Capital Power announces third quarter 2024 results

Record quarterly generation and increased EBITDA diversification from newly acquired U.S. assets

/EIN News/ -- EDMONTON, Alberta, Oct. 30, 2024 (GLOBE NEWSWIRE) -- Capital Power Corporation (TSX: CPX) today released financial results for the quarter ended September 30, 2024.

Financial highlights

• Generated adjusted funds from operations (AFFO) of $315 million and net cash flows from operating activities of $236 million
• Generated adjusted EBITDA of $401 million and a net income of $178 million
• Successfully closed a $600 million medium term note offering, the Company’s largest single tranche to date
  

Strategic highlights

• Completed operational integration of Harquahala and on track for integration of La Paloma, with total U.S. facilities contributing over 50% of Q3 adjusted EBITDA
• Quarterly generation record of 11TWh across the Company’s fleet, driven by high dispatch at U.S. flexible generation facilities
• Genesee Repower 1 and 2 combined cycle commissioning are on track for Q4 2024 completion
• Signed a 3-year partnership and equity option agreement with four First Nations to acquire a combined total of 25% of Halkirk 2 Wind following the 3-year agreement

“In Q3 2024 Genesee Repower 1 began commissioning and generating MWs as a combined cycle unit. This significant step towards the completion of the Repowering project is a real-world example of how we can transform existing infrastructure to support the energy expansion. It’s about supporting a grid to accommodate renewables, new baseload generation technologies, and growing demand, ensuring a balanced and sustainable energy future,” said Avik Dey, President and CEO of Capital Power. “We continued to make significant progress across all key strategic areas of focus in our portfolio and achieved record quarterly generation of ~11 TWh. Notably, our U.S. assets continue to see strong generation underscoring the value of a diversified portfolio,” stated Mr. Dey.

“The third quarter results continue to demonstrate the success of our geographic diversification strategy, with over 50% of adjusted EBITDA contribution coming from our U.S. facilities for the first time. In particular, we saw meaningful contributions from the newly acquired assets in California, Arizona and Washington and higher than expected overall dispatch to meet increasing demand driving strong adjusted EBITDA and AFFO performance for the quarter,” said Sandra Haskins, SVP Finance and CFO of Capital Power.

Ms. Haskins added, “From a funding perspective, Capital Power successfully closed a $600 million medium term note offering, demonstrating our disciplined approach to balance sheet optimization and continued ability to access capital to fund our growth and diversification efforts.”

Operational and Financial Highlights¹

($ millions, except per share amounts)	Three months ended September 30				Nine months ended September 30
	2024		2023		2024		2023
Electricity generation (Gigawatt hours)	11,001		8,521		28,413		23,795
Generation facility availability	94%		96%		93%		95%
Revenues and other income	1,030		1,150		2,923		3,298
Adjusted EBITDA 2	401		414		1,003		1,142
Net income 3	178		272		459		642
Net income attributable to shareholders of the Company	179		274		459		647
Basic earnings per share ($)	1.32		2.27		3.39		5.33
Diluted earnings per share ($)	1.32		2.26		3.38		5.31
Net cash flows from operating activities	236		480		706		840
Adjusted funds from operations 2	315		296		635		657
Adjusted funds from operations per share ($) 2	2.42		2.53		4.97		5.62
Purchase of property, plant and equipment and other assets, net	231		262		675		479
Dividends per common share, declared ($)	0.6519		0.6150		1.8819		1.7750

1. The operational and financial highlights in this press release should be read in conjunction with the Management’s Discussion and Analysis and the unaudited condensed interim financial statements for the nine months ended September 30, 2024.
2. Earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense and depreciation expense from joint venture interests, gains or losses on disposals and unrealized changes in fair value of commodity derivatives and emissions credits and other items that are not reflective of the long-term performance of the Company’s underlying business (adjusted EBITDA) and AFFO are used as non-GAAP financial measures by the Company. The Company also uses AFFO per share which is a non-GAAP ratio. These measures and ratios do not have standardized meanings under GAAP and are, therefore, unlikely to be comparable to similar measures used by other enterprises. See Non-GAAP Financial Measures and Ratios.
3. Includes depreciation and amortization for the three months ended September 30, 2024 and 2023 of $124 million and $148 million, respectively, and for the nine months ended September 30, 2024 and 2023 of $366 million and $432 million, respectively. Forecasted depreciation and amortization for the remainder of 2024 is $130 million for the fourth quarter.

