Yahoo Finance Avangrid, Inc. (NYSE:AGR) Q4 2023 Earnings Call Transcript
Avangrid, Inc. (NYSE:AGR) Q4 2023 Earnings Call Transcript February 22, 2024
Avangrid, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to Avangrid's Fourth Quarter and Full Year 2023 Earnings Conference Call. I would now like to turn the call over to Charlotte Ancel, Vice President of Investor Relations. Please go ahead.
Charlotte Ancel: Thank you, Eric and good morning to everyone. Thank you for joining us today to discuss Avangrid's fourth quarter and full year 2023 earnings results. Presenting on the call today are Pedro Azagra, our Chief Executive Officer; and Justin Lagasse, our Chief Financial Officer and Controller. Also joining us today for the question-and-answer part of the call will be Catherine Stempien, President and Chief Executive Officer of Avangrid Networks; and Jose Antonio Miranda, President and Chief Executive Officer of Avangrid Renewables. Other members of the executive team are also joining us today and may be called upon to assist with the Q&A part of the call. If you do not have a copy of our press release or presentation for today's call, they are available on our website at avangrid.com.
During today's call, we will make various forward-looking statements within the meaning of the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995 based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements. If any of our key assumptions are incorrect or because of other factors discussed in Avangrid's earnings news release, and the comments made during this conference call in the Risk Factors section of the accompanying presentation or in our latest reports and filings with the SEC, each of which can be found on our website. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures.
You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP financial measures to the closest GAAP financial measures. I will now turn the call over to Pedro.
Pedro Azagra: Thank you, Charlotte, and good morning everyone. I'm pleased to share with you our company's fourth quarter and full year 2023 results, which demonstrate our strong commitment to delivering sustainable value for our shareholders, customers and communities. Throughout 2023, Avangrid has continued reaching important milestones on its projects, at the forefront of the clean energy transition in the US. Our commitment to operational excellence and long-term value creation remains unwavering. Let's begin on Slide number 4. In 2023, we delivered our financial and operational objectives despite the challenges faced. We achieved an earnings per share of $2.03 and adjusted earnings per share of $2.09 above our outlook range.
Year-over-year, we delivered a 19% adjusted earnings growth, excluding $181 million from the 22 offshore wind gain and $37 million from the Inflation Reduction Act upfront tax benefits in 2022. We also delivered on our dividend commitment by paying $1.76 per share in 2023. Turning to Slide number 5. 2023 has been a transformational year, which will set up the company for the future. We executed on our core businesses and removed legacy and uncertainties. First, despite the highest inflation environment in recent history, we received approvals for $9 billion investments, including multiyear rate case plans in New York and Maine enabling more than $7 billion of regulated investments and an additional $2.3 billion in incremental investments for Climate Leadership and Community Protection Act, or CLCPA Phase 2 authorized by the New York Public Commission.
In New York, our NYSEG and RG&E three-year rate case plans were unanimously approved by the Public Service Commission on October 12. The new rate plans have a positive after-tax impact of $136 million, or $0.35 per share was once recognized in the fourth quarter in 2023. This includes $66 million of positive make-whole impact, which put the company in the same position as if the joint proposal settlement was effective May 1 and $70 million for the mitigation of uncollectibles. We also received the approval for the first multiyear rate case for a utility in Maine in 15 years. The Maine Public Utilities Commission approved over $380 million of investments to improve safety, reliability and resiliency. In May, there was also a positive outcome on the referendum on government control power a reflection of the improved dynamics in the state.
Voters rejected to propose state ownership of Maine selected utilities with a 70% of the vote. Approximately, 400,000 people voted in the election and 98% of Maine cities and towns rejected this initiative. Also in 2023, CMP was recognized as one of Maine best places to work. These networks achievements occurred in tandem with our operational improvements in customer service and reliability metrics. In 2023, we have improved the majority of customer service metrics 25 out of a total of 31. We also delivered our best reliability performance since 2019 exceeding seven out of eight regulatory targets. On renewables, we successfully terminated our power purchase agreement for Commonwealth Wind and Park City Wind avoiding billions of dollars of potential write-offs.
This allows us to maintain future profitable opportunities with these leases. We incurred only $29 million after tax to exit these projects as opposed to our peers' multibillion-dollar write-offs which continue to mount. We are also executing on our disciplined plan for selective and profitable growth in onshore renewables with over 300-megawatt installed capacity in 2023 and 728 megawatts of new FIDs taken this year. We renegotiated three PPA contracts totaling 470 megawatts, increasing prices and avoiding more than $30 million of penalties. In addition, we have another 998 megawatts in new projects under construction all ready to build all of them with PPAs. Notably, approximately 700 megawatts of these projects are to support data centers with clean energy from onshore wind and solar.
This year, we also announced our plan to repower more than 4,600 megawatts of our existing portfolio in the coming years, which will represent in our much long-term outlook update. On Vineyard Wind 1, we were making significant progress in the project construction and successfully started the first turbine in 2023. Also in 2023, we closed the first ever US tax equity financing of $1.2 billion and the first funding on that landmark deal has been issued. We also made a strategic decision not to proceed with our PNM Resources merger due to our final regulatory approvals not being received by December 31, 2023. Because of that decision there is no need for an equity issuance previously announced for 2024. During the time of the merger pending, we have secured more than $9 billion additional organic investments above those announced in our 2022 Capital Markets Day.
