Q1 2025 Algonquin Power & Utilities Corp Earnings Call
Hello, and welcome to the Algonquin power and Utilities Corp, first quarter 'twenty 25 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time.
Speaker Change: Some pes crashed star one on your telephone keypad I will now turn the conference over to Mr. Brian Chin interim Chief Financial Officer, and Vice President of Investor Relations. Please go ahead.
Brian Chin: Thank you operator, and good morning, everyone. Thank you for joining us for first quarter 2025 earnings Conference call. Joining me on the call today will be Rod West Chief Executive Officer, and Sarah Macdonald Chief Transformation Officer.
Brian Chin: To accompany today's earnings call, we have a supplemental webcast presentation available on our website Algonquin power Dot com.
Brian Chin: Statements and management discussion and analysis are also available on the website as well as on SEDAR and Edgar.
Brian Chin: I'd like to remind you that our discussion during the call will include certain forward looking information and non-GAAP measures.
Brian Chin: Actual results could differ materially from any forecast or projection contained in such forward looking information certain material factors or assumptions were applied in making the forecasts and projections reflected in such forward looking information.
Brian Chin: Please note and review the related disclaimers located on slide to our earnings call presentation at the Investor Relations section.
Brian Chin: Our website at Algonquin power Dot com.
Brian Chin: Please also refer to our most recent MD&A filed on SEDAR, plus and Edgar and available on our website for additional important information on these items.
Brian Chin: On the call. This morning, Ron will provide brief commentary on his first 60 days at Algonquin followed by a review of key highlights in operational updates for the quarter.
Speaker Change: I will then detail our financial results. We will then open the lines for questions. We kindly ask that you restrict your questions to two and then re queue. If you have any additional questions to allow others the opportunity to participate with that I'll turn things over to rod.
Rod West: Thank you, Brian and good morning, everyone.
Speaker Change: Before I provide my opening remarks on the quarter and my first 60 days.
Speaker Change: The first want to acknowledge the heartbreaking incident that occurred on April nine and Lexington, Missouri within our gas service territory.
Speaker Change: Members of the community, our thoughts and prayers remain with the affected families who.
Speaker Change: Whose lives have been devastated by the tragedy.
Speaker Change: Our hearts are with you.
Speaker Change: Nothing is more important to me into this company than the safety of our customers employees and communities.
Speaker Change: We remain fully committed to working with the authorities to support the ongoing investigation into the cause of the accident.
Speaker Change: And we will continue to work in partnership.
Speaker Change: With the community on restoration and recovery initiatives.
Speaker Change: Moving now to my comments on the quarter.
Speaker Change: I'd like to start things off by thanking you for your interest in Algonquin, we're continuing to support the company through this transformative journey.
Speaker Change: And for welcoming Bryan and I into our new respective roles.
Speaker Change: It's been a busy first 60 days for me, having had the opportunity to meet with many of our stakeholders.
Speaker Change: Visit several of our regional offices.
Speaker Change: My observations are consistent with the remarks I shared on the Q4 call.
Speaker Change: I see significant opportunity ahead, but there's still a tremendous amount of work to do.
Speaker Change: Ocwen has real potential to be a premium utility.
Speaker Change: We have solid diversified asset base, and many talented and hardworking employees, but we have yet to consistently evidenced the practices that said premium utilities apart from the rest.
Speaker Change: Some areas of improvement that come to mind include improving our customer outcomes first and.
Speaker Change: And community engagement.
Speaker Change: Bridging our economies of scale.
Speaker Change: Leveraging our economies of scale. I look forward to sharing more insights on our path forward.
Speaker Change: As promised, we plan to provide a forward-looking multi-year update on June 3rd, which follows approximately 90 days from our Q4 2024 call and my first day in the siege.
Speaker Change: Also on June 3rd, I plan to share more of my observations regarding the company and later this year I do expect to provide a little more color.
into our longer-term strategic thinking and positioning of the portfolio.
Speaker Change: With that, let's now turn to the operational highlights from the quarter.
Speaker Change: Starting with regulatory updates, on March 25th, the New Hampshire Public Utilities Commission issued an order approving the granted state electric settlement agreement with new rates have been taken effect on April 1st.
Speaker Change: On April 21st, the New Hampshire Commission further extended a stay of the Energy North Gas rate case proceeding until May 30th, allowing more time for settlement negotiations to be completed.
Speaker Change: On our Empire Electric Missouri rate case, the Commission extended the test to you true a period from September 30th, 2024 to March 31st, 2025.
Speaker Change: Which provides an opportunity for us to capture capital invested during that time frame in our rate filing.
Speaker Change: Moving to a brief update on the Missouri Commission investigation into our customer service and billing issues.
Speaker Change: As stated on the Q4 call, the investigation opened at the end of February , and we have been working with the investigation team, responding to data requests and providing answers to their questions.
Shifting from state-level rate cases to transmission.
Speaker Change: As discussed last quarter, the Southwest Power Pool SPP approved this 2024 Integrated Transmission Plan, the largest portfolio of transmission projects ever undertaken by SPO.
Totally roughly $7.7 billion.
Speaker Change: A significant share of this transformative investment, approximately 750 to 800 million is dedicated to strengthening the empire district electric service area, underscoring the region's critical role in the future of the grid. [inaudible]
Speaker Change: Within the Empire District Electric Footprint, the approved upgrades encompass approximately 80 miles of 161 KV rebills or conversions.
Speaker Change: 90 miles of new 345 KP transmission lines and the construction of two large scale transmission stations.
Speaker Change: On April 23rd, Empire accepted the first tranche of notices to construct or NTCs.
For the 161 KV portion of the portfolio.
Speaker Change: Empire has also received a second tranche of NTCs, and the next step is the official acceptance of the second tranche of NTCs submitted to the to SPP on over four June 19th.
Speaker Change: We're excited for the opportunity these projects represent for our stakeholders.
Speaker Change: I'll now turn things back to Brian to review the financial highlights from the quarter, Brian . Thanks, Ron. In a short summary, it was an encouraging quarter for our key financial metrics.
Speaker Change: 43% increase of $4.8 million in net earnings for the regulated services group.
Speaker Change: was primarily due to the implementation of new rates of $15.7 million and lower interest expense of $13.6 million as a result of debt repayment with the proceeds from the sales of the renewables business and our Atlantic stake.
