Algonquin Power & Utilities (US:AQN)2023-08-10 15:27Financial Data and Key Metrics Changes - The second quarter revenue increased by 1% year-on-year to $627.9 million, primarily due to the implementation of new rates, offset by unfavorable weather [20][22] - Consolidated adjusted EBITDA for the second quarter was $277.7 million, a decline of approximately 4% from the same period last year [20] - Adjusted net earnings were $56.2 million, and adjusted earnings per share were $0.08, both representing a year-over-year decline of approximately 50% [22] Business Line Data and Key Metrics Changes - The Regulated Services Group delivered $214.4 million in divisional operating profit in the second quarter, a year-on-year increase of 15% [20][21] - The Renewable Energy Group's divisional operating profit was $90.6 million, a year-on-year reduction of 26%, primarily due to lower wind production and decreased HLBV income [21][22] Market Data and Key Metrics Changes - The regulated utility business serves over 1.2 million customer connections with a $7 billion rate base, concentrated in four U.S. states [10][11] - The renewable portfolio has approximately 2.7 gigawatts of gross generating capacity across 46 facilities, operating in 11 states and six provinces [13][14] Company Strategy and Development Direction - The company plans to pursue a sale of its Renewable Energy Group to focus on its regulated utility business, which is expected to create more long-term value [7][9] - The strategy includes investing approximately $1 billion of capital per year in the regulated business, focusing on standardizing infrastructure to improve reliability and customer affordability [12][15] - The company aims to maintain its investment-grade BBB credit rating while supporting its current dividend through the remaining regulated business [9][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging quarter due to unfavorable weather and higher interest rates impacting financial results [15][20] - The company expects annual adjusted net EPS growth over time to be in the 4% to 7% range, consistent with industry standards [13][22] Other Important Information - The company has engaged JPMorgan as a financial advisor for the sale of the renewable business, with the timing of the sale dependent on achieving appropriate value [9][38] - The development pipeline for the renewable business includes over six gigawatts of solar and wind projects, with significant portions already in interconnection queues [14][43] Q&A Session Summary Question: Can you comment on the planned renewable sale and valuations? - Management indicated that they have analyzed market conditions and believe their portfolio has strong value, with proceeds aimed at reducing debt and buying back shares [25][27] Question: What is the target FFO-to-debt ratio? - Management stated that the FFO-to-debt ratio would decrease as a pure play regulated business, allowing for more liquidity to invest approximately $1 billion annually [31][32] Question: What are the implications for the dividend payout ratio? - Management expects a high payout ratio in the near term but aims to align it with industry standards in the long term [40] Question: How important is the development platform in the sale process? - Management believes the development platform will be attractive to potential buyers, with significant projects already under construction [42][43] Question: What will be the use of proceeds from the sale of the renewable business? - Proceeds will primarily be used to strengthen the balance sheet, focusing on maintaining a BBB credit rating and supporting growth in the regulated business [79][80]