Northland Power Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Northland Power Conference call to discuss the 2022 first 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 1 on your telephone. And at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Wednesday, May 11, 2022, at 10 a.m. Eastern Time. Conducting this call for Northland Power are Mike Crowley, President and Chief Executive Officer, Pauline Alamchandani, Chief Financial Officer, and Wasim Khalil, Senior Director of Investor Relations and Strategy. Before we begin Northland's management activity, 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's results and be guided by its contents in making investment decisions or recommendations. This release is available at www.northlandpower.com. I will now turn the call over to Mike Crowley. Please go ahead.

Thank you, Catherine, and good morning, everyone. Thanks for joining us today. This morning, we will review our financial and operating results for the first quarter of 2022 and Following our prepared remarks, we will take questions from analysts and look forward to addressing all of your 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. Our rigorous adherence to our health and safety protocols in all respects ensures the safety of our employees while allowing us to maintain a high level of availability at our facilities. We delivered strong results in the quarter on the back of higher production and higher market prices in our offshore wind segment. A stronger wind resource in the North Sea compared to this time last year across our three facilities, coupled with continued strength in energy prices in Europe, resulted in very good performance for our offshore wind segment. Along with the continued strength across our remaining portfolio, this has set us up for a very good start to the year. Looking at the headline numbers in the quarter, we delivered adjusted EBITDA of $420 million, which was an increase of 17% or $60 million compared to the same period last year. Similarly, the adjusted free cash flow per share and the free cash flow per share, we achieved $0.84 and $0.77 respectively in the quarter, representing increases of 15% and 17% respectively compared to the same period a year ago. Pauline will go into the details of the quarter shortly. We continue to progress our key development projects, and our teams are sourcing new growth opportunities in identified markets. As we've noted previously, the acceleration in the global energy transition will require a substantial build-out of renewable energy over the next decade to realize government decarbonization policies and corporate net zero targets. With the recent energy crisis in Europe, we are also seeing a renewed focus on energy security and the commitment to accelerate the development of renewable energy in Europe. These commitments include higher targets for renewable generation in countries such as Germany, the UK, and the Netherlands, and specifically higher targets for offshore wind. Germany has committed to increasing offshore wind capacity by 10 gigawatts to a total of 30 gigawatts by 2030. And the Netherlands has committed to doubling its offshore wind capacity by 2030, adding over 10 gigawatts of incremental capacity in a bid to meet its climate goals and reduce its dependence on fossil fuels. We are also seeing commitments to streamline the regulatory process with the aim of reducing the approval times for projects, thereby accelerating the development and the build-out of projects. As evidenced by the recent announcement from the UK government committing to planning reforms that will see its growth in offshore wind accelerate to 50 gigawatts by 2030, including 5 gigawatts specifically of floating offshore wind. With several key projects in operation and under development across Europe, Northland, we believe, is well positioned to help achieve these objectives. In January, we expanded our presence in the German offshore wind market with the formation of the 1.3 gigawatt North Sea Cluster with our partner, RWE. The offshore wind segment is all about size and scale, and the formation of the cluster provides us with both and is expected to allow for the realization of synergies in development, construction, and on operations. Also in January, we announced a successful bid for two offshore wind leases totaling 2.3 gigawatts off the coast of Scotland. The two leases, one fixed and one floating foundation, are estimated Foundation project are early-stage offshore wind development opportunities that will extend our development pipeline into the next decade. And with our position in the 1.2 gigawatt Baltic Power offshore wind project in Poland, we are solidifying our position as a key player in this offshore wind build-out across Europe and indeed around the world. We are very confident that these accelerated policies and targets will result in the advancement of existing development projects, but are also mindful that investments also need to be made to alleviate pressure on the European and global offshore wind supply chain and its ability to invest in ramping up capacity, which is pressed