Clearway Energy Inc (CWEN) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NRG Yield full year and fourth quarter 2013 earnings call. My name is Denise, and I will be the operator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Chad Plotkin, Vice President of Investor Relations. Please proceed.

Thank you, Denise, and good morning everyone. I'd like to welcome you to NRG Yield's full year and fourth quarter 2013 earnings call. This morning's call is being broadcast live over the phone and via webcast, which can be located on our website at www.nrgyield.com.

You can access the call, associated presentation material, as well as a replay of the call on the presentations and webcasts section of our website. Because this call, including the presentation and Q&A session, will be limited to 45 minutes, we ask that you limit yourself to only one question with just one follow up. In addition, as this is the earnings call for NRG Yield, any statements made on this call that may pertain to NRG Energy will be provided from NRG Yield's perspective.

Before we begin, I urge everyone to review the Safe Harbor statement provided in today's presentation, which explains risks and uncertainties associated with future events in the forward-looking statements made in today's press release and presentation material. We caution you to consider the important risk factors contained in our press release and other filings with the SEC that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. In addition, please note that the date of this conference call is Friday, February 28, 2014, and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events, except as required by law.

During this morning's call, we will refer to both GAAP and non-GAAP financial measures of the Company's operating and financial results. For complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures, and a quantitative reconciliation of those figures, please refer to today's press release and this presentation.

With that, I'll turn the call over to David Crane, NRG Yield's Chairman, President and Chief Executive Officer.

Thank you, Chad. Good morning, everyone. Joining me today are Mauricio Gutierrez, who is NRG Yield's Chief Operating Officer; and Kirk Andrews, NRG Yield's Chief Financial Officer. I am pleased to say we are going to be mercifully brief today, because we recognize that many of you may have just listened to NRG Energy's year end earnings call. And so we'll get as quickly to the question and answer session to see if there is other things we can point out to you.

I have just a couple of slides, beginning with slide 3.

This may be a statement of the obvious, but we -- based on the tremendous start that we had in 2013, I'm pleased to say that, as we embark on our first full year as a publicly traded company, we are very well positioned for 2014 and beyond. Financially, we exceeded our targets in 2013 for both adjusted EBITDA and cash available for distribution by delivering $244 million and $91 million respectively.

Strategically, we -- I like to think exceeded expectations by executing our first ever third-party acquisition with the purchase of Energy Systems Company, which allows us to expand our thermal business with a leading system in Omaha, Nebraska. And we're very happy to have Energy Systems Company as part of the family.

This acquisition has afforded us the opportunity to increase our financial guidance in 2014, as well as provide support for our first dividend increase. This before any impact of pending drop downs from NRG.

Lastly on slide 3, and speaking of drop downs, by closing our convertible debt offering, we have increased our available liquidity, which will augment our ability to drive accretive dividend growth as we begin the process of executing on these transactions with our parent company, NRG Energy.

My second and last slide, slide 4, they say that imitation is the sincerest form of flattery, the old cliche. When we went out on the public offering for NRG Yield last summer, there weren't too many comparables. But as -- I guess was expected, based on the success of NRG Yield, there have been other Yield-like vehicles being brought to market, and we're absolutely sure that there will be more in 2014.

So we will be in greater competition for your investment dollar, but this is our first attempt of many to come to demonstrate to you that we feel that we offer a superior yield vehicle. And we have advantages that we expect to move aggressively to keep, because we think NRG Yield is the best company of its kind available for your investment dollar.

The one other thing I want to say before I turn the call over to Mauricio is that we want to set expectations for you on future earnings calls. We know, since many of you listen to both the NRG and NRG Yield earnings call, we know that hosting two calls in one day may not be an entirely productive use of your time or ours.

We want to be respectful of your time. So I just wanted to let you know hosting future calls will be quite dependent on whether we are in a position to provide you with incrementally material information that you may not have already gleaned from press release or interim announcements that may occur throughout a given quarter.

Of course, even if we sort of skip the call in quarters to come, Chad Plotkin and the investors relations team will be available all the time, 24 hours a day, 7 days a week, 365 days a year (laughter) to answer any questions you have.

With that, I want to turn the call over to Mauricio.

Thank you, David, and good morning. Our portfolio performed well during 2013, starting with safety on slide 6. We achieved top decile performance, improving over our 2012 top quarter results, and we ended the year with 13 of 15 facilities without a single recordable injury. In our conventional segment, our gas portfolio entered the year with a 97% availability and reliability metric, a significant improvement over 2012, primarily attributed to increased availability of the GenConn Middletown facility.

