Northland Power Inc.

Welcome to the Northland Power Conference call to discuss the third quarter 2023 results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. As a reminder, this conference is being recorded on Friday, November the 10th, 2023 at 10 a.m. Eastern Standard Time. Conducting this call for Northland Power are Mike Crawley, President and Chief Executive Officer, Pauline Alamchanidani, Chief Financial Officer. 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 press release announcing Northland Power's results and be guided by its contents and making investment decisions or recommendations. The release is available at www.northlandpower.com. I will now turn the call over to Mike Crawley.

Thank you very much and good morning everyone and welcome to Northland's third quarter 2023 earnings call. Before we start, I want to reiterate that the health and safety of our employees and stakeholders always comes first. This is particularly important now that we have three significant projects in construction. As always, I will provide you with the business updates before passing things over to Pauline, who will walk you through our financial results. Let me first start with an update on our offshore wind business. There's no question that it's been a tough year for the offshore wind sector. Supply chain constraints and macroeconomic conditions have hit offshore wind the most of all of the different renewable technologies. Despite the challenges facing the sector, I'm pleased to announce that in September we signed and closed the financing on both the Baltic Power and Heilong offshore wind projects, representing over 2 gigawatts of additional offshore wind capacity. These are significant milestones for Northland and a big positive marker for the offshore wind sector. We are particularly proud to have financed both projects for more than 20-year terms, totaling over $10 billion of non-recourse project-level debt, with the support from our global financial partners at a competitive all-in rate of 5%. What is important to note is that we have already secured funding for our portion of equity for these projects under construction, including Oneida. Both Qualtic Power and Heilong are progressing well in construction, which I'll speak to shortly. Once they reach full commercial operations in 2026 and 2027, with first turbines generating power in 2025, they will provide a material amount of EBITDA and cash flow growth for our business. Recognizing the adversities within the sector, we identified and actioned several measures early to counter changing dynamics in the space to limit potential negative impacts to our projects. For example, we locked in the supply chain early and secured enhancements to the revenue contracts. On Baltic Power, this included moving inflation indexation back one year in the 25-year PPA that we have on the project and changing the base currency from Polish Zloty to Euros, which enabled increased amount of liquidity from debt lenders. Similarly, on Heilong, we were able to secure changes to the corporate PPA, including moving the term from 20 to 30 years which helped us offset the impact of cost increases. We also secured other optimizations on the project itself. We already have an attractive visible growth profile once we achieve commercial operations for Baltic Power and Heilong by 2026 and 2027, respectively, and remain disciplined on our pipeline to ensure that the growth we pursue is profitable and balanced. Earlier in the year, we did not hesitate to walk away from projects like the North Sea Cluster that no longer met our investment criteria as market conditions changed. And we were also able to recover our sunk cost on that project and secure a premium. We also exited early-stage non-core offshore wind projects like Katagami in Japan. As well, deciding not to participate in any offshore wind development in the U.S. with a nascent supply chain and expensive upfront lease payments is just another example of us remaining selective and disciplined in our approach to growth. As I alluded to at our offshore wind investor update in September, we are focused squarely on execution of our projects under construction to be delivered on time and on budget. This is the same as we have done in the past. We will continue to take a diligent and disciplined approach to capital allocation, ensuring that we invest in high-quality, profitable projects that drive value for our shareholders. A large and diversified development pipeline, including solar, onshore wind, and energy storage, provides us the ability to dedicate our resources at any time to the projects and the investments that are most attractive. This is what makes Northam positioned well for success over the long term. Heilong and Baltic Power are advanced projects with secured construction contracts and financing, cost locked down. Therefore, Northland does not see any further offshore wind procurement or financings for the next three years that enables us its flexibility to wait for not just the supply chain bottlenecks to be resolved, but also for a more stable interest rate environment. Subsequent to the Heilong financial close, our teams have been focused on closing the sale of the 29.4 stake interest in Heilong to Gentari announced last year in December. The sell-down transaction is currently targeted for the fourth quarter of 2023, subject to the satisfaction of certain closing conditions. In an extension of the strategic partnership formed with Juntari during the third quarter, we also closed on a 49% sell-down in two early-stage offshore wind development projects in Taiwan, Northwind and Tanwind. Juntari's participation in these projects further demonstrates strong interest in the Taiwanese offshore wind sector, and in a longer-term, broader partnership with Northland overall and beyond Taiwan. Now, shifting to the onshore renewables business. Last quarter, we achieved financial close on Oneida, one of North America's largest energy storage projects, totaling 250 gigawatts. Construction is progressing as planned, with commercial operations expected in 2025. The contracted portion of the project is partially inflation protected. Subsequent to the end of the quarter, our Bluestone and Balls Hill projects in New York commenced early revenue. Both projects, totaling 220 megawatts, have 20-year revenue contracts with inflation protection and are expected to contribute an aggregate of $42 million and $15 million of adjusted EBITDA and free cash flow, respectively. We are presently working towards substantial completion, at which point we will finalize our tax equity funding, with all this expected to be completed in the fourth quarter of the year. We've achieved a great deal this year across both our offshore wind and onshore renewables business. The 2023 goals we stated at our investor day earlier this year are being achieved, and we are looking to close on a few more before the end of the year. Looking at the headline numbers in the quarter, we delivered adjusted EBITDA of $267 million in the third quarter, along with adjusted free cash flow and free cash flow of $0.25 and $0.14 per share, respectively. Colleen will provide a more detailed look into the financial numbers later in the call. Moving to updates on the construction progress for our three projects under construction, Heilong, Baltic Power, and Oneida, At Heilong, fabrication of key components and in-water horizontal drilling has commenced. Heilong has already logged 5 million working hours while adhering to strong health and safety standards. Foundations for the turbines and offshore substation work has significantly advanced, and the offshore jacket foundations are in final outfitting and close to being ready to sail out to Taiwan. Fabrication of key components have also begun at Baltic Power. At the Oneida Energy Storage Project, the road and the pond construction and equipment foundation has commenced along with preparation of site for receiving major equipment in the spring. Execution for these three projects is our top priority. We maintain very close communications with the major contractors in our supply chain at both project and corporate level. This is crucial to ensure the quality of construction and that our projects are delivered on time and on budget. The contractors in our supply chain are reputable with strong track record and expertise. In most cases, we have worked with them on previous projects. Most of you may have seen recent media reports on Siemens Energy. There is no indication that this will impact the delivery of turbines to our Heilong project. SRE have reiterated and confirmed to Heilong that the program remains unaffected and is currently tracking on schedule for material deliveries and that they are fully underway for the planned installation in 2025. And, of course, there was some further news yesterday on discussions between Siemens Energy and the German government in the news. Delivering these three projects into operation, they are expected to collectively generate an aggregate adjusted EBITDA at free cash flow of $570 to $615 million annually. and $185 to $210 million, respectively, on a five-year average basis, resulting in significant value creation and accretion for Northland's shareholders. With that, I will turn the call over to Pauline for a more detailed review of our financial results.

Thank you, Mike, and good morning, everyone. Before diving into the quarterly results, I want to take a moment to emphasize the immense quarter we have had with the closing of the financings on more than 2 gigawatts of offshore wind projects. The team worked with more than 20 financial institutions each for Heilong and Baltic Power, which included building new relationships with over 15 commercial global banks and export credit agencies. Developing these new relationships and bolstering existing ones will go a long way in building an ecosystem of partners for future project financings for Northland globally. Closing over $10 billion of project financings in the current market is a testament of the high quality projects we own and is a positive reflection on the capability of our teams, our partners, our reputation as a sponsor, leading both financing on behalf of the project and our partners. As Mike noted, all projects in construction have been funded through approximately $900 million in proceeds raised on our ATM program in 2022 and through the $500 million corporate hybrid debt at a net cost of approximately 6.2%. The remaining element of the funding plan is the closing of the 49% sell-down of Heilong to Gentari, which is targeted for the fourth quarter, subject to achieving closing conditions, as Mike discussed. Northland had access to $563 million of available liquidity at September 30th, including $63 million of cash on hand and approximately $500 million of capacity on its corporate evolving credit facilities as of today. Northland also had a $500 million short-term corporate credit facility to help fund its equity contribution in Heilong, of which $344 million was utilized at September 30th. This facility is intended to be repaid subject to the receipt of the proceeds from the sell-down of Heilong to Gentari. The facility matures at the end of November of 2023 and may need to be extended or refinanced if there is a delay in the closing of the sell-down. In addition, Northland has secured a $1 billion Heilong-related corporate LC facility to support Heilong credit requirements during construction. Northland's Heilong-related letter of credit obligations and this facility would decrease by 49% upon closing of the Gentari sell-down. Looking at financial results released last night, our third quarter 2023 results were lower compared to Q3 last year, but were in line with our expectations. We generated adjusted EBITDA of approximately $267 million in the quarter, representing a decrease of approximately 8% or $23 million compared to the same period last year. The key factors that contributed to the lower EBITDA year over year included inflation, a $50 million decrease in operating results at the offshore wind facilities, primarily due to the non-recurrence of the unprecedented spike in market prices realized in 2022. This decline was partially offset by higher turbine availability at North Bay 1, following the completion of the RSA replacement campaign in 2022 and the effect of foreign exchange fluctuations due to the strengthening of the euro and other items, and a $14 million increase in G&A costs and development expenditures primarily due to higher costs to support operating projects and the latter driven by the timing of the spend. The factors partially offsetting the decrease in adjusted EBITDA were a $29 million increase in the contribution from the Spanish renewables portfolio, primarily due to the increase in band adjustments partially offset by the decrease in both merchant revenue and RI, $19 million in gains from partial asset sell-downs, With respect to our free cash flow and adjusted free cash flow, Northland generated approximately $36 million and $64 million in the quarter, respectively. This compares to $44 million and $66 million in the same period a year ago. The significant contributors resulting to the lower adjusted free cash flow and free cash flow in the quarter were a decrease in contribution from the operating facilities leading to lower adjusted EBITDA, a decrease as a result of higher net proceeds from the EPSA refinancing that were recognized last year, and the decreases were partially offset from partial asset sell-down gains and lower finance costs. On a per-share basis, these figures translated into free cash flow of 14 cents and adjusted free cash flow of 25 cents in the quarter, compared to free cash flow of 19 cents and adjusted free cash flow of 28 cents per share in the same time last year. These results generated a rolling four-quarter adjusted free cash flow and free cash flow net payout ratios of 59% and 82%, respectively, calculated on the basis of cash dividends paid, compared to 32% and 37% for the same period ending September 30th of 2022. We continue to focus on managing our balance sheet, and we will commit to new projects in future periods only being convinced of walking down financing and returns amidst a more uncertain environment. Further, as Mike mentioned, in addition to working on the closing of the high-long sell-down transaction with Gentari that is targeted for the fourth quarter, we also closed on the 49% sale of Northwind and Candwind to Gentari, which is reflected in our third quarter financial results. We continue to have a very active working relationship with Gentari as a long-term partner. Turning to our 2023 financial guidance, as noted in our press release, despite the regulatory changes in Spain, which materially impacted our results last quarter, and the macroeconomic challenges posed this year, we are reaffirming our 2023 financial guidance, albeit at the lower end of the range. For adjusted EBITDA, we expect to generate the low end of the range of $1.2 and $1.3 billion this year. For free cash flow, we expect the range to be at the low end of $1.30 and $1.50 per share, while for adjusted free cash flow, we expect to be at the lower end of the range of $1.70 to $1.90 per share. The low end of the ranges include sell-down gains. To conclude, it has been a significant quarter for Northland with de-risking and the achievement of financial goals of our two Mark A offshore wind projects. Going forward, our focus remains on the execution of our three projects under construction within schedule and budget, which will allow us to potentially enhance project returns further with the optimization levers we have available that were discussed on our offshore wind investor call last month. I will now turn the call back over to Mike for his concluding remarks.