Speaker Change: Our depreciation expense was relatively flat year over year. Our usual organic growth and depreciation expense was partly offset by 8.2 million in non-recurring favorable pickups related to regulatory orders in New Hampshire and Arizona.
Speaker Change: The 13.4 million increase in net earnings for the hydro group was primarily due to a one-time tax recovery related to the sale of the renewable energy business.
Speaker Change: Our expectations of an effective tax rate in the mid to low 20% range for the year has not changed, and as we have said before, we do expect a bit of lumpiness in our quarterly tax profile.
Speaker Change: On the corporate side, our adjusted net earnings decreased by 22.7 million related to the removal of Atlantic
Speaker Change: Moving to our EPS walk, Q1 adjusted net earnings per share were 14 cents which is flat to last year's Q1 2024 adjusted net earnings per share of 14 cents which includes renewables.
Speaker Change: And yet, above last year's Q1 2024 continuing operations adjusted net EPS of 11 cents excluding renewables.
Starting with last year's 14 cents, including renewables.
Speaker Change: Year over year drivers include a negative 3 cents attributed to the renewable sale, an increase of 3 cents for new rate case contributions from New York Water, Velco, and Mid-State's gas, as well as increased customer demand.
Speaker Change: And another two sense of contribution from lower interest expense, from use of renewables and Atlantica sales proceeds to pay down debt, net off financing for organic growth.
Speaker Change: Mirroring my earlier comments, we had approximately a penny pickup from non-recurring items, favourable items based on depreciation related to regulatory orders in New Hampshire and Arizona.
Speaker Change: Aside from the regulated business, we captured a two-cent increase for the one-time tax recovery related to our hydro group.
Speaker Change: A decrease of 3 cents for the removal of the Atlantic dividend, and a reduction of 2 cents for an increase in weighted average shares outstanding.
Speaker Change: For the last two quarters, our adjusted net EPS impact from dilution has been tracking to a penny each quarter, but since our results are proportionally skewed to Q1, this mathematically increased our dilution to two cents for this quarter.
Speaker Change: Let me pause here on non-recurring items embedded in this walk. If one takes the positive penny from regulatory orders related to depreciation and the two cents from the hydro-tats recovery, our adjusted net EPS includes a total of three cents of favorable non-recurring items in the quarter.
Speaker Change: And given our unchanged view of an effective tax rate in the mid to low 20% range, we expect a portion of the effective tax rate non-repring items to reverse over the remainder of the year.
Speaker Change: In keeping with our goal of reducing complexity, the company's financial disclosures now focus primarily on adjusted net earnings and adjusted net earnings per share and earnings per share as we view these as our key financial metrics.
Speaker Change: Our simplified financial disclosure includes net earnings from continuing operations separated into regulated hydro and corporate segments in our financial statement footnotes.
Speaker Change: A few comments now on our credit metrics. Simply stated, our credit metrics are healthy. For year will be threshold of 11%.
Speaker Change: Fitch indicated our debt to EBITDA was 5.6 times appropriately below the requisite triple beef threshold of 5.8.
Rod West: These metrics were measured before net-deliveraging proceeds to continuing operations were received from the sale of the renewable energy business on January 8th. And now back to Rod for closing remarks.
Rod West: Thanks, Brian . As per our press release this morning, I want to highlight to our listeners to save the date for our investor update call on June 3rd, which I referenced earlier.
Rod West: We expect this outlook, which will be primarily based on the current portfolio.
We'll include Projected Adjusted Net EPS Ranges for 25, 20, 26.
Speaker Change: In 2027, with more detailed thoughts on the company and its potential after my first 90 days. I also aim to share my broader strategic thinking on the broader portfolio later this year.
Speaker Change: Thanks to everyone for joining us on the call this morning. I am excited and motivated by the opportunities ahead and now the management team is available to answer your questions.
Speaker Change: Thank you. If you have a question, please press star 1 on your telephone keypad. To withdraw your question, simply press star 1 again. Please limit your question to two. One moment please for your first question.
Speaker Change: Your first question comes from the line of Robert Hope is Scotia Bank. Your line is open.
Speaker Change: Good morning, everyone. I won't ask about the forward outlook, but maybe a little bit backwards looking. Rod, you've been here for a number of weeks, months now. Can you maybe walk us through what you think the most impactful changes you've made to the organization so far have been? [inaudible]
Speaker Change: Yeah, it's interesting that you say months because it is literally two months, so the S.
Speaker Change: And month look back is literally one month, but my focus and the initial sort of impact has been setting a vision for what a premium pure play utility looks like and setting the.
Speaker Change: The attributes of a pure play utility to the corporation which informs the work we're doing.
Speaker Change: To lower our overall cost profile, to make room to do more on the Capitol and on in front, but also a focus on improving our stakeholder engagement capacity and sort of discipline.
Speaker Change: Again, these things are notional because I'm communicating them to the organization as I'm setting ourselves up.
Speaker Change: to actually execute on those plans, and the way that they will ultimately play out.
Speaker Change: Our own outcomes for our stakeholders for the investment community.
Speaker Change: We're talking more, and we'll be talking more about Total Shareholder Return.
Speaker Change: From the customer perspective, we'll be talking about net promoter score and specific customer outcomes.
Speaker Change: That would drive our capital plan and our sort of organizational health, the motivation to help the alignment of our employees' actions to create sustainable value for those four
And the metrics that we're paying attention to.
Speaker Change: All the types of things that will give us our stage gates along the way, sir, everybody has a clear understanding of where we're at it, and what are the milestones along the way that we'll separate us from good to great.
Speaker Change: The good thing is that we have a lot to work with and that's the biggest part of my initial evaluation is that we have really quality assets and we have a group of employees who are really motivated to turn our performance around.
Speaker Change: Second question. Moving over to the SEP projects. So you have two tranches with good clarity right now. Do you know how much capital that could be versus the 750 to 800 that you referenced as well as when would that capital start being spent?
Speaker Change: We haven't disclosed anything beyond what is currently public. So I don't anticipate that we'll do so until we're further along, but the short answer is my expectation.
Speaker Change: We're successful in executing on what's in front of us. We'll be in a better position to capture and execute on additional capex opportunities in that space.
