Northland Power Inc.

Ladies and gentlemen, thank you for standing by. Welcome to this Northland Power Conference call to discuss the fourth quarter and full year 2021 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 1 on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Friday, February 25, 2022 at 10 a.m. Conducting this call from Earthen Power are Mike Crawley, President and Chief Executive Officer, Pauline Alinchandani, Chief Financial 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 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 statements section in yesterday's news release announcing Northland Power's results and be guided by its contents 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, Operator, and good morning, everyone. We're also joined this morning by David Pavel, our Executive Vice President of Development as well. Off the top, just with respect to the conflict in Ukraine, I would like to just say that we are thinking of all of those impacted and also thinking of our colleagues, former colleagues, and peers who have family and friends in the Ukraine. Thank you. This morning, we will review our fourth quarter and full year 2021 financial and operating results. Following our prepared remarks, we will take questions from analysts and look forward to addressing all of 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. The rigorous adherence to health protocols during the pandemic helped ensure the safety of our employees while ensuring, allowing us to maintain high levels of availability at our facilities. Reflecting back on 2021, I'm happy to say that we delivered a strong year financially, operationally, and strategically, despite a number of challenges, including a historically low wind resource in the North Sea. We have made strong progress in advancing key development projects, sourcing new growth, and optimizing our operating facilities. As a global energy transition accelerates, a substantial build-out of renewable energy will be needed over the next decade, with government decarbonization policies and corporate net-zero plans, taking hold. With a significant global presence, Northland is well positioned to be a big part of this transformation. Our leadership and entrepreneurial DNA has helped us grow into a global company, and our significant exposure to offshore wind means that we can play a significant role in this energy transformation. We have an operating portfolio of over 3 gigawatts, which nearly 95% is under long-term revenue contracts. and a 14-gigawatt development pipeline to fuel our growth. Our primary focus remains on offshore wind, where we have three significant projects that will reach financial close within the next two to three years. These include Heilong, which will reach financial close later this year, Baltic Power in 2023, and North Sea Two in 2024. Together, these projects will provide us with almost 3 gigawatts of gross incremental capacity to complement the 1.2 gigawatts of offshore wind we currently have in operation. In addition, we are establishing a strong presence in select onshore renewable power markets to complement our growth in offshore wind and provide near-term growth in cash flow. Looking at our accomplishments over the last year, first starting with our financial results, we finished the year on a very positive note, posting solid results for the fourth quarter. For this quarter, we reported adjusted EBITDA of $364 million compared to $269 million in 2020, representing a 35% increase. For free cash flow, we reported $156 million or 69 cents on a per share basis. This compares to the $56 million or $0.28 from the same period a year prior. The strong performance in the quarter helped us achieve full-year adjusted EBITDA of $1.14 billion and free cash flow per share of $1.40. Both of these results came in at the midpoint of our guidance and exceeded our more recent expectations for the year. Pauline will provide a more detailed look into the financial numbers later in the call. Looking back at the year and with respect to our growth pipeline, we closed our entry in the 1.2 gigawatt Baltic Power offshore wind project, for which we also secured a 25-year indexed CFD or power purchase agreement. Work is progressing on moving the project towards financial close in 2023, with commercial operations expected in 2026. We expanded our presence in the German offshore wind market with the formation of the 1.3 gigawatt North Sea cluster with RWE. and we exercise our step-in rights on the first of three projects within that cluster, North Sea 2, to retain the lease. The formation of the cluster is expected to allow the realization of synergies in development, construction, as well as operating costs, leading to enhanced returns for all of the projects. We also have the same step-in rights for North Sea 3 and North Sea Delta, which are expected to come to auction in 2023. and all three together form the North Sea cluster with RWER partner. Turning to our activities in Asia, we made significant advancements on our offshore wind projects under development there. The most notable is our 1,044-megawatt Heilong project in Taiwan, where we are preparing to move the project to financial close later this year. In the past year, we completed key milestones for HILONG, including obtaining the localization plan after working closely with the local supply chain and government. Tendering of the main components has resulted in preferred supplier agreements being signed and securing the supply chain for the project. In South Korea, we secured our first two electricity business licenses as part of our progression of a large portfolio of projects through early development in that country. In Japan, two of our projects were designated under the government's auction process as promising areas, with bidding expected to commence later this year. Looking at our near-term growth and cash flow, we acquired a 551-megawatt portfolio of wind and solar operating assets in Spain, as you know, one of the most promising growth markets for renewables. This portfolio, so far, has been outperforming our underwritten assumptions. The acquisition provided in media cash flow to Northland has