in the face of rising inflation and rising commodity prices. The focus by these countries on enabling a large-scale build-out of offshore wind towards and beyond 2030 bodes well for companies like Northland, and we welcome the opportunity to accelerate this build-out. Turning to our construction activities, construction at our New York onshore wind projects is progressing well on schedule and on budget. The two projects, Ball Hill and Blue Stone, have a combined operating capacity of 220 megawatts, and commercial operations are expected later in the year. The two projects benefit from 20-year indexed renewable energy certificate agreements with NYSERDA. In Columbia, we celebrated the inauguration of the first phase of our 16-megawatt Helios solar farm in February. Construction and energization of the 10-megawatt first phase is complete and is expected to provide enough electricity to meet the needs of 15,000 homes annually. Construction on the remaining 6 megawatts continued with full automation commercial operations expected by the end of the year, Helios will benefit from a 12-year power purchase agreement. On the development front, our 1,044-megawatt Heilong project in Taiwan is preparing to move to financial close later this year. The project team is diligently completing revenue, construction, financing, and other necessary contractual arrangements, including supplier agreements for all of the key construction contracts and which will allow commencement of construction activities once the project achieves financial close. On our other near-term development projects, including Baltic Power, North Sea 2, which is part of the North Sea Cluster, and SUBA, we continue progressing the projects with the team securing the permits and contracts necessary to keep advancing these projects closer to their respective financial close dates. We are very excited about the new opportunities that are rising as a result of rising electricity prices and the European push for energy security. Our teams across our global development offices are working hard to identify opportunities for Northland to help accelerate the build-out of renewable energy projects, which we hope to share with you in due course. 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 first quarter of 2022. Our financial performance in the quarter was solid, where we generated healthy results for adjusted EBITDA, adjusted free cash flow, and free cash flow. These results were supported by stronger performance across our offshore wind segment due to an improved wind resource in the quarter compared to a year ago, coupled with higher market prices that benefited our Gemini wind funds. Financial results from our onshore renewable segments were also very strong year over year, reflecting consistent performance across our Canadian onshore assets coupled with the contributions from the Spain assets acquired in 2021. However, these results were tempered by weakness in the Spanish assets during the quarter, primarily due to a lower wind resource. Looking at our financial results in the quarter, we generated adjusted EBITDA of approximately $420 million dollars representing an increase of 17% or $60 million compared to the $360 million generated in the same period last year. The key factors that contributed to the higher EBITDA year-over-year included a $63 million contribution from the Spain portfolio, which was not included in our first quarter results the year ago, a $21 million increase in operating results from our offshore wind segment, resulting from higher wind resource, increased APX market pricing that benefited the results at Gemini, and fewer periods of uncompensated outages and negative pricing. This strength was slightly tempered by the reduced turbine availability at North Say 1 due to the rotary assembly replacement campaign, which recommenced in late March. The stronger results were also partially offset by a couple of other key items, including... a $25 million decrease in operating results from our efficient natural gas portfolio in Canada stemming from the expiry of the Iroquois Falls PPA in December of 2021. As Mike noted, we subsequently sold Iroquois Falls alongside our Kingston facility early in the second quarter. Also offsetting the strength in EBITDA was a $9 million increase in our G&A costs and growth expenditures to support global growth. With respect to free cash flow and adjusted free cash flow, Northland generated approximately $174 million and $192 million in the quarter, respectively. This represents an increase of $40 million and $45 million, or 30% compared to the same period a year ago. As a reminder, our definition of adjusted free cash flow excludes growth-related expenditures, and we believe this provides a better representation of our long-term run rate for free cash flow. Overall, the key items leading to higher cash flow in the quarter compared to a year ago included a $36 million contribution from the Spain portfolio coupled with a $13 million contribution from the net proceeds of the EBSA refinancing and an additional $6 million contribution resulting from lower interest costs due to