Pattern Energy Reports Fourth Quarter and Year End 2017 Financial Results

- Declares dividend of $0.422 per Class A common share for first quarter 2018 -

SAN FRANCISCO, March 1, 2018 /PRNewswire/ -- Pattern Energy Group Inc. (the "Company" or "Pattern Energy") (NASDAQ and TSX: PEGI) today announced its financial results for the 2017 fourth quarter and year.

Highlights

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

• Proportional gigawatt hours ("GWh") sold of 7,787 GWh, up 14%
• Net cash provided by operating activities of $218 million, up 33%
• Cash available for distribution ("CAFD") of $145.8 million, up 10%
• Net loss of $82.4 million
• Adjusted EBITDA of $343.7 million, up 13%
• Revenue of $411.3 million, up 16%
• Declared a first quarter dividend of $0.422 per Class A common share or $1.688 on an annualized basis, subsequent to the end of the period, unchanged from the previous quarter's dividend
• Agreed to acquire 206 MW of owned capacity in five Japanese projects which represents the Company's entry into one of the most robust renewables markets in the world, subsequent to the end of the period
• Returned the Santa Isabel project in Puerto Rico to operation at a limited capacity, after reconnection to the grid by the Puerto Rico Electric Authority ("PREPA"), in February 2018
• Raised $58.6 million in capital through asset rotation with the completion of the sale of a 49% interest of the Class B membership interest in the 182 MW Panhandle 2 project to Public Sector Pension Investment Board ("PSP Investments")
• Invested $27 million in Pattern Energy Group 2 LP's ("Pattern Development 2.0") announced acquisition of the majority interest in Green Power Investments ("GPI") and the Japanese development pipeline from Pattern Energy Group LP ("Pattern Development 1.0"), subsequent to the end of the period
• Completed an equity offering of approximately $215 million in gross proceeds

"We met our targeted CAFD range for the year, however the result was not as strong as we had anticipated primarily due to unexpected curtailments from one-time transmission repairs in Texas and Arizona, as well as weaker than expected wind resources at the very end of the year. We increased our portfolio to nearly three gigawatts, with the additions of Broadview, Meikle and the Japanese portfolio since the beginning of 2017," said Mike Garland, President and CEO of Pattern Energy. "We paid for these acquisitions from available liquidity. Our investment in the development business strengthened the platform and improved alignment across the business providing greater flexibility. We continue to have many opportunities for growth; however, we intend to be disciplined in our approach toward new capital given the recent volatility in the capital markets and we intend to pursue alternatives for owning and managing quality projects. The capital we captured from the sale of a minority interest in the Panhandle 2 project in December is just one example of the alternatives we can consider to fund future growth."

Financial Results

Pattern Energy sold 2,123,628 MWh of electricity on a proportional basis in the fourth quarter of 2017 compared to 1,817,651 MWh sold for the same period in 2016. Pattern Energy sold 7,787,411 MWh of electricity on a proportional basis for the year ended December 31, 2017 (the "full year 2017"), compared to 6,806,272 MWh sold in 2016. The increase for the quarterly period was primarily due to the commencement of commercial operations of the Broadview projects in April 2017 and the acquisition of Meikle in the third quarter of 2017. Production for the quarter was 9% below the long-term average forecast for the quarter. The increase in the annual period was primarily attributable to a 748,277 MWh increase in volume from controlling interest in consolidated MWh due to the acquisitions of the Broadview and Meikle projects and a 232,862 MWh increase in volume from unconsolidated investments due to the acquisition of Armow in October 2016.

Net cash provided by operating activities was $58.3 million for the fourth quarter of 2017 compared to $56.3 million for the same period in 2016, an increase of $2.0 million or 3.5%. The increase was primarily due to increased revenues of $26.1 million (excluding the unrealized loss on energy derivative and amortization of PPAs) primarily related to projects which were acquired in 2017. These increases in operating cash flow were partially offset by an increase of $9.5 million in transmission and project expense, an increase of $5.3 million in interest payments, a decrease of $3.8 million in distributions from unconsolidated investments and other changes to working capital as a result of the timing of receipts of payments and disbursements.