helped to position us as a top 10 renewable power operator within Spain. As we build on this momentum, we expect to grow this platform through both greenfield development and additional opportunistic acquisitions. We also solidified our entry into the United States renewable energy market by beginning construction on two of our New York State onshore wind projects. which are progressing on schedule and on budget. The two projects, Ball Hill and Blue Stone, have a combined operating capacity of 220 megawatts and benefit from a 20-year indexed renewable energy certificate agreement with NYSERDA. In Columbia, we began to deliver on our renewable growth strategy, leveraging our position in our EBSA utility there. We advanced the 16-megawatt heliosolar project and the 130-megawatt supersolar projects. Helios has already achieved financial close and construction activities commenced in 2021 with commercial operations expected by the end of 2022 for both projects within the Helios cluster. We hold a 50% interest in the SUBA projects with commercial operations expected in the second half of 2023. Both projects will benefit from long-term off-take agreements with Helios securing a 12-year PPA and SUBA a 15-year PPA. Finally, we bolstered our talent by adding key people in roles across the globe. These experts are vital as we build out our capacity and grow our global footprint. These key roles include areas such as corporate offtake, strategy, market analysis, project management, global procurement, as well as adding storage and hydrogen talent to strengthen our ability to succeed in these new growth sectors. In a world with significant need for new renewable power capacity and lots of capital looking to invest in these assets, you want to be a developer with projects of scale. This ensures we will have proprietary investment opportunities ourselves, but also that we can pursue sell-downs of interest in these projects going forward to other investors. With that, 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 fourth quarter and full year 2021. We are immensely proud of the accomplishments we have achieved together as a team over the past year and are gearing ourselves up to continue to deliver on our stated objectives in 2022. Our fourth quarter and full year financial results showcase the continued strength and resilience of our performance despite the challenges we encountered through the first nine months of the year with respect to low wind resource in the North Sea. As discussed in our MD&A, our financial performance from our offshore wind facilities were impacted this past year due to a weaker wind resource in the North Sea, which impacted all three of our offshore facilities. Over and above this, the turbine bearing replacement campaign at North Sea One also impacted our results. However, we are happy to report that the wind conditions experienced in the fourth quarter were closer to our P50, or normalized expectations, and we continue to see strong wind conditions to start 2022. Looking at our financial results in the fourth quarter, we generated adjusted EBITDA of approximately $364 million, which was an increase of 35%. for $95 million compared to the $269 million we generated a year ago. There were a few factors that contributed to the higher EBITDA and resulted in the year-over-year increase. These included higher contributions from the Spain portfolio due to the acquisitions and due to higher wholesale market prices in the quarter ahead of our expectations. higher operating contributions from Gemini resulting from higher market prices realized on production above the subsidy cap, and higher contributions from EPSA in our natural gas facilities due to optimizations in annual rate escalations. To understand our Spanish portfolio better, I encourage investors and analysts to refer to our 2021 annual report and our latest AIS released last night for more information. On a full year basis, we generated adjusted EBITDA of approximately $1.14 billion, which was near the midpoint of our guidance of $1.1 billion to $1.2 billion. Year over year, adjusted EBITDA decreased slightly by 3% from the same period a year ago due to a $94 million decrease in contributions from our offshore wind facilities resulting from lower wind resource in the year coupled with the APX hedging losses realized at Gemini and the lost revenues at North Sea One due to the Bering replacement campaign. These decreases were offset by a $74 million positive contribution from the Spain portfolio, as well as fewer periods of negative pricing and compensated outages at our German offshore wind facilities compared to last year. With respect to free cash flow, Northland generated approximately $156 million in the fourth quarter, representing an increase of $100 million versus 2020. Overall, the higher free cash flow in the quarter compared to 2020 was due to a number of items, including a $51 million increase in earnings across all our facilities, as I described in explaining adjusted EBITDA. We also realized a $27 million contribution from the Spain portfolio to as well as a $10 million decrease in interest costs from repayment of facility-level loans. On a full-year basis, free cash flow in 2021 was $307 million, which is a decrease of $36 million, or 11%, compared to the $344 million realized in the prior year. The main driver behind the year-over-year change in free cash flow was an $88 million decrease in contributions, primarily at our offshore wind facilities. These decreases were partially offset by a $30 million contribution from the Spain portfolio and $18 million of interest cost savings resulting from the scheduled principal repayment facility-level loans. On a per-share basis, these figures translated into free cash flow of 69 cents in the fourth quarter and $1.40 for the full year 2021, which came in at the midpoint of our financial guidance for the year and above our expected guidance of approximately $1.30 which Northland had guided to in the third quarter of 2021. These results compared to the $0.28 and $1.73, respectively, realized in the same periods of 2020. Our rolling four-quarter free cash flow payout ratio calculated on a cash dividend basis