Hello and welcome to the AES Corporation Fourth Quarter and Full Year 2023 Financial Review call. My name is Elliot and I'll be coordinating your call today. [Operator Instructions]. I'd now like to hand over to Susan Harcourt, Vice President of Investor Relations. The floor is yours. Please go ahead.

Thank you, operator. Good morning and welcome to our fourth quarter and full year 2023 financial review call. Our press release, presentation and related financial information are available on our website at aes.com. Today we will be making forward looking statements. There are many factors that may cause future results to differ materially from these statements, which are disclosed in our most recent 10-K and 10-Q filed with the SEC. Reconciliations between GAAP and non-GAAP financial measures can be found on our website along with the presentation. Joining me this morning are Andres Gluski, our President and Chief Executive Officer, Steve Coughlin, our Chief Financial Officer and other senior members of our management team. With that, I will turn the call over to Andres.

Good morning, everyone, and thank you for joining our fourth quarter and full year 2023 financial review call. Today I will discuss our 2023 strategic and financial performance. Steve Coughlin, our CFO, will discuss our financial results and outlook in more detail shortly. Beginning on slide three, 2023 was our best year ever as we met or exceeded all of our strategic and financial objectives, including signing a record of 5.6 gigawatts of new PPAs, putting us well on track to achieve 14 to 17 gigawatts of new signings through 2025, completing 3.5 gigawatts of construction, exceeding the target we laid out and doubling our additions compared to 2022, delivering adjusted EBITDA of $2.8 billion in the top end of our guidance range and adjusted EBITDA with tax attributes of $3.4 billion, achieving adjusted EPS of $1.76 and parent-free cash flow of just over $1 billion, both beyond the top end of our guidance ranges, and realizing asset sales proceeds of $1.1 billion, significantly above our target of $400 million to $600 million. Turning to slide four, despite the backdrop of rising interest rates and supply chain challenges across the sector, we demonstrated that our business model is strong, resilient, and well-positioned. Demand across the sector has never been stronger, and in this context, I'm pleased to announce that we are raising our expected annual growth rate for adjusted EBITDA and adjusted EPS. We now expect our adjusted EBITDA to grow at an annual rate of 5% to 7% and adjusted EPS to grow at 7% to 9%, both through 2027. We are also reaffirming all of our other existing guidance. I can definitely say that I have never felt better about the outlook for this business. Turning to power purchase agreement signings on slide five, we signed 5.6 gigawatts…

Thank you, Andres, and good morning, everyone. Today, I will discuss our 2023 results and capital allocation, our 2024 guidance, and our updated expectations through 2027. As Andres mentioned, 2023 was AES's best year on record as we met or exceeded all of our strategic and financial targets. We beat our adjusted EPS guidance range of $1.65 to $1.75 and our parent-free cash flow guidance range of $950 million to $1 billion. We also recorded strong adjusted EBITDA well above the midpoint of our inaugural guidance range of $2.6 billion to $2.9 billion. Turning to slide 14, full year 2023 adjusted EBITDA with tax attributes was $3.4 billion versus $3.2 billion in 2022, driven primarily by contributions from new renewables projects, as well as the recovery of prior year's purchase power costs at AES Ohio included as part of the ESP4 settlement. These drivers were partially offset by lower contributions from the energy infrastructure SBU. Turning to slide 15, adjusted EPS was $1.76 in 2023 versus $1.67 in 2022. Drivers were similar to those for adjusted EBITDA with tax attributes. In addition, there was a $0.06 headwind from parent interest on higher debt balances primarily used to fund new renewables projects. I'll cover our results in more detail over the next four slides, beginning with the Renewable Strategic Business Unit or SBU on slide 16. Higher adjusted EBITDA with tax attributes at our renewables SBU was primarily driven by contributions from the 3.5 gigawatts of new projects that came online in 2023, as well as higher margins in Columbia, but partially offset by the sell down of select U.S. renewable operating assets. At our utilities SBU, higher adjusted PTC was primarily driven by the recovery of prior year's purchase power costs at AES Ohio included as part of the ESP4…

