Northland Power Inc.

Ladies and gentlemen, thank you for standing by. Welcome to this Northland Power Conference call to discuss the 2021 first quarter results. During the presentations, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star 1 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Thursday, May 13, 2021 at 10 a.m. Conducting this call for Northland Power are Mike Raleigh, President and Chief Executive Officer, Pauline Alimchandani, Chief Financial Officer, and Wasim Khalil, Senior Director of Investor Relations and Strategy. Before we begin, Northland's management has asked me to remind listeners that all figures presented are in Canadian dollars and to caution that certain information presented and responses to questions may contain forward-looking statements that include assumptions and are subject to various risks. Actual results may differ materially from management's expected or forecasted results. Please read the forward-looking statement section in yesterday's news release announcing Northland's power results and be guided by its contents in making investments, decisions, or recommendations. The release is available at www.nortlandpower.com. I will now turn the call over to Mike Raleigh. Please go ahead.

Thank you, Operator, and good morning, everyone. We also have David Pavel joining us today. David's the Executive Vice President of Development, of course, and he's joining us from Tokyo, actually, where he's been spending the pandemic focused on a lot of our growth opportunities in Asia. So thanks to everybody for joining us this morning. We will review our first quarter 2021 financial results on the call and operating results. Following our prepared remarks, we will take your questions from analysts. To kick things off, we want to reiterate that the health and safety of our employees and shareholders comes first. Through diligent planning and rigorous adherence to health protocols, we have maintained high levels of facility availability, delivering essential supply of energy to consumers and businesses in Europe, Canada, and Colombia. First, looking at our financial results for the first quarter, we reported a just dividend of $360 million compared to $421 million in first quarter 2020, representing a 14% decrease. Our free cash flow of $134 million was 36% lower compared to $211 million in the same quarter 2020. On a per share basis, we achieved 66 cents in 2021, which compares to the $1.02 in 2020. I would point out, though, that the majority of the decline year over year is attributable to lower wind resource at our offshore wind facilities in 2021 compared to the first quarter in 2020. That quarter was a very strong one for offshore wind production with wind generation well above long-term averages. What we saw in the first quarter 2021 in the North Sea is closer to normal winter wind speeds, albeit somewhat lower than the long-term average. Pauline will provide a more detailed look into the financial numbers later in the call. Strategically, we continue to build momentum on both our short-term and long-term growth initiatives to position ourselves for success. Northland has a growing footprint globally with positions in key growth markets to participate in the global decarbonization efforts underway. And subsequent to the end of the quarter, we expanded this footprint. First, as we outlined in January, we announced our entry into Poland for the Baltic Power Offshore Wind Project through our partnership with PK and Orlin, the Polish oil and gas company, a very strong and influential partner in Poland. We completed the acquisition on March 24, 2021. The partnership will provide Northland with a 49% interest in a mid-stage offshore wind development project with a potential of up to 1.2 gigawatts of capacity to be built in the Polish Baltic Sea in the middle of the decade. Baltic Power provides Northland with a scale entry into a new market alongside a strong and influential local partner. It gives us a healthy balance between reducing the risks of new market entry on the one hand and development opportunities to extract value on the other. The project will benefit from the first round of revenue support through a 25-year contract for difference off-take agreement with the Polish government. Following the closing on March 24th, the project filed an application with Poland's Energy Regulatory Office to secure the CFD, and we expect to receive approval for the CFD in the coming weeks. We expect to reach financial close for the Baltic Power Project in 2023 and commercial operations in 2026, which fits nicely with our other offshore wind projects in Asia. While offshore wind remains our primary focus to achieve our long-term growth objectives, We are also enhancing our near-term development pipeline as part of our strategy to further diversify our portfolio and bolster our cash flow profile. This strategy not only supports the advancement of our four to five gigawatts of identified development projects, but it also provides additional critical mass alongside our offshore wind projects to grow our global presence. Most recently, we announced the acquisition