Johnson & Johnson Q4 2023 Earnings Call Transcript

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March 1, 2024

There are 8 speakers on the call.

Operator

Welcome to Atlantica's Full Year 2023 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.

Operator

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 Siege and the CFO, Francisco Martinez Davis. As usual, at the end of the conference call, we will open the line for the Q and A session.

Operator

I will now pass you over to Mr. Sige. Please, sir, go ahead.

Speaker 1

Thank you very much. Good morning. Thank you for joining us for our 2023 conference call results. In 2023, we have met the guidance we provided at the beginning of the year, both regarding EBITDA and for CAFD. If we cover briefly some of the achievements during the year, we remind you that in early 2023, we were able to refinance 2 large assets in Spain, creating long term value by extending maturities at what at the time were still very reasonable costs.

Speaker 1

Additionally, 2023 has been a year where we have continued evolving in our growth strategy, demonstrating that Atlantica can grow through a combination of development and construction of our own pipeline and through the acquisition of assets whenever we find opportunities with reasonable returns. In fact, during the year, several new solar assets have reached the commercial operation. Additionally, our development team in the U. S. Has made very significant progress during the year.

Speaker 1

At this point in time, we have 3 new projects fully contracted and under construction or about to start construction in the Southwest of the U. S, leveraging the IRA. As you all know, North America continues to be our main target geography in terms of new investments, in terms of capital allocation. And finally, in 2023, we have continued finding and moving forward new development opportunities in our key geographies. In fact, our renewal pipeline has increased by a 12% versus last year.

Speaker 1

If now we look forward and we talk briefly about 2024, we see that as of March 1, we have already committed or earmarked between $175,000,000 $220,000,000 in new investments, with a majority allocated to solar and storage projects in the U. S. This represents a 60%, 70% of our $300,000,000 investment target. Additionally, we expect to complement that amount with some targeted acquisitions, as we believe that the current M and A market is constructive in some areas where we believe that we should be able to lock in accretive transactions like the ones we have done in the past. So all in all, at this point in time, we think that the $300,000,000 target is achievable.

Speaker 1

Finally, together with our partner, we are in the progress of divesting our 30% stake in Monterrey. We consider that that is a good example of capital recycling opportunities. With that, I will now turn the call over to Francisco, who will guide us through our financial results.

Speaker 2

Thank you, Santiago, and good morning to everyone. Please turn to Slide number 4, where I will present our key financials for full year 2023. Revenue remained stable at 1099,900,000. Dollars Adjusted EBITDA was $794,900,000 within our 2023 guidance range and showing a 1 0.7% increase versus 2022, excluding the effect of foreign exchange in our scheduled unscheduled audit at Cachu. Regarding cash flow for distribution, we generated $235,700,000 in 2023, also once again meeting the yearly guidance.

Speaker 2

On the following slide number 5, you can see our performance by geography and business sector. In North America, revenue increased by 4.9% to $424,900,000 in 2023 compared to the same period over last year, mostly due to higher production in our solar assets in the U. S. With higher availability at Solana. The increase in adjusted EBITDA was lower 3%, mainly due to lower production from our wind assets where we had lower wind resource during the years.

Speaker 2

In South America, revenue increased by 13% compared with 2022 up to $188,100,000 and EBITDA increased 15.9 percent to $146,700,000 The increase was mainly due to assets which recently entered into operation and inflation indexation mechanisms in our contracts. In the EMEA region, revenue and adjusted EBITDA decreased by 8.2 percent to 328,900,000 and 8.8 percent to 26,600,000 respectively. The reduction was mostly due to an unscheduled outage at Catcho that we discussed in the previous quarter. As a reminder, we expect insurance policy to cover the impact of business interruption after a 60 day deductible. Let's now please turn to Slide number 6, where we will review our operational performance.

Speaker 2

Electricity produced by our renewable assets reached 5,000 4.58 gigawatt hours in 2023, an increase of 2.6% versus the same period of 2022, mainly due to the increase in production in our solar assets in United States and Spain, as well as the contribution of recently consolidated assets and those that have entered into operation recently. Looking at our availability based contracts, our efficient natural gas and heat segment and water segments continue to achieve very high availability levels during 2023. Let me now please turn the call back over to Santiago.

Speaker 1

Thank you, Francisco. If we take a look at Page 7, and as many of you know, Atlantica targets around $300,000,000 of investments every year. As of early March and as I mentioned before, we have already invested, committed or earmarked between a 60% and 70% more or less of that target. As of today, we expect to complement that with additional developments that might get into construction during the year and targeted acquisitions in certain areas. A majority of those $175,000,000 to $220,000,000 are expected to be invested in solar and storage projects that we have already contracted in the U.