Significant Events

$600 million medium term notes offering

On September 16, 2024, the Company closed a public offering of unsecured medium term notes in the aggregate principal amount of $600 million (the Notes). The Notes have a coupon rate of 4.831% and mature on September 16, 2031. The Company used the net proceeds to repay, redeem and refinance existing indebtedness, including indebtedness under the Company’s credit facilities, and for general corporate purposes.

$350 million Green Hybrid Subordinated Notes, Series 1 exchange

On August 15, 2024, the Company announced the approval of amendments to the indenture governing the $350 million 7.95% Fixed-to-Fixed Rate Subordinated Notes, Series 1, due September 9, 2082 (Series 1 Notes). These changes allowed for the exchange of all outstanding principal amount of Series 1 Notes for an equal principal amount of new 7.95% Fixed-to-Fixed Rate Subordinated Notes, Series 3, due September 9, 2082 (Series 3 Notes).

The Series 3 Notes have the same economic terms as the Series 1 Notes, including interest rates and maturity dates, but without the provision for delivery of preferred shares upon the occurrence of certain bankruptcy and related events. Holders will continue to receive interest accrued on the exchanged Series 1 Notes.

This note exchange was completed on August 15, 2024, following the execution of the necessary supplemental indentures. The Series 3 Notes will rank equally in right of payment with the $450 million 8.125% Fixed-to-Fixed Subordinated Notes, Series 2, due June 5, 2054. S&P Global Ratings and Morningstar DBRS confirmed the instrument rating of the Series 3 Notes at BB and BB with a Stable trend, respectively.

Dividend increase

On July 30, 2024, the Company’s Board of Directors approved an increase of 6% in the annual dividend for holders of its common shares, from $2.46 per common share to $2.61 per common share. This increased common share dividend commenced with the third quarter 2024 quarterly dividend payment on October 31, 2024 to shareholders of record at the close of business on September 30, 2024.

Partnership with Maskwacis First Nations

On July 19, 2024, the Company signed a three-year partnership and equity option agreement with the Louis Bull Tribe, Ermineskin Cree Nation, Montana First Nation and Samson Cree Nation of Maskwacis located in Alberta. Following the three-year agreement, the Company is offering the four First Nations an opportunity to acquire a combined total of 25% of Halkirk 2 Wind. As part of the Company’s commitment to reconciliation, the agreement provides an equitable profit-sharing model that supports a pathway to future, long-term equity ownership in the project that can support these nations with sustainable income throughout the lifetime of its operations.

Subsequent Event

Organizational Review - Voluntary Departure Program

On October 24, 2024, the Company announced the rollout of the voluntary departure program (VDP or the Program) aimed to reduce its workforce of Canada-based corporate employees by at least 25% (approximately 130 positions). The VDP is part of a strategic organizational review to optimize the organization to scale and grow efficiently, inclusive of decentralizing corporate functions, reducing headcount in certain areas and expanding in key growth areas. The program is open to eligible Canada-based corporate employees and offers eligible employees a financial incentive to voluntarily leave the organization. Employees who wish to participate in the Program must elect to participate by November 7, 2024.

The Company expects to incur a total cost of approximately $30 million related to the VDP and the timing of the recognition of the cost in the financial statements will be determined once participation in the Program is known. Actual cost may differ from the Company’s initial expectations significantly if nearly all or all eligible employees elect to participate. The Company believes this initiative will enhance operational efficiency, aligns the workforce with the organization’s strategic objectives and in respect to employees, provides them a choice in the change process.

