that opportunity to do to do capital light growth is one that is pretty unique, and we're happy to be able to take advantage of that. Mark, we just know that just that that is nothing is changed from our view that we originally came out with, which is the ability to invest a billion dollars a year in this business. But I would say, I don't know if it's a change in tone because we think being very consistent; we need to get more discipline in the business. And if we don't have that right discipline, we can't go spend the capital.

Speaker Change: That's really what we've come to.

Speaker Change: And that opportunity to do capital light growth is one that is pretty unique and we're happy to be able to take advantage of it.

Darren Myers: With that, I'll turn it over to Darren. Thank you, Chris and good morning everyone.

Darren Myers: I'll start with the regulated services group. During the second quarter of 2024, we received the final order for our Balco utility in Bermuda, authorizing a revenue increase totaling $33.6 million over two years. New rates became effective in August 1st, 2024. In New York, we filed a joint proposal with the New York Department of Public Services staff resolving all contested issues in a final order as expected sometime in the third quarter. The regulated services group currently has pending 14 rate reviews totaling $131 million as of quarter end.

Speaker Change: Nothing has changed from our view that we originally came out with, which is the ability to invest $1Bn a year in this business, but I would say, I don't know if it's a change in tone, because we've

Christopher Huskilson: But I would say, you know, I don't know if it's a change in tone because we think being very consistent, we need to get more discipline in the business. And if we don't have that right discipline, we can't go and spend the capital. We need to be good stewards of capital and do good things for our customers and for our shareholders. You're seeing us; we need to be better at our returns. And once we are there, we will spend more capital.

Speaker Change: I think being very consistent, we need to get more discipline in the business, and if we don't have that right discipline, we can't go spend the capital. We need to be good stewards of the capital and do good things for our customers and for our shareholders. So you're seeing us.

Darren Myers: We need to be good stewards of a capital. And we do things for our customers and for our shareholders. So you're seeing us, you know, we're not, we need to be better on our returns. And once we are there, we will spend more capital. Understood. And then Darren, coming back to the question of where do the proceeds go? It doesn't sound like it's buyback. You did mention that the AFCO bonds was a breakthrough. So I assume those get repaid as well as obviously the construction of financing. If you think about then the residual proceeds, what you expect to get from Atlantica, you may be at a point where you don't have to pay more, you know, pulling rate debt or variable rate debt and you're be at your credit metrics.

Speaker Change: You know, we're not, we need to be better on our returns and once we are there, we will spend more capital.

Mark Jarvi: Understandable. And then Darren, coming back to the question of where the proceeds go, it doesn't sound like it's a buyback. You did mention that the AFCO bonds were a break-free, so I assume those get repaid as well as obviously the construction financing. If you think about the residual proceeds, what do you expect to get from Atlantica? You may be at a point where you don't have to pay more, you know, point in rate debt or variable rate debt, and you'll be at your credit metrics. Will you sit on a cash balance for a while? Is that the expectation here as you work through the repositioning of the utility franchise?

Speaker Change: Coming back to the question of where the proceeds go, it doesn't sound like it's buyback. You did mention that the APCO bonds were a break-free, so I assume those get repaid, as well as the construction financing. If you think about the residual proceeds, what you expect to get from Atlantica,

Darren Myers: Turning now to a brief update on our Renewables Energy Group, our construction trajectory for Renewables remains untracked. Our construction loan balances fall into $405 million due to the buyout of the new market solar and shady oakstool project. By year end, we expect that loan balance to round trip back up to similar level where we started the year through the completion of construction at Carver's Creek and Clearview.

Speaker Change: You may be at a point where you don't have to pay more, you know, point rate debt or variable rate debt and you'll be at your credit metrics. Will you sit on a cash balance for a while? Is that the expectation here as you work through the repositioning of the utility franchise?

Darren Myers: Will you sit on a cash balance for a while? Is that the expectation here as you work through the reposition of the utility franchise? Yeah, I think we'll continue to look at what's with most optimal capital structure is after I think there's lots of options to repaid that but have the ability to obviously flex up credit facilities up and down. So we'll give more of that, and we do plan, you know, as we've said before, and we get closer to the closure of the renewables business to provide an investor, investor day update to give you, you know, lots of the questions that I know you that you have.

