Welcome to Atlantica’s Full Year 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 this call will be available on Atlantica’s corporate website.

Atlantica will be making forward-looking statements during this call based on the 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 for 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 a Q&A session. I will now pass you over to Mr. Seage. Please, sir, go ahead..

Thank you very much. Good morning. And thank you everybody for joining us for our 2022 conference call. I will start with a few key messages. In 2022, revenue and adjusted EBITDA increased by 2.9% and 1.5%, respectively, on a comparable basis. At the same time, cash available for distribution increased by 5.5% year-over-year, reaching $238 million.

Net cash provided by operating activities in 2022 was $586 million, a 16% increase compared with 2021. With those results, we are initiating our 2023 CAFD guidance in the range of $235 million to $260 million.

And in terms of investment growth, we have already committed or we have earmarked investments representing for 2023 between $165 million and $185 million. With those key messages in mind, I will now turn the call to Francisco, who will take you through the results.

Francisco, whenever you wanted to?.

Thank you very much, Santiago, and good morning to everyone. Please turn to slide number five, where I will present our key financials for full year 2022. Revenue reached $1,102 million, which represents a 2.9% growth on a comparable basis, excluding the effects of the non-recurrent solar project that we discussed last year and foreign exchange.

Adjusted EBITDA amounted to $797 million, representing an increase of 1.5% on the same comparable basis. Regarding cash available for distribution, we generated $238 million for the full year, an increase of 5.5% year-over-year. On the following slide number six, you can see our performance by geography and business sector.

In North America, revenue increased by 2% to $405 million in the full year 2022, mainly due to the contribution from the recently acquired assets. In South America, revenue increased by 7% compared to 2021, up to $166 million and EBITDA increased 6%, up to $126 million.

The increase was mainly due to the assets acquired during the period and to inflation mechanisms. Revenue and EBITDA in the EMEA region, excluding the foreign exchange impact in the non-recurrent effect mentioned previously, both increased by 2% in 2022.

This was mostly due to higher production and inflation indexation in Coso [ph], as well as higher electricity prices in Spain. Looking below at the results by business sector, we can see similar effects. Now let’s please turn to slide number seven, where we will review our operational performance.

Electricity produced by renewable assets reached 5,319 gigawatt hours in the full year 2022, an increase of 14% 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 water, availability in 2022 was higher than 2021, with very good performance in all the assets. And our Transmission Lines continue to achieve high availability levels. Now let’s move to slide number eight to walk you through our cash flow for the full year 2022.

Our operating cash flow reached $586 million, a strong 16% increase compared to the full year 2021. This increase was mainly due to an improvement in changes in working capital of $82 million, mostly a result of better collections in ACT and better collections in Spain.

Investing cash flow for the full year 2022 mainly includes the investments in new assets and the distributions received from method -- from entities under the equity method.

Financing cash flow was $535 million and it mainly includes the scheduled principal repayment of our project finance agreements for $426 million and dividends paid to shareholders and non-controlling interest for $242 million.

On the next slide number nine, we would like to review our net debt position, which has decreased significantly compared to 2021 year end. Net debt as of December 31, 2022, was $4,013 million, a decrease of approximately $500 million versus December 31, 2021. In addition, we closed the full year 2022 with a net corporate debt of $956 million.

With this, our net corporate debt to CAFD pre-corporate debt service ratio stood at 3.4 times. Moving on to the next slide, slide number 10. In 2022, we have also made good progress on the ESG front and our effort continues to be recognized.

In November 2022, Atlantica was ranked number one globally on the GRESB’s Infrastructure Public Disclosure Rating. In December 2022, we were included for the second consecutive year in CDP’s A List, achieving the highest core environmental transparency and action in relation to climate change.

In January 2023, we were ranked for the third consecutive year by Global 100 among the World’s 100 Most Sustainable Corporations. Also, in January 2023, Atlantica was included for the third consecutive year in the Bloomberg Gender Equality Index.

And finally, in February 2023, Atlantica was included for the second consecutive year in the S&P Global Sustainability Yearbook. Now, with this, I will turn the call back over to Santiago..

If we talk now about growth and investments, we can see on page 12 that we have already committed or earmarked equity investments for 2023 in the range between $165 million and $185 million.

These investments include the construction of our first battery storage plant located inside our Coso geothermal plant in California, which we recently announced, includes as well several PV assets in our key geographies, as well as the expansion of two of our transmission lines.

Additionally, we include other investments where you will find storage projects in several locations plus our first hydrogen project. This is a 10-megawatt PV facility with hydrogen manufacturing facility as well that recently won a grant in Europe, in Spain, specifically, and we expect this to be our first hydrogen project.

