Algonquin Power & Utilities Corp. (NYSE:AQN) Q4 2023 Earnings Call Transcript
Algonquin Power & Utilities Corp. (NYSE:AQN) Q4 2023 Earnings Call Transcript March 8, 2024
Algonquin Power & Utilities Corp. beats earnings expectations. Reported EPS is $0.16, expectations were $0.14. Algonquin Power & Utilities Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello and welcome to the Algonquin Power & Utilities Corp Fourth Quarter and Full-Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the conference over to Mr. Brian Chin, Vice President of Investor Relations, please go ahead.
Brian Chin: Thanks, operator. Good morning and thank you for joining us for our fourth quarter and full-year 2023 earnings conference call. Speaking on the call today will be Chris Huskilson, Interim Chief Executive Officer; and Darren Myers, Chief Financial Officer. Also joining us this morning for the question-and-answer portion of the call will be Jeff Norman, Chief Development Officer; and Johnny Johnston, Chief Operating Officer. To accompany today's earnings call, we have a supplemental webcast presentation available on our website, algonquinpower.com. Our financial statements and management discussion and analysis are also available on the website, as well as on SEDAR+ and EDGAR. We’d like to remind you that our discussion during the call will include certain forward-looking and non-GAAP measures.
Please note and review the related disclaimers located on slide two of our earnings call presentation at the investor relations section of our website at algonquinpower.com. Please also refer to our most recent MD&A filed on SEDAR+ and EDGAR and available on our website for additional important information on these items. On the call this morning, Chris will provide a business update, including key highlights pertaining to our regulated and renewables business groups, as well as brief comments on our strategic plan process and CEO search. Then Darren will review our fourth quarter and full-year financial results. We will then open the lines for the question-and-answer period. We ask that you kindly 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 it over to Chris.
Chris Huskilson: Thank you, Brian, and good morning, everyone. 2023 was a decisive year for Algonquin. We made several strategic decisions and are focused on becoming a pure play regulated utility, simplifying the company and achieving greater operational efficiency. We're excited about the opportunities ahead and will shape our regulated business into a leading utility platform. When I started in August, I focused on four things: our people, the renewable sale, optimizing the value of AY, and getting the regulated business set up as a standalone. Although there's still lots of work to be done, we're making progress. We've retained our people and they are engaged in the change. We have been simplifying the business and making it more transparent to investors.
The renewable sale is proceeding as planned and we continue to expect to close a transaction this year. We're actively working with AY to support them. And we've begun making changes to the way the regulated business is organized and the way it runs, while making use of our new SAP system. From a business segment performance standpoint, both full-year 2023 and fourth quarter saw a double-digit divisional operating profit growth for our regulated services group, due primarily to a number of new rate implementations across our utility portfolio. Our renewable business placed in service 453 megawatts of new wind and solar generation for 2023. Despite a weather challenge year, our renewables business ended the period with fourth quarter divisional operating profit up by 6%.
These results demonstrate that despite 2023 headwinds and the strategic transition currently underway. These two solid businesses -- our solid businesses with significant long-term opportunity. Darren will provide more color on the 2023 financial metrics later in the call. Our regulated services group grew at a healthy pace in 2023. Regulated divisional operating profit grew 10% year-over-year, primarily driven by interest income on regulatory asset accounts and new rates implemented at several of our utilities. Most notably are CalPeco, Empire and BELCO electric systems. This growth reflects tremendous opportunity to invest in our systems for the benefit of our customers. These are not new rates for the sake of new rates, but rather our recovery of and on already invested capital in our systems to provide safe and reliable service to our customers.
With that said, we have plenty of work and opportunity ahead of us. Our objective is to earn our allowed cost of capital, while serving our customers. Our gap today reflects timing from investments we have made and under-earning at New York Water as a result of our stay out from the acquisition. We're working to improve our returns and have a number of active rate cases. We also see an opportunity to improve our performance and maximize our operational efficiency, including through initiatives such as the rollout of our customer first SAP program, and improving our processes and leveraging this significant technology foundation that we've put in place. In 2024, we expect to have our Canadian and U.S. regulated utilities transition to the standard software platform, which is a key step to our multi-year journey.
We're pleased to report that during the course of 2023, a Regulated Services Group received final rate case orders at eight of our utilities and one additional order subsequent to year-end in January 24 with authorized revenue increases totaling $44.1 million, representing over 70% of our rate requests. We believe this is reflective of our constructive partnerships and with our regulators in the communities we serve. We're pleased with these continued advancements as a core growth strategy of the Regulated Services Group is to responsibly invest in our utility systems on behalf of our customers and target a constructive return on our rate base. In total, the Regulated Services Group had at year-end pending rate reviews totaling $93.4 million across six of its utility systems, with an additional $12.4 million at two of the water systems filed in January, bringing the total for the year to $105.8 million currently pending.
These rate cases reflect our continued commitment to invest in our utilities for the benefit of our customers and shareholders alike. While we see these advances as success, we are not satisfied with some of our regulatory positions and we are committed to changing this and making this better. Turning now to an update on the projects of our renewable energy group. Along with the 453 megawatts delivered in 2023, in the fourth quarter we completed construction of our Hayhurst, Texas solar facility. Site preparations continue at the 150 megawatt Carvers Creek and 144 megawatt Clearview Solar projects, and panel installation has commenced. In total, we now have approximately 300 megawatts of solar projects in various stages of construction. As well, we have added 1,660 megawatts to the development pipeline in 2023.
