Atlantica Yield (AY) Q3 2020 Earnings Call Transcript

Atlantica Yield (AY -1.20%)
Q3 2020 Earnings Call
Nov 11, 2020, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Atlantica's third-quarter 2020 financial results conference call. Atlantica is a sustainable infrastructure company that owns a diversified portfolio of contracted renewable energy, power generation, electric transmission, and water assets in North and South America and certain markets in EMEA. Just a reminder that this call is being webcast live on the internet and a replay of this call will be available at Atlantica's corporate website. Atlantica will be making forward-looking statements during this call based on current expectations and assumptions, which are subject to risks and uncertainties.

Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in today's earnings presentation or because of other factors discussed in the Risk Factors section of the accompanying presentation or on our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website. Atlantica does not undertake any duty to update any forward-looking statements. Joining us for today's conference call are Atlantica's CEO, Santiago Seage; and CFO, Francisco Martinez-Davis. [Operator instructions] And I'll now pass you over to Mr.

Seage. Please, go ahead, sir.

Santiago Seage -- Chief Executive Officer

Thank you very much. And good morning, everybody. Thanks for joining our third-quarter 2020 conference call. A few opening remarks before Francisco takes over with the presentation of the results.

In the first place, we continued showing what we believe is a very positive performance in the third quarter of 2020, our cash available for distribution has increased by nearly 14% year on year reaching $52 million compared to the same quarter last year. If we look at the first nine-months of 2020 CAFD has increased by 6.4% reaching a bit more than $149 million. In the second place, It is important to mention that in the first nine months of 2020, we generated around $216 million of one-off cash through nonrecourse refinancings of existing assets as we announced previously. And finally, we continue making progress on our accretive growth initiatives: and first, we closed during the first quarter -- the third quarter the Solana tax equity investor buyout as anticipated; Second, we have signed a purchase agreement to acquire a district heating asset in Canada, closing is still subject to customary conditions to approvals and by regulators; third, in 2020, we have invested or announced the investment for over $320 million over our target and we expect to continue capturing growth opportunities with maintaining that target, we have $200 million to $300 million of additional equity investment every year.

With that, I turn the call to Francisco who will cover the financial results.

Francisco Martinez-Davis -- Chief Financial Officer

Thank you, Santiago.Good morning to all. Now please turn to Slide No.5, where I will present our key financials for the first nine months. Revenue in the first nine months of 2020 reached $769 million a 3.7% decrease versus the same period in 2019, and adjusted EBITDA included unconsolidated affiliates decreased by 5.6% t to $621 million. The decrease was mainly -- with mostly due to lower solar resources in Spain, and lower production and culture triggered by the unscheduled outage discussed in previous quarters.

Regarding CAFD, we generated $52 million in the third quarter of 2020, an increase of close to 14% year over year. Driving CAFD degeneration of the first months of 2020 to $149 million. This represents a 6.4% increase compared with $142 million in the same period of 2019. In addition to our cash flow available for distribution in the first nine months of 2020, we generated $260 million in one-off cash for the three projects that refinancings net of transaction cost, reserve, and interest rate swap cancellation.

This cash is being used to finance growth without increasing corporate debt. Let's now, please turn to Slide No. 6, to review performance by sector and geography. In North America, revenue decreased by 2% compared to the first nine months of 2019.

This reduction is due to a decrease in revenue in our efficient natural gas segment primarily caused by a one-time non-cash accounting adjustment in the ACT in the first quarter of 2019. In our solar assets in North America, production and revenue increased in the first nine months of 2020, thanks to a better performance of Mohave, despite solar -- lower solar radiation in the third quarter caused by the smoke from the California wildfires. In South America, both revenue and EBITDA increased by 6% and 2% respectively. Thanks to the continued solid performance of our assets with higher levels of production from our wind assets, and high availability levels in the transmission line, and also due to the contribution from recently acquired assets.

The revenue and EBITDA decreased in the EMEA region was mainly due to solar radiation in Spain and lower production in Kaxu caused by the unscheduled outage previously mentioned. Looking below at the results by the business sector, we can see similar effects. In renewable energy, revenue and EBITDA decrease due to the reasons previously mentioned. And efficient natural gas, our Mexican assets continue to show a solid performance.

