Algonquin Power & Utilities Corp. (AQN) Q3 2026 Earnings Call Transcript

Welcome to the call. And welcome to the Algonquin Power and Utilities Corporation, third quarter, 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star one on your telephone keypad. I will now turn the conference over to Mr. Brian Chin, Vice President of Investor Relations. Mr. Chin, please go ahead.

Thank you, Operator, and good morning, everyone. We appreciate you attending our third quarter 2026 earnings conference call. Joining me on the call today will be Rod West, Chief Executive Officer, and Rob Stefani, Chief Financial Officer, who will share prepared remarks. Following their remarks, they will be available to answer your questions along with other members of the management team during a Q&A session. To accompany today's earnings call, we have a supplemental webcast presentation available on our website, AlgonquinPower.com. Our financial statements and management discussion and analysis are also available on the website as well as on Cedar Plus and EDGAR. We would like to remind you that our discussion during the call will include certain forward-looking information and non-GAAP measures. Actual results could differ materially from any forecast or projection contained in such forward-looking information. Additionally, all net earnings information to be discussed today is for continuing operations and is attributable to the common shareholders of Algonquin. Certain material factors and assumptions were applied in making the forecasts and projections reflected in such forward-looking information. Please note and review the related disclaimers located on slide two of our earnings call presentation at the Investor Relations section of our website at algonquinpower.com. Please also refer to our most recent MD&A filed on CEDAR Plus and EDGAR and available on our website for additional important information on these items. On the call this morning, Rod will provide a business update, and Rob will follow with the details of our financial results. We'll then open the line for questions. We kindly ask that you restrict your questions to two, and follow up with us after the call if you have any additional questions to allow others the opportunity to participate. And with that, I'll turn things over to Rod.

Thanks, Brian, and good morning, everyone, and thanks for joining us. With the third quarter now behind us, I want to begin by taking stock of where we are on our path to becoming a premier utility. As you've heard from me, I hope consistently becoming a premier pure play regulated utility requires sustained execution, and there are no shortcuts. It takes operational and financial discipline, constructive regulatory engagement, and a relentless focus on our customers. It also takes a team that is accountable for delivering results. And as I look across the business today, I am pleased with what we've accomplished in the third quarter and with the progress that we've made year to date. At the same time, we recognize that we still have considerable work ahead of us. That balancing act continues to define our approach, recognizing our progress while maintaining a clear-eyed view of the work still to be done. Let me start with several accomplishments during the quarter. First, at Empire Electric Missouri, we filed our large load tariff. We believe this is an important step toward supporting economic development in Missouri. It positions Empire to better serve potential new large-load customers while helping protect residential and small business customers by requiring these large-load customers to pay their representative costs of service. It also complements the broader investment opportunity we see in the region as customer needs and the electric grid continues to evolve. We're also pleased that FERC granted CWIP and abandonment incentives to Empire for the portfolio of transmission projects in SPP that have been assigned to Empire. This is another step consistent with our long-term plan to invest in assets that enhance reliability for customers. Second, we took an important step towards further simplifying our regulated portfolio by closing the sale of our 64% ownership interest in Sorales, our regulated water utility in Chile. I do want to take a moment to recognize that company's president, Sebastian Febrez, and the entire Sorales team. For their hard work, dedication, and unwavering commitment to serving our customers. I am proud of the progress they've made improving operations, and I wish them continued success as they begin this next chapter outside of the Algonquin family. As you've heard me say before, our objective is to build a more focused and disciplined regulated utility business. Our approach to portfolio decisions is also deliberate. Any action must support our long-term value. We must be able to execute, and we have to protect the regulated platform by avoiding things that take our eyes off the ball of delivering on the commitments we've already made. The Sorrales transaction in the quarter is consistent with that portfolio framework and demonstrates our ability to execute quickly and decisively, having announced and closed that transaction within several months. Third, we've reached a constructive resolution of our Litchfield Park water and sewer rate rate case in Arizona, including a provision for formula rates. Our regulatory strategy continues to center on earlier stakeholder engagement, identifying areas of common ground, and pursuing pragmatic outcomes that balance the needs of our customers with the need to recover the prudent investments we make in the design, build, and maintenance of our system. We believe that that approach is producing progress across the portfolio. While those are meaningful accomplishments, we know there's still considerable work ahead of us. One area of particular focus is our plan re-domiciled to the United States. We continue to advance the necessary steps associated with that process. Rob will go over this in more detail shortly, but I want to emphasize that this is important work, and we intend to remain thoughtful and disciplined as we move through this process. Our regulatory calendar also remains active. Since our last earnings call, we have filed new rate cases such as those at Empire Electric Oklahoma and Granite State Electric and obtained a rate case decision at Litchfield Park Water and Sewer. These proceedings are part of the work to align rates with the investments required to safely and reliably serve our customers. And in Missouri, we continue to work constructively towards resolution of the potential incremental $13.7 million of annualized revenues. All of this reinforces a point I've made since arriving at Algonquin. Transformation does not happen in a straight line. We will celebrate progress where we earn it, but we will remain candid about where we need to improve. Our job is to stay focused, keep executing, and continue building credibility. With our customers, the communities we serve, our regulators, employees, and our shareholders. Rob will walk through the financial results in more detail in a second, but from my perspective, our financial performance remains on track for the year, and our outlook remains unchanged. We continue to execute against the priorities we established for 2026. As we continue on the path to Premier, our focus remains on consistent execution. That means improving how we serve customers, strengthening the regulatory relationships, and delivering on our financial commitments. That is how we intend to earn our standing as a premier pure play, regulated utility, and create sustainable value for our customers, communities, and shareholders. With that, I'll turn it over to Rob to take you through our financial results.

