XPLR Infrastructure, LP (XIFR) Q3 2026 Earnings Call Transcript

Good day, and welcome to the Explore Infrastructure 3rd Quarter 2026 Earnings Call and Webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Kong Hee John, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining our third quarter 2026 Financial Results Conference Call for Explore Infrastructure. With me this morning are Alan Liu, President and Chief Executive Officer of Explore Infrastructure, and Jessica Jeffery, Chief Financial Officer of Explore Infrastructure. Alan will walk through our business highlights, and Jessica will provide an overview of our financial results. After that, our executive team will be available to answer your questions. On this call, we'll be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in today's earnings news release, in the comments made during this conference call, In the Risk Factor section of the accompanying presentation, or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website, www.xplrinfrastructure.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. With that, I'll turn the call over to Alan.

Thank you, Kongi. Good morning, everyone. Since our last update, the Explore team has continued to make progress across our key priorities. With repowering, execution remains on track. To date, we have completed approximately 85% of our planned repowerings for 2026. The remaining program is progressing and is expected to enhance the long-term value of our portfolio. We also remain focused on our previously announced interconnection sales and battery storage co-investment agreement with NextEra Energy Resources. The first two joint ventures formed in July, and we'll continue to work on the remaining projects contemplated under the agreement. Explore also completed the sales of approximately 400 megawatts of additional interconnection assets and rights to Nextera Energy Resources in August and October. Approximately 200 megawatts were sold in connection with the agreement, with proceeds expected to fund a portion of Explore's net equity investment in the four battery storage projects. Proceeds from the sale of the remaining approximately 200 megawatts are expected to support reinvestment in the underlying projects. We continue to evaluate opportunities for monetization of interconnection assets and rights where they make economic sense. We view these transactions as an important example of the optionality embedded within our existing portfolio. We are leveraging existing interconnection assets and rights that are already part of our asset base to unlock incremental value and to redeploy capital across the portfolio, including to support reinvestment and incremental investment in storage. While maintaining a disciplined approach to capital allocation and balance sheet management. We also continue to execute on our previously outlined financial plan by retiring the remaining approximately $33 million balance of our 2026 unsecured notes in October, leaving us with no remaining corporate debt maturities in 2026. Alongside this progress, we are seeing opportunities to enhance the value of our existing assets through contract optimization. While we expect this opportunity to grow over time as more legacy contracts approach expiration, we are engaging with potential counterparties across multiple markets and evaluating opportunities to extend or optimize contracts where market conditions support attractive economics. We are seeing increasing interest from customers in beginning these discussions well ahead of contract expiration as they evaluate their longer-term power needs. We will remain disciplined in evaluating these opportunities. Our objective is not simply to extend contracts, but to pursue opportunities that can enhance the long-term economics and free cash flow before growth profile of the underlying assets. With that, let me turn it over to Jessica.

