Atlantica Sustainable Infrastructure plc (NASDAQ:AY) Q2 2023 Earnings Call Transcript

Atlantica Sustainable Infrastructure plc (NASDAQ:AY) Q2 2023 Earnings Call Transcript August 1, 2023

Atlantica Sustainable Infrastructure plc misses on earnings expectations. Reported EPS is $0.14 EPS, expectations were $0.26.

Operator: Hello and welcome to Atlantica’s Second Quarter 2023 Financial Results Conference Call. Atlantica is a sustainable infrastructure company. 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 based on current expectations and assumptions which are subject to risks and uncertainties. Financial results could differ materially from our forward-looking statements. If any of our peer assumptions are incorrect or because of other factors discussed in today’s earnings presentation or because of other factors discussed 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 on today’s conference call are Atlantica’s CEO, Santiago Seage and 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 go ahead, sir.

Santiago Seage: Thank you very much. Good morning, and thank you for joining us for our second quarter 2023 conference call. In the second quarter and in general, the first half of the year we believe shows the strength of our long-term contracted and highly diversified asset portfolio. While many of our peers, many companies in our sector have been talking about soft wind resources in the U.S., the fact that we have a more diversified portfolio, both by technology and by geography means that in the first half of the year, revenue and adjusted EBITDA have increased by a 1.4% and 1.9% respectively, on a comparable basis. At the same time, cash available for distribution has increased by 2.6% on a comparable basis, reaching $124.6 million. We believe that this is another quarter of solid results thanks to these well-contracted, highly diversified portfolio. I will now turn the call over to Francisco who will take us through our financial results.

Francisco Martinez-Davis: Thank you, Santiago and good morning to everyone. Please turn to Slide Number 4 where I will present our key financial results for the first half of 2023. Revenue reached 554.6 million, which represents a 1.4% growth on a comparable basis excluding the effect of foreign exchange. Adjusted EBITDA was 403.8 million representing an increase of 1.9% on a comparable basis. Regarding cash available for distribution, we generated 124.6 million in the first half of 2023, an increase of 2.6% on a comparable basis, and 6.2 year-over-year growth. On the following Slide Number 5, you could see our performance by geography and business sector. In North America, revenue increased by 1% to 202.2 million in the first half of 2023 compared to the same period of last year, mostly due to higher production in our solar assets in the U.S., in spite of lower solar radiation in the period.

Adjusted EBITDA on the other hand decreased by 4% mainly due to lower EBITDA at our wind portfolio in the U.S. as production was lower due to lower wind resources across the U.S. in the second quarter. In South America, revenue increased by 17% compared with the first half of 2022 up to 91.5 million and EBITDA increased 27% to 74.4 million. The increase was mainly due to assets which recently entered in operation, inflation indexation mechanism in our contracts and a gain corresponding to the sale or part of our equity interest in our development company in Colombia through a partner in the first quarter. In EMEA region on a constant currency basis, revenue and adjusted EBITDA decreased by 3% and 1% respectively. This was mostly due to lower revenue in our solar assets in Spain, despite higher production during the period, mainly due to lower electricity prices compared with those in the same period last year.

As you are aware, these assets are regulated and are entitled to receive a predefined rate of return, the fluctuation and market prices do not affect the value of the asset. This decrease was partially offset by high revenue at Kaxu, thanks through higher production and revenue indexation to inflation. Looking below at the result by business sector, we can see similar effects. Let’s now please turn to Slide Number 6, where I will review our operational performance. Electricity produced by our renewable assets reached 2803 gigawatt hours in the first half of 2023, an increase of 6% versus the same period of 2022, mainly due to the increase in production in our solar assets in Spain, where solar radiation was higher in the period and the contribution from the recently consolidated assets and those have that have entered operation recently.

tcly / shutterstock.com

Production also increased in our solar assets in United States. Even though solar radiation was lower than the same period of the previous year, our assets have shown better performance. Looking at our availability based contracts, in our efficient natural gas and heat segment availability decreased mostly due to scheduled maintenance stop during the period, which will not impact revenue. Our water assets and transmission lines continue to achieve very high availability levels in the first half of 2023. As you can see, even though production at our wind assets in the U.S. was lower as a result of lower wind across the country, Atlantica benefits from a well-diversified portfolio in which part of the revenue is based on availability, thus allowing the company to offset this negative impact.

