Clearway Energy Inc (CWEN) 2015 Q4 法說會逐字稿

Good days, ladies and gentlemen, and welcome to the NRG Yield, Inc. fourth-quarter 2015 earnings conference call. (Operator Instructions). As a reminder, today's conference call is being recorded.

I would now like to introduce your first speaker for today, Kevin Cole, Head of Investor Relations. You have the floor, sir.

Thank you. Good morning and welcome to NRG Yield's full-year and fourth-quarter 2015 earnings call. This morning's call is being broadcasted live over the phone and via the webcast. This can be located on our website at www.nrgyield.com, under presentations and webcasts. This is the earnings call for NRG Yield. Any statements made on this call that may pertain to NRG Energy will be provided from the NRG Yield perspective.

Please note that today's discussion may contain forward-looking statements which are based on assumptions that we believe to be reasonable as of this date. Actual results may vary. We urge everyone to review the Safe Harbor in today's presentation, as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law.

In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measures, please refer to today's press release and this presentation.

Now with that, I will now turn the call over to Mauricio Gutierrez, NRG Yield's Interim President and Chief Executive Officer.

Thank you, Kevin, and good morning, everyone. Joining me today, and also providing remarks is Kirk Andrews, NRG Yield's Chief Financial Officer. Given the relationship between NRG Yield and NRG Energy, I'm sure many of you anticipated in NRG's fourth-quarter earnings call. And with that, I am sure you heard information on why NRG Yield remains a critical part of the overall NRG Energy strategic platform and NRG's continuing commitment to both conventional and renewable developments. So, we will try to be brief in our comments.

With that, let's turn to slide 3. As I think about the current position of NRG Yield, I focus on several key fundamental drivers: first, excellence in operations of a diversified asset platform, and execution on accretive opportunities; second, the financial prudency in our platform; and, third, the strong partnership we have with NRG. On these points, let me offer some perspective.

Despite challenges faced earlier in the year with incredibly weak wind conditions, we were able to finish 2015 on a strong note by exceeding our revised financial guidance for both adjusted EBITDA and CAFD. This was in a year where we delivered 15% dividend per share growth, grew our portfolio by nearly 1.6 gigawatts, and increased CAFD by $80 million through a combination of third-party acquisitions and dropdowns. Additionally, I am pleased to say we are reaffirming our 2016 financial guidance.

Our prudent financial management has afforded us a very unique position in the YieldCo space: that of having a low payout ratio, which puts us in a in a position to continue delivering on our annualized dividend growth targets. This can occur for several years without us having to access the equity markets. This payout ratio flexibility also serves to enhance liquidity during this time of capital market dislocation.

Last, and more importantly, we continue to move forward with our partner, NRG Energy. NRG continues to provide us with visible growth through the existing ROFO pipeline with CAFD representing almost 50% of our existing CAFD. Further, and in conjunction with comments made this morning by NRG, we are announcing a change in the existing partnership commitments executed in early 2015 around residential solar and distributed generation or business renewables.

We are reallocating $50 million towards the more defined distributed generation pipeline of projects, putting NRG Yield in better strategic alignment with NRG Energy, which further supports the symbiotic relationship we have with our partner.

So, with that, let me turn it over to Kirk for a more detailed discussion on our financial results.

Thank you, Mauricio. And turning to our 2015 performance, which you can find on slide 5, I'm pleased to announce strong financial results, with NRG Yield reporting fourth-quarter 2015 adjusted EBITDA of $183 million, and cash available for distribution of $15 million. For the full year, NRG Yield delivered adjusted EBITDA of $720 million, and cash available for distribution of $179 million.

Adjusted EBITDA and CAFD exceeded our revised guidance as a result of three primary factors: first, very strong wind production in Alta in December; second, the receipt of insurance proceeds that were related to the first-quarter forced outage event at El Segundo; and, third, a change in the timing of a $3 million project debt payment which moved to the first quarter of 2016.

On the right side of the page, we provided an additional operational summary, which shows the actual renewable energy resource production in each of our major wind regions as well as our solar assets during the fourth quarter, relative to our expectations which underpinned our guidance.

Wind production in California was solidly above our expectations, while the remaining wind regions were largely in line. This chart also includes availability factors by region for the past quarter, as well as the percentage contribution of each of our primary renewable resource regions to adjusted EBITDA. These percentages exclude the contribution of our highly stable conventional and thermal assets, which represented about 54% of fourth-quarter adjusted EBITDA.

Finally, NRG Yield continued to deliver its dividend per share growth commitments by increasing dividend per share in 2015 by approximately 15% on an annualized basis. This increase is in line with our targets, and we remain committed to reaching $1 of annualized dividend per share by the fourth quarter of this year, or approximately another 16% in year-over-year dividend growth.

