Kevin Cole - Head, IR Chris Sotos - President & CEO Chad Plotkin - CFO.

Jonathan Arnold - Deutsche Bank Cindy Motz - Williams Capital Group Good day, ladies and gentlemen, and welcome to the NRG Yield First Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kevin Cole, Head of Investor Relations. Please go ahead..

Thank you, Danielle. Good morning, and welcome the NRG Yield's first quarter 2018 earnings call. This morning's call is being broadcast live over the phone and via webcast, which can be located on our website at www.nrgyield.com under Presentations & Webcasts.

As this is the earnings call for NRG Yield, any statement made on the call that may pertain to NRG Energy will be provided from NRG Yield's perspective. Please note that today's discussion may contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially.

We urge everyone to review the safe harbor in today's presentation as well as risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events except as required by law. In addition, we will refer to both GAAP and non-GAAP financial measures.

For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation and webcast. And with that, I'll now turn the call over to Chris Sotos, NRG Yield's President and CEO..

Thank you, Kevin. Also presenting today and available for questions is Chad Plotkin, NRG Yield's Chief Financial Officer. Let's begin by turning to page 3. After our first quarter results, we are maintaining 2018 guidance.

While wind resource conditions across much of our portfolio were lower than expected, they are within our seasonal sensitivity ranges. As a reminder, and as Chad will cover in more detail, for the quarter CAFD contribution is relatively immaterial for first year and full year expectations.

And because the results are in range of our sensitivities, we are maintaining our 2018 guidance of $950 million of adjusted EBITDA and $280 million of CAFD.

As part of our ongoing commitment to provide shareholders a predictable and growing dividend, and while this board is authorized a quarterly dividend increase of $0.309 a share in the second quarter, maintaining our 15% year-over-year DPS growth trajectories for 2018.

During the quarter, we took advantage of market conditions that provided accretive equity financing for committed group investments and commenced incremental equity issuances under the ATM program, raising a total of $16 million.

With $99 million of capacity remaining under the current program, we will continue to utilize the ATM subject to appropriate market conditions as a financing vehicle to support permanent capital formation on the platform.

As we've focused on closing the transaction with GIP, NYLD continues to execute on CAFD per share accretive acquisitions in the interim with 2 transactions, specifically the previously announced 154-megawatt Buckthorn Solar asset that benefited from a 25-year PPA for $42 million and provides a levered CAFD yield on a 5-year basis of 9.5% as well as a 2.8-megawatt fuel cell project for the City of Tulare in California.

The Tulare acquisition benefits from the 20-year PPA with an A1 rated offtaker. All small, the $11 million acquisition will provide an unlevered CAFD yield of approximately 10.5% on a 5-year average basis providing for a nice tuck-in acquisition to the thermal segment.

In addition to our equity activity discussed earlier, I'm pleased to announce that refinancing of our $495 million revolving credit facility. This refinancing extends the maturity of the revolver to April of 2023 and improves our current spreads by 75 basis points to 175 basis points above LIBOR.

This refinancing provides NYLD with significant source of short-term temporary capital at a low cost, which allows the company to be patient and place permanent capital when market execution is advantageous. Finally, I'm pleased to state that GIP transaction remains on track with regulatory approvals going well.

Our consent process with contractual counterparties is in full swing with the majority in the final stages of documentation and approval. Importantly, thus far, we have not seen a material impact to NYLD in obtaining these consents. If these trends continue, NYLD sees a third quarter closing as more likely than a fourth quarter closing.

We are not at the finish line, but to date, the process is going well. With that, I'll turn it over to Chad..

Thank you, Chris, and beginning with the left side of Slide 5. For the first quarter, NRG Yield is reporting adjusted EBITDA of $189 million and cash available for distribution, or CAFD, of negative $4 million, both within the seasonality and sensitivity ranges in the accompanying table.

While the balance of NRG Yield's platform performed materially in line with expectations, as mentioned on the February earnings call, weak wind conditions in the first quarter were prevalent across the portfolio, and this persisted through March, leading to overall wind production down 6% relative to median expectations in the quarter.

However, as noted in the sensitivity table, the expected contribution of CAFD in the first quarter is relatively immaterial to overall full year financial results. And in April, wind production across the portfolio was modestly above median expectations.

During the first quarter, we also continued the process of raising new permanent capital through the issuance of $16 million in Class C common stock under the ATM program.

