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Atlantica Yield’s (ABY) CEO Santiago Seage on Q1 2016 Results – Earnings Call Transcript

Atlantica Yield (NASDAQ: ABY ) Q1 2016 Results Earnings Conference Call May 13, 2016, 08:30 AM ET Executives Leire Perez – IR Santiago Seage – CEO Francisco Martinez-Davis – CFO Analysts Stephen Byrd – Morgan Stanley Sean McLoughlin – HSBC Brian Taddeo – Robert W. Baird Operator Ladies and gentlemen, welcome to the Atlantica Yield’s First Quarter 2016 Earnings Presentation Conference Call. Atlantica Yield is a total return company that owns a diversified portfolio of contracted assets in the energy and environment sectors in North and South America and certain markets in EMEA. Atlantica Yield focuses on providing a predictable and growing quarterly dividend to its shareholders. Just a reminder that this call is being webcasted live on the Internet and the replay of this call will be available at the Atlantica Yield Corporate Website, www.atlanticayield com. Joining us for today’s conference call is Santiago Seage, Chief Executive Officer; Francisco Martinez-Davis, Chief Financial Officer and Leire Perez, Director of Investor Relations. 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. Santiago Seage. Please go ahead, sir. Santiago Seage Thank you. Good morning. Thank you, everybody for joining us today in Atlantica Yield’s first quarter 2016 conference call. Please proceed to Slide 3, where we will start the presentation with the key messages. In first place we’re very pleased to announce that we’ve closed our first quarter of the year with excellent operating results in terms of revenue, further adjusted EBITDA and cash generation at the project companies. Our assets in general have shown a very good performance, in line with expectations. In fact, the assets have generated more than $18 million of cash in the quarter. In second place, we’ve generated CAFD, our cash available for distribution in line with expectations taking into account the [visual] of the first quarter and it’s seasonality. With this, we’re on track to meet our guidance for 2016 in all the metrics shared at the beginning of the year. In addition, we have made good progress when working towards achieving full autonomy from our sponsor and managing our sponsor-related risks. Regarding waivers that we require in our project finance agreements, we continue our negotiations with lenders in order to obtain those waivers on the cross default provisions and we have additionally secured four more waivers regarding our sponsor ownership in Atlantica. We still have clearly significant work to be done, but we’ve made very important progress on these very important fronts of increasing autonomy and securing the waivers required in our project finance agreements. And finally we would like to spend some time at the end of the presentation regarding our view of the evaluation versus the price of our equity to date. We consider that the intrinsic value of our current portfolio even without including any growth is not reflected in the current share price. In fact we do plan to grow, as we explained in our last quarterly presentation, we do plan to grow towards the end of the year and in 2017 and we believe that that is not reflected either in the current price. With that, if we turn to Page 6 in the presentation, we’re going to now review the main results for the quarter. As you can see, in the first quarter we’ve achieved what we consider our excellent results first, on revenues where we have recorded $206 million in revenues representing a 74% increase period-over-period. Further adjusted EBITDA has reached $155 million compared with $105 million in the same quarter of 2015. The decrease that you see that in EBITDA margin has been mainly due to fact that our mix of assets is different now and to the fact that we have not received in the first quarter of 2016 our dividend from the preferred equity investment in Brazil. Additionally, we have generated $18.7 million of cash available for distribution in the quarter, including a one-time impact of $14.9 million coming from the partial refinancing of a project ATN 2 specifically. As we will see later CAFD in first quarter of the year is typically lower than in the rest of the quarters due to seasonality in cash distributions. In fact our CAFD in the month of April has already been similar to the complete Q1. On Slide 7, you can see our revenues and further adjusted EBITDA breakdown by geography and business sector, showing good results across all segments and all geographies. In our EMEA region, the very high growth is driven by the integration of recent acquisitions as well as operational excellence in many of these mature assets. In North America, the increasing revenue was mainly driven by higher production in our two solar plants in the U.S, Solana and Mojave. In South America, growth was mainly explained by the acquisition of our last transmission line in Peru, ATN2. Looking at further adjusted EBITDA margins, you can see the impact of not receiving the dividend in Brazil that I mentioned before and looking at the results by business sector, we can see that in renewable energy, revenues have more than doubled, thanks to the acquisitions made during last year, while in conventional power, our asset in Mexico as ACT continues delivering excellent results above expectations. In transmission lines, higher revenues are driven primarily by the acquisition of the line I mentioned before in Peru, during 2015. And finally Water assets have delivered again very good results. Moving on Slide Number 8, the good financial results are based on the solid overall operating performance of our portfolio. Within renewable, collection reached 514 Gigawatt hours in this quarter, compared to 319 Gigawatt hours in the same quarter last year. Our Solar assets achieved operating results in line or above expectations during the quarter. In Solana, we are currently implementing the previously announced enhancements needed at the plant. We still have significant work in front of us to improve and optimize these assets. Mojave, has delivered very good results in the quarter after scheduled stop for maintenance in the month of January. In fact, in February and March in many days Mojave has been able to beat the technical model, respected technical capacity. Kaxu, our asset in South Africa has completed its first year of operations, exceeding expectations for the quarter, thanks partially to very high levels of summer solar aviation. Finally in Spain, our portfolio of solar assets has continued to demonstrate very strong performance and maturity. Wind assets have shown very good operating results although wind has been lower than expected in the first quarter due El Niño phenomenon. In April, on the contrary we have had a very good month in terms of wind resource and the assets have been producing above expectations. Our conventional power generating facility in Mexico as I mentioned before, exceeded its contractual targets and in spite of the fact that they have scheduled maintenance stop during the quarter. Finally our recognition lines and water plants have either comfortably achieved or exceeded forecasted availability levels. I will now turn the call to Francisco who have been called today and is going to try to go through the financial metrics. Francisco Martinez-Davis Thank you very much, Santiago. On Slide 9, we have included updated guidance on our EBITDA and CAFD seasonality. Regarding EBITDA, seasonality in solar assets in the U.S. and Spain is balanced by our availability based contracts in conventional, transmission line and water segments, which provide stability to the portfolio and also by wind assets and the South African solar plant, both delivering higher EBITDA in quarter one and quarter four, both the solar assets that peaked in quarter two and in quarter three. In our cash flow and our cash available for distribution however, seasonality is higher. As you know with the fine cash available for distribution, as cash distributed from project companies to Atlantica Yield holding level, less corporate G&A and corporate interests. In most of our projects, cash distribution from project companies occur as specific times of the year defined in general by the terms of our project financing agreements. As a result CAFD is typically lower in the first quarter and higher in the third quarter of the year. On Slide 10 as you can see, we have achieved operating cash flow of nearly $85 million during the first quarter of that year, a significant increase with respect to the first quarter of last year increase. The increase is driven by good cash generation of assets acquired during 2015. Investing cash flow corresponds mainly to the scheduled closing of the transaction of our 13% stake in Solar Corp One and Two that we announced in 2015 and movements in our restricted cash accounts classified in financial investments. Financing cash flow includes $14.9 million of proceeds from the partial refinancing of ATN2 and scheduled principal debt repayments. Moving on to the next Slide page 11, our total liquidity has increased by approximately $76 million to $667 million, thanks to a strong cash generation by our project companies. Our total liquidity includes $45.4 million of corporate cash at Atlantica Yield, $529.4 million of cash at project companies of which $210 million are restricted and a further $93 million are also restricted in the form of short term financial investments. As you know, we’ve currently negotiated with some of our lenders several waivers and as we explained on our 2015 result presentation, we expect that the final outcome will require us to maintain some additional cash at the project level. Taking a conservative approach, we have classified as restricted cash our best estimate at this time, which explains the increase in restricted cash. Despite this reclassification our unrestricted cash at the project companies have a healthy increase of $41 million. Turning to Slide 12, we have included a reconciliation of our corporate