Darren Myers: We'll now turn to our financial results. Our second quarter financial performance delivered growth in each of our key financial metrics, EBITDA, adjusting that earnings and adjusting that earnings per share with double digit increases compared to the same period last year. Operating profit growth for both the regulated renewables business were largely as expected with regulated growing 7% and renewables growing 31%. Adjusted EBITDA was $311 million up 12% from the same period last year. Adjusted net earnings worth $65.2 million in increase of 16%. On a per share level, our second quarter adjusting that earnings per share was $0.9 a 13% increase from the second quarter of last year.

Darren Myers: Yeah, I think we'll continue to look at what the optimal capital structure is after. I think there are lots of options to repay debt but have the ability to, you know, obviously flex up credit facilities up and down. So we'll give more of that, and we do plan, you know, as we've said before, as we get closer to the closure of the renewables business, to provide an investor day update to give you, you know, lots of the questions that I know that you have.

Speaker Change: Yeah, I think we'll continue to look at what's the most optimal capital structure is after. I think there's lots of options to repay debt but have the ability to, you know, obviously flex up credit. Transcribed by https://otter.ai

Speaker Change: Facilities up and down. So we'll give more of that. And we do plan, as we've said before, we get closer to the closure of the renewables business to provide an Investor Day update to give you lots of the questions that I know that you have.

Mark Jarvi: And just remember, a fair bit of time will pass before this cash actually comes to us. So that's another factor in this. It's going to take some time to get through the regulatory approvals and so on that we need for these transactions, including AY. We're not sure exactly when that will get approved either.

Darren Myers: And you know, just remember, fair bit of time. We'll pass before this cash actually comes to us. So that's, you know, that's another factor in this. It's going to take some time to get through the regulatory approvals and so on that we need for these investments for these transactions, including AY. You know, we're not, we're not sure exactly when that will get approved either. Right.

Speaker Change: Yeah, and you know, just remember, a fair bit of time will pass before this cash actually comes to us.

Speaker Change: So that's another factor in this. It's going to take some time to get through the regulatory approvals and so on that we need for these transactions, including AY. We're not sure exactly when that will get approved either.

Darren Myers: Let me briefly discuss individual EPS drivers. First, weather return to a more normalized level, contributing approximately 3 cents to the upside year over year. Second, a regulated business operating profit grew organically by 2 cents, primarily due to new rate implementations of several of the company's electric gas and water utilities. However, this was offset by negative 2 cents year over year due to last year's benefit of the one-time retroactive rate order in California.

Darren Myers: And then just, Darren, as a follow-up, improve disclosure assurance and views, and pro forma utility business after the close of the sale. I know you're trying to infer to us where the earnings are going to be with the payout ratio, but is there something where you could actually show the trajectory as you go into 25, 26, 27? Is it something where you think you could give it more explicitly on the earnings outlook on an annual basis, that is, guidance on a multi-year basis or just a cadence of the EPS. [inaudible]

Darren Myers: And then just there is a follow-up of improved disclosure, sharing some views, pro-former utility business after the close of the sale. I know you're trying to infer to us where the earnings is going to be with the payout ratio, but is there something where you could actually show the trajectory as you go into 25, 26, 27? Is that something where you think you could give the more explicit on the earnings outlook on an annual basis, whether it's guidance on a multi-year basis or we're just like cadence of the EPS, you know, uplift over time. Yeah, no, absolutely.

Darren: Right, and then just Darren, as a follow-up, improve disclosure assurance and views pro forma utility business after the close of the sale.

Speaker Change: I know you're trying to infer to us where the earnings is going to be with the payout ratio, but is there something where you could actually show the trajectory as you go into 2025, 2026, 2027?

Speaker Change: Is there something where you think you could be a bit more explicit on the earning outlook on an annual basis, whether that's guidance on a multi-year basis or just a cadence of the EPS?

