Northland Power Inc.

Welcome to the Northland Power conference call to discuss the fourth quarter 2024 results. As a reminder, this conference is being recorded on Thursday, February 27th, 2025 at 10 a.m. Eastern. Conducting this call for Northland Power are Christine Healy, President and CEO, John Brace, Chairman, and Adam Beaumont, Interim 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 release announcing Northland Power's results and be guided by its content when making investment decisions or recommendations. The release is available at www.northlandpower.com. I will now turn the call over to Ms. Christine Healy.

Good morning. Thank you very much, and thank you to everyone for joining today's call. So in our discussion today, I will provide an update on our business, the progress we've made on construction, and our focus areas for 2025. Adam Beaumont will walk through our 2024 fourth quarter and full year results, and our newly issued 2025 financial guidance, which was released yesterday. And then John Brace will join us as well to take your questions. Before we get into details though, I want to reiterate and emphasize the paramount importance of health and safety across all of Northland's business and all of our operations. We strive to ensure all individuals working across our company and for our company are kept safe because safety is a core value for Northland. So I'd like to take a moment to introduce myself as Northland Power's new president and CEO. Since I joined the company on January 20th, I have been energized by the talent of the Northland team and the incredible work we're doing around the globe. It's been a very busy first month. And for those of you I have not yet had the opportunity to meet and connect with, I look forward to doing so. And I will share with you now some of the things that attracted me to join Northland. So fundamentally, we live in a world that needs energy and that energy needs to be affordable, reliable, secure, and clean. And Northland has a very strong reputation as a world-class energy player, a proven track record in project origination, development, execution, and operation. This company knows how to deliver projects around the world, and these are projects for which the demand picture is exceptional. So with a global and diverse energy portfolio, including offshore wind, onshore wind, solar, battery and natural gas, Northland is growing and we are well positioned to take advantage of future profitable growth opportunities. I was personally really attracted by Northland being one of the few Canadian energy companies operating and succeeding in international markets. In fact, this global diversification is one of the reasons that Northland is unaffected by the threat of US tariffs, as I'm sure some of you will have questions about. Financially, we are in a strong position. We have a highly contracted revenue base, over $2.3 billion in revenues, available liquidity of over a billion, and we're one of the few power producers with an investment grade balance sheet. I've personally spent decades in the energy sector, and I have a lot of passion for energy. And I'm aligned with Northland's values and how we deliver. I bring with me a proven track record of leading teams across continents, increasing shareholder value, and delivering multi-billion dollar infrastructure projects. And I've been fortunate through my previous executive roles, including at global energy companies like Total Energy and Maersk and Atkins Realis, that I have led businesses growing across diverse markets. I also currently sit on the board of directors for Canadian Natural Resources, one of Canada's largest energy corporations. I look forward to leveraging my experience here at Northland as we work to build on the strong foundation that has been built over many decades in this company. So since joining, my focus has been on getting to know our people So our shareholders, our stakeholders, our partners, our employees, and I've also been on a bit of a worldwide tour visiting our operations. Just recently, I spent time in Europe and in Asia, and I met with some of our world-class joint venture partners, including Mitsui, Gentari, Orlin, ESB. I visited some of our offshore construction sites. I met with our teams. I dove into what we are doing to advance these projects. I met our operational teams in Europe, our technology center in Europe. I was really impressed by what I saw. It's been a busy and enlightening month, and I'm pleased by the quality, the dedication of our teams, and the commitment to safety across all of our operations. So I've started working closely with our senior management team to refine our strategic priorities. We will be holding a planning session with our board this June, and I look forward to sharing the outcomes with you at our upcoming Investor Day, anticipated for the fall of this year. And we can provide more details on our long-term strategic priorities and targets at that time. I will note, though, that I walk into an opportunity-rich environment here at Northland with a team who have proven that they can deliver time and again. So I'm excited about the opportunities ahead of us. With increasing global energy demand, this company is well positioned to lead and to seize upon opportunities across multiple technologies and geographies. Near term, though, our focus is on project execution. As you know, we have three large projects reaching advanced stages of construction, and we will see significant milestones in 2025, so stay tuned for that. I was pleased to be in Poland and celebrate with the team at Baltic the installation of the first monofile. So these are real milestones happening right now in these projects and it's Northland teams delivering on that. I can also update you on our search for a permanent CFO. We've been