cash from December 31, 2015, till the end of March. As you can see our corporate cash position has remained constant. In the first place, our project companies generated $87.5 during the quarter after servicing their debt obligations. From that amount we used $34.4 million to increase our restricted cash accounts as we have explained earlier. In additional — in addition, our available cash at the project companies increased by $41.1 million as you know we define cash available for distribution as cash that is distributed from project companies to Atlantica Yield holding company level. Given that these distributions are lower in the first quarter due to seasonality, there is an increase in cash that as of March 31 is sitting at project companies. Furthermore we paid $8.5 million in G&A and corporate interest and we have obtained $14.9 million from the partial refinancing of ATN2 as we previously explained. Finally we used $19.1 million to close acquisition of our 13% stake in Solar Corp 1 and 2 from JGC our Japanese Partner in the project. As a reminder Solar Corp 1 and 2 is a 100 megawatt solar assets in Spain where we already own 74% and this acquisition was part of our fourth round of acquisitions announced in 2015. The following slide on Slide 13 you can see the details of our net deposition, which consists of net corporate debt of $625 million and net project debt of $5.1 billion. Net debt increased from December 31, 2015, mainly due to the $113 million of translation differences in our Europe denominated project debt. With these levels of corporate leverage and considering our expected CAFD before corporate interest for 2016, our corporate leverage continues to be below three times CAFD. As you know our strategy is to use non-recourse project financing in all assets. We intend to limit corporate debt. Thank you very much for your attention and now I’ll pass it back to Santiago. Santiago Seage Thank you, Francisco. So in summary, regarding results for the quarter, a very strong quarter in terms of revenues EBITDA but also cash generation at the project level where part of that is in CAFD this quarter and the rest we will seen as CAFD in the remaining quarters when we distribute that cash from the project companies to the holding level. We are now going to continue with the second quarter representation on Page 15, where we want to update you regarding our progress to mitigate risks from our sponsor and to achieve autonomy in all dimensions. As we announced in our last earnings call in the first half of 2016, our focus remains on execution, executing on these, obviously on operational performance, but also executing regarding autonomy from the sponsor and risk mitigation. In terms of risks, the one we have been talking about now for a couple of quarters are the waivers that we require in some of our project finance agreements. As you know there are two types of waivers, the first one repairs to cross default closes with our sponsor. At this point in time, we have four assets where these provisions still apply, Solana, Mojave, Kaxu and Cadonal, our negotiations are ongoing and we are optimistic regarding the resolution of these waivers or a clear majority of these waivers. Regarding the second type of waivers, those that are related to a sponsor ownership minimum levels in some of our projects, we have made significant progress and we have obtained another four waivers for our projects. Therefore in total, we now have waivers for 10 of the projects, regarding a sponsor ownership and we are working towards achieving the remaining 10 waivers. Overall, progress has been good and we are relevant, but we still need some time to reach our objectives in terms of waivers. In second place, regarding our preferred equity investment in Brazil, in April Abengoa has presented a consolidated restructuring plan in front of the Court in Brazil on behalf of the company where we own a preferred equity investment and on behalf of two other of their subsidiaries. We therefore continue working on defending our interests and as you know we additionally have a right to retain dividends to Abengoa and their certain scenarios. In terms of our process of gaining autonomy from our sponsor, our back office operation is in a very advanced stage. Additionally regarding IT separation, we have created an experienced team in house that is working together with external consultants and we expect to finish this separation process before the end of the year. Finally our Annual Shareholders Meetings approved last Wednesday the change our legal name to Atlantica Yield PLC as expected. On Slide 16, regarding dividend, in February 2016 so we informed you, our Board of Directors decided to postpone the decision regarding the fourth quarter 2015 dividend. Considering the uncertainties caused by Abengoa’s situation, the Board has now decided not to declare it. Regarding the dividend corresponding to the first quarter of 2016, the Board of Directors have decided to postpone the decision on that dividend until we have obtained a sufficient number of waivers, a majority of — a clear majority of those waivers. We know that this is a very sensitive topic and we know that many of our shareholders have a strong point of view regarding dividend. However, at this point time the Board of Directors considers that this is the best option to protect the value of the company and to position the company for successful 2016. We currently — in fact we currently expect that in our next quarterly results presentation, we will have achieved enough waivers. Additionally, we currently expect to meet our guidance regarding dividends and to be clear, four quarterly dividends corresponding to their respective quarters in 2016. Going to Slide 17, we want to finish today’s presentation with a few comments regarding the evaluation or the value in the market of our stock. In our opinion, as I mentioned at the beginning, the stock price does not reflect the intrinsic value of the existing assets in our portfolio even if we do not include any growth whatsoever. In fact we believe that if you perform let’s say a bottom-up DCA evaluation of our portfolio, you should arrive to a significantly higher number than our market price. Additionally, as Management we believe that we will be able to grow accretively towards the end of the year and in 2017 and going forward. We do have and we are working on a number of significant opportunities for equity growth and we plan to push you some of them starting with the smaller ones toward the end of the year. On Slide 18, we want to show you some data that you’re obviously familiar with, but we want to point out that currently our shares are trading well below our accounting equity book value. In fact if you look at our financial statements, our total equity book value is close to $2 billion. If we deduct non-controlling interests, which does not belong to us and you add the cash grants collected in the past, this as you know is our cash collected that we don’t have to reimburse, we get to an equity book value per share, which is close to $27. Obviously we felt including any growth as I started with the equity book value. This demonstrates that our shares or we believe that this demonstrates that our shares are currently trading significantly below this accounting book value. In fact, today, our market capitalization is around 60% of the equity book value, including cash grants. On Slide 19, we have presented another way to look at the same situation. If you look at our run rate CAFD, that we expect from the existing portfolio, you remember that these numbers, these were shared in the last quarterly presentation, the number we shared was between $205 million and $215 million. If you compare that with our current market cap, you will see that our CAFD yield is around that 13% without considering any improvement in existing assets beyond run rate without considering any refinancing without considering any growth ever again. Now if you remember that many of our long-term PPAs have inflation based price increase provisions or if you can see there that the assets can be optimized going forward, or if you consider that at some point in time, we should be able to grow quickly again, either from third parties, from our current sponsorer or from other sponsorers, we believe that the CAFD yield of 13% shows that there is a gap here between value and price. We obviously understand that in order for you to see — for you investors to see these valuation gaps, we need to help those of you who run the models. In fact, we have been working on recommendation from many of you and in the appendix of this presentation, you will find some additional disclosures regarding the number of areas that we believe will help you in your evaluations. One of the important point for us is the cost of equity that you use when you do your discounted cash flow evaluations. We believe that in our case, company that owns assets contracted in the long term that are in operation, the right way to calculate the cost of equity is by taking the cost of debt of our offtakers, remember that in most cases, our offtakers have bonds trading in the market and our finance team has spend some time putting together averages of the yields of those bonds few days ago and providing you in the appendix averages for each of our offtakers. We believe that, that cost of debt plus has more risk premium operating risk premium, however you want to call it is the right way to come up with a cost of equity for our portfolio that makes sense. Like always teams available for questions regarding these or the additional disclosures of any topics. In fact, next week we plan to spend time in New York and Boston meeting investors and we will be happy to guide you through these questions. With this, I would conclude the presentation of our first quarter 2016 results and leave the call open for questions. Thanks a lot for your attention. Operator, we’re ready for Q&A. Question-and-Answer Session Operator [Operator Instructions] First question comes from Stephen Byrd from