This execution was done at a volume weighted average price of $17.17, or an implied yield of roughly 8.8% when using 2018 CAFD guidance of $280 million, which is supportive of accretive financing for the company's most recent growth commitments.

Lastly, the company remains on track to deliver 15% year-over-year dividend growth with the most recent increase of 3.7% to $0.309 per share in the second quarter of 2018. Moving to the right side of the slide.

Today, NRG Yield is maintaining full year 2018 financial guidance of adjusted EBITDA of $950 million and CAFD of $280 million, which is based on P50 internal median renewable energy production for the full year.

As noted on the slide, while we have successfully deployed accretive growth capital during the first quarter, in order to provide the most wholesome view of a revised full year outlook and because of full year contribution to CAFD from these investments will commence in 2019 versus 2018, we have elected to defer the update of full 2018 financial guidance until all the projects achieve COD.

This includes the completion of the UPMC facility in Pittsburgh, Pennsylvania, which is anticipated by the end of the second quarter. Now turning to Slide 6, to provide an update on capital allocation.

On the left side of the slide, we provide a summary of the company's existing growth capital commitments including the $59 million of investments made year-to-date comprising the Buckthorn Solar and Tulare Fuel Cell acquisitions as well as the $6 million of additional contributions to the distributed generation partnerships made in the first quarter.

Additionally, and ignoring any other investments that may arise through the course of the year, NRG Yield continues to have another $405 million of investment commitments at attractive economics already in the queue.

To fund these investments and as represented on the right side of the slide, we continue to have significant capacity to execute on this growth with capital sources of nearly $900 million.

This includes permanent capital sources from the excess cash resulting from the company's low payout ratio and the $99 million of the continued availability under the ATM program.

Additionally, we also maintain temporary financing flexibility with over $350 million available under the recently refinanced revolving credit facility and the $365 million backstop facility that GIP has agreed to provide to exclusively support the financing of the Carlsbad acquisition later this year.

Importantly, because these 2 sources are not permanent NRG Yield capital, we will continue to evaluate the optimal means to augment the company's capital sources to ensure growth execution is completed accretively and in a manner that adheres to our balance sheet principles. I will now turn the call back to Chris for his closing remarks..

Thanks, Chad. In closing, we continue to execute under our 2018 score card. We are maintaining our 2018 financial guidance as well as our targeted dividend increase by at least 15% per share on annualized basis. We're also focused on closing this transaction with GIP, as I previously mentioned.

As the consent process is well underway with project vendors, GP offtakers and regulatory agencies. NYLD is focused on minimizing run rate CAFD dilution as part of our negotiations with all counterparties.

To date, those conversations have gone well, which providing some confidence in saying that if there's no change in trajectory, the closing of the transaction is perhaps more of a third quarter and the fourth quarter of 2018 event.

When closing occurs, we intend, with our partners at GIP, to provide more visibility into our long-term growth plans and the strength of the NYLD platform going forward.

During the period between signing and closing, NYLD is not standing still and we continue to work on accretive CAFD per share opportunities like the Buckthorn Solar and Tulare Fuel Cell acquisitions. NYLD is also continuing to fund its Distributed Generation Partnerships with the planned $32 million remain to be funded in 2018 for the full year.

Our UPMC facility is on track for commercial operations in the first half of 2018, and we look forward to closing on the Carlsbad acquisition during the back half of 2018. In summary, NYLD continues to capitalize in growth opportunities during this interim period.

Finally, while maintaining a strong balance sheet and leverage profile, we continue to value our capital flexibility through the refinancing of our $495 million revolving credit facility as well as our ATM issuance. Thank you. Operator, please open the line for questions..

[Operator Instructions] And our first question comes from Jonathan Arnold from Deutsche Bank. Your line is now open. Please go ahead. .

My first question on Slide 6 on the sources of capital. You now have this line saying new capital formation.

Any sort of insight you can provide into what you're alluding to that?.

Nothing in particular. Just, obviously, we want to close on the Carlsbad acquisition in the fourth quarter when COD, and so we'll have to raise capital to do that.

Chad, any other details other than that?.

Yes. No, John, I think we've been pretty clear and maybe even thinking about the slide that Chris has presented last quarter where we're sort of at a point now where we are fortunate to have excess cash in the system. We have the existing ATM program, which is obviously in there.

But given the size of the capital and the fact that, or the capital requirements we have, and given the fact that we have a fair amount of growth coming down the queue, I think as we've said last quarter, that there's an expectation that we will be looking to incrementally increase the amount of capital we need in the system..

