The AES Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the AES Corporation Second Quarter 2022 Financial Review Call. My name is Irene, and I will be coordinating this event. If you would like to ask a question on today's call, please press star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. I would like to turn the conference over to our host, Susan

Thank you, Operator. Good morning and welcome to our second quarter 2022 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. 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 measures can be found on our website, along with the presentation. Joining me this morning are Andres Gluski, our President and Chief Executive Officer, Steve Coughlin, our Chief Financial Officer, and other senior members of our management team. With that, I will turn the call over to Andres.

Good morning, everyone, and thank you for joining our second quarter 2022 Financial Review Call. As you have seen from our earnings release, we reported second quarter adjusted EPS of 34 cents, which was in line with our expectations and consistent with our historical quarterly earnings profile. Our CFO, Steve Coughlin, will discuss our financial results in more detail. Based on our year-to-date results and outlook for the second half of the year, we are reaffirming our 2022 guidance and our expectation for annualized growth through 2025. I would also note that our guidance and expectations do not include any benefit from proposed U.S. climate legislation, which we see as a meaningful source of potential upside, as it would drive additional demand for renewables and energy storage and accelerate the development of green hydrogen projects in the U.S. This morning, I will discuss our strategy in the context of two broad themes. First, our resilience to macroeconomic volatility, including high inflation, high commodity prices, fluctuations in foreign currency, and ongoing supply chain constraints. And second, continued strong demand for renewables, particularly from corporate and industrial customers. With this backdrop in mind, I will discuss the robustness of our business, and also review our disciplined approach to growth, both of which provide us with full confidence in our ability to hit our financial and strategic goals this year and beyond. Beginning with our resilience on slide four, as a result of the transformation of our portfolio over the last 10 years, our financial results this quarter were insulated from the impacts of rising inflation, depreciating U.S. dollar, and volatile commodity prices. We do not expect any of these factors to have any impact on our full year results. As I had discussed on previous calls, 85% of our adjusted pre-tax contribution is derived from long-term contracts for generation and our regulated utilities. For the 15% of our earnings that is not derived from long-term contracts or utilities, such as our legacy Southland business in California, or the 10% that is not denominated in US dollars, we have largely hedged both exposures. In some cases, our strong contractual arrangements have allowed for additional upside. Throughout 2022, we have signed agreements to redirect excess LNG from Panama to international customers. The benefits of these agreements of the year, and we have the potential to sign similar agreements next year, depending on market conditions. Turning to construction and supply chains on slide five, our strategic sourcing and ability to execute on our commitments are key competitive advantages, and we expect to complete all of the projects in our 10.5 gigawatt backlog with no cancellations or significant changes. We take a proactive approach to working with our suppliers, and as a result, we had all of the solar panels required for our 2022 projects in-country earlier this year. More recently, we worked to quickly resume imports following the Biden administration's June executive order, and none of our suppliers' panels have been stopped by customs this year. We also took decisive steps to further decrease solar panel suppliers by creating a more robust U.S. supply chain. In June, we launched the U.S. Solar Buyer Consortium, along with three other solar developers. to significantly drive the expansion of domestic solar manufacturing. Collectively, we committed to purchasing more than $6 billion of solar panels from manufacturers that can supply up to 7 gigawatts of solar modules per year made in the USA starting from 2024. Therefore, despite industry-wide supply chain challenges, we do not anticipate any major delays to our U.S. renewables backlog 5.9 gigawatts. I would note that only two projects have been shifted from 2022 to 2023, and these were moved as a result of changes requested by customers with no impact on our guidance and expectations for this year or next. In addition, we recently broke ground on the largest utility scale solar plus storage project in the state of Hawaii. Across the state, we have more renewable projects under development and or under construction than anyone else. As you can see on slide six, we anticipate completing 1.8 gigawatts of new renewable globally this year, 4.6 gigawatts next year, for a total of 6.4 gigawatts by the end of 2023. Turning to slide seven, looking to our future growth, we continue to see strong demand for renewables from our key customer groups. Despite increases in the cost of renewables resulting from inflation and supply chain constraints, a far greater increase in the cost of fossil fuels has made renewable energy even more price competitive. As a result, demand from corporate customers has never been higher. So far this year, we have signed or been awarded 1.6 gigawatts of long-term renewable PPAs, the majority of which have been negotiated on a bilateral basis. For full year 2022, we continue to expect to reach a total of 4.5 to 5.5 gigawatts. As shown on slide 8, we now have a backlog of 10.5 gigawatts, all of which is expected to come online through 2025. Turning to slide 9, I'd like to note that we currently have 13.7 gigawatts of renewables in operation. So this backlog of projects in construction or with signed PPAs represent more than 75% growth in our installed renewable capacity for years. Including additional PPAs we expect to sign by 2025, our portfolio will grow to almost 50 gigawatts. We'll be renewable. We also expect to have completely exited coal at that time. We continue to complement our portfolio with innovative businesses and solutions. which require the best talent in order to deliver on our commitments. Earlier this week, Fast Company recognized AES in their top 10 rankings of best workplaces for innovators and as the winner in the category of best workplaces for early career innovators. We are very proud of receiving innovative teams and their many accomplishments. Additionally, although we don't have any specific announcements to make today, we continue to make good progress on our two large green hydrogen projects in the U.S. and Chile. These projects include the integration of electrolyzers and renewables and have the potential to provide significant new sources of growth. I will provide additional updates in the coming months. In the meantime, we launched a 2.5 megawatt pilot project in Chile. This project will be a hydrogen fueling station and will produce up to one metric ton of green hydrogen per day. Finally, turning to slide 10, growth opportunities at our U.S. utilities represent one of the key drivers of our overall 7% to 9% annual growth in earnings and cash flow. This growth also advances our objective of increasing the proportion of our earnings from the U.S. to 50%. As a reminder, in both Indiana and Ohio, we have the lowest residential rates in each state, providing a great runway for growth and investment, while keeping rates affordable for our customers. Through 2025, we expect to invest a total of $4 billion in new renewables generation, transmission, modernization, and smart grid at our U.S. utilities. These investments will improve our customers' experience, and translate to average annual rate base growth of 9%, which is at the high end of growth projections for U.S. utilities. We expect the earnings from these core businesses to grow in line with the rate base. At AES Ohio, we are currently awaiting the Commission's decision on our distribution rate base. As a reminder, we see significant opportunity to invest to improve reliability and strengthen AES Ohio's balance sheet while remaining cost-competitive. With that, I will now turn the call over to our CFO, Steve Coughlin.