The AES Corporation

Welcome to the AES Corporation Second Quarter 2020 Financial Review Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Ahmed Pasha, Treasurer and Vice President of Investor Relations. Go ahead.

Thank you, Operator. Good morning, everyone, and welcome to our second quarter 2020 financial review call. Our press release, presentation, and related financial information are available on our website at aes.com. Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. which are discussed in our most recent 10-K and 10-Q filed with the SEC. Reconciliations between GAAP and non-GAAP financial mayors can be found on our website along with the presentation. Joining me this morning are Andres Klosky, our President and Chief Executive Officer, Gustavo Pimenta, our Chief Financial Officer, and other senior members of our management team. With that, I will turn the call over to Andres. Andres?

Good morning, everyone. and thank you for joining our second quarter financial review call. Today, I'll spend some time on three near-term priorities, achieving our 2020 guidance, attaining a second investment grade rating, and decarbonizing our portfolio. We believe that progress in these three key areas will allow us to reach a larger investor base in the near term. They will also advance our longer-term strategic and financial objectives. After discussing these three themes, I'll provide an update on our sustainable growth initiatives and our efforts to create a technological competitive edge. Last quarter, I indicated that we were well positioned to withstand the impacts of the COVID-19 pandemic due to the resilience of our business model. I'm pleased to report that our second quarter results demonstrate this resilience and keep us on track to achieve our full year guidance. We delivered adjusted EPS of 25 cents in the second quarter in line with last year. This reflects the strength of our business model, which is based on long-term take or pay contracts with credit worthy customers. As a result, we are very confident that we will achieve our 2020 adjusted EPS guidance of $1.32 to $1.42 and our expected parent-free cash flow of $725 to $775 million. At the same time, we have continued to grow our free cash flow. We ended the second quarter with a parent free cash flow to debt ratio of 24 percent, which is comfortably above the 20 percent threshold required for investment grade ratings. As a reminder, we've already received one investment grade rating from Fitch and remain optimistic that we will attain our second investment grade rating later this year. Turning to our aggressive decarbonization goals on slide four. As we've said before, we are very focused on reducing our generation from coal to less than 30% of total generation to comply with Norges Bank environmental investment criteria. On this front, we've made great progress over the past two months. signing binding agreements to sell OPGC in India and Etabl in the Dominican Republic. These sales will reduce our generation from coal by 11 percentage points to 34%. We're working on a couple of additional transactions that combined with our growth in renewables will allow us to easily comply with Norges' bank criteria by next year. To further our reduction in coal exposure, ASNR is negotiating with several off-takers in Chile, to de-link PPAs from physical assets and be able to monetize the value of long-term tolling agreements. These transactions will demonstrate that the real value of the business is in its contracts and customers, while providing funding for AS&R's successful green blend and extend renewables growth strategy. Turning to slide five and sustainable growth. I'm happy to announce that since our last call, we have been awarded or signed 852 megawatts of new renewable PPAs. This brings our year-to-date total to 1.5 gigawatts, including 346 megawatts of energy storage. As a result, our backlog of new renewable projects increased to 6.2 gigawatts. About half of this backlog is in the U.S., and the majority is expected to come online between 2021 and 2024. Therefore, we remain on track to continue to add two to three gigawatts of new renewables per year by capitalizing on our business platforms and our growing technological expertise. In addition to our 6.2 gigawatt backlog, we have a pipeline of 15 gigawatts of renewable projects under active development in the U.S. This considerable pipeline positions us very well for an acceleration in U.S. renewables growth if federal policies change following the November elections. Turning to slide seven, we're also consolidating our position in existing renewable platforms. To that end, we recently acquired additional shares of AESJT, increasing our ownership from 24% to 43%. We will finance this acquisition mostly through non-recourse debt in Brazil, and it is accretive from day one. We plan to upgrade ASGT's listing to Novo Mercado on the Bovespa, where companies trade at significant premiums due to best-in-class governance. This move is expected to further unlock the value of ASGT for the benefit of all of its shareholders. We continue to actively pursue new technologies that support our growth in renewables and innovative products that meet the changing needs of our customers. As you can see on slide eight, Fluence, our joint venture with Siemens that sells energy storage technology to third parties, continues to be the global market leader in this sector. This leadership is based on our track record of deploying more than two gigawatts of energy storage, presence in 22 countries, and offering more than 40 digital applications to our customers. This year, Fluence's revenue is expected to reach $500 billion, an increase of 400% in relation to last year. We believe that energy storage will play a major role in the global transition to a low-carbon economy. As a result, we expect Fluence's revenue to grow at 40% compounded annually to reach $3 billion by the end of 2025. Turning to slide nine, we are already experiencing this acceleration of growth and demand for energy storage. In June, Fluence launched its sixth generation product, which includes a modular and factory assembled cube design that is safer, more reliable, and lower cost. Fluence's new cube already has orders for more than 800 megawatts, to be delivered over the next three years. As you may know, Fluence is currently running a private placement for a minority partner in order to capitalize this high growth business. We are encouraged by the strong interest we are seeing from potential investors and we expect to have concrete details to share with you before the end of the year. Together, AES and Fluence continue to pioneer new applications for lithium ion based energy storage technology One example is a virtual reservoir for run-of-the-river hydro projects utilizing energy storage that charges when power prices are low and discharges during peak hours. As shown on slide 10, at the Cordillera Hydro Complex in Chile, we just commissioned the world's first such virtual reservoir with 10 megawatts or 50 megawatt hours of energy storage. We can further expand this facility to 250 megawatts or 1,250 megawatt hours over the next couple of years. Today, about half of all our renewable projects have an energy storage component. Now moving on to slide 11, we continue to pursue new technologies that have the potential to provide us with a competitive advantage in our markets. To that end, we recently acquired a 25% stake in 5B, a prefabricated solar solution company in Australia. With 5B's patented technology, solar projects can be built in a third of the time and in half the space. We believe that being able to double solar energy output from a given area will become increasingly important as solar penetration increases, especially near urban or congested areas. In addition to 5B's potential pipeline of more than 10 gigawatts of third-party projects in Australia, we see an additional addressable market of five gigawatts across our development pipeline. As part of this strategic agreement, we have exclusive rights to develop utility scale projects using 5B's technology in our key markets, including the US. We have already started the deployment of two megawatts in Panama and 10 megawatts in Chile. We aim to be the most competitive solar developer by using 5B to reduce time to build and increase energy density while combining it with our robotic and digital solar initiatives. Turning to slide 12, in 2018, AES invested in Uplight to improve our customer experiences via digital cloud-based technology. In addition, Uplight provides cloud-based services to third parties to improve energy efficiency and balance system demand. This fast-growing business already reaches more than 100 million households and businesses in the U.S. and expects a 20% increase in annual revenue in 2020. Finally, regarding our partnership with Google, it is progressing well. And as you might have seen, we recently launched an RFP for one gigawatt of carbon-free energy in PJM. We are working on several other significant initiatives with Google, and we will share additional details as these firm up. In summary, our ongoing leading technology efforts aim to give us a competitive edge to deliver the products and services required by our customers in a rapidly evolving and growing market. Now I would like to turn over the call to Gustavo Pimenta, our CFO, so he can provide more color on our results, debt profile, and guidance.