All in all, the renewables business had lower generation due to unfavorable weather, but made solid progress growing generation capacity and the development pipeline. As of year-end, our net generating capacity is 2.7 gigawatts, which excludes our partners' interests in our construction joint ventures. Subsequent to year-end, we've also chosen to take further steps to simplify our renewable energy business. In January, we consolidated our renewables development joint venture and monetized two small renewable development projects in Spain. This will have the effect of simplifying and consolidating our development expenses without impacting our investment in development or our projected cash flows. And finally, before I turn things over to Darren, a few comments on the strategic plan for the company and the CEO search.
We launched the sale process with potential buyers in the fourth quarter and are pleased with the level of buyer interest that we've seen in our renewables platform. We continue to target a potential transaction announcement around mid-‘24 and closing later in the year. We also are making progress in our search for a permanent CEO and have been pleased with the slate of candidates reviews thus far. I remain dedicated to this role of Interim CEO for as long as required and as the board works to find the right candidate. In keeping with my transparency objective, I'm again focused on four things for ’24: First, growing our people and their capabilities. Second, completion of a renewable sale and optimizing the value of AY. Third, meeting our financial objectives as a team.
And fourth, getting the regulated business running as one optimized business, including fully utilizing our SAP platform. With that, I'll turn things over to Darren, who will speak about our fourth quarter and full-year financial results. Darren?
Darren Myers: Thank you, Chris, and good morning, everyone. As Chris touched on briefly, 2023 was a year of decision-making. We believe that the decisions we've made are the right actions to simplify the business and better position the company for long-term profitable growth and focused value creation for shareholders. Overall, we're pleased with our fourth quarter results in the backdrop of a challenging 2023. Q4 consolidated adjusted EBITDA was $334.3 million, up 13% from the same period last year, while full-year consolidated adjusted EBITDA was approximately $1.24 billion, an increase of 4% over 2022. Fourth quarter adjusted net earnings were $115.5 million, compared to $97.6 million reported last year, an 18% increase.
Full-year adjusted net earnings were $372 million, down 11% from last year. On a per share basis, our fourth quarter adjusted net earnings per share was $0.16, a $0.14 improvement year-over-year, primarily attributable to organic, regulated growth and higher tax credit recoveries from our renewables business. This was partially offset by higher interest expense. For the full-year adjusted net earnings per share came in at $0.53, a decline of 13% year-over-year. This is consistent with our third quarter update where we stated that we expected full-year guidance to come in at or below our 2023 guidance range of $0.55 to $0.61. While full-year adjusted net earnings per share were boosted by organic growth in our regulated business and higher than typical tax credit recoveries, these positive items were more than offset by higher interest expense and $0.05 from unfavorable weather, as well as higher minority interest expense related to our fourth quarter 2022 asset recycling transaction.
Looking now at results in a segmented basis. The regulated service group delivered $238.3 million in divisional operating profit in the fourth quarter and $954.1 million for the full-year, up 11% and 10%, respectively year-over-year. The increases were primarily due to new rate implementations of several of the company's electric and water utilities, the previously disclosed one-time CalPeco [Indiscernible], and higher interest income on regulatory asset accounts. These were partially offset by unfavorable mid-year weather at the Empire Electric System. The Renewable Energy Group posted fourth quarter divisional operating profit of $107.6 million, an increase of 6%, primarily due to improved equity income from the Texas Coastal Wind facilities, more favorable capacity revenues for the majority of solar facilities, and slightly higher HLBV income.
On a full-year basis operating profit was $371.8 million, a 9% decrease year-over-year, which was driven primarily due to an expected drop in HLBV income from certain 2012 vintage assets reaching end of PTC eligibility and unfavorable weather across Canadian and U.S. Wind facilities. These impacts were partially offset by higher equity income from the Texas Coastal Wind assets and contributions from new facilities and investments. Let me now touch on CapEx and the balance sheet. We ended 2023 with regulated capital expenditures of approximately $700 million and renewable CapEx of approximately $300 million, rounding up in total to $1.1 billion. As of the year end 2023, our long-term debt was $8.5 billion, which includes $1.1 billion of equity units and $1.4 billion of subordinated unsecured notes.
Subsequent to year-end, we successfully raised $850 million of Liberty Utilities Senior Unsecured Notes and an additional $306 million of securitized utility tariff bonds at Empire. The proceeds were used to repay short-term and floating rate debt. And lastly, a few comments on our forward outlook for 2024 and beyond. We are focused on simplifying the business. As a result of the pending sale of our renewables business, we will not be providing adjusted earnings per share guidance at this time. Directionally, we expect our regulated rate-based growth to be in the mid-single-digits, and our regulated capital intensity to be at a similar level to 2023. To conclude, we are focused on executing on the renewable business sale, maintaining our BBB investment grade credit rating, supporting our dividend, and generating long-term shareholder value.
With that, I will now turn the call over to the operator to open the lines for questions. Operator?
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