Thank you, Alan, and good morning, everyone. Let's turn to Explore's detailed results. For the third quarter of 2026, Explore's portfolio generated approximately $471 million in adjusted EBITDA and $164 million in free cash flow before growth. Existing projects delivered a year-over-year increase of roughly $49 million in adjusted EBITDA and $24 million in free cash flow before growth, For free cash flow before growth, these benefits were partially offset by a decline in proceeds from tax equity investors and higher project financing costs related to the funding of our 2025 Repowering Program. In addition, results for both adjusted EBITDA and free cash flow before growth reflect the impact of asset dispositions completed in September 2025. Free cash flow before growth was further impacted by higher corporate interest payments on the approximately $1.75 billion of unsecured notes issued in March 2025. Specifically, current quarter results reflect the full, semi-annual interest payments on those notes, whereas the payments in the prior year comparable quarter included only partial period of related interest expense. Turning to our financial expectations for 2026. As we approach year-end, we have greater clarity on our full-year outlook. We now expect full-year adjusted EBITDA to finish in the lower half of our prior guidance range and full-year free cash flow before growth to come in at or near the low end of the prior guidance range. There are a number of factors impacting our updated outlook for this year. While average wind and solar resource has been strong across the fleet overall this year, it has been weaker than expected in the West region. Unfavorable generation in the West creates more significant energy revenue reduction because the region contains higher-value PPA contracts on a dollar-per-megawatt-hour basis. Looking to the balance of the year, our outlook also reflects expectations for at least 3% lower wind resource related to El Nino weather conditions. As a reminder, a 1% deviation in wind production across the fleet equates to $4 to $6 million of adjusted EBITDA for the balance of 2026. In addition, we have incorporated slightly higher expectations for net operating and maintenance expenses for the rest of the year. Today, we are also introducing our financial expectations for 2027. We expect a adjusted EBITDA of $1.56 to $1.70 billion and free cash flow before growth of $525 to $600 million. In establishing these ranges, we have considered a range of potential resource outcomes. The lower end of the ranges contemplates the potential impact from lower wind resource related to El Nino weather conditions anticipated in the first half of next year. The primary driver of the expected step-down in adjusted EBITDA for 2027 as compared to 2026 is the expiration of tax credit eligibility for certain assets within the existing portfolio. The anticipated roll-off of production tax credits reflects the normal maturation of our renewable energy portfolio. These credits were largely allocated to third-party tax equity investors, whose investments provided upfront financing for the projects. As the associated tax equity arrangements mature and investors achieve their targeted returns, we expect a benefit from simplified ownership structures and an increased share of project cash flows, partially offsetting the reduction in reported adjusted EBITDA. For free cash flow before growth in 2027, the net expected impact from tax credit changes is roughly $25 million. This impact is less than for adjusted EBITDA because free cash flow before growth only reflects the portion of tax credit economics retained by Explore and its unit holders after tax equity allocations. The year-over-year change in free cash flow before growth also reflects approximately $20 million higher net interest expense. Looking ahead to 2028, based on our current outlook, we expect free cash flow before growth to be in line with 2027. Beyond that, we believe the underlying characteristics of the business support a durable free cash flow profile over the longer term, with several factors that could create upside from the existing portfolio. We anticipate continued benefits from investments under our existing capital plan as more projects come online. The portfolio is also well-positioned to capitalize on recontracting opportunities that we expect may emerge over the coming years. At the same time, delivering on this performance requires us to continue managing operations and maintenance costs and running the portfolio efficiently. As always, our expectations assume our usual caveats. In summary, we continue to operate a large, diversified portfolio of contracted infrastructure assets that generate meaningful free cash flow before growth. We are executing against the priorities we have previously laid out and are maintaining a disciplined approach to capital allocation and balance sheet management. Looking ahead, our focus remains on strong execution, maintaining financial flexibility, and pursuing opportunities that can enhance the long-term value of the portfolio for Explorer unit holders. That concludes our prepared remarks, and we will now open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. The first question comes from Julian Emmeline Smith from Jefferies. Please go ahead.

Hi there. This is Anuhea Elliott on for Julian. Thanks so much for taking my question. So following the roughly 400 megawatts of interconnection asset and rights sale completed this year, could you just help quantify the remaining interconnection modernization opportunity across the portfolio? My guess, should we view these additional proceeds as recurring support for battery co-investments and project reinvestment, or were these transactions more opportunistic?

Hi. Good morning. I appreciate that question. As we've noted before, Explore owns multiple gigawatts of surplus interconnections, and so we view these as embedded options within the portfolio. They're assets that don't generate cash today and can be, over time, monetized. And so we're going to continue to evaluate opportunities to monetize these where they make sense. As you've seen, we've demonstrated there's multiple pathways to monetizing them, including the battery's co-investment opportunity that we've negotiated and collaborated with NIRON. We've certainly pursued direct sales where that makes more sense. And so, yes, we are going to continue to evaluate opportunities to monetize these assets.

Okay, great. Thanks for that. And then I guess my second question, for 2027 guidance, what brings you guys to the high and low end of the range, particularly with regard to what's assumed for the El Nino impact? You mentioned that you expect lower wind resources, but I guess, you know, any other color on the magnitude of that? Sure.

Hi, it's Jessica. So, for 2027, we did give specific sensitivities for lower wind resource on the El Nino front. So, we incorporated into the lower end of the range for adjusted EBITDA, approximately $32 million potential impact and $25 million potential impact on the free cash flow before growth side. That equates to roughly 6% lower wind estimate that we have for El Nino in the first half of next year.

Awesome. Thank you guys so much.