In our renewable segment, the fleet ended the year with improved availability over last year and met our contractual obligations. Our solar facilities have experienced higher than planned insulation levels, resulting in production levels consistent with contractual obligations, and our wind generation was slightly lower relative to budget due to lower wind speeds.

Our thermal business performed 13% better than prior year. Colder weather across our northern businesses increased steam production by 17% compared to last year. Power generation increased by 58% year over year, mainly due to the conversion of the Dover facility from coal to gas and the full year operations of the CHP at Princeton Hospital.

Finally, and as David mentioned on December 31, we completed the acquisition of the district energy business in Omaha, Nebraska. We are well underway on integrating this outfit into our district energy business. It is our first such acquisition, and a good example of our ability to rapidly execute on a value-adding deal.

With that, I will turn it over to Kirk for the financial review.

Thank you, Mauricio, and good morning everyone. Turning to the financial summary on slide 8, NRG Yield is reporting fourth-quarter adjusted EBITDA's of $66 million and $8 million in cash available for distribution. For the year, NRG Yield exceeded its previous guidance range, with $244 million in adjusted EBITDA and $91 million in cash billed for distribution or as we call it CAFD. The increase in CAFD was driven by a reduction in 2013 maintenance capital expenditures within our thermal segment.

Turning to our expectations for 2014, we are increasing our full year guidance for both adjusted EBITDA and cash available for distribution to $292 million and $115 million, an increase from $285 million and $103 million previously. The increase in guidance was largely driven by the acquisition of Energy Systems Company, which was completed on December 31, representing NRG Yield's first third-party transaction and further enhancing cash available for distribution beyond the significant growth potential represented by the right of first offer asset from NRG.

As I will explain in greater detail shortly, NRG Yield is also initiating current quarter guidance, beginning with the first quarter of 2014, where we expect adjusted EBITDA and CAFD to be $61 million and $12 million respectively. Meanwhile, through the successful closing of our convertible debt offering, and the subsequent exercise of the greenshoe provision, we enhanced our year end liquidity position by raising a net $337 million, and now stand at $487 million in available capital on a pro forma basis. This increase in liquidity will further position the Company to execute on its growth opportunities on an accretive basis through the acquisition of the NRG ROFO assets, or other transactions as they become available.

Finally, as we indicated on our last call, NRG notified us of its intent to offer us four of the NRG ROFO assets in 2014, and we have now commenced discussions with NRG on three of these assets, specifically TA High Desert, RE Kansas South and El Segundo, which combined, represent approximately $30 million in cash available for distribution, a potential 10% annualized increase over our current CAFD guidance.

Turning to slide 9, NRG Yield benefits from our unique strong sponsor relationship with our parent company, NRG Energy. Through this relationship, NRG Yield has opportunities through the NRG ROFO assets to acquire projects with an annual run rate of EBITDA of approximately $250 million, and cash available for distribution of $100 million in the aggregate.

Overall, and moreover, NRG's proven ability to successfully develop and acquire long term contracted assets consistent with the NRG Yield investment profile. And as demonstrated most recently in announced acquisition of Edison Mission, which includes a substantial portfolio of what NRG has termed NRG Yield eligible assets, further underscores the long term growth potential of this unique strategic relationship.

And finally, as I have discussed with many of you since the IPO, and you can see on this illustrative chart on slide 10, we expect NRG Yield's portfolio of contracted assets to experience some degree of seasonality in our annual results, wherein we expect quarterly cash available for distribution to be greater or less than 25% of our annualized expectations. All of this, of course, is expected and well within the surplus represented by our annual payout ratio.

However as I discussed briefly in my opening remarks, in order to provide you greater visibility, we've elected to begin providing next quarter guidance to ensure there is no concern or confusion during quarters. Such as this quarter, where we would expect to see lower CAFD relative to our quarterly dividend, which, as the year progresses, will ultimately align with our annual payout ratio.

With that, I will turn it back to David for some closing remarks.

Thank you, Kirk. I think I have been full of closing remarks today, so we'll just open the phone lines and see if there are any questions.

(Operator Instructions)

Our first question comes from Paul Ridzon with KeyBanc. Please proceed.

Just looking for an update on when you think the Edison Mission deal might close?

Our best -- we're shooting to have it closed by the end of the first quarter, and I think it's going to be very close to the end of the first quarter. But we don't -- there is not a lot of swing in that right now, so I think that it's -- never say 100%, but that's when you should count on it.

Okay. Thank you very much.

Our next question comes from Neil Mehta with Goldman Sachs. Please proceed.

Good morning. Long time no speak.

Yes, Neil, how you doing?

