The AES Corporation

Hello and welcome to the AES Corporation TechWorks 2021 Final Review. My name is Juan and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing the star 1 on your telephone keyboard. I will now hand over to your host, Ahmed Pasha, Global Treasure Vice President of Investor Relations to begin with. Ahmed, please go ahead.

Thank you, operator. Good morning and welcome to our third quarter 2021 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, Steve Copeland, 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 third quarter financial review call. Before discussing our progress since our last call, I want to introduce our new chief financial officer, Steve Kostin. Steve has been with AES for 14 years and has served in a variety of roles, including as CEO of Fluence and most recently as head of both strategy and financial planning. I am happy to report that we are making excellent progress on our strategic and financial goals and remain on track to deliver on our 7% to 9% annualized growth in adjusted EPS and parent-free cash flow through 2025. We had a strong third quarter with adjusted EPS of 50 cents, a 19% increase versus the same quarter last year. We expect to deliver on our full-year guidance, even with a $0.07 non-cash impact from an updated accounting interpretation related to the equity units of a convert we issued earlier this year. Steve will provide more details shortly. Today, I will discuss both the growth in our core business, as well as the strategy and evolution of our innovation business called AES Next. we see ourselves as the leading integrator of new technologies. The two parts of our portfolio are mutually beneficial to one another and enable us to deliver greater total returns to our shareholders. More specifically, and as we have proven, our core business platforms provide the optimal environment for exponentially growing technology startups. At the same time, our AS Next businesses provide us with unique capabilities that enable us to offer customers the differentiated products they seek to achieve their sustainability goals. Turning to slide four, I will provide you with an update on our core business, including our growth in renewables and an update on the overall macroeconomic environment. Beginning with renewables, we continue to see great momentum in demand overall. As we speak, we have senior members of our team attending the COP26 climate conference in Glasgow, meeting with governments, organizations, and potential customers. Since our last call in August, we have signed an additional 1.1 gigawatts of renewable PPAs, bringing our year-to-date total to 4 gigawatts. Additionally, we are in very advanced discussions for another 850 megawatts of wind, solar, and energy storage. Based on our current progress, we now expect to sign at least 5 gigawatts this year versus our prior expectations of 4 gigawatts. This represents the largest addition in our history and 66% more than in 2020. With our pipeline of 38 gigawatts of potential projects, including 10 gigawatts that are ready to bid in the u.s we are well positioned to capitalize on the substantial opportunity our success is a result of our strategy of working with our clients on long-term contracts that provide customized solutions for their specific energy and sustainability goals as such almost 90 percent of our new business has been from bilateral negotiated contracts with corporate customers. This allows us to compete on what we do best, providing differentiated innovative solutions. One example of our work with major technology companies to provide competitively priced renewable energy netted on an hour-by-hour basis. As we announced earlier this week, we signed a 15-year agreement to provide around-the-clock renewable energy to power Microsoft's data centers in Virginia. Year to date, we have signed almost two gigawatts of similarly structured contracts with a number of tech companies, integrating a mix of renewable sources and energy storage. Outside the U.S., we have a similar strategy of focusing on bilateral sales with corporate customers. which has enabled us to sign long-term U.S. dollar-denominated contracts with investment-grade customers. For example, in Brazil, we see demand for more than 25 gigawatts of renewables, providing a significant opportunity to earn mid- to high-teen returns in U.S. dollars, while at the same time diversifying our Brazilian portfolio of mostly hydro generation. To that end, For the first time ever in Brazil, we are in very advanced negotiations to sign a 300 megawatt US dollar denominated contract with a large multinational corporation for 15 years. Turning to slide five, our backlog of 9.2 gigawatts is the largest ever with 60% in the US. These projects represent one of the main drivers for our growth through 2025 and beyond. With this space of growth, we're laser focused on ensuring that we have adequate and reliable supply chains. For several years, we have anticipated a boom in renewable development that could potentially lead to inadequate panel supply. And as such, we took preemptive measures to ensure supply chain flexibility. Despite current challenges in the market, We have non-Chinese panels secured for the majority of our backlog, which is expected to come online through 2024. We have benefited from a number of strategic relationships with various suppliers and a clear advantage stemming from our scale and visibility of our pipeline. More generally, we continue to proactively manage potential macroeconomic headwinds, including inflation, and commodity prices. As part of our efforts to de-risk our portfolio over the past decade, we have taken a systematic approach to risk management. In fact, in places where we use fuel, it is mostly a pass-through, and therefore we have limited exposure to changes in commodity prices. Furthermore, more than 80% of our adjusted pre-tax contribution is in U.S. dollars, insulating us from fluctuations in foreign currencies. We not only remain committed to achieving our long-term adjusted EPS and parent free cash flow targets, but we also continue to improve our credit metrics and are on track to achieve triple B rating from all agencies by 2025. Now to slide six. We continue to benefit from a virtuous cycle with our corporate customers. in which our ability to provide innovative solutions leads to more opportunities for collaboration and more projects. For example, this quarter we announced a partnership with Google to provide our utility customers cost savings and energy efficiency features, as well as opportunities to accelerate their own clean energy goals through Nest thermostats. Moving to slide seven. Through AES Next, we integrate new technologies to bring innovation to the industry and work with existing and new customers. AES Next operates as a separate unit within AES where we develop and incubate new businesses, including a combination of strategic investments and internally developed businesses, representing approximately $50 million of growth capital annually. As I mentioned, the combination of AES Next and our core business creates the optimal environment for growth, whereby we can better create solutions for customers by utilizing our industry insights and operating platforms. One example of this mutually beneficial arrangement is in the combinations of renewables plus storage. We first combined solar and storage in 2018 in Hawaii, and today, Nearly half of our renewable PPAs have an energy storage component. Another example is 5B, a prefabricated solar solution company that has patented technology allowing projects to be built in a third of the time and on half as much land while being resistant to hurricane force winds. We see 5B's technology as a source of current and future competitive advantage for AES, allowing us to build more projects in places where there is land scarcity, constraints around height or soil disruption, or hurricane risk. Likewise, 5B benefits greatly from the ability to grow rapidly on our platform, and we are currently developing projects in the U.S., Puerto Rico, Chile, Panama, and India. I am highlighting the AS Next portion of our business because it is increasingly clear that AES essentially has two distinct business models that add value to our shareholders in very different ways. With our core business, we continue to measure our success through growth in adjusted EPS and parent-free cash flow, as well as PPA signed. With AES Next, these businesses contribute value creation through their extremely rapid growth in valuation, with the potential for future monetization. Nonetheless, they are a drag on AES's earnings during their ramp-up phase. In 2021, this drag on earnings is expected to be approximately $0.06 per share. We assume these losses from AES Next in our 2021 guidance and our 7% to 9% annualized growth rate to 2025. Turning to slide eight, as you know, last week Fluence, our energy storage joint venture with Siemens, which began as a small business within AES, became a publicly listed company with a current valuation of around $6 billion. Similarly, earlier this year, another AES Next business, Uplight, received a valuation in a private transaction of $1.5 billion. The value of our interest in these two businesses is now at least $2.5 billion, or $3 per share, compared to the book value of our investments of approximately $150 million. In my view, this massive shareholder value creation more than justifies the temporary negative impact to earnings. In summary, our strategy of being the leading integrator of new technologies on our platform has yielded great results and we have several other innovations in development under AES Next. As they mature, we will continue to take actions to accelerate their growth and show their value. With that, I will now turn the call over to our CFO, Steve Cawthon.