Morgan Stanley. Please go ahead sir. Stephen Byrd Hi, thanks for taking my questions. I wanted to start with what you mentioned about dividend payments, it’s encouraging that you believe by next quarter you’ll have enough waivers to pay dividend and you made a statement that the intention is to pay four quarterly dividends in 2016. I was just a little confused, does that effectively mean that you would target catch-up payments for the quarters that weren’t paid such that you did have four payments or did it mean something else, I just wasn’t sure? Santiago Seage Okay. What I said is that our current intention obviously subject to all the things I mentioned before is to be four dividends corresponding to each of the quarters in 2016. Obviously, the last one would be a dividend declared for the fourth quarter, which is payable in the following year. Stephen Byrd Understood, but if you’re not paying a dividend in the first quarter, would you then have a one additional payment in the calendar year ’16 or how would that given that you’re going to be off by one payment, how would that play out? Santiago Seage Let me try to explain myself again. Our intention if things work as I explained before would be to declare a dividend for the first dividend for the first quarter later then usually, but it would still be a dividend let’s say from a business point of you corresponding to the first quarter. Stephen Byrd Perfect, that’s very clear, that’s great. Wanted to shift over to Solana, could you just give us a little more detail on the status of operations towards time to have that asset performing as you want? What sort of risk around being able to have that asset being fully at the level you expect do you see? Santiago Seage At this point time as I mentioned in the call, we are implementing a number of enhancements of improvements that we have been discussing for the last few months. Our expectation at this point in time is that this is going to take a few months this year. We’re not going to — we don’t expect to see Solana this year, reaching run rate and we expect that with improvements we are making now, next year we should be at or very close to run rate. That’s our current expectation. Obviously with the caveats that we’re still implementing those changes. Stephen Byrd Understood, and thus your guidance reflect Solana not being at full operations in 2016? Santiago Seage I didn’t understand you sorry? Stephen Byrd In terms of your expectations for cash flow for 2016 how are you to factor in… Santiago Seage Yes, it was factoring. So, I’m talking versus our rate. I’m not talking versus our expectations or our guidance. Stephen Byrd Understood, understood. Just one last one and I’ll go back into the queue, you had given a restricted cash estimate, which was helpful for us to understand the amount of cash that you would expect to be restricted from negotiation. Does that include an estimate for all projects in terms of what you expect I guess it’s $210 million. Is that sort of your best estimate of total restricted cash following all negotiations or is that just for some of those negotiations? Santiago Seage We, as Francisco explained, we have included an estimation which is our current best estimation for all the assets where we believe we might end up having to restrain some cash. Stephen Byrd That’s great. Thanks very much. I’ll get back in the queue. Operator Next question comes from Sean McLoughlin from HSBC. Please go ahead sir. Sean McLoughlin Thank you. Two questions for me. In highlighting the difference between what you perceive is your value in how the markets sees, have you considered a possible sale of assets to try to crystallize in the market to the value that you hold in your portfolio? And secondly, I wanted just an update on the ONM side at what stage are you in let’s say fully detaching Abengoa from the disposed and when you expect that to be completed and any let’s say short term operational concerns that that we should be aware of related to this? Thanks. Santiago Seage Thank you. Regarding the facility of selling an asset or assets in order to demonstrate the value in the portfolio, this is clearly an option that as a Board we need to consider. At this point in time we’re not engaged in proactive process to do this. The way we think about this is as we shared with the market the first half of the year is about focusing on execution, managing the risks and the autonomy. We expect that with that, the price should start to reflect that. Now if at some point time in the future, in a few quarter from now, we have not seen improvement regarding the price, we’ll need to consider all options to demonstrate the value in our portfolio and what you mention selling an asset is clearly one of the options but it’s an option we would consider as Management as an Board of Directors. For some time we can leave with this location, but we cannot leave with this location forever as you can imagine and therefore we will take whatever action is required to demonstrate the value of the portfolio. Regarding your second question, you were asking about operation and maintenance contracts where Abengoa is providing that service. As of today Abengoa is performing in those contacts and therefore we do not plan and we cannot cancel existing contracts for operation and maintenance. What we have built as you know are back-up plans in case that at some point in time in any of the assets where they are the operator, they would not perform and those plants are in place, but as of today, Abengoa is performing in this activity vis-à-vis our assets and in fact the numbers regarding the quarter or regarding April show that at this point in time we don’t have issues on that front. Back office is separate — is different. In back office functions, we are totaling splitting things. In ONM for the moment we’re keeping the contracts we have. Sean McLoughlin Okay. Thank you. Operator Next question comes from Stephen Byrd from Morgan Stanley. Please go ahead sir. Stephen Byrd Yes. I just wanted to touch on the guidance that you had laid out on the last call, where you did indicated 2016 given $1.45 to $1.80 a share are you still in line with that guidance? Santiago Seage As I mentioned, during the call, we’re keeping the guidance we gave last quarter, which are the numbers you mentioned. Stephen Byrd Okay. That’s great. Just going to my list again, the ownership waivers you mentioned, I think you have — you’ve collected 10 waivers and I just wondered if in those waivers that you’ve already collected for the ownership, are some of the major projects in that group of waivers? Santiago Seage So, we do have 10 out of 20 and some of the larger assets are not in that list. So, some of the larger assets are — we’re still working on them. Stephen Byrd Okay. That’s great. I guess just going back to the prior questions on ONM costs, as you look at overall, I just wanted to make sure I understood at a high level, the cost that you see, do you see any unforeseen issues in terms of the ONM cost structure that’s all have as a separate company? Santiago Seage At point in time, we do not expect any significant change in any scenario from our cost point of view. We don’t expect higher cost. We don’t expect a lower cost. Stephen Byrd Okay. That’s great and then just last one for me, in terms of the cash from the refinancing, I just want to make sure I heard that correct, was that $14.9 million that you received from the refinancing? Santiago Seage That’s correct. Stephen Byrd Okay. That’s great. That’s all I have. Thank you. Operator Next question comes from Brian Taddeo from Baird. Please go ahead sir. Brian Taddeo Good morning. Couple for me. One more as a percentage to kind of the separation. I think on last call, you talked about migrating some of the FX contracts from Abengoa to third parties. Can you just give us an update as to where that stands? Francisco Martinez-Davis Hello, it’s Francisco Martinez-Davis. We currently have five-year hedge agreement with Abengoa. They’re still in place. That is an agreement under the financial support agreement that will continue. Once Abengoa is restructured and what we have done and we mentioned in the call if we’ve evaluated different alternatives in case Abengoa was not there to provide the service, we’ve had received other operators that we will coverage on CAFD coming out in years. So we do have a backup plan if needed. Brian Taddeo So you’re certainly not looking to move them over unless Abengoa does not perform is the situation as I understand it. Francisco Martinez-Davis That is correct. Brian Taddeo Okay. Another question with regard to the ongoing — receiving the ongoing waivers, it’s good to hear you expect to have a lot of them by next quarter, what is the time horizon, when does it become an issue if you don’t have them done by the end of the second quarter, does that become an issue or what sort of leeway do you used to have in terms of timing to get those done? Santiago Seage So what we’re asking for here are something I would define without being a lawyer, sorry for that, as if we end this waiver. So the event did not happen, but we’re asking for a waiver regarding a potential change in ownership. As you know, Abengoa today owns 41% of the company, therefore there is no event of nothing, but we’re preemptively approaching all lenders saying can you give me a waiver today for an event that might happen in the future. Therefore if Abengoa continued having their 41%, we could go on like this for a long time, but obviously Abengoa sold or lost part of their shares there would be a reason for asking for that waiver. Brian Taddeo How about on the four remaining financial waivers as well? Santiago Seage It’s the same thing. So we have approached as well asking can you give me a waiver because there is a cross default there. We have potential default by this mantra. Brian Taddeo Okay. And then another one with regard to the your CAFD guidance for the year, can you just remind us how much of that is tied to the operational cash flow versus how much of that is tied to