Thank you, Rod. If you look at slide 9, you'll see today we reported gap earnings of $57.6 million to common shareholders compared to $71 million a year ago. On an adjusted basis, we earned $88.1 million versus $69 million last year. Our third quarter was solid, helped by new rates in multiple jurisdictions, as well as favorable weather. For the year so far, our gap earnings were $145.6 million versus $178.6 last year. Adjusted out, we earned $216.9 million compared to $211.6 million in 2025. We remain on track to hit our $0.35 to $0.37 per share net EPS guidance range for the year. Flipping to slide 10, let's take a look at our third quarter adjusted net EPS versus the prior year. Favorable weather at Empire Electric impacted our earnings by $20.4 million. Additionally, new rates contributed about $11.4 million, primarily from CalPico and Empire Electric new rates, which was offset by wildfire insurance costs and lower GSEP revenue at New England Gas. A $7.1 million benefit from taxes and non-controlling interests also helped quarterly results year-over-year. These drivers were offset by $4.4 million of higher OPEX from gas safety, labor, and maintenance, as well as the non-recurrence of a favorable one-time Energy North depreciation deferral of $7.1 million in the prior year. Ultimately, adjusted net EPS increased by $0.02 from 2025 to $0.11 for the quarter. Slide 11 shows our year-to-date adjusted net EPS. Once non-recurrence of favorable 2025 items are considered, our year-to-date results improved versus the prior year. Positive drivers included $45.3 million from CalPico's rate case, including rate recognition retroactive to 2025, net of the higher wildfire insurance costs. Year-to-date figures also benefited from $13.3 million in rate adjustments and customer growth in other jurisdictions, partially offset by the timing of GSEP revenues at New England Gas. Favorable weather also drove an $11.2 million improvement in year-to-date results. Year-to-date offsets of $29.7 million included the non-recurrence of a number of one-time items along with a rate case write-off and DNA true-up in Arizona. OpEx depreciation and other expenses increased by $29 million, mainly related to higher gas operating expenses of $24.8 million. In sum, our third quarter and year-to-date earnings keep us on track to achieve our 2026 Adjusted Net EPS guidance. Our balance sheet remains stable, supported by our BBB credit rating and a disciplined approach to financing the business. We continue to expect that we will not need to issue equity through 2027 to fund our current plans. Liquidity is strong at $1.2 billion. Importantly, leverage at our Algonquin public company level hold co of $1.4 billion remains at approximately 20% of total consolidated debt, below comparable peers in the 25% to 30% range, providing us with financial flexibility. On slide 13, at the same time, we have effectively hedged our interest rate exposure on the hybrid notes at Algonquin. Which provides greater certainty around our holding company financing costs. Taken together, we believe our investment-grade credit profile, conservative leverage, and disciplined risk management position us well to fund our growth plans while maintaining balance sheet stability. On slide 14, turning to our outlook, we continue to expect adjusted net earnings per share to be within our previously provided ranges of $0.35 to $0.37 for 2026. and 38 to 42 cents per share for 2027. Our performance through the third quarter continues to support those expectations. We remain focused on executing against the operational, regulatory, and financial priorities we have outlined. Turning to a brief update on our planned re-domicile to the United States, the process continues to progress on track, and we remain focused on the completion in the first half of 2027. Completion of the redomisile remains subject to required regulatory and shareholder approvals, as well as other customary conditions. As a reminder, we expect the completed redomisile to reduce the cross-border tax friction we currently experience. We estimate an annualized adjusted net EPS benefit of $0.02 to $0.03 per share, with a partial benefit beginning in 2027. With that, I'll turn things back over to Rod.