This includes mainly the repowering plant, incremental regulated investments in New York and Maine, and transmission investments like CLCPA. Finally, we are continuing to reach cybersecurity successes from developing the Avangrid team. Regardless of our security, Avangrid score 97 out of 100 from security scorecard, a cyber ratings organization that evaluates threats, vulnerabilities and risk mitigations to over 25,000 companies. This score surpasses average industry figures in network and application security. We achieved substantial gains in our diversity, equity and inclusion goals including reaching our target of over 35% women in executive positions. We want to continue developing our workforce and senior leadership team that reflects the diverse communities that we serve.
Turning to slide 6 our 2023 rate cases another regulatory proceedings secured $9 billion in new CapEx. We received final decision on the rate case for our New York companies, which includes over $6 billion of investments. Additionally, we also received authorization to invest more than $2 billion in New York CLCPA Phase 2. These are critical transmission upgrades necessary for New York state to meet its climate action goals. Separately, the Maine Public Utilities Commission approved over approximately $400 million of investments to improve safety, reliability and resiliency. These multiyear rate plans provide predictable organic long-term growth. Moving to slide number 7. We are executing on our strategic plan on growth opportunities and selective investments in our onshore renewable business.
Over the past year, we have commissioned 311 megawatts increasing our operating capacity from 8.3 gigawatts last year to 8.6 gigawatts today. In addition, a total of 990 megawatts are at present under construction. This includes 472 megawatts of renegotiated PPAs and 526 megawatts of new PPA signed in 2023. As part of the growing partnership between Avangrid renewables and technology companies, this includes nearly 700 megawatts to support data centers. Turning now to Slide number 7 and number 8, Avangrid continues to be recognized as a leader in sustainability and corporate governance. Most recently, Avangrid was ranked number one in the utility industry category in JUST 100 and number 12 overall. JUST 100 evaluates companies based on the issues that matter most in defining just business behavior today, including paying a fair wage, creating jobs, and supporting workforce retention and training.
It is a huge honor to make this prestigious list for the fourth consecutive year and this milestone reflects our values and also our vision. Additionally, Avangrid ranked among the Country's Top 2 Utilities in the National Public Utilities Council’s 2023 Decarbonization report. This report analyzes the decarbonization efforts of the United States largest investor-owned utilities. Avangrid improved from its prior 2022 ranking with the highest possible score in fuel mix total carbon emissions, emissions for customer, and low-carbon investments. Lastly, Central Maine Power was recognized as one of Maine's Best Places to Work by Best Companies Group. With more than 1,100 projects in Maine the CMP team works tirelessly to ensure our customers have safe reliable and clean energy every day as we do in every state where we serve.
All these awards and accomplishments are a testament to the dedication of our team, everything we do from serving to our customers to building renewable energy and assets reflects our vision to lead the clean energy transition with a strong commitment to sustainability, community governance, and our employees. Now, I will pass it to Justin to review the results and discuss the outlook. Justin all yours and congratulations to become our CFO.
Justin Lagasse: Thank you, Pedro and good morning everyone. Turning to our earnings performance on Slide 9. For the fourth quarter of 2023, our earnings per share was $1.03 compared to $0.38 in the fourth quarter of 2022 and our adjusted earnings per share was $0.97 compared to $0.39 in the fourth quarter of 2022. Networks results were $0.94, this is higher by $0.53 quarter-over-quarter compared to the fourth quarter of 2022. The key drivers include $0.22 from rate changes, mainly due to the implementation of our new rate plans in New York. This includes a make-whole adjustment back to May 1, 2023. Additionally in New York, uncollectibles explained $0.19 from successfully receiving new regulatory treatment for the deferral of uncollectibles to match the amounts set aside in our uncollectible reserve.
With the restart of construction of our NECEC project in August 2023, we had an additional $0.04 of AFUDC earnings quarter-over-quarter. Additionally, we had higher costs quarter-over-quarter to implement our investment plans and to operate our businesses including O&M and interest costs, but they are in line with our estimates for the quarter. Finally, taxes are lower by $0.09 quarter-over-quarter, primarily due to the optimizing of tax deductions, which is in line again with our previously shared estimates for the quarter. Our Renewables segment was minus $0.02 for the fourth quarter of 2023 lower by $0.23 quarter-over-quarter. We had higher earnings from our thermal operations and asset management of $0.07, which reflects wider spark spreads quarter-over-quarter as a result of the demand and supply factors of cold weather and scarcity in the Pacific Northwest.
Wind and solar operating performance which includes the impacts of pricing, production, and tax benefits explained minus $0.07, which was really due to lower wind generation output and a decrease in merchant prices. And again partially mitigated by tax credits and new projects in service. Our wind resource was low for the quarter producing a lower net capacity factor. However, it's important to keep in mind that thermal and asset management operations are able to capture this value when power prices are high and gas prices are low. When the wind resource is low in times of high demand due to events like weather, our thermal and asset management capture this opportunity. O&M costs are positive $0.01 due to the optimization of our O&M and cost savings and efficiencies offset by depreciation from new assets in place.
