The AES Corporation

Hello and welcome to the AES Corporation fourth quarter and full year 2023 financial review call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. I'd now like to hand over to Susan Harcourt, Vice President of Investor Relations. The floor is yours. Please go ahead.

Thank you, Operator. Good morning and welcome to our fourth quarter and full year 2023 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 disclosed 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 fourth quarter and full year 2023 financial review call. Today I will discuss our 2023 strategic and financial performance. Steve Coughlin, our CFO, will discuss our financial results and outlook in more detail shortly. Beginning on slide three, 2023 was our best year ever as we met or exceeded all of our strategic and financial objectives, including signing a record of 5.6 gigawatts of new PPAs, putting us well on track to achieve 14 to 17 gigawatts of new signings through 2025. Completing 3.5 gigawatts of construction, exceeding the target we laid out and doubling our additions compared to 2022. Delivering adjusted EBITDA of $2.8 billion in the top end of our guidance range and adjusted EBITDA with tax attributes of 3.4 billion, achieving adjusted EPS of $1.76 and parent-free cash flow of just over a billion dollars, both beyond the top end of our guidance ranges, and realizing asset sales proceeds of 1.1 billion, significantly above our target of 400 to 600 million. Turning to slide four, despite the backdrop of rising interest rates and supply chain challenges across the sector, we demonstrated that our business model is strong, resilient, and well-positioned. Demand across the sector has never been stronger, and in this context, I'm pleased to announce that we are raising our expected annual growth rates for adjusted EBITDA and adjusted EPS. We now expect our adjusted EBITDA to grow at an annual rate of 5 to 7 percent and adjusted EPS to grow at 7% to 9%, both through 2027. We are also reaffirming all of our other existing guidance. I can definitely say that I have never felt better about the outlook for this business. Turning to power purchase agreement signings on slide five, we signed 5.6 gigawatts of new PPAs in 2023. more than any other year in our company's 43-year history, putting us well on track to sign 14 to 17 gigawatts of new renewable contracts from 2023 through 2025. Today, our backlog of projects with signed PPAs is 12.3 gigawatts, the vast majority of which will be commissioned over the next three years. It is worthwhile to note that all of the projects in our contracted backlog remain on track for timely completion consistent with our historical performance. Moving to slide six, I'd like to highlight that the largest segment of our new business is with corporate customers. In fact, in 2023, nearly 60% of the 3.5 gigawatts of projects we brought online were to serve corporate customers and large technology companies in particular. Bloomberg New Energy Finance has consistently named AES as one of the top two providers of renewable energy to corporations worldwide, and our business continues to expand, particularly given our focus on serving the power needs from data centers, which are powering the rapid growth of AI. We are well positioned to serve this customer segment for a number of reasons. First, We have been on the forefront of working directly with these technology companies to provide innovative solutions to achieve specific renewable energy profiles. Back in 2021, we were the first company to introduce hourly match renewable energy. And today we are working with all of the hyperscale data center companies to provide solutions that are tailored for their renewable energy and sustainability goals. Second, We have a strong track record of delivering our projects on time, on budget, while meeting the unique needs of our customers, which I will cover in more detail momentarily. Our record of reliability is something that is increasingly recognized and valued by our customers. And third, we have the scale and the pipeline to address growing demand from data centers, which is estimated to more than double by 2030. With over 50 gigawatts of projects in our development pipeline and advanced interconnection queue positions in the most relevant markets in the U.S., we are particularly well positioned to meet the energy demand of technology customers. Turning to slide seven, our success with corporate customers combined with our improved efficiency in development and construction have increased the returns that we have seen across our renewable portfolio. As a result, we are upping our US return ranges by 200 basis points to 12% to 15% on a levered after-tax cash basis. We are seeing even higher returns internationally. With strong market demand in AES's leading position, we are able to be increasingly selective about the projects we build with a focus on those with the best overall financial benefits. Next, turning to construction on slide eight. Our ability to complete projects on time and on budget has become a major differentiator for AES. Not only is this something that our customers highly value, but it is also a pillar of our business model and ensures that our realized financial returns are on average equal to or better than our projections. At the time of PPA signings, we lock in contractual arrangements for all major equipment EPC, and long-term financing, which we hedge to ensure no interest rate exposure. At the same time, we systematically embed flexibility in our supply chain to safeguard against a variety of scenarios. We also have a multi-year strategic arrangement with top suppliers, including Fluence, who we see as having the most competitive product in the industry. More than half of our solar projects in recent years have co-located storage components. And our relationship with Fluence helped us to have the best on-time project completion rate in the industry. In 2024, we feel very confident in our ability to add 3.6 gigawatts of new projects, including 2.2 gigawatts in the US. We currently have 100% of the major equipment for these projects contractually secured and nearly 80% already on site. Now turning to our utilities, beginning on slide 9. In 2023, we achieved important milestones at our U.S. utilities that will drive future growth, continue decarbonization, and improvement in customer service. At AES Ohio, we put in place a new regulatory framework, and at AES Indiana, we reached a unanimous settlement for our first rate case since 2018. As a result, investments are on track for the rate-based growth in the high teens at both utilities. And we now have close to 70% of our planned investments through 2027 already approved in regulatory orders. Turning to slide 10, at AS Ohio, we are embarking on the largest investment program that this utility has ever seen, which includes the expansion and enhancement in our transmission assets. with over 25% rate-based growth per year. This is one of the fastest transmission growth rates in the country. We also recently filed for regulatory approval of the second phase of our smart grid plan, which upgrades our grid to improve service quality and customer experience. Turning to slide 11, at AS Indiana, we continue to invest to improve service quality and greener generation mix. I'm happy to say that we now have regulatory approval for the build-out of all named renewable projects at AS Indiana, encompassing 106 megawatts of wind, 445 megawatts of solar, and 245 megawatts of energy storage. As we continue to invest in our customer experience, service quality, and sustainability at both of our U.S. utilities, two core principles have guided our growth plan. is customer affordability as we address much-needed investments. We currently have the lowest residential rates in both states, which we expect to maintain throughout this period of growth. And second is to prioritize the timely recovery of our investments through existing mechanisms and programs. Across both utilities, we now anticipate approximately 75% of the growth capital to be deployed under such mechanisms. which substantially reduces regulatory lag. Finally, turning to slide 12. Last year, we set an asset sale proceeds target of 400 to 600 million. We greatly exceeded this range with 1.1 billion of gross proceeds. These transactions not only put a high valuation marker on our businesses, but also put us well on our way towards achieving our asset sales goal of $2 billion through 2025, and $3.5 billion through 2027. Our success this past year provides us with a cushion, and we expect 2024 to be another strong year. With that, I would like to turn the call over to our CFO, Steve Coughlin.