Speaker 1

S, including Coso 1 and COSO 2 and a new project called Overnight. As a reminder, COSO Batteries 12 are 2 standalone battery projects in California with combined storage capacity of 180 megawatt hours, and both of them have signed PPAs with an investment grade utility and are currently under construction. We also expect, as you see there, to invest another €35,000,000 to €60,000,000 in solar and storage projects in other geographies, mostly South America and a bit in Europe.

Speaker 2

If we move

Speaker 1

on to Page 8, we highlight there 2 of the projects, the more most recent projects, highlighting there a little bit how the portfolio that is starting construction looks like. Overnight, as I mentioned before, is a new 150 Megawatt Solar PV project in California. Recently, we entered into a 15 year busbar PPA with an investment grade utility. Under that EPA, overnight, we'll be receiving a fixed price per megawatt hour with no basis risk, something that as you all know we like. We are now busy working on a second phase of the same project that will include storage, resulting in a solar plant with storage in California.

Speaker 1

But meanwhile, we have contracted the solar part of the plant, and we will be starting construction soon. Another example of new projects, ATS and ATN expansions, These projects are expanding some of the transmission lines we own in South America, and these new investments will be receiving capacity payments with inflation indexation and denominated in U. S. Dollars. In summary, a very low risk contract in what we consider is a very low risk asset class in geographies where we can find very good returns that, as you know, we like to combine with our investments in North America.

Speaker 1

Moving to the next page, you can see an update of our pipeline that includes 2.2 gigawatts of renewable energy and 6 gigawatt hours of storage projects. We continue to focus on North America as our key geography, and we continue to focus on solar and battery storage as our main sectors or technologies. With that, Francisco will now close the presentation with our 2024 guidance.

Speaker 2

Thank you, Santiago. On the next slide, we're initiating our 2024 guidance. This year, we expect adjusted EBITDA in the range of $800,000,000 to $850,000,000 and cash available for distribution in the range of 2 $20,000,000 to $270,000,000 We're initiating this guidance with a wider range for CAFD because of 4 major effects. The proceeds from the potential sale of our equity interest in the Monterrey asset that we expect to close in the first half of 2024. Then scheduled outage at Catcho, although we expect insurance to cover the business interruption after a customary 60 day deductible, the outage will affect distributions in 2024.

Speaker 2

Volatility and electricity market prices in Spain could also affect distributions in 2024. However, deviations against regulated prices during these periods are to be compensated starting in 2026 according to the regulation. And finally, uncertainty regarding the level of collections of SAT could bring volatility to the 2024 CAFD and this could have either a positive or a negative effect. We expect to be able to narrow the range in the upcoming quarters. With this, let me conclude today's presentation.

Speaker 2

Thank you all for joining us. And now operator, we're open for Q and

Operator

A. Thank Our first question today comes from Nelson Ng with RBC Capital Markets.

Speaker 3

I just had a few questions on Monterrey. Can you give some color on what the proportion of EBITDA contribution was in 2023?

Speaker 1

Hello, we can hear you. Good morning, first of all. So the EBITDA contribution, as you know, is not a public number. What we can tell you is that it's a very small part of the EBITDA.

Speaker 3

Okay, great. And then in terms of, I guess, the CAFD bridge that you've included, So it includes I think $30,000,000 from Monterrey. Can you describe how or how you came up with the 30,000,000 dollars relative to the $45,000,000 to $52,000,000 in proceeds? And I guess do you generally include sale proceeds in CAFD? And should we expect that going forward?

Speaker 1

Nelson, I propose that you follow-up on this detailed question with IR.

Speaker 3

Okay. Sounds good. And then one last question on Monterrey, which I can also maybe follow-up with IR later. But I think in the notes, you mentioned that you can't guarantee that the transaction will close. So are there any particularly like onerous condition precedents or anything?

Speaker 3

Like is there is the risk of closing particularly higher for this transaction or generally, you expect to close, but you just say No.

Speaker 1

No. I mean, we do expect to close. And in our disclosure, you will see that what we say that we expect to close during the first half of this year. There is nothing abnormal or that is not customary in the conditions to close. The only thing is, obviously, we don't control the timing.

Speaker 1

That's why we have been cautious in the wording, but we do expect to close.

Speaker 3

Okay. I just have one last question on the overnight solar and potential storage project. I think it could be a pretty large project for you, particularly if there's also a storage component. Would you be looking at, I guess, retaining 100% of that project? Or would you look to get a partner?

