Northland Power Inc.

Ladies and gentlemen, thank you for standing by, and welcome to this Northman Power conference call to discuss the 2021 third quarter results. During the presentation, 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 then 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, November the 11th, 2021 at 10 a.m. Conducting this call for Northland Power are Mike Crawley, President and Chief Executive Officer, Pauline Alamchandi, Chief Executive Officer, and Waseem 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 represented and responses to questions may contain forward-looking statements that include assumptions that are subject to various risks. Actual results may differ materially from management's expected or forecasted results. Please read the forward-looking statements section in yesterday's news release announcing Northland's powers results and be guided by its content in making investment decisions or recommendations. The release is available at www.northlandpower.com. I will now turn the call over to Mike Crawley. Please go ahead.

Thank you, Norman. Good morning, everyone. Thanks for joining us today. This morning we will review our third quarter 2021 financial and operating results. Following our opening remarks, we will take questions from analysts and look forward to addressing those questions. To kick things off, as we always do, I want to reiterate that the health and safety of our employees and stakeholders always comes first. We pride ourselves in the rigorous adherence to health protocols during this pandemic, ensuring the safety of our employees while allowing us to maintain high levels of facility availability. So first, looking at the financial results for the third quarter, we reported adjusted EBITDA of $211 million compared to $254 million a year ago. representing a decrease year-over-year of 17%. For free cash flow, we reported $11 million in the quarter, or 5 cents per share. This compares to $61 million, or 30 cents per share, reported in the third quarter of 2020. This year, our financial performance has been challenged in large part due to the wind conditions in the North Sea. This low-level resource has affected the contributions from our three offshore wind farms, which have seen historically low levels of wind production so far in 2021. I will note that we have seen this abnormally low level of wind resource not only in the North Sea, but across much of Western Europe, with generation in that whole area trending well below what our long-term average is. However, as we start the fourth quarter, which is typically one of the stronger quarters for offshore wind, we are seeing improved conditions with October production coming in very strong. In fact, October has turned out to be the second strongest production month in the year so far at well above P50 levels. As we noted in our press release yesterday, and Pauline will touch on it later in the call, despite the lower performance in our offshore wind segment, we remain on track to achieve the low end of our 2021 guidance range for both adjusted EBITDA and free cash flow. This is possible due to the increasing diversification in our portfolio, where our results benefited from stronger performance in our onshore operating segments, including assets like EPSA and the recently acquired solar and wind assets in Spain. Both of these sets of assets are performing well, and in fact, the Spanish assets are benefiting from the higher pool prices across much of Europe this year. On our growth initiatives, we are making good progress, executing on a couple of opportunities to advance and grow our portfolio. So starting in Colombia, we are focused on growing our platform there following the acquisition of EBSA in early 2020. If you recall, one of EBSA's key attributes was its grandfathered rights that allow it to participate in all aspects of the Colombian electricity sector. This has allowed us to grow our platform first with our 16-megawatt Helios solar project, which achieved financial close in the second quarter. And we followed this up with two solar projects with a combined capacity of 130 megawatts. In partnership with EDF Renewables, we've successfully bid these projects into the most recent renewables auction to secure offtake for these projects. Northland will have a 50% ownership in both of these projects, which will benefit from a 15-year power purchase agreement with multiple high-quality Colombian energy distribution and commercialization off-takers that are required to secure a minimum amount of green power by 2023. The projects are expected to be in commercial operations in the second half of 2023. And moving to Germany, along with our partners, RWE, we exercised our stepping rights for Nord C2 expansion project on our current Nord C1 project. This allows us to retain the lease. With the successful conclusion of the auction in late September, the winning bid was a zero bid for Nord C2, and we had the right to match that bid in order to retain the lease for Nord C2. We will now move forward with the development of that project and we'll look forward to secure long-term off-take contracts with commercial and or utility customers for the project. We also have the same step-in rights for North Sea 3, which comes to auction in 2023, and similar to North Sea 2, we expect to exercise those rights to retain the lease should we not be successful bidding ourselves into the auction. Together, these two projects have the potential for up to 900 megawatts of capacity. and can help to meet the growing demand for renewable power in Europe among both utilities and also corporates. Northland has an 85% interest in each of these leases. In Spain, we successfully closed the acquisition of the wind and solar portfolio on August 11th that we spoke about earlier this year, adding 551 megawatts