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American States Water’s (AWR) CEO Robert Sprowls on Q1 2016 Results – Earnings Call Transcript

American States Water Co. (NYSE: AWR ) Q1 2016 Earnings Conference Call May 5, 2016 2:00 PM ET Executives Eva Tang – Senior Vice President, Finance, Chief Financial Officer, Corporate Secretary and Treasurer Robert Sprowls – President and Chief Executive Officer Analysts Jonathan Reeder – Wells Fargo Richard Verdi – Ladenburg Thalmann Operator Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call, discussing the company’s First Quarter 2016 Results. This call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 5 PM Eastern Time and run through Thursday, May 12, 2016 on the company’s website, www.aswater.com. Besides that the company will be referring to are also available on the website. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] This call will be limited to an hour. Presenting today from American States Water Company is Bob Sprowls, President and Chief Executive Officer; and Eva Tang, Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company’s risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with Generally Accepted Accounting Principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I will turn the call over to Eva Tang, Chief Financial Officer of American States Water Company. Eva Tang Thank you, Terry. Welcome, everyone, and thank you for joining us today. In today’s call, I’ll review the company’s financial results for the first quarter, and Bob will discuss the liquidity and capital resources. Golden State Water’s pending rate case, California drought-related matters, and our contracted services business segment at American States Utility Services or ASUS. I’ll begin with an overview of our financial results. For the first quarter, diluted earnings were $0.28 per share, compared to $0.32 per share for the same period in 2015. Of the $0.28 per share earnings for the first quarter, $0.22 was from our water segment and our electric and contracted services segment each contributed $0.03. Net income for the quarter was $10.2 million compared to $12.1 million for the first quarter last year. I’ll discuss major items that impacted our revenues and expenses for the quarter. In the first quarter of 2016, water revenues decreased by $5.2 million to $66.3 million, as compared to the same period in 2015. As of today, Golden State Water has now received a decision on its pending water general rate case, which will set new rates for 2016 through 2018. The revenue requirements for 2016, once the CPUC issues a final decision on the current GRC are expected to be lower than the 2015 adopted levels. Major items impact – impacting the decrease in revenue requirements for 2016, includes a significant increase in supply costs caused by lower consumption, much lower depreciation expense resulting from an updated depreciation study filed with the rate case, and decreases in other operating expenses, due to the company’s improvement in operating efficiency. As a result of anticipated reduction in the 2016 revenue level, we adjusted our water revenues downward by $5.8 million for the three months ended March 31, 2016, with corresponding decreases to supply cost, depreciation, and other operating expenses to reflect the sale of the position with with CPUC’s Office of Ratepayer Advocates. The adjustments to 2016 recorded while revenue also reflects Golden State Water’s position on litigate the capital budget and compensation-related issue in the pending GRC. These adjustment did not have a significant impact to pre-tax operating income for the first quarter of 2016. As the overall reduction in the water gross margin is mostly offset by the lower depreciation and other operating expenses, partially offsetting this decrease in water revenue, where rate increases generated by advice letter filing for capital projects approved by the CPUC in 2015. Revenue for electric operations for the quarter were $10.6 million as compared to $11 million for the same period in 2015. The decrease was primarily due to determination July 2015, of a supply surcharge to recover previously incurred energy costs. The decrease in revenues from this surcharge totaled approximately $700,000 for the quarter and was offset by corresponding decrease in supply costs, resulting a no impact to pre-tax operating income. The decrease in electric revenue were partially offset by CPUC approved fourth year rate increases for 2016, and the rate increases generated from advice letters for capital projects approved by the CPUC during 2015. Revenues for our contracted services business, ASUS decreased $1.8 million to $16.6 million for the quarter. The decrease in revenue was due to lower construction work in the first quarter of this year, driven largely by the timing of engineering and bidding activities. Construction activity is expected to increase in the remainder of 2016, as compared to the first quarter of 2016. The decrease in construction work was partially offset by increase in management fee revenues, as a result of successful resolutions on price redetermination received during the third quarter of 2015. As mentioned previously for the first quarter of 2016, the water segments gross margin was adjusted for both lower revenue and lower supply costs in articulated position in the pending water rate case. Our water and electric supply costs were $17.6 million, a decrease of $4.4 million for the first quarter of 2016. Any changes in supply costs for both the water and electric segments as compared to this office supply costs are tracked in balancing account, which will be recovered from always subject to our customers in the future. Other operating expenses increased by $806,000 for the first quarter of 2016, due primarily to outside service costs at electric segment, in response to power outages caused by severe winter storm experienced in January. In addition, there was an increase in conservation and drought-related costs and higher wages. Administrative and general expenses for the first quarter of 2016 were $20.8 million, as compared to $19.5 million for the same period in 2015. The increase was mainly due to higher legal and outside service costs at water segment incurred on the condemnation matters due to this first quarter. Depreciation and amortization expense decreased by $757,000, due primarily to the reduction in composite rate is related [ph] in the pending water GRC resulting from updated depreciation study. As discussed earlier, the lower depreciation had also been reflected in the lower water revenue. The decrease was partially offset by an increase at both the water and the electric segments due to additions to utility plant during 2015. Maintenance expense increased by $593,000, due to a higher level of maintenance performed in 2016 at a water segment. ASUS’s construction expense decreased by $1.3 million to $8.7 million during the first quarter of 2016, as compared to the same period in 2015, due primarily to a reduction in construction activity, as mentioned previously, again, we expect the construction activity will increase during the remainder of 2016 as compared to the first quarter of 2016. Interest expense increased to $5.6 million for