If we look on page 13 at our pipeline beyond 2023, what you can see there is following the discussions we have been having over the last quarters, regarding the fact that Atlantica is -- we expect Atlantica to grow more through development and construction of assets we have developed.

You will see that we currently have a pipeline of assets under development of approximately 2 gigawatts of renewable energy and over 5 gigawatts hours of storage.

This includes both repowering or expansion opportunities within the existing portfolio, as well as greenfield development done by Atlantica or in collaboration with partners in the different geographies.

As you will see, our pipeline consists mostly of PV, storage and wind projects, and is mainly focused on North America, intending to leverage the IRA.

And finally, if we look at the last page and our 2023 target guidance, we expect CAFD to be in the range of $235 million to $260 million and we expect adjusted EBITDA to be in the range of $790 million to $850 million. With that, I conclude today’s presentation.

Thank you very much for joining us, and Operator, we will now open the lines for questions, please..

Thank you. [Operator Instructions] We will have our first question on the line from David Quezada of Raymond James. Your line is open..

Good morning. Thanks. Hi, everyone. Maybe just -- I certainly appreciate the new disclosures on the development pipeline.

Santiago, I was wondering if there’s any color you can share just in terms of the pace of how -- where these -- how these projects will be developed and any key milestones you can share on projects that are in that development pipeline?.

Sure, and good morning, David. So as you will see in the disclosure, Atlantica has been building over the years that pipeline and is working on continuing to build that pipeline. We believe that for a company like us, it makes sense to grow combining development of projects, in many cases with partners together with acquisitions.

And regarding our current pipeline, you have it broken down between shorter term projects, projects where we expect to reach ready to build this year or next year, and projects that are in an earlier development phase. As you will see there, our development pipeline is fairly young.

So a significant percentage of those projects are still in, what I would call, early stages. But we do believe that over the foreseeable future, we are going to be able to feed ourselves if you want to build these projects and they will represent a significant percentage of the investments we will be doing every year.

We won’t be the only source of growth, but we expect to be a significant part of our growth going forward..

Excellent. Thanks for that.

And maybe just kind of a follow-up here or thoughts around your funding plan and asset recycling, do you see a business model eventually trending towards a company that is maybe selling operational assets or a stake in operational assets and even that to fund an ongoing development pipeline?.

So we will, obviously, consider all options when deciding how to finance growth, and obviously, the conditions are the right ones. What you are mentioning could be one of the ways to finance the pipeline going forward. It won’t be the only one. And Francisco, as the CFO, will obviously be looking at all the alternatives.

At this point in time, our leverage ratios are we believe more than reasonable, but we will obviously be analyzing all options, including the one you mentioned..

Excellent. Thanks for that. I will get back in queue..

Thank you, David..

Thank you. Our next question comes from Angie Storozynski of Seaport. Your line is open..

Good morning, guys.

So maybe first on the strategic review, I mean, what are you trying to achieve? I mean, obviously, the stock has struggled, but is it just an attempt to facilitate an exit for your larger shareholder, is it basically an attempt to find a strategic partner, again, I mean, what are we trying to achieve?.

Good morning, Angie. I obviously won’t be able to be too specific, because if we wanted to be specific, we would have released something more specific. So at this point in time, the Board has decided to start a strategic review and analyze a number of options brought in order to maximize value.

And as you could see in the announcement, this process has the support of Algonquin as the largest shareholder. But we need to leave the Board to identify all those options, work through the options and get to a conclusion.

So I won’t be able to be very specific, because we just started this process, and as you know very well, in a strategic process, you typically analyze a wide range of alternatives..

Okay.

And then, secondly, so all of the projects that you show that are either under construction or about to be under construction, when should I expect them to start contributing to your EBITDA and CAFD, so basically, what’s the construction cycle for these assets?.

Yeah. Typically, construction cycle for these assets are fairly short and a lot of what we are doing, as you can see there is, PV and storage, which depending on the size, configuration and so on. But probably you can be talking about a year, a bit less, a bit more depending on each project.

So that’s typically then how long it would take you to go through construction, and after construction, they should be able to start contributing to CAFD fairly soon..

Okay. And lastly, I don’t see any comments about longer term CAFD per share growth and I am just wondering, is it a function of the pending strategic review or has there been a change in your outlooks on your….

It is..

… potential growth….

It is, Angie..

…first is the review?.

No..

Okay..

It is. Having started, having us do that review, we thought that we would need to wait for that to be over before sharing midterm guidance..

Okay.

