Algonquin's Q3 2025: Contradictions Emerge on OpEx Sustainability, Regulatory Risks, Portfolio Optimization, and Missouri Billing

Date of Call: None provided

Financials Results

• EPS: $0.09 adjusted net earnings per share, up 13% YOY from $0.08

Guidance:

• 2025 financial outlook remains unchanged.
• Effective tax rate for the year expected in the mid- to low-20% range.
• Expect some reversal of OpEx timing benefits in Q4 (partial unwind of favourable timing).
• Will update guidance only if there is a material change; new CFO to weigh in on outlook early 2026.

Business Commentary:

* Earnings and Financial Performance: - Algonquin Power & Utilities Corp. reported adjusted net earnings of $71.7 million for Q3 2025, up 10% year-over-year. - The increase was primarily driven by growth in regulated services, implemented rates, favorable weather, and lower operating expenses.

• Operating Expense Reduction:
• The company achieved a significant reduction in operating expenses, with a $11 million decrease in Q3.

• This was attributed to ongoing cost-discipline efforts and improvements in efficiency across various operations.

• Portfolio Strategy and Optimization:

• Algonquin is focused on optimizing its portfolio to become a premium pure-play regulated utility.

• The strategy includes lowering the cost curve, improving operational performance, and enhancing stakeholder engagement, with potential opportunistic transactions that align with the company's strategic objectives.

• Regulatory Proceedings and Settlements:

• The company received approval for the Energy North rate case settlement and is pending approval for the Cal Pico rate case.
• Algonquin is committed to working with regulators and stakeholders to align on specific metrics and milestones, ensuring transparency and affordability in rate adjustments.

Sentiment Analysis:

Overall Tone: Positive

• "it was a constructive and solid quarter." Q3 adjusted net earnings were $71.7M, up ~10% YOY; "Q3 adjusted net earnings per share were $0.09, up 13%"; and management stated "our 2025 financial outlook remains unchanged."

Q&A:

• Question from Baltej Sidhu (National Bank of Canada): Could you share color on the main drivers of the OpEx improvement and if it’s sustainable? MD&A highlighted favourable timing as a factor.
  Response: OpEx gains reflect broad, across-the-board cost-discipline measures; some timing-driven savings are expected to reverse in Q4, but overall trajectory is improved.

• Question from Baltej Sidhu (National Bank of Canada): Any incremental conversations with data center players or large projects that could meaningfully add to system or rate base?
  Response: We won't disclose customer conversations; focus is on creating conditions to serve customers, including increasing transmission capacity in Southern Missouri and stabilizing regional generation.

• Question from Nelson Ng (RBC Capital Markets): Of $11M of cost reductions, $9M was due to timing—should we expect the $9M to be pushed into Q4?
  Response: Timing-related reversal is likely to appear in Q4; the order of magnitude is expected to be similar but exact amount is uncertain.

• Question from Nelson Ng (RBC Capital Markets): Restructuring costs were ~$9.6M in Q3 and ~$22M YTD—when do you expect restructuring costs to roll off?
  Response: We are in the early innings of restructuring; expect this to be an ongoing, multi-year effort with continued costs as changes are implemented.

• Question from Rob Hope (Scotiabank): As part of the portfolio optimization review, did you consider changing the company's domicile given the majority of operations are now in the U.S.?
  Response: Domicile is under active consideration and due diligence; no determinations have been made yet.

• Question from Rob Hope (Scotiabank): Are the recent utility settlements better or worse than you expected in June, and how will the new management approach regulatory filings differently?
  Response: We will not quantify settlements vs June but maintain the assumptions in our outlook; going forward we'll engage stakeholders earlier to minimize contested issues before filings.

• Question from Mark Jarvi (CIBC Capital Markets): On Empire's non-unanimous settlement, can you negotiate with OPC for a revised settlement in parallel with public hearings?
  Response: We remain open to resolving disputes and will seek stakeholder support, but the commission will make the final determinations.

• Question from Mark Jarvi (CIBC Capital Markets): If Calpico and Empire decisions come early 2026 and cost reductions progress, would you update 2026/2027 guidance early/mid-2026?
  Response: We will update guidance only if there's a material change; the incoming CFO in January will help assess and weigh any revisions.

• Question from Mark Jarvi (CIBC Capital Markets): Are you tracking above 2025 EPS guidance?
  Response: Management declined to comment on positioning versus 2025 guidance, stating 'our guidance is our guidance.'

