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Pattern Energy Reports Second Quarter 2018 Financial Results

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Pattern Energy Reports Second Quarter 2018 Financial Results

PR Newswire

- Declares dividend of $0.4220 per Class A common share for third quarter 2018 -

SAN FRANCISCO, Aug. 9, 2018 /PRNewswire/ -- Pattern Energy Group Inc. (the "Company" or "Pattern Energy") ((NASDAQ &amp, TSX:PEGI) today announced its financial results for the 2018 second quarter.

Pattern Energy Group Inc. Logo (PRNewsFoto/Pattern Energy Group LP)

Highlights
(Comparisons made between fiscal Q2 2018 and fiscal Q2 2017 results, unless otherwise noted)

  • Proportional gigawatt hours ("GWh") sold of 2,263 GWh, up 7%
  • Net cash provided by operating activities of $95.7 million
  • Cash available for distribution ("CAFD") of $58.7 million, up 19% and on track to meet full year guidance(1)
  • Net loss of $1.8 million
  • Adjusted EBITDA of $108.4 million, up 18%
  • Revenue of $139.9 million, up 30%
  • Declared a third quarter dividend of $0.4220 per Class A common share or $1.688 on an annualized basis, subsequent to the end of the period, unchanged from the previous quarter's dividend
  • Announced an agreement to sell the Company's operations in Chile, which principally consist of its 81 megawatt ("MW") owned interest in the 115 MW El Arrayán Wind project ("El Arrayán Wind") for which Pattern Energy will receive cash consideration of $68.5 million
  • Returned the Santa Isabel project in Puerto Rico to full generating capacity with the consent of the Puerto Rico Electric Power Authority ("PREPA")
  • Since April 1, 2018, and including a funding to be made today, invested $50.9 million in Pattern Energy Group 2 LP ("Pattern Development 2.0"); Pattern Energy's ownership level will increase to approximately 29% following a redemption to occur shortly at Pattern Development 2.0

"It was a great quarter with CAFD up 19%, as production was solid and our disciplined cost management initiatives delivering results. We are on track to achieve our targeted CAFD(1) for the year," said Mike Garland, President and CEO of Pattern Energy. "At 29% ownership of Pattern Development 2.0, we will have achieved our target ownership level in the development business which we believe will provide meaningful value to shareholders. Our identified ROFO ("right of first offer") list with Pattern Development 2.0 has grown by four new projects since our original investment in June of last year. We anticipate the first realized development transaction gains by the end of 2018 or early 2019, and returns from those gains will be retained and reinvested in the development business. Developing, owning and operating one of the very best portfolios in the renewables market can be challenging, but we are in a great position to generate long-term value in this exciting market."

(1) The forward looking measure of 2018 full year cash available for distribution (CAFD) is a non-GAAP measure that cannot be reconciled to net cash provided by operating activities as the most directly comparable GAAP financial measure without unreasonable effort primarily because of the uncertainties involved in estimating forward-looking changes in working capital balances which are added to earnings to arrive at cash provided by operations and subtracted therefrom to arrive at CAFD. A description of the adjustments to determine CAFD can be found within Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Metrics, of Pattern Energy's 2018 Quarterly Report on Form 10-Q for the period ended June 30, 2018.

Financial and Operating Results

Pattern Energy sold 2,262,811 megawatt hours ("MWh") of electricity on a proportional basis in the second quarter of 2018 compared to 2,111,627 MWh sold in the same period last year.  Pattern Energy sold 4,398,526 MWh of electricity on a proportional basis for the six months ended June 30, 2018 ("YTD 2018") compared to 4,135,510 MWh sold in the same period last year. The 7% increase in the quarterly period was primarily due to volume increases as a result of acquisitions in 2017 and 2018 and favorable wind compared to last year, partially offset by curtailment at the Santa Isabel project. Production for the quarter was 2% below the long-term average forecast for the period.