of a 540 megawatt onshore renewables portfolio in Spain. This new portfolio aligns well with our priorities and helps to diversify our asset base while adding high quality regulated cash flow to our business, while expanding our presence in Europe as well. The near-term free cash flow from this portfolio will help fund the development of our large offshore wind projects, particularly as new markets and opportunities continue to emerge for offshore wind globally. In addition, the acquisition provides us with scale, and a platform in the growing Spanish renewables market that immediately positions Northland as a top 10 renewables operator in Spain. We expect to leverage this position to grow our presence in Spain and the Iberian Peninsula as a whole, and to help us establish a European asset management platform that can support our entry into other attractive European renewables markets. Turning to our development and construction projects, I want to provide a brief update on the various projects we have underway. First, touching on our New York wind onshore projects, in February we received and accepted contract price offers from NYSERDA for 20-year indexed renewable energy credit offtake contracts. We are also in the final stages of negotiations regarding key agreements for the projects and expect to be able to sign the turbine supply, service and maintenance, and the balance of plan agreements in 2021. These are all key milestones in the development of the project as we move closer towards financial close, which we expect to execute for two of the three projects later this year, with one following after in 2022. Commercial operations for the first two projects are expected by late 2022 and the last one in 2023. At Heilong, we received confirmation from the Taiwan Bureau of Energy that Heilong 2A has secured approval for its industrial relevance plan. which sets out Northland's commitment to local supply chain and procurement, marking the achievement of a significant milestone for the project. Now at La Lucha, as we previously disclosed, construction activities are nearing the final stages of completion. Certain construction activities related to the energization of the project have been delayed primarily due to COVID restrictions. Once these activities are completed, Northland expects to commence with grid testing, which will be followed by submission of an application for commercial operations to the Mexican regulatory authorities. Based on the current timeline, Northland still expects commercial operations at La Lucha to commence later this year. Efforts to secure commercial offtake and project financing are expected to be finalized after commercial operations at La Lucha. I wanted to quickly discuss our financial risk management activities as they relate to our Gemini project. In 2020, the wholesale market, or APX for short, traded down well below the SDE floor that applies to our Gemini PPA. In fact, the APX has averaged below the SDE floor, this is Gemini PPA, for four of the facility's five years of operation, but was the worst in 2020. This resulted in Northland incurring loss revenue of approximately $27 million in 2020, as reported in our annual report. In response to the decline in power consumption caused by COVID-related lockdowns last year and the uncertainty related to the length of the COVID pandemic in the second quarter of 2020, Northland entered into financial derivatives for 2021 and to a lesser extent for 2022 and 2023. These derivatives were effective in mitigating downside risk with some exposure to loss revenues should the APX increase above the FTE floor. Because forward market prices were low relative to the Gemini floor price of 44 euros, the hedge we put in place last year protected our downside risk if market prices declined further. But it effectively gave up upside in revenue when market prices rose above the floor price. The APX has strongly rebounded lately, in part prompted by rising natural gas and carbon prices in the EU. As such, the APX hedge ceased to serve its purpose since the APX has now climbed above the floor price in our SDE contract, resulting in $4 million of lost revenue for the first quarter. Subsequent to the first quarter, the APX has continued to increase to the current price of $63 million, per megawatt hour, and as a result, Northland commenced entering into financial derivatives that will limit Gemini's lost revenue for 2021 to similar levels as experienced in 2020. In closing, we are off to a good start in 2021 with healthy first quarter financial results and good momentum and execution of our growth plans. We continue to accelerate our position as a top 10 global player in offshore wind through our Baltic Power offshore wind project in Poland and have secured an attractive entry portfolio for onshore renewables in Europe through our Spanish acquisition. The execution of our strategy in key growth markets will further strengthen Northland's competitive positioning as a global developer and operator within the renewable energy space. I will now turn the call over to Pauline for a more detailed review of our financial results.

