AES(US:AES)2024-05-02 21:15PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2024, showing total assets increased to $47.0 billion and net income attributable to The AES Corporation rose to $432 million with diluted EPS increasing to $0.60 Condensed Consolidated Balance Sheet Highlights (As of March 31, 2024) | Account | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :--- | :--- | :--- | | Total Current Assets | $7,170 | $6,649 | | Property, Plant and Equipment, net | $31,906 | $29,958 | | Total Assets | $47,045 | $44,799 | | Total Current Liabilities | $9,211 | $9,731 | | Total Noncurrent Liabilities | $30,052 | $27,619 | | Total Equity | $6,280 | $5,985 | | Total Liabilities and Equity | $47,045 | $44,799 | Condensed Consolidated Statement of Operations (Three Months Ended March 31) | Account | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | Total Revenue | $3,085 | $3,239 | | Operating Margin | $619 | $594 | | Income from Continuing Operations Before Taxes | $277 | $265 | | Net Income | $278 | $189 | | Net Income Attributable to The AES Corporation | $432 | $151 | | Diluted EPS | $0.60 | $0.21 | Condensed Consolidated Statement of Cash Flows (Three Months Ended March 31) | Activity | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $287 | $625 | | Net cash used in investing activities | $(2,386) | $(1,624) | | Net cash provided by financing activities | $2,606 | $1,016 | | Total increase (decrease) in cash | $565 | $(10) | Notes to Condensed Consolidated Financial Statements The notes detail the basis of financial statement presentation and key accounting events, including equity unit conversion, debt issuances, financial restructuring, asset acquisition, and impairment of the Mong Duong plant - On February 15, 2024, the company's Series A Preferred Stock was tendered to satisfy the 2024 Purchase Contract's settlement price, and the Corporate Units were converted into 40,531,845 shares of AES common stock74 - In March 2024, AES Indiana issued $650 million in First Mortgage Bonds and IPALCO issued $400 million in senior secured notes. AES Andes issued $500 million in senior unsecured notes484950 - AES Puerto Rico executed a financial restructuring on March 5, 2024, exchanging $156 million of bond loans for new senior secured bonds and preferred shares. This was accounted for as a troubled debt restructuring47 - The company recognized a $37 million pre-tax impairment expense on its Mong Duong plant in Vietnam, which is classified as held-for-sale97 - In February 2024, AES Indiana acquired 100% of the interests in Hoosier Wind Project, LLC, a 106 MW wind facility, for a total consideration of $93 million106 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses Q1 2024 financial results, highlighting an $89 million increase in net income and a $7 million rise in Adjusted EBITDA, detailing performance by SBU, key trends, capital resources, and liquidity position Executive Summary & Strategic Performance In Q1 2024, net income increased to $278 million and Adjusted EBITDA rose to $635 million, driven by Utilities and New Energy Technologies, while the company advanced its clean energy strategy with 1.2 GW of new renewables contracts Q1 2024 vs Q1 2023 Key Financial Metrics | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $278M | $189M | +$89M | | Adjusted EBITDA | $635M | $628M | +$7M | | Diluted EPS | $0.60 | $0.21 | +$0.39 | | Adjusted EPS | $0.50 | $0.22 | +$0.28 | - Strategic highlights include: - A renewables backlog of 12.7 GW, with 5.8 GW under construction128 - Signed 1.2 GW of new long-term renewables contracts since the Q4 2023 earnings call128 - Completed or acquired 593 MW of wind, solar, and energy storage projects, with a target to add 3.6 GW total in 2024128 - AES Indiana received approval for new customer rates effective mid-May 2024128 Review of Consolidated Results of Operations For Q1 2024, consolidated revenue decreased by 5% to $3.1 billion, primarily due to lower revenues in Energy Infrastructure and Utilities SBUs, though total operating margin increased by 4% to $619 million Revenue and Operating Margin by SBU (Three Months Ended March 31) | SBU (in millions) | Revenue 2024 | Revenue 2023 | Operating Margin 2024 | Operating Margin 2023 | | :--- | :--- | :--- | :--- | :--- | | Renewables | $619 | $495 | $53 | $88 | | Utilities | $873 | $971 | $120 | $105 | | Energy Infrastructure | $1,614 | $1,724 | $404 | $375 | | New Energy Technologies | $0 | $74 | $(2) | $(4) | | Total | $3,085 | $3,239 | $619 | $594 | - Revenue decreased by $154 million (5%), mainly due to a $110 million decline at Energy Infrastructure and a $98 million decline at Utilities133136 - Operating margin increased by $25 million (4%), driven by a $29 million increase at Energy Infrastructure and a $15 million increase at Utilities, partially offset by a $35 million decrease at Renewables135137146 SBU Performance Analysis The SBU analysis shows mixed performance, with Utilities SBU Adjusted EBITDA increasing to $182 million, Renewables SBU's Adjusted EBITDA decreasing to $102 million but surging to $328 million with Tax Attributes, and New Energy Technologies reducing its loss Adjusted EBITDA by SBU (Three Months Ended March 31, in millions) | SBU | 2024 | 2023 | $ Change | | :--- | :--- | :--- | :--- | | Renewables | $102 | $124 | $(22) | | Utilities | $182 | $162 | $20 | | Energy Infrastructure | $360 | $363 | $(3) | | New