NYSE:AQN Algonquin Power & Utilities Q3 2024 Earnings Report $5.46 -0.03 (-0.60%) Closing price 03:59 PM EasternExtended Trading$5.45 -0.01 (-0.13%) As of 07:57 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Algonquin Power & Utilities EPS ResultsActual EPS$0.08Consensus EPS $0.09Beat/MissMissed by -$0.01One Year Ago EPS$0.11Algonquin Power & Utilities Revenue ResultsActual Revenue$573.20 millionExpected Revenue$620.46 millionBeat/MissMissed by -$47.26 millionYoY Revenue Growth+1.50%Algonquin Power & Utilities Announcement DetailsQuarterQ3 2024Date11/7/2024TimeBefore Market OpensConference Call DateThursday, November 7, 2024Conference Call Time10:00AM ETUpcoming EarningsAlgonquin Power & Utilities' Q1 2025 earnings is scheduled for Friday, May 9, 2025, with a conference call scheduled at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress ReleaseEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Algonquin Power & Utilities Q3 2024 Earnings Call TranscriptProvided by QuartrNovember 7, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Hello, and welcome to the Algonquin Power and Utilities Corp. Third Quarter 2024 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. I will now turn the conference over to Mr. Operator00:00:22Brian Chin, Vice President of Investor Relations. Please go ahead. Speaker 100:00:27Thank you, operator, and good morning, everyone. Thank you for joining us for our Q3 2024 earnings conference call. Joining me on the call today will be Chris Huskelson, Chief Executive Officer Darren Myers, Chief Financial Officer and Sarah McDonald, Chief Transformation Officer. To accompany today's earnings call, we have a supplemental webcast presentation available on our website, alconquincower.com. Our financial statements and management discussion and analysis are also available on the website as well as on SEDAR Plus and EDGAR. Speaker 100:00:56We 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. Certain material factors and assumptions were applied in making the forecasts and projections reflected in such forward looking information. Speaker 200:01:15Please note and review the Speaker 100:01:16related disclaimers located on Slide 2 of our earnings call presentation at our website. Please also refer to our most recent MD and A filed as indicated earlier and available on our website for important information additional information. On the call this morning, Chris will provide an update on the company's ongoing strategic transition to a pure play regulated utility. Darren will then review key highlights pertaining to our regulated business and our Q3 financial results, followed by some final remarks from Chris. We will then open the lines for questions. Speaker 100:01:48We ask that you kindly restrict your questions to 2, then re queue if you have any additional questions to allow others the opportunity to participate. And with that, I'll turn it over to Chris. Speaker 200:01:58Thank you, Brian, and good evening or good morning, everyone. Thank you once again for your interest in Algonquin and for supporting us on our continued journey towards a pure play regulated utility. I'd like to start with a quick review of how far we've come in our strategic transition. But first, I want to welcome Sarah McDonald, our Chief Transformation Officer to the call. Welcome, Sarah. Speaker 200:02:29In 2023, we had the strategic we made the strategic decision to simplify and focus the business as a core regulated utility. It was and continues to be our belief that separating the regulated and renewables platforms would after a transition period allow both businesses to be more ideally capitalized and ultimately lead to longer term growth and value. We began to streamline our capital structure early for this year. This started with paying off our margin loan with Atlantica and collapsing our development joint venture this past winter and successfully remarketing our green equity units this past spring. In May of this year, we announced our support for Atlantica's strategic sale agreement, which is now expected to close on December 12, 2024. Speaker 200:03:26In August, we announced an agreement to sell our renewables business, excluding the hydro fleet for up to $2,500,000,000 representing an attractive valuation for our platform. This transaction is expected to close in the Q4 of 2024 or the Q1 of 2025. These changes are a considerable evolution for the business. And upon close of renewables and Atlantica transactions, we will effectively be a regulated utility business with significantly reduced complexity. As we've mentioned in the past, we will be looking to monetize our hydro fleet as part of the separation transaction. Speaker 200:04:13We continue to focus our efforts on successfully closing the renewables transaction and as such, we have not yet officially launched the process for hydro. We would expect to begin the sale process sometime in the first half of twenty twenty five once the renewables transaction is closed. It's important to note that the hydro business represents an annual EBITDA run rate of approximately $25,000,000 and we intend to only enter into a transaction if it creates value for our shareholders. At the end of the day, we're confident in the actions we're taking to position the business to deliver customer value and growth through simplification and focus. While the journey at times has been challenging, I'm excited to lead the company through this transition period to brighter days ahead. Speaker 200:05:13While we've been executing our strategic simplification plan, we've also been busy optimizing the core regulated business. When I started as CEO, I highlighted that one of my main priorities was to get the regulated business up and running. Early in the company's history, the business primarily grew in a piecemeal fashion. Our opportunity is to more effectively standardize and apply best practices to create additional value for our customers and shareholders. Despite near term challenges, I'm confident we're taking the right steps. Speaker 200:05:581st, we completed the rollout of our customer first SAP based IT platform in the spring. We're in the typical stage where we're adapting to our new system and our processes. We recently rolled out the next phase of business services, which will help simplify and harmonize customer service and back office processes, leveraging our new platform. These key milestones in our transition to a more focused regulated utility business. Although our system implementation has caused some short term regulatory lag and has in part impacted the timing of rate cases, we are excited by the longer term potential these steps will provide. Speaker 200:06:462nd, we're evaluating our regulated utility infrastructure expertise And we've just added in the last few quarters new members to our Board and new executive leadership, all of which have extensive regulated experience. 