refinancing of project that cash coming back? Santiago Seage So in principle, the guidance we gave you obviously is for operational CAFD, We, at this point in time we are on plan to do any other refinancing but the one you saw in the Q1. Brian Taddeo So was that $14 million, is that in the annual CAFD number? Santiago Seage $14.9 million, yes. Brian Taddeo Okay. So that’s part of the original guidance. Santiago Seage Well obviously when we did the guidance, we didn’t count on this. Therefore, later in the year, we will need to see if we can increase the guidance, thanks to this one-off or not, but we didn’t count on our refinancing when we calculated our guidance. We normally do guidance based on ongoing CAFD without one-offs. Brian Taddeo Okay. So the way I should understand that is really operational at this point is about $14 million lower and then we’ll assess as the year goes on. Santiago Seage Well the way I would look at it is, we might be able to increase our CAFD guidance later in the year because we did have a one-off or we’re in $14.9 million more conservative than what some investors would like us to be. Brian Taddeo Got you. Okay. And then one last one for me, as you talk about the growth potential at the end of year under $17 million, is that — would you expect that being done via M&A or organic growth and then how would think about funding any of those possibilities? Santiago Seage So the pipeline we’re looking at now especially for the end of the year is made up of a small acquisitions in much less competitive environment than larger acquisitions and therefore regarding financing, we could be considering either some cash at hand or a small transaction somewhere. We’re not thinking about doing any large transaction. We want to go back to growth by making sure that we show to investors that we know how to do growth equitably and we believe at least in the short term it’s going to be much easier to do equity growth, do small transactions where some of our big competitors are not spending their time, Brian Taddeo Okay. Thank you very much for all the information. Operator There are no further questions. Thank you. Santiago Seage Okay. Then thanks to everybody and as I mentioned before, we’ll be in New York and Boston couple of days next week. If you want to meet us, let us know. Thank you very much operator. Operator Ladies and gentlemen, this now concludes our conference call. You may now disconnect your lines. Thank you. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. 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Alterra Power’s (MGMXF) CEO John Carson on Q1 2016 Results – Earnings Call Transcript

Alterra Power Corp. ( OTCPK:MGMXF ) Q1 2016 Earnings Conference Call May 11, 2016 11:30 AM ET Executives Ross Beaty – Executive Chairman John Carson – CEO Lynda Freeman – CFO Jay Sutton – VP, Hydro Power Paul Rapp – VP, Wind and Geothermal Power Analysts Jonathan Lo – Raymond James Rupert Mayer – National Bank Operator Good morning, ladies and gentlemen and welcome to the Alterra Power First Quarter Results Conference Call. At this time all lines are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday May 11, 2016. I would like to turn the conference over to your host Ross Beaty. Please go ahead. Ross Beaty Thank you very much operator and good morning ladies and gentlemen. Welcome to Alterra’s Q1 financial and technical operating results conference call. I would first like to draw your attention to the forward-looking statements in our disclosure materials and note that we have cautionary language there regarding forward-looking statements and we seek Safe Harbor for these. So joining me today around the table are our senior management team. We had our annual meeting yesterday. We had a nice crowd, lots of questions and it was really a pleasure to talk about where we are right now. We had a very good year in 2015 and continue that in 2016 and you’ll see in the financial results here. But there is a lot behind those results a lot of hard work and a lot of great team work here. I’m going to turn the call over right now to John Carson our CEO, who will describe these results in more detail. John? John Carson Thanks, Ross. We had a good quarter this year. Our generation was on target again and again very strong generation at our Toba Montrose asset and look forward to telling you all about these items I now going to start by turning it over to our CFO, who will summarize the financial results. Lynda? Lynda Freeman Thanks John, and good morning, everyone. With only a months ago that we had our year-end results call where we updated the group on the latest development of Alterra. So I’ll keep this first quarter update relatively brief. This is the first quarter that we’ve had all six operating assets in use for the whole period. With Shannon coming online on December 10th, we are now reporting the generation and operating results of this facility for a full quarter. Other than the introduction of Shannon this was a routine quarter. I’ll start my presentation with the discussion on the consolidated results of the company. On slide four for those of you following the presentation. As released yesterday, our consolidated revenue, which reflects 100% of the results HS Orka was $14.9 million in the quarter, a reduction of $1.5 million against the first quarter of 2015. This reduction is due to lower generation and lower aluminum prices with 22% of HS Orka’s revenue linked to the price of aluminum. Generation at HS Orka was marginally up from budget with budget reflecting reduction in generation in 2016 until the reinjection program that is currently underway at Reykjanes [ph] takes effect. The impact of the two new wells in Svartsengi is also projected to take effect later in 2015. So we’re expecting the generation numbers to increase during the year. The reduction in generation directly impacted gross profit because cost of sales remained flat quarter-on-quarter. The company reported a loss before tax for the period of just under $1 million against $17.6 million loss in the same period of 2015. Our consolidated results continue to be affected by large drilling caused by non-cash items such as the embedded derivatives, foreign exchange and the fair value of bonus payable this quarter was no exception. Moving on to slide five and our net interest results for the quarter, generation, revenue and EBITDA are down for HS Orka, Toba and Dokie. Speaking about to Toba, I’d like to remind everyone that back in 2015 Toba had a record first quarter as a result of a particularly mild winter. This resulted in generation of 248% of budget which had a direct impact on revenue and EBITDA. Talking 2016 now, although Toba was down on the prior quarter, I would like to highlight that the generation revenue numbers were again up on budget. As mentioned above, this is the first full quarter results for Shannon. The asset is performing well and generation was in accordance with budget. Revenue of $1.3 million was recorded in the period which is below expectations due to merchant spot prices realized. Shannon will commence selling the majority of its power in the 13 year power hedge on June 1st of this year. Turning your attention to the balance sheet on slide seven, foreign exchange is the largest contributing factors to an increase in assets and liabilities with both the Canadian dollar and the Icelandic kroner strengthening against the U.S. dollar since December. The other thing to highlight is consistent with December 31st the company remains in a negative working capital position, primarily due to the inclusion of the Sweden bond of $123 million which mature in July and December of this year. Refinancing assets for the ISK denominated bonds have been delayed due to unrelated financial complications of the bond holder. The Municipality which holds the bond is seeking resolution with a large group of creditors if it is the unsuccessful it will be placed under state control. Discussions are ongoing to refinance both the ISK and the U.S. dollar bonds. Further disclosure in relation to the bond is included within both our financial statements, our MD&A and is shown on slide eight. Excluding HS Orka and the impact of the bonds, working capital was $4.2 million at March 31st, and the company continues to have a $20 million Canadian dollar revolving line of credit at its disposal, which could be used to fund unbudgeted development spend if necessary. Finally the last slide I’m going to talk to you is net debt. Other than the Swedish bonds, the company had Holdco debt of $67 million and net project debt of $278 million at March 31. The company continues to paydown the debt to each of the operating project location, is up to-date on all interest payments, and is in compliance with all debt covenants. Further information on the paydown of the debt is contained within the Appendix 1 to the presentation. That concludes my presentation. I’ll now hand you back to John. John Carson Thanks, Lynda. And I’d just like to reiterate that though we mentioned EBITDA and revenue decreasing for what we’re terming decrease generation is actually a good new story last year was just an exceptional quarter for generation. We were right on target this year. So that’s really the right way to look at it. With that we’re going to do our review of our assets. And I’m going to turn it over to the leaders of our operations. That’s Paul Rapp for Wind and Geothermal and Jay Sutton for Hydro. Jay, let’s start with you. Jay Sutton Thanks, John. Turning to slide 10, TMGP had a successful first quarter 2016 producing 25 gigawatt hours of energy versus our forecast of 24 gigawatt hours. Our April generation of 61 gigawatt hours was 238% of forecast resulting in us currently being at 167% of year-to-date. So although our first quarter of 2016 was behind the record production in the first quarter of 2015 we made up for it in April and have had the best January to April performance since we started operation in 2010. We spent the last three months performing our annual maintenance in preparation for the high inflows