Thank you, Steve. In summary, 2023 was our best year ever as we met or exceeded all of our strategic and financial objectives across our guidance metrics, PPA signings, construction completions, and asset sales. We are seeing strong demand for renewables across the sector, particularly due to the unprecedented demand from data centers. As a result, we are not only upping our U.S. project return ranges, but increasing our expected average annual growth rates for adjusted EBITDA and adjusted earnings per share through 2027. Finally, our significant success with asset sales to date, as well as the outlook for the near future, gives us great comfort in our long-term funding plans. With that, I would like to open the call for questions.

Thank you. [Operator Instructions] Our first question comes from Nick Campanella with Barclays. Your line is open. Please go ahead.

Hey, good morning. Thanks for taking my questions today and appreciate all the update. I guess you originally had a 3% to 5% EBITDA target when you put out that analyst day range. Then I guess the EBITDA guidance that you gave today for fiscal 2024 does seem to just be a bit flat versus that growth outlook. Is that just from the timing of asset sales? Could you just help clarify what's driving that?

Yes. Hey, Nick. It's Steve. That's right. It's primarily because we're ahead on the asset sale target significantly from 2023. We had the $1.1 billion versus the $400 to $600 guidance. That's why the asset sale drag, as there's a lag to when we redeploy the capital and it's yielding again, is about $200 this year. A little higher than what we would have anticipated a year ago. Overall, good news for the [Technical Difficulty] but it is offsetting the growth that's coming from the rate base and utilities in the renewables projects. That's right.

That's helpful. Then just on asset sales, to the extent that you're continuing to be successful here and doing more versus what you have in this plan, is there room to offset that $1 billion apparent debt issuance? Does that change at all? Where exactly is there flexibility in this plan today from your perspective? Then could you just also update us on where your leverage targets are and your minimums in this new plan? Thanks.

Yes. Definitely. The investment grade is a top priority. We designed the plan to meet the investment grade targets that we have. We built cushion into the metrics themselves, but also keep in mind that the quality and the duration of the cash flows in the business is transitioning dramatically. We're going to a much longer duration, average duration of contracts, more than -- is 20-year contracts. This is Clean Energy, no carbon risk. These are U.S. dollar contracts with large corporates, many of which are data center customers, big tech companies, very high-quality credit. It's both the solid credit metrics as well as the quality and profile of the cash flows that's evolving. We don't count on that when sizing the new debt. We count on the metrics, but the quality is improving as well. In terms of levers, the asset sale target is, as it's always been, has multiple ways that it can be achieved. There's some conservatism built in over the total. We have fully anticipated any temporal dilutive impacts in the numbers that we've given, as I said, but there is some flex there as needed. On the debt side, the investment grade is a top priority.

Alright. I'll leave it there. I really appreciate it. Thank you.

We now turn to David Arcaro with Morgan Stanley. Your line is open. Please go ahead.

Great. Good morning. Thanks so much for taking the questions. I wanted to dig in a little bit on the higher return levels that you're projecting here. Was there something that sparked it? Any kind of catalyst that has pushed you up in terms of the higher return levels in the renewables business? You've been in a higher interest rate environment, obviously, for a while, higher PPA price environment for a while. Is it more the mix of end customers that you're selling to now?

