Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successful sale of the renewables business at a valuation of $2.5 billion, including $2.28 billion in cash proceeds and $220 million in an earn-out agreement.
- Implementation of the customer first enterprise platform, which promises to deliver value to customers and substantial efficiencies.
- Addition of three new experienced Board members with extensive infrastructure and regulated utility experience.
- Double-digit increases in key financial metrics: EBITDA up 12%, adjusted net earnings up 16%, and adjusted net earnings per share up 13% compared to the same period last year.
- Strong balance sheet expected post-sale, with net cash proceeds of approximately $1.6 billion after repaying construction financing and other customary adjustments.
Negative Points
- Delays in rate case filings in jurisdictions like Missouri, New Hampshire, and California, which will shift the beginning of recoveries closer to 2026, impacting short-term earnings.
- Reduction in regulated CapEx for 2025 to improve recoveries and reduce regulatory lag, which may limit growth opportunities in the short term.
- Decision to right-size the dividend, reducing it to a payout ratio of 60% to 70% of optimized core regulated earnings, which may disappoint some investors.
- Challenges in the short-term due to the most active rate case calendar in the company's history and the post-conversion adjustment period for the new customer first SAP system.
- Potential impact on 2025 earnings due to rate case timing and the need to improve returns before increasing capital spending.
Q & A Highlights
Q: Can you explain the net cash proceeds of $1.6 billion from the sale? How much of that difference is related to taxes, transaction fees versus construction debt repayment?
A: The majority of the difference is due to construction loans, with very little tax friction. The rest includes transaction costs and break fees on the APCo bonds. (Darren Myers, CFO)
Q: Is the construction debt currently off balance sheet or yet to be incurred on your development pipeline?
A: The balance is lower as of the end of Q2, but we expect it to return to similar levels by year-end due to ongoing projects. (Darren Myers, CFO)
Q: Can you walk us through the valuation of the transaction? How much is for the development pipeline versus operating assets?
A: We see this as a strong transaction with a 12.5 times multiple of next year's estimated EBITDA, or 11.5 times without the earn-out. This reflects the value of the development pipeline and the strength of the organization. (Darren Myers, CFO; Chris Huskilson, CEO)
Q: The 60% to 70% payout ratio on EPS, is that from the starting point in 2025 post-asset sale?
A: The target payout is based on our current regulated assets fully earning. We expect some delays in 2025 with improvements in 2026. (Darren Myers, CFO)
Q: How long do you anticipate the capital-light approach to last, and how does this feed into your expectation of mid-term EPS growth?
A: It depends on the success of our rate cases, but we expect a few years of restraint. We aim to improve returns and efficiency before increasing capital spending. (Chris Huskilson, CEO; Darren Myers, CFO)
Q: Can you clarify the 11.5 to 12.5 times next year's EBITDA multiple? Does it exclude development expenses?
A: Yes, it assumes the assets are fully constructed and commissioned, excluding development expenses. (Chris Huskilson, CEO)
Q: What is your capital allocation strategy with the proceeds from the sale?
A: Primarily debt repayment to strengthen the balance sheet, but we are not ruling out share buybacks. (Darren Myers, CFO; Chris Huskilson, CEO)
Q: Can you explain the change in tone around utility spend?
A: We are focusing on discipline and ensuring that capital investments are recovered efficiently. This approach will help us improve our regulatory processes and accountability. (Chris Huskilson, CEO; Darren Myers, CFO)
Q: Will you provide more explicit guidance on the earnings outlook for the next few years?
A: Yes, we plan to provide more transparency and guidance at an Investor Day closer to the closure of the renewables deal. (Darren Myers, CFO; Chris Huskilson, CEO)
Q: What are your expectations for the timing of regulatory approvals and the receipt of proceeds?
A: It will take some time to get through the necessary regulatory approvals, and we will provide updates as we progress. (Chris Huskilson, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