that started in April and our plants are running very well. I spoke to the operations crew this morning and the plants are currently generating 115 megawatts and we are at 150% of our forecast month-to-date for May. On the slide you can see one of our operators in grinding one of our runners, performing some maintenance on it that occurred in March of this year. We are continuing to make improvements to reduce outage time, increase the plant efficiency and squeeze out as much generation and revenue from the plants as we can. Snowpack is near the long-term average for this time of year so we’re looking forward to continue the good generation throughout the spring and summer. Finally our crews continue to operate the plants and maintain them safely and within our environmental commitments and we are well over two years without a recordable incident for our employees or our contractors. That’s it for Toba, John. Back over to you. John Carson Thanks, Jay. Appreciate that and I just like to bring one thing to mind for those who are listening in today is that you get a quarterly update as to how these assets are doing. I happen to get a daily update and it’s a real joy to see those updates come through to see just how hard our team works at keeping this asset in excellent condition, it just seems to do better and better each year. 2014 record breaking, 2015 record breaking and now 2016 on track again. So my complements Jay to you and the team and really our whole ops team. Let’s continue with the asset review Paul. Paul Rapp Thanks, John. We’ll start with Shannon, so Shannon we had a great — it’s our first quarter operations and it really worked well, the facility is operating very, very well, we’ve maintained very high wind turbine availability and we’ve had very few of the normal PDing [ph] issues that you would expect to see at a new plant like Shannon. Generation for Q1 was 99% of plant and we did see low wind in April, but we’re seeing very strong generation in May last couple of days have been exceptional. GE is maintaining our balance of plant and the wind turbines and doing a great job in that role. As Lynda mentioned we need to sell our power into the merchant market until the start of our hedge, which is in just a few weeks and we’re looking forward to it. Let’s move on to the next slide so Dokie, Dokie continues to operate very well we have no equipment issues at Dokie. The plant really is running at a very smooth zone right now, we have very few issues, the vested crews are very attuned to the operation, they are doing a very good job of maintaining the turbine and our turbine availability for the quarter has been at 99%, which is exceptional. Production for the first quarter and year-to-date is slightly behind plan and that is strictly due to lower than planned wind. At Dokie we also continue to operate very well with no safety or environmental issues and as I said no significant equipment issues. You may have heard about a number of forest fires in the Fort St. John region. They have been in the order of 80 forest fires burning in the region, but just wanted to note that none of them were anywhere Dokie unlike a couple of years ago. So Dokie is doing well. Okay on to the next slide. Okay you to Iceland for Svartsengi and Reykjanes so both Svartsengi and Reykjanes have had very strong production performance year-to-date and combine generation at the plant is 101% of the plant for both Q1 and year-to-date. Highlights at the Svartsengi plant include the testing of our first of our two new wells that were drilled last year and early this year, Svartsengi 25 has been completed and the results indicate that the well will be a good producer in the 3 to 5 megawatt range which is great news. Work is underway at the plant right now to connect this well to the plant and that should be completed in summer. The second well Svartsengi 26 is still heating up after completion of the drilling and will be tested later this year. However early indications from the drilling and the testing done during drilling are that it’s quite positive making another good addition to production. At the same time we’re completing a new discharge system at Svartsengi, which will allow for more steam utilization and generation at the plant all combined with this the two wells that we’ve drilled. Down at Reykjanes our reinjection program that was mentioned by Lynda is well underway and the pipeline that we’ve been talking about for quite a few weeks calls supply is injected from the plant to our two big injection wells, well 33 and 34 to the north of the plant are in operation and we’re reinjected as we speak. And we’re also very excited about the start of the deep drilling program at Reykjanes in August, which will deepen an existing production well from about 2.5 kilometers to 5 kilometers. This will be a first for Iceland and could result in a very strong production well for the plant as well as providing the consortium that’s participating the project with really valuable information on drilling at these extreme depths and temperatures. So stay tuned very exciting development at Reykjanes. John? John Carson Okay. Thanks, Paul. I do want to point out about those two wells which we’ve drilled at Svartsengi wells 25 and 26. 25 is on the Southern extreme of our field, 26 is on the Eastern extreme. Both of these were further up than any other wells in those directions that we’ve drilled and it’s very comprehending to see that they have likewise strong results. We don’t know how big the Svartsengi field is, but it’s been generally strongly for about 40 years now. So it’s very large. We don’t know how large and we are very happy with it and these are great results from this drilling. Jay, let’s turn to the construction side of the business and talk about Jimmie Creek. Jay Sutton Alright. So I’m on slide 14 now. Contractors looking at Jimmie Creek made great progress in the first quarter of 2016 and the construction of the project is essentially complete. The photo on the slide shows the completed intake structure at the upper end of the project where the water is diverted into the Penstock. Civil contractors have demobilized from site and the environmental remediation has been completed on all the sites that were disturbed during the construction. At the end of February Jimmie Creek was connected into the TMGP transmission line and all the electrical work to interconnect the facility to the BC hydro system has been completed and tested. The installation of the turbines and generators will be completed next week and we are well into commissioning of the plant systems. In two weeks we’ll start running water through the plant as part of what is called wet commissioning, which will be followed by online testing and finally our marketable power test. We are under budget ahead of schedule and expect to complete all the commissioning and start generating by the end of June. I would really like to thank the Alterra team and all the contractors who worked so hard over the past two years to build this another high quality asset in the Toba valley. We are very excited to be bringing this asset online and can’t wait to start producing electricity. John Carson Thanks, Jay. And I echo your comments to the team and we’ll be excited to announce the first generation at this plant hopefully next month. Now let’s flip to slide 15 and this will be the last slide of the presentation looking ahead. So first I’d like to reemphasize, we have a strong development focus in the USA, as we publicize and has really publicized by the industry last year got a two year extension to the production tax and investment tax credit programs. This really helps give a kick start to renewable power projects, which are the ones that we specialized in, of course. I also cite here that we received further positive guidance just last week. It appears that the credits are going to be good for four years instead of formally two years once construction has commenced. This is another unexpected boom and another display of the USA’s intent to really displace carbon generating power with clean power and we happen to be in the right place at the right time. Next, we are doing Greenfield development. Greenfield means that it’s an uncharted areas an area where nothing has ever been done before for both wind and solar sites. We have signed leases for multiple sites and we are actively working in several different power markets. We’ve included a photograph which you might not find very exciting, but a wind developer loves this photograph. It’s very flat and easy to build on terrain and you can imagine that the wind is quite strong and steady at a site like this. So this is one of our sites for which we’ve signed leases in Texas. Next we are analyzing several acquisitions of opportunities that are at development stage. Some of them are early stage, some of them are later stage and I would expect to see some deals, some transactions completed by us as the year goes on. Next turning our attention to Iceland and by the way for questions-and-answers we’ve included our CEO of the Iceland business Asgeir Margeirsson with us. Our team there is advancing several projects. The two I’ll just mentioned today are the first ones in line which are Reykjanes 4 plant, which really will adjoin our existing Reykjanes 1 and 2 plant. We’ve emphasized before that this new plant 30 megawatts is what we are targeting would require no further drilling. It will only use the steam that’s currently being released after generation at the current units. So it’s really within the respect of geothermal projects. One of the easiest projects you could build and very low risk. Secondly I mentioned the 9.3 megawatt Brúarvirkjun project. It’s a small but high capacity factor hydro project. About an hour and half away from our exisiting operations in the Reykjanes Peninsula. So these are just two assets, we’ll be talking about in the future, there is more behind them as well, and our Iceland has done a fantastic job, we’re very excited about where we’re headed there. I would also mentioned, our