for the year ended December 31 with 56% compared to 63% in 2020. For adjusted free cash flow, which as a reminder excludes growth-related expenditures from free cash flow, we generated $182 million in the quarter and $386 million on a full-year basis. On a per-share basis, this translates into $0.80 in the fourth quarter and $1.70 on a full-year basis. This adjusted free cash flow resulted in a rolling four-quarter payout ratio of 45% compared to 53% in 2020. Expanding a little on our growth expenditures, you will note our presentation of growth expenditures in our annual report distinguishes between business development and project development expenses. We believe this presentation will more clearly outline the nature of these expenditures. Business development expenditures are encouraged to identify and secure prospective business and development opportunities. These are ultimately expected to result in identified development projects intended to be pursued to completion and include costs incurred for transactions that are not ultimately pursued to acquisition. On the other hand, project development expenditures are attributable to certain early to mid-stage development projects under active development that we have identified to the market in our current or previous disclosures. These projects are described and identified in our 2021 annual report. With respect to our balance sheet, Northland remains in a very strong position with ample liquidity to help fund our growth initiatives. As at December 31, 2021, we had access to approximately $776 million of cash and liquidity, comprising $748 million of liquidity available on our revolving facility and $28 million of cash on hand. In addition to free cash flow generated, Northland uses additional sources of liquidity to fund growth and capital investments. For the year ended December 31st, we sourced additional liquidity through net proceeds from a number of strategic debt refinancings and debt optimization. This included our Deutsche Boot debt facility, a number of Canadian solar facilities, and our EBSA debt facility. In aggregate, Northland realized nearly $200 million of additional proceeds from these refinancings. When added to the nearly $250 million of additional liquidity generated in 2020, we have generated approximately $450 million of additional liquidity over the past two years through our refinancing and debt optimization activities to further support our growth. Expanding on EBSA a little bit more, in December, we restructured and upsized EBSA's long-term, non-recourse debt financing, resulting in $84 million of incremental cash proceeds to Northland, net of closing costs. The aggregate amount of the financing was upsized to $533 million, driven primarily by expected growth in EBSA's EBITDA. The facility is structured as a $521 million term loan and a $12 million debt service reserve credit facility. The restructured facility is denominated in Canadian dollars and the principal amount is currently 100% hedged against the Colombian peso. The interest rate on the debt facility before foreign exchange hedging costs is 3.7%. In addition, the EPSA facility will also benefit from a long term as we extended the loan to three years compared to two years previously. Under the terms of the EPSA facility, Northland intends to execute reoccurring upsizing of EPSA's debt supported by continued growth in EBITDA. Looking ahead, as we announced that our investor day held on February 8th, To complement our existing sources of funding, Northland will be considering partial sell-down of ownership interest in certain development assets on or before financial close, green financing instruments such as green hybrid bonds, and other financing tools. These additional sources are intended to improve Northland's financial flexibility while supporting the capital and credit requirements for our development projects. Turning to our 2022 financial guidance, as noted in our press release issued on February 8th, for adjusted EBITDA, we expect to generate between $1.15 billion and $1.25 billion this year. This level is expected to be slightly higher relative to our 2021 guidance levels. Guidance for 2022 free cash flow per share of $1.20 to $1.40 is expected is expected to be slightly lower than 2021 free cash flow per share of $1.40. This is primarily due to increased project development costs and higher corporate costs in pursuit of the company's continued execution of its global growth strategy. As a growth company with a significant pipeline of development projects, Northland is committed to unlocking value by deploying early-stage investment capital, or DevEx, to advance our projects. As such, in 2022, we expect our development expenditures to amount to $100 million, or around 45 cents per share, to fund expenditures to advance the North State cluster, Scotland, Japan, and Korea, in addition to other strategies. Accounting for these growth expenditures noted above, our adjusted free cash flow for 2022 is expected to be in the range of $1.65 to $1.85 per share. This compares with adjusted free cash flow of $1.70 for 2021. I would like to point out that our 2022 guidance ranges for free cash flow and adjusted free cash flow do not incorporate any sell-down proceeds, and as such, net proceeds from sell-down would increase our reported free cash flow in the event they do occur. In conclusion, 2021 was a strong year for Northland and demonstrated the resilience of the portfolio and cash flow through diversification. Our teams achieved numerous successes in the year that allowed us to exceed our expected guidance ranges for both adjusted EBITDA and free cash flow compared to the third quarter, despite a truly anomalous win resource year for the company. We also took meaningful steps to increase our liquidity and enhance our balance sheet, through targeted debt refinancings and optimizations to fund new investments. All in all, it was a productive year for the company. 2022 will be another busy year for the company, and we look forward to providing you with updates on our progress on our upcoming quarterly conference calls. With that, I will now turn back the call to Mike for his concluding remarks.