the scheduled principal repayments on facility-level loans. These increases were partially offset by an $18 million increase in current taxes at our offshore wind facilities, resulting from better operating performance year over year. Digging into EPSA a bit more, in December we restructured and upsized EPSA's long-term non-recourse debt financing, resulting in $35 to $45 million of incremental net cash proceeds to Northland. The up-financing was completed on the basis of growth in EPSA's projected EBITDA growth for 2022 based on increases in the rate base. For the quarter, we have included net upsizing proceeds of $13 million in our free cash flow and expect to amortize the remaining proceeds across the three quarters in 2022 weighted more towards the latter half. These proceeds have already been included in our financial guidance for 2022 and Under the terms of the EBSA facility, Northland intends to execute reoccurring upsizing of EBSA's debt supported by continued growth in its EBITDA as market conditions permit. On a per-share basis, these figures translated into free cash flow of $0.77 and adjusted free cash flow of $0.84 in the quarter compared to free cash flow of $0.66 and adjusted free cash flow of $0.73 per share same time last year. These results generated a rolling four-quarter adjusted free cash flow and free cash flow net payout ratios of 42% and 52% respectively, calculated on the basis of cash dividends paid compared to 58% and 73% for the same period ending March 31, 2021. The improvement in both net payout ratios was due to higher reported adjusted free cash flow. With respect to our balance sheet, Northland remains in a very strong position with ample liquidity to help fund our development initiatives. As at May 10, 2022, Northland had access to approximately $890 million of cash and liquidity, comprising $590 million of liquidity available on our revolving facility and $300 million of corporate cash on hand to help us pursue our growth initiatives. In addition to free cash flow generated, Northline utilizes additional sources of liquidity to fund growth and capital investments, including proceeds from strategic debt refinancings and debt optimization. I want to take a moment and discuss the recent announcements in Spain that could impact our current portfolio. In response to the unprecedented high energy prices for consumers in 2022, In March of this year, Spanish authorities announced the approval of an exceptional update to the regulatory framework for calendar 2022 to mitigate the effects of higher energy prices. Under the Spanish framework, the majority of Northland's Spanish facilities are entitled to receive a guaranteed rate of return over the regulatory life of the assets. Revenue from the Spanish facilities is primarily comprised of two main components, return on investment and or RI subsidy, as well as a larger component based on pool prices. The measures introduced will result in the semi-regulatory period from Jan 1, 2020 to December 31, 2022 being divided into two periods, one from Jan 1, 2020 to December 31, 2021, and the second one running from Jan 1, 2022 to December 31, 2022. The update was done earlier than expected and these amendments remain to be finalized but are not expected to affect the long-term financial performance of the Spanish portfolio. As of now, our expectation is that the changes will not have an impact on the returns that will stay at 7.4% over the regulatory life of the assets. We continue to assess any financial impacts on the assets once any further amendments are finalized and issued. Currently, we do not expect any significant impact to our 2022 IFRS revenue, although we are still continuing to assess impacts to current and future years with our advisors and expect to have clarity in the coming months. Turning to our 2022 financial guidance as noted in our press release, we reaffirmed financial guidance for this year. For our adjusted EBITDA, we expect to generate between $1.15 billion and $1.25 billion this year. Given the variability of the offshore wind performance, and uncertainty with respect to the macro factors, including energy prices, our viewpoint on the 2022 guidance remains unchanged. For free cash flow per share and adjusted free cash flow per share, we expect to generate $1.20 to $1.40 and $1.65 to $1.80, respectively. As a growth company with a significant pipeline of development projects, Northen is committed to unlocking value by deploying early-stage investment capital, or DEVX, to advance our projects. As such, in 2022, we are still expecting our development expenditures to amount to $100 million, or around $0.45 per share, to fund expenditures to advance the North Sea cluster, Scotland, and our Japan and Korea strategies, in addition to others. 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-downs would increase our reported free cash flow in the event that they occur. In conclusion, we delivered very strong first quarter results to start the year, leaving us on solid footing to achieve our full-year financial guidance. I will now turn the call back over to Mike for his concluding remarks.