AES(US:AES)2025-05-01 20:23PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) AES reported a net loss of $73 million for Q1 2025, with revenue down 5% to $2.93 billion, assets up to $48.6 billion, and operating cash flow improving to $545 million Consolidated Financial Highlights (Q1 2025 vs Q1 2024) | Financial Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $2,926 | $3,085 | -5.1% | | Operating Margin | $441 | $619 | -28.8% | | Net Income (Loss) | $(73) | $278 | NM | | Net Income Attributable to AES | $46 | $432 | -89.4% | | Diluted EPS | $0.07 | $0.60 | -88.3% | | Net Cash from Operating Activities | $545 | $287 | +89.9% | Balance Sheet Summary | Balance Sheet Item | March 31, 2025 (in millions) | Dec 31, 2024 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $7,878 | $6,831 | +15.3% | | Total Assets | $48,615 | $47,406 | +2.5% | | Total Current Liabilities | $9,344 | $8,571 | +9.0% | | Total Liabilities | $39,991 | $38,764 | +3.2% | | Total AES Stockholders' Equity | $3,468 | $3,644 | -4.8% | Note 1 - Financial Statement Presentation Interim financial statements follow GAAP, treating transferable tax credits as income tax expense reductions, with no material impact from new 2025 accounting pronouncements - The company accounts for transferable Investment Tax Credits (ITCs) from the Inflation Reduction Act (IRA) as a reduction in income tax expense, including the cash to be received in its annual effective tax rate calculation19 - In Q1 2025, the company received $75 million in cash proceeds related to a tax credit transfer agreement executed in 2024, which is treated as an operating cash inflow19 Note 3 - Fair Value Fair value measurements as of March 31, 2025, show $613 million in assets and $493 million in liabilities, including a $17 million impairment for the Mong Duong business and increased contingent consideration - Contingent consideration liabilities, measured at fair value, increased to $173 million as of March 31, 2025, from $145 million at year-end 2024, primarily related to acquisitions of renewables development projects2630 - The Mong Duong business, classified as held-for-sale, was written down to its fair value, resulting in a pre-tax impairment loss of $17 million in Q1 202532 - The company recognized $31 million of pre-tax asset impairment expense for abandoned AES Clean Energy Development Projects in Q1 2025, compared to $7 million in Q1 202433 Note 8 - Obligations In Q1 2025, AES issued $800 million in senior notes and expanded its commercial paper program, while $531 million of subsidiary non-recourse debt was in default, and supplier financing arrangements totaled $605 million - In March 2025, the Parent Company issued $800 million of 5.80% senior notes due 2032, using the proceeds to tender for its 3.30% senior notes due in 202552 - The company's commercial paper program was expanded to a maximum of $1.5 billion in April 2025. As of March 31, 2025, $255 million was outstanding53 Subsidiary Non-Recourse Debt in Default (as of March 31, 2025) | Subsidiary | Primary Nature of Default | Debt in Default (in millions) | | :--- | :--- | :--- | | AES Dominican Renewable Energy | Covenant | $353 | | AES Puerto Rico | Payment | $150 | | AES Ilumina (Puerto Rico) | Covenant | $22 | | AES Jordan Solar | Covenant | $6 | | Total | | $531 | - Outstanding balances under supplier financing arrangements decreased to $605 million as of March 31, 2025, from $917 million at year-end 2024737475 Note 9 - Commitments and Contingencies As of March 31, 2025, contingent contractual obligations totaled $4.8 billion, with estimated potential losses for material contingencies ranging from $174 million to $223 million Parent Company Contingent Contractual Obligations (as of March 31, 2025) | Type | Maximum Exposure (in millions) | | :--- | :--- | | Guarantees and commitments | $4,322 | | Letters of credit (all types) | $450 | | Surety bonds | $2 | | Total | $4,774 | - The company estimates the range of potential losses for reasonably possible material contingencies (excluding accrued amounts and tax matters) to be between $174 million and $223 million82 Note 12 - Equity In Q1 2025, Equity Units converted into 40.5 million shares, while noncontrolling interests increased by $82 million from the Rexford project sale and $150 million from the Pike County BESS project - On February 15, 2024, the company's Corporate Units were converted into 40,531,845 shares of AES common stock, and the associated Series A Preferred Stock was canceled97 - In Q1 2025, AES Renewable Holdings sold a noncontrolling interest in the Rexford project, increasing NCI by $82 million100 - Following the Pike County BESS project being placed in service in March 2025, AES Indiana received an additional $150 million from its tax equity investor, increasing NCI101 Note 13 - Segments Effective Q1 2025, segment reporting shifted Chile renewables to the Renewables SBU; Energy Infrastructure remained the largest contributor despite declines, while Utilities showed strong growth - Beginning in Q1 2025, the company's businesses in Chile (excluding two remaining coal plants) are reported as part of the Renewables SBU instead of the Energy Infrastructure SBU, reflecting a strategic shift after the sale of coal assets. Prior period information has been retrospectively revised for comparability where possible110 Segment Revenue and Adjusted EBITDA (Q1 2025 vs Q1 2024) | Segment | Revenue Q1 2025 (M) | Revenue Q1 2024 (M) | Adj. EBITDA