All right, thank you for all of your time back with you.
Sean Stewart: Your next question comes from the line of Sean Steuart with T.D. Collins, your line is open.
Thank you. Good morning. A couple of questions.
I want to start with...
Investigations. So there's another investigation in Arkansas.
Sean Stewart: And an audit in New Hampshire, and I'm just trying to gauge, are these the same billing issues that you're dealing with in the Missouri investigation? And do you have any perspective on timing resolution for these areas?
Investigations and audits.
Sean Stewart: I don't believe New Hampshire is a customer related investigation, but the other investigations have to do with the billing issues, the timeliness.
Sean Stewart: A building associated with the deployment of an overhaul of a new system, and we're...
Sean Stewart: We're working with the regulators and the state in each of those circumstances.
Sean Stewart: From my initial observation that our challenges were not unlike other utilities who have gone through system to form it, I think where we have fallen short in a seeking to. [inaudible]
Sean Stewart: To remedy it is that we did not do a good job of stakeholder engagement prior to the deployment of the system, which left a lot of folks surprised when the normal. [inaudible]
Sean Stewart: What I would consider to be the normal hiccups associated with the scale of the system overall that we...
We implemented ...
Sean Stewart: You know, we didn't, we didn't, in my view at least do the conditions precedent to making it a smoother transition.
Sean Stewart: for customers and regulators, but we're closing that gap as we speak.
And I don't ...
Sean Stewart: I am not surprised at all by the attorney generals of Urrails was initiating investigations because we put them in a position where they had to do that. I do expect us to work through them. And I have personally gone, gone to those respective states to do. [inaudible]
Sean Stewart: To represent my commitment to follow through and ensure the issues that the customers have been experiencing. But we'll continue to participate and support the work of the states and closing out these customer complaints.
Thank you for that, Prime Tax.
Speaker Change: The second question, one of which is any update on your thinking around the hydro portfolio potential timeline towards the vestiture, how the thinking's evolved in the current valuation environment.
Speaker Change: We're looking, we're looking to transact, but the condition president has to be it being value-ocreative.
Speaker Change: Not from a singular EPS perspective, but certainly from a balance sheet and a strategy of a creative perspective as well. And we're monitoring the market environment for potential off-takers, but it has to be something that is...
That we view as net, net accretive, and, um...
Speaker Change: You know, I don't know that there's a specific timeline that we're we're we're we feel forced to pursue, but should that opportunity arise? I am I have given the go ahead that we'll transact if those conditions are met, right?
Speaker Change: Yeah, and Sean as a reminder, our thought process was that we would be looking at that in the first portion of this year. Obviously with the leadership transition and our thought process on the portfolio strategy has been evolving here. We've pushed back the timetable a little bit but everything that we said before about it being value-occurative.
on a number of fronts that remains consistent.
Got it. Okay, thanks very much guys, much appreciated.
Speaker Change: Your next question comes from the line of Nelson Ng with RBC Capital Markets. Your line is open.
Nelson Ng: Great. Thanks. Good morning, everyone. It's a quick question on the LCRM implementation. Can you just comment?
Speaker Change: About, I think in the past, you talked about how this CRM implementation would result in cost savings, and I just had a look at the...
Speaker Change: Operating expenses of the utility division, I think costs have increased by just one and a half percent year over year, so that's obviously lower than inflation. That's good, but can you just talk about realizing cost savings in the business, that big picture?
Speaker Change: And maybe do a bit more color going forward as well.
Sarah McDonald: Sure, Nelson, Sarah MacDonald, so the implementation was not just about cost savings. There were a lot of other customer benefits.
Sarah McDonald: That where are now coming to fruition, when we were starting to implement, we had multiple systems, no integration, and issues in making sure that customers had access, disability, ability to go online and look at their bills. [inaudible]
Sarah McDonald: And so there was certainly a lot more benefits to the customer coming in. Ultimately, when the system is functioning optimally, you will start to see cost, you know, will start to be able to realize the benefits of that integration. But for now, we were looking, we're focused on getting an implemented right and making sure the customer experience is better. [inaudible]
Sarah McDonald: And the other benefits are not going to be specifically called out solely to-
Sarah McDonald: The implementation of the platform, but you would expect to see more digital.
Channels, Lore Calls,
From customers because we're providing more self-help.
Sarah McDonald: Options and, you know, lower paper expenses, but those would be...
Sarah McDonald: Those would be reflected in our overall O&M numbers and not just attributed to the one specific platform just on a future basis to understand where we'll be coming from.
Speaker Change: Okay, thanks for the color. And then the second question probably relates to Brian . So just a quick one on the non-controlling interest earnings of 18.9 million. I know in the past.
Speaker Change: You kind of singled out HLBB as a line item. Is this item, is it all HLBB, or are there several items lumped together into earnings, attributable to non-controlling interests?
Brian Chin: So, it's primarily HLBB income. The other significant piece of that, and it's a relatively small piece, is the minority interest related to the ownership stake in Suralis down in Chile.
Got it. Thanks. Just get back in the queue.
Speaker Change: Your next question comes from the line of Rupert Merer with National Bank, your line is open.
Dr. Prada, Dr. Prada, Dr. Prada, Dr. Prada, Dr. Prada,
Hi, good morning, everyone.
Speaker Change: I could start with a follow-up on the operating costs. I think with the billing issues you've had in previous quarters, it didn't occur.
Speaker Change: Some added costs are you still seeing added costs related to those issues or is that largely in the rear view mirror now and when we look at those operating costs they more representative of what we should expect in future quarters. [inaudible]
Speaker Change: Yeah, Rupert, so when we started experiencing those billing issues, the extra cost that we did call out in the Q4 materials was bad debt expense.
Speaker Change: And that's where we saw the majority of that. You saw a little bit of that this quarter, but wasn't really enough for us to call out specifically, and definitely the trend line is moving in a more improved direction. I think going forward from here,
Speaker Change: That we would expect that that would temper off, just given the trajectory of where our customer building's exceptions are at. So, you know, these short answer Rupert is we recorded the majority of that in Q4.
Speaker Change: And last quarter you talked about some synergies related to the sale of the Renewable Group. It seems like the...
Rupert Moyer: The costs in the renewables and corporate group have come down significantly. Have you largely dealt with these to synergies? Or are there any other sort of plans you can discuss to lower costs in the near term? I understand some of this maybe things you want to talk about on June 3rd.