working with an executive recruitment firm and that process is progressing well. We hope to make an announcement in the coming months. So maybe I'll take a couple of minutes to talk about some of our 2024 achievements. As we continue to deliver on our commitments, we are satisfied with the full year results. We hit the high end of our financial guidance. And looking ahead, we are rolling out our 2025 financial guidance, and Adam is going to discuss that in some more detail shortly. But on our three construction projects, totaling $16 billion in investment and 2.4 gigawatts to Northland and its partners, These projects continue to advance. Heilong Baltic Power offshore wind projects and Oneida, one of Canada's largest battery storage projects, are continuing according to plan. Oneida is expected to start operating in just a few months, which is exciting. So I'll start with Heilong, our one gigawatt offshore wind project in Taiwan, where we have made good progress. Manufacturing of all the pin piles is complete. half of the offshore wind turbine jacket foundations have been installed. Half of the turbine generators and blades are complete, and the supplier is progressing well with nacelles and towers. Of the 219 pin piles, 111 have been installed, and more than half of the wind turbine jacket foundations are also in place. All offshore substation foundations are installed. One topside is in place. and cold commissioning is complete. Two out of four export cables have been installed, and the investigation at the onshore substation is complete with safe energization expected in the coming weeks. In-water construction is set to resume per the winter schedule. Turbine installations and first power are expected in the second half of this year. The project remains on track to achieve full commercial operations by early 2027. So then I moved to Poland and our 1.1 gigawatt Baltic power offshore wind project, which has also made strong progress. Major in-water construction activity began earlier this year. We installed our first turbine monopile foundation. And as I mentioned earlier, I was there to celebrate and enjoyed some cake with the team. Work on the offshore substations main structure is underway. Looking ahead, progress continues on the fabrication of onshore and offshore substations, foundations, export cables, turbine components, and inter-array cables. The project remains on track to achieve commercial operations by the end of 2026. Then I'm going to turn to Oneida, our large battery storage project in Canada, and I'm pleased to share that we're in the final stages of this project. With all major activities completed, commissioning is now underway, and we're on track to meet our 2025 operational date in the coming months. Oneida is our first commercial scale battery energy project in Northland, and I'm proud of our tremendous performance on this project. This accomplishment highlights our robust capabilities and our track record of delivering projects as planned. I think our success at Oneida paves the way for future opportunities and enables us to leverage our expertise in battery storage across other jurisdictions. As you know, we are also progressing with our second battery storage project in Alberta, and I'll talk about that more in a moment. Collectively, once complete, our three construction projects, Heilong, Baltic, and Oneida, will contribute approximately $600 million in adjusted EBITDA and $200 million in free cash flow to our business. As we look ahead, we're identifying new opportunities in our core markets, and we're advancing our 10 gigawatt development pipeline. For 2025, we plan to invest $60 million in development. We remain committed to pursuing profitable projects, and we continue to see strong opportunities across our pipeline to enhance shareholder value. In our onshore renewables business in Alberta, our 80-megawatt two-hour Jurassic battery storage project is progressing. The EPC contractor and battery supply contracts have been signed, and the project is advancing to financial close in the coming months. In Ontario, we're reviewing the new LT2 procurement guidelines, and we believe that we could bid multiple technologies into that auction process. In our offshore business, our early stage 2.4 gigawatt Scott wind offshore wind project continues to progress. We continue to see and seek attractive investment opportunities in our core markets, such as the Baltic region, and in areas where governments are increasing efforts and showing strong interest in procuring renewable energy. I do want to spend a quick moment to address some questions that have come up regarding some announcements by the new US administration, particularly around potential tariffs on Canada and changes to renewable power incentives. As many of you may know, Northland made the strategic decision not to enter the US offshore wind market, and therefore we have no exposure to the executive orders relating to offshore wind development. Our current US onshore exposure is limited to 220 megawatts of operating wind power in New York State. We continue to look at additional opportunities within our New York onshore development pipeline as we see these as good potential investments for the future. In terms of potential tariffs, if they are imposed on Canada, we believe they would have minimal impact on our business due to our international diversification, our access to a global supply chain, and our development pipeline largely outside of the United States. I will also note that despite any political shifts that may happen around the world, the fundamental demand for power remains high, and renewable energy will continue to dominate new installations. Renewables and natural gas are the best positioned technologies to meet this growing demand, and Northland's scale, geographical