Atlantica Sustainable Infrastructure Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 8, 2024

There are 8 speakers on the call.

Operator

Welcome to Atlantica's First Quarter 2024 Financial Results Conference Call. Just a reminder that this call is being webcast live on the Internet and a replay of this call will be available on Atlantica's corporate website. Atlantica will be making forward looking statements during this call, which are based on current expectations and assumptions and are subject to risks and uncertainties.

Operator

Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect or because of other factors, including the Risk Factors section of the accompanying presentation and in our latest reports and filings with the Securities and Exchange Commission, all of which can be found on our website. Atlantica does not undertake any duty to update any forward looking statements. Joining us for today's conference call are Atlantica's CEO, Santiago Siege and CFO, Francisco Martinez Davis. As usual, at the end of this conference call, we will open the lines for the Q and A session. I will now pass you over to Mr.

Operator

Sieg. Please, sir, go ahead.

Speaker 1

Good morning. Thank you very much for joining us for our Q1 2024 conference call. I will start with a few high level messages. As you have seen in the Q1 and compared versus the same period last year, revenue remained stable, while adjusted EBITDA decreased by 0.9%, excluding the effect of the unscheduled outage that we discussed last quarter. Operating cash flow increased by 57% year over year up to close to $66,000,000 In terms of growth and new projects, we recently signed a 15 year PPA for a new 100 Megawatt solar plus storage project in California, and we completed among other projects, we completed the acquisition of 2 operating wind assets in the UK.

Speaker 1

I will now turn the call to Francisco, who will take us through our financial results.

Speaker 2

Thank you, Santiago, and good morning to everyone. Please turn to Slide number 4, where I will present our key financials $5,000,000 in the Q1 of 2023. The increase in revenue and our assets in North America was offset by the outage at Catchu that we mentioned last quarter. As a reminder, the plant restarted operations in mid February and the damage and business interruption is covered by our insurance policy after a 60 day deductible. Adjusted EBITDA was $164,200,000 representing a 0.9 decrease compared with the same period last year, excluding the impact of the outage at Catcho.

Speaker 2

Regarding cash available for distribution, we generated $50,900,000 in the Q1 of 2024. On the following Slide number 5, you could see our performance by geography and business sector. In North America, revenue increased 18 percent to $86,200,000 in the Q1 of 2024 compared to the same period of last year, and EBITDA increased 6% to 55,000,000 dollars Production increased in our solar assets in the U. S. In South America, both revenue and EBITDA increased 2% compared with the 1st 3 months of 2023, up to $44,700,000 and $34,600,000 respectively, mainly due to inflation indexation mechanism in most of our contracts.

Speaker 2

In the EMEA region, revenue decreased 11% to $112,000,000 versus the same period of 2023, mostly due to the unscheduled outage at Cachoo. Looking below at the results by business sectors, we can see similar effects. Let's now please turn to Slide number 6, where we will review our operational performance. Electricity produced by renewable assets reached 10 63 gigawatt hours in the 1st 3 months of 2024, a decrease of 11% versus the same period of 2023, mainly due to a decrease in Cachu and lower solar radiation in Spain. On the other hand, production in our solar assets in the U.

Speaker 2

S. Increased by 16%, thanks to better performance at Solana. Looking at our availability based contracts, our efficient natural gas and heat segment as well as our water assets and transmission lines continue to achieve very high availability levels in the Q1 of 2024. On the next slide number 7, we will take a look at our cash flow. In the Q1 of 2024, operating cash flow reached $65,600,000 an increase of 57% compared to the same period last year, mostly thanks to an improvement in changes in working capital.

Speaker 2

Net cash used in investing activities in the Q1 of 2024 includes $84,400,000 of investments corresponding to the acquisition of 2 operating wind assets in the United Kingdom and approximately $22,000,000 in investment in assets under construction development. I will now turn the call back over to Santiago.

Speaker 1

Thank you, Francisco. During this Q1 of 2024, we have continued to make progress in our growth strategy that as you know is focused on developing and building new contracted projects, while complementing that with acquisitions whenever returns are attractive enough. Following that strategy, we have signed a 15 year PPA with an investment grade of taker for a new 100 Megawatt PV plus storage project in Southern California. The project is located fairly close to several of our large assets in operation in California and Arizona, and to 3 projects we are building or close to start building in the area. As you can see, we continue to build volume in the Southwest, an area where we have critical mass and where we can achieve synergies.

