Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The AES Corp (AES, Financial) reported strong financial performance in Q2 2020, with adjusted EBITDA of $843 million and adjusted EPS of $0.38.
- The company signed 2.5 gigawatts of new agreements, including 2.2 gigawatts with hyperscalers, indicating strong demand and growth potential.
- The AES Corp (AES) is on track to meet its 2020 financial objectives and expects to be in the top half of its ranges for adjusted EBITDA and EPS.
- The company has a robust backlog of 12.6 gigawatts of projects under signed long-term contracts, ensuring future revenue streams.
- The AES Corp (AES) is leveraging AI and robotics to improve efficiency and reduce project costs, such as the use of the Maximo solar installation robot.
Negative Points
- The AES Corp (AES) experienced a forced outage event at its one gigawatt hydro plant in Colombia due to record water inflows, impacting availability and financial performance.
- The company faces potential risks from policy changes and the repeal of tax credits, which could affect its ability to sign new contracts.
- There are concerns about the ability to meet the high load growth in Indiana and Ohio, requiring significant investment in transmission and generation assets.
- The AES Corp (AES) has to navigate supply chain challenges, particularly in securing domestic solar panels and battery storage to meet future project needs.
- The company is exposed to higher interest expenses from growth capital, which could impact future profitability.
Q & A Highlights
Q: Steve, could you update us on credit metrics, what did you end up as of Q2? And then what do you expect to be at the end of 2024 on FFO to debt?
A: Andres Ricardo Gluski Weilert, President, CEO & Director: Our credit metrics are looking very strong. We continue to be on a path of improving credit at the parent level, and I expect we'll be even higher than last year's year-end. We have a threshold of 20% for FFO-to-debt, and we ended last year with plenty of cushion above that. I think we'll likely see ourselves even higher than that at the end of this year.
Q: Does the noise around the repeal of tax credits and other policy chatter hurt your ability to sign new contracts?
A: Andres Ricardo Gluski Weilert, President, CEO & Director: No, it hasn't slowed down our signing of contracts. The biggest concern of our clients is actually tied to power. ITC and PTC have been around for 32 years, and a total dismantling is highly unlikely. We see a wholesale revision as very unlikely and expect only some changes around the margins.
Q: Can you outline the utility load opportunity in terms of the breakdown of that three gigawatt in advanced negotiations between Indiana and Ohio?
A: Andres Ricardo Gluski Weilert, President, CEO & Director: It's a bit early to give too much detail, but we have previously guided to around 10% for the utilities combined. This is definitely upside, and there are significant acceleration of discussions. Timing matters here, so we'll see some within our long-term guidance period and some beyond that.
Q: How do you frame the prospects of going towards a mid triple B rating, and what will be the timeline?
A: Stephen Coughlin, Executive VP & CFO: Credit metrics are definitely continuing to improve, and I see that as a possibility in a matter of years, not this year. We don't have a specific target to share at this point, but I expect it to continue to improve as the installed base of our growth continues to grow and add cash.
Q: How are you feeling about the ability for generation to serve the explosive load growth in Indiana and Ohio?
A: Andres Ricardo Gluski Weilert, President, CEO & Director: This will be timed over the years, so it's not all at once. It represents opportunities for additional generation, and a good part of that will come from renewables. Some of that increased demand may come from gas in some locations. We have multiple existing gas sites that we can convert or add to.
Q: When do you think you'd have an opportunity to relook at the CapEx outlook given the load growth opportunity?
A: Stephen Coughlin, Executive VP & CFO: We will flesh that out in our planning process in the second half of this year and bake that into our update of guidance for the beginning of next year. Our funding plan, I don't expect to change at all. We have done well on our asset sale plan and have partnership capital, so there is no shortage of capital to invest in utility growth.
Q: How does your EBITDA with tax attributes trend given the backlog and PPA signing cadence?
A: Stephen Coughlin, Executive VP & CFO: We have significant upside in our tax credits, primarily driven by qualifying for more energy communities and higher valuation of our tax attributes. There are also higher margins and higher dispatch in our gas business in the Dominican Republic and continued efficiency in our renewables and utility businesses. Offsets include the Columbia outage and low wind resource in Brazil.
Q: Could you talk about the cadence of bringing new projects online from this year through 2027?
A: Andres Ricardo Gluski Weilert, President, CEO & Director: We have smoothed out the cadence of bringing projects online. This year, we're managing better with almost half done in the first half and a heavy third quarter. We have to deliver 12.6 gigawatts over the next three years, so the cadence will be more even throughout the year.
Q: How are you thinking about the cadence of your development pipeline given the PJM capacity auction results and higher power prices?
A: Andres Ricardo Gluski Weilert, President, CEO & Director: We have been expecting shortages and have planned for it. This doesn't change our plans as we have contracts, sites, and financing locked in. The value of our existing assets will go up as shortages materialize, but no short-term changes to our plans.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