3rd, we're reorganizing our utility structure to group by commodity to drive best practices throughout our network. We have revamped a number of our internal processes in an effort to drive more consistent results. These approaches are approaches that I've successfully used in the past and I'm beginning to see positive change and increased accountability within the organization. To be clear, this is a journey, but we're heading in the right direction. Speaker 200:07:37Looking ahead, one of our main priorities is to recover and earn a return on capital that we've already invested, but have not yet captured in authorized rates. There are 3 large rate cases that we expect to improve our return on capital. I'm pleased to say that we recently filed rate cases for Empire Electric in Missouri and Caltecho in California and expect to file Litchfield Park in Arizona in the first half of twenty twenty five. The general rate case for Empire Electric Missouri was filed yesterday and includes a request to increase rate base by approximately $534,000,000 The filing includes a 53.1 percent equity layer and 10% allowed return on equity, resulting in a requested revenue requirement increase $92,100,000 Historically, Empire's electric rate cases take about 1 year to resolve. Galpico's general rate case was filed in September and includes a request to increase rate base by approximately $154,000,000 through 2025. Speaker 200:08:51The filing is based on a 52.5% equity layer and 11% allowed return on equity, resulting in a requested revenue requirement increase of approximately $39,800,000 Based on typical timing, we would expect this rate case to be resolved sometime in the first half of twenty twenty six. Concurrent with the rate case, we filed a request to adjust rates retroactively. We're aiming to file a rate case at the Litchfield water and sewer facility in Arizona in the first half of twenty twenty five. As we indicated on prior calls, the Cerroville wastewater plant is a substantial investment in the community and it serves significant manufacturing development along a key corridor in the Greater Phoenix area. The plan itself represents approximately $108,000,000 in investment, offset by approximately $23,000,000 in connection fees. Speaker 200:09:53This results in our seeking approval to increase rate base by approximately $85,000,000 Historically, Arizona rate cases can take up to 18 months to complete, so we expect financial benefit from the rate case to start in 2026. These three rate cases constitute over $700,000,000 potential net increases in our authorized rate base. As we turn to 2025, it will be the 1st year we will be in a position to focus completely on our regulated business. As I mentioned on our last call, there's no question that our short term results will be impacted by the timing of rate cases. On the other hand, we are taking the right steps and I'm confident that we have a tremendous opportunity to improve our rate case outcomes, leverage our IT platform and run the business more effectively. Speaker 200:10:49The filings of Empire and CalPeco along with other actions I've described are positioning us well to increase our momentum beyond 2025. And with that, I'll ask Darren to review this quarter's operational and financial results. Darren? Speaker 300:11:08Thank you, Chris, and good morning, everyone. I'll start off my commentary today with an overview of key rate case developments. During the Q3, we received the final order for our New York water utility authorizing a $38,600,000 increase in revenues over a 3 year rate plan, Speaker 200:11:25which came Speaker 300:11:25into effect on September 1. As highlighted by Chris in the Q3, the company filed an application at our Calpico Electric Utility in California, seeking an increase in revenues of $39,800,000 based on an ROE of 11% and an equity ratio of 52.5%. We also recently filed an application at our Empire Electric Missouri Utility seeking a revenue increase of approximately $92,000,000 based on the ROE of 10% and an equity ratio of 53.1%. As we look forward, we plan to file rate cases at Litchfield Water and Sewer, New England Gas, St. Lawrence Gas in either the Q4 of twenty twenty four or the first half of twenty twenty five. Speaker 300:12:07As we have mentioned on prior calls, 2024 represents the largest number of concurrent rate cases in the company's histories. At this time, the company has pending 13 rate reviews, which represent approximately $205,000,000 in revenue requests. Turning now to financial results. This quarter, we separated our results into continuing operations and discontinued operations. Let me provide further color to help you better understand the moving parts. Speaker 300:12:36Our continuing operations includes our regulated business, hydro business and ownership stake in Atlantica. It also includes all debt except that specific to our renewables business. We continue to record our ownership stake in Atlantica and associate dividends in continuing operations based on the application of generally accepted accounting principles. We now expect Atlantica to close on December 12, 2024. Our discontinued operations includes our non hydro renewables business, including taxes and associated tax credits and $1,250,000,000 in specific debt related to our renewables business. Speaker 300:13:19In terms of the numbers, our 3rd quarter financial performance for continuing operations saw year over year growth in revenue and adjusted EBITDA of 1% 4% respectively, primarily due to the implementation of new rates across several of the regulated business electric, natural gas and water facilities. Our revenue growth was partially offset by lower pass through commodity costs. We recorded year over year decreases in adjusted net earnings and adjusted net earnings per share of 5% and 20% respectively. While our results benefited from new rates, they were more than offset by higher operating expenses as well as depreciation and interest expense. Adjusted net earnings per share was also negatively impacted by the previously disclosed issuance of 76,900,000 common shares in connection with the company's green equity units through a mandatory conversion back in June. Speaker 300:14:11On a segmented basis, adjusted EBITDA growth for the regulated business in the 3rd quarter was up 3 3% year over year due to the implementation of new rates at several of the company's electric, gas and water facilities, as well as higher HLBV income as a result of normalized wind resources and the recovery of securitized regulatory assets at Empire. These gains were partially offset by higher operating expenses as mentioned earlier. A few other comments on our balance sheet as we move closer towards closing our Atlantic and Renewables transaction. Our Q3 balance sheet debt including continued and discontinued operations is $8,700,000,000 which increased from Q2 in part from the buyout of a construction loan at Carvers Creek. We expect to have approximately $1,700,000,000 to $1,800,000,000 in net proceeds from the renewable sale after off balance sheet construction loan obligations and