Our transmission lines continue to show very good availability levels that together with acquisitions explain the increase in revenue and EBITDA. And finally, in our water segment, revenue and EBITDA increased by 64% and 33% respectively, due to the contribution from Ténès, the water desalination plant that we started to consolidate in the second quarter of 2020. If we now look at the following Slide No.7, we can review the key operational matrix of our assets. Electricity produced by renewable assets reaches 2,600-gigawatt hours in the first nine months of 2020.

Looking at our availability-based contracts, once again, ACT keeps showing solid performance. And finally, in transmission lines and water, the two other sectors where our revenues based on availability, we continue to achieve high availability levels of around 100%. Let's now move to Slide 8 to walk you through our cash flow for the first nine months of 2020. Our operating cash flow for the first nine months of 2020 reached $303 million, showing a slight decrease compared to the same period of 2019.

Lower EBITDA was partially offset by a less negative variation in working capital and lower interest paid. In addition, in 2020, we paid approximately $266 million for the acquisition of the tax equity investor interest in Solano. From an accounting perspective this amount of classified as financing cash flow. Financing cash flow for the first nine months of the year also included net proceeds from the project debt refinancings and corporate debt financings.

Dividend payments and our are scheduled project debt repayments of approximately $130 million. All in all, the net change in consolidated cash in the first nine months of 2020 was an increase of approximately $226 million. On the next Slide No.9, we would like to review our net debt position. We closed the first nine months of 2020 with a net corporate debt of $773 million, an increase after completing the Solana investment.

With this, our net corporate debt to CAFD pre-corporate debt service ratio stood at 3.3 times. Thanks to the corporate and the project refinancings closed in the first nine months of 2020, we have been able to extend our maturities, and today, we don't have any significant corporate debt maturities until 2025. Our average corporate debt maturity was approximate 3 -- 5.3 years as of September 30, 2020. In addition, we now have our revolving credit facility entire amount of $300 -- $425 million available, which together with our corporate cash on hand of $187 million, represents total liquidity of more than $600 million available to finance potential acquisitions.

Net project debt as of September 30, 2020, was $4,679.0 million. The increase would reflect December 31, 2019, was mainly due to the nonrecourse debt of the new assets consolidated in the period, project debt refinancings, and accrued interest, partially offset by the scheduled principal debt amortization. I will now turn the call back to Santiago.

Santiago Seage -- Chief Executive Officer

Thank you very much, Francisco. Let's talk now about the growth in fund investments. As previously mentioned, we have closed the acquisition of our tax equity investor interest in Solana. In addition, we have reached an agreement for the acquisition of our district heating asset in Canada.

We saw that as we previously announced the investment in the 2020 year to date, we have reached around $320 million. As we currently see a strong pipeline of investment opportunities, we continue to target potential equity investments in the region of at least $200 million to $300 million per year. Obviously, this year, it will be more than that. If you take a look at Slide No.

12, and you have an overview of the new asset and the district heating asset in Calgary, the asset provides heating services to a number of high credit quality clients, including a wide range of different types of client. It represents as you know, our first investment in industrial heating, a sector which is recognized as a key measure for cities to reduce emissions. The asset has availability-based revenues with inflation, indexation, and 20 years on average a weighted contract life. It is obviously, essential infrastructure with high barriers to entry, and we believe it is a growth opportunity for us.

We have signed the purchase agreement and obviously, closing the subject to customary conditions and regulatory approvals. Additionally, and as a final note, you can see that our Board of Directors has approved our quarterly dividend of $0.42 per share for the third quarter or $1.68 annualized. With that, we conclude today's presentation. Thanks for your attention.

And we will now open the lines for questions. Operator, whenever you want, we are ready for Q&A.

Questions & Answers:

Operator

Thank you.[Operator instructions]. Your first question comes from the line of Julien Dumoulin-Smith from Bank of America. Please, go ahead. Your line is now open.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hi. Good morning, team. Thanks for the time. Hope you all are doing well.

Santiago Seage -- Chief Executive Officer

Good morning thanks.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Absolutely. Thank you. If we can talk about this transaction on the district side. What kind of metrics can you provide, whether CAFD yields or IRR, how do you want to describe it.