the first quarter of 2016, as compared to the $5.2 million for the same period in 2015. This was due largely to capitalize the interest recorded at water segment during Q1 of 2015, resulting from the approval of an additional allowance for funds used during construction from advice letter filings. There was no similar filing during the first quarter of 2016. Income tax expense decreased by – $2.1 million to $5.8 million, driven by a decrease in pretax income, and lower overall effective income tax rate. This slide show the ETS bridge by business segment, comparing the first quarter of this year with the first quarter of 2015. For more details, please refer to the press release. With that, I’ll turn the call over to Bob. Robert Sprowls Thank you, Eva. I appreciate everyone joining us today. Moving on to Liquidity and Capital Resources, net cash provided by operating activities for the quarter, decreased by $10.9 million to $27.6 million as compared to the first quarter of 2015. The decrease in operating cash flow was primarily due to a reduction in cash generated by contracted services, due to the timing of billing and cash receipts for construction work at military basis during the three months ended March 31, 2016. There was also a decrease in customer water usage for Golden State Water, increasing the Water Revenue Adjustment Mechanism or WRAM regulatory assets. We implemented surcharges in March to recover our net WRAM balances for 2015. In addition, tax payments during the three months ended March 31, 2015 were lower, due enlarge part to the implementation of the tax repair regulation. In regard to Golden State Water’s capital expenditures, we are pleased with our first quarter spending of $29 million on company funded capital work. Our water and electric utilities continue to invest and maintain and improve the reliability of our systems. Our capital investment program in the critical factor in delivering consistent high quality services to our customers. We are on track to invest $85 million to $95 million in capital projects during 2016, which may change somewhat once the decision issued by the CPUC on the pending water rate case. In addition, Standard & Poor’s rating services recently affirmed an eight plus credit rating on both American States Water Company and Golden State Water Company. S&P also affirm the stable reading outlook on both companies. You were pleased with the affirmation as these ratings are some of the highest in the U.S. Water Utility Industry. While we continue to produce solid financial results in the first quarter performance was impacted by higher outside services and legal costs at our water segment, encouraged to defend ourselves against condemnation related actions and lower construction activity at our contracted services segment. However, we do expect construction activity at ASUS to increase during the next few quarters. In addition, we still wait to CPUC decision on our water rate case for years 2016 through 2018. As we discussed in previous quarters, we filed our general rate case in mid 2014 for all of our water regions and general office. The application will determine in rates charge to customers for the years 2016, 2017 and 2018. Golden State Water has settled with the CPUC’s Office of Ratepayer Advocates and nearly all of the company’s operating expenses, as well as the consumption levels used to calculate rates for 2016 through 2018, which reflect the State mandated in conservation targets. The primary litigated issues relate to our capital budget requests and compensation for managerial level employees. There are not certain win in 2016, the final decision will be issued. Once issued, rates will be retroactive to January 1, 2016. As Eva mentioned earlier, adopted revenues for 2016 are expected to be lower then the 2015 adopted levels. As you may know, a big part of the utilities revenue requirement is the recovery of projected expenses. By projected expenses for 2016 in the rate case were lower than the 2015 adopted expense levels. In particular, there was a decrease in supply costs, resulting from lower consumption projected, lower depreciation expense resulting from a new study and decreased in other operating expenses in 2016 through 2018 rate case cycle, due to our cost control efforts and improvement in operation efficiency. Because of the company’s efforts, we were able to propose significant increases in our capital investment with little to know effect on rates. As a reminder, we have also received approval by the CPUC to defer our electric general rate case and the cost of capital proceeding by one additional year. Both will now be filed in 2017. In regard to the drought situation in California, in February, the State Water Resources Control Board extended the governor of California’s executive order in possessing mandatory restrictions through October 31, 2016. In addition, the State Board amended the required reductions allowing limited allowances or warmer climate regions increased population growth as well as credit for certain drought resilient water supply investment. Currently all, but one of our water systems has met the revised conservation standards. Based on our drought response actions and customers conservation efforts to-date, we do not believe we will be subject to the State Board’s penalties for failure to implement a water shortage contingency plan. Golden State Water has been authorized by the CPUC to track incremental drought related costs, incurred in a memorandum account for possible future recovery. We are in the process of preparing to file for recovery of drought related items of $1.3 million incurred mostly in 2015. Incremental of drought related costs expensed until recovery is approved by the CPUC. Lastly as of April 26 of this year, the U.S. drought monitor estimate 70% – 74% of California in the rank of severe drought. This is down from 86% reported at the end of February. Increased rainfall and higher snow pack levels over the last few months that help the drought situation. Turning to our contracted services business that ASUS, construction activity in the first quarter, a year was lower due largely to the timing of engineering and bidding activity on both renewal and replacement and new capital upgrade work. We believe construction activity will pickup during the next few quarters. We are still projecting an EPS contribution from ASUS of $0.28 to $0.32 per share for 2016. As discussed with you during our year end call. We continue to work closely with U.S. government on outstanding price redeterminations. We expect the fourth quarter price redetermination for forklift to be finalize in the second quarter of 2016 and the third price redetermination for the brag to be finalized during the third quarter of 2016. Filings for these price redeterminations requests for equitable adjustment and contract modifications awarded for new projects provide ASUS with additional revenues and margin and the opportunity to consistently generate positive earnings. We also continue to work closely with the U.S. government or contract modifications we are waiting to potential capital upgrade work as deemed necessary for improvement of the water and waste water infrastructure at military basis. In additional we