Net cash provided by operating activities was $95.7 million for the second quarter of 2018 compared to $113.4 million for the same period last year. Net cash provided by operating activities was $123.5 million for YTD 2018 as compared to $157.2 million for the same period last year. The decrease in the quarterly period of $17.7 million was primarily due to $2.9 million in increased transmission costs due to acquisitions in 2017, increased interest payments of $3.6 million, and increased payments of $43.1 million in payable, accrued and current liabilities, due primarily to the timing of payments. The decrease to net cash provided by operating activities was partially offset by a $32.9 million increase in revenue (excluding unrealized loss on energy derivative and amortization of power purchase agreements ("PPAs")).

Cash available for distribution was $58.7 million for the second quarter of 2018, compared to $49.2 million for the same period last year. Cash available for distribution was $101.7 million for YTD 2018 compared to $94.4 million for the same period in the prior year. The $9.4 million, or 19.1% increase in the quarterly period was primarily due to a $32.9 million increase in revenues (excluding the unrealized loss on the energy derivative and amortization of PPAs) due to acquisitions in 2017 and early 2018 and a $4.4 million increase in total distributions from unconsolidated investments. The improvement was partially offset by a $8.0 million decrease in network upgrade reimbursement, a $5.6 million increase in distributions to noncontrolling interests, a $3.6 million increase in interest expense (excluding amortization of financing costs and debt discount/premium), a $2.9 million increase in transmission costs, a $2.7 million decrease in other and a $1.9 million increase in principal payments of project-level debt.

Net loss was $1.8 million in the second quarter of 2018, compared to a net loss of $14.7 million for the same period last year. Net loss was $14.4 million for YTD 2018 compared to $12.1 million in the same period last year. The improvement of $12.9 million in the quarterly period was primarily attributable to a $32.2 million increase in revenues due to acquisitions in 2017 and 2018, and a $2.7 million decrease in general and administrative expenses. These improvements were partially offset by increases of $9.6 million in cost of revenues due to the acquisitions in 2017 and 2018, a $4.2 million increase in impairment loss related to Chile assets held for sale, and a $8.1 million increase in other expense primarily related to decreased earnings from unconsolidated investments.

Adjusted EBITDA was $108.4 million for the second quarter of 2018 compared to $91.9 million for the same period last year. Adjusted EBITDA was $212.6 million for YTD 2018 compared to $190.1 million for the same period last year. The $16.5 million increase in the quarterly period was primarily due to a $32.9 million increase in revenue (excluding unrealized loss on energy derivative and amortization of PPAs) primarily attributable to volume increases as a result of the 2017 and 2018 acquisitions and favorable wind compared to last year, partially offset by curtailment at the Santa Isabel project and a $2.7 million decrease in general and administrative expenses primarily due to lower audit and consulting fees in 2018 compared to 2017. The increase was partially offset by a $17.2 million decrease in earnings from unconsolidated investments, a $2.9 million increase in transmission costs, and a $1.2 million increase in net loss on transactions, primarily related to the Chile assets held for sale.

2018 Financial Guidance

Pattern Energy is re-confirming its targeted annual cash available for distribution(2) for 2018 within a range of $151 million to $181 million, representing an increase of 14% compared to cash available for distribution in 2017.

(2) The forward looking measure of 2018 full year cash available for distribution (CAFD) is a non-GAAP measure that cannot be reconciled to net cash provided by operating activities as the most directly comparable GAAP financial measure without unreasonable effort primarily because of the uncertainties involved in estimating forward-looking changes in working capital balances which are added to earnings to arrive at cash provided by operations and subtracted therefrom to arrive at CAFD. A description of the adjustments to determine CAFD can be found within Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Metrics, of Pattern Energy's 2018 Quarterly Report on Form 10-Q for the period ended June 30, 2018.

Quarterly Dividend

Pattern Energy declared a dividend for the third quarter 2018, payable on October 31, 2018, to holders of record on September 28, 2018 in the amount of $0.4220 per Class A common share, which represents $1.688 on an annualized basis. The amount of the third quarter 2018 dividend is unchanged from the second quarter 2018 dividend.

