AES(US:AES)2024-10-31 20:30PART I: FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited condensed consolidated financial statements as of September 30, 2024, detail balance sheets, operations, and cash flows with explanatory notes Condensed Consolidated Balance Sheets As of September 30, 2024, total assets and liabilities increased, driven by property, plant, and equipment and debt, while total equity also grew Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $10,526 | $6,649 | | Total Assets | $50,079 | $44,799 | | Total Current Liabilities | $12,375 | $9,731 | | Total Liabilities | $42,440 | $38,814 | | Total Equity | $7,639 | $5,985 | Condensed Consolidated Statements of Operations Net income attributable to the corporation significantly increased in Q3 and YTD 2024, resulting in higher diluted EPS despite slightly lower total revenue Key Performance Indicators (in millions, except per share data) | Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $3,289 | $3,434 | $9,316 | $9,700 | | Operating Margin | $722 | $918 | $1,894 | $2,010 | | Net Income Attributable to AES | $502 | $231 | $1,119 | $343 | | Diluted EPS Attributable to AES | $0.71 | $0.32 | $1.57 | $0.48 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased, while cash used in investing activities increased, and financing activities provided more cash due to new debt Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,664 | $2,309 | | Net cash used in investing activities | $(6,089) | $(5,673) | | Net cash provided by financing activities | $5,187 | $3,740 | | Total increase in cash | $569 | $248 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, tax credit transfers, asset impairments, debt financing, SBU performance, and assets held for sale - Under the Inflation Reduction Act (IRA), the company executed agreements to transfer $351 million in Investment Tax Credits (ITCs) to third parties during the first nine months of 2024, with AES's share being $173 million, recorded as an income tax benefit13 - The company recognized pre-tax asset impairment expenses of $355 million in the first nine months of 2024, primarily related to the held-for-sale classification of AES Brasil ($277 million) and Mong Duong ($54 million)7475112 - In February 2024, the company's Equity Units converted into 40.5 million shares of common stock, settling the 2024 Purchase Contracts and canceling the Series A Preferred Stock58 - As of September 30, 2024, AES Brasil and Mong Duong are classified as held-for-sale, with the sale of AES Brasil completed on October 31, 2024, for approximately $590 million7885 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, including decreased Q3 net income and Adjusted EBITDA, strategic clean energy focus, asset sales, key trends, and liquidity Executive Summary Q3 2024 saw a decrease in net income and Adjusted EBITDA, primarily due to lower Energy Infrastructure SBU contributions, while diluted and Adjusted EPS increased Q3 2024 vs Q3 2023 Performance | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net Income | $210M | $291M | | Diluted EPS (Continuing Ops) | $0.72 | $0.32 | | Adjusted EBITDA (Non-GAAP) | $692M | $990M | | Adjusted EPS (Non-GAAP) | $0.71 | $0.60 | YTD 2024 vs YTD 2023 Performance | Metric | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | | Net Income | $449M | $461M | | Diluted EPS (Continuing Ops) | $1.58 | $0.48 | | Adjusted EBITDA (Non-GAAP) | $1,979M | $2,187M | | Adjusted EPS (Non-GAAP) | $1.60 | $1.03 | Review of Consolidated Results of Operations Consolidated revenue and operating margin decreased in Q3 and YTD 2024, primarily due to Energy Infrastructure and Renewables SBUs, with increased interest expense - Q3 revenue decreased by $145 million, driven by a $238 million decline in the Energy Infrastructure SBU, partially offset by an $81 million increase in the Utilities SBU100 - Q3 operating margin decreased by $196 million, with Energy Infrastructure dropping $149 million and Renewables dropping $43 million due to drought in Colombia101 - YTD interest expense increased by $159 million (16%) to $1.125 billion, primarily due to new debt issued at the Renewables and Utilities SBUs and higher rates at the Parent Company106 - YTD asset impairment expense was $355 million, a slight increase from $352 million in the prior year, driven by AES Brasil and Mong Duong impairments in 2024112 SBU Performance Analysis SBU performance varied, with Renewables decreasing, Utilities growing, Energy Infrastructure declining significantly, and New Energy Technologies improving Adjusted EBITDA Adjusted EBITDA by SBU (in millions) | SBU | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Renewables | $199 | $267 | $443 | $557 | | Utilities | $223 | $216 | $619 | $526 | | Energy Infrastructure | $299 | $520 | $969 | $1,165 | | New Energy Technologies | $(7) | $(22) | $(38) | $(61) | - Renewables SBU's YTD Adjusted EBITDA decreased by $114 million due to drought and higher fixed costs, but Adjusted EBITDA with Tax Attributes increased by $695 million from $878 million in realized U.S. tax attributes134 - Utilities SBU's YTD Adjusted EBITDA increased by $93 million, driven by higher rider revenues and new rates from the 2024 Base Rate Order135 - Energy Infrastructure SBU's YTD Adjusted EBITDA decreased by $196 million, mainly due to lower margins at Southland merchant facilities and higher outages138 Key Trends and Uncertainties Key trends and uncertainties include solar panel supply chain disruptions, hydrological risks, IRA tax credit benefits, macroeconomic challenges, and decarbonization strategy - The company has secured all necessary solar panels for projects coming online through 2026 and is advancing efforts to secure domestically manufactured modules for 2026-2028143 - The company expects to realize a significant portion of its 2024 earnings from tax attributes in the fourth quarter, having already recognized $895 million in the first nine months of 2024 under the IRA147 - AES intends to exit the substantial majority of its remaining coal facilities by year-end 2025 and all coal facilities by year-end 2027, subject to approvals154 - Regulatory proceedings are ongoing for AES Indiana and AES Ohio, with key decisions expected by late 2024 or early 2025157158159 Capital Resources and Liquidity As of September 30, 2024, the company's liquidity position, including cash and debt, is detailed, with management believing it is adequate for the foreseeable future Parent Company Liquidity (in millions) | Component | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Parent Co. Cash & Equivalents | $6 | $33 | | Available Borrowings | $335 | $1,376 | | Total Parent Company Liquidity | $341 | $1,409 | - Primary cash uses in the first nine months of 2024 were capital expenditures ($5.7 billion), debt repayments ($7.4 billion), and supplier financing repayments ($1.4 billion)176 - Primary cash sources were new debt borrowings ($11.8 billion), operating activities ($1.7 billion), and sales to noncontrolling interests ($0.9 billion)176 - As of September 30, 2024, five subsidiaries had non-recourse debt in technical or payment default totaling $330 million, which did not trigger cross-defaults at the Parent Company level192 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from commodity prices, interest rates, and foreign currency exchange rates, which are managed through derivatives and other hedging strategies - The company's primary market risk exposures are to the prices of electricity, natural gas, coal, environmental credits, interest rates, and foreign currency exchange rates194 - A 10% increase in commodity prices is projected to have a minimal impact on pre-tax earnings: <$10M gain for power, <$5M loss for gas, and <$5M gain for coal195 - The company has material unhedged forward-looking earnings risk from the Argentine peso, with a 10% USD appreciation having a minor net positive impact on cash distributions from Euro and Colombian peso exposed subsidiaries198 - A one-time 100-basis-point increase in interest rates would result in less than a $5 million increase in interest expense for the remainder of 2024 across all currency-denominated debt199 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2024200 - No material changes occurred during the quarter that have affected the company's internal control over financial reporting201 PART II: OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, including arbitration, contamination lawsuits, and disputes related to coal combustion residuals and contracts across multiple countries - A lawsuit in the Dominican Republic seeks over $900 million in damages related to CCRs, dismissed by a lower court but appealed by claimants203 - Another lawsuit in the Dominican Republic seeks over $600 million in damages related to CCRs from 2003-2004204 - In Mexico, AES Mérida III is enforcing a favorable arbitration award against CFE, which had sought approximately $680 million in damages, with CFE's nullification attempt denied and under higher court review204 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2023 Form 10-K - No material changes to the risk factors disclosed in Item 1A of the 2023 Form 10-K have occurred206 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares of its common stock during Q3 2024, with $264 million remaining available under the repurchase program - No shares were repurchased during the third quarter of 2024207 - As of September 30, 2024, $264 million remains available under the company's common stock repurchase program207209