Atlantica Sustainable Infrastructure plc (NASDAQ:AY) Q1 2024 Earnings Call Transcript

Atlantica Sustainable Infrastructure plc (NASDAQ:AY) Q1 2024 Earnings Call Transcript May 8, 2024

Atlantica Sustainable Infrastructure plc beats earnings expectations. Reported EPS is $-0.05, expectations were $-0.12. AY isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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. 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 Seage; and the CFO, Francisco Martinez-Davis. As usual, at the end of the conference call, we will open the lines for the Q&A session. I will now pass you over to Mr. Seage. Please, sir, go ahead.

Santiago Seage: Good morning. Thank you very much for joining us for our first quarter 2024 conference call. I will start with a few high-level messages. As you have seen in the first quarter 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 a 57% year-over-year up to close to $66 million. In terms of growth and new projects, we recently signed a 15-year PPA for a new 100-megawatt solar + storage project in California, and we completed, among other projects, we completed the acquisition of two operating wind assets in the UK. I will now turn the call to Francisco, who will take us through our financial results.

Francisco Martinez-Davis : Thank you, Santiago. Good morning to everyone. Please turn the Slide 4, where I present our key financials for the first quarter of 2024. Revenue remained stable at $242.9 million, compared with $242.5 million in the first quarter of 2023. The increase in revenue in our assets in North America was offset by the outage at Kaxu 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 $164.2 million, representing a 0.9% decrease compared with the same period last year, excluding the impact of the outage at Kaxu. Regarding cash available for distribution, we generated $50.9 million in the first quarter of 2024.

On the following Slide 5, you could see our performance by geography and business sector. In North America, revenue increased 18% to $86.2 million in the first quarter of 2024, compared to the same period of last year, and EBITDA increased 6% to $55 million. Production increased in our solar assets in the US. In South America, both revenue and EBITDA increased 2% compared with the first three months of 2023, up to $44.7 million and $34.6 million, respectively, mainly due to inflation in the indexation mechanism in most of our contracts. In the EMEA region, revenue decreased 11% to $112 million, versus the same period of 2023, mostly due to the unscheduled outage at Kaxu. Looking below at the results by business sectors, we can see similar effects.

Let’s now please turn to Slide 6, where we will review our operational performance. Electricity produced by renewable assets reached 1,063 gigawatt hours in the first three months of 2024, a decrease of 11% versus the same period 2023, mainly due to a decrease in Kaxu and lower solar radiation in Spain. On the other hand, production in our solar assets in the U.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 first quarter of 2024. On the next Slide 7, we will take a look at our cash flow. In the first quarter of 2024, operating cash flow reached $65.6 million, an increase of 57%, compared to the same period last year, mostly thanks to an improvement in changes in working capital.

Net cash used in investing activities in the first quarter of 2024 includes $84.4 million of investments, corresponding to the acquisition of two operating wind assets in the United Kingdom and approximately $22 million in investment in assets under construction development. I will now turn the call back over to Santiago.

Santiago Seage: Thank you, Francisco. During this first quarter 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 off-taker for a new 100-megawatt PV + 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 three 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.

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 U.K., as we have mentioned. The assets are regulated and have no project debt as of today. The price of the investment represented as 6.6x EV2/ EBITDA multiple, and this investment should allow us to use the net operating losses carry forwards that we have in the U.K., 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 a project in Chile as an example of how repowering existing renewable energy assets with storage can add value. The Chile PV 3 plant signed a 10-year PPA, including the battery storage expansion currently under construction.

Chile is one of those markets where the storage clearly allows to capture higher returns through higher PPA pricing. As you know, more or less a 40% of our pipeline is in storage. 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 as standalone. As you know, Chile PV 3 is a PV asset in operation where we are building a battery repowering our expansion. Regarding the sale of our stake in Monterrey, it recently closed and we expect proceeds of more or less $43 million subject to a number of things you see there. Additionally, there is a earn-out mechanism that could result in additional proceeds in the future.

A final point before we move to Q&A. We are aware of market and media speculation around Atlantica, and following past practice, we will not make any comments regarding that. 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&A whenever you want.

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Q&A Session

Operator: Thank you. [Operator Instructions]. Our first question goes to Rupert Merer of National Bank. Rupert, please go ahead. Your line is open.

Rupert Merer : Hi, thank you. Good morning. Thanks for taking the question. I respect that, you can’t talk about your own strategic review process, but I’m wondering if maybe you can talk about the M&A market. You are active in the M&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? Has it changed at all over the last few months? It seems like there is a little bit of an increasing optimism in the U.S. market in particular.

Santiago Seage : Okay. Thanks for the question, Rupert. So, I’m going to talk about the M&A market. We see ourselves, meaning projects, let’s say, of an average size. 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. 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 1 year, 1.5 year 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. In our case, we closed this acquisition in the UK. We closed the divestiture of the Monterrey project. So, we do believe, if you were referring to that, that the M&A market we see probably is more active and we are seeing a higher success rate than 1 year or a 1.5 year ago.

Rupert Merer : Now in the U.S. market, the optimism is partly related to potential for falling rates, but also we’re seeing a lot of optimism around the data center market and speculation that could drive interest for attractive off-takes in some of the markets you’re involved with. Are you in touch with this market in any way? Are you seeing potential for off-takes for data centers? 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?

Santiago Seage : 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’s an opportunity in general in the market. 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. I think that like with many things, there’s a little bit of hype at this point in time out there. I think that it’s going to become a meaningful part of the market, no question. Whether we are going to reach some other projections, some people have been talking about, time will tell. We are active in all segments of the market, including that one. As I mentioned before, with today’s technology, being able to mix solar or different renewable energy generation technologies plus storage, 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.

That’s important for data centers and for many other clients as I mentioned before.

Rupert Merer: Very good. I’ll leave it there. Thank you very much.

Santiago Seage: Thank you.

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

Nelson Ng : 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?

Santiago Seage : 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. Obviously, the numbers need to work, meaning we need to have a situation where we believe that 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.

Nelson Ng : Okay, great. 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?

Santiago Seage : Yes, so this is a project under development, very advanced development. 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. Like in most projects you acquire in an advanced development stage, there are milestones where we would 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. So, we feel very comfortable thanks to the fact that we continue building critical mass in the Southwest. It has a very good PPA that we signed recently, a bit after the acquisition, and it’s one of those PPAs we like with a very good off-taker. So, we are fairly comfortable that this project will result in a good addition to our portfolio.