Rupert Moyer: Yeah, Rupert, so last year, if you look at the year in aggregate, we had roughly 18 million in disenergies that affected our OPEX numbers last year.
Rupert Moyer: For the first quarter, it's at a smaller amount. It's less than a penny of this energy that we're seeing.
Rupert Moyer: We didn't call it out specifically in the material, it's just because of the size.
Rupert Moyer: We do expect that as we're continuing to execute greater operational and capital discipline on the company, that the eventual removal of those synergies will manifest themselves through the outlook.
Rupert Moyer: But at this stage, for the quarter, it just simply wasn't large enough for us to call out. So we do think that that's a helpful stage and that's something you should expect for us here.
I'm very good. We'll link it there. Thank you.
Speaker Change: Your next question comes from the line of Ben Pham with DMO, your line of Sultan.
Ben Pham: Hey, thanks. Good morning. How do you, your peers on conference calls highlight customer affordability as a, as a topic of interest. Thank you.
Speaker Change: These days with live all that's going on with markets and inflation and supply change, can you? Can you add some flavor to that conversation? You think, well, some of your comments are previously on cost initiatives and narrowing that that are what you get towards the level? Well, let's go ahead and see what we're going to do.
Speaker Change: Yeah, I'll certainly start on that. If I think about the guardrails of the company, you heard me make reference to premium utilities.
Speaker Change: You know, we aren't capital constrained if we have constructive regulatory mechanisms and we have a platform for customer centric investment to me, you know, evolving customer demands for our services.
Speaker Change: But I think the, you know, at this point, the one thing that gives us credibility when coming in to...
To our regulatory environment, asking for support.
Speaker Change: That we've done everything that we can to lower the cost profile, the actual cost of service.
Speaker Change: for our customers. And so, from my vantage point, the one constraint.
It's not capital constraint, it's affordability. [inaudible]
Speaker Change: So the conversation that we are having internally and for the entirety of my tenure here in our pursuit to be a premium utility is driving the cost down.
Speaker Change: So that we could put productive capital to work on behalf of our stakeholders.
In a way that minimizes the impact.
Speaker Change: on customer bills. It's embedded in what you just heard Brian make reference to about Capitol Discipline.
Speaker Change: But we're also constantly going to be benchmarking ourselves against best-in-class on our overall cost profile so that I can make, we can make a credible case.
to our stakeholders that we're responsible stewards of our service so...
Speaker Change: You'll see that in our O&M numbers, and I'll talk a little bit more about it in our outlooks on June 3rd, but...
Speaker Change: But I think discipline should be your takeaway, and we're comparing our objectives. We're not fair yet. Obviously, we're away the way, but our objective is to compare ourselves to best in class on both Capitol and O&M discipline. We're not fair yet. We're not fair yet. We're not fair yet.
Speaker Change: Okay, got it. And I, I am, I need to provide some details on that the June update you mentioned and also later in a year. I just, just want to clarify the June .
Speaker Change: Portion with 25 to 27, the focus on EPS members, rate-based CAPEX and that time print and then later aired. It's a beyond 27.
Speaker Change: It's fair to say that you are absolutely right on 25, 26, and 27.
Speaker Change: And I know that there are going to be questions about broader points of view on a portfolio strategy.
Speaker Change: And what we're seeing is that we're prepared to go public with the guidance and outlook for that three-year time frame, and while we're definitely thinking through the broader strategic portfolio questions, we think we'll be in a better position to talk about it publicly later in 2025.
Okay, God. Thanks, Rick.
Speaker Change: Again, if you would like to ask a question, press start then the number one on your telephone keypad. Your next question comes from the line of Mark Jarvi with CIBC, your line is open.
Mark, your line is open.
Speaker Change: Sorry about that. You have questions on New Hampshire. You've got the settlements now at Energy North and Granite State, but obviously there's still the audit on terms of the systems there. A bit of perspective in terms of the path forward there when you could get back into file for a new race and try to get through some of those revenue requests that didn't come through on the power settlement.
Speaker Change: Yeah, Mark, so just to be clear, we do have an order of proving the settlement for granted state. We are in settlement discussions at Energy North, and that's part of the prepared commentary that we've got a little bit more time as granted by the commission to negotiate that settlement, so just to clarify that.
Speaker Change: But with regards to when we can go back in for new rates, so for granted state what we have in the settlement is a stay out period until we can file a new rate case on January 1st, 2026.
Speaker Change: And that is a helpful data point in those. And given that it's similar parties, similar time scales for the rate cases, I think that's something to think about as we're looking at concluding settlement negotiations in the Energy North.
Got it.
Speaker Change: And then maybe update reviews in terms of CalPico, the application for interim rates, any feedback yet in terms of whether or not that's feasible, and just probably how you can kind of mind progressing in CalPico.
So.
Speaker Change: It's absolutely feasible. We wouldn't have filed otherwise. We haven't got any feedback yet, but we're continuing to answer any questions that come up. But it's certainly an option open to us that we're taking every advantage of.
Speaker Change: When do you think you can get clarity? Because I believe the ask was for interim rates by the middle of this year and that's not that far away at this point.
You know the
Speaker Change: California is a slower jurisdiction to hear back, so I actually can't say when we'll hear.
Got it. Okay, next let's answer them.
Thanks, Mark.
Speaker Change: There are no further questions at this time. I will turn to Colton, Mr. Rod West.
Rod West: Alright, thanks again for your interest and your questions this morning. We look forward to visiting with you again in just a few weeks on June 3rd.
Have a great rest of the day.
This concludes today's conference call. You ain't no disconnect.
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Brian Chin, Rupert Merer, Robert Hope, Mark Jarvi, Darren Myers
Brian Chin, Rupert Merer, Robert Hope, Mark Jarvi, Robert
[inaudible]
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Music Music Music Music Music Music
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Rod West: The visiting respected Dr. Robert T. Childress Dr. Gerald E. Howard Visiting Research Interdisciplinary Adjutor
Music Music Music Music Music Music
Brian Chin, Rupert Merer, Robert Hope, Mark Jarvi, Darren Myers
Speaker Change: Hello, and welcome to the Algonquin Power & Utilities Corp. 1st quarter 2025 earnings conference call. All links have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Speaker Change: If you would like to ask a question during this time, simply press part one on your telephone keypad. I will now turn the conference over to Mr. Brian Chin, interim chief financial officer and vice president of investor relations, please go ahead.