are actively engaged in new proposals and expect the U.S. government to release additional bases for bidding over the next several years. We’ve remain optimistic about the future of our contracted services business. Finally, I would like to turn our attention to dividends. On Monday of this week, our Board of Directors approved the second quarter dividend of $0.224 per share on the Common Shares of the company. Dividends on the Common Shares will be payable on June 1, to shareholders of record at the close of business on May 18. American States Water Company has paid dividends every year since 1931, increasing the dividends received by shareholders each calendar year for 61 consecutive years. We are among less than a handful of companies on the New York Stock Exchange that can both of such a level of dividend increase. For the five years ended December 31, 2015, our calendar year dividend has grown at a compound annual growth rate of about a 11%, given American States current low payout ratio compared to our peers and our earnings growth prospects, there is room to grow the dividend in the future. I’d like to thank you for your interest in American States Water, and we’ll now turn the call over to the operator for questions. Question-and-Answer Session Operator We will now take your questions. [Operator Instructions] We will begin with Jonathan Reeder with Wells Fargo. Please go ahead. Jonathan Reeder Hey, good morning, Bob and Eva. I guess, on the West Coast, it’s still the morning. But I know, Bob, in your prepared ASUS remarks, you didn’t seem to indicate that this is the case, however, your main competitor indicated, they expect the slowdown on construction projects during the remainder of the year, due to military budget constraints. Is this anything that you’re seeing or expecting? Robert Sprowls It is not. We – our projects are funded. The slowdown in the first quarter was largely due to the fact that we have to do the engineering and the bidding on the work that we have lined up. So, we’re expecting to really get the construction activity going here in the last three quarters of the year. Jonathan Reeder Okay. And I guess in the same vein you aren’t seen anything that would perhaps put downward pressure on the – the construction projects you would be awarded for the next one-year period in the fall this year? Robert Sprowls We haven’t seen that. I will tell you we have a lot of projects in front of the government for the upcoming year. We’ve done our – but I think there’s a really good job of scoping out a lot of projects and getting that in front of the decision-makers at the military. So far we haven’t got the indication that we’re going to see a slowdown. Jonathan Reeder Okay. And then, I think, previously you said final GRC decision was likely in Q2. Are you implying that it slips further into the year now or just not really sure? Robert Sprowls Yes, we’re just –we’re not really sure. We do know that the judge that’s on our case has a couple of cases ahead of this. And hopefully, you will get through those. I think is on the simper case and you probably know. Jonathan Reeder Okay. That’s fair enough. Robert Sprowls We’re confident on it, maybe, but our sense is that that may come out before ours does. And so, we don’t want to get everyone’s sort of hopes up. And so, I understand the ALJs are a bit understaffed at this point. And so, they’re being challenged to do a lot of decisions. So we’re trying to be patient with them. Jonathan Reeder Sure. Okay. And then I don’t know, if you can go into a little more detail, but what do you think Golden State Water and ORA weren’t able to see eye-to-eye on CapEx levels, because it kind of looks like, the request of about $90 million a year of annual spend wasn’t all that different from the amount that you’ve expanded over the 2013 to 2015 period? Robert Sprowls Yes, we were quite surprised that, particularly given the situation where we weren’t asking for, in fact, in many rate making areas, it was a revenue requirement – small revenue requirement decrease. As you know, that’s ORA’s role is to work hard to kind of reduce your request and that’s what they are doing in this case. So I understand other – some of our other colleagues at other companies are having similar issues though. So we are – we went to litigation on our entire capital budget and we think we put in a – put on a very good chase and hopefully the judge will recognize that. Jonathan Reeder Was there, I mean, were there any projects in there that were kind of unusual or different than the spend that you’ve been, I guess, undertaken in the past few years, or was it all similar type of spend? Robert Sprowls Yes, really there weren’t really any out of the ordinary type project. So I think our spend historically had been, I wanted to say, $70 million to $75 million range. And so, we came in and asked for 90 and thought that was a reasonable request, particularly given the need to do pipe replacement and reduce unaccounted for in the State, so we’re – the company’s decision was to take our risk with the ALJ and the commission. So it was quite surprising to us to be honest, because for a company to come in with a flat rate request and then to have ORA push back on it is substantially just a little bit of a head scratcher. But sometimes either a function of the analyst you get at ORA on your capital projects. Eva Tang It’s not unusual, I think the differences between the company and ORA’s position. Robert Sprowls Yes, sure. Eva Tang The rate case we experienced before. So we’ll say that we’ve made a good showing of the need for the project and provide the solid support, as Bob mentioned. So we will see hopefully judge will see that. Jonathan Reeder Okay. And then last question, I’ll hop out. What do you expect 2016 drought expenses will be in? Robert Sprowls Just for the calendar year 2016? Jonathan Reeder Yes. Yes, just trying to get an idea of, I mean, I think you said you’re going to be filing for a little over million dollars of recovery from previous expenses. And our understanding is those, I guess, get turned around pretty quickly, kind of, like a 90-day period. So how that would, if that’s going to offset whatever your drought expenses would be this year? Robert Sprowls I definitely expect it to offset whatever drought expenses we have this year. Jonathan Reeder Okay. Robert Sprowls These are – we are not adding to the account as much as we did in 2015, as we are getting our arms around the whole thing, so… Jonathan Reeder Okay. So the heavy lifting is kind of over on that and just stay in the course, I guess? Robert Sprowls Yes, I know we still have additional costs associated with notifying customers and making sure that everybody is completely up to speed. But I wouldn’t expect the expense to be – I would expect them to be less than they were in 2015. Eva Tang And, Jonathan, Bob mentioned that we are going to file about $1.3 million scholars job for all related costs for 2014 and 2015 pretty shortly. So once that got approved, for accounting we have a reason to book our drought-related costs to a balance sheet as a regulatory act on that point on. So not only will get recover reverse expense we booked before and also we will probably reverse what we booked