Darren Myers: Renewables also organically grew by 2 cents driven by contributions from new wind facilities to your Phil 2 and Sandy Rich 2 brought online last year. This was offset by negative penny due to development cost expenses in part as a result of the simplification of our JV entity as discussed in prior quarters. Depreciation contributed negative 2 cents and interest expense contributed negative penny excluding the impacts of our empire bond securitization. And lastly, tax credits were a little better this year than we had projected being flat year over year.

Darren Myers: Uplifts over time. Yeah, no, absolutely. We will, like I said, at an investor day, give you as much transparency as we can, so that you understand what we're doing and what you should be holding us accountable for. We're not prepared to do that today, but we definitely will, as we get closer to the close of the deal, give you more.

Speaker Change: You know, uplifts over time.

Darren Myers: We will, like I said, at an investor day, we'll give you, you know, as much transparency as we can so that you understand what we're doing and what you should be holding us accountable to. We're not prepared to do that today, but we definitely will as we get closer to the closer of the deal, give you more. Yeah, and as we get into these regulatory processes, we'll have a better idea to win these things might close. So, you know, that will, that will be the biggest, biggest factor is when, when did we actually see the proceeds?

Speaker Change: Yeah, no, absolutely. We will, like I said, at an investor day, we'll give you, you know.

Speaker Change: As much transparency as we can so that you understand what we're doing and what you should be holding us accountable to. We're not prepared to do that today, but we definitely will as we get closer to the closure of the deal and give you more. Yeah, and as we get into some of these regulatory processes, we'll have a better idea as to when these things might close.

Darren Myers: As we get into some of these regulatory processes, we'll have a better idea as to when these things might close. So that will be the biggest factor, when do we actually see the process close.

Darren Myers: Turning now to key financing activities. During the quarter, the company settled the purchase contracts from its green equity units as expected, issuing approximately 76.9 million common shares for proceeds of 1.15 billion dollars. These proceeds were used to reduce existing indebtedness and for general corporate purposes. We ended the quarter with approximately 767 million shares issued and outstanding. With the conclusion of the equity unit remarketing and as of June 30, 2024, we have refinanced approximately 2.5 billion dollars of our borrowings over the 12 trailing 12 months and we have simplified our capital structure.

Speaker Change: So that will be the biggest factor is when do we actually see the proceeds.

Mark Jarvi: Understandable. Thanks for the time today. I appreciate it. Yep. Thanks, Mark.

Mark Jarvi: understood. Thanks for your time today. I appreciate it.

Unknown Executive: Hunter said, "Thanks for the time today." Appreciate it. Yep, that works.

Unknown Executive: Thank you. There are no further questions at this time.

Speaker Change: Understood. Thanks for the time today. Appreciate it. Thanks, Mark.

Operator: There are no further questions at this time. I'll try to call over Mr. Chris Huskelson.

Speaker Change: Thank you.

Christopher Huskilson: I'll try to call over to Mr. Chris Huskelson. Okay, well, with that, we'd like to thank everyone for their interest in Ogonquin, and, also, again, I want to thank the team from across the entire business that actually pulled this together, the folks in the renewable side and the folks across the, across the business. This was a tremendous effort, and obviously, very successful. So, thank you all for that.

Speaker Change: There are no further questions at this time. I'll turn the call over to Mr. Chris Huskilson.

Christopher Huskilson: Okay, well, with that, we'd like to thank everyone for their interest in Algonquin, and also, again, I want to thank the team from across the entire business that actually pulled this together, the folks on the renewable side and the folks across the business. It was a tremendous effort and obviously very successful, so thank you all for that, and thank you for your time today.

Chris Huskilson: Okay, well with that, we'd like to thank everyone for their interest in Algonquin and also, again, I want to thank the team.

Speaker Change: From across the entire business that actually pulled this together, the folks in the renewable side and the folks across the business.

Operator: This concludes today's conference call. You may now disconnect.

Chris Huskilson: This was a tremendous effort and obviously very successful, so thank you all for that and thank you for your time today.

Unknown Executive: And, and thank you for your time today.

Unknown Executive: This concludes today's conference call. You may now disconnect.