Speaker 3

I'm just thinking in terms of strategy, but also funding as well.

Speaker 1

Yes. So at this point in time, what we have contracted and we will be starting to purchase and build is the solar component. And at this point in time, our expectation is to retain 100% of the equity, as you know, in the U. S. And if you include tax equity financing and back leverage, the amount of equity as a percentage of the total investment, let's say, is fairly low.

Speaker 1

If and when the second phase happens and depending on financing, we will obviously be able to consider options like the one you're suggesting.

Speaker 3

Great. And what's the timing for that project? When does the PPA kick in? Or when does the project need to be completed?

Speaker 1

So the way we have signed the PPA is fairly flexible. So there's, let's say, a fairly long window in which we can start operations.

Speaker 3

Okay. So it could be a few years out. Okay. I will leave it there. Thank you very

Operator

The next question comes from Mark Jarvi with CIBC Capital Markets.

Speaker 4

Some decent progress towards equity commitments for the year and you're talking about M and A. How do you think about the funding backdrop right now if you do get to $300,000,000 of EPI deployment? And does access to capital at all constrain your willingness to push towards the $300,000,000 in the short term?

Speaker 2

Hi, Mark. This is Francis coming. That is a very good question. Well, we expect, as I said, the $175,000,000 to $220,000,000 These are our commitments throughout the year. So this is spread out throughout the year.

Speaker 2

So we expect to fund those through a combination of several levers that we have. We have the retained portion of the CAFD that we generate throughout the year. We also have cash position on hand that we could use towards that purpose. We could have additional drawdowns on our corporate facilities since we are in a position where we could increase our leverage within our target. And then we could also use, as Santiago mentioned to the previous question, non recourse debt at the project level.

Speaker 2

These are fully contracted assets. So we are looking at a combination of project financing and tax equity. And we have been in active discussions with potential lenders regarding these 3 projects. And then finally, we mentioned the Monterrey project. As I said, we have some opportunities with regards to capital recycling and we could put that in the mix also, Mark.

Speaker 2

Okay.

Speaker 4

And then again, if you cut it to $300,000,000 though, you think all those tools or those different options would get you there as it stands today? Because you can like there's no need for equity to get to $300,000,000 of equity deployment this year?

Speaker 2

At this particular stage, we have not contemplated equity, Mark.

Speaker 4

Yes. Okay. So the guidance midpoint sort of implies, I know the sale of Monterey is maybe a one time item, but even if you hit the lower end, you're sort of in that 11%, 12% CAFD yield relative to where the share price is today. Just wanted to check how you guys think about the new hurdle rates for growth? Are you able to get that on projects above where your stock yields versus maybe buying back some shares right now?

Speaker 4

Just trying to think about hurdle rates, your perception on your cost of capital and capital allocation right now?

Speaker 1

So both in projects we have developed and are building in M and A, our hurdle rates obviously are higher. At this point in time, we are able to deploy capital with those higher hurdle rates because of the fact that we are under a strategic review. Stock repurchase at this point in time is not an option we can consider. Obviously, in the future, it would be an option if the strategic review was not there.

Speaker 4

Okay. And then maybe one question for Francisco. Is there any option to resculpt some of the debt in Spain over the next year or 2 here just as you deal with the current parameters and the adjustments that come in 2026 to either enhance free cash flow in the short term or optimize the cash flow profile of those assets?

Speaker 2

We Santiago mentioned, I mean, we refinanced a couple of the projects. We continue to look actively, not only in Spain, Mark, but in the just of the geographies where that we have opportunities on those projects that have long tail. So the answer to the question is yes, we continue to evaluate actively some of the refinancing opportunities, not only in Spain, but in our whole portfolio.

Speaker 4

And those would not be in your guidance, those would be potentially beneficial or additive to the CAFD profile this year or next year?

Speaker 2

Mark, I mean, they're not in the guidance. I think they're more midterm opportunities. But as I said, this is something that we keep evaluating on a constant basis, but more midterm opportunities, Mark.

Operator

The next question comes from Angie Stornisky with Seaport. Please go ahead.

Speaker 5

Hi, good morning. So I was just wondering the you mentioned obviously M and A opportunities an ongoing strategic review. So is this strategic review basically a search for growth opportunity? I mean, it almost feels like we're in this perpetual strategic review with no updates, no time lines, anything on what the target here is?

Speaker 1

So on the study review, Andy, as you will understand, we cannot make any comments.