other renewable liabilities are satisfied. Speaker 300:15:13Final net proceeds received may vary due to items such as construction spending variances, tax credit timing and monetizations. It's worth noting, including included in the $1,700,000,000 to $1,800,000,000 we now expect to receive approximately $150,000,000 of net proceeds associated with tax attributes in certain projects in late 2025. Speaker 200:15:37Let me have Speaker 300:15:39a few call outs on our year to date earnings and some reminders for next year. Year to date, our continuing operations adjusted net earnings is $187,000,000 and our adjusted earnings per share for continuing operations is $0.25 Included in that is $65,000,000 in Atlantica dividends year to date or approximately $0.09 in adjusted net earnings per share. So as you think about next year, there's a few pieces of Merit calling out. If you combine the proceeds of both transactions ignoring timing, we would expect to receive $2,800,000,000 to $2,900,000,000 As you consider our pro form a adjusted net earnings per share, you need to take into account that based on our Q3 balance sheet, $1,250,000,000 of proceeds would go towards discontinued operations debt pay down, leaving $1,550,000,000 to $1,650,000,000 for deleveraging against the continuing operations. So as you think about our pro form a continuing operations number, you would need to incorporate the continuing operations deleveraging and then remove the Atlantica dividends. Speaker 300:16:48As we've noted before, we are not providing 2025 guidance at this point. As a reminder, our results on a per share basis will be affected by the full year effect of the settlement of our equity units from earlier this year. We plan to provide guidance when we report our 4th quarter results. In summary, we are on track to achieving a number of key milestones on our path to simplification and becoming a pure play regulated business. This is a journey and we are focused on taking the right steps to create long term value. Speaker 300:17:19With that, I will turn the call back over to Chris. Speaker 200:17:22Thank you, Darren. We're pleased with the progress that we're making on our journey to transform Algonquin into a pure play regulated utility. We've already achieved several of the key initiatives we listed at the start of our strategic transition and we believe we have provided the meaningful steps on how we intend to get there. These steps past, present and future have the same goals to strengthen the balance sheet, optimize the payout ratio, support future earnings and dividend growth, simplify and refocus the business and ultimately provide exceptional service and value to our customers and our shareholders. With that, I'll turn the call back over to the operator for some questions. Speaker 200:18:11Thank you. Operator00:18:13Thank you. Your first question comes from the line of Rupert Merer with National Bank. Please go ahead. Speaker 400:18:33Hello. Good morning, everyone. Speaker 200:18:36Good morning, Rupert. Speaker 400:18:37If I could start by asking about your rate case submissions. I believe you've now submitted rate cases for $700,000,000 of your target recovery. Well, that includes Litchfield coming up, of course. I believe there's another $300,000,000 to come. Can you give us more color on that? Speaker 400:18:58What would be included in that $300,000,000 And what would be the timing on submitting rate cases to get you up to your full $1,000,000,000 Speaker 300:19:07Yes. Hi, Rupert. We're not going to give that walk in terms of that of what's left. I mean, obviously, we're going to continue to file rate cases. We've got a number of other cases to file. Speaker 300:19:19And we're definitely pleased that we got a significant 2 significant rate cases behind us now and we're focused on Glitchfield Next and the number of other ones. Speaker 200:19:30Yes. And I think Rupert, one of the things we've been fairly clear that number 1, the numbers are going to be a moving target as we continue to invest in the business. And number 2, we see this occurring out into 2027. Speaker 400:19:46Okay. If I could just focus on the Empire rate case then that one, of course, is the largest. It seems like it has the potential to be completed the most quickly and possibly to be completed before the end of next year. So what impact could that have on 2025? And how much of it could be retroactive? Speaker 300:20:10Well, I think, as we said in the prepared remarks, if you look at history, it's obviously you can't predict exactly when these will settle. But if you look at history, it's about 12 months. So we just put it put the rate case in and it would be perspective. So there'll be a small amount of impact next year, but not meaningful for 2025. And then of course in 2026, we'll be getting the full benefit. Speaker 400:20:36All right, great. Maybe one quick follow-up here. I think you were looking also at some deferrals of depreciation, which you'd have to go to the regulators to see those allowances. Can you give us an update on how that might be progressing? Speaker 200:20:53Yes. I think where we are right now Rupert is we've submitted applications in New Hampshire and in Arizona and we don't have an answer yet. Speaker 400:21:04All right. I'll leave there and get back in the queue. Thank you. Speaker 300:21:06Thanks, Rupert. Operator00:21:11Your next question comes from the line of Mark Jarvi with CIBC. Please go ahead. Speaker 500:21:19Thanks for that commentary on some of the helpful measures to get us to sort of pro form a business outlook here. Question on the base set of earnings. I appreciate this is stripped out AOI and then there's also intrinsic savings. But the earnings on the utility business today, do you think there would be erosion as you get into 2025 with regulatory lag? Or do you think that can be flat to up on what you've shown year to date? Speaker 300:21:43Hi, Mark. Yes, I would say we're certainly not going to give guidance today because there's we do have the benefit of some rate cases that we've been able to settle this year that will go into next year. And then of course, we're all over our OpEx spend and there's areas where you have some increases in non controllable spend, but we're also looking for all efficiencies we can get. So it's a little early to say what next year is going to be and we're working hard on our plan there and we will provide further color on that as we close Q4. Speaker 500:22:17And when you say color on that, you close Q4 before the Q? Speaker 300:22:20No, no, no. Speaker 200:22:21Before the Q4 results. No, no, no. Before the Q4 results. No, no, no. Speaker 300:22:21Before the Q4 results. No, no. Before the Q4 results. No, no. Before the Q4 results. Speaker 300:22:23No, no. Before the Q4 results. Thanks, Mark. Speaker 500:22:27Yes. Okay. All right. And then on the rate case filings, I think in Missouri in particular, as part of your submission, is there anything you guys will be advocating for in terms of riders measures