Brian Chin: Thank you, operator, and good morning, everyone. Thank you for joining us for the first quarter of 2025 earnings conference call. Joining me on the call today will be Rod West, Chief Executive Officer, and Sarah MacDonald, Chief Transformation Officer.
Brian Chin: To a company today's earnings call, we have a supplemental webcast presentation available on our website, AlgonquinPower.com. Our financial statements and management discussion and analysis are also available on the website as well as on Cedar Plus and Edgar.
Brian Chin: We'd 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.
Brian Chin: Certain material factors and assumptions were applied in making the forecast and projections reflected in such forward-looking information.
Brian Chin: Please note and review the related disclaimers located on slide two are earnings call presentation at the Investor Relations sections of our website at algonquinpower.com.
Brian Chin: We'd also refer to our most recent MDNA file, the Cedar Plus Network, and available on our website for additional important information on these items.
Brian Chin: On the call this morning, Rod will provide brief commentary on his first 60 days at Algonquin, followed by a review of key highlights and operational updates for the quarter.
Brian Chin: I will then detail our financial results. We will then open the line for questions. We kindly ask that you restrict your questions to two, then re-cue if you have any additional questions to allow others the opportunity to participate. With that, I'll turn things over to Rod.
Thank you, Brian , and good morning, everyone.
Speaker Change: Before I provide my opening remarks on the quarter in my first 60 days, I first want to acknowledge the heartbreaking incident that occurred on April 9 in Lexington, Missouri within our gas service territory.
Brian Chin: As members of the community, our thoughts and prayers remain with the affected families.
Whose lives have been devastated by the tragedy.
Our hearts are with you.
Brian Chin: Nothing is more important to me and to this company than the safety of our customers, employees and communities.
We remain fully committed to working with the authorities.
Brian Chin: Support the ongoing investigation into the cause of the accident.
And we will continue to work in partnership. Thank you.
with the Community on Restoration and Recovery Initiatives.
Moving now to my comments on the core.
Brian Chin: I'd like to start things off by thanking you for your interest in Algonquin for continuing to support the company through this transformative journey.
Brian Chin: And for welcoming Brian and I into our new respective roles.
Brian Chin: It's been a busy first 60 days for me, having had the opportunity to meet with many of our stakeholders and visit several of our regional offices.
Brian Chin: My observations are consistent with the remarks I shared on the Q4 call.
Brian Chin: I see significant opportunity ahead, but there's still a tremendous amount of work to do.
Brian Chin: Algonquin has real potential to be a premium utility. We have solid, diversified asset base and many talented and hardworking employees. But we have yet to consistently evidence the practices that set premium utilities apart from the rest.
Brian Chin: The areas of improvement that come to mind include improving our customer outcomes first and community engagement, leveraging our economies of scale.
Brian Chin: I look forward to sharing more insights on our path forward.
Brian Chin: As promised, we plan to provide a forward-looking multi-year update on June 3rd, which follows approximately 90 days from our Q4 2024 call and my first day in the seat.
Brian Chin: Also on June 3rd, I plan to share more of my observations regarding the company and later this year I do expect to provide a little more color.
into our longer-term strategic thinking and positioning of the portfolio.
Brian Chin: With that, let's now turn to the operational highlights from the quarter.
Brian Chin: Starting with regulatory updates, on March 25th, the New Hampshire Public Utilities Commission issued an order approving the granted state electric settlement agreement with new rates have been taken effect on April 1st.
Brian Chin: On April 21st, the New Hampshire Commission further extended a stay of the energy-north gas rate case proceeding until May 30th, allowing more time for settlement negotiations to be completed.
Brian Chin: On our Empire Electric Missouri rate case, the Commission extended the test to you true up period from September 30th, 2024 to March 31st, 2025.
Brian Chin: Which provides an opportunity for us to capture capital invested during that time frame in our rate filing.
Brian Chin: Moving to a brief update on the Missouri Commission investigation into our customer service and billing issues.
Brian Chin: As stated on the Q4 call, the investigation opened at the end of February , and we have been working with the investigation team, responding to data requests and providing answers to their questions.
Shifting from state-level rate cases to transmission.
As discussed last quarter, the Southwest Powerful, the SPP.
Approved this 2024 Integrated Transmission Plan.
Totally roughly $7.7 billion.
Brian Chin: A significant share of this transformative investment, approximately 750 to 800 million is dedicated to strengthening the empire district electric service area, underscoring the region's critical role in the future of the grid.
Brian Chin: Within the Empire District Electric Footprint, the approved upgrades encompass approximately 80 miles of 161 KV rebills or conversions.
Ninety miles of new 345 KP transmission lines.
and the construction of two large scale transmission stations.
Brian Chin: On April 23rd, Empire accepted the first tranche of notices to construct or NTCs.
For the 161 KV portion of the portfolio.
Brian Chin: Empire has also received a second tranche of NTCs, and the next step is the official acceptance of the second tranche of NTCs submitted to the SPP on over four June 19th.
Brian Chin: We're excited for the opportunity these projects represent for our stakeholders.
Brian Chin: I'll now turn things back to Brian to review the financial highlights from the quarter. Brian ?
Brian Chin: Thanks, Ron. In a short summary, it was an encouraging quarter for our key financial metrics.
Brian Chin: First quarter adjusted net earnings from continuing operations were 111.6 million, up from 39% from 80.1 million in 2024.
Brian Chin: 43% increase of $40.8 million in net earnings for the regulated services group was primarily due to the implementation of new rates of $15.7 million and lower interest expense of $13.6 million as a result of debt repayment with the proceeds from the sales of the renewables business and our Atlantic estate. [inaudible]
Brian Chin: Our depreciation expense was relatively flat year over year. Our usual organic growth and depreciation expense was partly offset by 8.2 million in non-recurring favorable pickups related to regulatory orders in New Hampshire and Arizona.
Brian Chin: The 13.4 million increase in net earnings for the hydro group was primarily due to a one-time tax recovery related to the sale of the renewable energy business.
