Northland Power Inc.

Ladies and gentlemen, thank you for standing by. Welcome to this Northland Power Conference call to discuss the 2022 fourth 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 1-1 on your telephone. As a reminder, this conference is being recorded Friday, February 24, 2023 at 10 a.m. Conducting this call for Northland Power are Mike Crawley, President and Chief Executive Officer, Pauline Alamshindani, Chief Financial Officer, and Waseem Khalil, Senior Director of Investor Relations and Strategy. Before we begin, Northland Management has asked me to remind listeners that all figures presented are in Canadian dollars and to caution that certain information presented in 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 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, Latonya, and good morning to everyone. Thanks for joining us today for our first earnings call of 2023. This morning, we're going to review our financial and operating results for the fourth quarter and full year 2022. Following our prepared 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 our stakeholders always comes first. Our rigorous adherence to our health and safety protocols ensures the safety of our employees while allowing us to maintain a high level of availability at all of our facilities. We continued our strong performance in the fourth quarter and consequently for the full year, delivering solid operating results and financial results in 2022, leading us to exceed the upper end of our guidance ranges for both EBITDA and free cash flow per share. A key driver behind our financial results has been our strong operational performance. Our teams have worked hard this past year to ensure that our facilities are operating at high availability levels, allowing us to capture a strong wind and solar resource this past year and capitalize on high power prices in Europe. Looking at the headline numbers, we delivered a just a bit of $353 million in the fourth quarter compared to $364 million at the same time a year ago. On an annual basis, adjusted EBITDA in 2022 stands at just shy of $1.4 billion compared to $1.1 billion in 2021. This result represents a record for Northland, an accomplishment of which we are all very proud. For adjusted free cash flow per share and free cash flow per share, we achieved $0.16 and $0.06 respectively in the quarter compared to $0.80 and $0.69 in the same period a year ago. Well, on a full year basis, we had delivered adjusted free cash flow of $1.95 per share and free cash flow per share of $1.61. This compares to $1.77 per share and $1.40 per share, respectively, in 2021. Pauline will provide a more detailed look into the financial numbers later in the call. Reflecting on our accomplishments in 2022, I'm very proud of the efforts and results that our team delivered to continue to position Northland at the forefront of the global energy transition. The global emphasis on energy security and the need to accelerate the move from fossil fuels to renewable energy sources remains unchanged. A substantial build out of renewable energy will be needed over the next decade to facilitate these objectives. Over the course of the year, we made strong progress in advancing key development projects. source additional opportunities and position ourselves in some of the best markets to capitalize on this growth. Our growth pipeline now sits at nearly 20 gigawatts and is well diversified across technologies and markets. Having a robust development pipeline gives us optionality in terms of which projects we decide to invest our capital in. And to be clear, it doesn't mean that we will be building all of these projects. In fact, it allows us to be selective in where we deploy our capital. Our presence on the ground in key markets is an important success factor going forward. Energy security, decarbonization policies are driving increased targets for offshore wind and accelerating permitting timelines, particularly in Europe, where we have already established a healthy portfolio. For onshore renewables, we have consciously picked onshore markets where we forecast strong growth for renewables, see good policy support going forward, and where there is a favorable investment climate. Last year, we brought the focus back to our domestic market, Canada, by securing a 1.6 gigawatt solar portfolio and development teams in the province of Alberta. This is a big step forward in the Canadian market for us. Alberta is currently the most prolific market within Canada for renewable development with a robust corporate offtake market. The acquisition adds a development pipeline of solar and storage projects, of which the 220 megawatt Jurassic project would reach commercial operations as early as 2025. In Ontario, we acquired a majority interest in a 250-megawatt late-stage grid-connected battery storage project in the southern end of the province. The Oneida Energy Storage Project, one of the largest in North America and certainly the largest in Canada. With that, Northland will be the majority owner of the project and will take the lead role in its construction, financing, and operations. The project will benefit from a 20 year fixed price contract for revenue payments with the ISO, the system operator in Ontario for the majority of the capacity from the project. The remaining capacity will earn market revenues through sales into the wholesale market. Financial close for the project is expected in 2023 with full commercial operations targeted to commence in 2025. Turning to our development activities, At Heilong, the project has now executed all of its material contracts with suppliers and commenced early construction works, including starting the fabrication of key components. The financing of the project is progressing, albeit slower and more challenging than expected due to macro and market-specific factors. As part of our partnership strategy in December, we announced an agreement with Gentari International Renewables, whereby Gentari will acquire 49% of our stake in Heilong. This translates into an effective ownership of 29.4% for Gentari with Northland still retaining 30.6% ownership of the project. Northland will continue to take the lead in the construction and operation of the project. In addition, we also signed an exclusivity agreement for further potential partnerships with Gentari in Taiwan. Closing of the transaction on this is subject to certain conditions and regulatory approvals. At Baltic Power, we are very pleased how the Polish government responded to some of the market disruptions that have happened in the last year by making certain changes to the CFD, or the revenue contract. The project's 25-year CFD is now denominated in euros instead of the Polish zloty, and inflation indexation has been revised to a base year of 2022 from 2023, helping offset the inflationary price pressures in this past year. In South Korea... we've been awarded electricity business licenses, or EBLs, for nearly 1.3 gigawatts of offshore wind projects, including for Datto Ocean and Bobite. Northland is also pursuing additional early-stage development opportunities in the country for multiple projects with up to 1.8 gigawatts of capacity. Lastly, at our La Lucha solar project, we continue to work to achieve commercial operations for the project. In January, we received approval of the extension of the generation permit for La Lucha and we are now coordinating with appropriate regulatory authority to initiate testing of the project in order to achieve commercial operations which is expected later this year. All in all, a very active year for Northland and despite the global uncertainty and macroeconomic pressures, we continue to deliver strong operating and financial results and continue to execute on our strategic plan. 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, Northern Power released operating and financial results for the fourth quarter and full year of 2022. Our financial performance in the year was solid, where we generated results that exceeded our financial guidance, supported by strong performance across our operating portfolio. Our operating assets achieved a high level of availability, which provided a good backdrop to capitalize on the stronger wind and solar resource and the higher power prices in Europe that benefited our offshore wind facilities. Specific to the fourth quarter, the early completion of the bearing replacement campaign at North Sea One meant that the turbines were fully available to take advantage of the seasonal stronger winds in the quarter. This helped to deliver fourth quarter results that exceeded management's expectations. Adding all this up, we achieved results that were stronger than a revised guidance. Specifically, we achieved adjusted free cash flow per share that came in at the upper end of the guidance range, while free cash flow per share and adjusted EBITDA both exceeded the upper end of the respective guidance ranges. When comparing to the midpoint of our original financial guidance issued in February of last year, Our full year 2022 results were approximately 17%, 24%, and 11% higher than guidance for adjusted EBITDA, free cash flow, and adjusted free cash flow per share, respectively. In fact, we were able to achieve this result even after de-risking our business through approximately $150 million of debt repayments at Gemini in Spain that were announced with our third quarter results but were funded in the fourth quarter. Looking at the specific financial results, we achieved full year adjusted EBITDA of nearly $1.4 billion, representing an increase of 23% or $260 million compared to $1.1 billion in 2021. The key factors that contributed to the higher adjusted EBITDA year-over-year included higher contributions from our offshore wind portfolio, resulting from a combination of higher market prices and a stronger wind resource compared to 2021, higher contributions from our Spain portfolio due to a full year of contributions in 2022 compared to five months in 2021. The Spanish portfolio also benefited from higher regulated posted prices in 2022, helping contribute to the overall increase in contributions from the portfolio