• Question from John Mould (TD Cowen): On portfolio optimization, is the risk-reduction focus chiefly regulatory/state-specific or broader?
  Response: Risk reduction is broad—any enterprise-level factor that threatens steady, predictable long-term outcomes is considered.

• Question from John Mould (TD Cowen): How are the customer, billing, and data systems operating across the utility footprint now?
  Response: Progress is being made—SAP deployment experience and the new Chief Customer Officer are driving improvements, but work remains and Missouri will require measurable metrics and milestones.

Contradiction Point 1

Operating Expense (OpEx) Improvements and Sustainability

It involves differing perspectives on the sustainability of OpEx improvements, which is crucial for financial outlook and investor expectations.

What were the main drivers of the OpEx improvement, and is this improvement sustainable? - Baltej Sidhu(National Bank of Canada)

2025Q3: We've continued to work on improving our cost discipline and taken cost-cutting measures to provide value to our customers and stakeholders. Improvements in efficiency and discipline are across the board, and we expect a little reversal in OpEx timing in Q4, but the trajectory remains positive. - Brian Chin(CFO)

Are billing issues still affecting operating costs? - Rupert Merer

2025Q1: We are focused on ensuring the sustainability of cost improvements we've made to-date through continued operational discipline and prudence. - Brian Chin(CFO)

Contradiction Point 2

Regulatory Risk Reduction and Utility Portfolio Optimization

It involves differing interpretations of regulatory risk reduction efforts related to utility portfolio optimization, which impacts strategic direction and risk management.

How did you incorporate risk reduction into portfolio optimization? - John Mould

2025Q3: Risk reduction opportunities in the portfolio optimization process include any risk to our ability to achieve steady, predictable outcomes for the long term. This involves both utility-specific and state-specific regulatory risks. - Rod West(CEO)

What are the most impactful changes you've implemented? - Robert Hope

2025Q1: As we continue to grow our business, we need to make sure that we're well positioned to deliver on our long-term growth objectives while managing our risk exposure. Please think of this as a risk management approach to earnings predictability. - Rod West(CEO)

Contradiction Point 3

Potential Portfolio Optimization and Domicile Changes

It concerns potential changes in the company's domicile, which could have significant implications for regulatory and tax structures.

Did you consider the company's domicile in portfolio optimization given its U.S. presence? - Rob Hope(Scotiabank)

2025Q3: It is an active conversation and consideration. We're doing due diligence to answer those questions, and we owe it to our existing shareholder base to explore it. While we haven't made any determinations, we are looking into it. - Rod West(CEO)

Will there be additional hires in the near term? Is the current team adequately staffed? - Nelson Ng(RBC Capital Markets, Research Division)

2025Q2: We're constantly asking the question, do we have the right skills in the right places for our objectives. We won't anticipate specific hires, but we'll make announcements when we do. - Roderick K. West(CEO)

Contradiction Point 4

Missouri Billing Issues and Regulatory Strategy

It pertains to the company's handling of billing issues in Missouri and its regulatory strategy, which impacts customer experience and regulatory outcomes.

Can you provide an update on the current performance of your customer, billing, and data systems across your utility footprint? - John Mould

2025Q3: We're making progress in improving customer outcomes and working with Missouri to demonstrate sustainability in our improvements. - Rod West(CEO)

Can you elaborate on the Missouri customer solutions tech platform issues and the billing investigation? - Rob Hope

2024Q4: We're addressing the billing issues seriously and are committed to restoring trust. The SAP implementation is a major project affecting more than finance and customer systems. We're improving the pace of fixes and expect to share progress with the commission. - Sarah MacDonald(CTO)

Contradiction Point 5

Utility Portfolio Optimization and Regulatory Strategy

It involves the company's strategic direction and approach to utility portfolio optimization and regulatory strategy, which could have significant implications for operational efficiency and regulatory outcomes.

Have there been new conversations with data center players or large projects expected to significantly impact your system or rate base? - Baltej Sidhu(National Bank of Canada)

2025Q3: We're really early on in the process of optimizing the portfolio. And as we've talked about this, we've identified a number of initiatives that we're working on, particularly in the Missouri utility and the local utility in New York. - Rod West(CEO)

What are your priorities for the first 90 days and regulatory strategy approach? - Rupert Merer(National Bank)

2024Q4: The focus is on aligning stakeholders and assessing where productive capital can be deployed quickly. The regulatory strategy involves internal cost management first, with external factors to be assessed later. - Rod West(Incoming CEO)