Analyst conference call and webcast

Capital Power will be hosting a conference call and live webcast with analysts on October 30, 2024 at 9:00 am (MT) to discuss the second quarter financial results. The webcast can be accessed at: https://edge.media-server.com/mmc/p/rvd9z4cf/.

Conference call details will be sent directly to analysts.

An archive of the webcast will be available on the Company’s website at www.capitalpower.com following the conclusion of the analyst conference call.

Non-GAAP Financial Measures and Ratios

Capital Power uses (i) earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense and depreciation expense from our joint venture interests, gains or losses on disposals and unrealized changes in fair value of commodity derivatives and emission credits (adjusted EBITDA), and (ii) AFFO as specified financial measures. Adjusted EBITDA and AFFO are both non-GAAP financial measures.

Capital Power also uses AFFO per share as a specified performance measure. This measure is a non-GAAP ratio determined by applying AFFO to the weighted average number of common shares used in the calculation of basic and diluted earnings per share.

These terms are not defined financial measures according to GAAP and do not have standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures used by other enterprises. These measures should not be considered alternatives to net income, net income attributable to shareholders of Capital Power, net cash flows from operating activities or other measures of financial performance calculated in accordance with GAAP. Rather, these measures are provided to complement GAAP measures in the analysis of our results of operations from management’s perspective.

Adjusted EBITDA

Capital Power uses adjusted EBITDA to measure the operating performance of facilities and categories of facilities from period to period. Management believes that a measure of facility operating performance is more meaningful if results not related to facility operations are excluded from the adjusted EBITDA measure such as impairments, foreign exchange gains or losses, gains or losses on disposals and other transactions, unrealized changes in fair value of commodity derivatives and emission credits and other items that are not reflective of the long-term performance of the Company’s underlying business.

A reconciliation of adjusted EBITDA to net income (loss) is as follows:

($ millions)	Three months ended
	Sep 2024		Jun 2024		Mar 2024		Dec 2023		Sep 2023		Jun 2023		Mar 2023		Dec 2022
Revenues and other income	1,030		774		1,119		984		1,150		881		1,267		929
Energy purchases and fuel, other raw materials and operating charges, staff costs and employee benefits expense, and other administrative expense	(612	)	(504	)	(677	)	(694	)	(626	)	(614	)	(723	)	(909	)
Remove unrealized changes in fair value of commodity derivatives and emission credits included within revenues and energy purchases and fuel	(78	)	(8	)	(200	)	(14	)	(151	)	23		(179	)	247
Remove other non-recurring items 1	-		4		-		1		4		-		-		-
Adjusted EBITDA from joint ventures 2	61		57		37		36		37		37		36		36
Adjusted EBITDA	401		323		279		313		414		327		401		303
Depreciation and amortization	(124	)	(120	)	(122	)	(142	)	(148	)	(143	)	(141	)	(139	)
Unrealized changes in fair value of commodity derivatives and emission credits	78		8		200		14		151		(23	)	179		(247	)
Other non-recurring items	-		(4	)	-		(1	)	(4	)	-		-		-
Impairments	(27	)	-		-		-		-		-		-		-
Foreign exchange gains (losses)	5		(4	)	(10	)	(2	)	(9	)	4		1		3
Net finance expense	(65	)	(53	)	(42	)	(49	)	(35	)	(34	)	(48	)	(44	)
(Losses) gains on acquisition and disposal transactions	(5	)	(17	)	2		(5	)	5		(3	)	-		(33	)
Other items 2,3	(32	)	(34	)	(25	)	(22	)	(19	)	(19	)	(21	)	(17	)
Income tax (expense) recovery	(53	)	(23	)	(77	)	(11	)	(83	)	(24	)	(86	)	75
Net income (loss)	178		76		205		95		272		85		285		(99	)
Net income (loss) attributable to:
Non-controlling interests	(1	)	1			-	(2	)	(2	)	(2	)	(1	)	(1	)
Shareholders of the Company	179		75		205		97		274		87		286		(98	)
Net income (loss)	178		76		205		95		272		85		285		(99	)

1. Other non-recurring items for the three months ended June 30, 2024 includes costs related to the end-of-life of Genesee coal operations.
2. Total income from joint ventures as per our consolidated statements of income (loss).
3. Includes finance expense, depreciation expense and unrealized changes in fair value of derivative instruments from joint ventures.
   