And then last one, what FX -- what is the FX ratio or exchange ratio embedded in your CAFD guidance for 2023 for euro versus dollar?.

So, yeah, as you know, we typically work with a range, and therefore, it would be a range around where the exchange rate is today more or less, today or yesterday or at least it was around £1.06 [ph]. So….

Okay..

… we have a certain cushion, let’s say, around that number..

Okay. Thank you. Thanks..

Thank you. We now have Mark Jarvi of CIBC Capital Markets. Your line is now open..

Thank you. Good morning, everyone.

Just in light the strategic review, just wondering, Santiago, what that means in terms of willingness or capacity to pursue M&A driven growth? Could you still do small tuck-in deals, I assume maybe larger transactions are sort of off the table for now?.

So as we mentioned in the announcement of strategic review and we were explicit about that, the company will continue with its current plan. So call it the typical $300 million equity investment target that we have every year.

Our intention is to work towards that, and that would be a combination of, let’s say, construction of projects we have developed, the ones we talked about earlier today, plus M&A, if we find the right opportunities.

So the typical our, let’s say, our strategy does not change because of the strategic review and we will continue working as normally at least until the review is over..

Okay.

And then what about in terms of dividend and dividend increases, would there be a pause while you sort of initiate the strategic review or is that something if CAFD rolls through with incremental growth and performance, you could continue to -- you could increase the dividend this year?.

Yeah. Yeah. Our current strategy has not changed because of the fact that we are doing a review. As you know, the dividend is a decision to be taken by the Board every quarter, but our current policy continues being the same to have a sort of an 80% kind of payout ratio. So, obviously, depending on CAFD, but no change there because of the review..

Okay..

We want to make sure that….

And then….

… we will continue operating and working exactly the same way..

Understood. And then in terms of the incremental growth from what was announced last quarter, the one, like, what’s new this quarter versus prior Q3 disclosure? I mean the cost of batteries were discussed and the PV stuff was discussed.

And then maybe in terms of the incremental growth, can you kind of comment on terms of where returns are trending for you guys in terms of the newest investments you are looking at?.

Sure. So if you look at the, let’s say, the projects we have discussed today, some of them we announced them last quarter and others are new, including some of the PV projects, some of storage, plus a smaller hydrogen project I mentioned as well. In terms of returns, probably we haven’t seen a significant change in the last few quarters.

Interest rates went up, it took the market a bit of time to adjust to that new reality, and for somebody like us today, and we think that returns are reasonable, given where cost of capital is both for projects we develop and build. And on the M&A front, as we have always done, we will close transactions if we believe that the numbers make sense..

So in response to your comment about higher interest rates, you have not changed your hurdle rates, particularly just you are being able to pass through the higher debt costs.

Is that what you are implying?.

So what I am implying is that, in our case our order rates when we invest get adjusted automatically because of the way we work, and what we are saying is that, yes, we believe that we are going to be able to maintain the spread that we have typically maintained in the past..

Okay. And then one last question, you did go through a strategic review a couple of years ago. I am sure the circumstances are different and there’s different absolutely backdrop today.

Through that experience, what kind of disruptions of that cost for the organization and how can you protect this time as you go through the strategic review?.

Yeah. So that was four years ago, but we think that we are able to go through something like this without affecting the day-to-day business and maybe that experience also helps.

But as I mentioned before, our intention is to continue managing the business, doing our investments, paying our dividends following our current strategy, if you want, while we do the review and we think we can do both things at the same time..

Okay. Thank you..

Thank you..

Your next question comes from William Grippin of UBS. You may proceed..

Thanks very much and good morning. My first question is just more of a clarifying question.

But between the committed investments you are showing on slide 12 and then the pipeline on slide 13, is there any overlap between those two or should I just think about them being completely independent?.

They are independent..

Very good. Okay. And then curious just to hear a bit more on the hydrogen project that you disclosed here in the committed investments. Where is that? Is it more of a -- should we think about that being more of a pilot project and who’s the off-taker to the extent you can talk about it? Thank you..

Sure. So hydrogen is an area where we believe that there will be significant opportunities.

At the same time, given our risk profile, we are going and we have been talking about this for the last few quarters, we -- our intention is to enter hydrogen in a smaller incremental projects versus coming up with some huge investment like some other companies are doing. This is our first project in hydrogen.

As I said, it’s a 10-megawatt facility, including PV and electrolyzer and some additional equipment. It is in Spain and the project very recently obtained a grant European Union driven, let’s say, innovation a grant. That should make the project viable. At this point in time, we are negotiating the off-take agreement.