Moving to slide 6, we are reaffirming our 2016 financial guidance with adjusted EBITDA of $805 million and CAFD of $265 million. This guidance excludes the impact of incremental residential solar and business renewables dropdowns during 2016, pursuant to our partnerships with NRG.

Going forward, on a quarterly basis, we will revise our annual guidance as needed to reflect the impact of dropdowns for the partnerships, which were completed over the previous quarter. And consistent with enhanced disclosure initiated on our third-quarter call, we have also included the sensitivity of our annual CAFD guidance to 5% variances in solar and wind production.

Moving to the seasonality tables on the right side of the page, you will find a summary of expected quarterly percentage breakdown of adjusted EBITDA and cash available for distribution based on our guidance over the course of 2016, reflecting the composition of our current portfolio and the seasonality of the business. Our intent is to provide you a more comprehensive overview of the quarter-by-quarter components of our annual guidance to provide a more complete picture in lieu of providing quarterly guidance limited to the [prompt] quarter.

NRG Yield's cash flows are generally most robust in the second and third quarters, and we expect that aspect of our portfolio to remain consistent in 2016. As is noted, the seasonality is primarily a result of the terms of our various offtake agreements, as well as expected variability in wind and solar resources over the course of the year.

Turning to slide 7, NRG Yield remains well positioned to achieve long-term, sustainable, and efficient total shareholder returns through both its deep of right of right of first offer, or ROFO, pipeline, as well as the existing partnerships with NRG Energy.

Today's announcement of the $50 million of reallocated investment commitments from residential solar to NRG's business renewable reinforces NRG Yield's access to dropdown growth, and now further aligned with NRG's strategic priorities and contracted generation opportunities.

The remaining ROFO pipeline with NRG represents one of the most diverse mixes of conventional and renewable assets in the YieldCo space, consisting of fast start natural gas conventional plus, utility scale wind and solar projects, as well as a variety of residential and business renewable solar assets.

As a result, NRG is well positioned through its ROFO agreement with NRG to deliver stable and tax-efficient CAFD growth to its shareholders. As we have discussed previously, we believe that the existing ROFO pipeline alone, excluding any incremental residential and business renewable investments, provides NRG Yield access to approximately $130 million of additional future cash available for distribution. And in 2016, we expect to build on our 2015 dividend growth as we transition to a time of renewed and reinvigorated focus on the resilience of our business. The strength of our strategic relationship with NRG, and enhanced and improved disclosure to our investors regarding the key drivers of our financial performance.

And, with that, I will turn it back to you, Mauricio.

Thank you, Kirk. And before I turn into Q&A, let me provide some closing thoughts on slide 9. While I'm currently to Interim CEO of NRG Yield, I am operating in the full capacity of CEO of both NRG Energy and NRG Yield. In this regard, I am in a unique position of being able to say that from the perspective of both companies, the fundamental drivers behind the value proposition of NRG Yield have not changed, nor would I expect them to change with the naming of a permanent CEO.

What I have listed on this final slide is our goals and objectives for the year. Rather than read them to you, let me close by saying that despite much of the uncertainty that continues to exist in the capital markets, we continue to be excited about the prospect of NRG Yield and creating value for our shareholders.

Thank you. And, with that, let's open the line for Q&A.

(Operator Instructions). Julien Dumoulin-Smith, UBS.

Just real quick question, following up on what you just closed your commentary with: can you elaborate a little bit on the timeline and thought process on naming a more permanent CEO, and also thought process on management team overall?

I'm sorry, Julien. The last part was --?

What is the thought process on the management team? It seems if a separate, independent CEO is -- would be the goal. But I'd be curious how much of a separate management team would we be looking at, as well. Just the organ (technical difficulty).

Yes, no, I mean, Julien, a couple of things. And I wanted to highlight that. First, the governance is an absolute priority for NRG Yield and their independent boards and the full board. The Board is continuing to evaluate the appropriate structure. And my expectation is that it's going to -- they are going through that process right now. So, the market should hear, in short order, the outcome of it.

What I wanted to reiterate to everyone is that I am operating in my full capacity as CEO of NRG Yield. And I just want to make sure that there was no doubt in terms of this period of transition from an interim to a permanent, that there was any questioning around my capacity on completely functioning as the CEO of NRG Yield.

Does this answer the question? Okay, we'll go to our next question.

Abe Azar, Deutsche Bank.

What are your thoughts on the market's reaction to a competitor issuing equity last week? And does that inform your decision-making at all?

This is Kirk. I think you are referring to the NextEra Partners equity offering.

Just trying to be more discreet, but yes.