Energy Technologies | $(17) | $(26) | $9 | | Total Adjusted EBITDA | $635 | $628 | $7 | - Renewables SBU's Adjusted EBITDA with Tax Attributes increased by $191 million to $328 million, primarily due to higher realized tax attributes from new U.S. projects179181 - Utilities SBU performance was driven by higher demand from favorable weather and increased distribution and transmission revenues184185 Key Trends and Uncertainties Management identifies key trends and uncertainties including U.S. trade restrictions, supply chain disruptions, El Niño/La Niña impacts, benefits from the Inflation Reduction Act, Argentina's new government, global tax changes, and strategic decarbonization initiatives - Operational Risks: - Supply Chain: U.S. Commerce Department investigations and the UFLPA create uncertainty for solar panel imports from Southeast Asia, though AES has secured its 2024 panel requirements194198 - Hydrology: El Niño conditions are forecast through mid-2024, potentially impacting hydro generation in Panama, Colombia, and Chile. A transition to La Niña is possible by late Q3 2024201202 - Macroeconomic & Political Factors: - IRA: The Inflation Reduction Act is expected to benefit the U.S. clean energy business through extended and new tax credits, supporting the 51 GW renewables pipeline209210 - Argentina: A new administration is pursuing economic deregulation and energy sector reform, the impact of which is not yet predictable213 - Puerto Rico: PREPA's bankruptcy proceedings continue, but AES Puerto Rico completed a financial restructuring in March 2024 to address liquidity225 - Decarbonization: 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 approvals228 Capital Resources and Liquidity As of March 31, 2024, the company had $2 billion in unrestricted cash and cash equivalents and $732 million in Parent Company Liquidity, with primary cash sources from debt financings and operating activities, and uses for capital expenditures and debt repayments Parent Company Liquidity (in millions) | Component | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Parent Co. & qualified holding co. cash | $90 | $33 | | Borrowings available under credit facility | $642 | $1,376 | | Total Parent Company Liquidity | $732 | $1,409 | Summary of Cash-Based Activities (Q1 2024, in millions) | Type | Amount | | :--- | :--- | | Total Cash Sources | $5,763 | | Issuance of non-recourse debt | $2,131 | | Borrowings under revolving credit facilities | $1,741 | | Total Cash Uses | $(5,198) | | Capital expenditures | $(2,148) | | Repayments under revolving credit facilities | $(1,037) | - Capital expenditures in Q1 2024 were $2.15 billion, a $597 million increase from Q1 2023, primarily driven by growth in U.S. renewables projects281283 ITEM 3. 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 strategies, with significant exposure to the Argentine peso - Commodity Price Risk: A 10% increase in commodity prices is projected to have a pre-tax earnings impact of less than a $15 million gain for power, a $5 million loss for gas, and a $5 million gain for coal307 - Foreign Exchange Risk: The company has unhedged forward-looking earnings risk from the Argentine peso that could be material. A 10% USD appreciation would have a minimal net impact on cash distributions from other key foreign currencies due to hedging315 - Interest Rate Risk: A one-time 100-basis-point increase in interest rates would result in less than a $25 million increase in annual interest expense for the company's portfolio of variable-rate debt319 ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2024320 - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting321 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is involved in various legal proceedings, including arbitration with GRIDCO in India, lawsuits in the Dominican Republic seeking over $1.9 billion in damages, and arbitration with Mexico's CFE, believing outcomes are unlikely to be materially adverse - A challenge to a 2007 arbitration award in the company's favor remains pending in an Indian court regarding a dispute with GRIDCO, which had sought approximately $189 million324 - Three separate lawsuits are pending in the Dominican Republic related to CCRs delivered in 2003-2004, with claimants seeking combined damages of over $1.9 billion for alleged personal injuries and deaths328329334 - In Mexico, an arbitration tribunal rejected a ~$680 million claim by CFE against AES Mérida III and awarded AES Mérida a net amount of damages on its counterclaims. Enforcement and challenge proceedings are ongoing in Mexican courts332 Other Part II Items This section confirms no material changes to the risk factors disclosed in the 2023 Form 10-K, details the purchase of 165,335 common shares in a private transaction, and reports no defaults or Rule 10b5-1 trading arrangement adoptions - There have been no material changes to the risk factors disclosed in the 2023 Form 10-K338 Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | Maximum Value Remaining for Purchase Under Program | | :--- | :--- | :--- | :--- | | Jan 1 - Jan 31 | 0 | N/A | $264,000,000 | | Feb 1 - Feb 29 | 0 | N/A | $264,000,000 | | Mar 1 - Mar 31 | 165,335 | $16.24 | $264,000,000 | | Total | 165,335 | $16.24 | $264,000,000 | - The 165,335 shares purchased were part of a privately negotiated affiliate transaction and not under the public stock repurchase program339