reach, capabilities, and technology mix position us to deliver on that need. Drivers like data centers, reshoring, electrification, decarbonization, all of these fuel the growth. And we see that in Canada with our largest grids, Ontario, Quebec, and Alberta, revising long-term demand forecasts upwards. But we see that in our markets around the world. The demand for power remains strong. And new natural gas generation alongside renewables will be essential into the future. Geopolitical factors, frankly, are something we cannot control, and when we invest in energy, we're essentially investing through the cycle. Political stability is important to everyone, but of course, changes in the political environment do happen, and we must remain adaptable. That's why we focus on developing good projects with robust execution so that these projects are profitable throughout changes in the cycle. We've seen some depressed valuations for power energy companies, including Northland, and there is some macro environment noise and sentiment, but the market fundamentals remain strong, and our ability to originate, develop, construct, and operate profitable projects around the world sets us apart. Recently, we've observed some significant transactions in the renewable energy space, that demonstrates a dislocation between private and public market valuations. This is a testament that power infrastructure is valuable, and we see the strong fundamentals, and I think we can see through the strong fundamentals to a strong future for the company. In response to what we believe to be an undervalued Northland share price, Adam will talk in a few minutes about our amended dividend reinvestment program, or DRIP, where we are removing the discount and we are reverting to market purchases to reduce dilution for our shareholders. And Adam will talk about this some more. We're confident in Northland that we're well placed to benefit from market trends and we can leverage our competitive advantages to capture and deliver profitable opportunities. You can also see in our portfolio that owning power generation infrastructure continues to be valuable. As our existing contracts expire, we have the option to recontract, and typically we have no debt obligations remaining on our assets. Because we're a good operator, we can deliver solid revenue streams from these assets for years to come. Before I turn it over to Adam, I also want to address a topic that's been on some investors' minds according to some of the discussions we've been having, and that's Northland's dividend policy. The Board of Directors reviews the dividend policy regularly as part of our overall capital allocation strategy. Northland's board and management understand that the dividend is important to many of our shareholders, and our current plan is to maintain the dividend at current levels. Our asset base is strong, and our expected cash flow is sufficient to cover the dividend and support our planned growth. In addition, we have three large construction projects coming online over the next few years that provide additional material cash flow. Our value proposition remains based on our strong capability and our track record and our ability to capitalize on large power growth opportunities. We have technological diversification, including the ability to develop, construct, and operate offshore wind. onshore solar, onshore wind, battery storage and natural gas power infrastructure globally. We have an existing presence in North and South America, Europe and Asia. I would also say one of our key parts of the value proposition is our people. We have people who know how to originate, develop, construct, deliver and operate power infrastructure globally. And it's a key ingredient for our success. And finally, of course, the market fundamentals I've already mentioned. Power demand is here to stay, and Northland is ready to capitalize on it. So with that, I'll turn things over to Adam, who can provide a more detailed update on the financials. Adam?

Thank you, Christine, and good morning, everyone. We are pleased with our 2024 operating results, which achieved the higher end of our financial guidance. These results reflect the strength and stability of our business through global and technological diversification and are a testament to our track record of successfully and effectively operating our projects while also delivering on our construction commitments. During the fourth quarter, we generated adjusted EBITDA of $312 million. While on its face, this was a decrease compared to last year. But as you will recall, it was largely due to the one-off gain recognized on the high long partnership with Gentary late in 2023. I wanted to quickly note a couple of highlights for each of our business units during the quarter. For offshore wind, the wind resource was good, but lower than last year, which featured a historical high in the fourth quarter of 2023. The German wind farms experienced lower unpaid curtailments this quarter due to a lower number of negative pricing events. And in November, there was a 10-day unplanned outage from the grid operator to perform system upgrades, which impacted one of our German wind farms. Onshore renewables results were also strong, with higher wind and solar resources at our Canadian and New York assets and favorable band adjustment revenue in Spain. For our natural gas facilities, this quarterly results were largely in line with those in 2023. In November, it's worth noting that we successfully completed the 23 megawatt capacity expansion at our Thorold natural gas facility in Ontario. The $40 million upgrade was completed on time and on budget, funded with project level debt. If you recall, in 2023, we signed an agreement to increase the capacity of this facility and extend our revenue contract by five years until 