to-date to the reg act, so that’s a point. Robert Sprowls Yes, good point, Eva. Eva Tang Yes. Robert Sprowls Once you’ve done it, once you’ve then can – you’ve convinced the accountants that it’s going to happen again. Eva Tang Yes, it’s a probable [Multiple Speakers] Robert Sprowls Programs recurring [ph.] Jonathan Reeder All right. Well, I appreciate the additional clarity. Robert Sprowls Yes, thank you, Jonathan. Operator Our next question comes from Richard Verdi of Ladenburg. Please go ahead. Richard Verdi Hi, Bob and Eva, how are you guys doing? Robert Sprowls We’re doing good. Eva Tang Good, good. Thank, Verdi. Richard Verdi Good, here you go. I just wanted to focus a real quick on ASUS here. At least in my view that $0.28 to $0.38 or $0.32 guidance is kind of wide. Bob, can you give me some sort of idea of what you see maybe swinging closer to the top versus to the bottom? And also, is there any chance that that figure could be outperformed on the outside? Robert Sprowls Sure. Yes, so the amount of construction that we do will dictate how well we do within that range. Additionally, we do have some price redetermination request and there is – though nothing like we’ve had in the past, there is some retroactivity to that, which could push us more to the upper end or slightly above the upper end. So it’s – that’s about as good – good a range as we can give at this point. I know you would like to see it a little tighter, but that that’s as good as we can do. Richard Verdi Okay, sure. And then on the proceeded new contracts, and I understand that for competition sake you need to keep the commentary somewhat limited, but we’ve been pursuing contracts here for a few years and of course there is going to be as you mentioned some new contracts or I should say new basis being option to you in the next few years? I’m wondering can you give us a sense of maybe how deep you are in negotiations on maybe some of these contracts that you’ve been pursuing for so many years. Robert Sprowls Well, I will tell you and it probably doesn’t completely speak to your question. But we view this business as a real important part of our business going forward. We’ve institutionalized our response to RFPs and we’re working through the process. But I will tell, Richard, there was one contract that – then I took five years. So it’s something you have to have a lot of patience for and our company does and so you got to hang in there until you can get it across the finish line. So we are at various stages I would say on some of the contracts. Richard Verdi Okay, that’s great color. It’s actually great, thank you. And then the last question is this, if you look at some of the legislation, it’s been past couple of years as I say, it’s been very favorable for the privatization movement and you guys obviously do a good job, managing the company there. Any thought about pursuing a growth acquisition strategy and really trying to move outside account one year. Robert Sprowls Are you talking about from the utilities – on the utility side… Richard Verdi Yes, for the water side. Yes, for the water side. Robert Sprowls Yes, sure. We look at that and of course the things that we look at is that a favorable regulatory environment and to the degree there are businesses for sale in those particular states, we of course will look at that. And I’ll tell you though when those things due come up for sales. There is lot of folks that like that business. So it becomes a pretty competitive process and we’re not afraid of that. It’s just – you’ve got a look at these situations and make sure there is enough scale to attract you. You recall, Rich and this may have been a little bit before your time we sold our business in Arizona. That was largely because of the commission in Arizona. And it didn’t make sense for us to continue to spend all the time that we had on a 13,000 customer business there. However, if there is other businesses for sales and other states that have fair regulatory environment, we’re definitely considered those. Richard Verdi Okay, that’s great. Okay. I guess that’s it for me, thank you. I appreciate the time guys. Robert Sprowls Thanks, Rich. Eva Tang Thank you. Operator And this concludes our question-and-answer session. I would now like to turn the conference back over to Bob Sprowls for any closing remarks. Robert Sprowls Yes, I just want to close today by thanking everyone for their continued interest in American States Water and wish you everybody a good. Operator This concludes today’s American States Water Company conference call. You may now disconnect your lines. Have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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NRG Yield’s (NYLD) CEO Mauricio Gutierrez on Q1 2016 Results – Earnings Call Transcript

NRG Yield, Inc. (NYSE: NYLD ) Q1 2016 Earnings Conference Call May 5, 2016 10:30 AM ET Executives Kevin Cole – Senior Vice President-Investor Relations Mauricio Gutierrez – Interim President and Chief Executive Officer Christopher Sotos – Head of Strategy and Mergers & Acquisitions, Director of NRG Yield Kirkland Andrews – Executive Vice President, Chief Financial Officer and Director Analysts Grier Buchanan – KeyBanc Capital Markets Inc. Angie Storozynski – Macquarie Group Shahriar Pourreza – Guggenheim Partners Michael Morosi – Avondale Partners Steve Fleishman – Wolfe Research Operator Good day, ladies and gentlemen. And welcome to the First Quarter 2016 NRG Yield Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to hand the meeting over to Kevin Cole, Head of Investor Relations. Please go ahead. Kevin Cole Thank you, Karen. Good morning and welcome to NRG Yield’s first quarter 2016 earnings call. This morning’s call is being broadcasted live over the phone and via the 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 statements made on this call that may pertain to NRG Energy will be from the perspective of NRG Yield. 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 vary differently. 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’ll refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and the reconciliation to the most directly comparable GAAP measures, please refer to today’s presentation and press release. Now, with that, I’ll turn the call over to Mauricio Gutierrez, NRG Yield’s Interim President and Chief Executive Officer. Mauricio Gutierrez Thank you, Kevin, and good morning, everyone. Joining me and also providing remarks this morning are Chris Sotos, the incoming CEO; and Kirk Andrews, NRG Yield’s Chief Financial Officer. I am very excited about today’s call. We are reporting strong result for the first quarter announcing the transition of the CEO position and moving forward with our growth objectives. I’m sure many of you have participated in NRG’s first quarter earnings call, given the relationship between NRG and NRG Yield. But let me just repeat what I said on that call. NRG Yield remains a critical part of the overall NRG Energy strategic platform and NRG is committed to certainty and visibility in both conventional and renewable development to reinvigorate the virtuous cycle between the two companies. In my last quarterly call, I discussed my goal for 2016, deliver on our financial commitment to grow our