Algonquin Power & Utilities Corp. Will Pursue Sale of Renewable Energy Group Following Strategic Review; Announces 2023 Second Quarter Financial Results

Rhea-AI Summary

Algonquin Power & Utilities Corp. (AQN) announced plans to pursue a sale of the Renewable Energy Group to unlock the company's value as a pure-play regulated utility. The decision comes after a strategic review to enhance shareholder value. The company also reported second-quarter financial results, including $627.9 million in revenue, a 1% increase year-over-year, and adjusted net earnings of $56.2 million, a 49% decrease.

Positive

• Strategic decision to focus on regulated business for value enhancement
• Intended sale to unlock value as a pure-play regulated utility
• Plans to reduce debt and fund share repurchases with proceeds
• Objective to maintain investment grade BBB credit rating

Negative

• Decrease in adjusted net earnings by 49%
• Decrease in adjusted net earnings per common share by 50%
• Decrease in dividends per common share by 40%

OAKVILLE, ON, Aug. 10, 2023 /PRNewswire/ - Algonquin Power & Utilities Corp. (TSX: AQN) (NYSE: AQN) ("AQN" or the "Company") today announced that it will pursue a sale of the Renewable Energy Group.

"Over the past few months, the AQN Board of Directors, in conjunction with our independent financial advisor, has conducted a thorough review of our businesses with the aim of enhancing value for our shareholders," said Chris Huskilson, Interim Chief Executive Officer of AQN. "We have two strong businesses – a well-positioned regulated utility business with diversified assets and attractive jurisdictions, and a solid, competitive renewables business with scale and strong assets. That said, we believe the value of our assets is not fully realized in our current structure. We therefore determined that focusing on our regulated business going forward and pursuing a sale of the renewables business is the best path forward for AQN."

Huskilson continued, "We are confident that the intended sale will unlock AQN's value as a pure-play regulated utility by simplifying our structure and enabling us to focus on lower risk regulated investment opportunities, with greater operational efficiency and capital discipline. We expect to use the proceeds of a renewables transaction to reduce our debt and fund share repurchases. In addition, our objectives for the transaction are to support our current dividend, reduce our cost of capital, and maintain our investment grade BBB credit rating. At the same time, we will seek to maximize the value of the renewables business and position it with a new owner that can facilitate its long-term success through the ongoing energy transition."

As announced on May 11, 2023, the Company's Board of Directors initiated a strategic review of the Renewable Energy Group with the aim of enhancing shareholder value. The strategic review was conducted by the Strategic Review Committee of the Board, comprised of directors Chris Huskilson (Chair), Amee Chande and Dan Goldberg.

JP Morgan will act as the Company's financial advisor in connection with the sale of the Renewable Energy Group.  The Company expects to exit the sale process as a competitively capitalized, pure-play regulated utility with a stable and healthy growth outlook.

Second Quarter Financial Highlights

The Company also announced today financial results for the second quarter ended June 30, 2023. All amounts are shown in United States dollars ("U.S. $" or "$"), unless otherwise noted.

"While our second quarter 2023 results were negatively impacted by unfavourable weather, we remain focused on our growth outlook and long-term success," said Mr. Huskilson. 

• Revenue of $627.9 million, an increase of 1%;
• Adjusted EBITDA¹ of $277.7 million, a decrease of 4%;
• Adjusted Net Earnings¹ of $56.2 million, a decrease of 49%; and
• Adjusted Net Earnings¹ per common share of $0.08, a decrease of 50%, in each case on a year-over-year basis.

All amounts in U.S. $ millions except per share information	Three months ended June 30			Six months ended June 30
	2023	2022	Change	2023	2022	Change
Revenue	$   627.9	$   619.4	1 %	$1,406.5	$1,352.6	4 %
Net earnings attributable to shareholders	(253.2)	(33.4)	NM	16.9	57.6	(71) %
Per common share	(0.37)	(0.05)	NM	0.02	0.08	(77) %
Cash provided by operating activities	261.4	135.3	93 %	294.7	301.6	(2) %
Adjusted Net Earnings1	56.2	109.6	(49) %	176.0	250.7	(30) %
Per common share	0.08	0.16	(50) %	0.25	0.36	(31) %
Adjusted EBITDA1	277.7	289.2	(4) %	618.7	619.4	— %
Adjusted Funds from Operations1	154.2	180.3	(14) %	367.8	400.6	(8) %
Dividends per common share	0.1085	0.1808	(40) %	0.2170	0.3514	(38) %