Thanks, Rob. As we close, I want to come back to two updates we discussed earlier that reflect the opportunity in front of us and the progress we're making. Empire's proposed large load tariff highlights the potential for disciplined, customer-focused growth in our regulated platform. Meanwhile, the sale of our interest in the Chilean water utility is another tangible step towards simplifying our portfolio. and sharpening our focus on our core business. Now, before we open up the line for questions, I want to leave you with one parting thought. I am tremendously excited about the opportunity ahead of us. Unlike many of our peers, Algonquin is a very real self-help opportunity. We have a substantial regulated utility platform and meaningful opportunities to improve earned returns and operational performance. We also have a clear line of sight to where we need to get better. Our task is straightforward, even if it's not easy. We must execute consistently, strengthen the customer and regulatory compact, maintain financial discipline, and earn our right to grow. We're making progress, and we know there's more work ahead. I believe the opportunity to create long-term value as we continue on our path to Premier is significant. Finally, I'm looking forward to seeing many of you at the 2026 EEI Financial Conference in a few days and at the Wells Fargo Energy and Power Symposium in early December. Thank you again for your time and your continued support. Operator, we are happy to take questions now.

Thank you. If you have a question, please press star 1 on your telephone keypad. To draw your question, please press star 1 again. One moment, please, for the first question. Your first question comes from Balji Sindhu with National Bank of Canada. Please go ahead.

Rob, just following on the Missouri roadside terror fighting, could you detail how Conversations are evolving with potential customer demand and what we need to see happen before the opportunity translates into incremental capital investments. Are there customer commitments and approval milestones that we should be looking out for here?

Yeah, I'll take that. Good morning, and thanks for the question. The short answer is the public milestone is the filing of the tariff that we actually have to have approved. We would not be disclosing anything public with any potential customer unless and until that customer, if that customer existed, was at a point where they would be interested in disclosing anything public. Our first order of business is ensuring the conditions precedent to being able to transact with a potential customer by having our commission approve that large load tariff. Any work that might be going on in the background would not be public until such time as all parties agreed to make it so. I don't mean to be cute, but also I'm not going to hide the fact that we're working to bring economic development to as many of our jurisdictions as we can. The filing of that tariff was the first public signal toward that end.

Great, thanks. And Rob, given you've been in the seat here after a few quarters, just turning over to 2027, what recurring cost reductions could we see become more visible as you work towards the low to mid 30% O&M over revenue target?

Yeah, good question. I think what you'll see us continue to do, we have been doing some outsourcing within the organization. That's driven some costs down. I think app rationalization and IT costs, but not all the costs are massive. Some of the savings are in aggregate. They add up to meaningful amounts. So, you know, given the footprint of the company, given, you know, the sale of the renewables business and kind of a reset on the corporate structure, you know, there's opportunities to continue to take costs out.

Your next question comes from the line of Rob Hope with Scotiabank. Please go ahead.

Morning, everyone. Maybe just going back to Missouri, we've seen a number of your peers kind of outline relatively strong generation investments. Taking a look at your generation stack there, in a scenario where load does increase significantly, what avenues or what pathways could be most attractive on the generation side for investment? And are you looking at potentially early days, looking at incremental gas, renewables, or anything you can add there?

Yeah, again, I'm going to press replay. We're not going to get ahead of the process, but just know that the stack would be supported by customer demands, both within the existing SPP footprint. As well as the contemplation of any specific customer-specific needs in the large load space. I do not want to be and cannot be more explicit because that process is one that will evolve as we continue to move closer to support and approval of our large load tariff. All options are on the table. I will note the economic development stance, particularly in the state of Missouri, of the governor with an all-of-the-above strategy, particularly in the generation space. Our objective is through our SPP and other filings is to keep that on track while being in unabashed pursuit of opportunities to rateably grow our opportunity to make customer-centric investments there. So all of the above is the short answer, nothing on the disclosure front because it's a work in progress. All right, that's fair. Thank you.