Adjusted funds from operations and adjusted funds from operations per share

AFFO and AFFO per share are measures of the Company’s ability to generate cash from its operating activities to fund growth capital expenditures, the repayment of debt and the payment of common share dividends.

AFFO represents net cash flows from operating activities adjusted to:

• remove timing impacts of cash receipts and payments that may impact period-to-period comparability which include deductions for net finance expense and current income tax expense, the removal of deductions for interest paid and income taxes paid and removing changes in operating working capital,
• include the Company’s share of the AFFO of its joint venture interests and exclude distributions received from the Company’s joint venture interests which are calculated after the effect of non-operating activity joint venture debt payments,
• include cash from off-coal compensation that will be received annually,
• remove the tax equity financing project investors’ shares of AFFO associated with assets under tax equity financing structures so only the Company’s share is reflected in the overall metric,
• deduct sustaining capital expenditures and preferred share dividends,
• exclude the impact of fair value changes in certain unsettled derivative financial instruments that are charged or credited to the Company’s bank margin account held with a specific exchange counterparty, and
• exclude other typically non-recurring items affecting cash from operations that are not reflective of the long-term performance of the Company’s underlying business.

A reconciliation of net cash flows from operating activities to adjusted funds from operations is as follows:

($ millions)	Three months ended September 30				Nine months ended September 30
	2024		2023		2024		2023
Net cash flows from operating activities per condensed interim consolidated statements of cash flows	236		480		706		893
Add (deduct) items included in calculation of net cash flows from operating activities per condensed interim consolidated statements of cash flows:
Interest paid	73		40		132		103
Change in fair value of derivatives reflected as cash settlement	2		(130	)	(17	)	(211	)
Realized gain on settlement of interest rate derivatives	(28	)	-		(42	)	(10	)
Distributions received from joint ventures	(13	)	(7	)	(24	)	(25	)
Miscellaneous financing charges paid 1	1		2		(6	)	6
Income taxes paid	(3	)	11		17		36
Change in non-cash operating working capital	63		(69	)	(7	)	126
	95		(153	)	53		25
Net finance expense 2	(56	)	(31	)	(136	)	(97	)
Current income tax expense	(7	)	(54	)	(29	)	(135	)
Sustaining capital expenditures 3	(35	)	(16	)	(96	)	(72	)
Preferred share dividends paid	(6	)	(8	)	(24	)	(23	)
Cash received for off-coal compensation	50		50		50		50
Remove tax equity interests’ respective shares of adjusted funds from operations	(1	)	(1	)	(4	)	(5	)
Adjusted funds from operations from joint ventures	40		25		99		70
Other non-recurring items 4	(1	)	4		16		4
Adjusted funds from operations	315		296		635		657
Weighted average number of common shares outstanding (millions)	130.3		117.0		127.8		116.9
Adjusted funds from operations per share ($)	2.42		2.53		4.97		5.62

1. Included in other cash items on the condensed interim consolidated statements of cash flows to reconcile net income to net cash flows from operating activities.
   
2. Excludes unrealized changes on interest rate derivative contracts, amortization, accretion charges and non-cash implicit interest on tax equity investment structures.
3. Includes sustaining capital expenditures net of partner contributions of $2 million and $8 million for the three and nine months ended September 30, 2024, respectively, compared with $1 million and $5 million for the three and nine months ended September 30, 2023, respectively.
4. For the three and nine months ended September 30, 2024 other non-recurring items reflects costs related to the end-of-life of Genesee coal operations of $1 million and $5 million, respectively, and a provision of $18 million for discontinuation of the Genesee CCS project related to termination of sequestration hub evaluation work for the nine months ended September 30, 2024, net of current income tax recovery of $2 million and $7 million for the three and nine months ended September 30, 2024, related to other non-recurring items recognized in the prior and current periods, respectively. For the three and nine months ended September 30, 2023, other non-recurring items includes restructuring costs of $3 million and costs related to the end-of-life of Genesee coal operations of $1 million.