I think that's certainly constructive for the space overall. And as far as we're concerned, as we have indicated in the past, we have efficiently deployed a substantial portion of the excess capital of NRG Yield. We are confident that we have the excess liquidity to complete the remaining dropdowns under our partnerships with NRG for distributed solar and home solar.

Beyond that, what I would say in terms of equity where NRG Yield is concerned is that clearly, as I have indicated in the past and continues to be the case, the next component of permanent capital would be equity. And we believe the most important thing for us to do, for right now, is to continue to deliver on our commitments to grow the dividend and to continue in the constructive and supportive relationship between NRG and NRG Yield.

We will continue to do that. I would not say that we are an issuer of equity in the [polar] markets at this time, at this price. I've said that in past calls, and that continues to be the case. We look optimistically towards the knock-on effect of continuing to deliver on our commitments. Because that's the best means, we believe, to reinforce the confidence in the platform, and obviously drive the equity price to a point to that we feel comfortable issuing equity.

But for right now, I would not expect us to issue equity at the current pricing levels.

And Abe, I think that's an important point, because we can achieve the DPS growth that we told the market without having to access equity markets, and given the low payout ratio that we have today. So, we can continue to deliver on the value proposition without issuing equity.

Thank you. And one follow-up, if I may. On the last call, you mentioned that management and independent directors were unsatisfied with the share price, and you wouldn't wait indefinitely before exploring other alternatives for NRG Yield. Can you provide an update on your thinking today?

Yes. We continue to evaluate all options to assess the current market. One thing that is important was the clarity that we got today from NRG in terms of their development efforts, particularly in their renewable space, given the GreenCo process that they are running. So, the clarity that we got today, and the fact that we have the ability to continue growing the DPS to the targets that we told the Street, and the strong ROFO pipeline that we have, we believe that we need to assess how the market reacts to these three steps and the clarity that we have in the partnership between NRG and NRG Yield.

Great, thank you.

Matt Tucker, KeyBanc Capital Markets.

Mauricio, I think you just commented on this, but I didn't see it in writing. So just wanted to confirm that you guys are still able to reaffirm the 15% to 18% dividend growth target through the end of 2018 without issuing equity.

Yes, our target is 15% through 2018, in terms of the growth of our DPS.

Without the need to issue equity. That's correct

Without the need to issue equity.

Okay, great. And then on CVSR, first, just to clarify that the current guidance does not reflect the impact of the dropdown. And then secondly, if you could comment on the financing options you are considering and the potential timing of that.

Yes, Kirk?

Sure. To answer the first part of that question, you are correct that the existing guidance is not dependent upon the dropdown of CVSR. That would be incremental when that were to occur. I know that there was a reference made on the NRG call to exploring the most efficient means to finance the CVSR dropdown. All I can do is reiterate from NRG Yield's perspective that NRG and NRG Yield are evaluating collectively the best means to do that.

And part of the reason behind that is we are mindful of achieving two objectives: one, maintaining the existing healthy levels of liquidity at NRG Yield and so that it has sufficient cushion from a liquidity perspective; and continuing to drive our dividend growth. And because, as we have articulated, and I have reconfirmed in answering this question, we have the ability to grow that dividend without the need for CVSR or any incremental dropdowns in terms of the ROFO pipeline.

So if we are to transact on an additional ROFO asset, we want to do so prudently in the near term from a financing efficiency perspective, because, as we have said before, it isn't necessary in order to deliver on our dividend targets. So I would expect from the NRG Yield perspective that, much like NRG, you can expect to hear more on that as the year progresses in terms of the CVSR dropdown.

Great. Appreciate the color. Nice quarter, guys.

Greg Gordon, Evercore ISI.

That was basically my question. But if you are comfortable with it, could you articulate, perhaps theoretically, what other avenues you might have available to effectuate the CVSR financing if you were to determine that issuing equity were not the right avenue? But do you have an effectively low enough cost of capital for other means to execute it, if you choose to? And if so, what would those avenues be?

Yes, low cost of capital or ultimate cost of capital is the focus, number one. What I would say is, as we have acknowledged in the past -- first of all, our overall portfolio in CVSR is a good example of that. We obviously own that jointly with NRG, of course. But that particular asset, much like many of the assets in the portfolio, the nature of the project financing -- because you can see in our CAFD walk from EBITDA, we got over $200 million of principal amortization on an annual basis.

That's a function of the various projects, of which CVSR is a part, delevering over time. And given the nature of that asset, we think there may be -- I'm giving you one example here, Greg -- there may be an opportunity to take advantage of non-recourse financing against the CVSR cash flows to help optimally finance that and skinny down, if you will, the need for capital from the NRG Yield level. So that's probably one example that I would allude to. Early days; but that is among the items that we're evaluating.

Great. And is there a specific timeline that the NYLD Board of Directors is thinking about in terms of trying to decide whether or not to continue as a stand-alone entity, or look for other strategic opportunities if ultimately the share price refuses to rise to a level that allows you to finance? Or is it an open-ended, reevaluate every quarter, type of situation?

Yes, Greg. What I can tell you, it is the highest priority right now for our Board, is the evaluation of that. And without giving you specifics, what I will tell you is that we have, right now, the means to deliver on the value proposition of NRG Yield. And I laid out the three big principles to do that. But without being more specific, I can just tell you that is the highest priority that we have at the Board.

Okay. Thank you, guys.

Steve Fleishman, Wolfe Research.

Yes, mine were answered, but just briefly. I heard one other renewables company mention that year-to-date volumes were relatively light so far. Can you maybe just give any color, if anything is particularly abnormal so far this year?

You are referring to 2016?

Correct.

I don't want to, obviously, get into specifics, sort of get ahead of ourselves in terms of public disclosure. But I wouldn't say that we have anything unusual that we're seeing in terms of renewables; obviously, early in the year.

Okay. Everything else was answered. Thanks.

Michael Lapides, Goldman Sachs.

Quick question: Kirk, how do you think about the -- and you talk about this a good bit on the NRG call -- but just curious, at the [in-yield] level -- the balance of growth and using capital, debt or equity, for growth versus using capital for debt reduction at the in-yield level, especially given a little bit of dislocation -- not a lot, but a little in the in-yield bond prices and in-yield levels; and the potential, even, for share repurchase at the in-yield level. If you think in-yield is inappropriately valued and you have access capital, would you consider, instead of growth, just reducing the share count?

As to the last part of that, I think that the answer to that question is certainly yes, we would certainly consider that. It would obviously require the replenishment of some additional capital. But, as you know, we have the benefit of the fact that we still maintain a low payout ratio, which means that we are building cash in that regard. In the near term, I would say that that cash build -- we're focused on -- and that is a nice segue into the other part of your question.

We are focused on paying down the revolver to obviously enhance the liquidity efficiently. That would be the only amount of deleveraging. Because I think, net of the revolver balance, we are basically in line with our long-term targets that are a function of our extended discussions with the rating agencies prior to going out with the unsecured debt. And that's keeping the corporate debt to corporate EBITDA, which is basically the sum of our unsecured notes, our revolver, and our intercompany notes to support the converts at a level, where compared to the distributions that come up to the HoldCo, if you will, from all the project subsidiaries, that that ratio is comfortably in the mid-3 range.

And because we are right there, relative to obviously addressing reducing the revolver, I wouldn't say we feel compelled to delever, certainly, at the corporate level. But as I said to one of the prior questions, we continue to delever over time on a consolidated basis because we've got about $200 million of amortization every year.

Got it. Thanks, Kirk. Much appreciated.

Andrew Hughes, Bank of America.

Most of my questions have been asked and answered. But on the 2015 to 2016 resi solar and business renewable portfolio commitments, can you give us a sense of where we are in that $250 million commitment, and how much overlap, timing-wise, there is with the 2016 resi and business commitments? And then I had a quick follow-up.

Sure. I will give you just kind of a rough (inaudible). First of all, those two partnerships together consist of $250 million worth of capital. And as was indicated previously, the component parts of that are now $100 million -- and I'm going with the gross amounts, and then I will go into where we are, to date. $100 million is home solar, and $150 million is DG, or what NRG refers to as business renewables now.

Of that, we have probably got, through the end of 2015, I would say about $65 million of the $250 million has been utilized. And it's in roughly equal parts home solar and DG through the end of 2015. In 2016, I would expect we'd -- by the end of year, on a cumulative basis, and we'd be somewhere in the neighborhood of $200 million into that $250 million; and again, incrementally in equal parts between home solar and DG, if that helps.

That's great. And then you mentioned that the existing liquidity is -- seems clearly sufficient to make the rest of these home and solar and DG business renewable investments over the course of the year. Is there an opportunity to shift any of that around and use the existing liquidity to buy CVSR, for instance, without the need to issue equity? Thanks, guys.

Sure. And that dovetails with the answer that I think I may have given to an earlier question -- and that is that, yes, with the caveat being that we're focused on an efficient means to finance that dropdown to CVSR in a way that preserves that liquidity more efficiently. But with that caveat, the answer is yes.

Thank you. That's all the questions that we have at this time, so I'd like to turn the call back over to Mauricio Gutierrez for closing remarks.

Thank you. And I thank you very much for the time, your attention, and look forward to continuing the conversation. And thank you.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program, and you may all disconnect your telephone lines at this time. Everyone, have a great day.