And then maybe just moving over to portfolio rotation. So we saw the Chilean announcement a little while ago. You know, you've had the portfolio under your purview for quite some time now. You know, how are you thinking about incremental portfolio rotation? And is it more in terms of use of proceeds? Or is it just to rationalize and make it a little bit more focused?

The short answer is both. What we declared was that we would be opportunistic, and unless there was something that presented a compelling... opportunity for us to create value, we'd be opportunistic on the recycling front to, as best we could, avoid having to issue equity. We've communicated our expectations that no equity would be issued through 2027, and I know that you're aware we're constantly assessing inbound for different parties' interest. In both adding to or subtracting from our portfolio, which is why it's important for us to restate the lens through which we assess these opportunities. Does it create value? Can we execute? And does it otherwise distract? Beyond that, it's focusing on improving performance of the existing portfolio and protecting the balance sheet while we figure out this. This path forward, but we are walking and chewing gum at the same time in that regard.

Your next question comes from the line of Nelson Ng with RBC Capital Markets. Please go ahead.

Great. Thanks, and good morning, everyone. First question is just a quick follow-up to Beltesh's question on O&M. I'm not sure whether I'm calculating it correctly, but I think for the first nine months of this year, it's very similar to last year. I'm just wondering whether there were some one-time O&M items included this year. I think, Rob, you mentioned that there were some outsourcing done, and you're rationalizing some costs. So, I'm not sure whether that kind of offsets some of that and whether we should see a kind of step up or a larger improvement next year.

Yeah, look, I think as you think about some of the work being done around continuous improvement, you know, there are some costs that from an EPS standpoint, and you'll find that in the adjustments disclosure that we adjusted out. So things like some severance, some consulting costs associated with the continuous improvement, we adjusted out, but those would show up in the O&M line item. As we get further along in the continuous improvement, we continue to expect to bend that cost curve back, continue to move it down more into the low to mid-30s as a percent of gross revenue. Without getting into more detail in the programs, I just tell you that it's active and we continue to make progress. You know, I think the other thing to just be aware of, obviously, with CalPICO is we had an additional accrual in this year associated with effectively the way the wildfire insurance worked. And so, you know, what that resulted in is we got, you know, effectively rates retroactive to January 1 of this year. So we got, you know, the revenues for all of 25 and, you know, for year to date 26. But we've also got insurance that was accrued matching that for effectively the 2025 period and then year to date 26. So when you're thinking about O&M and the trajectory kind of into 27 and 28, just wouldn't lose sight of that.

Okay, thanks. And then just one other question. In terms of Empire potentially earning an incremental, I think, $13.7 million per year, if you meet particular... Customer metrics. Can you just provide a bit of background, like have the metrics been finalized? I think you're already measuring some of these metrics, but can you just give a bit more detail on timing and whether metrics need to be met for any kind of consecutive number of months?

Yeah, I'll just say that, you know, We're not in a position to talk about ongoing, let's just call it negotiations, with a regulatory process, but I think the fact that we are in the midst of that process is evidence of the fact that we have closed the gap on some of the billing and other issues that gave rise. And welcome to the underperformance there. I feel really good about what we have done to turn around the customer outcomes there. And so I can't give timing because we're in the midst of ongoing conversations, and I want to protect the sanctity of that. We have an interest as a company of resolving that question sooner rather than later. I'm, I'm confident that we're holding up our end of the bargain. And And I'm going to let the process play out. Rob, you have anything you want to add to that?

Yeah, I mean, just on the number side, you're right. It's 13.7 on an annualized basis. Obviously, you'd have about half of that available for this year. You know, we assumed reasonable outcomes in our guidance. And like we said, we remain on track to hit our earnings guidance. And so we're continuing to work through that process and expect more visibility on that in the coming months.

Your next question comes from the line of Ben Meehan with BMO Capital Markets. Please go ahead.