to minimize regulatory lag, just given what you've been through the last couple of years? Speaker 200:22:48Well, so you have to remember that in Missouri, we have the Visa opportunity and pretty much everything that we are applying for is in Visa today. So we do have that advantage. There are a few things that we're applying for relative to our fuel adjustment mechanism and a few other items. So those are all listed in the case though. Speaker 500:23:13Okay. And last question for me is just on New Hampshire expectations on the path forward there. You've had some sort of extensions there, I think, to November 15. Is there a review that you can work through a settlement? Or is a refiling a more likely path? Speaker 200:23:30No, no. We're expecting to settle both of those cases. And I think we've had good discussions with interveners and with the staff. And so, we're optimistic that will come to a conclusion. Speaker 300:23:42Okay. Thanks. Thank you. Thanks, Mark. Operator00:23:47Your next question comes from the line of Sean Steuart with TD Cowen. Please go ahead. Speaker 600:23:54Thanks. Good morning, everyone, and thank you for all the detail on the rate case filings. Just one question for me. Wondering if you can give us any updates on the process for hydro at this point? Is that underway? Speaker 600:24:09If so, any context on expressions of interest at this stage? Speaker 200:24:15Well, for 1, we've had lots of expressions of interest. That has not been a problem. But no, we haven't really started the process there. What we've been focused on obviously is selling the bigger asset base and also on the carve out of the hydro. Those two things are busy activities. Speaker 200:24:36And so what we've said is sometime in the first half, we'll actually go to market with the hydro. But through my eyes, it's not a certainty that they will sell just simply because they do make a fairly substantive contribution to the business. They won't affect our ability to be considered pure play. And so we'll sell if we can create some economic value. But if they're better off in the business, we'll keep them there. Speaker 200:25:02But we will go to market and test that. Speaker 300:25:05Yes, Sean. And I know in the past, we said we would be hoping to do that this year. But with all as Chris mentioned, with everything going on and with the fact we want to maximize value here, we're just going to time it next year when we have a bit more bandwidth to give it the attention it needs. Speaker 600:25:22Understood. The rest of my questions have been answered. Thanks very much guys. Speaker 200:25:26Thanks, Operator00:25:37Your next question comes from the line of Rob Hope with Deutsche Bank. Please go ahead. Speaker 700:25:43Scotiabank. Hi, everyone. Speaker 200:25:47I didn't think you moved, Rob. That was That was a good question. Speaker 700:25:52Anyways, okay. So a follow-up to Sean's question there. So it doesn't seem like you need to sell the hydro assets from a strategic point of view or even a balance sheet point of view. So when you think about use of proceeds on the hydro assets, could that push you to share buybacks or would that help you accelerate investments in to the utility business? Or how do you think about kind of the potential levers for proceeds from hydro if you do choose to sell those assets? Speaker 300:26:28Yes, Rob. I'll repeat maybe comments that we've said in the past. First is as we continue to say, we're committed to the investment grade rating. We intend to use proceeds to maintain flexibility. We want to be self funding. Speaker 300:26:44That is the bigger priority. We certainly don't want to do a buyback and go back to the market after that. I will say that the amount of flexibility we have is dependent on getting the regulatory lag lower. Obviously, there's earnings and FFO that's created by those rate cases. So a lot of it is going to be timing dependent, but ultimately, we're looking to have flexibility, bring the more discipline internally on how we time capital spend with our regulatory recovery. Speaker 300:27:16And then from there, invest in the business. Speaker 200:27:19And Rob, we will take a look at the balance between what the value that we get from the hydro inside the business and the value we can get if we continue to take that capital and reinvest. So I mean that will be the test that we're looking at and whichever comes up with the most economic value, that's what we'll do. Speaker 700:27:40I appreciate that. And then sticking with the power business, as we look through the balance of closing, could we see the purchase price move again? And just to clarify or confirm, the movement that we saw in the net proceeds will be offset by the debt being brought back onto the balance sheet, so the overall economics haven't changed? Speaker 300:28:04Yes. So it moved up by $200,000,000 on the high end to $1,600,000,000 to the $1,800,000,000 because of us bringing $200,000,000 on balance sheet. So that would have been in the construction JVs before. And now that they're on our books, you naturally go higher. So there's no economic effect. Speaker 300:28:21We do have a range in here as we get closer. There's a handful of projects that we need to complete or responsible for completing even through the time where LS would take ownership. And so some of those have been pushed to the right with some additional costs. So we've put a range in here. It's our best estimate at this time. Speaker 300:28:41We're comfortable with that range of what it's going to take to finish those projects. Thank you. And Rob, just for clarity, that also impacted the timing of those also impacted you would see I noted that we're going to get about $150,000,000 of proceeds kind of in the back half of next year. That's around tax attributes of those projects. So as they've pushed out, we don't see it being timed with the closing in the same way anymore. Speaker 300:29:08So no change in our overall economics. It's just some nuances to it. Speaker 700:29:14Thank you. Speaker 200:29:15Okay. Thanks, Rob. Operator00:29:20There are no further questions at this time. I will now turn the call to Mr. Chris Haskillson. Speaker 200:29:27Okay. Well, thank you very much for your interest in Algonquin and for your time today. We'll be heading to EEI, the financial conference in a few days, and we look forward to seeing many Speaker 300:29:39of you there. So have Speaker 200:29:41a great next rest of your day. Thank you. Operator00:29:46This concludes today's conference call. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallAlgonquin Power & Utilities Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release Algonquin Power & Utilities Earnings HeadlinesRod West Appointed CEO Of Algonquin Power & Utilities (TSX:AQN)April 9, 2025 | finance.yahoo.comAlgonquin Power & Utilities Corp. Sets Date for Q1 2025 Financial ResultsApril 7, 2025 | tipranks.comBuffett’s favorite chart just hit 209% – here’s what that means for goldA Historic Gold Announcement Is About to Rock Wall Street For months, sharp-eyed analysts have watched the quiet buildup behind the scenes. Now, in just days, the floodgates are set to open. 