Speaker Change: This concludes today's conference call. You may now disconnect.

Darren Myers: In addition, as we look forward, we are making changes to be more self-sufficient. We are looking at spending capital at a level just above requisite maintenance, safety and environmental requirements in order for the company to digest the impacts of investments already made on behalf of our customers. Once we improve our returns to a more appropriate level, we will have the opportunity to increase our capital spending in a disciplined way. With regards to our newly reduced dividend, we see our revised dividend payout as roughly 60 to 70% of our optimized core regulated earnings power on our current assets. And although we are not providing guidance at this time, as described earlier, 2025 earnings will be impacted by rate case timing.

Christopher Huskilson: With that, I'll hand it back to Chris for some closing remarks. Okay, thank you, Darren. In summary, we've achieved several major milestones and are delivering on our plan to transform Algonquin into a pure play regulated utility.

Christopher Huskilson: For reducing our capital spend and dividend, the position of the company for greater long-term value creation. As we look forward, we expect to have a solid balance sheet, a healthy payout ratio, a capital light path towards earnings, and ultimately dividend growth, all under for the first time a focused company with a singular business model. It's a tremendous story and we're excited for the future.

Unknown Executive: With that, we'll open the lines for calls, operate. Thank you. If you have a question, please press star one on your telephone keypad. So, withdraw your question simply press star one again. One moment please for your first question.

Rupert Merer: And your first question comes from the line of Rupert Mayor from National Bank. The line is open. Hi, yeah. Good morning, everyone. Congratulations on getting to the conclusion of that deal. Thank you, Rupert. So, if I can start by asking about the net cash proceeds of 1.6 billion, what does the walk-down look like from the cell price? How much of that difference is related to taxes, transaction fees versus construction debt repayment?

Rupert Merer: Yeah, I mean, Rupert's primarily the construction loans is very little tax friction on the deal consistent with our original expectations. So, the majority of it would be construction loans and then really just the transaction costs and some of the break fees on the app go bonds would be included in that as well. Okay, great. And that construction debt is that debt that's currently off balance sheet or you have to be incurred on your development pipeline?

Rupert Merer: Yes, as I mentioned. So, the balance is lower as of the end of Q2, but we expected to get back to, you know, similar levels that was called up around the 700 million marks or just below that by the end of the year as we continue to build out clear-viewing carvers. Great. And then on the transaction itself, can you walk us through your thoughts on the evaluation? How much of this is for your development pipeline versus your operating assets?

Rupert Merer: What's your perspective on the multiple that you're getting on? Yeah, listen, we think it's an excellent multiple in a strong transaction. It's always hard to decipher what you're getting for the platform. But clearly, you know, we see this as a, you know, with the urn out at, you know, 12 and a half times type multiple of next year's, you know, epita, like estimated epita. And, you know, without the urn out, you know, more like a close to 11 and a half.

Nelson Ng: Thank you, hon. Congratulations on the transaction. So the first question I just want to have a quick clarification on the 11 and a half to 12 and a half times.

Rupert Merer: So, you know, really strong multiples. And so clearly there was value seen. And, you know, with the teams built over 30 years in the strong development to pipeline and just the strength of the organization. So we're quite pleased with where that ended up. Yeah, and Rupert, I think we said all along that in order for us to get to a sale of this business, we had to see value for the development pipeline. So, you know, we haven't tried to quantify that, but it's pretty clear to us that we did get paid for that.

Darren Myers: Very good. I'll leave it there and get back in the queue. Thank you very much. Great. Thanks, Rupert. Thank you.

Sean Steuart: Your next question comes from the line of Sean Stewart from TD Cohen. Line is open. Thanks.

Sean Steuart: Good morning, everyone. Congrats on getting us over the line. Chris, the 60 to 70% pay a ratio on EPS. Am I to take it that is from the starting point, 2025 post this, this asset sale, or is that relative to where you would expect EPS to get to as your, your rate cases normalize, I suppose. Yes, Sean, it's down here. Let me just jump in real. The target payout has been set based on our current reg assets, you know, fully earning or earning, you know, closer to the fully earning, you know, clearly, you know, we're, you know, next year will be our first year as a pure play regulated utility.

