Pattern Energy Reports First Quarter 2018 Financial Results

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

SAN FRANCISCO, May 10, 2018 /CNW/ -- Pattern Energy Group Inc. (the "Company" or "Pattern Energy") (NASDAQ & TSX: PEGI) today announced its financial results for the 2018 first quarter.

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

Highlights
(Figures reported below are for the first quarter of fiscal 2017, unless otherwise noted)

  • Proportional gigawatt hours ("GWh") sold of 2,127 GWh, up 4%
  • Net cash provided by operating activities of $27.8 million
  • Cash available for distribution ("CAFD") of $43.1 million, and on track to meet full year guidance(1)
  • Net loss of $12.6 million
  • Adjusted EBITDA of $104.2 million
  • Revenue of $111.7 million, up 11%
  • Declared a second 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
  • Acquired 206 megawatts ("MW") of owned capacity in five Japanese projects which represents the Company's entry into Japan, one of the most robust renewables markets in the world
  • Invested $27 million in Pattern Energy Group 2 LP's ("Pattern Development 2.0") acquisition of the majority interest in Green Power Investments ("GPI") and the Japanese development pipeline from Pattern Energy Group LP ("Pattern Development 1.0")
  • Commenced commercial operations at two projects, the 33 MW Ohorayama Wind power facility in Japan and, subsequent to the end of the period, the 143 MW Mont Sainte-Marguerite Wind power facility in Quebec which Pattern Energy has agreed to acquire with closing expected in the coming weeks

"Our solid performance in Q1 puts us right on track for our targeted CAFD(1) for the year and is the result of our portfolio continuing to operate at the top end of the industry," said Mike Garland, President and CEO of Pattern Energy. "In addition, we were able to successfully acquire five assets in Japan, one of the best renewable markets in the world, that form a strong platform to grow our business there and to improve the value of the projects over time. The Company is in an excellent position to make further acquisitions without raising any common equity, allowing us to grow our CAFD per share."

(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 March 31, 2018.

Financial and Operating Results

Pattern Energy sold 2,126,662 megawatt hours ("MWh") of electricity on a proportional basis in the first quarter of 2018 compared to 2,038,159 MWh sold in the same period last year. The 4% increase was primarily due to volume increases as a result of acquisitions in 2017 and 2018 and favorable wind at projects in Canada partially offset by unfavorable wind and curtailment primarily at projects in the Texas market and at Santa Isabel. Production for the quarter was 7% below the long-term average forecast for the period.

Net cash provided by operating activities was $27.8 million for the first quarter of 2018 compared to $43.8 million for the same period last year. The $15.9 million decrease was primarily due to a $12.6 million increase in transmission and projects costs primarily due to acquisitions in 2017 and 2018, a $10.0 million increase in interest payments and a $2.9 million decrease in distributions from unconsolidated investments. These decreases in net cash provided by operating activities were partially offset by a $10.8 million increase in revenue.

Cash available for distribution was $43.1 million for the first quarter of 2018, compared to $45.1 million for the same period last year. The $2.1 million decrease was primarily due to a $12.6 million increase in transmission and projects costs primarily due to acquisitions in 2017 and 2018, a $3.9 million increase in interest expense (excluding amortization of financing costs and debt discount/premium), a $6.5 million increase in distributions to noncontrolling interests, a $3.5 million increase in principal payments of project-level debt and a $0.9 million decrease in distributions from unconsolidated investments. These decreases in cash available for distribution were partially offset by increases of $20.2 million in revenue (excluding unrealized loss on energy derivative and amortization of PPAs), $2.5 million in release of restricted cash and $4.3 million in cash from other, primarily related to a $3.4 million project reserve funding requirement made in the first quarter 2017.

Net loss was $12.6 million in the first quarter of 2018, compared to a net income of $2.5 million for the same period last year. The change of $15.2 million was primarily attributable to increases of $24.3 million in cost of revenues due to the acquisitions in 2017 and 2018 and $2.0 million in tax provision. This change was partially offset a $10.8 million increase in revenue primarily due to acquisitions in 2017 and 2018 and the settlement of business interruption insurance related to our Santa Isabel project and a decrease of $0.5 million in other expense.

Adjusted EBITDA was $104.2 million for the first quarter of 2018 compared to $98.2 million for the same period last year. The $6.0 million increase in the quarterly period was primarily due to a $20.2 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 an insurance settlement for Santa Isabel partially offset by lower electricity sales as a result of changing prices, unfavorable wind and curtailment primarily at projects in the Texas market and at Santa Isabel.  This increase was partially offset by increases of $5.5 million in project expenses, $7.1 million in transmission costs and $0.8 million in transaction costs primarily related to the Japan acquisition.

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 March 31, 2018.

Quarterly Dividend

Pattern Energy declared a dividend for the second quarter 2018, payable on July 31, 2018, to holders of record on June 29, 2018 in the amount of $0.4220 per Class A common share, which represents $1.688 on an annualized basis. The amount of the second quarter 2018 dividend is unchanged from the first quarter 2018 dividend.

Project Acquisitions

During the first quarter of 2018, Pattern Energy acquired 206 MW of owned interest in five projects in operation or under construction located in Japan from Pattern Development 1.0 and GPI. The portfolio consists of two operating solar projects (Futtsu and Kanagi), two operating wind projects (Otsuki and Ohorayama, which commenced commercial operation during the quarter) and one wind project under construction (Tsugaru), each of which possess a 20-year power purchase agreement.

Pattern Energy acquired the 84 MW portfolio of Futtsu, Kanagi, Otsuki and Ohorayama for a cash purchase price of $131.5 million(3), which represents approximately a 10.1x multiple of the five-year average CAFD(4).

Pattern Energy acquired the 122 MW Tsugaru project at the start of construction, once fully financed on a non-recourse basis, for a total cash consideration of $194.0 million(3), which represents a 9.3x multiple of the five-year average CAFD(4) starting with the first full year of operations in 2021.

Pattern Energy has agreed to acquire a 51% interest in the 143 MW Mont Sainte-Marguerite project, located in the Chaudière-Appalaches region south of Québec City. The project commenced commercial operations in the first quarter of 2018. The project has a 25-year power purchase agreement with Hydro-Québec, which has an AA-/Aa2 credit rating.

Pattern Energy will acquire its 51% interest in Mont Sainte-Marguerite for a total investment of approximately $40 million(5), which represents approximately a 10x multiple of the five-year average CAFD(4). The acquisition is expected to close in the coming weeks, with the recent the commencement of commercial operations and subject to customary closing conditions. It will be funded at the time of closing using available liquidity.

(3)

Based on a Japanese yen to USD exchange rate of ¥110.



(4)

The forward looking measure of five-year average annual purchase price multiple of CAFD contribution from each of the five Japanese projects and Mont Sainte-Marguerite project 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 March 31, 2018.



(5)

Based on a CAD to USD exchange rate of $1.27.

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 Right of First Offer ("ROFO") on the pipeline of acquisition opportunities from the Pattern Development Companies. The identified ROFO list stands at 935 MW of potential owned capacity and 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













Conejo Solar(5)


Operational


Chile


2015


2016


PPA


104


104

Belle River


Operational


Ontario


2016


2017


PPA


100


43

El Cabo


Operational


New Mexico


2016


2017


PPA


298


125

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


2017


2019


PPA


80


68

Grady


Late stage development


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













1,481


935



(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.



(5)

From time to time, the Company conducts strategic reviews of its markets. The Company has been conducting a strategic review of the market, growth, and opportunities in Chile. In the event the Company believes it can utilize funds that have already been invested in Chile or funds that might otherwise be invested in Chile in a more productive manner elsewhere that could generate a higher return on investment, it may decide to exit Chile for other opportunities with greater potential. In addition, Pattern Development 1.0 is also concurrently exploring strategic alternatives for its assets in Chile.

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 income (loss) to Adjusted EBITDA, respectively, for the periods presented (in thousands):


Three months ended March 31,


2018


2017

Net cash provided by operating activities(1)

$

27,824



$

43,752


Changes in operating assets and liabilities

28,576



13,423


Network upgrade reimbursement

282



317


Release of restricted cash

2,488




Operations and maintenance capital expenditures

(261)



(146)


Distributions from unconsolidated investments(2)

6,281



4,205


Other

860



(3,432)


Less:




Distributions to noncontrolling interests

(9,187)



(2,647)


Principal payments paid from operating cash flows

(13,803)



(10,326)


Cash available for distribution

$

43,060



$

45,146




(1)

Included in net cash provided by operating activities for the three months ended March 31, 2017 is the portion of distributions from unconsolidated investments paid from cumulative earnings representing the return on investment.



