Pattern Energy Reports Second Quarter 2017 Financial Results

SAN FRANCISCO, Aug. 8, 2017 /PRNewswire/ -- Pattern Energy Group Inc. (the "Company" or "Pattern Energy") (NASDAQ & TSX: PEGI) today announced its financial results for the 2017 second quarter.

Highlights
(Comparisons made between fiscal Q2 2017 and fiscal Q2 2016 results, unless otherwise noted)

• Proportional gigawatt hours ("GWh") sold of 2,112 GWh, up 23%
• Net cash provided by operating activities of $113.4 million, up 105%
• Cash available for distribution ("CAFD") of $49.2 million, up 39% and on track to meet full year guidance⁽¹⁾
• Net loss of $14.7 million, an improvement of 6%
• Adjusted EBITDA of $91.9 million, up 17%
• Revenue of $107.8 million, up 15%
• Declared a third quarter dividend of $0.4200 per Class A common share or $1.68 on an annualized basis, subsequent to the end of the period, representing a 0.5% increase over the previous quarter's dividend
• Announced increased opportunities for growth and improved alignment with Pattern Development⁽²⁾ as it secured up to $1 billion in long-term funding commitments to expand its development business to 10 gigawatts ("GW"), including a $60 million minority investment made by Pattern Energy for an approximate 20% interest in Pattern Development 2.0, ensuring the Company access to an exclusive project pipeline and enhancing alignment with the development business
• Announced a strategic co-investment relationship with the Public Sector Pension Investment Board ("PSP Investments") in which PSP Investments will co-invest up to $500 million in projects acquired by Pattern Energy under the Company's right-of-first-offer ("ROFO") with Pattern Development
• Announced Pattern Energy will acquire the Meikle and Mont Sainte-Marguerite projects with PSP Investments, and sell a partial interest in the Panhandle 2 Wind project to PSP Investments

"Our high-quality fleet continues to perform well which allowed us to deliver a strong quarter with CAFD in line with our expectation and on track for our 2017 CAFD guidance⁽¹⁾," said Mike Garland, President and CEO of Pattern Energy. "We have designed the business and deployed a strategy to produce and grow stable, sustainable CAFD. Our announcements in June support and expand on this strategy. The investment in development has increased our opportunity set and improved our alignment with our development affiliate. This relationship has been validated by the participation of PSP Investments, a pension investment manager that is a recognized leader in renewable energy investments. The net result of these major initiatives is that Pattern Energy is stronger today, with access to a larger pipeline, higher returns through our direct involvement in the development business, improved alignment with both the development business and our new shareholder, PSP Investments, through the co-investment relationship, as well as access to capital to fund growth without relying solely on debt or equity."

(1) The forward looking measure of 2017 full year cash available for distribution (CAFD) is a non-GAAP measure that cannot be reconciled to net cash provided by operating activities as the most directly comparable GAAP financial measure without unreasonable effort primarily because of the uncertainties involved in estimating forward-looking changes in working capital balances which are added to earnings to arrive at cash provided by operations and subtracted therefrom to arrive at CAFD. A description of the adjustments to determine CAFD can be found within Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Metrics, of Pattern Energy's 2017 Quarterly Report on Form 10-Q for the period ended June 30, 2017.

(2) In December 2016, Pattern Energy Group LP ("Pattern Development 1.0") formed Pattern Energy Group 2 LP ("Pattern Development 2.0"), and together such companies are referred to as "Pattern Development".

Financial and Operating Results

Pattern Energy sold 2,111,627 megawatt hours ("MWh") of electricity on a proportional basis in the second quarter of 2017 compared to 1,715,286 MWh sold in the same period last year. Pattern Energy sold 4,135,510 MWh of electricity on a proportional basis for the six months ended June 30, 2017 (YTD 2017) compared to 3,515,871 MWh sold in the same period last year. The 23% increase in the quarterly period was primarily attributable to favorable wind conditions in the current period compared to the same period in 2016, the acquisition of Broadview in the second quarter 2017 and the acquisition of Armow in the fourth quarter of 2016. Overall, wind and production were below the Company's expectation for the second quarter compared to its long-term forecast.