So I will not be specific, because the negotiation is not over. Nevertheless, now that we were able to secure that grant and we think that the project is going to be viable and we should be able to close an off-take agreement at some point in time in the next few quarters and we will be updating you regarding that.

We are working on other hydrogen projects and we do expect to do more than this one. And again, with an approach where we do a number of smaller projects where we manage the risk return profile of this technology..

Great. Appreciate the color. Best of luck..

Thank you..

We now have Julien Dumoulin-Smith of Bank of America..

Hi. This is Morgan Reid actually on for Julien. I was curious if you could all talk a little bit about kind of the comfortable -- comfort that you feel in hitting that $300 million annual investment target, the kind of long-term average that’s as outstanding? Appreciate the comments around the $165 million to $185 million already committed for 2023.

But just what kind of like to understand kind of where you think the remaining pieces of growth may come? I appreciate the earlier comments on acquisitions and early-stage success with the internal development arm, just kind of curious how you are thinking about that?.

Sure. So, at this point in time, early March, we are confident about the $300 million number. That’s probably our average, if you took -- if you take a number of years, that’s what we have plan on average for the last few years.

And the remainder between the number we shared with you on the $300 million should be a combination of additional projects that we are developing that we might be bringing to the finish line this year plus some acquisitions.

And typically, again, if you look at us, we -- over the years, we have typically been able to close acquisitions in some of our geographies, and this year, that would be our plan, again, assuming that we can close acquisitions with the right numbers.

But as of today, we -- in early March, we are confident that we should be able to hit a number close or above $300 million..

Great. That’s really helpful. And I guess just lastly, as we kind of start to branch into storage as an increasing kind of portion of the portfolio here.

I was just curious if you could kind of talk us through how you think about contracting those storage assets, the risks you are sort of willing to take there, and I guess, the kind of interest that you might have in the mix of your portfolio kind of going forward, where you think like storage might go in terms of its proportion of the mix, that would be helpful?.

Sure. So we think that the storage is going to be a key part of the solution regarding energy transition, and we start to see in a number of geographies and that storage plays a very important role. We can talk about some states in the U.S., including California, for example.

We can talk about locations with a high penetration of solar PV, where now you need storage to do what natural gas used to do. And therefore, we believe that it will be a significant part of our growth and of any company that is doing renewable energy. In our case, the way we want to do storage is obviously different by geography.

But in general, the common theme should be partially contracted or partially regulated depending where you are.

So we are not looking at situations where we would go only merchant and totally merchant, but we are willing to do projects where part of your revenues are guaranteed through a contract or through regulation and part of the revenues depend on, let’s say, on merchant revenues, because that’s what the storage does well, move production from certain hours in the day to other hours where prices are higher and knowing that our current portfolio is 99% or 98% contracted, we believe that in the storage we can do that combination of contracted/regulated and some merchant revenues..

Great. Thank you. I will take the rest offline..

Great. Thank you..

We now have Nielsen Mitch [ph] from RBC Capital Markets. Your line is open..

Great. Thanks.

Just a quick follow-up on an earlier question, in terms of the hydrogen projects, should we assume that the other hydrogen projects we are working on are also in Spain?.

So, in hydrogen, we are working in a number of geographies, but mostly at this point in time, is Spain and the U.S..

Okay. Thanks.

And then just on your development pipeline, do you anticipate getting any or bringing any strategic or financial partners to build out the pipeline?.

So following up a question we had earlier today and that’s something we need to look at how we are going to finance our growth pipeline and we will need to look at all the options, including, in some cases, bringing partners or not bringing partners or divesting assets, or in general, how to finance and it’s going to depend a lot on the options that we can have in front of us..

Okay.

And then just one last kind of big picture question on your EBITDA and CAFD guidance, so other than the new projects added to the portfolio, are there any material swings in EBITDA or CAFD from any specific projects or asset classes to highlight?.

No.

It’s typically the, let’s say, if you look at the lower versus the higher range, the difference is typically how well the projects will perform depending on whether the sun is shining and the wind is blowing or not, a bit of exchange rate when you look at EBITDA, not on the CAFD side, because it hedge and the incremental new projects, how quickly they come online or when do we close new investments.

So those are probably the biggest shrinks there, so nothing huge anywhere..

Okay. Thanks. I will leave it there..

Thank you. [Operator Instructions] I would like to close the Q&A session and hand it back to Santiago to say some final remarks..

Okay. So, thank you very much everybody for attending our call. Thank you..

Thank you..

Thank you all for joining. That does conclude today’s call. Please have a lovely day. You may now disconnect your line..