Welcome to Atlantica's Third Quarter 2022 Financial Results Conference Call. Atlantica is a sustainable infrastructure company. Just a reminder that this call is being webcast live on the Internet and a replay of the call will be available on Atlantica's corporate website.

Atlantica will be making forward-looking statements during this call 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 today's earnings presentation or because of other factors discussed, including the Risk Factors section of the accompanying presentation and in our latest reports and filings with the Securities and Exchange Commission, all of which can be found on our website.

Atlantica does not undertake any duty to update any forward-looking statements. Joining us on today's conference call are Atlantica's CEO, Santiago Seage; and CFO, Francisco Martinez-Davis. As usual, at the end of the conference call, we will open the lines for the question-and-answer session. I will now pass you over to Mr. Seage.

Please, sir, go ahead..

Thank you very much. Good morning and thank you for joining us for our third quarter 2022 conference call. A few messages to start with.

In the first nine months of this year, revenue has increased by close to 5%, and adjusted EBITDA has increased by 4.3% on a comparable basis, while cash available for distribution increased by 6.2%, up to $179 million. Net corporate debt, the ratio stood at three times as of the end of September, providing us with significant financial flexibility.

And regarding growth, we have committed close to $150 million in new investments in storage and PV. With that, I will turn the call over to Francisco, who will take you through our financial results..

Thank you, Santiago, and good morning to everyone. Please turn to slide number 4, where I will present our key financials for the first nine months of 2022. Revenue reached $858 million, which represents a 4.9% growth on a comparable basis. Excluding the effect from the nonrecurring solar project we discussed last year and foreign change.

Adjusted EBITDA amounted to $631 million, representing an increase of 4.3% on the same comparable basis. Regarding cash available for distribution, we generated $179 million in the first nine months of 2022, an increase of 6.2% year-over-year. On the following slide number 5, you could see our performance by geography and business sector.

In North America, revenue increased by 5% to $324 million in the first nine months of 2022, while EBITDA increased by 6%, thanks to the assets we recently acquired in United States. In South America, revenue and EBITDA both increased by 5% to $123 million and $95 million, respectively, thanks to the recent acquisitions.

Revenue in the EMEA region decreased by 20% in the first nine months of 2020 -- 2022, mainly due to foreign exchange impact and the nonrecurring effect mentioned previously. EBITDA in the EMEA region decreased 5% in the first nine months of 2022, mostly due to FX impact and the one-time gain in the first quarter of 2021.

Excluding this impact, revenue would have grown at 4.9% and EBITDA by 2.6%. Looking below at the results by business sector, we can see similar effects. Let's now please turn to slide number 6, where we will review our operational performance.

Electricity produced by our renewable assets reached for 4,155 gigawatt hours in the first nine months of 2022, an increase of 20% versus the same period of 2021. The increase was largely due to the contribution of assets recently acquired. Looking at our availability based contracts, once again, ACT continues to show solid performance.

In transmission lines and water, the two other sectors where our revenue is based on availability, we continue to achieve high availability level. Now let's please turn to slide number 7 to walk you through our cash flow for the first nine months of 2022.

Our operating cash flow reached $516 million, strong 16.7% increase compared to the first nine months of 2021. Investing cash flow in the first nine months of 2022 mainly includes the investments in new assets and the distributions we received from entities under the equity method.

Financing cash flow was $263 million, and it mainly includes the scheduled principal repayments of our project financing agreements for $196 million and dividends paid to shareholders and non-controlling interest for $178 million.

On the next slide, number 8, we would like to review our net debt position, which has decreased significantly compared to 2021 year-end. Net project debt as of September 30, 2022 was $3,946 million, a decrease of more than $500 million versus December 31, 2021.

In addition, we closed the first nine months of 2022 with net corporate debt of $850 million. With this, our net corporate debt to CAFD pre-corporate debt service ratio stood at three times, which puts on Atlantica in a good position to finance our new investments. I will now turn the call back over to Santiago..

Thank you. Regarding growth, we are happy to announce close to $150 million in new investments. This include, among others, our first stand-alone battery storage system and an investment in a solar PV plant in operation on which we also plan to add storage.

If we look at slide number 10, we will talk briefly about the new battery storage project, which is going to start construction and is located inside our geothermal plant in California. The battery system is expected to have a capacity of around 100-megawatt hours to start operation in 2024.

This project will benefit from the Inflation Reduction Act, which we believe is and will be a game changer for the sector. In fact, we expect this project to be the first one of a pipeline of projects in the Southwest.