Net cash provided by operating activities was $217.6 million for the full year 2017 compared to $163.7 million for 2016, an increase of $53.9 million, or 33.0%. The increase was primarily due to higher revenues of $49.0 million (excluding the unrealized loss on energy derivative and amortization of PPAs) primarily from projects which were acquired in 2017, and an increase of $38.9 million in distributions from unconsolidated investments. These increases were partially offset by an increase of $21.2 million in transmission and project expense, an increase of $16.3 million in interest payments, an increase of $7.0 million in operating expenses and other changes to working capital as a result of the timing of receipts of payments and disbursements.

Cash available for distribution was $41.9 million for the fourth quarter of 2017 compared to $36.2 million for the same period in 2016. The $5.7 million increase in cash available for distribution was due to increases of $26.1 million in revenues (excluding the unrealized loss on energy derivative and amortization of PPAs) primarily from projects which were acquired during 2017 and $7.2 million in available cash previously restricted to fund project costs. These increases were partially offset by increased interest expense of $11.4 million (excluding amortization of financing costs and debt discount/premium) primarily due to the issuance of the unsecured notes in January 2017 and debt associated with acquisitions, increased transmission costs of $7.1 million, decreased network upgrade reimbursements of $4.5 million and decreased distributions from unconsolidated investments of $3.3 million, as well as, $2.1 million in increased principal payments on project-level debt, as compared to amounts from the same period in the prior year.

Cash available for distribution was $145.8 million for the full year 2017 compared to $133.0 million for 2016. Based on dividends paid during 2017, Pattern Energy's dividend payout ratio was 100% of 2017 cash available for distribution. The $12.8 million increase in cash available for distribution was due to additional revenues of $49.0 million (excluding the unrealized loss on energy derivative and amortization of PPAs) primarily from projects which were acquired or commenced commercial operations during 2017. In addition, we received $10.6 million in additional cash distributions from our unconsolidated investments, an incremental $6.6 million in available cash previously restricted to fund project costs and an additional $4.5 million in network upgrade reimbursements primarily related to the Broadview projects as compared to amounts received during the same period in the prior year. These increases were partially offset by increased interest expense of $23.0 million primarily due to the issuance of the unsecured notes in January 2017 and debt associated with our acquisitions, increased transmission costs and project expense totaling $21.2 million, increased operating expenses of $7.0 million, increased principal payments on project-level debt of $3.6 million and increased distributions to noncontrolling interests of $2.4 million. Reconciliations of cash available for distribution to net cash provided by operating activities determined in accordance with GAAP for both the quarterly and annual periods are shown below.

Net loss was $21.9 million in the fourth quarter of 2017, compared to net income of $3.4 million for the same period in 2016. The increase in net loss for the quarterly period was primarily due to a $34.3 million increase in other expense primarily related to increases in interest expense, early extinguishment of debt, losses on derivatives due to unfavorable impacts from foreign currency exchange rates and the termination of interest rate swaps and a $19.8 million increase in cost of revenues primarily related to 2017 acquisitions. The increase in net loss was partially offset by increased revenues of $29.7 million primarily related to 2017 acquisitions.

Net loss was $82.4 million for the full year 2017 compared to $52.3 million for 2016. The increase in net loss for the annual period was primarily due to a $45.3 million increase in cost of revenues primarily due to 2017 acquisitions, a $32.0 million increase in other expense primarily related to increases in interest expense, early extinguishment of debt, losses on derivatives due to unfavorable impacts from foreign currency exchange rates and the termination of interest rate swaps, a $7.0 million increase in operating expense and a $3.1 million increase in the tax provision. The increase in net loss was partially offset by increased revenues of $57.3 million.