Forward-looking Information

Forward-looking information or statements included in this press release are provided to inform the Company’s shareholders and potential investors about management’s assessment of Capital Power’s future plans and operations. This information may not be appropriate for other purposes. The forward-looking information in this press release is generally identified by words such as will, anticipate, believe, plan, intend, target, and expect or similar words that suggest future outcomes.

Material forward-looking information in this press release includes disclosures regarding (i) status of the Company’s 2024 AFFO and adjusted EBITDA guidance, (ii) forecasted 2024 depreciation, (iii) the timing of, funding of, generation capacity of, costs of technologies selected for, environmental benefits or commercial and partnership arrangements regarding existing, planned and potential development projects and acquisitions (including the repowering of Genesee 1 and 2, La Paloma and Harquahala acquisitions, and Halkirk 2), (iv) the financial impacts of the La Paloma and Harquahala acquisitions, (v) the ability of profit-sharing arrangements to support partner communities, (vi) the anticipated impacts of the organizational review, including costs, and anticipated benefits of the organizational review, (vii) the performance of future projects and the performance of such projects in comparison to the market, and (viii) the future energy needs of certain jurisdictions.

These statements are based on certain assumptions and analyses made by the Company considering its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate including its review of purchased businesses and assets. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity, other energy and carbon prices, (ii) performance, (iii) business prospects (including potential re-contracting of facilities) and opportunities including expected growth and capital projects, (iv) status of and impact of policy, legislation and regulations and (v) effective tax rates.

Whether actual results, performance or achievements will conform to the Company’s expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and experience to differ materially from the Company’s expectations. Such material risks and uncertainties are: (i) changes in electricity, natural gas and carbon prices in markets in which the Company operates and the use of derivatives, (ii) regulatory and political environments including changes to environmental, climate, financial reporting, market structure and tax legislation, (iii) disruptions, or price volatility within our supply chains, (iv) generation facility availability, wind capacity factor and performance including maintenance expenditures, (v) ability to fund current and future capital and working capital needs, (vi) acquisitions and developments including timing and costs of regulatory approvals and construction, (vii) changes in the availability of fuel, (viii) ability to realize the anticipated benefits of acquisitions, (ix) limitations inherent in the Company’s review of acquired assets, (x) changes in general economic and competitive conditions and (xi) changes in the performance and cost of technologies and the development of new technologies, new energy efficient products, services and programs. See Risks and Risk Management in the Company’s Integrated Annual Report for the year ended December 31, 2023, prepared as of February 27, 2024, for further discussion of these and other risks.

Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the specified approval date. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.

Territorial Acknowledgement

In the spirit of reconciliation, Capital Power respectfully acknowledges that we operate within the ancestral homelands, traditional and treaty territories of the Indigenous Peoples of Turtle Island, or North America. Capital Power’s head office is located within the traditional and contemporary home of many Indigenous Peoples of the Treaty 6 region and Métis Nation of Alberta Region 4. We acknowledge the diverse Indigenous communities that are located in these areas and whose presence continues to enrich the community.

About Capital Power

Capital Power is a growth-oriented power producer with approximately 9,300 MW of power generation at 32 facilities across North America. We prioritize safely delivering reliable and affordable power communities can depend on, building clean power systems, and creating balanced solutions for our energy future. We are Powering Change by Changing Power^TM.

For more information, please contact:

Media Relations: Katherine Perron (780) 392-5335 kperron@capitalpower.com

Investor Relations: Roy Arthur (403) 736-3315 investor@capitalpower.com