In the first quarter. Sorry. Okay. Thank you.

The next question comes from Nelson Ng from RBC Capital Markets. Please go ahead.

Great. Thanks. Jessica, just to clarify, so on your El Nino assumptions, Like, obviously, you baked in some caution for Q4 of this year, but you're expecting, from your guidance perspective, that El Nino lasts from Q4 of this year through to Q1 and kind of stops there?

Well, we said in the script, right, recalling my prepared remarks, we said in the first half of next year. The number that I quoted, the $25 million, is an assumption of roughly 5.8% lower wind resource concentrated in the first quarter of next year. Again, these are the best estimates we have at this time for both 2026 and 2027. The portfolio is subject to short-term resource variability, but those are the sort of best numbers that we have at this time in terms of estimate for El Nino impact.

Okay, got it. And then the next question just relates to the allocation of the proceeds from the interconnection sales. I know it's not a big number, but $12 million of the proceeds are being allocated to reinvestments in the underlying projects. Can you just clarify whether we should think of this as, like, organic growth capex, or are you funding some, like, major maintenance or refurbishment that's needed in some of the underlying projects?

Hey, Nelson, it's Alan. We had some planned upgrades to site controls and communications infrastructure at some of these projects, and so they were already in the plan. The opportunity came up, and to answer an earlier question, it was opportunistic to monetize the surplus interconnects at a value, you know, fact evaluation. And once you've converted that option into cash, it's fungible. We're just planning on leaving the cash at the projects to offset the spending that was already planned.

Okay, got it. And then just one last question. In terms of your guidance, does the repowering plans and also – I know the contract expirations are pretty limited in the next year or so, But, like, does that make any – like, has that made any – like, does that have much of an impact on your guidance for next year, or is it very incremental?

In terms of the guidance, it's incremental, but, you know, we are bullish on this front. We are, as we mentioned in the remarks, we are seeing traction in customer dialogue of people willing to engage with us on potential re-contracting, re-optimization of the existing contracts well in advance of where the existing contract expires. So, you know, we're optimistic on this front, and so we do think that there is incremental opportunity for the next couple of years. Great. I'll leave it there. Thank you.

As a reminder, if you have a question, please press star 1. The next question comes from Anthony Crowdell from Mizuho. Please go ahead.

Hey, good morning, team. Just hopefully two quick questions. One on the tax equity roll-off. You said maturing tax equity gives you a larger share of the project cash flows. So, how much of the 27 tax credit hit does that offset, and does that offset growth in 20 – does that offset grow in 28?

Yeah. Hi, it's Jessica. So, if you take a look at that $170 million number on adjusted EBITDA for the 2027 guidance versus 2026, that's a net number. So that's not directly, hey, here's the eligibility roll-off specifically for tax credits that came off assets that were expiring from their 10-year period. It's inclusive of the offset on repowering contributions and PTC escalators. So the net impact on adjusted EBITDA accounts for that. On free cash flow for growth, right, you have a smaller number and a smaller variability, but you have adjustments for pay goes that change as tax equities come off. And then as there are tax equity investors who are, you know, effectively bought out of the structure through the allocation of tax credits, then they no longer get that small share of cash flows from the projects that they were getting. So all of that is baked into the expectations in those categories that we've laid out.

Great. And then just, I think you may have already hit it just on the weak west wind and solar, I think, hit your higher price PPAs in 26. Is that only weather or is there something structural that may impact on your 27?

I think that was more recent experience in 2026 that Jessica was referring to, right? If you think about, you know, our assets in California and WEC, generally much higher PPAs than SPP contracts, right, or ACOT contracts. And so this is a reflection of the fact that in the short term, you're going to have variability, and it isn't always a direct correlation of overall megawatt hours to how it reflects on revenue, right? It's kind of dependent on which region is impacted by the megawatt hours. Again, short-term, you'll see this variability. Over the long-term, these things even out, and as we provide expectations going forward, generally we're assuming normal weather. It's just that as we look at El Nino and the information we're seeing, particularly as we're getting up-to-date reports every week on kind of the balance of the year, we felt it was prudent to start to incorporate some of that into the expectations in the short-term.

Great. That's all I had. Thanks for taking my questions.

Great. Thank you.

This concludes our question and answer session, and the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.