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Sign up for Earnings360's daily newsletter to receive timely earnings updates on Algonquin Power & Utilities and other key companies, straight to your email. Email Address About Algonquin Power & UtilitiesAlgonquin Power & Utilities (NYSE:AQN) is an investment holding company, which engages in energy generation and water distribution facilities. It operates through the Regulated Services Group and Renewable Energy Group segments. The Regulated Services Group segment owns and operates a portfolio of electric, natural gas, water distribution, and wastewater collection utility systems and transmission. The Renewable Energy Group segment focuses on operating a diversified portfolio of renewable and thermal electric generation assets. The company was founded on August 1, 1988 and is headquartered in Oakville, Canada.View Algonquin Power & Utilities ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Disney Stock Jumps on Earnings—Is the Magic Sustainable?Archer Stock Eyes Q1 Earnings After UAE UpdatesFord Motor Stock Rises After Earnings, But Momentum May Not Last Broadcom Stock Gets a Lift on Hyperscaler Earnings & CapEx BoostPalantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release? 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There are 8 speakers on the call. Operator00:00:00Hello, and welcome to the Algonquin Power and Utilities Corp. Third Quarter 2024 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. I will now turn the conference over to Mr. Operator00:00:22Brian Chin, Vice President of Investor Relations. Please go ahead. Speaker 100:00:27Thank you, operator, and good morning, everyone. Thank you for joining us for our Q3 2024 earnings conference call. Joining me on the call today will be Chris Huskelson, Chief Executive Officer Darren Myers, Chief Financial Officer and Sarah McDonald, Chief Transformation Officer. To accompany today's earnings call, we have a supplemental webcast presentation available on our website, alconquincower.com. Our financial statements and management discussion and analysis are also available on the website as well as on SEDAR Plus and EDGAR. Speaker 100:00:56We 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. Certain material factors and assumptions were applied in making the forecasts and projections reflected in such forward looking information. Speaker 200:01:15Please note and review the Speaker 100:01:16related disclaimers located on Slide 2 of our earnings call presentation at our website. Please also refer to our most recent MD and A filed as indicated earlier and available on our website for important information additional information. On the call this morning, Chris will provide an update on the company's ongoing strategic transition to a pure play regulated utility. Darren will then review key highlights pertaining to our regulated business and our Q3 financial results, followed by some final remarks from Chris. We will then open the lines for questions. Speaker 100:01:48We ask that you kindly restrict your questions to 2, then re queue if you have any additional questions to allow others the opportunity to participate. And with that, I'll turn it over to Chris. Speaker 200:01:58Thank you, Brian, and good evening or good morning, everyone. Thank you once again for your interest in Algonquin and for supporting us on our continued journey towards a pure play regulated utility. I'd like to start with a quick review of how far we've come in our strategic transition. But first, I want to welcome Sarah McDonald, our Chief Transformation Officer to the call. Welcome, Sarah. Speaker 200:02:29In 2023, we had the strategic we made the strategic decision to simplify and focus the business as a core regulated utility. It was and continues to be our belief that separating the regulated and renewables platforms would after a transition period allow both businesses to be more ideally capitalized and ultimately lead to longer term growth and value. We began to streamline our capital structure early for this year. This started with paying off our margin loan with Atlantica and collapsing our development joint venture this past winter and successfully remarketing our green equity units this past spring. In May of this year, we announced our support for Atlantica's strategic sale agreement, which is now expected to close on December 12, 2024. Speaker 200:03:26In August, we announced an agreement to sell our renewables business, excluding the hydro fleet for up to $2,500,000,000 representing an attractive valuation for our platform. This transaction is expected to close in the Q4 of 2024 or the Q1 of 2025. These changes are a considerable evolution for the business. And upon close of renewables and Atlantica transactions, we will effectively be a regulated utility business with significantly reduced complexity. As we've mentioned in the past, we will be looking to monetize our hydro fleet as part of the separation transaction. Speaker 200:04:13We continue to focus our efforts on successfully closing the renewables transaction and as such, we have not yet officially launched the process for hydro. We would expect to begin the sale process sometime in the first half of twenty twenty five once the renewables transaction is closed. It's important to note that the hydro business represents an annual EBITDA run rate of approximately $25,000,000 and we intend to only enter into a transaction if it creates value for our shareholders. At the end of the day, we're confident in the actions we're taking to position the business to deliver customer value and growth through simplification and focus. While the journey at times has been challenging, I'm excited to lead the company through this transition period to brighter days ahead. Speaker 200:05:13While we've been executing our strategic simplification plan, we've also been busy optimizing the core regulated business. When I started as CEO, I highlighted that one of my main priorities was to get the regulated business up and running. Early in the company's history, the business primarily grew in a piecemeal fashion. Our opportunity is to more effectively standardize and apply best practices to create additional value for our customers and shareholders. Despite near term challenges, I'm confident we're taking the right steps. Speaker 200:05:581st, we completed the rollout of our customer first SAP based IT platform in the spring. We're in the typical stage where we're adapting to our new system and our processes. We recently rolled out the next phase of business services, which will help simplify and harmonize customer service and back office processes, leveraging our new platform. These key milestones in our transition to a more focused regulated utility business. Although our system implementation has caused some short term regulatory lag and has in part impacted the timing of rate cases, we are excited by the longer term potential these steps will provide. Speaker 200:06:462nd, we're evaluating our regulated utility infrastructure expertise And we've just added in the last few quarters new members to our Board and new executive leadership, all of which have extensive regulated experience. 