Thank you, Mike, and good morning, everyone. Last night, Northland Power released operating and financial results for the first quarter of 2021. Our financial performance in the quarter was solid, and we generated healthy results for both adjusted EBITDA and free cash flow, despite experiencing lower wind resource in the quarter from our offshore wind segment. Our business is primarily focused on offshore wind, with over 60% of our adjusted EBITDA being generated from our offshore wind facilities in the North Sea. This segment of our business experiences natural variations in wind resource, not only year over year, but also within any given year. These fluctuations can result in variability from quarter to quarter. However, over the course of Of times, this variability typically balances out. Also, as part of our growth strategy, we will also continue to diversify our portfolio and our cash flows. In the fourth quarter, we generated adjusted EBITDA of approximately $360 million, which was a decrease of $61 million, or 14%, from the $421 million we generated in the first quarter of 2020. The main factor leading in the year-over-year decrease was the lower wind resource in the North Sea, which saw a 19% decline in production across all three of our facilities in the first quarter of 2021 compared to the same period in 2020. Note that the first quarter of last year had wind resource significantly above the long-term average. This decline in adjusted EBITDA was offset by additional positive contributions from ETSA. EBSA only had partial contribution in the first quarter of 2020 due to the timing of that acquisition. With respect to free cash flow, Northland generated approximately $134 million in the first quarter. This was a decrease of $77 million, or 36%, compared to the same quarter in 2020. As with adjusted EBITDA, the single largest driver behind the year-over-year decrease in free cash flow was the lower offshore wind resource in the quarter, that resulted in a decline in overall earnings of $61 million. In addition to the lower wind resource, there was a number of smaller items that contributed to the decrease, including higher scheduled principal repayments, primarily relating to North Sea One, and higher non-expansionary expenses at North Battleford and North Sea One, which were expected. As disclosed in our fourth quarter results, Northland commenced reporting adjusted free cash flow, which excludes growth-related expenditures from the metric. Management believes that adjusted free cash flow provides a relevant presentation of cash flow generated from the business before investment-related decisions and is a good and meaningful measure of Northland's ability to generate cash flow after ongoing obligations to reinvest in growth and fund dividend payments. In the quarter, we reported adjusted free cash flow of $147 million compared to adjusted free cash flow of $224 million in the first quarter of 2020. Adjusted free cash flow was affected by the same factors impacting free cash flow as growth expenditures remained relatively consistent year over year. On a per share basis, these figures translated into free cash flow of 66 cents and adjusted free cash flow of 73 cents respectively in the first quarter. These compare to $1.10 per share and $1.17 per share for free cash flow and adjusted free cash flow during the first quarter of 2020. Our rolling four-quarter free cash flow and adjusted free cash flow payout ratios calculated on a cash dividend basis for the quarter ending March 31 were 73% and 58% respectively. This compares to ratios of 58% and 52% for the same quarter ending March 31 of 2020. The increase in both net payout ratios were primarily due to lower free cash flow and adjusted free cash flow, as explained prior, partially offset by the reinstatement of the dividend reinvestment program in September of last year. In addition to free cash flow generated, Northland utilizes additional sources of liquidity to fund growth and capital investments. In March, we successfully completed our Deutsche Buh refinancing, resulting in a reduction in the interest rate of the facility's senior debt and the release of 50 million euros, or Canadian dollars, 74 million, from the funds previously restricted for debt service, immediately enhancing our corporate liquidity. Subsequent to the end of the quarter, Northland completed a bought deal equity offering and for 22.5 million common shares, for aggregate gross proceeds of $990 million. The net proceeds of the offering will be used to fund the cash purchase price of the Spanish portfolio acquisition that Mike mentioned earlier, expected to close in the third quarter, with the remainder of the net proceeds expected to be applied towards funding capital requirements, including the acquisition of Baltic Power, expected near-term capital commitments for identified development projects, and to repay borings under our corporate revolver. As a result of the equity offering, which closed in April, we estimate we have approximately $875 million of liquidity on hand, providing sufficient liquidity to execute on our identified development initiative. Turning to our financial outlook, our 2021 financial guidance remains unchanged from February, with adjusted EBITDA continuing to be in the range of $1.1 billion to $1.2 billion. We expect our free cash flow per share in 2021 to be in the range of $1.30 to $1.50. And lastly, our recently introduced metric, adjusted free cash flow per share, we expect to be in the range of $1.80 to $2 per share. In other corporate events, Northland's corporate credit rating of BBB Stable was reaffirmed by Standard & Poor's in their most recent review in March of 2021. Last but not least, we released our fourth annual sustainability report highlighting Northland's 2020 ESG achievements and sustainability strategy going forward. This report is centered around the four pillars of planet, people, community, and business, and sets out how Northland will meet its 2030 targets of reducing its electricity generation carbon intensity by 65% from 2019 levels, while increasing our gross renewable energy capacity by 4 to 5 gigawatts around the globe. Our vision is to create a carbon-free world and is centered around our efforts to embed the principles of sustainability and ESG into all aspects of our business. In 2021, we formally launched our ESG framework, which provides greater transparency in how we mitigate risks, meet our ESG reporting obligations, and broader stakeholder expectations, while at the same time creating long-term value for our shareholders and our partners. We are committed to enhancing our disclosures in order to further demonstrate our transparency and effective management by reporting in alignment with the GRI standard core also reporting in alignment with SASB based on our industries and aligning our commitments with the relevant UN Sustainable Development Goals. We have also committed to reporting in line with TCFD by 2022. All in all, it was a productive quarter for the company as we worked to deliver on our growth objectives, key milestones on our development projects, to de-risk our projects and increase their value, and achieve our financial guidance. With that, I will turn the call back over to Mike for his concluding comments.