Net cash provided by operating activities was $113.4 million for the second quarter of 2017 compared to $55.3 million for the same period last year. Net cash provided by operating activities was $157.2 million for YTD 2017 compared to $70.0 million for the same period last year. The $58.2 million improvement in the quarterly period was primarily due to higher revenues of $9.7 million (excluding unrealized loss on energy derivative and amortization of PPAs) and increases of $7.4 million in cash receipts due to timing of collections from trade receivables, $14.8 million from distributions from unconsolidated investments, $26.3 million from increased payables and accrued liabilities primarily due to the timing of payments, as well as, $5.2 million from higher accrued interest associated primarily with the timing of payments on its unsecured senior notes due in 2024. These increases to net cash from operating activities were partially offset by increases of $4.6 million in transmission cost and $4.2 million in operating expenses.

Cash available for distribution was $49.2 million for the second quarter of 2017 compared to $35.5 million for the same period last year. Cash available for distribution was $94.4 million for YTD 2017 compared to $76.5 million for the same period in the prior year. The $13.7 million increase, or approximately 39%, in the quarterly period was primarily due to a $9.7 million increase in revenues (excluding unrealized loss on energy derivative and amortization of PPAs), an $8.3 million network upgrade reimbursement primarily related to the Broadview project, and a $7.1 million increase in total distributions from unconsolidated investments. These increases were partially offset by increases of $4.2 million in operating expense, $4.6 million in transmission cost and $2.2 million in distributions to noncontrolling interests.

Net loss was $14.7 million in the second quarter of 2017, compared to a net loss of $15.6 million for the same period last year. Net loss was $12.1 million for YTD 2017 compared to $44.7 million in the same period last year. The 6% improvement in the quarterly period was primarily attributable to an increase in revenues of $14.3 million and a decrease of $3.5 million in other expense. These contributions were partially offset by increased cost of revenue of $9.6 million primarily due to Broadview which was acquired during the second quarter 2017, and increased operating expenses of $4.2 million.

Adjusted EBITDA was $91.9 million for the second quarter of 2017 compared to $78.6 million for the same period last year. Adjusted EBITDA was $190.1 million for YTD 2017 compared to $156.7 million for the same period last year. The 17% increase in the quarterly period was primarily due to a $9.7 million increase in revenues (excluding unrealized loss on energy derivative and amortization of PPAs) and an $11.3 million increase in our proportionate share of Adjusted EBITDA from unconsolidated investments. These increases were partially offset by increases of $4.6 million in transmission cost and $4.2 million in operating expenses.

2017 Financial Guidance

Pattern Energy is re-confirming its targeted annual cash available for distribution for 2017 within a range of $140 million to $165 million, representing an increase of 15% at the midpoint of the range, compared to cash available for distribution in 2016. As noted above, forward-looking cash available for distribution is a non-GAAP measure that cannot be reconciled to net cash provided by operating activities as the most directly comparable GAAP financial measure without unreasonable effort for the reasons stated above.

Quarterly Dividend

Pattern Energy declared an increased dividend for the third quarter 2017, payable on October 31, 2017, to holders of record on September 29, 2017 in the amount of $0.4200 per Class A common share, which represents $1.68 on an annualized basis. This is a 0.5% increase from the second quarter 2017 dividend of $0.4180.

Project Acquisitions and Divestment

Pattern Energy will acquire interests in the Meikle and Mont Sainte-Marguerite projects and will sell a partial interest in the Panhandle 2 project. These three projects are also the first co-investment projects with PSP Investments.

Meikle

Meikle will be jointly owned by Pattern Energy and PSP Investments. The 179 MW facility, located in the Peace River Regional District of British Columbia, commenced commercial operations in the first quarter of 2017 and operates under a 25-year power purchase agreement with BC Hydro, which has a AAA/Aaa credit rating.

Pattern Energy will acquire its 51% interest in Meikle for a total investment of approximately $65 million⁽¹⁾, which represents a CAFD multiple of 10x of the project's five-year average CAFD⁽²⁾. The acquisition will be funded with available liquidity and is expected to close in the coming days, subject to customary closing conditions.

Mont Sainte-Marguerite

Mont Sainte-Marguerite will be jointly owned by Pattern Energy and PSP Investments. The 143 MW facility, located in the Chaudière-Appalaches region south of Québec City, is expected to commence commercial operations in late 2017 and operate under a 25-year power purchase agreement with Hydro-Québec, which has a A+/Aa2 credit rating.

