Atlantic Power Corporation (AT)

Q2 2012 Earnings Call

August 8, 2012 1:00 pm ET


Barry Edward Welch – President, Chief Executive Officer & Director

Paul Howard Rapisarda – Executive Vice President-Commercial Development


Nelson Ng – RBC Dominion Securities, Inc.

Ian Tharp – CIBC World Markets, Inc.

Jeremy Rosenfield – Desjardins Securities

Eric Wu – Fertilemind Capital

Matthew Akman – Scotia Capital Markets



Good afternoon, and welcome to the Atlantic Power Corporation Q2 2012 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Barry Welch. Please go ahead, sir.

Barry Edward Welch

Welcome and thank you for joining us this afternoon. Our results for the three and six months ended June 30, 2012 were issued by press release earlier this morning and are available on our website and on EDGAR and SEDAR. Financial figures I’ll be giving are stated in U.S. dollars unless otherwise noted.

Joining me on today’s call is Paul Rapisarda, our Executive Vice President of Commercial Development, and Lisa Donahue, our Interim Chief Financial Officer. As you may have seen during the quarter, we announced the appointment of Terry Ronan as our new CFO. Terry will be joining our team starting August 20, and will be on our next earnings call. To assist with the transition, Lisa will continue to be available as a consultant to the company, and I’d like to take the opportunity to thank Lisa for her many contributions to Atlantic Power during her time with us.

Before we begin, let me remind everyone that this conference call may contain forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our various securities filings.

Now let me discuss our results for the three and six months ending June 30, 2012. Project Adjusted EBITDA, including earnings from equity investments increased by $29.9 million or 70%, to $72.8 million for the second quarter, compared to $42.9 million for the same period in 2011.

For the six months ended June 30, Project Adjusted EBITDA, including earnings from equity investments increased by $86.8 million or 110% to $165.6 million compared to $78.8 million for the same period in 2011. The increase in Project Adjusted EBITDA for both the three and six month periods is primarily due to the contributions from the 18 projects added to our portfolio when we acquired the Partnership in the fourth quarter of 2011.

Cash Available for Distribution increased by $38.2 million for the six months ended June 30 compared to the same period for 2011. Payout ratio for that period was 89%, compared to 111% for the same period last year. Our payout ratio was positively impacted by several non-recurring items, a temporary increase in working capital associated with the Ontario plants, a one-time realized gain from reducing the company’s combined foreign currency forward positions as a result of the Partnership acquisition, and the management termination fee related to the sale of our 14.3% interest in Primary Energy Recycling Holdings in Q2. As we previously mentioned, due to the timing of working capital adjustments and corporate level interest payments, our payout ratio will fluctuate from quarter-to-quarter.

Based on actual performance to-date and projections for the remainder of the year, we continue to expect distributions from our projects in the range of $250 million to $265 million for the full year 2012. We also reaffirm our 2012 payout ratio guidance range of 90% to 97%, subject to financial performance of the projects.

On July 5, we closed our concurrent public offerings of common shares and convertible debentures or converts for net proceeds of approximately $192.5 million, which is being used to fund our equity contribution in the Canadian Hills Wind project. The mix of debt and equity gives us an attractive weighted cost of capital with respect to accretion on the acquisition.

The other benefit is that while the converts were sold in Canada, they were issued in U.S. dollars. This reduces our need for hedging against foreign exchange rate fluctuations as interest will be paid in U.S. dollars from our still predominantly U.S. dollar cash flows. By the end of the second quarter, we had drawn approximately $239 million on our construction loan for Canadian Hills, which we anticipate will be repaid by tax equity investors once the construction is completed and the project commences commercial operation.

In addition to successfully managing the ongoing construction of our Piedmont biomass and Canadian Hills Wind projects, we are continuing to rationalize non-core assets in order to efficiently focus our resources on supporting our portfolio of core assets. Both the sale of our 14.3% interest in Primary Energy Recycling Holdings, which closed in May for net proceeds of $30.2 million, and our recently announced divestiture of Badger Creek, which is expected to close in the third quarter, are good examples of minority-owned assets we see as non-core to our business model.

Now I’d like to take a moment to provide an update on several of our projects in Florida. Re-contracting negotiations continue at Lake and Auburndale, as their power purchase agreements will expire on July 31 and December 31, 2013 respectively. As we previously mentioned, we anticipate cash flows from both projects to be substantially lower after their PPAs expire.

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