Speaker 1

We expect this project to reach ready to build stage later this year. In addition, during the quarter, we have acquired our first two wind assets in the UK. As we have mentioned, the assets are regulated and have no project debt as of today. The price of the investment represented a 6.6 times EV to EBITDA multiple and this investment should allow us to use the net operating losses carry forwards that we have in the UK, reaching what we believe is an attractive after tax return for the investment. If we look at other geographies, I will make a comment about the project in Chile as an example of how repowering existing renewable energy assets with storage can add value.

Speaker 1

The Chile PV3 plant signed a 10 year PPA, including the battery storage expansion currently under construction. Chile is one of those markets where storage clearly allows to capture higher returns through higher PPA pricing. As you know, more or less 40% of our pipeline is in storage. And that is simply because we continue to see an increasing opportunity for storage in several of our key markets. Both storage in combination with existing or new renewable energy assets or standalone.

Speaker 1

As you know Chile PV3 is a PV asset in operation where we are building a battery repowering or expansion. Regarding the sale of our stake in Monterrey, it recently closed and we expect proceeds of more or less $43,000,000 subject to a number of things you see there. And additionally, there is an earn out mechanism that could result in additional proceeds in the future. And a final point before we move to Q and A. We are aware of market and media speculation around Atlantica and following past practice we will not make any comments regarding that.

Speaker 1

With this, we conclude today's presentation. Thanks for joining us. We will now open the line for questions. Operator, we are ready for Q and A whenever you want.

Operator

Thank And our first question goes to Rupert Merer of National Bank. Rupert, please go ahead. Your line is open.

Speaker 3

Hi. Thank you. Good morning. Thanks for taking the question. So I respect that you can talk about your own strategic review process, but I'm wondering if maybe you can talk about the M and A market.

Speaker 3

You are active in the M and A market. Are you seeing any improvements there? Does the market look healthy? Do you see a number of competitive buyers in the market today? And is that dynamic changing?

Speaker 3

Has it changed at all over the last few months? It seems like there is a little bit of increasing optimism in the U. S. Market in

Speaker 1

particular? Okay. Thanks for the question, Robert. So I'm going to talk about the M and A market. We see ourselves, meaning projects, let's say, of an average size.

Speaker 1

And as you can see ourselves, we are finding opportunities where we believe that we can achieve reasonable or good returns. An example would be the acquisition in the UK. And we do believe in general that at least in the part of the market we see, which again is the mid size part of the market, in many cases, operating assets. What we do see is that probably a year, 1.5 years ago, it was difficult to match sellers and buyers expectations. And in the last few quarters, what we are seeing is that probably the success rate is higher.

Speaker 1

And in our case, we closed this acquisition in the UK, we closed the divestiture in of the Monterrey project. So we do believe if you were referring to that, that the M and A market we see probably is more active and we are seeing a higher success rate than a year or a year and a half ago.

Speaker 3

In the U. S. Market, the optimism is partly related to potential falling rates, but also we're seeing a lot of optimism around the data center market and speculation that could drive interest for attractive offtakes in some of the markets you're involved with. Are you in touch with this market in any way? Are you seeing potential for offtakes for data centers?

Speaker 3

And if so, can you comment on, say, how much of the market you think could be or the growth potential could be driven by that market and what the return potential looks like?

Speaker 1

Yes, in general, I'm talking about the U. S. Market. We do believe that at this point in time, you can close off take agreements at reasonable prices. We do see opportunity all across, not only in data centers, where probably over the last few months lots of people have been writing about that opportunity, but I would take a step backwards and our point of view is that there is an opportunity in general in the market.

Speaker 1

We do see utility signing PPAs and we have signed PPAs with them. We see community choice aggregators or similar off takers being very important in the market. We see strategic or industrial or corporate clients being very active in the market, which helps. We do see obviously the data center opportunity as well. Myself, I would not be able to answer your question of how large it will be.