3rd, we're reorganizing our utility structure to group by commodity to drive best practices throughout our network. We have revamped a number of our internal processes in an effort to drive more consistent results. These approaches are approaches that I've successfully used in the past and I'm beginning to see positive change and increased accountability within the organization. To be clear, this is a journey, but we're heading in the right direction. Speaker 200:07:37Looking ahead, one of our main priorities is to recover and earn a return on capital that we've already invested, but have not yet captured in authorized rates. There are 3 large rate cases that we expect to improve our return on capital. I'm pleased to say that we recently filed rate cases for Empire Electric in Missouri and Caltecho in California and expect to file Litchfield Park in Arizona in the first half of twenty twenty five. The general rate case for Empire Electric Missouri was filed yesterday and includes a request to increase rate base by approximately $534,000,000 The filing includes a 53.1 percent equity layer and 10% allowed return on equity, resulting in a requested revenue requirement increase $92,100,000 Historically, Empire's electric rate cases take about 1 year to resolve. Galpico's general rate case was filed in September and includes a request to increase rate base by approximately $154,000,000 through 2025. Speaker 200:08:51The filing is based on a 52.5% equity layer and 11% allowed return on equity, resulting in a requested revenue requirement increase of approximately $39,800,000 Based on typical timing, we would expect this rate case to be resolved sometime in the first half of twenty twenty six. Concurrent with the rate case, we filed a request to adjust rates retroactively. We're aiming to file a rate case at the Litchfield water and sewer facility in Arizona in the first half of twenty twenty five. As we indicated on prior calls, the Cerroville wastewater plant is a substantial investment in the community and it serves significant manufacturing development along a key corridor in the Greater Phoenix area. The plan itself represents approximately $108,000,000 in investment, offset by approximately $23,000,000 in connection fees. Speaker 200:09:53This results in our seeking approval to increase rate base by approximately $85,000,000 Historically, Arizona rate cases can take up to 18 months to complete, so we expect financial benefit from the rate case to start in 2026. These three rate cases constitute over $700,000,000 potential net increases in our authorized rate base. As we turn to 2025, it will be the 1st year we will be in a position to focus completely on our regulated business. As I mentioned on our last call, there's no question that our short term results will be impacted by the timing of rate cases. On the other hand, we are taking the right steps and I'm confident that we have a tremendous opportunity to improve our rate case outcomes, leverage our IT platform and run the business more effectively. Speaker 200:10:49The filings of Empire and CalPeco along with other actions I've described are positioning us well to increase our momentum beyond 2025. And with that, I'll ask Darren to review this quarter's operational and financial results. Darren? Speaker 300:11:08Thank you, Chris, and good morning, everyone. I'll start off my commentary today with an overview of key rate case developments. During the Q3, we received the final order for our New York water utility authorizing a $38,600,000 increase in revenues over a 3 year rate plan, Speaker 200:11:25which came Speaker 300:11:25into effect on September 1. As highlighted by Chris in the Q3, the company filed an application at our Calpico Electric Utility in California, seeking an increase in revenues of $39,800,000 based on an ROE of 11% and an equity ratio of 52.5%. We also recently filed an application at our Empire Electric Missouri Utility seeking a revenue increase of approximately $92,000,000 based on the ROE of 10% and an equity ratio of 53.1%. As we look forward, we plan to file rate cases at Litchfield Water and Sewer, New England Gas, St. Lawrence Gas in either the Q4 of twenty twenty four or the first half of twenty twenty five. Speaker 300:12:07As we have mentioned on prior calls, 2024 represents the largest number of concurrent rate cases in the company's histories. At this time, the company has pending 13 rate reviews, which represent approximately $205,000,000 in revenue requests. Turning now to financial results. This quarter, we separated our results into continuing operations and discontinued operations. Let me provide further color to help you better understand the moving parts. Speaker 300:12:36Our continuing operations includes our regulated business, hydro business and ownership stake in Atlantica. It also includes all debt except that specific to our renewables business. We continue to record our ownership stake in Atlantica and associate dividends in continuing operations based on the application of generally accepted accounting principles. We now expect Atlantica to close on December 12, 2024. Our discontinued operations includes our non hydro renewables business, including taxes and associated tax credits and $1,250,000,000 in specific debt related to our renewables business. Speaker 300:13:19In terms of the numbers, our 3rd quarter financial performance for continuing operations saw year over year growth in revenue and adjusted EBITDA of 1% 4% respectively, primarily due to the implementation of new rates across several of the regulated business electric, natural gas and water facilities. Our revenue growth was partially offset by lower pass through commodity costs. We recorded year over year decreases in adjusted net earnings and adjusted net earnings per share of 5% and 20% respectively. While our results benefited from new rates, they were more than offset by higher operating expenses as well as depreciation and interest expense. Adjusted net earnings per share was also negatively impacted by the previously disclosed issuance of 76,900,000 common shares in connection with the company's green equity units through a mandatory conversion back in June. Speaker 300:14:11On a segmented basis, adjusted EBITDA growth for the regulated business in the 3rd quarter was up 3 3% year over year due to the implementation of new rates at several of the company's electric, gas and water facilities, as well as higher HLBV income as a result of normalized wind resources and the recovery of securitized regulatory assets at Empire. These gains were partially offset by higher operating expenses as mentioned earlier. A few