This is a region that presents a clear opportunity for storage, and with our experience in most renewable energy technologies and in storage, we believe that Atlantica is in a very good position to take advantage of these sizable growth opportunity. On the next page, we review our first investment in PV plant with batteries.

We have closed recently the acquisition in Chile of 70-megawatt PV plant through our renewable energy platform there, and we expect to add a battery system next year. Let me turn back the call to Francisco, who will cover the last part of our presentation..

Thank you, Santiago. Let's move on to slide number 10. Since we are in a market environment, with rise in interest rate and a strong US dollar, we would like to spend a couple of minutes reviewing how Atlantica's prudent financing and hedging policy limits our exposure. First, our CAFD impact from the current euro devaluation is limited.

Atlantica has a natural hedge, since the distribution from its assets in Europe are partially offset with euro-denominated corporate interest and G&A.

For the net euro exposure, we have a hedging strategy through currency options by which on a rolling basis, we hedge 100% of the expected net exposure for the next 12 months and 75% for the following 12 months. That being said, after March 24, the potential impact on of CAFD would be approximately the 2% to 3%.

This is calculated as the difference between the expected average, net euro exposure converted at the current euro-dollar rate, and our average hedge rate for 2022. Second, Atlantica growth is protected against inflation, thanks to escalation factors.

Approximately 50% of the company's portfolio has revenue index either to US inflation index or to an inflation-based formula or to a fixed number. Third, we are well insulated against interest rate risk.

94% of the company's consolidated debt is either hedged or fixed, and an increase of 100 basis points in interest rates with respect to current rates will have an impact of approximately 1.5% of our CAFD.

And finally, given the regulated nature of revenue from our assets in Europe, any potential cap on market prices should have no impact on the net value of our assets. In addition, our assets in Europe are not subject to new taxes recently announced. With this, I conclude today's presentation. Thank you for joining us.

And now, we will open the lines for questions. Operator, we're ready for Q&A..

Thank you. [Operator Instructions] Our first question comes from Angie Storozynski from Seaport. Your line is open..

Thank you. So first question, again, I was looking through your slides. So those battery investments that you are proposing, do you have PPAs for these investments? And if you could talk maybe about CAFD yields you expect to derive from them..

Thank you, Angie. So regarding the new investments, we have announced each situation is different. There's a project in California, as you saw, the solar project, which is in Chile. In both cases, these are geographies, where storage as a technology makes a lot of sense. And therefore, in front of us, we have different options.

In the case of the US, one option will be to go for a full PPA. Other options would involve having fixed payments RA through resource adequacy together with market revenues. And at this point in time, we are going to be working on the different options in front of us.

But in any case, both business models result in returns, both long-term and short-term, which are more than enough to meet the objectives we have. As you can imagine, Angie, given current pricing and short-term, mid-term outlook, these investments should result in very good multiples and yields..

Okay.

But just again, back to the EBIT -- EBITDA or CAFD yields, I mean, how do these compare or your expectations of returns, how do these compare to which you have been showing over the last couple of quarters? So is there an uptick in those return expectations, as you said, in recognition of the higher financing environment?.

So if you look at our disclosure, Angie, you will see that in terms of EV to EBITDA multiples, one of the projects we mentioned at 10 times. The other one we mentioned at six times. So it should be -- that's why I'm mentioning that from an accretion point of view, from a return point of view, the projects to clearly meet our requirements..

Okay. Good. And then secondly, your slide on project financing shows that you could pull forward CAFD by basically refinancing that non-recourse debt. So you haven't announced anything.

So is this like a lever that you leave yourself once there's no additional growth in the asset base, or when could we actually expect an update on potential refinancing?.

Sure. So this is clearly another lever that as we have been discussing in the past, we believe is going to help us to increase our distributions or CAFD. In fact, once you go through our disclosure, you will see that we have refinanced an asset in this quarter..

Okay.

And then lastly, I know that you usually make these comments on the fourth quarter call, but is there any update on your growth projections? So targeted increase in the CAFD per share for the next couple of years or maybe a comment on 2023, what, or 2024, what would be derived from the project -- with the growth projects you have already locked in as far as CAFD per share growth?.

So as you mentioned, Angie, we typically give guidance when we announce results for the year. So there's not much I can add there. We will be talking about that in February when we announce results, nothing new in that regard..

Okay. Thank you..

Thank you..

We now turn to Julien Dumoulin-Smith from Bank of America. Your line is open..

