Clearway Energy, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Clearway owns contracted wind, solar, natural-gas generation and thermal infrastructure assets across North America. Its generation portfolio totaled approximately 6,027 net MW; weighted-average remaining offtake contract duration was approximately 13 years based on CAFD.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Operating revenue | $329 million | $284 million | $587 million | $501 million |
| Operating income | $130 million | $87 million | $182 million | $128 million |
| Net income (loss), consolidated | $76 million | $(36) million | $(31) million | $(83) million |
| Net income (loss) attributable to Clearway | $47 million | $(24) million | $18 million | $(44) million |
| EPS, Class A and Class C | $0.41 | $(0.22) | $0.16 | $(0.41) |
| Operating cash flow | Not separately presented | Not separately presented | $184 million | $150 million |
Q2 gross margin was $316 million versus $269 million; non-GAAP economic gross margin was $341 million versus $286 million. For the first half, gross margin was $557 million versus $467 million and economic gross margin was $609 million versus $508 million. Economic gross margin is a company-defined non-GAAP measure.
At June 30, cash and cash equivalents were $175 million, restricted cash was $241 million, and total debt was approximately $6.8 billion. The balance sheet reported $357 million of current debt maturities and $6.377 billion of long-term debt. Liquidity was reported at $855 million, including restricted cash and $439 million available under the revolving facility; there were no revolver borrowings and $56 million of letters of credit outstanding. First-half investing cash flow was positive $40 million, while financing cash flow was negative $225 million. Capital expenditures were $83 million, including $14 million maintenance and $69 million growth spending.
Class A and Class C dividends paid were $0.21 per share for each of Q1 and Q2. On July 30, the company declared a $0.3125 quarterly dividend per share, payable September 15, subject to the stated conditions.
Material changes versus prior periods
- Revenue and operating income increased in Q2 and year to date. Management attributed higher gross margin principally to increased renewable generation and recently completed or acquired assets, including Carlsbad, Oahu, Kawailoa, and the Elbow Creek and Wildorado repowerings.
- Q2 included a $49 million gain on the sale of the RPV Holdco investment; the sale generated approximately $75 million net proceeds. This gain materially contributed to the improvement in reported earnings.
- Q2 interest expense declined $37 million year over year, while first-half interest expense increased $29 million. Swaps, refinancing-related items, and Carlsbad acquisition-related interest affected the comparisons.
- The company issued an additional $250 million of 4.75% notes due 2028, repaid its $45 million convertible notes and repaid $265 million of revolver borrowings. It also redeemed the remaining $88 million of 2024 notes early in the year.
- The $1.19 billion of PG&E-affected project debt previously classified as short-term was reclassified as non-current at June 30 after PG&E’s plan was confirmed. PG&E emerged July 1 and assumed the PPAs without modification; $50 million of project distribution reserves had been released to Clearway by July 31.
- Clearway sold its RPV investment and Dover and Smyrna thermal interests, and began consolidating DGPV Holdco 3 in May. The ATM program issued 1.75 million Class C shares for $38 million net proceeds; the program was fully used.
Outlook, risks and contingencies
- No quantified earnings or CAFD guidance is provided in the supplied filing text. Management said it expects comparable cash dividends to continue in the foreseeable future based on current circumstances, but dividends remain subject to available capital, market conditions, laws and contractual obligations.
- After quarter-end, Clearway agreed to acquire an interest in the 419 MW Mesquite Star wind project for approximately $79 million, expected to close in Q3 and funded with existing liquidity. Separate previously announced drop-down transactions were expected to require approximately $241 million of corporate capital, subject to closing adjustments and project milestones.
- Management reported no material COVID-19 financial or operational impact as of the filing date and said facilities remained operational, while warning that effects and duration remained uncertain and could affect operations, counterparties, cash flows and distributions.
- PG&E’s bankruptcy had restricted distributions from affected projects at June 30; emergence and contract assumption reduced this uncertainty, but investors should distinguish post-quarter developments from the quarter-end position.
- Material legal matters include NPPD’s appeal of a ruling protecting two wind-project PPAs and Georgetown’s litigation involving the Buckthorn Solar PPA. The company says it is defending its rights; outcomes and potential liabilities are not clearly estimable in the filing.
- Other risks include substantial debt and project-level covenants, interest-rate and derivative exposure, counterparty performance, renewable resource variability, environmental and regulatory changes, and the company’s relationship with sponsor CEG. Management reported compliance with required debt covenants other than matters affected by the PG&E bankruptcy.
Investor verification checklist
- Separate recurring operating performance from the $49 million RPV sale gain and other nonrecurring or non-cash items.
- Review the definition and reconciliation of non-GAAP economic gross margin and CAFD; the supplied text does not provide a clear CAFD result or quantified forward guidance.
- Confirm debt maturities, project-level restrictions, derivative liabilities and the availability of liquidity, especially the restricted portion of reported cash.
- Check the timing, funding and final terms of the Mesquite Star and other drop-down transactions, and whether they support distributable cash flow.
- Assess the status and possible financial consequences of the NPPD and Georgetown disputes, COVID-19 developments, and relevant environmental or regulatory proceedings.