of operating capacity to Northland's portfolio. Our near-term focus will be on integrating the assets into our portfolio We also look to position ourselves for further growth in the region. We are adding key personnel to the team to help build out this platform in Spain. The assets have seen a significant increase in merchant pool prices since the announcement of the transaction in April of this year. We are now seeing prices north of 100 euro per megawatt hour, which will certainly have a positive impact on our near-term cash flows from the portfolio under the regulated tariff scheme. The portfolio aligns well with our priorities and helps to further diversify our asset base through adding high-quality, long-term regulated cash flows. Now, turning to our other development and construction projects, I want to provide a brief update on the various projects that we have underway. In Japan, in September, the government designated four new sea areas as promising development zones for offshore wind development under its Round 3 process for offshore wind procurement. These areas included Izumi City in Chiba Prefecture, where Northland is progressing with the development of its Chiba offshore wind project along with our partners. In addition, the Katagami area in Akita Prefecture, where Northland is exploring up to a 400 megawatt opportunity through a consortium with Mitsui and Osaka Gas, was also designated on this promising development area list. The designation as promising areas is a key milestone in the development process for these two early-stage development projects, which could have a total production capacity of up to 900 megawatts once completed. In New York State, construction of our two onshore wind projects, Bluestone and Ball Hill, is progressing well, and the projects remain on track for commercial operations in late 2022. Our third 100 megawatt New York onshore wind project hybrid continues to be under active development. At La Lucha, efforts to achieve energization of the facilities continues, with Northland working with Mexican authorities and other private power producers experiencing similar issues to try and expedite the process with timelines still remaining somewhat uncertain. Efforts to secure commercial offtake and project financing are expected to be finalized after commercial operations. Now finally, at North Sea 1, we have accelerated our bearing replacement campaign and were able to replace 10 rotor shafts assemblies by the end of September, more than we had initially planned. This is an important outcome as it allows us to minimize the downtime of the wind turbines during the fourth quarter when wind resource tends to be stronger. The project had a very high availability during October as a result. The 10 assemblies were replaced at a cost of 13 million euros or 16 million Canadian dollars at Northland's share. We were able to achieve some cost savings on the total expected replacement cost for all 54 assemblies. The cost is now expected to be slightly lower than estimated last quarter and within the range of 50 million to 60 million euros or 65 to 75 million Canadian dollars at Northland's share. The costs are now expected to be almost fully covered by the warranty bond settlement received in 2020 relating to the outstanding warranty obligations of North Sea One's original turbine manufacturer upon its insolvency. We will resume with the replacement campaign in the second quarter of 2022 and expect to complete the replacement of all remaining 44 assemblies in 2022 and 2023. I'll 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 third quarter of 2021. In the quarter, we generated adjusted EBITDA of $211 million, which was a decrease of $44 million, or 17%, from the $254 million we generated in the third quarter of 2020. The main factor resulting in the year-over-year decrease in EBITDA was the lower wind resource at the offshore facilities, as highlighted by Mike in his remarks. Partially offsetting this was the $19 million contribution from the Spanish portfolio. With respect to free cash flow, Northland generated approximately $11 million in the quarter. This was a decrease of approximately $50 million, or 82%, compared to the same quarter last year. Similar to adjusted EBITDA, the largest driver of the year-over-year decrease in free cash flow was the lower offshore wind resource in the quarter. This was partially offset by about $8 million of lower taxes at the offshore wind facilities and about a $3 million contribution in the quarter from the same portfolio. For adjusted free cash flow, we generated $34 million in the quarter compared to $76 million in the same period a year ago. The factors leading to the $42 million decrease were the same factors impacting free cash flow except lower growth expenditures in 2021, which do not impact adjusted free cash flow. Just to remind everyone, Northland's adjusted free cash flow excludes growth-related expenditures from free cash flow. We believe that adjusted free cash flow provides a relevant presentation of cash flow generated from the business before investment-related decisions and is a meaningful measure of our ability to generate cash flow after ongoing obligations to reinvest in growth and to fund our dividends. On a per share basis, these figures translated into free cash flow of $0.05 in the quarter compared to $0.30 last year and adjusted free cash flow of $0.15 in the quarter compared to $0.38 per share last year. Free cash flow and adjusted free cash flow payout ratios calculated on a cash dividend basis for the rolling four quarters ended September 30th were 81% and 60% respectively. This compares to 65% and 61% for the same period ending September 30th of last year. The increase in both net payout ratios was primarily due to lower free cash flow and adjusted free cash flow and the effect of the shares issued from the common equity issue in April of this year. Turning to our balance sheet and liquidity, Northland remains in a very strong position with ample liquidity to help fund our identified development initiatives. In the quarter, we executed on a number of initiatives that will further enhance our balance sheet and improve our corporate liquidity while also advancing our ESG objectives. We successfully renewed and extended our $1 billion revolving credit facility with a syndicate of both Canadian and global financial institutions by two years to 2026 from 2024 and and executed several amendments to increase liquidity available under the facility to fund growth. Concurrently, we also implemented a sustainability-linked loan, or SLL, overlay. The implementation of the SLL is an important outcome and aligns with our ESG initiatives and the green financing framework we introduced in February of this past year. The SLL is based on achieving defined targets around both increasing our renewable generating capacity and reducing carbon emissions intensity. The SLL is expected to provide Northland with cost savings when the targets are met and is an important step in integrating our ESG performance with our financing objectives. All margin savings are expected to be used to fund our global sustainability initiatives. Also in the quarter, we successfully restructured and upsized the senior debt on a number of our Canadian solar facilities resulting in a one-time cash distribution to Northland totaling $40 million, or approximately $0.18 per share. This refinancing constitutes a green project financing in support of our ESG initiative. To date, in 2021, Northland has received cash distributions amounting to $113 million, or $0.50 per share, from optimizing and upsizing project finance and other debt structures to further enhance our liquidity and to fund growth. I will note that these cash distributions are not included in free cash flow or adjusted free cash flow, as they are not scheduled financings, but they very much do contribute to our ability to fund growth. Lastly, Northland received the second investment grade corporate credit rating of BBB Stable from Fitch. This rating will add to the current rating of BBB Stable from S&P, which was reaffirmed in March of this year. The additional rating reaffirms Northland's creditworthiness and financial stability and could support future debt raises in specific markets. In terms of our liquidity, as at September 30th of 2021, Northland had access to $824 million of cash and liquidity comprised of $784 million of proceeds under our syndicated revolver facility and $40 million of corporate cash on hand. We continue to look at opportunities to support our growth initiatives by raising capital from existing assets and executing on cost-effective financial optimizations that provide increased liquidity for the company. As part of this initiative, we are currently working on refinancing efforts for EBSA to extend and upsize the refinancing and also to complete some optimizations to position us for success in refinancing this asset on a reoccurring basis. we expect to complete the refinancing in the fourth quarter, which is expected to generate additional cash flow to Northland. In regards to our financial outlook for 2021, we remain on track to achieve the low end of guidance for both adjusted EBITDA and free cash flow per share. For adjusted free cash flow, we expect to achieve the range that was revised in the second quarter of this year. For adjusted EBITDA, the current guidance range is $1.1 billion to $1.2 billion, while for free cash flow, the range is $1.30 to $1.50, which is expected for 2021. For adjusted free cash flow per share, the expected range is $1.60 to $1.70 per share. To reiterate, given the lower offshore wind performance thus far in the year, which negatively impacted our financial performance, we believe achieving the lower end of guidance is a very good outcome. The performance from our Canadian portfolio and EBSA speaks to the value of our diversified portfolio in providing offsetting support to the short-term weakness in the offshore wind segment. This diversification will be further enhanced with the addition of the recently acquired Spanish portfolio, which is performing well. Before I turn the call back over to Mike, I wanted to speak to our Iroquois Falls 120 megawatt efficient natural gas facility. Iroquois Falls has contributed significantly to Northland's financial performance over the course of its 25-year PPA, which is set to expire at the end of this year. This expiry will impact the contribution from Iroquois Falls to our 2022 financial projections. Currently, Iroquois Falls contributes approximately $75 million annually in adjusted EBITDA, and this contribution is expected to reduce by approximately 90% in 2022. Given the current forecasted Ontario market capacity needs, Northland anticipates participating in the Ontario market through capacity options as a generation resource, offering capacity for both the summer and winter commitment periods. In addition, management intends to seek other offtake opportunities. In closing, we are satisfied with our progress in 2021, given the challenges that we have faced due to the various shortfalls experienced in offshore winds. Despite these unusual market conditions, we continue to execute on our business objectives and secure new opportunities for future growth and diversification and to offset lower cash flows from our expiring PPA contracts. Our teams are working hard to ensure that our facilities deliver strong performance and we continue to enhance our financial position through the execution of key financing initiatives that will allow us to advance our growth objectives. With that, I will now turn the call back over to Mike for his concluding remarks.