And then related to that, obviously, this is a smaller transaction. How do you think about this relative to your $200 million to $300 million annual targets for growth investors? About a tenth of that. So just -- is there something that we should expect every quarter here of some of these smaller type investments to feather in.

Santiago Seage -- Chief Executive Officer

Thanks, Julien. So starting with your second question. The way -- if you look at our investments this year you see that we have a combination of larger transactions. This year it was the Solana tax equity investor, combined with some smaller transactions.

So going forward are $200 million to $300 million yearly investment. Should be again a combination. We have no issue in making smaller transactions if the numbers are right. But obviously, in order to reach the $200 million to $300 million, we will also have larger investments every now and then.

From our metrics point of view, this is an investment that we believe fits our criteria both in terms of IRR, and in terms of accretion or CAFD generation, it has growth potential within. And from our point of view, the main difference is that it's what we would call a permanent asset. It's an asset that we believe can be reconstructed as a contract expire on average 20 years from today. So it provides CAFD stability that is clearly longer than some of the other contracted assets we are used to.

And as a category, it's a category we believe fits very well our profile, and our intention is to grow in that new market for us.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. When you think about the PTS here with Pemex, what's the timeline on that front. Just to come up with some resolution. I know that there's been a lot of factors here.

Santiago Seage -- Chief Executive Officer

So it's an investment that has been delayed, and we cannot be sure about the timing because it depends on third parties and things happening that we do not control. And therefore, it's -- I cannot give you an answer because we cannot control it. We cannot control that even if it's going to close because a number of conditions have not been met as of today.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. And then lastly for me, just reconfirming here the timeline for when we'll reengage on the subject of dividend growth and growth more broadly here.

Santiago Seage -- Chief Executive Officer

What's the question. Julian there.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Just -- when can we expect updates on longer-term dividend growth targets. Just want to echo in the timeline there.

Santiago Seage -- Chief Executive Officer

So as you know, typically, we give guidance for the year when we present the yearly results, and that's February. And probably from our point of view that would be the right time to talk about guidance short-term and mid-term.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Just reconfirming that. Thank you, guys. Have a great day. Speak to you again.

Santiago Seage -- Chief Executive Officer

Great. Thanks to you.

Francisco Martinez-Davis -- Chief Financial Officer

Thank you, Julien.

Operator

Thank you. Your next question comes the line of David Quezada from Raymond James. Please, go ahead. Your line is now open.

David Quezada -- Raymond James -- Analyst

Thanks. Good morning, everyone.

Santiago Seage -- Chief Executive Officer

Good morning.

David Quezada -- Raymond James -- Analyst

My first question is -- Hi. Good morning. My first question here. Just in Europe, I mean we've got the European Climate Law coming up soon and since you do have quite a few assets in the region, I'm wondering if you just talk about if you see any potential opportunities emerging there.

Are there any new jurisdictions that you might consider going into that maybe weren't as promising before? And just any color you could provide on if that provides any opportunities.

Santiago Seage -- Chief Executive Officer

Thanks. So I would say, I would make a few comments there. In general, we believe that given the global situation and the impacts of COVID and what administrations around the world are doing, we believe that there are going to be opportunities similar to the one you described. So the administration's launching efforts around sustainable infrastructure.

In Europe, it's becoming a reality. As you are aware, there's a large program being launched by the European Union. We believe that we should be able to capture some opportunities. It's still in the early stages regarding how it's going to work and what role we can play there.

But clearly, it's going to be good for our market, and it should be good for us and in Europe. But not only in Europe, I mean, we believe that the U.S. for example, perhaps depending on what happens whenever something happens. And maybe there could be initiatives along those lines in one way or another.

So we do believe that in several jurisdictions there should be opportunities, and we had administrations pushing sustainable infrastructure one way or another.

David Quezada -- Raymond James -- Analyst

That's a great color. Thank you. And then maybe a follow-up to just a question on Calgary district heating. I'm just wondering if you could talk about how that deal came about whether it was through the Algonquin relationship or outside of that.

And whether it was a competitive bidding situation.

Santiago Seage -- Chief Executive Officer

It was a process run by the seller. We obviously, collaborated with our major holder there, but it was a competitive situation.