1 Please refer to "Non-GAAP Measures" below for further details.

Quarterly Results

• Solid Regulated Growth from New Rate Implementations – The Regulated Services Group grew primarily due to the implementation of new rates at certain of the Company's utilities. As previously disclosed, the Company realized the benefit of an annual revenue increase of $27.0 million at its CalPeco Electric utility, which was authorized on April 27, 2023, effective June 2023 and retroactive to January 2022. The order's retroactive adjustment resulted in a one-time net earnings benefit of $11.2 million that was realized in the second quarter of 2023.
• New Rates Filed in New York and New Hampshire – In the second quarter of 2023, the Regulated Services Group filed for new rates at its New York Water and Granite State Electric utilities. The New York Water application, filed on May 4, 2023, seeks an increase in revenues of $39.7 million based on a return on equity ("ROE") of 10% and an equity ratio of 50%. The Granite State Electric utility, filed on May 5, 2023, seeks a permanent increase in revenues of $15.5 million and a temporary increase of $6.7 million based on an ROE of 10.35% and an equity ratio of 55%.
• Unfavourably Impacted Results due to Weather – Overall across the Company's business segments, unfavourable weather negatively impacted second quarter Adjusted Net Earnings per common share by approximately three cents compared to the same period in 2022. More specifically, the Renewable Energy Group's wind facilities generated 75.1% of long-term average resource, a 22% decrease compared to the same period in 2022, accounting for approximately two cents of year-over-year Adjusted Net Earnings per common share decline (see "Non-GAAP Measures" below). For the Regulated Services Group, unfavourable weather reduced customer demand and drove a headwind equating to approximately one cent of year-over-year Adjusted Net Earnings per common share decline.
• Renewable Operating Performance Reduced by HLBV Roll Offs – The Renewable Energy Group experienced a $14.0 million decrease in Hypothetical Liquidation at Book Value ("HLBV") related to end of the production tax credit eligibility on certain projects commissioned in 2012, as previously experienced in the latter half of 2022 and first quarter of 2023, and the remainder related to weather-driven reduced wind production.
• Higher Interest Expenses Reflect Growth Financing and Macro Environment – In the second quarter of 2023, interest expense increased by $25.1 million year-over-year, with approximately two-thirds of this increase attributable to higher short-term borrowing costs and approximately one-third attributable to financings to support growth initiatives. Higher interest expenses also drove a large portion of the year-over-year decline in adjusted funds from operations.

The Interim MD&A and AQN's unaudited interim consolidated financial statements for the three and six months ended June 30, 2023 will be available on its web site at www.AlgonquinPower.com and in its corporate filings on SEDAR+ at www.sedarplus.com (for Canadian filings) and EDGAR at www.sec.gov/edgar (for U.S. filings).

Earnings Conference Call

AQN will hold an earnings conference call at 8:30 a.m. eastern time on Thursday, August 10, 2023, hosted by Interim Chief Executive Officer, Chris Huskilson, and Chief Financial Officer, Darren Myers.

Date:	Thursday, August 10, 2023
Time:	8:30 a.m. ET
Conference Call:	Toll Free Dial-In Number	1( 800) 715-9871
	Toll Dial-In Number	1 (646) 307-1963
	Conference ID	2060573
Webcast:	https://edge.media-server.com/mmc/p/8edd52rm
	Presentation also available at:  www.algonquinpower.com

About Algonquin Power & Utilities Corp. and Liberty

Algonquin Power & Utilities Corp., parent company of Liberty, is a diversified international generation, transmission, and distribution utility with over $17 billion of total assets. AQN is committed to providing safe, secure, reliable, cost-effective, and sustainable energy and water solutions through its portfolio of generation, transmission, and distribution utility investments to over one million customer connections, largely in the United States and Canada. In addition, AQN owns, operates, and/or has net interests in over 4 GW of installed renewable energy capacity. AQN's common shares, preferred shares, Series A, and preferred shares, Series D are listed on the Toronto Stock Exchange under the symbols AQN, AQN.PR.A, and AQN.PR.D, respectively. AQN's common shares, Series 2018-A subordinated notes, Series 2019-A subordinated notes and equity units are listed on the New York Stock Exchange under the symbols AQN, AQNA, AQNB, and AQNU, respectively.

Visit AQN at www.algonquinpower.com and follow us on Twitter @AQN_Utilities.