2035. This extension is conditional upon the successful completion of upgrade tests scheduled for later this year, which we expect to achieve. This upgrade will add more cash flow and demonstrate our technical abilities or continues to demonstrate our technical capabilities in natural gas and the post-BBA value in our high-quality assets. IBSA, our Columbia utility, saw improved results primarily due to the combination of its growing regulated asset base and rate escalations, which effectively provide us with protection against inflation. On a full year basis, adjusted EBITDA was $1.3 billion, representing a 2% increase compared to last year. This was primarily due to higher wind resources over the course of the year, a full year contribution from our two New York wind assets, which came online late in 2023, and lower discipline spending on early stage development activities as we had planned and previously communicated. During the fourth quarter, we generated adjusted free cash flow of $81 million and free cash flow of $58 million on a per share basis. This resulted in 31 cents and 22 cents respectively in the fourth quarter. On a full year basis, we generated adjusted free cash flow of $394 million and free cash flow of $328 million in 2024, or $1.53 and $1.27 per share, respectively. Turning to our 2025 financial guidance that we introduced yesterday, we expect 2025 adjusted EBITDA to be in the range of 1.3 to 1.4 billion dollars an increase of approximately 100 million dollars from last year this increase is largely driven by the first cash flows from our growth projects currently under construction including the high long pre-completion revenues which are expected to start in the second half of this year and the Oneida facility which is expected to achieve commercial operations in the coming months As a reminder, pre-completion revenues are used to fund construction costs for Heilong until full commercial operations is achieved. This revenue will only be included in our adjusted EBITDA, but not in our cash flow metrics. Factors expected to offset the increase are lower band revenue adjustments in Spain from lower posted regulatory prices and lower planned contributions from the North C1 offshore wind project following a scheduled step down in its PPA price from 194 to 154 euros per megawatt hour. We expect 2025 adjusted free cash flow to be $1.30 to $1.50 per share. When compared to 2024, actual adjusted free cash flow 2025 will benefit from higher contributions from our natural gas facilities and EBSA, as well as lower net debt service and taxes. The Oneida project coming into service in 2025, as I already mentioned. This will be offset by a couple items already mentioned and lower cash flows resulting from the gain on the sale of the Leloucha Mexico asset and its partial year of operations in 2024. Our free cash flow guidance is expected to be $1.10 to $1.30 range, which assumes $60 million of development expenses. I do want to highlight that we continue to disclose both adjusted free cash flow and free cash flow metrics. Our free cash flow metric is different from how our peers report including growth expenses. Going forward, we will place more emphasis on adjusted free cash flow as it represents the best metric of Northland's ability to generate cash flow from our operating business before any investment-related decisions are made, such as development-related activities. Development expenditures are an important aspect of our business. However, the benefit is not typically realized for several years and the level of spending may differ year over year. Turning to our three construction projects, which continue to progress well, as Christine noted earlier, the capital spend in the fourth quarter was approximately $1 billion, which leads to $8 billion to date. This marks 50% of the total $16 billion of total expected project costs for those three projects. As Christine alluded, turning to our share price, while it has been encouraging to see an increase over the past couple days, we still believe our current share price does not reflect the true long-term value of our business. In response, we have announced two changes to our DRIP program, which will take into effect with the April dividend payment. We continue to offer the DRIP to shareholders but have eliminated the discount and will begin sourcing drip shares via market purchases instead of from Treasury because we believe it is prudent to minimize dilution for our existing shareholders. We are confident in the strength of our balance sheet, the status of construction, and have multiple funding tools available to deliver on our disciplined growth strategy in core markets. In terms of funding our future discipline growth in core markets, I would like to comment on a couple areas. First, our investment grade balance sheet remains strong with available liquidity of $1.1 billion. Second, as the three construction projects come online, that will provide us with an incremental approximately $200 million annually. Third, As we add new growth projects, those projects will provide further contributions as well as incremental debt capacity to pursue more opportunities. And finally, we have more funding tools, multiple funding tools available, such as project level refinancing and asset level recycling that can provide incremental capital. We continue to advance on our development pipeline overall. To summarize, We are pleased with our 2024 results and see 2025 as another exciting year for us, given the number of milestones that we expect to achieve as we further de-risk construction projects and secure new growth. With a strong balance sheet and robust liquidity position, we are well positioned to fund our program of growth while executing on construction. I will now turn the call over to John for a few final remarks.