dividend by over 15% in 2016, enhance our growth pipeline through access to NRG’s development efforts, ensure confidence in governance and management structure of NRG Yield, and to evaluate alternative financial solutions to facilitate growth during this period of equity market dislocation. I’m glad to report that we have or are on track to achieve many of these goals. Turning to Slide 3 for the business updates, NRG Yield continues to validate its value-proposition through offering a steady high-performing source of dividend growth to our shareholders. During the first quarter of 2016 the company achieved $188 million of adjusted EBITDA and $43 million of cash available for distribution. Additionally, I am pleased to say we are also increasing our quarterly dividend for the 10th consecutive time, and are reaffirming our full year guidance including our target dividend growth of 15% annualized. Next, I am pleased to say that we continue to push forward on our growth plans in concert with NRG. In addition to executing across our distributed generation, which now stands at $141 million invested through the first quarter, NRG has announced its intention to offer its remaining 51% interest in the 250 megawatt California Valley Solar Ranch project. You should expect an update on this transaction during the second quarter earnings call. As interim CEO, I evaluated with the NRG Yield Board of Directors what we believe is the optimal management structure, and today announced that Chris Sotos, NRG Energy’s current Head of Strategy and Mergers & Acquisitions and current Director of NYLD, will be the dedicated CEO for NRG Yield, employed solely by NRG Yield. While over the next several weeks we will be conducting an outreach with investors to introduce Chris. He has had a long and successful career in the power sector with over 20 years of experience, 12 of which at NRG Energy. Chris has managed the team that created NRG Yield, been part of the board since its IPO, and was responsible for identifying, evaluating and executing on many of the acquisitions that make up Yield today and its ROFO portfolio. Chris will assume the CEO role effective from May 6 and be able to focus entirely on the company strategy, capital structure and path forward by the end of the second quarter. Representative of the strong strategic alignment between two companies, I will assume the role of Chairman of the NRG Yield board. John Chlebowski will return to his role as the Lead Independent Director. And the board appointed John Chillemi, NRG’s Head of Business Development to fill the existing vacancy on the board. Of course, I and the board will ensure a seamless transition of the CEO position. Chris is the first fulltime employee of NRG Yield, and he will continue to evaluate the optimal management structure and perhaps field out additional few dedicated roles. I appreciate our investors have been through a lot in the past year. And as you all know well, the top priority of mine and the NRG family is to offer investors a simpler and more visible story with consistent and regular interactions with the investment community. As so, in this vein, Chris, I ask that he will be able share a few words to share our visibility and strategy to shareholders, of this intention to lead Yield with the same dividend growth-oriented principals set forth at our IPO. Chris? Christopher Sotos Thank you, Mauricio, and good morning. It gives me great pleasure to address you as not only the incoming CEO, but as the dedicated CEO to NRG Yield. Mauricio has given you a good look at my background and fit for the role, so I won’t repeat his comments. Instead, I’ll keep my remarks brief, but I did want to reassure the investor community that you should expect the continuation of the core fundamental drivers and objectives behind the value proposition of NRG Yield that have made it successful. As Mauricio highlighted earlier, I played a key role in the creation and execution of NRG Yield’s goals and objectives. And we should expect this strategy to remain consistent, although I will explore the possibility of expanding its dedicated team to ensure that NRG Yield is always focused on consistent value creation for our shareholders, to take advantage of opportunities throughout all parts of the cycle. Now, let me turn the call back over to Mauricio. But again, I want to thank you for the time today. I look forward to meeting and interacting with you over the weeks and months ahead. Mauricio Gutierrez Thank you, Chris. And with that, let me turn it over to Kirk, for a more detailed discussion on our financial result. Kirkland Andrews Thank you, Mauricio. Beginning with the left slide on Slide 5 of the presentation, during the first quarter NRG Yield delivered favorable financial results with adjusted EBITDA of $188 million and CAFD of $43 million. Our performance in the first quarter was positive across all of our settlement. And NRG Yield continues to benefit from the diversification of this platform, where approximately 45% of our adjusted EBITDA comes from the conventional and thermal segment, and 55% from renewable. Specifically, in the renewable segment, first quarter results benefitted from strong production across both our solar and wind fleet. This especially indicates that also wind during the quarter, where production about 17% above our median expectation. The wind resources also continues to exhibit significant volatility however, and while the first quarter was quite strong, production during the month of April was peak relative to our expectation. Today, NRG Yield is also reaffirming full-year guidance, including adjusted EBITDA of $805 million and CAFD of $265 million. Finally, consistent with our commitments to investors to reach $1 of annualized dividend per share by the fourth quarter of 2016, NRG Yield paid dividends of $0.225 per share in the first quarter. We are pleased to announce the 10th consecutive quarterly increase to $0.23 per share in the second quarter of 2015, placing us on a trajectory to meet that goal by the fourth quarter. Moving to the right on Slide 5, NRG Yield also continued to execute on commitments to its business renewable and residential solar partnerships with NRG Energy. In the first quarter, NRG Yield invested in incremental $40 million and $11 million into those two partnerships respectively. As you can see, we have now cumulatively deployed approximately $115 million of capital into those partnerships. Resulting in joint ownership of nearly 1,000 megawatt of long-tenure, fully contracted, strong credit quality, geographically diversified, and most importantly, strong cash flow producing disturbed solar assets. NRG Yield maintains an additional $135 million of capital commitment to these partnerships, including $53 million for residential solar. However, given NRG’s pivot with respect to the residential solar business, as was discussed on the NRG earnings call earlier. NRG Yield now expects to invest only around $20 million more in the residential partnership. Importantly, this change does not affect NRG Yield’s perspective on residential solar as an investable asset class nor does it affects our 2016 financial guidance or impacts our ability to meet our objectives of 15% annualized dividend