Sean Steuart: We were in a multi-year journey and as Chris highlighted through his, you know, prepare remarks, you know, we have the most active rate cases we've had in history, plus the implementation of a major system. So, you know, from a timing perspective, we do expect some delays in 2025 with improvements in 2026, but is for clarity, you know, that dividend rate has been set based on, you know, the current assets, including the billion dollars, you know, getting recover in that billion dollars of investments. We've already made that's not in rate.

Sean Steuart: Okay. And then the following question there is you've indicated constraints, capital investment and the regulated base and capital light approach, putting these assets that haven't been recognized in the rate base. How long do you anticipate that capital light approach to last and how does this feed into your expectation of midterm EPS growth off the reset base? Yeah, well, certainly it really depends on how quickly we can advance the rate cases that we need to advance and in our success rate on those.

Sean Steuart: But I think we're talking about a few years. I mean, that's the kind of timeframe we'd be expecting. And at the end of the day, what we're really focused on doing is, you know, raising our game when it comes to how we... We work through things with regulators, how we actually make decisions around regulatory investments and how we just advance this business. There's a substantial amount of work going on to improve the accountability across the business and to improve the ability of our utility leaders to actually run those businesses.

Sean Steuart: And all those things are going to be important parts of all this. John, we have to prove just that to what Chris is saying that we can add more capital in a disciplined way and get appropriate returns with very little regulatory lag. And that's, you know, I'm with Chris for probably a few years of restraint, but, you know, we do see growth after that. And, you know, from the kind of 2025 starting point, we see it ability really to grow earnings without growing capital. So, you know, just by increasing the returns and getting more efficient than the business.

Unknown Executive: Understood.

Unknown Executive: Okay, that's all I have for now. Thanks, guys.

Unknown Executive: Okay, thank you. Thank you. Again, if you'd like to ask a question, press star, then the number one on your telephone keypad.

Nelson Ng: Our next question comes from the line of Nelson in from our BC capital markets. The line's open and go. Thank you, I'm congrats on the transaction. So the first question I just want to have a quick clarification in terms of the 12 11 and a half to 12 and a half times next year's EBITDA. Is it roughly the run rate EBITDA of the assets assuming that they're fully constructed and commissioned and does it exclude the development expenses that you have within that business?

Nelson Ng: Yeah, you got it. Yeah, okay. And then the next question is this more about capital allocation, like obviously you will need to start the hydro sales process shortly if you haven't already started. But like with the proceeds, can you just talk about capital allocation in terms of jet reduction, share buybacks and. And I guess it's utility growth sometime, well, what that's next year or the year after. Yeah, Nelson, I mean, really for us it's around getting that strong balance sheet, you know, right side of the dividend, you know, primarily this is all going to debt, debt repayment.

Nelson Ng: And of course, you know, with that strong balance, we will have some flexibility to make different choices from there. But the primary focus is really to be more self-sustaining, you know, earn on what we have today and just being a position of strength. And I'd say Nelson, we're not ruling out buybacks by the end of the day, it's flexibility that we want and strength in our balance sheet. Those are those are the two things that are that are primarily on our minds.

Nelson Ng: And so you know, at the end of the day, we'll make those decisions as time unfolds. Okay, so primarily debt repayment, but not ruling out buybacks. That's right. Okay, thank you. I'll leave it there and get back in the queue. Okay, thank you. Thank you.

Mark Jarvi: Our next question comes from the line of Mark Jarvi from CIBC Capital Markets. The line is open.

Mark Jarvi: Can you explain the sort of change in tone around the utility span that originally it was that if the balance sheet was in a better position, you got the proceeds, you could accelerate span. It's kind of going the opposite way here. I get the issues of regulatory lag but just understand what's kind of transpired a lot. A few months to your recorder that really does have you really cutting back is it's just more challenging regulatory environment to push out into the right cases.