Brian Chin: Our expectations of an effective tax rate in the mid to low 20% range for the year has not changed. And as we have said before we do expect a bit of lumpiness in our quarterly tax profile.
Brian Chin: On the corporate side are adjusted net earnings decreased by $22.7 million related to the removal of
Brian Chin: Moving to our EPS walk, Q1 adjusted net earnings per share were 14 cents, which is flat to last year's Q1 2024 adjusted net earnings per share of 14 cents, which includes renewables.
Brian Chin: And yet above last year's Q1 2024 continuing operations adjusted net EPS of 11 cents excluding renewables.
Starting with last year's 14 cents including renewables.
Brian Chin: Year over year drivers include a negative 3 cents attributed to the renewable sale, an increase of 3 cents for new rate case contributions from New York water, Velco and Mid-State's gas, as well as increased customer demand.
Brian Chin: And another two sense of contribution from lower interest expense from use of renewables and financial sales proceeds to pay down debt net a financing for organic growth.
Brian Chin: Mirroring my earlier comments, we had approximately a penny pick up from non-recurring items, favorable items, based on depreciation related to regulatory orders in New Hampshire and Arizona.
Brian Chin: A decrease of <unk> <unk> for the removal of the atlantica dividend and a reduction of <unk> for an increase in weighted average shares outstanding.
Brian Chin: For the last two quarters, our adjusted net EPS impact from dilution has been tracking to a penny each quarter, but since our results are proportionately skewed to Q1. This mathematically increased our dilution.
<unk> for this quarter.
Brian Chin: Let me pause here on nonrecurring items embedded in this walk if one takes the positive penny from regulatory orders related to depreciation and the <unk> from the hydro tax recovery. Our adjusted net EPS includes a total of <unk> <unk> of favorable nonrecurring items in the quarter.
Brian Chin: And given our unchanged view of an effective tax rate in the mid to low 20% range. We expect a portion of the effective tax rate nonrecurring items to reverse over the remainder of the year.
Brian Chin: In keeping with our goal of reducing complexity the company's financial disclosures now focus primarily on adjusted net earnings and adjusted net earnings per share and.
Brian Chin: And earnings per share as we view these as our key financial metrics.
Brian Chin: Our simplified financial disclosure includes net earnings from continuing operations separated into regulated hydro and corporate segments in our financial statement footnotes.
Brian Chin: A few comments now on our credit metrics simply stated our credit metrics are healthy.
For year end 2020 for S&P indicated our <unk> to debt was 12, 5% comfortably above the requisite triple b threshold of 11%.
Brian Chin: Fitch indicated our debt to EBITDA was five six times appropriately below the requisite triple bead threshold of five eight <unk>.
Brian Chin: These metrics were measured before net deleveraging proceeds to continuing operations were received from the sale of the renewable energy business on January eight.
Ron: And now back to Ron for closing remarks.
Ron: Thanks, Brian as per our press release. This morning, I want to highlight through our listeners to save the date for our Investor update call on June 3rd, which I referenced earlier.
Ron: We expect this outlook, which will be primarily based on the current portfolio will include projected adjusted net EPS ranges with 25 2026 and 2027.
Ron: With more detailed thoughts on the company and its potential after my first 90 days.
Ron: I also aim is share my broader strategic thinking on the broader portfolio later this year.
Ron: Thanks to everyone for joining us on the call. This morning, I am excited and motivated by the opportunities ahead and now the management team is available to answer your questions operator.
Ron: Thank you.
Speaker Change: You have a question. Please press star one on your telephone keypad to withdraw your question simply press Star One again, please limit your questions to one moment. Please for your first question.
Speaker Change: Your first question comes from the line of Robert Hope with Scotiabank. Your line is open.
Speaker Change: Good morning, everyone.
Speaker Change: I want to ask you about the forward outlook, but maybe a little bit backwards looking.
Speaker Change: Ron you've been here for a number of weeks months now can you maybe walk us through kind of what you think the most impactful changes you've made to the organization so far have been.
Ron: Yes, it's interesting that you say months because it is literally two months. So the ads and months look back is literally one month, but but my my focus and the initial sort of impact has been setting and vision.
Ron: For what a premium pure play utility looks like and setting sitting the.
Ron: The attributes of a pure play utility to the corporation, which informs the work we're doing to lower our overall cost profile to make room to do more on the on the capital and O&M front, but also a focus on improving our stakeholder engagement capacity.
Ron: And sort of discipline.
Ron: These things are notional because I'm communicating them to.
Ron: The organization is I am setting ourselves up to.
Ron: To actually execute on those plans and the way that they will ultimately play out.
Ron: One customer outcomes for our stakeholders.
Ron: With the investment community, we're talking more and we'll be talking more about total shareholder return.
Ron: From the customer perspective, we'll be talking about net promoter score and specific customer outcomes that will drive our our capital plan and our sort of organizational health and motivation to help the alignment of our employees actions to create sustainable value for those four key stakeholders.
And the metrics that we're paying.
Ron: Paying attention to or the types of things that will give us our our stage gates along the way. So everybody has a clear understanding of where we're headed and what are the milestones along the way that that will separate us from from good to great. The good thing is that that we have a lot to work with and that's the biggest part of my finish.
Ron: Evaluation is that we have really quality assets and we have a group of employees, who are really motivated to turn turn outperformance around.
Ron: Alright, I appreciate that color.
Speaker Change: Second question moving over to the SVP projects. So you have two tranches with good clarity right now do you know how much capital that could be versus the 750 to 800 that you referenced as well as when would that capital started being spec.
Speaker Change: We haven't we haven't disclosed anything beyond what is currently currently public so I don't I don't anticipate that we will we will do so until we're further further along but but the short answer is my expectation is that if we're successful.
Speaker Change: In executing on what's in front of us will be in a better position to capture and execute on additional cap capex opportunities in that space.
Speaker Change: Alright, Thank you I'll jump back in the queue.
Speaker Change: Your next.
Speaker Change: <unk> question comes from the line of Sean Stewart with TD Cowen Your line is open.
Sean Stewart: Thank you good morning.
Sean Stewart: A couple of questions I want to start with.
Sean Stewart: Investigations. So there is a.
Sean Stewart: Another investigation in Arkansas.
And audit in New Hampshire, and I'm, just trying to gauge it needs the same billing issues that youre dealing with and the Missouri investigation.