Caution Regarding Forward-Looking Information

Certain statements included in this news release constitute ''forward-looking information'' within the meaning of applicable securities laws in each of the provinces and territories of Canada and the respective policies, regulations and rules under such laws and ''forward-looking statements'' within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 (collectively, ''forward-looking statements"). The words "will", "expects", "estimates", "intends", "aims", "believes", "outlook" (and grammatical variations of such terms) and similar expressions are often intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Specific forward-looking statements in this news release include, but are not limited to, statements regarding: the Company's pursuit of a sale of the Renewable Energy Group; the expected benefits, outcomes, results and aims of a sale of the Renewable Energy Group; the expected use of proceeds from a sale of the Renewable Energy Group; and the Company's expectation that it will exit the sale process as a competitively capitalized, pure-play regulated utility with a stable and healthy growth outlook. These statements are based on factors or assumptions that were applied in drawing a conclusion or making a forecast or projection, including assumptions based on historical trends, current conditions and expected future developments. Since forward-looking statements relate to future events and conditions, by their very nature they require making assumptions and involve inherent risks and uncertainties. AQN cautions that although it is believed that the assumptions are reasonable in the circumstances, these risks and uncertainties give rise to the possibility that actual results may differ materially from the expectations set out in the forward-looking statements. There can be no assurance that a sale or other separation transaction regarding the Renewable Energy Group will occur, or that any of the intended benefits and aims of any such transaction will be realized. Forward-looking statements contained herein are provided for the purposes of assisting in understanding the Company and its business, operations, risks, financial performance, financial position and cash flows as at and for the periods indicated and to present information about management's current expectations and plans relating to the future and such information may not be appropriate for other purposes. Material risk factors and assumptions include those set out in AQN's Annual Information Form and Management Discussion & Analysis for the year ended December 31, 2022 (the "Annual MD&A"), and in the Interim MD&A, each of which is or will be available on SEDAR+ and EDGAR.  

Given these risks, undue reliance should not be placed on these forward-looking statements, which apply only as of their dates. Other than as specifically required by law, AQN undertakes no obligation to update any forward-looking statements to reflect new information, subsequent or otherwise.

Non-GAAP Measures

AQN uses a number of financial measures to assess the performance of its business lines. Some measures are calculated in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"), while other measures do not have a standardized meaning under U.S. GAAP. These non-GAAP measures include non-GAAP financial measures and non-GAAP ratios, each as defined in Canadian National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure. AQN's method of calculating these measures may differ from methods used by other companies and therefore may not be comparable to similar measures presented by other companies.

The terms "Adjusted Net Earnings", "Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization" (or "Adjusted EBITDA"), "Adjusted Funds from Operations" and "Divisional Operating Profit", which are used in this news release, are non-GAAP financial measures. An explanation of each of these non-GAAP financial measures can be found in the section entitled "Caution Concerning Non-GAAP Measures" in the Interim MD&A, which section is incorporated by reference into this news release, and a reconciliation to the most directly comparable U.S. GAAP measure, in each case, can be found below. In addition, "Adjusted Net Earnings" is presented in this news release on a per common share basis. Adjusted Net Earnings per common share is a non-GAAP ratio and is calculated by dividing Adjusted Net Earnings by the weighted average number of common shares outstanding during the applicable period.

AQN does not provide reconciliations for forward-looking non-GAAP financial measures as AQN is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing or amount of various events that have not yet occurred, are out of AQN's control and/or cannot be reasonably predicted, and that would impact the most directly comparable forward-looking U.S. GAAP financial measure. For these same reasons, AQN is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures may vary materially from the corresponding U.S. GAAP financial measures.

Reconciliation of Adjusted EBITDA to Net Earnings

The following table is derived from and should be read in conjunction with the consolidated statement of operations. This supplementary disclosure is intended to more fully explain disclosures related to Adjusted EBITDA and provides additional information related to the operating performance of AQN. Investors are cautioned that this measure should not be construed as an alternative to U.S. GAAP consolidated net earnings.