A lot has changed in the last 30 minutes. The first question is around distributed generation. You alluded to this on the last call. But what do you think the opportunity set could be for NRG Yield? And how should we think about the timeline for the ramp?

I think the opportunity set for NRG Yield is enormous. It's only limited by the size of the market. But for us, I wouldn't say that we're in the lead. The immediate -- I think the next -- the first thing in distributed that NRG Yield would see, if we have success in bundling together C&I-sized projects, power purchase agreements and/or leases into sizes that approximate the utility scale deals they're doing.

I think that could, over time, become the dominant paradigm going into NRG Yield from the renewable side of the business. But I really think that that's probably at least two years away, from NRG Yield's perspective. I don't know, Kirk, do you have any different view on how quickly that might happen?

Certainly, we're seeing a robust growth in the distributed generation space, and I would agree, conservatively, within that two year time frame. But I think the central focus on our part, especially at NRG Yield, is ensuring that as much as reasonably possible, we can have some degree of uniformity in terms of the terms around those contracts from a DG perspective. So that obviously, we wouldn't drop down individual projects of that size but rather, as I think David alluded to, in a bulk.

And in doing so, to be able to give our shareholders the assurance that that aggregate portfolio of DG is consistent with the overall investment profile of NRG Yield. And again, as I said at the outset, given the growth that we are seeing in distributed generation, it's certainly within the realm of possibility. We may see opportunities to realize that a little sooner than two years, but certainly by the end of two years after NRG Yield, I'd fully expect that those opportunities would be available, yes.

And on the dividend, does the 10% to 15% long term guidance contemplate the upside that's associated with Edison Mission? And if not, how do you think about when you reevaluate that target?

I would say that, as we talk to a lot of our prospective investors in the IPO process, clearly the ROFO assets themselves gave us a long way to go in terms of delivering on that growth objectives. I certainly think that the EME assets, which, to be clear, have not been offered to us by NRG. But just the magnitude of those assets on top of the ROFOs themselves, at the very least, gives us the opportunity to achieve something towards the upper end of that range.

And I think, given, certainly, the opportunities that we see on third party acquisitions, best exemplified by what we successfully conclude in closing on the transaction at the end of last year. Combined with the growing pipeline of opportunities NRG has on the development side, we feel very comfortable in our ability to deliver on that long term objective of 10% to 15% growth beyond the five-year horizon.

Terrific. Thanks guys.

Thanks, Neil. I hope to talk to you again next hour. (laughter)

Our next question comes from Paul Zimbardo with UBS. Please proceed.

Hi. This is Paul here again. A quick question. With the Energy Systems deal behind you, how would you characterize your desire and pace for additional third-party deals going forward?

I would say that I've been very pleasantly surprised by the way that the other two systems' deal went down. And to be frank, I was a little bit concerned that, since it was being acquired by NRG Yield while NRG itself had a bunch of its own M&A activity going on, that it might get -- that there was a chance it would drop through the cracks and all. And the integration of the Omaha business has been extraordinarily smooth.

So I was very encouraged by it. And to the extent that there are acquisition opportunities where it makes no sense to come through NRG, or the acquisition currency that would be expected by the seller would be a Yield-like vehicle, I think we're interested in that, as long as it is accretive to NRG Yield shareholders.

Okay. Great, and just a clarification question. On the last call, did you say we should have a decision on those ROFO assets in the next 60 days?

Yes. And to be clear on the ROFO assets, specifically the three that I had indicated, those being the El Segundo asset and the two smaller solar assets that we are in discussions with NRG on. My anticipation -- I think my comment was, I expected that, as you said, within the next 60 days. And that was in reference to those specific three assets of the six ROFOs.

Okay. Great. Got it. Thanks. Have a good weekend.

Yes, thanks. You too.

(Operator Instructions)

We have no further questions. I would now like to turn the call -- my apologies. We actually have a follow-up question from Neil. Please proceed.

Hi, guys. Sorry, I couldn't resist the urge to ask one more question. As you think about financing here, and this might be too early to comment. But you have done the convert here. For the first phase of the drop downs, is there any incremental equity that you -- or convert that you think would be required?

I think on a probability basis, if I look at the overall liquidity that's currently there, as I mentioned, pro forma, I would say that my confidence is that that's probably sufficient. Certainly would be a high class challenge if it wasn't sufficient for the first three drop downs. So I would say any future financing would be drop downs beyond those first three assets.

Perfect. Thanks, guys.

We have no further questions. I would now like to turn the call over to David Crane for closing remarks. Please proceed.

Thank you, operator, and thank you all for participating in the call. And we look forward to talking to you in the future. And as Neil said, have a good weekend.

This concludes today's conference. You may now disconnect. Have a great day.