Hey, good morning team. Thank you so much. If I may, to follow-up on Angie's question there on the first one there. So you don't have an off-take commitment yet for California, if I hear it right? You don't have a CPC arrangement.

And to the extent of what you said you opt for the latter with the fixed RA payments, what duration are you looking at getting? And then just to throw in another related question, the EV EBITDA multiple of 10 times, that's exclusive of an ITC, I take it?.

So in terms of off-takers, as I mentioned before, in both geographies, you have the options of PPAs and you have the options of an RA or the equivalent of the RA. And that would mean that the assets would be contracted in any case. In one case, they could be nearly 100% contracted.

In the other case, going through an RA, it would be a smaller percentage. And at this point in time, given the situation in the market, we want to keep our options open and both options, as I mentioned before, we believe deliver very good economics. As you know, our portfolio at this point in time is nearly exclusively contracted.

And, therefore, we believe that we have the option in these couple of new projects to look at both situations. In terms of your second question, the multiple is the EV, the investment divided by the EBITDA. So the gross investment, if you want, Julien..

Yes, right. It's not net of the ICC. Excellent. Thank you. And then if I may, just to pivot the subject here to the Lone Star II, that's the wind project here. Can you talk about just repowering and opportunities to recontract that asset? I believe it's with EDPR as it stands right now, and it's coming up on contract termination here.

If you can speak about the options ahead here?.

Yes. So as you rightly mentioned, we have a partner there. Therefore, everything we do there should be done with our partner. In the short-term, our intention is to sell to the market. We think that short-term, that's the best option available. Now given IRA, we will continue analyzing options to go through a repowering at some point in time.

And, obviously, IRA opens new opportunities that we didn't have when we made the investment in terms of when and how to do such repowering. But short-term, we think that the best option is to sell in the market for some time..

Got it.

But is that -- why not retarget, if you can speak to think about that given the IRA clarity that we've got there?.

Yes. To help you -- I mean to share with you some elements of the reasoning you need to follow there, the when repowering is extremely important. And you need to look there inflation, cost of supplies, workforce, et cetera, et cetera, plus you need to compare that versus short-term prices in the market.

So, our intention at Atlantica would be to have that asset contracted at some point in time. But given IRA, we are in no rush and our intention is to optimize the value of the asset, taking into account market prices, especially in the short-term..

Yes. That makes sense. Right. Elevated power price in the near-term, no reason to take the asset down or any kind of repowering or maintenance or otherwise. So, I hear you..

All right. I'll leave it there. Thank you guys very much..

Thanks Julien..

Our next question comes from David Quezada from Raymond James. Your line is open..

Thanks. Morning everyone. My first question here, just on your comments around the growth outlook in the US and the potential benefits of the Inflation Reduction Act.

I'm just curious if you can discuss your US pipeline at all, maybe even just qualitatively what kind of projects do you have that could benefit from the legislation there? And even if possible -- or maybe as kind of a side question, what your thoughts are around interconnection delays and challenges getting into that market?.

Sure. So, we do think, obviously, that IRA is going to help the sector in general and Atlantica specifically as well. In our case, the storage project we are talking about today is the first of a pipeline we have been working on for the last few years.

So, we do believe that we have a number of projects and you have a couple of figures in our disclosure regarding that pipeline in the Southwest. We believe that we are going to have opportunities in the next years to benefit from IRA and develop and build a number of assets mostly around the storage and the PV as the portfolio is in the Southwest..

Okay. Excellent. Thank you for that. And then maybe one on your dividend policy, just high level, and I'm sure -- I appreciate that a lot of this is the Board's discretion.

But as you're looking at more development projects and growing and building new projects, I'm curious if you see a scenario where you might increase your proportion of retained cash in order to fund some of these projects in the future?.

Sure. So, as you rightly pointed out, obviously the Board is the one deciding the dividend. At this point in time, our policy is to be around 80% payout ratio as in our disclosure and that's the policy we have. Obviously, what the Board would do in the future, I wouldn't like to comment, but that's the policy we have and we are following..

Okay. Okay. Understood. Thank you. And then maybe just one last one for me. And again, as it relates to your opportunities throughout the US.

Just any updated thoughts with respect to opportunities you could pursue with Algonquin?.

Sure. So with Algonquin, as you know, in the past, we have done a few projects in South America. And periodically, we analyze opportunities with them. So it's one of our sources of growth, and we intend to continue looking at opportunities with them. But again, being one of the many sources of growth..