David Quezada -- Raymond James -- Analyst

Ok, fair enough. And then, I guess maybe a related question there just as your evaluation. I mean at that stock's been doing better lately, and hopefully that, that continues. As your cost of capital, I guess gets lower.

Do you see increased potential for dropdowns from ages or Algonquin and the EBITDA growth could -- I guess resume on that front.

Santiago Seage -- Chief Executive Officer

Yes. In general, we are let's say fairly optimistic regarding growth opportunities, and we believe that from a market point of view there are opportunities. We believe that we have been doing our homework for some time in creating those opportunities. And also as you mentioned, the stock price helps.

So we do believe that we are going to capture opportunities from all the sources we use including hopefully the one you're mentioning, the relationship with Algonquin/ages.

David Quezada -- Raymond James -- Analyst

Ok. [Inaudible]. Thank you very much. I'll get back in the queue.

Santiago Seage -- Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from the line of Angie Storozynski from Seaport Global. Please, go ahead. Your line is now open.

Angie Storozynski -- Seaport Global Securities -- Analyst

Good morning. I have a question about how you look at potential acquisition targets. I mean, do you have any preference as to their location. Does it just come down to cash yield share accretion or the cash yield district heating acquisition is definitely a very interesting asset? As you said, it sits and the yield curve model.

But in the past you mentioned, maybe some expansion of the water deal assets, it seems like we're somewhat going away from traditional wind and solar renewables. And so just wondering if again, if you have any preference as to the asset mix as you proceed with growth strategy.

Santiago Seage -- Chief Executive Officer

Thank you. No. I think in general we, as we know we are exposed to a number of different sectors, including wind and solar, but not only with solar. And we think that that's positive and that creates more opportunities, as long as the assets have good off-takers, good contracts, and good operational track record.

We are happy investing in different sectors and different geographies. So from that point of view, we are open. Now being realistic, we do expect that the majority of our investments will continue being in wind and solar because those markets are many times larger than the others where we compete, and typically in any year. And most of our investments should happen in wind and solar, but that doesn't mean that we are going to be shy when taking advantage of the fact that we know well other sectors which in some cases are less competitive.

And therefore, we expect to continue investing in those other sectors you were mentioning or in transmission lines for example.

Angie Storozynski -- Seaport Global Securities -- Analyst

How about a geographic mix. Does that matter. I mean you have mentioned or speak acquisition in Solina but.

Santiago Seage -- Chief Executive Officer

Yes. Our expectation is to continue having a similar geographical mix to the one we have today. So North America should be our core. We should be investing as well in South America in dollars.

Some investments in Western Europe. But broadly, our expectation would be to maintain the mix we have more or less. In fact, during the last year probably, we've done a bit of that. And when we look at the pipeline we have, it resembles the portfolio we own today.

Angie Storozynski -- Seaport Global Securities -- Analyst

Ok. And my last question. I understand that you're going to be providing guidance on the fourth-quarter call. But I mean, you're buildings -- are you building some contingencies in case the PTS transaction were not to close.

Meaning that you actually have a slew of those smaller projects or acquisition targets that could fully replenish the CAFD contribution that the PTC -- PTS project will push through that used to have.

Santiago Seage -- Chief Executive Officer

Well, that's obviously, a part of a plan, and the target we have is to invest is to $200 million to $300 million with or without a specific asset in this case PTS. So, we continue being very active looking at opportunities to be able to compensate if that didn't happen because the reality as I mentioned before is we don't control it.

Angie Storozynski -- Seaport Global Securities -- Analyst

Very good. Thank you.

Santiago Seage -- Chief Executive Officer

Thanks to you.

Operator

Thank you. There are no further questions at this time. Please continue.

Santiago Seage -- Chief Executive Officer

If we have no more questions. Operator, we would close the lines. Can you verify that there are no further questions?

Operator

There are no further questions.

Santiago Seage -- Chief Executive Officer

Great. So thank you very much, everyone. Have a nice day.

Francisco Martinez-Davis -- Chief Financial Officer

Thank you. Bye.

Duration: 27 minutes

Call participants:

Santiago Seage -- Chief Executive Officer

Francisco Martinez-Davis -- Chief Financial Officer

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

David Quezada -- Raymond James -- Analyst

Angie Storozynski -- Seaport Global Securities -- Analyst

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