David, I'd say it's a combination of things. First and foremost is the returns that we are [Technical Difficulty] on prior PPAs that we signed. So that's the first. We are seeing that we're getting higher returns. Second, what is driving these higher returns? You may recall for some time, maybe like three years ago, starting three, four years ago, I started saying that in select markets, there would be really a shortage of good renewable projects. These are markets like California, like PJM, New York. What we started to do was position ourselves and actually enter the queue, buy land rights, etcetera, to have projects to be able to fulfill this. I think that part of it is in these select markets, you are starting to see the shortage of renewables that we had been seeing. I think this is something that will spread market to market. It's not going to be true for all markets. Out West, there's a lot of land. There's not that much demand, but in select markets, you will be seeing that. I think that's also part of the result is that we are positioned in the right markets. The third thing I would say is that we're becoming more efficient in our construction and in our development process. Stay tuned. I think that will continue to improve. Realize that 2021, you had a lot of supply chain disruptions. Those are well past us and we're really getting to optimize that. Based on our greater efficiency, what we're seeing is that we are getting higher returns. We've also positioned ourselves, this is about our fourth year, fifth year of really positioning ourselves with large corporate customers. Those corporate customers have very strong demand growing very quickly. If you ask me from a sector point of view, I think the real question is, can we meet the demand that they have for Clean Energy in all of these markets? By the way, I would add Chile is a similar market to California where there's a real shortage of projects. There's a very strong demand from our customers and that we're very well placed. This is not like a catalyst. We had several pieces which are played out as we expected them to play out.

The only thing I would add, David, is that looking at 2023, what we signed up was well within that new updated range.

Okay, thanks. That's good to hear. Then in terms of the higher growth rates that you've outlined today, wondering if we could just unpack that a little bit. Is that all coming from the renewables segment in terms of the higher returns that you're seeing or is the utilities business or energy infrastructure also experiencing higher EBITDA growth outlooks here?

What you have is both. I think there are two key segments. One is the utilities. We have some of the fastest growing utilities in the U.S. Second, yes, we are also seeing better returns in the renewable sector. The combination of those two is resulting in a faster growth rate.

Okay, great. Thanks so much.

Thank you.

Our next question comes from Julian Dumoulin-Smith with Bank of America. Your line is open. Please go ahead.

Hi there. Hey, thanks for taking my question. This is actually Cameron Lochridge on for Julian. I wanted to start just on the raised growth expectations. And kind of piggybacking on the last question, if I look at what you had planned for your EBITDA contributions across the different businesses, 45% renewables, 32% utilities, 23% energy infrastructure in 2027, how has that mix shifted as a reflection of this -- these raised expectations for growth?

Yes. So, I would say, I think the mix roughly be maybe a little bit more on the renewable side, we're seeing the higher returns. So maybe that's above the 45 50-ish. So, it's going to be higher on the renewables. I think the utilities, as Andres said, will be a little bit more of a share. On the energy infrastructure, we did communicate that, that was going to shrink as we execute on the coal exit plan. Although for just a handful of assets, we extended that to 2027. So that dilution from those coal exits, this is the smaller portion, will be spread out over more time, which overall, I think, is a good thing in terms of the -- in the financials as well. So a little more renewables, a little more utilities and then the energy infrastructure is shrinking a little bit less, but it's still in that same range.

Got it. And then just digging in on the renewables, just the cumulative capacity additions you guys have communicated, tripling the bag to 25 to 30 gigawatts of cumulative additions, is that still the case through 2027? Or is that bumped higher? Or is this purely just a function of returns improving? And then on that returns improving piece, how do we think about the bifurcation between, perhaps more ability to capitalize on IRA credits versus just true economic improvement vis-à-vis PPAs, pricing increasing. Just kind of help us unpack that a little bit.