Acquisition Pipeline

Pattern Development 1.0 and Pattern Development 2.0 (together, the "Pattern Development Companies") have a pipeline of development projects totaling more than 10 GW. Pattern Energy has a ROFO on the pipeline of acquisition opportunities from the Pattern Development Companies. The identified ROFO list stands at 706 MW of potential owned capacity and represents a portion of the pipeline of development projects of the Pattern Development Companies, which are subject to Pattern Energy's ROFO. Since its IPO, Pattern Energy has purchased, or agreed to purchase, 1,564 MW from Pattern Development 1.0 and in aggregate grown the identified ROFO list from 746 MW to more than 2 GW.

Below is a summary of the identified ROFO projects that Pattern Energy has the right to purchase from the Pattern Development Companies in connection with its respective purchase rights:













Capacity (MW)

Identified

ROFO Projects


Status


Location


Construction

Start (1)


Commercial

Operations (2)


Contract

Type


Rated (3)


Pattern

Development-

Owned (4)

Pattern Development 1.0 Projects













Belle River


Operational


Ontario


2016


2017


PPA


100


43

North Kent


Operational


Ontario


2017


2018


PPA


100


35

Henvey Inlet


In construction


Ontario


2017


2019


PPA


300


150

Pattern Development 2.0 Projects













Stillwater Big Sky


In construction


Montana


2017


2018


PPA


79


67

Crazy Mountain


Late stage development


Montana


2019


2019


PPA


80


68

Grady


In construction


New Mexico


2018


2019


PPA


220


188

Sumita


Late stage development


Japan


2019


2021


PPA


100


55

Ishikari


Late stage development


Japan


2019


2022


PPA


100


100













1,079


706



(1)

Represents year of actual or anticipated commencement of construction.



(2)

Represents year of actual or anticipated commencement of commercial operations.



(3)

Rated capacity represents the maximum electricity generating capacity of a project in MW. As a result of weather and other conditions, a project or a turbine will not operate at its rated capacity at all times and the amount of electricity generated will be less than its rated capacity. The amount of electricity generated may vary based on a variety of factors.



(4)

Pattern Development-Owned capacity represents the maximum, or rated, electricity generating capacity of the project in MW multiplied by Pattern Development 1.0's or Pattern Development 2.0's percentage ownership interest in the distributable cash flow of the project.

 

Cash Available for Distribution and Adjusted EBITDA Non-GAAP Reconciliations

The following tables reconcile non-GAAP net cash provided by operating activities to cash available for distribution and net loss to Adjusted EBITDA, respectively, for the periods presented (in thousands):


Three months ended June 30,


Six months ended June 30,


2018


2017


2018


2017

Net cash provided by operating activities(1)

$

95,720



$

113,431



$

123,544



$

157,183


Changes in operating assets and liabilities

(10,079)



(61,379)



18,497



(47,956)


Network upgrade reimbursement

294



8,273



576



8,590


Release of restricted cash





2,488




Operations and maintenance capital expenditures

(10)



(117)



(271)



(263)


Distributions from unconsolidated investments(2)

(1,948)



4,185



4,333



8,390


Other

2,147



4,808



3,007



1,376


Less:








Distributions to noncontrolling interests

(12,088)



(6,517)



(21,275)



(9,164)


Principal payments paid from operating cash flows

(15,374)



(13,445)



(29,177)



(23,771)


Cash available for distribution

$

58,662



$

49,239



$

101,722



$

94,385




(1)

Included in net cash provided by operating activities for the three and six months ended June 30, 2018 and 2017 are the portions of distributions from unconsolidated investments paid from cumulative earnings representing the return on investment.



(2)

Distributions from unconsolidated investments for the three months ended June 30, 2018 includes an adjustment for a March 2018 distribution received in April 2018 previously included in the first quarter 2018 cash available for distribution.