Q1 2025 (M) | Adj. EBITDA Q1 2024 (M) | | :--- | :--- | :--- | :--- | :--- | | Renewables | $666 | $643 | $161 | $111 | | Utilities | $1,009 | $873 | $223 | $182 | | Energy Infrastructure | $1,320 | $1,609 | $254 | $356 | | New Energy Technologies | $0 | $0 | $(25) | $(17) | - Renewables SBU performance was boosted by higher generation in Panama from better hydrology, new businesses, and the re-segmentation of AES Andes, though partially offset by increased fixed costs and the sale of AES Brasil231 - Utilities SBU growth was driven by higher retail rates from the 2024 Base Rate Order, increased demand from weather, and higher transmission revenues234 Note 16 - Asset Impairment Expense Total asset impairment expense for Q1 2025 was $49 million, mainly from a $31 million write-off for abandoned U.S. renewables projects and a $17 million impairment on the Mong Duong coal plant Asset Impairment Expense Breakdown (in millions) | Asset | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | AES Clean Energy Development Projects | $31 | $7 | | Mong Duong | $17 | $37 | | Other | $1 | $2 | | Total | $49 | $46 | Note 18 - Held-for-Sale and Dispositions As of March 31, 2025, Dominican Republic Renewables and Mong Duong (Vietnam) were held-for-sale, with Mong Duong incurring a $17 million impairment; the Ventanas coal facility sale was completed - In December 2024, an agreement was made to sell 50% of interests in Dominican Republic Renewables, which is now classified as held-for-sale with an expected closing in Q2 2025138 - The Mong Duong coal plant in Vietnam remains classified as held-for-sale, with an expected closing by early 2026. The business recorded a pre-tax impairment of $17 million in Q1 2025139 - In January 2025, the company completed the sale of its Ventanas coal-fired generation facility in Chile for $5 million141 Note 21 - Restructuring A restructuring program initiated in February 2025 resulted in $48 million of pre-tax charges in Q1 2025, primarily for employee severance costs - A restructuring program initiated in February 2025 resulted in $48 million of pre-tax charges in Q1 2025, mainly for employee severance150 Note 22 - Subsequent Events Subsequent to quarter-end, AES sold a minority interest in AGIC for $450 million and an approximate 30% indirect equity interest in AES Ohio for $544 million - On April 30, 2025, the company sold a minority interest in its captive insurance company, AGIC, for $450 million in total proceeds152 - On April 4, 2025, the sale of an approximately 30% indirect equity interest in AES Ohio was consummated, with total proceeds of approximately $544 million155 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management attributes the Q1 2025 net loss to prior-year gains and restructuring costs; Adjusted EBITDA decreased to $591 million, while strategic progress included new projects and achieving the 2025 asset sale target Executive Summary Q1 2025 saw a net loss of $73 million and diluted EPS of $0.07, with Adjusted EBITDA decreasing to $591 million, while strategic highlights included new projects and achieving the 2025 asset sale target Key Performance Metrics (Q1 2025 vs Q1 2024) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Income (Loss) | ($73 M) | $278 M | ($351 M) | | Adjusted EBITDA | $591 M | $640 M | ($49 M) | | Diluted EPS | $0.07 | $0.60 | ($0.53) | | Adjusted EPS | $0.27 | $0.50 | ($0.23) | - Strategic highlights include completing 643 MW of new projects, signing 443 MW of new PPAs, and achieving the full-year 2025 asset sale target of $400-$500 million through the sale of a minority stake in its insurance company, AGIC, for $450 million175 Review of Consolidated Results of Operations Consolidated revenue for Q1 2025 decreased 5% to $2.9 billion, primarily due to Energy Infrastructure SBU declines, while operating margin fell 29% to $441 million due to prior-year gains and restructuring costs - The $159 million decrease in total revenue was driven by a $289 million decline at the Energy Infrastructure SBU, largely due to the prior year monetization of the Warrior Run PPA and the re-segmentation of the AES Andes portfolio179 - The $178 million decrease in operating margin was primarily caused by a $205 million drop at the Energy Infrastructure SBU, again linked to the Warrior Run PPA monetization and prior year derivative gains188 - A significant driver for the year-over-year variance in Gain (loss) on disposal was a $52 million gain in Q1 2024 from the dilution of AES's ownership interest in Uplight191 SBU Performance Analysis In Q1 2025, Utilities SBU Adjusted EBITDA grew 23% to $223 million, Renewables SBU increased 45% to $161 million, and Energy Infrastructure SBU declined 29% to $254 million SBU Adjusted EBITDA Performance (Q1 2025 vs Q1 2024) | SBU | Adjusted EBITDA Q1 2025 (M) | Adjusted EBITDA Q1 2024 (M) | % Change | | :--- | :--- | :--- | :--- | | Renewables | $161 | $111 | +45% | | Utilities | $223 | $182 | +23% | | Energy Infrastructure | $254 | $356 | -29% | | New Energy Technologies | $(25) | $(17) | -47% | - Renewables SBU performance was boosted by higher generation in Panama from better hydrology, new businesses, and the re-segmentation of AES Andes, though partially offset by increased fixed costs and the sale of AES Brasil231 - Utilities SBU growth was driven by higher retail rates from the 2024 Base Rate Order, increased demand from weather, and higher transmission revenues234 Key Trends and Uncertainties Key trends include persistent supply chain risks, IRA implementation uncertainty, and regulatory changes, as the company continues its decarbonization strategy aiming to exit most coal facilities by year-end 2025 - The company has mitigated supply chain risks from U.S. tariffs by contracting and importing all solar panels needed for its 2025 U.S. project backlog and contracting for U.S.