Let me sort of give a big picture, and then I'll pass it off to Steve. Look, what we're going after, really, as I said in my script, is really going after those projects, which provide the best financial benefits. You've known me for a while, I've never gone for growth for growth's sake. So really, what we want to do is maximize shareholder value on a per share basis. So really, this is an upgrading of the quality of the growth, more than a greater numeric growth. Now I do think that it's very important to understand sort of what market segments we're in. We're in the corporate segment, but we're also very heavily into the data center segment. And this is something, again, we've been working on for many years. We have really very good relationships with key clients, and that is a demand that's growing very quickly. And certainly, that we don't mention in our speech, quite frankly, because it's very early times. But we're really going to go after artificial intelligence as an efficiency improvement in the company. And we have a big kickoff meeting that we're going to have in the next couple of months. But this is something I think we've taken in a very sort of strategic line. Inderpal Bhandari, who was the global Chief Data Officer for IBM until 2023 has just joined our Board, and somebody who is very knowledgeable in the area. We also have Janet Davidson, who's also a PhD in computer science. It's interesting. I mean, right now, with Inderpal, we have 5 PhDs on our Board, which has got to be one of the highest percentages in things that run from computer science to finance to economics of business. So that's what I wanted to put it in. What we're pursuing is returns, we're pursuing value per share. And I think we've been very systematic now for many years in positioning ourselves in a given sector and learning about and preparing ourselves for the new technologies which are coming. So, there's a lot of buzzwords of AI. Well, what's behind this is 5, 6 years of getting ourselves in a position to really utilize the data and have the understanding of the company. So, with that, I'll pass it off to Steve to answer the other parts of your question.

Yes. No, I agree wholeheartedly that we're focused on cash returns, and that's primarily where the higher growth is coming from. You'll notice that it was really the EBITDA growth rate that ticked up the most. And so not really from tax credits. So, we had already talked about that about 40% of our pipeline was in energy communities that continues to be roughly the case. So, it's really from the cash generation of the assets that the increase in rates is coming up. And we're less focused on megawatts. So, it's roughly a similar amount of capital, maybe even a little bit lower. But if that means less megawatts, that's okay. We're focused on what are the best returns that we can get for our capital that's deployed. And that's cash based and not based on the credit.

Got it. Awesome, guys. Thank you very much.

Alright. Thank you.

Our next question comes from Durgesh Chopra with Evercore ISI. Your line is open. Please go ahead.

Hey good morning, team. Thanks for giving me time. I just wanted to ask about the -- I want to ask you about the new projects, the 3.6 gigawatts to be added in 2024. I mean, obviously, you've done pretty well versus your own stated 5-gigawatt target, the renewable signing. You're doing 5.6, materially higher than 5 gigawatts. But why only like the level of gigawatts actually entering commercial operation is kind of flat to 2023? So just wondering if that's just related to project timing? Because I would have expected to materially tick up, just the new projects going here.

Yes. Hi, Durgesh. That's a good question. Look, 2023 was a dramatic year where we increased construction, 100%. And we've been saying, look, we're not going to grow it at 100% per year. Now we've been signing over 5 gigawatts a year of new PPAs. So eventually, these two have to somewhat converge. I mean, at some point, we have to be cutting the ribbon on around 5 gigawatts. But that's not going to happen likely next year, just because of the timing of some of the projects. We also have a developing transfer project as well, and that's not part of our backlog, but it's part of the signing. So that also is part of the reason for that. So -- this is not a signal of anything. It just has to be the particular timing of the projects that we have. And again, we feel this year, very good about commissioning them all on time and on budget. We have 100% of the major equipment already secured and 80% of it is on site, which is we've never been that good this early in the process. And I think another thing important that Steve said, this is going to be reflected in our earnings profile, whereas we were very back-end loaded last year because of this very rapid growth. As growth enters a more steady state, we're going to have 40% of our earnings in the first half and only 60% in the second half. So, this is something we also worked very hard to achieve. So qualitatively, we feel [Technical Difficulty] here is 2024, 2025, you're going to have a catch up to the amount of PPAs that we're signing.

Got it. Thank you for that Andres. And then maybe, Steve, can I just go back to Nick's question earlier on credit metrics. Can you remind us where you’re ending FFO to debt in 2023 and then where are you projecting 2024 to be versus your credit downgrade thresholds? Thank you.