growth through 2018. As a result of our reduced expectation for capital deployment for the residential solar partnership near-term liquidity will be enhanced providing flexibility to invest across other areas of the business. Now turning to Slide 6, I want to take a moment to emphasize an aspect of NRG Yield’s capital structure that is often underappreciated, which is the natural deleveraging effect which results from the fact that a majority of our balance sheet debt was with amortizing non-recourse project financing. As many of you know this project debt is sized relative to the tenure and cash flows of the long-term contracts of our projects, which are with investment-grade counterparties, all while committing project distributions that underlie the dividends we then pay to our shareholders. This benefit is not reflected in our cash available for distribution metric, which represents cash available after debt service and that is both principle and interest. As shown on the chart over the next five years alone, based on the current portfolio NRG Yield will repay approximately $1.5 billion out of this project debt across its existing portfolio, an amount that is over 50% of today’s equity market capitalization, to put this in perspective. Second, this natural deleveraging also increases NRG Yield’s long-term flexibility on growing the platform, as it provides increase in capacity, finance, future accretive growth, especially at times when the equity markets may not be as accommodating. With that, I’ll turn it back to Mauricio for closing remarks or Q&A. Mauricio Gutierrez Thank you, Kirk. And before we turn to Q&A, let me provide some closing thoughts. I hope my excitement for Chris becoming the new dedicated CEO is coming through on today’s call. I have known and worked closely with Chris over my entire career at NRG. And I know he’s the right person at the right time for NRG Yield. As I move to Chairman of the Board I am in a unique position of being able to say that from the perspective of both companies that fundamental drivers behind the value proposition of NRG Yield have not changed, nor would I expect them to change with the naming of Chris Sotos as a CEO. Chris will not be available during Q&A, but I can assure you he is eager to engage with you in the days and weeks to come. So with that, operator, we’re ready to open the line for questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] our first question comes from the line of Matt Tucker from KeyBanc. Grier Buchanan Hey, guys. This is Grier Buchanan on for Matt. Nice quarter and thanks for the question. Just a couple of follow-ups on home solar restructuring, one, on the monetization of those assets, could you just share your thoughts from the NRG perspective on why third-parties and Sunrun and Spruce rather than NRG Yield. And then, two, any chance you could quantify the expected unit economics on those residential system sales? Thanks. Kirkland Andrews Sure. It’s Kirk. I will address the first part of that question. Certainly, we are mindful of the opportunity around residential solar energy NRG Yield is concerned. But with respect to the partnerships, I think they achieved two objectives. One of which I’ll make reference to in the remarks that were made by NRG on the earnings call earlier today. And that is that it comports a lot more closely with the financial metrics that NRG’s investors are familiar with and value, and that is EBITDA. As you probably know, in the dropdown context, NRG is still consolidating to all of that. And so the long-term lease revenues and expenses associated with that will continue over the course of the remaining life of the lease, rather than in the monetizing open area. The other important thing is from a financial complexity standpoint, it is simpler. And that is certainly a benefit for NRG Yield. The partnerships that was announced this morning does not include any ongoing relationship or importantly taxed equity. It is simply a monetize and hold. And because we see a more robust opportunity going forward, especially through the distributed generation of what NRG calls business renewable, as I said in my remarks this is an opportunity to free up capital as we expand and diversify the portfolio, not only to take advantage of the growing portfolio that we see from NRG on the renewable side, business renewables and utility scale, but also expanding the opportunities across the asset class. So I think this arrangement and certainly in the near-term works for both parts of the production. Grier Buchanan That makes sense, and certainly consistent with the announcement back in February. Along those lines, could you just clarify – I’m looking at Slide 5, the remaining capital of $135 million in that partnership. There is $53 million earmarked for residential solar, but you disclosed that only expect to invest another $20 million. So will that $33 million, I think you mentioned that could be – that’s liquidity that could be used for other purposes, will that be allocated to business renewables or should we just think about that as TBD. Kirkland Andrews Yes. When I talked about that – when I referred to enhancing liquidity, obviously, liquidity is both the function of where it currently stands and prospectively from a financial planning standpoint. On the previous trajectory, as we would, given the magnitude of the capital remaining under that program that $135 million, our financial forecast in the use of about liquidity as we roll forward reflects the anticipation of utilizing that. We revised that anticipation that all but about $30 million, if you just do the math there, it’d be more than $35 million we’re now going to use, that gives us incremental financial flexibility as move forward because we are not deploying that $30 million. And so it’s certainly the use of proceeds, but it’s less likely we see the complete, the remainder, under the business renewables, because that’s already part of our financial. And that’s $82 million that’s referred to in the [page that you referred] [ph]. It’s more likely to be used for other opportunities. As NRG has announced its intention and has made that intention known to NRG Yield in the second quarter. CVSR certainly can be used to fund that, but importantly relative to the path we were on board that does turn out to be the case. That’s $30 million of incremental capital for existing, example, CVSR. That would not further tapped into, if you will, the liquidity reserve relative to the path we are on there. So on that first $30 million, it’s neutral to the plan and yet expands the portfolio. Grier Buchanan Got it. Thanks for the time. Mauricio Gutierrez Thank you. Kirkland Andrews You bet. Operator Thank you. And our next question comes from the line of Angie Storozynski from Macquarie. Angie Storozynski Thank you. So I have two questions, one is you mentioned a potential alternative finance inclusion, so I wanted to know, what they are? And, secondly, would you consider teaming up with some developer or, I don’t know, an infrastructure investor to provide NYLD with more of a visibility into long-term growth? Thank you. Mauricio Gutierrez Hi… Kirkland Andrews Sure, Angie. Go ahead. Mauricio Gutierrez Hi, Angie. So I will say that to your latter part