On the next Slide Number 7, we would like to review our net debt position. We closed the quarter with a net corporate debt of 978 million. With this our net corporate debt to CAFD pre-corporate debt service ratio stood at 3.4 times. In addition, net project debt as of June 30, 2023, was $4,024 million remaining flat compared to December 2022. We continue to have ample liquidity to finance the growth with $72.8 million in cash at the corporate level and 393.1 million available under our revolving credit facility, which totaled 465.9 million of corporate liquidity. I will now turn the call back over to Santiago.

Santiago Seage: Great. Thank you, Francisco. During the second quarter of 2023, we have continued to make good progress in construction of new assets we have developed. This includes, as you can see on Page 8, the Coso Batteries 1 project, a 100-megawatt hours co-located with our geothermal asset in California, where we continue advancing as expected and includes a number of portable pipe plants under construction in South America. Additionally, in South America as well, we are now starting to build two expansions of the transmission lines we have down there. These are, we believe, very attractive projects, both in terms of returns, profitability, and in terms of the risk profile. Additionally, on Page 9, you have an update of our current pipeline of assets under development and that includes around 2 gigawatts of renewable energy and close to 6 gigawatt hours of storage.

And clearly, the pipeline continues being a significant part our plan and we do expect that in the coming years, a significant part of our investments will be linked to building these assets we are developing. With that, we would conclude today’s presentation. Thanks for joining us and we will now open the lines for questions. Operator, we are ready whenever you want.

See also 10 Most Oversold S&P 500 Stocks Right Now and I am 50 Years Old and Have No Retirement Savings.

Q&A Session

Operator: Thank you. [Operator Instructions]. Our first question today comes from the line of David Quezada from Raymond James. David, please go ahead. Your line is now open.

David Quezada: Thanks, good morning everyone. Maybe first question just on your development activities and the projects that you’re advancing. Do you think the efforts in the U.S. to speed up connection to the grid for renewable projects could help accelerate any of the projects that you’re working on and maybe just a general comment around where you see the best opportunities for new development projects going forward, is it still the U.S., are you seeing other opportunities internationally?

Santiago Seage: Great. Thank you for the question, David. We do believe that the efforts that are being taken in the U.S. to streamline the process, obviously, are in the right direction and they might be helpful. We don’t expect a huge change, to tell you the truth. But incrementally, it should be positive. Regarding where we see opportunities, we believe that the same way our existing portfolio because of the fact that it’s more diversified by geography and technology, brings a number of advantages and we saw it this quarter. We also believe that the fact that our development pipeline is also diversified brings advantages. We do believe that the U.S. market is attractive. We do believe that at this point in time in the market, pricing is reasonable or constructive in terms of PPAs, and therefore, companies like us should be able to build projects with reasonable returns.

We also believe that there are significant opportunities outside of the U.S. and that’s why our intention is to continue developing a portfolio where the U.S. will be a very significant part, no question about that. It will be the core but complemented with profitable projects in other geographies where we are present.

David Quezada: Okay, excellent. Thank you for that color Santiago. And then maybe just turning to acquisitions, just curious what you’re seeing across your key regions and I think in North America, you could say we’ve seen a handful of transactions happen at lower multiples. I’m just curious if you’re — just if your view has shifted at all with respect to how attractive an acquisition might be for you today?

Santiago Seage: No, probably we will continue seeing a little bit — a similar picture to what we saw last quarter, meaning, we do believe that at this point in time, sellers and buyers expectations are more difficult to meet. And the fact that interest rates are higher, obviously, play a role there. At this point in time, probably if you ask bankers, they would tell you that it takes longer to make sure that buyers and sellers can agree on prices and there are situations where projects do not close because of that difference. I think that it’s a question of time. There’s a certain probably readjustment there. And for us, as an investor in projects, this should translate into opportunities. We’ll see if that happens in the very short term or it takes a bit longer to readjust, but we do believe that we should be able to find opportunities at reasonable returns, which was not that easy in 2022, for example.

David Quezada: Excellent. Appreciate that color, thank you. Maybe just one last one for me. The regulatory change you see in Spain in the quarter, I’m just wondering if you’re able to roughly quantify the impact of that financially. I certainly appreciate that doesn’t affect the returns or evaluation of those assets, but just curious if you could talk about like maybe the EBITDA impact of that in the quarter?