Three months ended June 30,


Six months ended June 30,


2018


2017


2018


2017

Net loss

$

(1,774)



$

(14,684)



$

(14,394)



$

(12,145)


Plus:








Interest expense, net of interest income

27,284



24,238



52,394



46,299


Tax provision

4,410



4,541



11,194



9,316


Depreciation, amortization and accretion

62,766



52,752



125,416



99,979


EBITDA

92,686



66,847



174,610



143,449


Unrealized loss on energy derivative (1)

3,626



4,663



14,673



7,021


(Gain) loss on derivatives

(8,801)



4,751



(14,461)



5,399


Impairment loss

4,238





4,238




Other



807





1,119


Adjustments from unconsolidated investments








Plus, proportionate share from unconsolidated investments:








Interest expense, net of interest income

9,506



9,498



18,974



18,838


Tax benefit

(207)





(207)




Depreciation, amortization and accretion

8,741



8,575



17,509



17,029


Gain on derivatives

(1,379)



(3,272)



(2,714)



(2,788)


Adjusted EBITDA

$

108,410



$

91,869



$

212,622



$

190,067




(1)

Amount is included in electricity sales on the consolidated statements of operations.

Conference Call and Webcast

Pattern Energy will host a conference call and webcast to discuss these results at 10:30 a.m. Eastern Time on Thursday, August 9, 2018. Mike Garland, President and CEO, and Mike Lyon, CFO, will co-chair the call. Participants should call (888) 231-8191 or (647) 427-7450 and ask an operator for the Pattern Energy earnings call. Please dial in 10 minutes prior to the call to secure a line. A replay will be available shortly after the call. To access the replay, please dial (855) 859-2056 or (416) 849-0833 and enter access code 3199694. The replay recording will be available until 11:59 p.m. Eastern Time, August 30, 2018.

A live webcast of the conference call will be also available on the events page in the investor section of Pattern Energy's website at www.patternenergy.com. An archived webcast will be available for one year.

About Pattern Energy

Pattern Energy Group Inc. (Pattern Energy) is an independent power company listed on the NASDAQ Global Select Market and Toronto Stock Exchange. Pattern Energy has a portfolio of 24 wind and solar power facilities, including one project it has agreed to acquire and one project it has agreed to sell, with a total owned interest of 2,861 MW in the United States, Canada, Japan and Chile that use proven, best-in-class technology. Pattern Energy's wind and solar power facilities generate stable long-term cash flows in attractive markets and provide a solid foundation for the continued growth of the business. For more information, visit www.patternenergy.com.

Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this press release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and "forward-looking information" within the meaning of Canadian securities laws, including statements regarding the ability to achieve the 2018 cash available for distribution target; the ability to fund an additional investment into Pattern Development 2.0 shortly and for redemptions of certain other investors in Pattern Development 2.0 to occur; the ability to consummate the agreement to sell the Company's operations in Chile; the ability of the investments in development to provide meaningful value to shareholders; the timing of the receipt of the first development profits (if ever); and the ability of the Company's portfolio to generate long-term value. These forward-looking statements represent the Company's expectations or beliefs concerning future events, and it is possible that the results described in this press release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company's control, which could cause actual results to differ materially from the results discussed in the forward-looking statements.

Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for the Company to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in the Company's annual report on Form 10-K and any quarterly reports on Form 10-Q. The risk factors and other factors noted therein could cause actual events or the Company's actual results to differ materially from those contained in any forward-looking statement.

 

Contacts:








Media Relations

Matt Dallas

917-363-1333

matt.dallas@patternenergy.com 


Investor Relations

Ross Marshall

416-526-1563

ross.marshall@loderockadvisors.com


 

Pattern Energy Group Inc.

Consolidated Balance Sheets

(In thousands of U.S. Dollars, except share data)

(Unaudited)


June 30,


December 31,


2018


2017

Assets




Current assets:




Cash and cash equivalents

$

116,538



$

116,753


Restricted cash

4,336



9,065


Counterparty collateral

5,824



29,780


Trade receivables

59,371



54,900


Derivative assets, current

16,148



19,445


Prepaid expenses

18,660



17,847


Deferred financing costs, current, net of accumulated amortization of $2,409 and $2,580 as of June 30, 2018 and December 31, 2017, respectively