Yes, I had no problem to guess. So we had a solid year end on the credit metrics. So our thresholds are at 20% FFO to debt and we were roughly at 22% approximately. We do keep atleast a very strong cushion that’s very healthy. And going forward that ratio is actually improving over time in our plan. So for the end of 2024 I would expect it to be at least at 22 if not a little bit higher that. So the leverage of the company overall, we do get a lot of questions about it, but it is important to keep in mind we have a recourse, not recourse structure. And particularly in the non-recourse debt this is amortizing debt. I think not everyone is doing it that way and so our project debt is really amortizing and it serves by the cash flows from the projects. The parent debt level is actually going to be, it will come up a little bit over the planned period, but not a lot. So, it's $4.5 billion now. And as I said in my comments on the slides, maybe another 1 to 1.5 over the 4-year period, but it's going to be pretty stable.

I appreciate that. Thank you very much.

Thank you.

Our next question comes from Angie Storozynski with Seaport Research Partners. Your line is open. Please go ahead.

Thank you. So I was just wondering, are you guys seeing any degradation in either EBITDA or cash flow generation of existing assets? I mean, we're seeing examples of -- especially on the wind side -- that wind assets are having some issues with both OpEx and CapEx, hence re-powerings. But just wondering if there's obviously this positive momentum on the new build side, but is there any offset from existing assets?

Hi, Angie. No, none whatsoever. In fact, as I said, we continue to operate better. And we are seeing that our older projects are giving the returns that we are actually giving better returns than we had forecast. So, we're not seeing that. I mean, we don't have perhaps that many older wins. We do have awful low gap, but we have not seen any degradation in performance.

Okay. And then the second question. So I remember in the past, you were mentioning that the slightly delayed coal plant retirements could be a lever for actually both earnings and cash flow. So is there an update there?

Yes. So Angie, as I was mentioning, the -- so there's just a handful of assets that we've extended through 2027, primarily due to the short remaining duration of the contracts, and it's making both operational sense as well as financial sense for us to remain the owner through the end of life. So there is some upside to that -- 2 upsides really. It smooths out the $750 million of EBITDA reduction from the coal exit plans throughout the 2025, 2026, 2027, 2028 period, so there's no real cliff. And then it does add to the EBITDA over the time frame. But it's one of the -- it's the smaller driver. The biggest driver of the EBITDA uplift is the higher returns we're realizing on the renewable projects, given the market dynamics that Andres discussed as well as the productivity and scale benefits we've realized in the portfolio and expect to continue to realize as we scale up.

Yes. And I'd like to add that we still plan to be out of coal by the end of 2027, and that we -- after 2025, we'll have somewhere about 1 gigawatt plant. And part of this is driven by the fact that these plants are still needed to for stability of the system, so we are not allowed to shut them down in part. I just wanted to clarify. So the strategic objective remains the same, it's just slightly delayed in time.

Okay. And then lastly, and again, it's a bigger picture question, right? We -- it's very topical for today, given a lot of discussion about nuclear power. So we're all getting excited about the colocation of data centers and nuclear plants, and there is argument about spatial limitations for renewable power, given how much land it actually needs to offer similar amounts of computing capacity and especially in Virginia, where those land shortages, I think are most pronounced. So do you actually see that there is disadvantage to your pursuit of tech clients, if that's nuclear angle were to take off?

Well, I think, look, a rising tide lifts all boats. So I don't think this is a situation where there's just going to be like one technology that solves all the needs. So I don't see that any future where there's not, quite frankly, a shortage of renewable projects in the key markets. I know it takes a long time to permit nuclear plants. To my knowledge, excuse me, no new nuclear plants have been built, maybe even in the last decade, anywhere near budget. So on the one hand, I do think nuclear is part of the long-run solution, because I do agree. There's only so much land, so much interconnection. On the other hand, I think that the nuclear renaissance has yet to prove itself and it has yet to build out. So the demand from these clients is so strong. I mean, they are taking second best. Sometimes they can't get -- they want to require additionality because they really want to be part of the solution to climate change. Well, there are circumstances where they will take no additional audit and basically have recontract nuclear power today, at least 0 carbon. But the truth is that squeezing the balloon. That's taking 0 carbon energy off the grid. So I don't think -- I'll put it this way, I feel it's extraordinarily unlikely that the growth in renewables will stop and be replaced with nuclear power. And it's certainly in the next 5 years, I don't see it, and I see it very difficult in the next 10 years.