Hi, thanks. Good morning. I know you've reaffirmed your 2027 EPS guidance. When you think about that range that you provide, do you think about the Chilean asset sale? Can you talk about how much credit metric headroom you anticipate going into next year and how you think about your position as you think about beyond 2027?

Yeah, good question. You know, what I would say is, you know, in our investor presentation for the quarter, we provide a reconciliation of FFO to debt. That came in at 12.2% on an LTM basis. I know that doesn't address your forward look, but, you know, we continue to remain focused on maintaining an investment-grade balance sheet. And so, kind of continually assessing the, you know, headroom to the downgrade threshold, you know, is something that we watch carefully, something that we, you know, manage around. And so, you know, I would just highlight that, you know, we're at 12.2% and, you know, we'll continue to, you know, work on maintaining that investment grade balance sheet.

Okay. Got it.

Again, if you, oh, my apologies.

Moment.

The Chilean asset sale, and you think about rationalization going forward, just really how you think about the balance between proceeds for debt reduction and utility and investment, and can you quantify or top of the qualification of the Chilean impact on your earnings per share?

So, you know, for purposes of, you know, this year, we obviously closed the transaction in the end of October, you know, so have the benefit for the most of the year for that business. You know, there is some, you know, there was some favorable tax pickup making the transaction largely neutral in 2026. And then going forward to your point, you know, I think how you look at it going forward, we're, you know, looking at recycling capital and debt reduction with those proceeds. And so, you know, it was $126 million of proceeds, but we also took off the Sorrales debt off of our books. And so it was slightly credit positive on a forward-looking basis.

Again, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from Mark Jarvie with CIBC Capital Markets. Please go ahead.

Thanks. Rod, I'm going to ask another data center question about Missouri, so bear with me here. Just curious what the local receptivity has been in your service territory, and are you doing anything different in terms of how you're doing engagement? I know you're talking about the large load tariff, you don't want to get ahead of customer discussions, but how are you socializing with community stakeholders about what you're trying to accomplish?

Yeah, you know, it's a great question, and it starts by being transparent about our objectives. And the good thing about Missouri in particular is Missouri already has the experience of having gone through the large load tariff conversation. And Senate Bill 4, in particular in Missouri, already establishes. The legislature's and the state's point of view. Around customer protections that are needed. And so we're not plowing new ground. We've taken the successes of what Missouri has already supported in times past and updated our filing with ongoing conversations with the stakeholders in Missouri, you know, as well as potential large load customers. And so we believe that we're already ahead of the curve, not simply because of our stakeholder engagement process, which is different, but because Missouri itself was ahead of the curve with Senate Bill 4 in laying out the conditions precedent to make sure that customers were, one, heard, and two, protected in the way in which any large load transactions are being contemplated. So I'm comfortable that the work we've done to turn around our performance. In Missouri, which is why the conversation we just had about addressing customer service and billing and other issues and earning the right to be at the table for a large load of conversation, that's where I think we've made the greatest progress. But the stakeholder engagement part is influenced heavily by Senate Bill 4 and what the state's already laid out as a conditions precedent for success there.

Rod, you did mention that your approach is slightly different. Can you expand on that?

Well, the slightly different approach is consistent with the way in which we've approached stakeholder engagement for Algonquin, not just in Missouri, and that is going to the stakeholders long before we make a public filing. So the filing itself, when we made the large load tariff, It was not just a result of Algonquin Liberty sitting around the table and deciding what it wanted to put on paper. The filing itself was the result of stakeholder engagement, so that from the governor to the legislature to customer groups to the commission, You know, being responsive and answering the question, are you listening to your local stakeholders? And I think the answer to that question for us is yes, and it's reflected in the filing. And I do believe, and bluntly with my team, we expect that that's going to make the path forward a lot less contested than it might have otherwise been had we just relied upon our own interest in making that filing. We put the work in. There's still work left to be done, but the filing itself reflects the end result of a lot of conversation with stakeholders, some who have been traditionally for, some who have been against. The efforts that are underway. But I've been encouraged by what I've seen thus far. And, you know, the elections and everything else in the United States, you know, don't change at the end of the day, the long term objectives of all of our states to be a participant in economic development, regardless of its source.

And there are no further questions at this time. I will turn the call over to Mr. Rod West.

Well, again, we're excited about the work that we've accomplished, sober about the work that's underway. We appreciate the questions. Look forward to seeing many of you at EEI. Thanks for your time.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.