1,422



1,415


Assets held for sale

307,231




Other current assets

21,726



21,105


Total current assets

551,256



270,310


Restricted cash

10,004



12,162


Major construction advances

48,898




Construction in progress

192,317




Property, plant and equipment, net

3,797,098



3,965,121


Unconsolidated investments

343,512



311,223


Derivative assets

17,341



9,628


Deferred financing costs

8,744



7,784


Net deferred tax assets

3,353



6,349


Finite-lived intangible assets, net

226,422



136,048


Goodwill

57,736




Other assets

27,421



22,906


Total assets

$

5,284,102



$

4,741,531






Liabilities and equity




Current liabilities:




Accounts payable and other accrued liabilities

$

38,799



$

53,615


Accrued construction costs

9,383



1,369


Counterparty collateral liability

5,824



29,780


Accrued interest

14,383



16,460


Dividends payable

42,072



41,387


Derivative liabilities, current

3,188



8,409


Revolving credit facility

201,000




Current portion of long-term debt, net

61,583



51,996


Liabilities related to assets held for sale

207,073




Other current liabilities

25,643



14,018


Total current liabilities

608,948



217,034


Long-term debt, net

1,923,743



1,878,735


Derivative liabilities

24,464



20,972


Net deferred tax liabilities

116,849



56,491


Finite-lived intangible liability, net

58,195



51,194


Contingent liabilities

165,214



62,398


Other long-term liabilities

152,998



106,565


Total liabilities

3,050,411



2,393,389


Commitments and contingencies




Equity:




Class A common stock, $0.01 par value per share: 500,000,000 shares authorized; 98,096,323 and 97,860,048 shares outstanding as of June 30, 2018 and December 31, 2017, respectively

983



980


Additional paid-in capital

1,210,610



1,234,846


Accumulated income (loss)



(112,175)


Accumulated other comprehensive loss

(32,756)



(25,691)


Treasury stock, at cost; 178,346 and 157,812 shares of Class A common stock as of June 30, 2018 and December 31, 2017, respectively

(3,892)



(3,511)


Total equity before noncontrolling interest

1,174,945



1,094,449


Noncontrolling interest

1,058,746



1,253,693


Total equity

2,233,691



2,348,142


Total liabilities and equity

$

5,284,102



$

4,741,531


 

Pattern Energy Group Inc.

Consolidated Statements of Operations

(In thousands of U.S. dollars, except per share data)

(Unaudited)






Three months ended June 30,


Six months ended June 30,


2018


2017


2018


2017

Revenue:








Electricity sales

$

135,951



$

105,736



$

238,098



$

204,170


Other revenue

3,989



2,024



13,501



4,423


Total revenue

139,940



107,760



251,599



208,593


Cost of revenue:








Project expense

33,665



33,405



68,227



62,505


Transmission costs

7,643



4,722



14,833



4,792


Depreciation, amortization and accretion

54,979



48,518



110,431



92,258


Total cost of revenue

96,287



86,645



193,491



159,555


Gross profit

43,653



21,115



58,108



49,038


Operating expenses:








General and administrative

9,089



11,777



19,795



22,901


Related party general and administrative

3,663



3,576



7,731



7,002


Impairment loss

4,238





4,238




Total operating expenses

16,990



15,353



31,764



29,903


Operating income

26,663



5,762



26,344



19,135


Other expense:








Interest expense

(27,709)



(24,839)



(53,153)



(47,394)


Gain (loss) on derivatives

8,801



(4,751)



14,461



(5,399)


Earnings (loss) in unconsolidated investments, net

(742)



14,519



17,470



31,395


Net loss on transactions

(2,002)



(807)



(3,100)



(1,119)


Other income (expense), net

(2,375)



(27)



(5,222)



553


Total other expense

(24,027)



(15,905)



(29,544)



(21,964)


Net income (loss) before income tax

2,636



(10,143)



(3,200)



(2,829)


Tax provision

4,410



4,541



11,194



9,316


Net loss

(1,774)



(14,684)



(14,394)



(12,145)


Net loss attributable to noncontrolling interest

(34,492)



(28,904)



(183,034)



(32,018)


Net income attributable to Pattern Energy

$

32,718



$

14,220



$

168,640



$

19,873










Weighted-average number of common shares outstanding








Basic

97,459,472



87,065,591



97,444,016



87,064,110


Diluted

97,496,217



87,217,381



105,662,687



87,257,130


Earnings per share attributable to Pattern Energy








Class A common stock:








Basic

$

0.34



$

0.16



$

1.73



$

0.23


Diluted

$

0.34



$

0.16



$

1.67



$

0.23


Dividends declared per Class A common share

$

0.42



$

0.42



$

0.84



$

0.83


 

Pattern Energy Group Inc.

Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

(Unaudited)




Six months ended June 30,


2018


2017

Operating activities




Net loss

$

(14,394)



$

(12,145)


Adjustments to reconcile net loss to net cash provided by operating activities:




Depreciation, amortization and accretion

110,431



92,258


Contingent liability accretion

5,716




Impairment loss

4,238




Amortization of financing costs

2,526



3,852


Amortization of debt discount/premium, net

2,477



2,227


Amortization of power purchase agreements, net

3,894



1,489


Loss (gain) on derivatives

(1,542)



10,331


Stock-based compensation

2,277



2,768


Deferred taxes

10,914



9,149


Earnings in unconsolidated investments, net

(17,470)



(31,395)


Distributions from unconsolidated investments

33,041



31,710


Other reconciling items

(67)



(1,017)


Changes in operating assets and liabilities:




 Counterparty collateral asset

23,956



9,199


 Trade receivables

(9,689)



(7,995)


 Prepaid expenses

899



2,202


 Other current assets

6,316



(3,638)


 Other assets (non-current)

(1,737)



2,561


 Accounts payable and other accrued liabilities

(13,889)



31,001


 Counterparty collateral liability

(23,956)



(9,199)


 Accrued interest

166



8,569


 Other current liabilities

(7,141)



4,333


 Long-term liabilities

7,858



10,648


 Contingent liabilities

(1,508)



275


 Derivatives

228




Net cash provided by operating activities

123,544



157,183


Investing activities




Cash paid for acquisitions, net of cash and restricted cash acquired

(157,543)



(170,028)


Payment for construction advances/deposits

(53,727)




Payment for construction in progress

(24,644)




Capital expenditures

(7,441)



(39,087)


Distributions from unconsolidated investments

4,333



8,390


Other assets

(319)



7,552


Investment in Pattern Development 2.0

(57,055)




Other investing activities



12


Net cash used in investing activities

(296,396)



(193,161)


Financing activities




Dividends paid

(82,487)



(71,544)


Capital distributions - noncontrolling interest

(21,274)



(9,163)


Payment for financing fees

(6,954)



(7,740)


Proceeds from revolving credit facility

333,000



85,000


Repayment of revolving credit facility

(132,000)



(205,000)


Proceeds from long-term debt

126,775



404,395


Repayment of long-term debt

(34,541)



(74,824)


Repayment of note payable - related party

(909)




Other financing activities

154



(3,618)


Net cash provided by financing activities

181,764



117,506


Effect of exchange rate changes on cash, cash equivalents and restricted cash

(2,388)



2,248


Net increase in cash, cash equivalents and restricted cash including cash classified within current assets and liabilities held for sale

6,524



83,776


Add: Net (decrease) in cash classified within current assets and liabilities held for sale

(13,626)




Net change in cash, cash equivalents and restricted cash

(7,102)



83,776


Cash, cash equivalents and restricted cash at beginning of period

137,980



109,371


Cash, cash equivalents and restricted cash at end of period

$

130,878



$

193,147


Supplemental disclosures




Cash payments for income taxes

$

443



$

288


Cash payments for interest expense

$

48,721



$

33,666


Business combination:




 Assets acquired, net of cash and restricted cash acquired

$

627,241



$

665,014


 Liabilities assumed

352,570



148,456


 Less: Noncontrolling interests

11,113



325,600


 Net assets acquired, net of cash and restricted cash acquired

$

263,558



$

190,958


Schedule of non-cash activities




Change in property, plant and equipment

$

117,103



$

1,110


Change in other assets

$

202



$

2,492


Accrual of dividends

$

87



$


 

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SOURCE Pattern Energy Group Inc.

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