Algonquin Power & Utilities Cor Q2 FY2024 earnings call

• Successfully sold renewables business for $2.5B, with $2.28B cash and $220M earn-out; expect to close in late 2024/early 2025 with net cash ~$1.6B.
• Progress on regulated business: Reorganized along commodity lines, implemented customer-first enterprise platform, added 3 experienced board members, Sarah MacDonald appointed Chief Transformation Officer, Johnny Johnston left.
• Investments not in rates: Over $1B in assets not authorized in rates, e.g., Sarival Wastewater Treatment Plant and customer-first SAP program; rate case filings delayed in MO, NH, CA shifting recoveries to 2026.

Regulated Services Group: In Q2 2024, BELCO in Bermuda received a final order authorizing a $33.6 million revenue increase over 2 years, with new rates effective 8/1/2024. NY filed a joint proposal with NY DPS staff. Pending 14 rate reviews totaling $131M as of quarter end. Renewable Energy Group: Construction on track, construction loan balance fell to $405M due to buyout of projects, expected to rise to similar level by year-end with completion of Carvers Creek and Clearview. Financial results: Adjusted EBITDA was $311 million, up 12% y-o-y. Adjusted net earnings were $65.2 million, up 16% y-o-y. Adjusted net earnings per share was $0.09, up 13% y-o-y. Revenue contributions: Regulated grew 7%, renewables grew 31%.

• Expect to close renewables sale in late 2024/early 2025, using proceeds to recapitalize balance sheet.
• 2025 earnings impacted by rate case timing; delays in some jurisdictions shift recoveries to 2026.
• Reduced dividend, focusing on capital-light growth trajectory to improve returns, with dividend payout ~60%-70% of optimized core regulated earnings power on current assets.

• Delays in rate case filings in Missouri, New Hampshire, and California, shifting recoveries closer to 2026, impacting short-term earnings.
• System implementation causing delays in rate case filings during post-conversion adjustment period.

Q: What does the walk down of net cash proceeds of $1.6 billion from the sale price look like?

A: Primarily related to construction loans, with little tax friction.

Q: Is the construction debt off balance sheet or yet to be incurred?

A: Construction debt balance was lower as of Q2, expected to rise to similar level by year-end with completion of Carvers Creek and Clearview.

Q: Thoughts on the valuation of 11.5x to 12.5x next year's EBITDA?

A: Seen as excellent multiples, reflecting strong development pipeline and organization.

Q: 60%-70% payout ratio from starting point?

A: Set based on current regulated assets, including $1B of investments not in rates.

Q: How long will the capital-light approach last?

A: Depends on rate case progress, expected to be a few years, focusing on improving accountability and returns.

Q: Capital allocation with proceeds?

A: Primarily debt repayment, with flexibility for buybacks and utility growth as balance sheet strengthens.

Q: Change in tone around utility spend?

A: Focus on discipline in capital investment to ensure proper recovery and value for shareholders.

Q: Proceeds use and cash balance expectation?

A: Will continue to optimize capital structure, plan Investor Day update closer to renewables sale closure.