Okay, thank you.

Thank you.

[Operator Instructions] We now turn to Ryan Levine with Citi. Your line is open. Please go ahead.

Good morning. Given the scarcity of data center projects, how are returns for these projects compared to the projects for other customers?

The scarcity -- look, we don't talk about individual projects, but we do talk about our averages. And so the return on the project will depend, obviously, if you have the suitable location, if it's providing something other than a plain vanilla. So all put together, what I can say is, again, on average, we're seeing an increase in our returns, looking backwards and looking forward, and corporate customers are our most important segment. But yes, we will not comment on sort of specific client areas.

Okay. And then how did you arrive at the 2% to 3% long-term dividend growth is the right growth rate from a financial policy standpoint? And what are factors that could cause that policy to continue to evolve?

Ryan. So look, I mean AES has established itself as a dividend payer a long time ago. We've been consistently growing the dividend at that 4 to 6 range for quite a long time. Obviously, the company's success in the renewable space and now our utilities position for significant growth, has put us in front of a huge amount of growth opportunity, and we want to manage our capital sources appropriately. And so we are committed to our dividend. We want to continue to grow, but we felt on balance given the capital opportunities in front of us and the higher returns that growing the dividend at a little bit of a lower rate made sense at this point, particularly as we've seen higher returns coming from our growth investments.

Okay. And why start that in 2025 as opposed to another year from a timing standpoint?

Well, we look at this -- so I'm not sure that you were pointing out, so we did grow at 4% this year. This is a policy that we take very seriously and thoughtfully. And so we weren't prepared -- we made that decision for this year, towards the end of last year. We weren't prepared to make this decision until we had thoroughly analyzed it and recently made that decision as we locked down our final plan here. And we think, therefore, it makes sense once we've made the decision to go ahead and implement it as soon as we're able, which will be 2025.

Thank you.

Thank you.

Our final question today comes from Gregg Orrill with UBS. Your line is open. Please go ahead.

Yes, thank you, congratulations. Just a detail-oriented question. The 2024 tax credit guidance of $1 billion. Is there anything in there that is timing related or you might describe as more onetime in nature? Or is that -- would you grow that from that level as you add renewables projects?

Yes. So it will grow. And it's not timing so much as it's just the success of the business. As Andres said, we doubled our construction last year. And keep in mind that not all of the credits are recognized in year one in tax equity structures. It's roughly 1/3 get recognized in the second year. So that's boosting the credit this year as well as all of the projects that will come online this year, the new projects on top of that. The other thing that's driving it is the transfer of credit does get recognized earlier, essentially almost all in the first year. And so there's a greater mix of credits transferred in this vintage this year as we -- that grows as a component of how we monetize the credits. So that's driving it higher. But I don't expect this to have dipped, I think it will continue to rise as we head into the years ahead, as the growth program continues. And then keep in mind that we are benefiting from the energy community adder and a significant portion, which increases the credit. And our wind projects are all qualifying for domestic content also going forward. So that all else being equal, is driving the credit value up. And what's important for everyone to understand is the credit is cash and earnings. And the great thing about these -- particularly the investment credits, which is the lion's share of our mix of tax attributes is upfront. So you're getting a return on your capital investment of a significant portion, at least 30%, in some cases, up to 50% right away, which is a fantastic cash profile as well as an earnings profile.

Okay, thanks.

This concludes our Q&A. I'll now hand back to Susan Harcourt, Vice President of Investor Relations, for final remarks.

We thank everybody for joining us on today's call. As always, the IR team will be available to answer any follow-up questions you may have. Thank you, and have a nice day.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.