Speaker 5

Okay. And then on the Monterrey and the Casti, so is it fair to assume that this contribution is basically like a debt pay down with the use of proceeds as a basically that's what it is for 24 CAFD?

Speaker 2

Andy, I mean, it's included in the guidance. What I mentioned before is with regards to use of proceeds, we have the deployment of the capital that we want to that we have mentioned in the presentation. And presentation and part of the proceeds amount array will be used for to fund a portion of our development pipeline.

Speaker 5

Okay. And lastly, are you guys seeing any deterioration in the EBITDA or more importantly, CAFD of existing assets like as they age? And I just we obviously see it from existing wind power assets in the U. S. And I'm just wondering if you're experiencing the same phenomenon across other assets and other jurisdictions.

Speaker 1

So overall, my answer would be no. Obviously, each asset is different and you do need to work on your assets. You do need to spend some money to make sure that they are going to be to continue generating what they need to generate. But overall, my answer would be no.

Operator

The next question comes from William Grippin with UBS. Please go ahead.

Speaker 6

Good morning. Thanks very much for the time. My first question, just clarifying here on the EBITDA guide. Does that include the gain on sale piece of the Monterey sale that you're contemplating? Looks like the CAFD guide includes the $30,000,000 I assume that's the return on capital portion.

Speaker 6

Just wondering where the gain shows up if anywhere in the guidance?

Speaker 2

It's been the CAFD, as we mentioned before. And is there is a one time gain small on the sale of the Monterrey asset, William, but it's not material.

Speaker 6

Is that reflected in so how do we bridge the gap then between the $30,000,000 you're showing for the CAFD walk versus the $45,000,000 to 52,000,000 proceeds that you're anticipating? I mean is that 15 plus 1,000,000 begin to show up? Is that what's adding to the EBITDA guidance or is it something less than that?

Speaker 2

William, let's do something. Let's walk through that to fine tune the number that said the transaction hasn't closed. So let us circle back to you with that question.

Speaker 6

All right, fair enough. And just wanted to coming back to some of your comments on M and A. What types of assets are you seeing most attractive opportunities for you here potentially? And where are they in their life cycle? Are these maybe assets that are a bit more seasoned or things that have more recently been developed in commission?

Speaker 1

So in terms of potential acquisitions, we spend time looking at assets in operation, mature with a lower risk profile. Obviously, the challenge is to find such opportunities at the right return. So typically, when we do acquisitions, it will be assets where we have some sort of competitive advantage, either because it's close to assets we own already or because there's some synergies somewhere that allows us to make an additional return. And those would be the opportunities we will be closing. Additionally, we spend a bit of time sometimes looking at assets in earlier stages where we can still add value, improve them.

Speaker 1

But historically, most of our investments have been assets in operation, generating the cash, low risk, where we can add some value and get a higher return than anybody else. That's what we need to go to do in order to make sure that those investments are accretive, obviously.

Operator

Our next question comes from Rupert Merer with National Bank of Canada. Rupert, please go ahead.

Speaker 7

Hi, good morning. Just to follow-up on that last question on M and A. So fair to assume you wouldn't look at M and A in any new jurisdictions at this point, but just focus on where you have an existing footprint?

Speaker 1

[SPEAKER DANIEL MARTINEZ VALLE:] No, I wouldn't say that, but there would need to be clear synergy value creation or a situation where we can achieve the return we need.

Speaker 7

Okay, very good. And then secondly, wondering if you can give us an update on supply chain. It seems over the last few quarters, we've stopped worrying about supply chain. But just wondering can you give us an update on where you see the supply chain heading, where it matters for you in solar panels and batteries? What kind of trends you're seeing on prices and availability delivery times of equipment?

Speaker 1

So what we see at this point in time overall is that the supply chain, at least for us, it's not an issue. If we look at PV panels globally, there's an oversupply. Prices have been coming down during 2023 significantly. More recently, we are starting to see that in the U. S.

Speaker 1

As well in recent months, let's say, a bit less than in other markets. But overall, PV dynamics, I think, are good for somebody purchasing like us. In the case of batteries, battery prices have been coming down as well significantly during 2023 globally everywhere. So again, good dynamics for us. The only area where, as a developer, you need to be careful and plan properly is when you're purchasing some specific electric equipment, transformers, some breakers, some very specific products where today supply chains are longer, and you just need to plan your purchasing ahead.

Speaker 1

But overall, for us, this is not and has not been in the last few quarters a problem.

Operator

We have no further questions. So I'll turn the call back to the management team for any closing comments.

Speaker 2

No, operator. We will conclude the call by now. Thank you very much to everybody for attending.

Operator

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.

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