Clearway Energy Inc (CWEN) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2017 NRG Yield Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Kevin Cole, Head of Investor Relations. Please go ahead, sir.

Thank you, Christie. Good morning, and welcome to NRG Yield's Second Quarter 2017 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 under Presentations & Webcasts. As this is an earnings call for NRG Yield, any statement made on this call that may pertain to NRG Energy will be provided from NRG Yield's 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 differ materially. We urge everyone to review the safe harbor in today's presentation as well as 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 reconciliations to the most directly comparable GAAP measures, please refer to today's press release and this presentation.

Now with that, I'll turn the call over to Chris Sotos, NRG Yield's President and CEO.

Thank you, Kevin, and good morning, everyone. Joining me and also providing remarks this morning is Chad Plotkin, NRG Yield's Chief Financial Officer.

Turning to Page 3 for an overall business update. For the second quarter, NRG Yield delivered adjusted EBITDA of $270 million and CAFD of $74 million. On August 1st, we closed the acquisition of NRG's remaining 25% interest in the NRG TE Holdco assets, a reference of the August drop-down. In addition, NRG Yield is increasing its dividend to $0.28 a share consistent with our goal of growing our dividend per share 15% year-over-year in 2017. Additionally, we are reaffirming financial guidance to take into account the now closed August drop-down and portfolio performance to date. The August drop-down, from a guidance perspective, provides no incremental 2017 EBITDA, as it was consolidated on our income statement previously. And due to the timing of closing, minimal CAFD accretion is anticipated in the current calendar year. Going forward, however, this acquisition is expected to create significant CAFD accretion, which I will discuss in a couple of slides.

Chad will go into more quarterly details in his section. On July 12th, NRG Yield's controlling shareholder, NRG Energy, announced its multiyear transformation plan. As part of this plan, NRG indicated it was exploring strategic alternatives for its renewable platform, which includes its investment in Yield. As you are aware, since I became CEO, a key part of NRG Yield's strategy has been to secure additional partners to both augment capital -- available capital sources and bring a more visible pipeline of growth to the company. While this process is not going as quickly as I would have liked, from my perspective, NRG's objectives and its transformation plan provide more flexibility and opportunity to deliver on the strategic imperative in a way that can drive value for all stakeholders. Throughout this process, I do go on to assure our investors that NRG Yield's management team and independent directors are engaged to facilitate a strong partner for NRG Yield and to balance any change in control friction cost that may materialize. We expect the results of the plan regarding NRG Yield will have clarity on by year-end. While the broader strategic effort is underway, I am pleased to say that NRG Yield continues to work with NRG supporting our growth efforts. In addition to the ongoing funding in the existing distributed solar partnerships that NRG had offered NRG Yield under the existing ROFO agreement, NRG has offered an additional opportunity to invest up to $50 million in a new partnership, focused primarily on community solar assets.

Additionally, NRG has made an offer on 38 megawatts of distributed and small utility-scale solar assets that are fully operational and not currently part of the ROFO pipeline. As always, these acquisitions and agreements are subject to negotiation and approval of NRG Yield's independent directors.

Turning to Page 4. I want to provide an overview of our recent acquisition, the remaining 25% of NRG Wind TE Holdco. The acquisition adds 201 net megawatts of wind assets to NYLD's portfolio with an approximate 10-year average contract life and a diversified group of PPA off-takers, the vast majority of which are investment grade. This acquisition allows us to gain full control over this part of our portfolio going forward.

Moving to Page 5. We provide an overview of the economics of the transaction. The purchase price is $41.5 million before working capital adjustments, with 5-year CAFD generation of $4.6 million, resulting in an asset CAFD yield of 11.1% and CAFD per share accretion based on current guidance of 1.8%. This acquisition was funded with cash on the balance sheet as we continued to deploy our excess capital in 2017.

In addition, the transaction includes potential future payments to NRG starting in 2027 to the extent that actual realized power prices exceed a baseline, thereby reducing NYLD's exposure of merchant prices in its base purchase price, while providing potential upside to NRG in the event that power prices are materially higher in the future.

With that, I'll turn over to Chad to review the financial summary. Chad?

Thank you, Chris. As presented on the left-hand side of Slide 7, NRG Yield is reporting second quarter adjusted EBITDA of $270 million and cash available for distribution, or CAFD, of $74 million. These quarterly results are in line with our revised expectations as provided on the first quarter call and bring first half results to $454 million of adjusted EBITDA and $74 million of CAFD. As discussed on our last earnings call, first half 2017 results were positively impacted by growth investments, including the March drop-down of the interest in Agua Caliente and the Utah Solar Projects as well as the ongoing investments in the distributed generation partnerships with NRG.

Additionally, planned maintenance CapEx has shifted from the first half into the second half of the year. Negative impacts to first half results included weaker-than-expected renewable energy conditions as well as the previously disclosed forced outages at the conventional segment. For the renewable segment, second quarter was similar to the first quarter, in that both wind and solar resource were moderately below expectations. However, the combination of improved operations in maintenance cost and strong energy production in June, especially at the Alta Wind project, helped offset the overall impact.