Okay. Excellent. Thank you. I'll turn it over..

Thank you, David..

We now turn to Mark Strouse from JPMorgan. Your line is open..

Yes. Excuse men. Thank you very much for taking our questions.

Just a clarifying question following up on the IRA, when you talk about most of your US pipeline being in storage going forward, is that because other technologies aren't clearing the required return hurdle, or is that just a relative comment that storage looks better than other type of assets?.

No. I mean, it's not – not trying to say that the other technologies do not meet the benchmarks at all. It's simply given the fact that, the pipeline I'm talking about is in the Southwest, California and neighboring states. We do see an opportunity around the storage.

As you can imagine, as solar – penetration of solar PV increases, you start to see opportunities for storage and probably California is one of the most advanced markets in that regard. That's why our specific portfolio as of today in the Southwest has more storage, but that's all. It's very specific to that region, currently, and for our portfolio.

But obviously, we look at opportunities in many other technologies and in many other locations..

Yeah. Okay. And then just following up on slide 12 on the hedging. I just want to be clear here. So the strategy moving forward, even given the recent volatility in FX is to continue to hedge 100% for the next 12 months and 75% for the following 12 months.

So you're not trying to the game FX essentially looking out to 2024 and 2025 as we roll into next year?.

That is correct, Mark. I mean, we do the hedging strategy, I described over the 100% over the next 12 months and the 75% month – for months 12 to 24 on a rolling basis, and we continue to do that. So there's no change in our hedging strategy..

Okay. Good to hear. Thank you..

[Operator Instructions] Our next question comes from Mark Jarvi from CIBC Capital Markets. Your line is open..

Thanks. Good morning, everyone.

Santiago, I wonder if you could break down the $150 million of new investments, and just clarify how much of that will be deployed in 2022?.

Hi, Mark. So that's not a detail we are sharing in our disclosure. So I wouldn't be able to give you numbers there. Obviously, some of the projects, as I said, are going to be online in 2024. So that would mean that a significant part of those projects, the investment would happen more in 2023 than in 2022..

Okay.

And then can you comment at all in terms of where you think you might end up this year in terms of that key deployment, whether or not you'd hit the $300 million target?.

Yes. I mean, as you know, the $300 million is sort of guidance and there are years where we do more and we do less. At this point in time, it's a bit early to tell you where we are going to land specifically. We should probably be south of $300 million.

But at the same time, for 2023, we already have a significant amount of money earmarked or being invested..

Okay. And then, just to clarify one thing on these investments. It does seem like at least the one at Coso is unlevered.

What about the investment in Chile? Is that -- does that have any debt attached to that, or is that unlevered at this point?.

So, at this point in time, they are unlevered, our intention would be to lever them and probably to lever them once they are operational..

Got it. And just last question.

Just with that pipeline you have in the Southwest, six projects, PV and storage, any rough indication of when you think the next project could come to fruition and be able to announce something? Is that something that could come together next year, or are these projects a couple of years out? In relation to final investment decision? Yes..

Yes. It's a portfolio like our portfolios, there should be things coming in different dates. And therefore, it will depend on how we can advance further. It will depend on the contracting side of things. And then, there could be projects in the next few years being ready to decide whether we invest..

Understood. Okay. Thank you..

Great. Thanks..

Our next question comes from William Grippin from UBS. Your line is open..

Excellent. Thank you. First one, just coming back to the battery projects.

Do you have visibility or contracts on battery supply there already locked in, or as I said, at least visibility to securing supply?.

Well, obviously, the teams are working on that. I would not comment on the specifics there. But given the size of the projects, it should not be a problem.

At this point in time, when you're talking about battery supply, you are able to lock-in reasonable agreements, especially if you have been working with the suppliers for a long time and you are working on sizes like the ones we are discussing..

Got it. And then, specifically, on the Coso project, you're calling that one, a stand-alone storage project, but obviously, locating it on the coastal side.

Could you just speak to the benefits of doing that? Is it primarily just leveraging the existing interconnection and land, or are there other benefits you see potentially in doing that?.

So those two are clearly important. And the third one is the operation and maintenance of the asset, obviously, will be done with the same crew that is today taking care of a geothermal plant. That's a significant synergy in terms of costs for us..

Got it. Appreciate the time. Thank you..

Thank you..

This concludes our Q&A. I'll now hand over to Santiago Seage, CEO, for final remarks..

Great. Thank you very much to everybody for attending our call today. Thanks..

Thank you..

Today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines..