Pattern Energy Reports First Quarter 2018 Financial Results - 10.05.18 - News

SAN FRANCISCO, May 10, 2018

SAN FRANCISCO, May 10, 2018 /PRNewswire/ -- 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.

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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

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

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