Adjusted EBITDA was $98.9 million for the fourth quarter of 2017 compared to $85.1 million for the same period in 2016. Adjusted EBITDA for the full year 2017 was $343.7 million compared to $304.2 million for 2016. The $13.8 million increase in Adjusted EBITDA for the quarterly period was primarily attributable to an increase of $26.1 million in revenues (excluding unrealized loss on energy derivative and amortization of PPAs) primarily from projects acquired during 2017, partially offset by an increase of $9.5 million in transmission cost and project expense, as well as a $2.3 million decrease in the proportionate share of Adjusted EBITDA from unconsolidated investments. The $39.5 million increase in the annual period was primarily due to a $49.0 million increase in revenue (excluding unrealized loss on the energy derivative and amortization of PPAs) attributable to projects which were acquired or commenced commercial operations in 2017 and a $20.9 million increase in our proportionate share of Adjusted EBITDA from unconsolidated investments partially offset by a $21.2 million increase in transmission and project expense, a $7.0 million increase in operating expenses and a $1.0 million increase in transaction costs. Reconciliations of Adjusted EBITDA to net loss determined in accordance with GAAP for both the quarterly and annual periods are shown below.

2018 Financial Guidance

For the full year 2018, Pattern Energy expects annual cash available for distribution^* in a range of $151 million to $181 million, representing an increase of 14% at the midpoint of the range, compared to cash available for distribution in 2017.

Quarterly Dividend

Pattern Energy declared a dividend for the first quarter 2018, payable on April 30, 2018, to holders of record on March 30, 2018, in the amount of $0.422 per Class A common share, which represents $1.688 on an annualized basis. The amount of the first quarter 2018 dividend is unchanged from the fourth quarter 2017 dividend.

Construction Pipeline

The table below outlines the projects that Pattern Energy has agreed to acquire, which are currently in construction, the capacity owned and the projects' anticipated commencement date for commercial operation.

Acquisitions

Subsequent to the end of the period, Pattern Energy agreed to acquire 206 MW of owned interest in five projects in operation or under construction located in Japan from Pattern Development 1.0 and GPI. Pattern Energy agreed to acquire two operating solar projects (Futtsu and Kanagi), one operating wind project (Otsuki) and two under construction wind projects (Ohorayama and Tsugaru), each of which possess a 20-year power purchase agreement with attractive pricing from a top tier, creditworthy off-taker.

Pattern Energy agreed to acquire the 84 MW portfolio of Futtsu, Kanagi, Otsuki and Ohorayama for a cash purchase price of $131.5 million, which represents approximately a 10.5x multiple of the five-year average CAFD^*.

Pattern Energy agreed to acquire the 122 MW Tsugaru project at the start of construction, once fully financed on a non-recourse basis, for a total cash consideration of $194.0 million, which represents a 9.0x multiple of the five-year average CAFD^* starting with the first full year of operations in 2021.

Acquisition Pipeline

Pattern Development 1.0 and Pattern Development 2.0 (together, the Pattern Development Companies) have a pipeline of development projects totaling more than 10 GW. Pattern Energy has a Right of First Offer ("ROFO") on the pipeline of acquisition opportunities from the Pattern Development Companies. The identified ROFO list stands at 935 MW of owned capacity and represents a portion of the pipeline of development projects of the Pattern Development Companies, which are subject to Pattern Energy's ROFO. Since its IPO, Pattern Energy has purchased, or agreed to purchase, 1,564 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 the Pattern Development Companies 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 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 on Thursday, March 1, 2018. 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 7391418. The replay recording will be available until 11:59 p.m. Eastern Time, March 22, 2018.

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 25 wind and solar power facilities, including six it has agreed to acquire, with a total owned interest of 2,942 MW in the United States, Canada, Japan 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 grow CAFD and to achieve the 2018 CAFD estimate, the ability to consummate the acquisitions of the projects the Company has agreed to acquire and the timing thereof, the Company's ability to pursue alternatives for owning and managing assets, the ability to be disciplined in its approach to new capital, that the investment in the development business strengthened the platform and improved alignment, the measures of five-year average annual purchase price of the acquisitions to CAFD, and the anticipated date for commercial operations of the projects under construction. 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.