other comments on our balance sheet as we move closer towards closing our Atlantic and Renewables transaction. Our Q3 balance sheet debt including continued and discontinued operations is $8,700,000,000 which increased from Q2 in part from the buyout of a construction loan at Carvers Creek. We expect to have approximately $1,700,000,000 to $1,800,000,000 in net proceeds from the renewable sale after off balance sheet construction loan obligations and other renewable liabilities are satisfied. Speaker 300:15:13Final net proceeds received may vary due to items such as construction spending variances, tax credit timing and monetizations. It's worth noting, including included in the $1,700,000,000 to $1,800,000,000 we now expect to receive approximately $150,000,000 of net proceeds associated with tax attributes in certain projects in late 2025. Speaker 200:15:37Let me have Speaker 300:15:39a few call outs on our year to date earnings and some reminders for next year. Year to date, our continuing operations adjusted net earnings is $187,000,000 and our adjusted earnings per share for continuing operations is $0.25 Included in that is $65,000,000 in Atlantica dividends year to date or approximately $0.09 in adjusted net earnings per share. So as you think about next year, there's a few pieces of Merit calling out. If you combine the proceeds of both transactions ignoring timing, we would expect to receive $2,800,000,000 to $2,900,000,000 As you consider our pro form a adjusted net earnings per share, you need to take into account that based on our Q3 balance sheet, $1,250,000,000 of proceeds would go towards discontinued operations debt pay down, leaving $1,550,000,000 to $1,650,000,000 for deleveraging against the continuing operations. So as you think about our pro form a continuing operations number, you would need to incorporate the continuing operations deleveraging and then remove the Atlantica dividends. Speaker 300:16:48As we've noted before, we are not providing 2025 guidance at this point. As a reminder, our results on a per share basis will be affected by the full year effect of the settlement of our equity units from earlier this year. We plan to provide guidance when we report our 4th quarter results. In summary, we are on track to achieving a number of key milestones on our path to simplification and becoming a pure play regulated business. This is a journey and we are focused on taking the right steps to create long term value. Speaker 300:17:19With that, I will turn the call back over to Chris. Speaker 200:17:22Thank you, Darren. We're pleased with the progress that we're making on our journey to transform Algonquin into a pure play regulated utility. We've already achieved several of the key initiatives we listed at the start of our strategic transition and we believe we have provided the meaningful steps on how we intend to get there. These steps past, present and future have the same goals to strengthen the balance sheet, optimize the payout ratio, support future earnings and dividend growth, simplify and refocus the business and ultimately provide exceptional service and value to our customers and our shareholders. With that, I'll turn the call back over to the operator for some questions. Speaker 200:18:11Thank you. Operator00:18:13Thank you. Your first question comes from the line of Rupert Merer with National Bank. Please go ahead. Speaker 400:18:33Hello. Good morning, everyone. Speaker 200:18:36Good morning, Rupert. Speaker 400:18:37If I could start by asking about your rate case submissions. I believe you've now submitted rate cases for $700,000,000 of your target recovery. Well, that includes Litchfield coming up, of course. I believe there's another $300,000,000 to come. Can you give us more color on that? Speaker 400:18:58What would be included in that $300,000,000 And what would be the timing on submitting rate cases to get you up to your full $1,000,000,000 Speaker 300:19:07Yes. Hi, Rupert. We're not going to give that walk in terms of that of what's left. I mean, obviously, we're going to continue to file rate cases. We've got a number of other cases to file. Speaker 300:19:19And we're definitely pleased that we got a significant 2 significant rate cases behind us now and we're focused on Glitchfield Next and the number of other ones. Speaker 200:19:30Yes. And I think Rupert, one of the things we've been fairly clear that number 1, the numbers are going to be a moving target as we continue to invest in the business. And number 2, we see this occurring out into 2027. Speaker 400:19:46Okay. If I could just focus on the Empire rate case then that one, of course, is the largest. It seems like it has the potential to be completed the most quickly and possibly to be completed before the end of next year. So what impact could that have on 2025? And how much of it could be retroactive? Speaker 300:20:10Well, I think, as we said in the prepared remarks, if you look at history, it's obviously you can't predict exactly when these will settle. But if you look at history, it's about 12 months. So we just put it put the rate case in and it would be perspective. So there'll be a small amount of impact next year, but not meaningful for 2025. And then of course in 2026, we'll be getting the full benefit. Speaker 400:20:36All right, great. Maybe one quick follow-up here. I think you were looking also at some deferrals of depreciation, which you'd have to go to the regulators to see those allowances. Can you give us an update on how that might be progressing? Speaker 200:20:53Yes. I think where we are right now Rupert is we've submitted applications in New Hampshire and in Arizona and we don't have an answer yet. Speaker 400:21:04All right. I'll leave there and get back in the queue. Thank you. Speaker 300:21:06Thanks, Rupert. Operator00:21:11Your next question comes from the line of Mark Jarvi with CIBC. Please go ahead. Speaker 500:21:19Thanks for that commentary on some of the helpful measures to get us to sort of pro form a business outlook here. Question on the base set of earnings. I appreciate this is stripped out AOI and then there's also intrinsic savings. But the earnings on the utility business today, do you think there would be erosion as you get into 2025 with regulatory lag? Or do you think that can be flat to up on what you've shown year to date? Speaker 300:21:43Hi, Mark. Yes, I would say we're certainly not going to give guidance today because there's we do have the benefit of some rate cases that we've been able to settle this year that will go into next year. And then of course, we're all over our OpEx spend and there's areas where you have some increases in non controllable spend, but we're also looking for all efficiencies we can get. So it's a little early to say what next year is going to be and we're working hard on our plan there and we will provide further color on that as we close Q4. Speaker 500:22:17And when you say color on that, you close Q4 before the Q? Speaker 300:22:20No, no, no. Speaker 200:22:21Before the Q4 results. No, no, no. Before the Q4 results. No, no, no. Speaker 300:22:21Before the Q4 results. No, no. Before the Q4 results. No, no. Before the Q4 results. Speaker 300:22:23No, no. Before the Q4 results. Thanks, Mark. Speaker 500:22:27Yes. Okay. All right. And then on the rate case filings, I think in Missouri in particular, as part of your submission, is there anything you guys will be advocating for in terms of riders measures to minimize regulatory lag, just given what you've been through the last couple of years? Speaker 200:22:48Well, so you have to remember that in Missouri, we have the Visa opportunity and pretty much everything that we are applying for is in Visa today. So we do have that advantage. There are a few things that we're applying for relative to our fuel adjustment mechanism and a few other items. So those are all listed in the case though. Speaker 500:23:13Okay. And last question for me is just on New Hampshire expectations on the path forward there. You've had some sort of extensions there, I think, to November 15. Is there a review that you can work through a settlement? Or is a refiling a more likely path? Speaker 200:23:30No, no. We're expecting to settle both of those cases. And I think we've had good discussions with interveners and with the staff. And so, we're optimistic that will come to a conclusion. Speaker 300:23:42Okay. Thanks. Thank you. Thanks, Mark. Operator00:23:47Your next question comes from the line of Sean Steuart with TD Cowen. Please go ahead. Speaker 600:23:54Thanks. Good morning, everyone, and thank you for all the detail on the rate case filings. Just one question for me. Wondering if you can give us any updates on the process for hydro at this point? Is that underway? Speaker 600:24:09If so, any context on expressions of interest at this stage? Speaker 200:24:15Well, for 1, we've had lots of expressions of interest. That has not been a problem. But no, we haven't really started the process there. What we've been focused on obviously is selling the bigger asset base and also on the carve out of the hydro. Those two things are busy activities. Speaker 200:24:36And so what we've said is sometime in the first half, we'll actually go to market with the hydro. But through my eyes, it's not a certainty that they will sell just simply because they do make a fairly substantive contribution to the business. They won't affect our ability to be considered pure play. And so we'll sell if we can create some economic value. But if they're better off in the business, we'll keep them there. Speaker 200:25:02But we will go to market and test that. Speaker 300:25:05Yes, Sean. And I know in the past, we said we would be hoping to do that this year. But with all as Chris mentioned, with everything going on and with the fact we want to maximize value here, we're just going to time it next year when we have a bit more bandwidth to give it the attention it needs. Speaker 600:25:22Understood. The rest of my questions have been answered. Thanks very much guys. Speaker 200:25:26Thanks, Operator00:25:37Your next question comes from the line of Rob Hope with Deutsche Bank. Please go ahead. Speaker 700:25:43Scotiabank. Hi, everyone. Speaker 200:25:47I didn't think you moved, Rob. That was That was a good question. Speaker 700:25:52Anyways, okay. So a follow-up to Sean's question there. So it doesn't seem like you need to sell the hydro assets from a strategic point of view or even a balance sheet point of view. So when you think about use of proceeds on the hydro assets, could that push you to share buybacks or would that help you accelerate investments in to the utility business? Or how do you think about kind of the potential levers for proceeds from hydro if you do choose to sell those assets? Speaker 300:26:28Yes, Rob. I'll repeat maybe comments that we've said in the past. First is as we continue to say, we're committed to the investment grade rating. We intend to use proceeds to maintain flexibility. We want to be self funding. Speaker 300:26:44That is the bigger priority. We certainly don't want to do a buyback and go back to the market after that. I will say that the amount of flexibility we have is dependent on getting the regulatory lag lower. Obviously, there's earnings and FFO that's created by those rate cases. So a lot of it is going to be timing dependent, but ultimately, we're looking to have flexibility, bring the more discipline internally on how we time capital spend with our regulatory recovery. Speaker 300:27:16And then from there, invest in the business. Speaker 200:27:19And Rob, we will take a look at the balance between what the value that we get from the hydro inside the business and the value we can get if we continue to take that capital and reinvest. So I mean that will be the test that we're looking at and whichever comes up with the most economic value, that's what we'll do. Speaker 700:27:40I appreciate that. And then sticking with the power business, as we look through the balance of closing, could we see the purchase price move again? And just to clarify or confirm, the movement that we saw in the net proceeds will be offset by the debt being brought back onto the balance sheet, so the overall economics haven't changed? Speaker 300:28:04Yes. So it moved up by $200,000,000 on the high end to $1,600,000,000 to the $1,800,000,000 because of us bringing $200,000,000 on balance sheet. So that would have been in the construction JVs before. And now that they're on our books, you naturally go higher. So there's no economic effect. Speaker 300:28:21We do have a range in here as we get closer. There's a handful of projects that we need to complete or responsible for completing even through the time where LS would take ownership. And so some of those have been pushed to the right with some additional costs. So we've put a range in here. It's our best estimate at this time. Speaker 300:28:41We're comfortable with that range of what it's going to take to finish those projects. Thank you. And Rob, just for clarity, that also impacted the timing of those also impacted you would see I noted that we're going to get about $150,000,000 of proceeds kind of in the back half of next year. That's around tax attributes of those projects. So as they've pushed out, we don't see it being timed with the closing in the same way anymore. Speaker 300:29:08So no change in our overall economics. It's just some nuances to it. Speaker 700:29:14Thank you. Speaker 200:29:15Okay. Thanks, Rob. Operator00:29:20There are no further questions at this time. I will now turn the call to Mr. Chris Haskillson. Speaker 200:29:27Okay. Well, thank you very much for your interest in Algonquin and for your time today. We'll be heading to EEI, the financial conference in a few days, and we look forward to seeing many Speaker 300:29:39of you there. So have Speaker 200:29:41a great next rest of your day. Thank you. Operator00:29:46This concludes today's conference call. You may now disconnect.Read morePowered by