	Three months ended				Six months ended
	June 30				June 30
(all dollar amounts in $ millions)	2023		2022		2023		2022
Net earnings (loss) attributable to shareholders	$      (253.2)		$        (33.4)		$           16.9		$          57.6
Add (deduct):
Net earnings attributable to the non-controlling interest, exclusive of HLBV	16.4		3.5		30.8		7.6
Income tax recovery	(56.0)		(22.8)		(31.3)		(13.4)
Interest expense	89.7		64.6		171.6		122.5
Other net losses1	40.4		8.7		43.8		13.4
Unrealized loss (gain) on energy derivatives included in revenue	(0.1)		2.5		(0.1)		3.1
Pension and post-employment non-service costs	5.3		2.3		10.3		4.8
Change in value of investments carried at fair value2	311.4		143.5		132.0		184.0
Loss (gain) on derivative financial instruments	(1.0)		3.3		(3.2)		2.6
Loss on foreign exchange	6.4		4.5		7.8		4.7
Depreciation and amortization	118.4		112.5		240.1		232.5
Adjusted EBITDA	$        277.7		$       289.2		$        618.7		$       619.4

1	See Note 16  in the unaudited interim consolidated financial statements.
2	See Note 6 in the unaudited interim consolidated financial statements.

Reconciliation of Adjusted Net Earnings to Net Earnings

The following table is derived from and should be read in conjunction with the consolidated statement of operations. This supplementary disclosure is intended to more fully explain disclosures related to Adjusted Net Earnings and provides additional information related to the operating performance of AQN. Investors are cautioned that this measure should not be construed as an alternative to consolidated net earnings in accordance with U.S. GAAP.

The following table shows the reconciliation of net earnings to Adjusted Net Earnings exclusive of these items:

	Three months ended				Six months ended
	June 30				June 30
(all dollar amounts in $ millions except per share information)	2023		2022		2023		2022
Net earnings (loss) attributable to shareholders	$      (253.2)		$        (33.4)		$           16.9		$          57.6
Add (deduct):
Loss (gain) on derivative financial instruments	(1.0)		3.3		(3.2)		2.6
Other net losses1	40.4		8.7		43.8		13.4
Loss on foreign exchange	6.4		4.5		7.8		4.7
Unrealized loss (gain) on energy derivatives included in revenue	(0.1)		2.5		(0.1)		3.1
Change in value of investments carried at fair value2	311.4		143.5		132.0		184.0
Adjustment for taxes related to above	(47.7)		(19.5)		(21.2)		(14.7)
Adjusted Net Earnings	$           56.2		$       109.6		$        176.0		$       250.7
Adjusted Net Earnings per common share	$           0.08		$          0.16		$           0.25		$          0.36

1	See Note 16 in the unaudited interim consolidated financial statements.
2	See Note 6 in the unaudited interim consolidated financial statements.

Reconciliation of Adjusted Funds from Operations to Cash Provided by Operating Activities

The following table is derived from and should be read in conjunction with the consolidated statement of operations and consolidated statement of cash flows. This supplementary disclosure is intended to more fully explain disclosures related to Adjusted Funds from Operations and provides additional information related to the operating performance of AQN.  Investors are cautioned that this measure should not be construed as an alternative to cash provided by operating activities in accordance with U.S GAAP.

The following table shows the reconciliation of cash provided by operating activities to Adjusted Funds from Operations exclusive of these items:

	Three months ended				Six months ended
	June 30				June 30
(all dollar amounts in $ millions)	2023		2022		2023		2022
Cash provided by operating activities	$        261.4		$       135.3		$        294.7		$       301.6
Add (deduct):
Changes in non-cash operating items	(112.4)		36.6		53.4		84.8
Production based cash contributions from non-controlling interests	—		2.5		9.1		6.2
Costs related to tax equity financing	1.2		—		1.2		—
Acquisition-related costs	4.0		5.9		9.4		8.0
Adjusted Funds from Operations	$        154.2		$       180.3		$        367.8		$       400.6

 

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SOURCE Algonquin Power & Utilities Corp.

FAQ

What did Algonquin Power & Utilities Corp. (AQN) announce recently?

AQN announced plans to pursue a sale of the Renewable Energy Group to unlock the company's value as a pure-play regulated utility.

What were the second-quarter financial results reported by AQN?

The company reported $627.9 million in revenue, a 1% increase year-over-year, and adjusted net earnings of $56.2 million, a 49% decrease.

What are the positive aspects of AQN's recent announcement?

Strategic decision to focus on regulated business for value enhancement, intended sale to unlock value as a pure-play regulated utility, plans to reduce debt and fund share repurchases with proceeds, objective to maintain investment grade BBB credit rating.

What are the negative aspects of AQN's recent announcement?

Decrease in adjusted net earnings by 49%, decrease in adjusted net earnings per common share by 50%, decrease in dividends per common share by 40%.