(2)

Distributions from unconsolidated investments includes project cash flow transferred to the project's distribution account in March 2018 and received subsequently in April 2018




Three months ended March 31,


2018


2017

Net income (loss)

$

(12,620)



$

2,539


Plus:




Interest expense, net of interest income

25,110



22,061


Tax provision

6,784



4,775


Depreciation, amortization and accretion

62,650



47,227


EBITDA

81,924



76,602


Unrealized loss on energy derivative (1)

11,047



2,358


(Gain) loss on derivatives

(5,660)



648


Other



312


Plus, proportionate share from unconsolidated investments:




Interest expense, net of interest income

9,468



9,340


Depreciation, amortization and accretion

8,768



8,454


(Gain) loss on derivatives

(1,335)



484


Adjusted EBITDA

$

104,212



$

98,198




(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, May 10, 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 5748379. The replay recording will be available until 11:59 p.m. Eastern Time, May 31, 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 25 wind and solar power facilities, including one project it has agreed to acquire, with a total owned interest of 2,942 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 achieve the five year average annual CAFD generated by the Japan projects and Mont Sainte-Marguerite; the ability of the Japan assets to form a strong platform to grow the Company's business and improve the value of the projects; the ability to make further acquisitions without raising any common equity capital; the timing of the consummation of the acquisition of the Mont Sainte-Marguerite project; and the ability of the Company to consummate additional acquisitions from the iROFO list. 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)


March 31,


December 31,


2018


2017

Assets




Current assets:




Cash and cash equivalents

$

162,144



$

116,753


Restricted cash

8,698



9,065


Funds deposited by counterparty

17,744



29,780


Trade receivables

62,895



54,900


Derivative assets, current

15,747



19,445


Prepaid expenses

17,707



17,847


Deferred financing costs, current, net of accumulated amortization of $2,111 and $2,580 as of March 31, 2018 and December 31, 2017, respectively

1,230



1,415


Other current assets

28,948



21,105


Total current assets

315,113



270,310


Restricted cash

9,524



12,162


Major equipment advances

38,452




Property, plant and equipment, net

4,340,973



3,965,121


Unconsolidated investments

347,831



311,223


Derivative assets

13,779



9,628


Deferred financing costs

8,046



7,784


Net deferred tax assets

7,215



6,349


Finite-lived intangible assets, net

235,952



136,048


Goodwill

60,302




Other assets

44,455



22,906


Total assets

$

5,421,642



$

4,741,531






Liabilities and equity




Current liabilities:




Accounts payable and other accrued liabilities

$

39,468



$

53,615


Accrued construction costs

2,045



1,369


Counterparty deposit liability

17,744



29,780


Accrued interest

7,529



16,460


Dividends payable

42,041



41,387


Derivative liabilities, current

5,685



8,409


Revolving credit facility

248,000




Current portion of long-term debt, net

61,191



51,996


Contingent liabilities, current

21,708



2,592


Other current liabilities

15,525



11,426


Total current liabilities

460,936



217,034


Long-term debt, net

2,128,063



1,878,735


Derivative liabilities

28,425



20,972


Net deferred tax liabilities

130,257



56,491


Finite-lived intangible liability, net

59,579



51,194


Contingent liabilities

168,183



62,398


Other long-term liabilities

151,430



106,565


Total liabilities

3,126,873



2,393,389


Commitments and contingencies




Equity:




Class A common stock, $0.01 par value per share: 500,000,000 shares authorized; 98,096,760 and 97,860,048 shares outstanding as of March 31, 2018 and December 31, 2017, respectively

983



980


Additional paid-in capital

1,218,077



1,234,846


Accumulated income (loss)



(112,175)


Accumulated other comprehensive loss

(26,810)



(25,691)


Treasury stock, at cost; 177,909 and 157,812 shares of Class A common stock as of March 31, 2018 and December 31, 2017, respectively

(3,884)



(3,511)


Total equity before noncontrolling interest

1,188,366



1,094,449


Noncontrolling interest

1,106,403



1,253,693


Total equity

2,294,769



2,348,142


Total liabilities and equity

$

5,421,642



$

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 March 31,


2018


2017

Revenue:




Electricity sales

$

102,147



$

98,434


Other revenue

9,512



2,399


Total revenue

111,659



100,833


Cost of revenue:




Project expense

34,562



29,100


Transmission costs

7,190



70


Depreciation, amortization and accretion

55,452



43,740


Total cost of revenue

97,204



72,910


Gross profit

14,455



27,923


Operating expenses:




General and administrative

10,706



11,124


Related party general and administrative

4,068



3,426


Total operating expenses

14,774



14,550


Operating income (loss)

(319)



13,373


Other expense:




Interest expense

(25,444)



(22,555)


Gain (loss) on derivatives

5,660



(648)


Earnings in unconsolidated investments, net

18,212



16,876


Net loss on transactions

(1,098)



(312)


Other income (expense), net

(2,847)



580


Total other expense

(5,517)



(6,059)


Net income (loss) before income tax

(5,836)



7,314


Tax provision

6,784



4,775


Net income (loss)

(12,620)



2,539


Net loss attributable to noncontrolling interest

(148,542)



(3,114)


Net income attributable to Pattern Energy

$

135,922



$

5,653






Weighted-average number of common shares outstanding




Basic

97,428,388



87,062,612


Diluted

105,564,491



87,131,280


Earnings per share attributable to Pattern Energy




Class A common stock:




Basic

$

1.39



$

0.06


Diluted

$

1.32



$

0.06


Dividends declared per Class A common share

$

0.42



$

0.41


 

Pattern Energy Group Inc.

Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

(Unaudited)


Three months ended March 31,


2018


2017

Operating activities




Net income (loss)

$

(12,620)



$

2,539


Adjustments to reconcile net income (loss) to net cash provided by operating activities:




Depreciation and accretion

55,451



43,740


Amortization of financing costs

1,249



1,858


Amortization of debt discount/premium, net

1,227



1,102


Amortization of power purchase agreements, net

1,422



736


Loss on derivatives

3,655



2,350


Stock-based compensation

1,051



985


Deferred taxes

6,647



4,693


Earnings in unconsolidated investments, net

(18,212)



(16,876)


Distributions from unconsolidated investments

13,548



16,487


Other reconciling items

2,982



(439)


Changes in operating assets and liabilities:





Funds deposited by counterparty

12,036



1,658



Trade receivables

(5,742)



(8,432)



Prepaid expenses

2,193



946



Other current assets

62



(4,083)



Other assets (non-current)

(1,346)



2,992



Accounts payable and other accrued liabilities

(18,716)



(4,418)



Counterparty deposit liability

(12,036)



(1,658)



Accrued interest

(9,144)



(2,725)



Other current liabilities

72



(975)



Long-term liabilities

3,904



3,272



 Contingent liabilities

(87)





Derivatives

228




Net cash provided by operating activities

27,824



43,752


Investing activities




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

(157,543)



(275)


Capital expenditures

(61,282)



(1,328)


Distributions from unconsolidated investments



4,205


Other assets

(16,720)



83


Investment in Pattern Development 2.0

(35,156)




Net cash provided by (used in) investing activities

(270,701)



2,685


Financing activities




Dividends paid

(41,358)



(35,522)


Capital distributions - noncontrolling interest

(9,187)



(2,647)


Payment for financing fees

(5,448)



(5,025)


Proceeds from revolving credit facility

283,000




Repayment of revolving credit facility

(35,000)



(180,000)


Proceeds from long-term debt

113,116



350,000


Repayment of long-term debt

(19,166)



(10,326)


Repayment of note payable - related party

(909)




Other financing activities

826



(2,003)


Net cash provided by financing activities

285,874



114,477


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

(611)




Net change in cash, cash equivalents and restricted cash

42,386



160,914


Cash, cash equivalents and restricted cash at beginning of period

137,980



109,371


Cash, cash equivalents and restricted cash at end of period

$

180,366



$

270,285


Supplemental disclosures




Cash payments for income taxes

$

60



$

247


Cash payments for interest expense

$

32,617



$

22,607


Business combination:





Assets acquired, net of cash and restricted cash acquired

$

627,241



$



Liabilities assumed

352,570





Less: Noncontrolling interests

11,113





Net assets acquired, net of cash and restricted cash acquired

$

263,558



$


Schedule of non-cash activities




Change in property, plant and equipment

$

122,161



$

956


Accrual of dividends

$

45



$


Accrual of deferred financing costs

$



$

1,640


 

 

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