In the conventional segment, we continue to make progress. In July, NRG Yield executed a final warranty settlement agreement for the February outage at El Segundo, which will keep the financial impact to approximately $5 million. For Walnut Creek, while the project is currently operating within expectations, NRG Yield continues to work with both NRG and GE on the formalization of a long-term plan to both improve and ensure long-term performance of the facility.

In terms of growth and financing activities, following the close of the most recent drop-down with NRG, NRG Yield has now deployed $211 million of growth capital year-to-date. Additionally, the company continued to prudently execute on its ATM program in the second quarter bringing total proceeds raised to a little over $16 million in the first half of the year. These issuances were completed at a volume weighted average price of approximately $17.41 per share before fees, which implies an 8% CAFD yield, a cost of financing that we believe provides significant flexibility for accretive capital redeployment.

Lastly, we are pleased to announce the next increase on our quarterly dividend to $0.28 per share in the third quarter, a 3.7% increase over last quarter.

Now let's move to the right side of the slide. Today, NRG Yield is reaffirming full year 2017 financial guidance with adjusted EBITDA of $920 million and CAFD of $255 million, which continues to be based on P50 median renewable energy expectations for the full year. We also continue to highlight several areas of known risk in full year financial guidance. This includes the timing of whether the company receives cash reimbursement from insurance claims for the Walnut Creek outage this calendar year. It also includes the first half of the year net renewable energy underperformance, which is in our sensitivity ranges, but will require offsetting our performance during the balance of the year.

As you can see at the top of the table, a number of variables offset the full year impact of financial expectations, most specifically CAFD from growth investments made during the first quarter. As discussed on our last earnings call, this is due to the El Segundo outage and other minor operational changes in the platform.

Similarly, new growth investments made after the first quarter, including the August drop-down of NRG's 25% interest in NRG Wind TE Holdco and additional contribution to the distributed generation partnerships have a limited impact to current results and full year financial expectations.

Given NRG Yield's prior 75% ownership, NRG Wind TE Holdco financial results have been consolidated. So the acquisition will not lead to changes in adjusted EBITDA. Further, because of when the transaction closed, the new acquisition will contribute an immaterial amount of CAFD for the balance of the year. This also holds true for the contribution to the distributed generation partnerships made since the first quarter. So while the financial impacts of our growth efforts in 2017 have been limited, we look to 2018 in which our success to date in accretively deploying growth capital will manifest into full year financial expectations.

Now let's turn to Slide 8 to provide a summary of NRG Yield's capital deployment efforts. As shown on the left-hand side of the page, NRG Yield continues to maintain flexibility to execute on its growth plans. First, the company expects to have approximately $90 million of available cash through the end of the year to invest without having to further access the capital markets. Also, with approximately $560 million of financing capacity available through the undrawn revolver and via the ATM program, the company maintains the ability to optimize temporary draws on the revolver, while issuing equity capital in a prudent manner. All of this capacity is in excess of the $211 million of capital deployed year-to-date, which, as you will note on the right side of the slide, has been invested at accretive levels with an overall weighted average CAFD yield of approximately 10.6%. And as mentioned on the prior slide, because the timing of these investments will not materially impact 2017 financial results, the benefit will be realized beginning in 2018, with the contribution over -- of over $22 million in CAFD.

I will now turn the call back to Chris for closing remarks.

Thank you, Chad. Turning to Page 10, we continue to deliver on our financial commitments by reaffirming 2017 guidance of $920 million in adjusted EBITDA and $255 million in CAFD, achieving 15% year-over-year growth in our dividend by targeting $0.2875 in the fourth quarter of 2017. We continue to grow the platform through closing on CAFD accretive acquisitions and adding to NYLD's growth prospects, demonstrating through the March and August drop-downs, deploying [in] excess of $210 million, including our DG Solar investments since the end of 2016. From our work with NRG, we continue to increase the assets available to NYLD in the future with an offer of a new $50 million partnership in distributed generation space as well as an offer for 38 megawatts of solar assets that were not part of the ROFO pipeline.

In addition, and consistent with our stated objective of securing additional strategic partners, we are working with NRG regarding its investment in Yield, focused on outcomes that are in the best interest of NYLD shareholders. NRG has stated it would intend to have a resolution on this process by the end of this year.

Finally, we're focused on maintaining a strong balance sheet and financial flexibility across the capital structure, as demonstrated with our issuance under our ATM at very efficient levels of execution and continued deployment of our excess capital during 2017. Thank you. Operator, now please open the line for questions.

(Operator Instructions) Our first question is from the line of Jonathan Arnold of Deutsche Bank.

Quick question on, obviously, the ROFO. You had some assets from outside the ROFO. Are there others that you think might be appropriate of a similar nature, that you could potentially pursue or that NRG might offer you? Or was that sort of a one-off portfolio?

I would characterize that as much more one-off, that there might be other pockets of that with NRG, but I think NRG, as part of its overall process, obviously, talks a lot about streamlining. So I don't -- if your question is, Jonathan, should you as an investor expect a lot more of those in the future that are kind of not part of that, I don't think there would be a lot more within the NRG family today.