Taxes, primarily reflect a reduction compared against 2022 for the quarter, from higher state tax rate adjustments, which again is compensated by state unitary tax adjustments in corporate. Moving on to Slide 10, to update to our financing, liquidity, dividends and credit ratings. During 2023, we have diversified our financing to fund investments in growth of our businesses. For renewable, we signed a tax equity transaction for Vineyard Wind for $1.2 billion to monetize project ITCs and accelerated depreciation. In addition, we executed a tax credit transfer agreement to monetize up to $100 million of tax credits from existing wind assets, not in tax equity financing structures. The tax transferability transaction was very successful for us and we will look to continue executing similar transactions in 2024 and beyond.
For our utilities, we issued $1.3 billion of green bonds and $115 million of notes at our utility subsidiaries. And we also issued an $800 million 10-year green term loan with Iberdrola. Our green financing emphasizes our strategy commitment of long-term stability and resilience. Cash and liquidity are key priorities, supported by our ongoing cash from operations and successful rate basis. At the end of 2023, we have $3 billion in liquidity covering 15 months. Maintaining our solid credit ratings is a key objective. At the operating group level, all of our ratings are on stable outlook and we continue to project stable credit metrics without the need for equity issuance in 2024, based on the successful outcomes of our major rate cases in 2023 and our continued discipline and selective growth in our renewables business.
Finally, our dividend policy remains unchanged. We are targeting a payout of 65% to 75%. As Pedro mentioned, we delivered on our dividend commitment by paying $1.76 per share in 2023 and our board recently declared a quarterly dividend of $0.44 per share payable on April 1 2024. Moving now to the next slide. We are introducing our 2024 outlook ranges for earnings per share and adjusted earnings per share of $2.17 to $2.32 per share. On an adjusted earnings per share basis, the midpoint of our outlook for 2024 represents, an 8% increase from 2023. Our ongoing focus remains on achieving these targets, as we execute our investment plan with discipline and a risk management focus. Our 2024 outlook includes incremental revenues from our rate plans primarily in Maine and New York.
We target equity ratios and ROEs close to our currently authorized levels. We will also have additional production from 311 megawatts of wind and solar projects placed in service in 2023 including, the related PTCs. For the rest of our fleet, we are assuming normal wind capacity factor. And further, our 2024 outlook also includes earnings using historical averages from our thermal operations and asset management. Bear in mind, as I previously shared, thermal operations and asset management capture the value and wind production is low, effectively acting as a natural hedge to complement our fleet. We remind you that in 2023, we received favorable regulatory treatment to remove earnings exposure from uncollectibles by allowing us to defer our reserve balances.
Specifically in New York and therefore, have this assumption included in our forecast. Our NECEC transmission project is also expected to generate additional earnings while under construction for AFUDC, and we are expecting additional CapEx spending of over $600 million in 2024 to consider this. We are also anticipating O&M optimization and higher depreciation and interest costs. Finally, there is no assumed equity issuance in 2024 and no extraordinary gains from renewable partnerships or divestitures in 2024, as we previously committed. Our 2024 outlook assumes that we maintain our current annual dividend of $1.76 per share subject to our Board's approval. Typical with our opportunities and risks impacting our 2024 results, we have our renewables production and pricing.
We have our rate cases and other regulatory actions, storms and weather-related events, thermal and asset management results, interest and business costs. As we have mentioned, we are very focused on delivering our results in 2024, considering many uncertainties were removed in 2023. Thank you for joining us today for our financial update. I will now hand the call back to Pedro.
Pedro Azagra: Thank you, Justin. We move to Page 12, I think it's important now to think a little bit about 2024, okay? And where are we focused in terms of priorities for the year. First, we're going to be focused on continuing to deliver results through demonstrating on a strong financial performance, on the core earnings and the core business. Second, we will execute our commitments in the multiyear rate plans that drove our success in 2023 including achieving our ROEs that Justin mentioned. Next we will continue selective and profitable onshore growth. Turning to major projects. We will continue the steady process – progress in constructing Vineyard Wind 1 and NECEC. We will remain focused on our balance sheet to ensure the financial health and long-term stability of the company and aim to close out the ongoing matters in Connecticut.
In the last slide, Slide number 13, I would like to thank our Board and Chairman Galán and the rest of our Avangrid team but also all the Iberdrola Group that without them we will not be here and they have successfully helped us in many, many of the things that we have been able to achieve this year. We look forward to continuing to execute on our commitments, focusing our balance sheet and delivering results in 2024. We are excited to announce that Avangrid will be holding a long-term outlook update via webcast on Thursday March, 21. This will include an update on our multiyear strategic plan and financial outlook provided by members of the executive team. I will now hand the call back to our operator for further questions.
See also Top 20 Fastest Growing Industries in the Next 5 Years: Predictions and 20 Fastest Growing Biotech Companies in the US.
To continue reading the Q&A session, please click here.