small hydro program in BC, taking advantage of the standing upper program at BC Hydro the local utility has, we’ve talked about our Tahumming project several times and we also mentioned the South Toba projects before on these calls, these projects would be suitable for that program, so stay tuned there as we continue to develop those projects. And finally, we’ve mentioned our Mariposa Geothermal project in Chile with whom we partner with EDC, the Philippine Geothermal operator, we are still thinking together with them about when we will start drilling, they visit us here in our offices last month. We considered things strongly and we’ll have to just wait and see as we look at market factors and other factors that would affect the timing for our drilling program, still holding out hope for this year, but we’ll update that as we go. With that Ross, that completes our formal presentation, I turn it back to you. Ross Beaty Thanks very much, John. And I think, I have no further comments, it was an orderly quarter and we look forward to some further news on acquisition particularly in the next quarter. So with that operator, I will turn it over to questions. Thank you all. Question-and-Answer Session Operator Thank you. Ladies and gentlemen, we’ll now begin the question-and-answer session [Operator Instructions] Your first question comes from Jonathan Lo, Raymond James. Jonathan, please go ahead. Jonathan Lo Hi, thanks for taking the questions. Just on the guidance, you didn’t mention it this quarter, is it still the same for 2016-2017? Lynda Freeman Yeah. Hi, Steven, yes it is, at this stage we look to the actuals against budget look at full cost and we believe still that we’re on track for the numbers that we put in the MD&A back in December, it was based on December ones. Jonathan Lo Great. And were there any further discussions on the dividend expectation for this year or going forward? John Carson There is no further discussion we have this — we bring this up actually every Board Meeting, we have the obvious balance between issuing return of capital to shareholders and deploying the capital in our business for growth. And at the current time, we’re still doing the later, but we do have as an objective to kick out a dividend, as soon as possible and so watch this space literally on a quarterly basis. Jonathan Lo And for Shannon, how should we look at the pricing, the merchant pricing for 2Q, should it be about the same as the first quarter or is it — has it improved? John Carson Yeah. I don’t have that crystal ball, unfortunate to tell you, where it will move, I can easily tell you where it has moved, we were very disappointed with how low the prices were in the first quarter, it’s — it moves at all times, and the reason it moved so low was if you look at where the natural gas was pricing, Henry Hub or whatever node you choose to look at, it was at a historic low, we’re talking decades low point that directly affects the power prices realized in Texas, and that’s why we saw low prices. I’m happy to report over the just the last few days that we have had combined not only of high power generation, high wind, is been accompanied by higher power prices. So we have had some very good revenue day’s right here in May. We hope that that continues, but in any event the very good news is that our hedge will kick in next month provided by an affiliate of Citigroup, that hedge last for 13 years I will remind you and it’s certainly priced higher than anything we’re seeing in the power market at the moment. Jonathan Lo And that hedge starts on June 1st? John Carson I believe, yes. It is the first. Jonathan Lo Okay. Great. That’s all the questions I have today, thanks. John Carson Thanks, Jon. Operator [Operator Instructions] Your next question comes from Robert Kelly, Private. Robert, please go ahead. Unidentified Analyst Hi, this question is for Ross or John. I’m just wondering about the share price. Is it where you expect it to be, are you disappointing with the share price? And where do you expect that to be over the next-year? Ross Beaty Okay. Robert, well, expect and realize are big things, we certainly expected to go higher, we had a very good year, last year, as you know, we were actually top performing energy stock in Canada last year. That’s nothing to write home about our stock went up about 50% in the oil and gas sector particularly cratered because of the decline in oil and gas prices. So relatively speaking, we had a great year last year. But we actually do expect that to continue to rise this year. And one of the things we’re going to do that we didn’t do last year is we’re going to start talking about our story. We wanted to really wait until we had a story that we felt would be very compelling to new shareholders, institutional investors particularly. We haven’t been on the road for some time. We’re going to start getting on the road and talking about it on a monthly basis. We have a program to do that and we hope that that will only result in our stock going to a more I guess a price that reflects the reality of our assets whether you look at our stock on a net asset value basis or at a multiple basis — multiples of EBITDA or revenue or generation. You should see that we are trading at a discount and it’s our job to try to get that discount to become a premium. We certainly feel we deserve a premium for the quality of our management team for the execution of our most recent projects and for the growth we’ve had in our company. The other thing we’re going to try to do is layer on some new growth that investors can see we’ll continue the successful we’ve had with Shannon and Jimmie Creek in particular in the last couple of years. And with that, really get on the road and tell the story and hopefully it has some benefit from the standpoint of share price improvement. Unidentified Analyst Thank you very much. Ross Beaty Hey, Robert. Operator Thank you. Your next question comes from Rupert Mayer, National Bank. Rupert, please go ahead. Rupert Mayer Hey, good morning everyone thanks for all of the color. Just have a quick question on your comment about development stage acquisition opportunities. Can you give us anymore color on the sorts of opportunities you’re looking at, the scale of project maybe the type of project in terms of say generation source, winds, geothermal, solar? And what sort of target returns you would be looking at? What would be your hurdles on those potential acquisitions? John Carson All great questions. We are looking at as I pointed out in the USA primarily and at wind primarily and then solar just after wind. We do seek for the opportunistic Hydro project now and again. But those are tougher to come by for sure. With respect to the scope of the projects, we definitely aim for large ones. You’ll notice that the smallest project we have in our whole portfolio is a 62 megawatt project. So definitely we seek to do large projects, the same amount of work large and small, we’d always prefer a larger project. Then also with respect to the stage of development projects, some of these already have revenue contracts and are late in the stage of development needing financing and maybe a few other late stage items. And some of them are early stage groups of assets with promising futures with interesting locations and resources. So it really spans the breadth of size and stages of development activity. And with respect to the rate of return question, for sure we try to make every project that we have to be well into double-digit returns. That has become more difficult in the industry; A, because of competition; B, because of how offtake pricing has been negatively affected by the aforementioned gas prices. So there are challenges to achieving those returns and a lot of investors though are take comfort in the fact that these are very reliable projects. So in the end, while returns may have notch down a turn or two we’re still seeing double-digit returns in all the projects we’re looking at. Ross Beaty And I’d just add to what John said. The growth we have right in front of us in Iceland, which will be geothermal based and hydro based. Rupert Mayer Excellent, thanks very much. Operator Thank you. And there are no further questions at this time, at this time. Please proceed. John Carson Very good. Well if there is no further question we’ll end the call. And thank everyone for joining us today. Thank you, operator. Operator Thank you. Ladies and gentlemen this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. 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Xcel Energy (XEL) Benjamin G. S. Fowke on Q1 2016 Results – Earnings Call Transcript

Xcel Energy, Inc. (NYSE: XEL ) Q1 2016 Earnings Call May 09, 2016 10:00 am ET Executives Paul A. Johnson – Vice President-Investor Relations Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Robert C. Frenzel – Chief Financial Office & Executive Vice President Analysts Ali Agha – SunTrust Robinson Humphrey, Inc. Julien Dumoulin-Smith – UBS Securities LLC Travis Miller – Morningstar, Inc. (Research) Operator Good day, everyone, and welcome to the Xcel Energy First Quarter 2016 Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Paul Johnson, Vice President of Investor Relations. Please go ahead, sir. Paul A. Johnson – Vice President-Investor Relations Good morning, and welcome to Xcel Energy’s 2016 first quarter earnings release conference call. Joining me today are Ben Fowke, Chairman, President and Chief Executive Officer; and Bob Frenzel, Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team in the room to answer your questions. This morning, we will review our 2016 first quarter results and update you on recent business and regulatory developments. You may have noticed that our earnings call is a bit later than normal this quarter. We just implemented a new general ledger system, so we built a little extra time into the schedule. We’re pleased to report that everything went very well with the implementation. Today’s press release refers to both ongoing and GAAP earnings. 2015 first quarter ongoing earnings were $0.46 per share, which excludes a charge of $0.16 per share following the decision by the Minnesota Commission in the Monticello nuclear prudence review. GAAP earnings for the first quarter of 2015 were $0.30 per share. As a reminder, some of the comments during today’s conference call may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and our filings with the SEC. I’ll now turn the call over to Ben. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, thank you, Paul, and good morning. Bob will go into more detail later, but in summary, we reported ongoing earnings of $0.47 per share for the quarter, compared to $0.46 per share last year. Overall, it was a solid quarter in which declining O&M expenses offset unfavorable weather and lower than expected sales. While electric sales in the first quarter were below expectations, we expect sales to improve in the second half of the year, and we remain very confident in our ability to deliver earnings within our guidance range. As a result, we are reaffirming our 2016 ongoing earnings guidance of $2.12 to $2.27 per share. As we’ve previously discussed, we are executing on our upside capital investment plan. Later this month, we’ll make a filing with the Colorado Commission to add 600 megawatts of wind generation and associated transmission. This represents a rate base investment of just over $1 billion. In April, the Commission confirmed our interpretation of a Colorado law that allows utilities to own 25% to 50% of incremental renewables without going through a competitive bid process, if the project is developed at a reasonable cost compared to similar renewable sources available in the market. The levelized cost of this wind project including transmission is projected to be below any other existing wind PPAs in the PSCo portfolio. We therefore believe we’ll be able to demonstrate to the Commission and the independent evaluator that this project meets and exceeds the reasonable cost standard and represents tremendous value to our customers. We plan to request a Commission decision by November so that we can capture the full production tax credit benefit for our customers. This capital investment is currently reflected in our upside capital forecast (3:23). If the Commission approves this project, we will move it to our base capital forecast, which will result in rate base growth of 4.5%, a great example of organic and disciplined growth that provides value to shareholders, customers and the economy in our service territory. You should expect us to continue to find investment opportunities of this nature that will drive us to our upside capital goals. Next, I’d like to spend a few minutes recognizing the outstanding efforts of our employees in responding to a major snowstorm in Colorado. In March, Denver and Northern Colorado were hit with a blizzard with 12 to 18 inches of snow and wind gusts over 60 miles per hour that caused approximately 350,000 outages. As a result of proactive planning prior to the storm and the work of over 950 employees and contract crews, we were able to restore service to 90% of our customers within 12 hours, 98% of our customers within 36 hours, and 100% of our customers within 60 hours. This was another example of our world-class storm restoration, and I want to thank all of our employees for their dedication and tremendous efforts to provide excellent customer service and reliability to our customers. Turning to other accomplishments, we recently received several awards that are worth mentioning. In March, the EPA and others recognized Xcel Energy with a 2016 Climate Leadership Award for Excellence in Greenhouse Gas Management. The award acknowledges our commitment and progress in reducing CO2 commissions (sic) emissions. Military Times ranked Xcel Energy as one of the Top Employers of Veterans in 2016. Finally, in April, AWEA named Xcel Energy the number one wind provider of energy for the 12th consecutive year. Finally, we recently announced the hiring of Bob Frenzel as our new Executive Vice President and CFO. Bob brings more than 17 years of experience in energy, banking and consulting in addition to six years of experience as an officer in the U.S. Navy. He most recently served as Senior Vice President and CFO for Luminant. Bob brings a wealth of experience that complements our strategies and our business. He understands our industry and has a proven track record of driving excellent performance and solid growth. Some of the key attributes that Bob brings to the table include strong financial and commercial acumen, excellent strategic vision and execution, an engineering and nuclear background, and an outstanding experience managing cost. He will be a valuable addition to the Xcel Energy team. I think it’s important to recognize that our strategic plans and priorities are not changing. We will continue to focus on organically growing our regulated operations and maintaining the disciplined financial approach you’ve come to expect from us. I also want to recognize the outstanding service and contributions of Teresa Madden, who is retiring after a career spanning 36 years. Teresa played a major role in building our track record of delivering on our value proposition and she leaves a solid platform for continued strong results. We’re very grateful for her many contributions and we wish her much happiness in her retirement. So I’ll now turn the call over to Bob to provide more detail on our financial results and outlook in addition to our regulatory update. Bob? Robert C. Frenzel – Chief Financial Office & Executive Vice President Thanks, Ben, for that introduction. I’m very excited to join Xcel and I’m honored to follow in Teresa’s footsteps. I commit to continuing Xcel’s long tradition of delivering on our financial objectives and growing earnings in a low risk, transparent and predictable manner. Now, let’s get to the details of the quarter. As Ben indicated, we reported ongoing earnings of $0.47 per share for the quarter as compared to $0.46 per share last year. The most significant drivers in the quarter include the following. Improved electric margins increased earnings by $0.06 per share; this was largely due to interim rates in Minnesota and capital rider revenue for recovery of capital investment, partially offset by unfavorable weather. Higher gas margins in our gas segment increased earnings by $0.01 per share, which is primarily due to rate increases from higher rate base, partially offset by unfavorable weather. Lower O&M expenses increased earnings by $0.01 per share, which reflects cost management and some timing-related issues. Partially offsetting these positive drivers was higher depreciation expense, which reduced earnings by $0.06 per share, primarily reflecting depreciation from new capital investment. Turning to our sales results, although the economy in our region remains strong and we continue to add customers, our weather-adjusted electric sales declined by 0.3%. Further adjusting for the impact of an extra day of sales in the quarter due to leap year, our weather-adjusted electric sales actually declined by 1.4%. The decline in sales is largely driven by lower use per customer from energy efficiency, an increase in the number of multi-family units, the impact of distributed solar and the impact on consumption of lower oil and natural gas prices on some of our larger customers. As a result, we have lowered our full-year electric sales growth assumption to 0.5% from 0.5% to 1% range. We continue to expect positive sales growth for the full year in all jurisdictions, due to customer growth as well as planned expansion from some of our larger customers. In addition to lowering our sales assumptions, we’ve also taken actions to lower our full-year O&M expenses. We implemented plans early in the year to offset the impact of the rate reduction in Texas as well as unfavorable weather and lower sales growth. As a result, we now expect to limit our annual O&M expenses to 0% to 1% increase for the full year. As we continue to strive to close our ROE gap, we have been pretty active on the regulatory front. Let me provide you a quick update. There are additional details included in our earnings release. In Wisconsin, we recently filed a case seeking an electric rate increase of $17.4 million and a natural gas increase of $4.8 million. This is a limited scope case, and ROE and capital structure are not expected to be an issue. The decision is expected by December, with final rates effective in January of 2017. We also have pending rate cases in Minnesota and in Texas. Both cases are in the discovery stage, and as a result, there aren’t any material new developments. Finally, we recently filed a settlement in our New Mexico rate case, which was reached between SPS, the staff, and other parties. The black box settlement reflects a non-fuel base rate increase of $23.5 million. The settlement represents a compromise which we think is reasonable. The New Mexico Commission is expected to rule on the settlement later this year and new rates are expected to go into effect in August. As Ben mentioned, we are reaffirming our 2016 ongoing earnings guidance with no changes. However, as I previously mentioned, we have updated several of the key assumptions, including electric sales and O&M expenses as detailed in our earnings release. Also, please note that we’ve reduced our assumption for capital rider recovery to reflect the transfer of some pipeline recovery from the rider to base rates as part of our last Colorado natural gas rate case. The transfer has no material impact on earnings. In summary, it was a good quarter for the company. Continued vigilance on cost management resulted in lower O&M expenses, which offset unfavorable weather and sluggish sales to deliver solid first quarter earnings. We made significant progress to convert some of our upside capital to base capital with a planned filing to own 600 megawatts of wind in Colorado. We anticipate a Commission decision later this year. Finally, we remain on track to deliver ongoing earnings solidly within our 2016 guidance range. This concludes our prepared remarks. Operator, we’ll now take questions. Question-and-Answer Session Operator Thank you. We’ll go first to Ali Agha at SunTrust. Ali Agha – SunTrust Robinson Humphrey, Inc. Thank you, good morning. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Good morning, Ali. Robert C. Frenzel – Chief Financial Office & Executive Vice President Good morning, Ali. Ali Agha – SunTrust Robinson Humphrey, Inc. Good morning, Ben. Good morning. First question, the sluggish sales growth that you alluded to in the first quarter, anything specific – I know it’s early in the year and it’s a small quarter, but that would give you that confidence that we’re still going to end up on the positive for the year given the negative start to the first quarter? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Sure, Ali. It’s really the result of conversations our account managers have had with our large commercial and industrial accounts. So we know we’re going to be seeing more load come on in the second half of the year. Ali Agha – SunTrust Robinson Humphrey, Inc. Okay. Okay, and you highlighted the earned ROE through the LTM ending in March 31. Can you just remind us what kind of regulatory lag that would translate into? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, it’s about 90 basis points of lag. And again, as you know, our goal is to cut the lag by 50 basis points by 2018, and Ali, I think we remain on track with that. If you look at Colorado, I think we are on track. The Minnesota case here should put us on track and we will continue to work diligently at SPS to get that on track including filing of cases that take advantage of new legislation in forward test years in Minnesota – I mean in New Mexico. Ali Agha – SunTrust Robinson Humphrey, Inc. And Ben, this Colorado wind filing, are you anticipating much opposition there or I mean is it pretty much a done deal, all you need to do is show the numbers? Can you just handicap us like how we should think about this filing and the approval? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, I’d never say it’s a done deal. You need Commission approval, but Ali, in tune to the first part of your question, this project has tremendous community support and it’s going to create tremendous value for our customers in fuel savings, even if you look at the lower gas forecast. So we’re excited about it, and the community and our stakeholders are excited about it, so we’re very confident this is going to go through. Ali Agha – SunTrust Robinson Humphrey, Inc. Okay and last question, when should we start to see some of the other growth investments that you’ve highlighted for us start to show up in terms of filings and potential move into base CapEx? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, some of that will come through resource plans. I mean that’s the big part of it – filings for grid monetization opportunities that we might be out there to capture value for our customers. So I mean I think you’ll see it over the next 12 months basically. Ali Agha – SunTrust Robinson Humphrey, Inc. Okay. Thank you. Operator We’ll go next to Michael Weinstein with UBS. Julien Dumoulin-Smith – UBS Securities LLC Hey. It’s actually Julien here. Good morning. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Hi. How are you? Robert C. Frenzel – Chief Financial Office & Executive Vice President Hey, Julien. Julien Dumoulin-Smith – UBS Securities LLC Good. Thank you. Hey. I wanted to follow up – a couple quick questions here. Can you elaborate a little bit on your eligibility to participate more than 25% to 50% in Colorado? What would the requirements there be, and elaborate a little bit more on the requirements of that 25% to 50% and what that threshold would be? And then, perhaps, a separate related question would be, the latest on solar, and specifically community solar in Colorado, and any opportunity to own or rate base those assets. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Okay. Well, let’s start, Julien, with the 25% to 50% standard of the Colorado legislation. The 25% standard is just – is the reasonable cost standard that I mentioned in my prepared remarks. The 50% standard – without going through a competitive bid, you need to show economic value to the community. And I think you asked, can you do more than that? Yeah, you potentially could do more than that. But at this point, we would anticipate you’d have to go through a competitive RFP to do that. And that doesn’t mean we can’t prevail on that. But that’s the law that we were referring to. So we’re pleased with that. Now you asked about community solar gardens. At this point, we don’t have plans to buy any of those projects or provide any of those projects. It doesn’t mean we couldn’t, but – nothing would prevent us, but it’s not something we’ve been actively pursuing at this point. Robert C. Frenzel – Chief Financial Office & Executive Vice President The other point, Ali – or Julien, we will be making a resource plan filing later this spring and we will potentially include some solar in as part of that resource plan, so we’ll go forward with that too. Julien Dumoulin-Smith – UBS Securities LLC Got it. And then just following a little bit on the first quarter results themselves. Obviously, little bit further from plan on the normalized, and it’s always tough to read tea leaves, but what stood out if you were to go back and try to rehash things in terms of factors driving that negative delta? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Julien, you broke up a little bit. Were you asking what drove the negative sales outlook? Julien Dumoulin-Smith – UBS Securities LLC Yeah or was there a specific factor more than others? I know you delineated a few there, but was there one that stood out? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, I mean other than the factors that we mentioned, there’s always the art versus science of capturing weather and the impact of weather, and we did have some significant mild weather in the quarter, so I’m not sure you can ever fully scrub that out. We follow the formulaic approach, which is blessed by our commissions, but there’s always some potential for anomalies. Julien Dumoulin-Smith – UBS Securities LLC Got it. All right. Thank you. Operator We’ll go next to Travis Miller with Morningstar Financial. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Hi, Travis. Travis Miller – Morningstar, Inc. (Research) Good morning, thank you. I guess I’ll continue on this demand question line here. If you think about that flat type demand, even 0.5% demand, if that continues for not just this year, but let’s say the next two years to three years, how does that put you in position for closing that 50 basis point gap? Does that require more rate cases? Does it require you to change the types of requests you’re making, the capital investment? Can you just walk me through kind of how that picture would play out? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Well, I think it does a number of things, but we’ve been anticipating relatively flat sales in our outlook for quite some time now, Travis, so our ability to close the ROE gap assumes that we are not going to have robust sales to bail us out. So it means you have to manage your O&M carefully, and we are and we will continue to do that, and in fact I think we’re in the early days of cost management. We will make sure our resource plans reflect those kinds of sales growth opportunities, so we don’t overbuild. And of course as you know, we have decoupling mechanisms here on the electric side in Minnesota, which are helpful as well. So there’s a number of things you can do from a regulatory standpoint and from an internal management standpoint, and of course from a resource planning standpoint, and that’s the environment we anticipate being in. Travis Miller – Morningstar, Inc. (Research) Okay. And then just mix between residential and C&I, what’s approximately your margin mix, I guess, is the simplest way to put it? When commercial and industrial is 1.5%, residential is down 1.1%, how does that translate into profitability, if you get kind of where I’m going there? Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Let me try to – I ask my team if they can help me with this one. I’ll have a much higher profit margin in the residential, and then when you get to the C&I, it really depends on which customer you’re talking about and which jurisdiction. For example, the largest industrial customer is in SPS. The sales there will have the most minimal impact on margin, if anybody can help further define that for Travis a bit. Robert C. Frenzel – Chief Financial Office & Executive Vice President Yeah, I mean, Travis, if you think about it, the rate per megawatt hour for residential customer is probably going to be somewhere around that $0.11 range and large C&I customer is probably going to be more in that $0.07 range. So it’s pretty different revenue stream. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer And they pay a larger demand charge too, so variable sales tend to be more of the energy – it’s more the energy pass-through than it is the high margin that you’re getting with residential. Travis Miller – Morningstar, Inc. (Research) Yeah. Okay. Great. I appreciate the thoughts. Operator We’re standing by. With no further questions at this time, I would like to turn the conference back to Bob Frenzel for any closing or additional comments. Robert C. Frenzel – Chief Financial Office & Executive Vice President Thank you for participating in our earnings call this morning. I look forward to meeting many of you over the next few weeks at the Deutsche Bank and AGA conferences. If you have any questions in the interim, please contact Paul Johnson with any follow-ups. Benjamin G. S. Fowke – Chairman, President & Chief Executive Officer Thanks, everyone. Operator This does conclude today’s call. We do thank you for your participation. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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