Mark Jarvi: It does seem a bit of a departure from what you guys were signaling before. Yeah, well, so we still see that future as has been described as our future. But at the end of the day, we also believe we need to put a substantial amount of discipline into this business. And so as we work through accountability and how we want to structure and run our utilities, at the end of the day, the main word is discipline.

Mark Jarvi: And so we want to be absolutely certain that we understand when we put a dollar of capital in the business how we're going to recover that dollar of capital and how we're going to how that's going to advance our relationship with our customers, service to our customers, and ultimately the value for our shareholders. And so that's really what we're working as we speak. And as I said, one of my three goals originally was to get the business up and running, the regulated business up and running as a normal regulated utility.

Mark Jarvi: And I said to people all along for the past year that this utility was cobbled together. It wasn't running the way I would have expected it to run. And as we learn more about how it runs and the discipline that it needs in order to be a good solid investment for folks, that's really what we've come to. And that opportunity to do to do capital light growth is one that is pretty unique, and we're happy to be able to take advantage of that.

Mark Jarvi: Mark, we just know that just that that is nothing is changed from our view that we originally came out with, which is the ability to invest a billion dollars a year in this business. But I would say, I don't know if it's a change in tone because we think being very consistent, we need to get more discipline in the business. And if we don't have that right discipline, we can't go spend the capital.

Mark Jarvi: We need to be good stewards of a capital. And we do things for our customers and for our shareholders. So you're seeing us, you know, we're not, we need to be better on our returns. And once we are there, we will spend more capital. Understood.

Darren Myers: And then Darren, coming back to the question of where does the proceeds go? It doesn't sound like it's buyback. You did mention that the AFCO bonds was a breakthrough. So I assume those get repaid as well as obviously the construction of financing. If you think about then the residual proceeds, what you expect to get from Atlantica, you may be at a point where you don't have to pay more, you know, pulling rate debt or variable rate debt and you're be at your credit metrics.

Darren Myers: Will you sit on a cash balance for a while? Is that the expectation here as you work through the reposition of the utility franchise? Yeah, I think we'll continue to look at what's with most optimal capital structure is after I think there's lots of options to repaid that but have the ability to obviously flex up credit facilities up and down so we'll give more of that and we do plan, you know, as we've said before and we get closer to the closure of the renewables business to provide an investor, investor day update to give you, you know, lots of the questions that I know you that you have.

Darren Myers: And you know, just remember, fair bit of time. We'll pass before this cash actually comes to us. So that's, you know, that's another factor in this. It's going to take some time to get through the regulatory approvals and so on that we need for these investments for these transactions, including AY, you know, we're not, we're not sure exactly when that will get approved either. Right.

Mark Jarvi: And then just there is a follow-up of improved disclosure, sharing some views, pro-former utility business after the close of the sale. I know you're trying to infer to us where the earnings is going to be with the payout ratio, but is there something where you could actually show the trajectory as you go into 25, 26, 27? Is that something where you think you could give the more explicit on the earnings outlook on an annual basis, whether it's guidance on a multi-year basis or we're just like cadence of the EPS, you know, uplift over time.

Mark Jarvi: Yeah, no, absolutely. We will, like I said, at an investor day, we'll give you, you know, as much transparency as we can so that you understand what we're doing and what you should be holding us accountable to. We're not prepared to do that today, but we definitely will as we get closer to the closer of the deal, give you more. Yeah, and as we get into these regulatory processes, we'll have a better idea to win these things might close. So, you know, that will, that will be the biggest, biggest factor is when, when did we actually see the proceeds? Hunter said, thanks for the time today. Appreciate it. Yep, that works. Thank you.

Unknown Executive: There are no further questions at this time.

Christopher Huskilson: I'll try to call over to Mr. Chris Huskelson. Okay, well, with that, we'd like to thank everyone for their interest in Ogonquin and, and also, again, I want to thank the team from across the entire business that actually pulled this together, the folks in the renewable side in the folks across the, across the business. This was a tremendous effort, and obviously, very successful. So, thank you all for that. And, and thank you for your time today.

Unknown Executive: This concludes today's conference call. You may now disconnect.

Q2 2024 Algonquin Power & Utilities Corp Earnings Call

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