Okay. And then sort of sister question to that. You had the -- I think, there was a FERC filing indicating that NRG had sold couple of Minnesota wind projects that were previously offered to you to a third party from inside the ROFO? What -- can you just give us any insight into what happened there? Was it an asset you didn't find suitable? Was it price? What went on there?

Sure. A lot of those assets really had Clipper turbine technology, wind turbine technology, as the part of the portfolio. And so for NRG Yield to enter into that as a new asset class, the risk premium that Chad and I thought made sense, and our independent directors, to compensate us was probably different than somebody who already had an existing fleet of Clipper turbines. And so I'd say that was the main difference between our view and the other party that NRG eventually sold them to.

Okay. So I guess -- are there other assets in the ROFO where that's also potentially the case?

Not that I could see today. But I think, as we've stated on previous calls, Ivanpah, we would want to -- I think, frankly, NRG would want to as well have a couple years of kind of good operating performance before it'd be offered for drop-down, but there really isn't anything operating within the NRG ROFO pipeline today where -- that you had that same type of issue other than Ivanpah.

Okay. So these were just 2 that just didn't quite fit your risk appetite from a technology standpoint or fitted someone else's better and as simple as that?

Correct. Just a reminder...

Our next question is from Cindy Motz of Williams Capital.

Hi. Thanks for taking my question. I wanted to hear more, if you could, about the community solar potential investment. That's a growing area, and when would we hear more about that? And then, also it looks like, I mean, you wouldn't have any problem, you have plenty of cash on hand for that. And then, even the 38-megawatt, that solar asset, that's -- because you were looking for solar before. So that's encouraging to see that, and I would think that both of those you wouldn't have any problem given the liquidity that you're -- position you're in. So any comment there would be great. Thanks.

Sure. I'll let Chad kind of go over some of the dynamics of the community solar, but really that would be intended to be funded by kind of the end of 2018, so Cindy, to your point, we kind of do have decent capital to handle that, but Chad?

Yes, I mean, I think, first, as Chris said, Cindy, I mean, if we use the existing partnership structures that we have as a model, you'll note that we do fund those episodically. So it's not as though the full amount of that $50 million, subject to us reaching final terms and conditions, would be funded in the near term. So that's something that we would balance out over time. I think with regard to community solar, this is an area that I know NRG's development team has really been focused on. It's an interesting asset class in the sense that it has a lot of characteristics of traditional distributed generation, but it's not traditional distributed generation, in the sense they tend to be almost mini-utility-scale. So from an operational perspective, they tend to be cleaner, et cetera. So this is definitely an interesting project and growth opportunity across the different markets. And we're certainly encouraged by the fact that NRG continues to progress in finding these type of opportunities that we can put into these partnerships and coinvest.

And it's a 2018 though, that's we are going to see it over time, that's correct?

Yes, I mean, I think the way I would think about it is, to the extent we reach a final closing of the new partnership, the funding of that could start as early as this year and -- but we would expect it to be funded through the end of next year. But again, we need to reach final terms and conditions.

Okay. And then when will we know about -- or we're not sure about the 38-megawatt one. You just have -- you've been offered that, but...

Correct. Similarly, Cindy, we typically just announce when it's offered, and then, we kind of announce when we're closed. So we follow the same kind of process here. It's been offered to us. We're kind of conducting our diligence around those assets. If and when we close, we'll obviously announce that.

Right. But you guys have been looking for solar, and this sounds like it would be in your interest area?

Yes, it should be.

(Operator Instructions) Our next question is from Colin Rusch of Oppenheimer.

As we kind of look at the project level debt, in some of the portfolio, particularly in the solar portfolio, it looks like there's a pretty meaningful opportunity to lower some of the interest expense. Is that something that you guys are pursuing right now? Or is that something that might happen in conjunction with the strategic moves?

Chad?

Yes, Colin, so I think what I would say is, one, we always look at ways within the existing capital structure to try to optimize and to the extent there's areas where we believe we could try to refinance at lower rates. And in fact, if you go back historically at the company, there's been several instances where that's happened. I think if we look across the project company to date, I would tell you that a lot of those have been favorably financed. So it's not clear to us that, you could really get a lot of savings on a refinancing to sort of makeup for some of the upfront fees and costs that you'd have to do to do that. But we do look at that quite regularly.

Okay. And then just looking at the opportunity with stationary energy storage and some of the price declines and some of the commentary that we're hearing in the market in terms of energy arbitrage and the opportunity there, is that something that you guys are looking at pretty closely at this point? Or does that still feel like it's at least a few years off?

This is Chris. From our perspective, it's definitely an asset class that we're interested in. I think a little bit to your question, we really have to look to the contract that was part of it, when it was offered to us from another party, whether that's NRG or another. So the economics of it from our perspective are, obviously, highly dependent on what the PPA or capacity price is as part of that. We wouldn't engage in that on a merchant basis, if kind of that's your question, regardless of cost price decline, at least in the current environment.

And that does conclude our Q&A session for today. I'd like to turn the call back over to Mr. Christopher Sotos for any further remarks.

Thank you everybody for attending the call. I look forward to continuing to update you over the next several months. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a great day.