of that question, the answer is, yes. We are exploring opportunities to potentially partner with infrastructure funds or additional developers that can enhance the growth and the – for the pipeline that we have. But, clearly, going forward, that will be Chris’ priority. For the first part of the question, Kirk? Kirkland Andrews What I’ll say in the near-term and I’m going to talk about this in the context of CVSR. And I think, I mentioned this on the last call, in our fourth quarter earning call. CVSR is among the assets currently, although I referenced in my prepared remarks the fact that we have a natural deleveraging portfolio. Where CVSR currently stands today, the level of debt there, which I believe a little less than $800 million, and that’s across the entirety of CVSR. Relative to the overall cash flow there is incremental debt capacity there as it is today. And that is probably the best example in terms of alternative uses of capital to help finance dropdowns or free up capital as we move forward. But we are certainly leaving no stone unturned, but I think in terms of near-term execution opportunities, it’s reasonable to expect that that is probably most likely among them and that is taking advantage of that excess debt capacity of CVSR. Angie Storozynski So there’s no project-level debt, but doesn’t it eat into cash flows, because that set amortizes? Kirkland Andrews Yes, it certainly would be lower than the existing cash flows today. But we’d only do so if it was ultimately accretive, so the way to think about it is, there is an existing level of CAFD at CVSR today. Some portion of that would be used for debt service. The remainder, you can think about as equity in cash flow on the dropdown. And, of course, what that means is, the remaining portion of the purchase price not funded by debt is also lower. So we’re obviously very focused on making sure that we can see a path clear on CVSR as well as future dropdowns or acquisitions that we can enhance the CAFD. So that the CAFD along the equity cash flow on the excess capital above and beyond that project financing is accretive relative to the current CAFD. That’s deal is probably the highest level of importance for us. Angie Storozynski Okay. Thank you. Operator Thank you. And our next question comes from the line of Shahriar Pourreza from Guggenheim. Kirkland Andrews Good morning, Shahriar. Shahriar Pourreza Hi, everyone. How are you? Just real quick, just one question, on the delevering slide that you have on slide 6, so when you think about sort of the residential reduction and then solar spend plus the natural delevering you’re seeing at the business through amortization of the debt, you’re kind of making comments around CVSR and being able to have some additional capacity at the project level. Is it fair to say that given sort of where this amortization is heading and the delevering is heading, can you fund the growth beyond 2018, without hitting the equity markets, for tapping the equity markets? Kirkland Andrews I would say, we could certainly use that as supplement. But I would not over the long run in terms of really funding substantial amount of growth using loans [ph] for example on the 15%. I think that is certainly necessary and helpful, but is not sufficient to really continue that as meaningfully beyond anything. Shahriar Pourreza Any room to back-lever? Kirkland Andrews Yes, it’s something – I mean, that’s something, so that’s the best way I’m trying to think about that, that’s a variation of it I think can get also true. But if you think about back-levering at our corporate level, very importantly, that is not something that we would do today, because we are very focused on maintaining adherence to our balance sheet principles and the metrics that we laid out there. But that’s certainly an opportunity, but we’d have to do so without tapping into corporate debt at the current CAFD level. Shahriar Pourreza And then just, Kirk, one last thing on the equity market, is it still sort of remaining closed? Kirkland Andrews Well, I think closed is a function of two things. One, in terms of the efficiency, I mean, obviously we haven’t seen a whole lot of Yield paper coming out in the last year. And it’s certainly – our concern is sort of the file to offer spread in terms of the discount. We want to have confidence if that’s manageable, because we’re very focused on raising equity we can deploy creatively. And the other component is just the overall cost in capital that’s implied by the current share pricing. I said in the past, and I continue to feel that based on where we’re trailing are today we’re not in a hurry to issue at these prices. But our equity issuance is both the function of an absolute and a relative. Absolute, I just spoke to. Relative means that the equity we issue at whatever price, the use of proceeds have to represent clear accretion both from a CAFD standpoint and on total return standpoint. Shahriar Pourreza Excellent. Thanks guys. Operator Thank you. And our next question comes from the line of Michael Morosi from Avondale Partners. Michael Morosi Hi, guys. Thank you for taking the question. Should I interpret the commitment to growth or the renewed commitment to dividend growth as saying that, NRG Yield is kind of stepping away from the notion of the Yield co. as asset manager or that NRG yield is willing to kind of trade around its portfolio and basically view its existing asset base as a potential source of funds? Kirkland Andrews Sorry, Mike, I am not completely clear on your question, with respect to NRG Yield. Can you clarify? Michael Morosi Yes, I mean, basically doing your – basically being a buyer and seller of assets, as a way to manage shareholder return? Kirkland Andrews Yes. So with real state overall, although we have no current intentions to monetize an asset if that’s what you’re thinking about. But the best way to think about it is the principle or the philosophy behind that is, we are not wed to assets. We are wed to growing CAFD per share. And so, if there is an opportunity to monetize an asset at value, we are certainly agnostic in terms of the portfolio. But we are not indifferent as to be effect of that transaction or any. It has to be accretive to grow that CAFD per share. Michael Morosi That’s fair. Thanks. And then, as it relates to other potential equity offerings. We’re hearing more and more about companies looking at ATM-type offerings. Is that something that you consider? Kirkland Andrews We have, yes. I certainly think that’s a tool in the tool-chest. But, obviously, in terms of order of magnitude it’s helpful. But I don’t think at this juncture it’s something that that we’re in a massive hurry to put in place. I think as we can – hopefully, we need to see their trajectory in terms of the appreciation in the share price. And that is certainly a lever that we would pull, but it doesn’t substantially move the needle in the near-term in terms of building dry powder for a significant acquisition, but it is certainly helpful. Michael Morosi Very good. Thanks a lot, guys. Operator Thank you. And we are approaching the end of the call. We have time for one more question. Our final question for today comes from the line of Steve Fleishman from Wolfe Research. Steve