Okay. So no, just the same as you said before, but just putting it on the slide basically..

Yes, correct..

And then just on to the, on the consent, say, I think I heard your comments on that comments on that, Chris.

So you give us any sort of insight into if you've been having to give up very much to secure what you've secured so far and what color we could get there?.

Sure. Yes, to date, I think it's going -- once again, I'm not going to tell you, Jonathan, that 100% are in, we have to kind of work through the process. But as of right now, there hasn't been any material hits to CAFD or things like that from the elements in the consent process. So to date, that's gone well..

And then you're talking there about the counterparties, right?.

Correct..

And then we also saw some -- I think it was an 8-K filing now in early April sort of talking about having gone out and then withdrawn the request.

What was happening there?.

a, change of control must have happen; and b, you also need a downgrade from Standard & Poor's and Moody's. Given that when we announced the transaction and basically we reaffirmed by S&P and Moody's, we thought it made sense. And just to be clear, that consent would be kind of on GIP's done in terms of paying for that consent.

Basically to have the change in control waived, because that element, obviously, was reaffirmed. So, that therefore, kind of it's one less thing to worry about, kind of at closing. So at the end of the day, that's GIP's kind of expense.

And I think all are combined thinking was that, obviously, given the affirmation by both agencies the probability of that COC being hit was slow..

Great okay. So thanks very much.

Thank you. And our next question comes from Cindy Motz from Williams Capital Group. Your line is now open. Please go ahead. .

In I guess the last presentation and I guess now maybe the deal when it closes you're going to give more updated guidance on like run rate CAFD into 2019. But I think I remember seeing something that had broken down like maybe in the range of like even $321 million.

Is that something that still -- I mean, are you just going to wait to see when the deal closes with some of the projects on the table? That's the first one. And then I have just one other question..

Sure. I think, unfortunately, the first part of your question, we couldn't hear. But if at the end of the day, the question was around when we intend to update guidance. I think it does make sense, as we talked about before, to really go through all the moving pieces that hopefully won't be moving once we get to close.

In terms of what to, I think, Jonathan's question earlier, if there's any leakage around CAFD, refinancing of debt instruments, et cetera, to provide an overall comprehensive view of where our CAFD is going forward and also growth prospects. But if that was your first question, I think that's kind of our view, at least at this time..

Well, has your outlook changed at all from like, let's say, last quarter would you say? Or, I mean, especially, congrats on the refinancing, it looks pretty good. Like has that changed at all? Or is it about the same? Or just any color there would be good..

Sure. Really about the same, I'd say. Those assumptions haven't changed in our mind..

Okay, all right. Great. And then just in terms -- I know you guys gave good detail on the wind production and everything. I'm happy to hear that it's picked up in April. Is there anything, like -- I mean with the conventional or I mean I guess it was pretty much up to your expectations, or just seasonal.

It looked to me like it went down just a little bit, but I'm thinking that's seasonal. I'm just now going back and everything. If you could just mention something there. And then also look like solar was pretty good. Is that also pretty good so far in April? Thanks.

Cindy, this is Chad. Maybe just to clarify. So I think across the balance of the portfolio, i.e. excluding wind, I think we were relatively in line or materially in line with our expectations, given the time of year. Wind had, we had persistent weak wind conditions, as I said.

Some of that actually carried over from the fourth quarter into the first quarter for this particular year, which you saw some of that. So relative to our expectations, it was really driven by wind. But again, it's not like we were materially off on our CAFD basis as you can saw in the range. It was just a little bit below where we had expected to be..

Yes, No, no, It was, I see that. And also, it was mostly California it looks like, right? The wind for whatever reason..

Yes. I mean, just as a reminder. I think if you look across the portfolio, like it seems like wind production was low across a lot of the country for where our assets were. California tends to be the biggest driver simply because that entails Alta. And the Alta farm is obviously a pretty sizable CAFD contribution or contributor in the platform.

So when California is positive or negative, that moves the needle for us on CAFD more so than some of the other assets in the portfolio..

[Operator Instructions]. I'm showing no further questions at this time. I would now like to turn the call back to Chris Sotos for closing remarks..

Thank you. I just want to thank everyone for their participation, and look forward to talking to you over the coming months as hopefully we are able to get across the finish line and get the transaction moving forward. So appreciate your time..

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program..