Speaker 1

I think that like with many things, there's a little bit of hype at this point in time out there. I think that is going to become a meaningful part of the market. No question whether we are going to reach some of the projections some people have been talking about. Time will tell. We are active in all segments of the market, including that one.

Speaker 1

And as I mentioned before, with today's technology, being able to mix solar or different renewable energy generation technologies plus storage and if needed other solutions. I think that we and other companies in the industry, we are able to provide solutions that are key in order to be able to obtain clean power for a much longer period of time during the day than a few years ago. And that's important for data centers and for many other clients, as I mentioned before.

Speaker 3

Very good. I'll leave it there. Thank you very much.

Speaker 1

Thank you.

Operator

Thank you. The next question goes to Nelson Ng of RBC Capital Markets. Nelson, please go ahead. Your line is open.

Speaker 4

Great. Thanks, everyone. My first question just relates to the Monterrey project. Do you see that as a one off sale or are you actively looking at other asset sales?

Speaker 1

So I mean as part of our strategy, asset rotation will be part of the things we will be doing and we will be looking at different opportunities. And obviously, the numbers need to work, meaning we need to have a situation where we believe than a third party would be willing to pay more than what we believe is the value for us of the asset. But to your question, the answer would be yes. Obviously, we are open to looking at other opportunities if the numbers work.

Speaker 4

Okay, great. And then just looking at California in terms of the new project, the new development Imperial, Can you just give us a bit more color on the acquisition of that development? Was it a competitive process? Are there additional payments that you might need to make in the future based on milestone payments?

Speaker 1

Yes. So this is a project under development, very advanced development. And as I mentioned before, we expect the project to be ready to build within this year. So it's a very advanced development that we purchased from Algonquin.

Speaker 5

And

Speaker 1

like in most projects you acquire in an advanced development stage, there are milestones where we will be making payments following when those milestones are met. The good thing about the project is that, as I mentioned before, it is in our backyard, if you want. And so we feel very comfortable, thanks to the fact that we continue building critical mass in the Southwest. And it has a very good PPA that we signed recently a bit after the acquisition. And it's one of those PPAs we like and with a very good offtaker.

Speaker 1

So we are fairly comfortable that this project will result in a good addition to our portfolio.

Speaker 4

Okay, great. Just one more question on California. So right now you have the Khoso 1 and Khoso 2 battery storage. You have the 150 Megawatt Overnight Storage Project that's also in California. And then now you have the Imperial project.

Speaker 4

So can you just provide a bit of timeline or color on the timeline and maybe any color on the total cost of these three projects?

Speaker 1

Yes. So in terms of timing, the 2 Khoso battery projects are under construction, and construction should be over by the end of this year Q1 'twenty five and overnight and Imperial in both cases as you know PPAs have been signed. They are very advanced and should be starting construction between the end of this year, early next year and depending on a number of things, but it would take construction would happen mostly during 2025 and '26, that's more or less the timing. In terms of total investment, you have the numbers in our disclosure. I don't have them in front of me at this point in time.

Speaker 1

So if you want to follow-up with Investor Relations, but it's in the disclosure.

Speaker 4

Great. I'll look that up. And then just finally, can you just provide a bit more color on the funding plan? Like obviously, capital recycling could be part of the solution, but any additional details on your funding plan? I guess one question is like will those 3 projects have project level non recourse debt?

Speaker 2

Yes, Nelson, this is Francisco. Good morning. One of the good things as you know is since we signed a very good PPA for this project and are contracted that allows us to put leverage on them on a non recourse basis at the project level. Capital recycling is another source of capital. We also have part of the CAFD that we generate in the future and we also have some leverage capacity at our holding company.

Speaker 2

So if you combine those 4, those would be the sources of funding. Santiago mentioned, as I said, 202526 in some particular cases, 24 for the cost of batteries, but we plan to use those levers, Nelson.

Speaker 4

Great. Thanks. I'll leave it there.

Operator

Thank you. The next question goes to Angie Storozynski of Seaport. Angie, please go ahead. Your line is open.

Speaker 6

Good morning. So I would say you don't want to talk about the strategic review. So maybe more generally about M and A transactions we have seen over the last couple of months. It does seem like there is quite a discrepancy in multiples that are being paid for development companies versus existing assets. I mean, we've heard of low teens in the EBITDA multiples for developers versus even sub 8 times for standalone renewable assets.

Speaker 6

And I'm just wondering why do you think that is? And how, if at all, it could apply to your valuation, which seems to more resemble that of a SENCO asset? Thank you.

Speaker 1

Thank you, Andy. I'm not familiar enough with the situations you described and the reason for the different valuations you were mentioning. Obviously, in our sector, interest rates play a significant role, But I wouldn't be able to elaborate a lot regarding the examples you have mentioned. Obviously, we are aware of the transactions in the sector, but we typically do not spend too much time trying to understand valuations.

Speaker 6

Okay. But how about the fact that you managed to buy these rent assets in the UK at such small multiples? I mean, is it you sort of alluded to that, that those are middle of the market types of deals that might be coming at attractive multiples. But overall, just wondering if that is indicative of basically the value of your existing assets given that you can buy assets at such low multiples.

Speaker 1

Yeah. So specifically in that case or in general in what I call before the middle part of the market, I would say that competition is lower than in the market you were describing before. So in certain situations, we are able to find opportunities at multiples that we believe are attractive for us. I wouldn't try to draw too many conclusions. I mean, the market of purchasing a $65,000,000 asset is very different from some of the examples you are describing.

Speaker 1

And obviously, in order to find a situation like that, in our case, we had to look at many situations. Actually in the UK, because of the fact that we have a NOI locally, we have been looking for opportunities to invest for a long time. And until now, we have not found a situation with numbers attractive enough. So I wouldn't say that it's easy to find a $60,000,000 asset in the UK at the multiple we shared with you. In our case, we have to turn around many, many stones.

Speaker 6

Okay. And then shifting topics a little bit. So the wind assets you guys bought in the U. S, those were expiring PPAs. I mean, sort of an opportunistic timing here, given that we have this run up in forward power prices in the U.

Speaker 6

S, Texas in particular. I just wonder if that's been impacting your decisions about repowering, maybe keeping some of these assets merchant for longer to capture this improving power market fundamental?

Speaker 1

Yes. So yes, as you know, specifically the asset in Texas, we at this point in time, it's merchant. And part of the reason for keeping it merchant is because we thought and we think that we can benefit from, let's say, more positive dynamics in the market. This doesn't mean that we will want to have assets merchant forever, but short term or tactically or opportunistically, we are happy with that exposure in those assets, which are a very small percentage of our portfolio. At some point in time, we will be we expect repowering, reinvesting in those assets.

Speaker 1

But again, depending on how the market evolves, one repowering or another might make more sense. It's not only repowering with wind, you also have opportunities to repower with storage. So we are trying to maintain that merchant exposure until we have a strong point of view regarding which repowering is the best. And again, we have a partner in these projects. So it takes 2 to tango, and we need to make sure that we tango whenever we are both ready and we have a strong point of view regarding pricing dynamics.

Speaker 6

Okay. Thank you.

Operator

Thank you. The next question goes to Mark Jarvi of CIBC Capital Markets. Mark, please go ahead. Your line is open.

Speaker 5

Yes. Good morning, everyone. So maybe, Santiago, just coming back to that funding question, what would be the explicit plan for 2024? Just draw on the credit facilities or is there plans to actually issue corporate level debt?

Speaker 2

We have at the market, Francisco, as you know, I mean, our leverage is particularly low. We as I said, we have different funding options and the one you mentioned is obviously one of the ones we're considering.

Speaker 5

That would be the credit facility or corporate debt?

Speaker 2

Well, I mean, it would be the combination of both where we're running parallel track of putting project finance at the same time.

Speaker 5

Understood. And then last quarter, you talked about equity commitments of $175,000,000 to over $200,000,000 Of the announced projects today, were any of those contemplated in that projection? And then I guess where are you staying right now in terms of expected equity deployment now?

Speaker 1

So, 1, the project in California, we announced today, investment is mostly going to happen in 'twenty five, 'twenty six, but it was taken into account in the numbers we shared with you. So in general, I would say that there's no big change there. And regarding the numbers we shared with you a quarter ago, except for the U. K. Projects.

Speaker 1

But in general, when we share projections with you, we try to take into account things that we believe are going to happen with a certain probability. So I would not expect very significant change versus that.

Speaker 5

Okay. And then Santiago, you made the comment about having to turn over a lot of stones or kick a lot of stones to find good acquisitions out there. How would you frame the return opportunity on acquisitions versus development projects? Then maybe on the development side, your project returns, yes, are they holding? Or do you feel like there's some pressure going to come if interest rates start to kind of lower?

Speaker 1

In general, returns when you develop are higher or in other words, you need to look at many, many opportunities on the M and A side to end up having returns comparable to development. That's why I made that comment before at this point in time. The returns we see on the development side continue being similar to what we have been seeing in the last few quarters. I would say that probably a year, a year and a half ago returns improved in the market and more or less they have been holding there. I think that it will depend a lot on interest rates, whether we maintain these returns, we increase further or we see a bit of pressure.

Speaker 1

But for the last few quarters, what we have seen, I would say, is a rational market with reasonable returns.

Speaker 5

And then your comment about having a hard time defining good accretive acquisitions, is that just at the size that you're looking at? Or do you think that goes across the range of small, medium and large deals right now?

Speaker 1

We don't spend too much time on large transactions. So I wouldn't be very useful in that part of the market. In the lower to mid sized part of the market, it takes time. Again, for the last few quarters, we have been able to see interesting opportunities, specifically the multiples we saw in the UK, that's not that easy to find. Okay.

Speaker 1

Thanks for the time today. Thank you. Thank

Operator

you. And our next question goes to Dimple Goethe of Bank of America. Dimple, please go ahead. Your line is open.

Speaker 7

Hi, thanks for taking the question guys. A very quick one for me. Can you talk a little bit about the Spain market, what you're seeing in terms of market prices, outlook, regulatory front? And then also on full year guidance, are you comfortable with that? Do you reiterate guidance?

Speaker 7

And is everything intact today?

Speaker 1

Yeah. So starting with your second part of the question, our practice is to talk about guidance when we want need to change it. And so we are not saying anything because our practice is only to talk about it when we need to make some change. The first part of the question, the market in Spain, we talked briefly in our disclosure, for example, about a PV project in Spain, where the project is advanced and we expect to invest in that project in the coming quarters. So we see at this point in time a market where pricing dynamics are, I would say, not as good as they were a couple of years ago, but we continue finding opportunities here and there, being very careful and like always working with PPAs.

Speaker 1

So Spain is a market maybe closer to California, where you have a lot of PV installed. That means that as we say in the sector, you have very steep DUC curve around the midday, power prices are very low there. And therefore, from our point of view, we are going to be using PPAs and we are going to be using in many cases storage to try to leverage those opportunities as we do in California or as we do in Northern Chile, which again is a similar market with high PV penetration. So I don't see Spain as a huge growth opportunity, but we do expect to capture some opportunities going forward, especially when the storage market develops a bit more. From that point of view, Spain is a bit behind California, but many of the dynamics that we are seeing in California now, we believe we will see them in Southern Europe in the future.

Speaker 7

Thank you.

Speaker 1

Thank you.

Operator

Thank you. We have no further questions. And I'll hand back to Santiago for any closing comments.

Speaker 1

Great. Thank you very much, everybody, for attending. Thank you. Good morning.

Operator

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

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Key Takeaways

  • Revenue remained stable year-over-year while adjusted EBITDA decreased 0.9% excluding the Cachoo outage, and operating cash flow rose 57% to $65.6 million.
  • Atlantica signed a 15-year PPA for a new 100 MW solar-plus-storage project in California and completed the acquisition of two operating wind assets in the UK.
  • Total renewable generation in Q1 fell 11% to 10.63 GWh due to the Cachoo outage and lower solar radiation in Spain, offset by a 16% increase in U.S. solar output.
  • Q1 investing activities included $84.4 million for UK wind asset acquisitions and approximately $22 million in assets under construction, underpinned by stronger working capital dynamics.
  • About 40% of Atlantica’s project pipeline is storage, reflecting a strategic focus on repowering existing assets and pursuing selective M&A and asset rotation.
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Earnings Conference Call
Atlantica Sustainable Infrastructure Q1 2024
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