-manufactured panels for its 2026-2027 backlog253254255 - The Inflation Reduction Act (IRA) is beneficial for the U.S. renewables business, but its implementation faces uncertainty due to potential administrative changes and the need for substantial guidance from the U.S. Treasury265269 - The company intends to exit the substantial majority of its coal facilities by year-end 2025 as part of its decarbonization strategy, though efforts in some markets will continue beyond 2027286 - The European Union's DG Comp is conducting a preliminary review of the AES Maritza PPA in Bulgaria for compliance with State Aid rules, creating uncertainty about the contract's future292 Capital Resources and Liquidity As of March 31, 2025, the company had $1.8 billion in cash and $1.7 billion in Parent Company Liquidity, with total debt at $30 billion; net cash from operations significantly increased to $545 million Liquidity Position | Metric | March 31, 2025 (in millions) | Dec 31, 2024 (in millions) | | :--- | :--- | :--- | | Consolidated cash and cash equivalents | $1,753 | $1,524 | | Parent Company Liquidity | $1,677 | $2,047 | Cash Flow Summary (Q1 2025 vs Q1 2024) | Cash Flow Activity | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $545 | $287 | | Net cash used in investing activities | $(1,282) | $(2,386) | | Net cash provided by financing activities | $1,317 | $2,606 | - The $258 million increase in operating cash flow was driven by a $611 million favorable change in working capital, which offset a $353 million decrease in adjusted net income337344 - Capital expenditures decreased by $894 million year-over-year, primarily due to lower growth expenditures for U.S. renewables projects345346 Critical Accounting Policies and Estimates The company's critical accounting policies and estimates, as described in its 2024 Form 10-K, remained unchanged for Q1 2025 - There were no changes to the company's critical accounting policies and estimates during the first quarter of 2025361 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company faces market risks from commodity prices, interest rates, and foreign currency, with a 100-basis-point interest rate increase projected to impact 2025 pre-tax earnings by less than $15 million - As of March 31, 2025, the company projects that a 10% increase in commodity prices would result in a pre-tax earnings gain of less than $5 million for power, a gain of less than $5 million for gas, and a loss of less than $5 million for coal366 - The company has unhedged forward-looking earnings exposed to the Argentine peso. A 10% USD appreciation against key foreign currencies is estimated to result in a potential loss of less than $10 million on cash distributions374 - A one-time 100-basis-point increase in interest rates would impact 2025 pre-tax earnings by less than $15 million on interest expense for debt denominated in key currencies378 CONTROLS AND PROCEDURES As of March 31, 2025, disclosure controls were ineffective due to a material weakness related to the AES Brasil disposition, with remediation efforts expected by June 30, 2025 - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to a material weakness in internal control over financial reporting380 - The material weakness relates to ineffective controls over the review of the AES Brasil disposition, specifically the use of incomplete data in estimating the fair value for the impairment calculation when the asset was classified as held-for-sale381 - Management has begun remediation efforts, including policy updates and training, and expects these to be completed by June 30, 2025383384 PART II: OTHER INFORMATION LEGAL PROCEEDINGS The company faces several legal proceedings, including a long-standing arbitration with GRIDCO, lawsuits in the Dominican Republic seeking over $1.9 billion, and a new securities class action against Fluence and AES - A long-pending arbitration with GRIDCO in India, where GRIDCO sought approximately $189 million, remains unresolved as GRIDCO's challenge to a 2007 award in AES's favor is still pending in Indian court388 - The company faces multiple lawsuits in the Dominican Republic related to coal combustion residuals (CCRs) delivered in 2003-2004, with claimants seeking over $1.9 billion in alleged damages for personal injuries392393397 - In April 2025, a securities class action lawsuit was filed against Fluence Energy, Inc., its officers, and AES, alleging violations of the Securities Exchange Act. AES is named as an alleged "control person"400 RISK FACTORS There have been no material changes to the risk factors previously disclosed in the company's 2024 Form 10-K - No material changes to the risk factors disclosed in the 2024 Form 10-K have occurred401 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company did not repurchase common stock in Q1 2025, with $264 million remaining available under its stock repurchase program - No shares of common stock were repurchased during the first quarter of 2025402 - As of March 31, 2025, $264 million remains available under the company's stock repurchase authorization402