Pattern Energy will acquire its 51% interest in Mont Sainte-Marguerite for a total investment of approximately $40 million⁽¹⁾, which represents a CAFD multiple of 10x of the five-year average CAFD⁽²⁾. The acquisition is expected to close within 160 days, following the commencement of commercial operations and subject to customary closing conditions. It will be funded at the time of closing using available liquidity.

Panhandle 2

Pattern Energy has agreed to sell 49% of the Class B interests in its Panhandle 2 project to PSP Investments. The 182 MW facility,  located in Carson County, Texas, commenced commercial operations in the fourth quarter of 2014 and approximately 80% of its production is under a contracted hedge with Morgan Stanley.

Pattern Energy will receive $59 million from PSP Investments in return for 49% of the Class B ownership in the project, which represents a cash gain of 20% over the Company's net investment basis and implies a CAFD multiple⁽²⁾ of more than 12x on the five-year average CAFD⁽²⁾. The acquisition is, subject to customary closing conditions, expected to close within 90 days.

Acquisition Pipeline

Pattern Development has expanded its pipeline to 10 GW of development projects, all of which are subject to Pattern Energy's ROFO rights.

Pattern Energy has a ROFO on a pipeline of acquisition opportunities from Pattern Development. The identified ROFO list stands at 1,016 MW of total owned capacity. This list of identified ROFO projects represents a portion of the Pattern Development's 10 GW pipeline of development projects, all of which are subject to Pattern Energy's ROFO. Since its IPO, Pattern Energy has purchased, or agreed to purchase, 1,358 MW from Pattern Development 1.0 and in aggregate grown the identified ROFO list from 746 MW to more than 2 GW. Below is a summary of the identified ROFO projects that Pattern Energy expects to acquire from Pattern Development in connection with Pattern Energy's project purchase rights:

Cash Available for Distribution and Adjusted EBITDA Non-GAAP Reconciliations

The following tables reconcile non-GAAP net cash provided by operating activities to cash available for distribution and net income (loss) to Adjusted EBITDA, respectively, for the periods presented (in thousands):

Conference Call and Webcast

Pattern Energy will host a conference call and webcast to discuss these results at 10:30 a.m. Eastern Time, today, August 8, 2017. Mike Garland, President and CEO, and Mike Lyon, CFO, will co-chair the call. Participants should call (888) 231-8191 or (647) 427-7450 and ask an operator for the Pattern Energy earnings call. Please dial in 10 minutes prior to the call to secure a line. A replay will be available shortly after the call. To access the replay, please dial (855) 859-2056 or (416) 849-0833 and enter access code 58626636. The replay recording will be available until 11:59 p.m. Eastern Time, August 29, 2017.

A live webcast of the conference call will be also available on the events page in the investor section of Pattern Energy's website at www.patternenergy.com. An archived webcast will be available for one year.

About Pattern Energy

Pattern Energy Group Inc. (Pattern Energy) is an independent power company listed on the NASDAQ Global Select Market and Toronto Stock Exchange. Pattern Energy has a portfolio of 20 wind power facilities, including the two projects it has agreed to acquire, with a total owned interest of 2,736 MW in the United States, Canada and Chile that use proven, best-in-class technology. Pattern Energy's wind power facilities generate stable long-term cash flows in attractive markets and provide a solid foundation for the continued growth of the business. For more information, visit www.patternenergy.com.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this press release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and "forward-looking information" within the meaning of Canadian securities laws, including statements regarding the ability to achieve the 2017 cash available for distribution target, the five year average annual CAFD generated by Meikle, Mont-Sainte Marguerite and Panhandle 2, the ability for the company's initiatives to make the Company stronger with access to a larger pipeline, potentially higher returns, and access to capital without relying solely on debt or equity, investment in Pattern Development 2.0 to ensure the Company access to an exclusive project pipeline and enhance alignment with the development business, the ability to consummate the acquisitions of Meikle and Mont Sainte-Marguerite and sell a partial interest in Panhandle 2, the outlook for renewable energy, and the ability of the Company's business model to deliver sustainable and growing returns for the Company's shareholders. These forward-looking statements represent the Company's expectations or beliefs concerning future events, and it is possible that the results described in this press release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company's control, which could cause actual results to differ materially from the results discussed in the forward-looking statements.

Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for the Company to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in the Company's annual report on Form 10-K and any quarterly reports on Form 10-Q. The risk factors and other factors noted therein could cause actual events or the Company's actual results to differ materially from those contained in any forward-looking statement.

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SOURCE Pattern Energy Group Inc.