and a one-time management fee and other optimizations from the restructuring and upsizing of our Kirkland Lake credit facility. This strength was slightly tempered by a decrease in operating results due to loss and contributions in the expiry of the PPA and subsequent sale of the Iroquois Falls Natural Gas Facility in April of 2022. With respect to our adjusted free cash flow and free cash flow, Northland generated approximately $461 million and $380 million, respectively. This compares to $386 million and $307 million for 2021. The significant factors contributing to the $75 million or 19% increase in year-over-year adjusted free cash flow were an increase in overall contribution across all facilities, resulting from better operating results, an increase in the one-time management fee and other optimizations from Kirkland Lake, as previously discussed, and one-time proceeds from the sale of the Iroquois Falls and Kingston efficient natural gas facilities. These increases were partially offset by higher current taxes as a result of stronger financial results and a decrease in contribution from the Spanish portfolio, primarily due to the one-time principal payment upon the debt restructuring. On a per share basis, these figures translated into adjusted free cash flow of $1.95 and $1.61, respectively, compared to $1.77 and $1.40, respectively, for 2021. These results generated a rolling four-quarter adjusted free cash flow and free cash flow net payout ratios of 43% and 52%, respectively, calculated on the basis of cash dividends paid, compared to 45% and 56% for the same period ending December 31 of 2021. With respect to our balance sheet, Northline retains ample liquidity to fund our current projects. As of December 31st, we had access to approximately $1 billion of cash and liquidity, comprising $600 million of liquidity available on a revolving facility and $500 million of corporate cash on hand to help us pursue our growth initiative. We continue to prudently manage our balance sheet, taking proactive actions to further enhance our cash flow, bolster our corporate liquidity, and ensure Northland remains in a good position to fund its growth needs. Part of these actions include utilization of multiple sources of liquidity to fund growth and capital investments, including proceeds from our ATM program. We also continue to utilize project refinancing as a tool to optimize the debt profiles, enhance future cash flows, and generate additional liquidity to fund our growth. With higher cash flows in 2023 across our portfolio, we were able to proactively deleverage some of our assets to de-risk the long-term cash flow profile while also enhancing the economic return of the projects through favorable refinancing terms. In total, we refinanced over $3 billion Canadian dollars of project debt in 2022 and generated nearly $80 million of additional liquidity in the year. As outlined at our investor day on February 3rd, we have an estimated $2.2 billion of equity capital deployment towards projects targeted for financial close this year. Of the $2.2 billion requirement, is expected to fund Heilong, Wealthy Power, and our newly announced Oneida battery storage project in Ontario. Of this, approximately $1.7 billion has already been sourced and or announced through proceeds from the ATM program and the future expected proceeds from the Heilong partnership sale, which is not yet closed. The remaining $500 million is expected to be funded through additional possible sell-down proceeds hybrid bonds, liquidity on hand, potential ATM issuances, and asset refinancings. We believe there is ample redundancy in sources available to us to fund our remaining equity requirements for 2023. Turning to our 2023 financial guidance as previously disclosed, for adjusted EBITDA, we expect to generate between $1.2 and $1.3 billion this year. Guided for 2023 free cash flow per share, we expect the range to be $1.30 to $1.50, while for adjusted free cash flow, we expect to generate $1.70 to $1.90 per share. As a growth company with a significant pipeline of development projects, Northland is committed to unlocking value by deploying early-stage investment capital, or DEVX, to advance our projects. As such, in 2023, we expect to deploy development expenditures of approximately $100 million, around $0.40 per share, to fund expenditures to advance secured projects. This would include expenditures on our Scotland offshore wind project, North Sea 3 and Delta projects in Germany, the Korean projects, the recently acquired Alberta solar portfolio, and Oneida, in addition to other Canadian and U.S. opportunities. In conclusion, we delivered strong results in the quarter and for the year, which surpassed the upper end of the guidance ranges for adjusted EBITDA and free cash flow. We also achieved a record level of adjusted EBITDA. We are proud of the accomplishments we have achieved together as a team over the past year, and we are gearing up ourselves to continue to deliver on our stated objectives in 2023. I will now turn the call back over to Mike for his concluding remarks.