Sean Stewart: And do you have any perspective on timing resolution.
Sean Stewart: For these serious.
Sean Stewart: Destinations and audits.
Sean Stewart: I don't believe New Hampshire is b as a customer related investigation, but the other the other investigations have to do with.
Sean Stewart: With the building the billing issues the timely the timeliness.
Sean Stewart: Billing associated with the deployment of an overhaul of our new of a new system and we are we're working with the regulators in the state in each of those circumstances.
Sean Stewart: From my initial observation that our challenges were not unlike other utilities, who have gone through system deployment, I think where we have fallen short and is seeking to to remedy. It is that we did not do a good job of stakeholder engagement prior to the.
Sean Stewart: The deployment of the system, which left a lot of folks surprise when the normal.
Sean Stewart: I would consider to be the normal hiccups associated with the scale of the system overhaul that.
Sean Stewart: We implemented.
Sean Stewart: We didn't we didn't in my view at least do the conditions precedent to make it a smoother transition for customers and regulators, but we're closing that gap.
Sean Stewart: As we speak and I don't.
Sean Stewart: I am not surprised at all by the attorney generals and <unk> was it.
Sean Stewart: It was initiated investigations, because we put them in a position where they had to do that I do expect us to work through them and I have personally gone gone to those respective states too.
Sean Stewart: To represent my commitment.
Sean Stewart: To follow through and ensure the issues that the customers had been experiencing but we will continue to participate and support the work of the states in closing out. These these customer complaints.
Sean Stewart: Yes.
Speaker Change: Okay. Thank you for that context.
Speaker Change: Second question wondering if theres any update on your thinking around the hydro.
Speaker Change: On portfolio potential timeline towards divestiture, how the thinking has evolved and the current valuation environment.
Speaker Change: Yes.
Brian Chin: If we do a doubleclick I'll, let Brian talk more about it but my perspective is consistent with the position we've taken.
Brian Chin: We're looking we're looking to transact for the condition precedent has to be at being value accretive.
Brian Chin: Not from a singular EPS perspective.
Brian Chin: From a balance sheet.
Brian Chin: And our strategy of accretive perspective, as well and we're monitoring the market environment for potential off takers, but but it has to be something that is that we view is net net accretive.
Brian Chin: I don't know that Theres, a specific timeline that we are.
Brian Chin: We feel forced to pursue but should that opportunity arise.
Brian Chin: I have given the go ahead.
Brian Chin: That will transact if those conditions are met Brian.
Brian Chin: And China as a reminder, our thought process was that we would be looking at that in the first portion of this year, obviously with the leadership transition in our thought process on the portfolio strategy has been.
Brian Chin: Following here.
Brian Chin: We've pushed back the timetable a little bit, but everything that we said before about it being value accretive on a number of fronts that remains consistent.
Brian Chin: Got it.
Brian Chin: Okay. Thanks, very much guys much appreciate it.
Nelson Ng: Your next question comes from the line of Nelson <unk> with RBC capital markets. Your line is open.
Nelson Ng: Great. Thanks, and good morning, everyone.
Nelson Ng: Question on the CRM implementation Kenny his comments.
Speaker Change: About I think in the past you talked about how the CRM implementation would result in cost savings and I just had a look at the.
Speaker Change: Operating expenses of the utility Division I think costs have increased by just one 5% year over year. So that's obviously lower than inflation.
Speaker Change: That's good but can you just talk about.
Speaker Change: Realizing cost savings in the business that big picture.
Speaker Change: And maybe give a bit more color going forward as well.
Speaker Change: Sure Nelson at Serra Mcdonald's So the implementation was not just about cost savings there were a lot of other customer benefits.
Speaker Change: That debt.
Speaker Change: There are now coming to fruition.
We're starting to implement we had multiple systems, no integration and issues and making sure that customers had access disability ability to go online and look at their bills and so there was certainly a lot more benefits to the customer coming in ultimately when the system is functioning.
Speaker Change: Optimally you will start to see cost will start to be able to realize the benefits of that integration, but for now.
Speaker Change: We're looking we're focused on getting it implemented right and making sure the customer experience is better.
Speaker Change: And the benefits are not going to be specifically called out solely too.
Speaker Change: The implementation of the platform, but you would expect to see more digital channels lower lower calls from customers because we are providing more self help.
Speaker Change: <unk> and lower paper expenses, but those would be.
Speaker Change: Those would be reflected in our overall O&M numbers and not just attributed to the one specific platform just on a future basis to understand where it will be coming from.
Speaker Change: Okay. Thanks for that color and then the second question probably relates to.
Speaker Change: Brian So just a quick one on the Noncontrolling interest earnings.
Speaker Change: $18 9 million I know in the past.
Speaker Change: You had singled out Hltv is a line item.
Speaker Change: Is this item is.
Speaker Change: Is that all <unk> are are there are several items lumped together into earnings attributable to non controlling interest.
Speaker Change: Yes.
Speaker Change: So it's primarily HBV income the other significant piece of that and it's a relatively small pieces the minority interest related to the ownership stake in <unk> down in Chile.
Speaker Change: Got it thanks, I'll get back in the queue.
Rupert Moyer: Your next question comes from the line of Rupert <unk> with National Bank. Your line is open.
Speaker Change: Hi, good morning, everyone.
Speaker Change: Good morning, if I could.
Speaker Change: Start with a follow up on the operating costs I think with the billing issues you've had in previous quarters. It did incur some added costs or are you still seeing added costs related to those issues or is that largely.
Speaker Change: In the rearview mirror now and when we look at those operating costs are they more representative of what we should expect in <unk>.
Speaker Change: Future quarters.
Speaker Change: Yes, Rupert so when we started experiencing those billing issues the extra cost that we did call out in the Q4 materials was bad debt expense.
Speaker Change: And Thats, where we saw the majority of that you saw a little bit of that this quarter, but wasn't really enough for us to call out specifically and definitely the trend line is moving in a more improved direction I think going forward from here.
Speaker Change: That we would expect that that would temper off just given the trajectory of where our customer billings exceptions are at so the short answer Rupert as we reported the majority of that in Q4.
Speaker Change: And last quarter, you talked about some synergies related to the sale of the renewables group it seems like the <unk>.