Fleishman Hi, good morning. Mauricio Gutierrez Hi, Steve. Steve Fleishman Kirk, just on the slide with the debt pay-down, and the like, project debt pay-down, I don’t know if there is a way to give a sense. But obviously you – because the PTAs don’t last forever, you really need the debt on the projects to be paid down over the life. So it’s hard to kind of judge, how much, if any, extra debt capacity is really created by that versus the debt reduction that you actually need. Is there a way to kind of think of a sense of that? Kirkland Andrews Yes, I think that’s a fair question, Steve. So I’ll answer it in two ways. One, certainly I gave the example of CVSR today. And that is something that I continue expect to see us if we’re able to quantify by action. But let me think back on a way that we can give you some sense of what that capacity is. That said the other part of that equation, which I’ve been very mindful of and was at the time that we came out the IPO and continue to be, in addition to that debt capacity piece, the natural delevering nature of those particular assets means that we remove the debt service. Basically, it’s the same point as the contract rolls off, which gives us a tremendous amount of flexibility on a re-contracting basis as we move forward. Obviously, they continue, that’s CAFD. And if it has to be on a non-levered basis, they will be it, but there is a lot of cushion with the removal of that debt burden on an asset-by-asset basis. And the other thing I’d say is that, I think you’ll find in that – although we didn’t go through in the specific part of the – the first part of your question, behind that Page 6, which we included, I think the pro-rata share of the equity method part of the portfolio, CVSR currently among them, but I think we gave you an asset-by-asset table in the appendix, back on I think Page 13. So that at least gives you more granularity behind that. But let me think on a way that we can give you a little bit better sense of that debt capacity on what I’ve alluded to on CVSR. Steve Fleishman That’s helpful. Maybe I’d ask the question in a more simplistic way, which is that, based on your view of the portfolio, you would say that there is room for excess – for additional project debt overall. Kirkland Andrews Yes. Steve Fleishman And that’s part of it, so what the exact number is, fine. But you believe there is room to kind of add project add. Kirkland Andrews Yes. Steve Fleishman Okay. Kirkland Andrews And I would be willing to add to that that I think that CVSR is probably the most substantial example of that right now. Steve Fleishman Okay. Okay. Thank you. Kirkland Andrews You bet. Mauricio Gutierrez Thank you. Operator Thank you and that concludes our question-and-answer session for today. I would like to turn the conference back over to management for any closing comments. Mauricio Gutierrez No, I think that’s it. Thank you for your time. Christopher Sotos Thank you. Operator Thank you, ladies and gentlemen. Thank you for your participation in today’s conference. This does conclude the program. And you may now disconnect. Everyone have a good day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. 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Are You Considering ‘Sell In May, Go Away?’

One of the signs that a stock market may be transitioning from a bull to a bear? Participants dismiss exorbitant valuations , cast aside disturbing shifts in technical trends, disregard economic stagnation and scoff at historical comparisons. For instance, it has been 352 days since the Dow Jones Industrials Average registered an all-time record high in May of 2015. Since the 1920s, when the Dow has surpassed 350 calendar days without recovering a bull market peak, the index has dropped at least 17% on nine out of 11 occasions. On average, the Dow has succumbed to 30% bearish price depreciation. Adding insult to injury here is that the Dow has failed to hold 18000 since it first notched the milestone back on December 23, 2014. That was 499 days ago. Equally compelling? Five days earlier (12/18/2014) marked the Federal Reserve’s final asset purchase in its third round of quantitative easing (QE3). In other words, the stock market has been unable to make any meaningful progress since the Fed stopped expanding its balance sheet. (Note: This also lends credence to research that attributes 93% of the current bull market’s gains to the Fed’s electronic credit/asset purchase interventions). “Forget corporate earnings, sales, the global economy, technical analysis and history, Gary. You’ve got to be a contrarian here because this is the most hated stock market ever!” I’ve heard this claim dozens of times now. Ostensibly, a lack of excitement for stock assets should push stocks back to record heights and beyond. And there may be some truth to the declaration. After all, corporations have been the only “net buyers” for more than three months, as the other participants (e.g., pensions, hedge funds, “Mom-n-Pop” retail, institutional advisers, etc.) have been “net sellers.” On the other hand, according to the National Association of Active Investment Managers, investment sentiment sits at its highest level since April of 2015. Putting that into perspective? A contrarian who recognized the uber-bullishness last year may have exited the market near the all-time record highs for the Dow and the S&P 500 in May of 2015. Similarly, we may once again be at a point where bullishness is overextended. Granted, the S&P 500 might only need to rise 4% from current levels to register an all-time record. In and of itself, that is relatively impressive. Nevertheless, the year over year and year-to-date outperformance of the S&P 500 by the FTSE Multi-Asset Stock Hedge Index (affectionately known as “MASH”) is reason enough to be wary. We’re talking about the collective success of several key components like the SPDR Gold Trust ETF (NYSEARCA: GLD ), the CurrencyShares Japanese Yen Trust ETF (NYSEARCA: FXY ), the PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (NYSEARCA: ZROZ ) and the iShares National AMT-Free Muni Bond ETF (NYSEARCA: MUB ). Click to enlarge Click to enlarge Three-quarters of S&P 500 corporations have reported Q1 2016 earnings. And according to the S&P Dow Jones Indices website, as reported earnings estimates for the S&P 500 (3/31/2016) are now $87.48. The trailing twelve-month P/E? 23.4. “In the era of ultra-low interest rates,” you insist, “it simply doesn’t matter.” Well, then, perhaps you should investigate the four bear markets that occurred in the 20-year period (1936-1955) when the U.S. had similar 10-year yields, yet price-to-earnings ratios that were half what they are right now. Here is one thing that should not be ignored. When precious metals like gold and carry-trade currencies like the yen outperform stocks over 5-6 months as well as one year – when long-maturity U.S. treasuries and Japanese government bonds are behaving in a similar fashion – “risk off” has the edge over “risk on.” Should you sell in May and go away, then? From my vantage point, just make sure you’ve got a comfortable cash/cash equivalent cushion to buy riskier assets at more attractive valuations down the road. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.