Speaker Change: Costs and then renewables.
Speaker Change: And corporate group have come down significantly largely dealt with these dis synergies are there any other sort of plans you can discuss to lower costs in the near term, but I understand some of this may be things you want to talk about on June 3rd.
Speaker Change: Yes, Rupert so last year, if you look at the year in aggregate, we had roughly $18 million in dis synergies that affected our opex numbers last year for the first quarter.
Speaker Change: It's at a smaller amount, it's less than a penny of dis synergies that we're seeing.
Speaker Change: We didn't call it out specifically in the materials just because of the size. We do expect that as we're continuing to execute greater operational and capital discipline on the company.
Speaker Change: The eventual removal of those dis synergies will manifest themselves through the through the the outlook.
Speaker Change: But at this stage for the quarter, just simply wasn't large enough for us to call out. So we do think that that's a that's a helpful stage and Thats something you should expect for us here.
Speaker Change: Okay.
Speaker Change: Okay very good I'll leave it there thank you.
Speaker Change: Your next question comes from the line of Ben Pham with BMO. Your line is open.
Ben Pham: Hey, Thanks, good morning.
Speaker Change: Some of your peers on conference calls.
Speaker Change: Highlight customer affordability is at.
Speaker Change: I'll pick of entrust phased.
Speaker Change: These days with all Thats going on in markets and inflation and supply change can you add some flavor to that conversation.
Speaker Change: Some of your comments previously on cost initiatives and.
Speaker Change: And narrowing that gap towards allow yes.
Speaker Change: Yes.
Speaker Change: I'll certainly start on that if I think about the guardrails of the company and you heard me make reference to to premium utilities, we aren't capital constrained if we have constructive regulatory.
Speaker Change: Mechanisms and we have a platform for customer centric investment to meet evolving customer demands for our services, but I think the.
Speaker Change: At this point.
Speaker Change: One thing that gives us credibility when coming in too.
Speaker Change: To a regulatory environment asking for support that we've done everything that we can to lower the cost profile the actual cost of service.
Speaker Change: For our customers and so from my vantage point, the one constraint is not capital constrained, it's affordability and so the conversation that we're having internally and for the entirety of my tenure here in our pursuit to be a premium utility is driving the cost the cost down so.
Speaker Change: We could put productive capital to work on behalf of our stakeholders.
Speaker Change: Way that minimizes the impact on customer bills, it's embedded in what you just heard Brian make reference to about capital discipline, but we're also constantly going to be benchmarking ourselves against the best in class on our overall cost profile. So that I can make we can make a credible case.
Speaker Change: To our stakeholders that we're responsible stewards.
Speaker Change: Our service. So you will see that in our O&M numbers and I'll talk a little bit more about it.
Speaker Change: Our outlooks on June 3rd, but but I think discipline should be your takeaway.
Speaker Change: We're comparing our objectives were not there yet, but obviously, we're a ways away, but our objective is to compare ourselves to best.
Speaker Change: In class on both capital and O&M discipline.
Speaker Change: Okay got it.
Speaker Change: Hi can you provide some details on the June.
Speaker Change: You mentioned later in the year, just just wanted to clarify the June <unk>.
Speaker Change: <unk>.
Speaker Change: With 25% 27 is our focus.
Speaker Change: On EPS.
Speaker Change: PPS members rate base Capex in that timeframe and then Lee.
Speaker Change: Later in the year beyond 'twenty seven.
Speaker Change: Guidance, it's fair to say that Youre, absolutely right on 25%, 26% and 27, and I know that theyre going to be questions about the broader points of view on it.
Speaker Change: Portfolio strategy and what we're seeing is that we're prepared to go public.
Speaker Change: With the guidance and outlooks for that three year timeframe and while we are we are definitely thinking through the broader strategic portfolio.
Speaker Change: Portfolio questions, we think we'll be in a better position to talk about it publicly later in 2025.
Brian: Okay got it thanks, Brian.
Brian: Okay.
Speaker Change: Again, if you would like to ask a question first Star then the number one on your telephone keypad. Your next question comes from the line of Mark Jarvi with CIBC. Your line is open.
Speaker Change: Mark Your line is open.
Speaker Change: Sorry about that yes.
Speaker Change: Question is on New Hampshire got settlements now energy North in granite state, obviously theres still the audit in terms of the systems there a bit of perspective in terms of the path forward. There when you could get back into file for new rates and try to get through some of those revenue request that didn't come through on the Payor settlements.
Speaker Change: Yes, Mark so just just to be clear, we do have an order approving the settlement for granite state. We are in settlement discussions at energy North and that's part of the prepared commentary that we've got a little bit more time is granted by the commission to negotiate that settlement. So just just to clarify that.
Speaker Change: But with regards to when we can go back in for new rates. So.
Speaker Change: For granite state.
Speaker Change: We have and the settlement is a stay out period until we can file a new rate case on January one 2026.
Speaker Change: And that is a helpful data point in those and given that's a similar parties similar timescales for the rate cases, I think that's something to think about as we're looking at concluding settlement negotiations and energy north.
Speaker Change: Got it.
Speaker Change: Okay, and then maybe.
Speaker Change: The updated using him at Cal Pico the application for interim rates any feedback yet in terms of whether or not thats <unk>.
Speaker Change: Usable.
Speaker Change: And just broadly how you think timeline progression in <unk>.
Speaker Change: So.
Speaker Change: It's absolutely feasible, we wouldn't have filed otherwise we havent got any feedback yet, but we're continuing to.
Speaker Change: Answer any questions that come up but.
Speaker Change: It's certainly an option open to us that we're taking every advantage of it.
Speaker Change: When do you think you'll get clarity because I believe the asthma for interim rates by middle of this year and that's not that far away at this point.
Speaker Change: And that.
Speaker Change: California is a slower jurisdiction to hear back so I actually I can't say when will here.
Speaker Change: Got it okay. Thanks for that.
Speaker Change: Thanks Mark.
Speaker Change: There are no further questions at this time I will turn the call to Mr. Rod Lache.
Rod Lache: Alright, Thanks again for your interest and your questions. This morning, and we look forward to visiting with you again in just a few weeks on June 3rd.
Speaker Change: Have a great rest of the day.
Speaker Change: This concludes today's conference call you may now disconnect.