Operator:

Good day, and thank you for standing by. Welcome to the NRG Energy, Inc. First Quarter 2024 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kevin Cole, Head of Treasury and Investor Relations. Please go ahead.

Bruce Chung:

Thank you, Larry. Turning to Slide 14. Our top decile safety and strong operating performance resulted in first quarter adjusted EBITDA of $849 million, exceeding the first quarter of 2023 by $203 million. This represents a 31% increase in our adjusted EBITDA from the prior year. $150 million of the year-over-year increase was the result of the inclusion of a full quarter's worth of Smart Home EBITDA.

Operator:

[Operator Instructions] Our first question comes from Shahriar Pourreza with Guggenheim Partners.

Robert Gaudette:

Shar, it's Rob. Like it doesn't raise any concerns for us as far as trying to purchase supply so that we can meet retail obligations. Even if they do go behind the meter, there's plenty of players in the East. It's a very liquid market.

Robert Gaudette:

Sure. So when you think about the regulations that were promulgated, the first thing I would say, Shar, is that they're all going to be litigated, right? AG, states, ISOs, consumers, everyone has a view and a reason to make sure that these rules get set in place in a way that works for the system and provides reliable and affordable power over time. As far as specifics around us, some of the rules will have to see how they pan out at the end.

Shahriar Pourreza:

Yes. That was perfect. And then, Larry, it sounds like you're having a really good time on the job right now. So maybe you're not in a rush. But is there anything as far as any updates on the CEO search? Or are you having too much fun?

Shahriar Pourreza:

Perfect. Really big congrats to Elizabeth. She's been such a fantastic phase for NRG for some time.

Agnieszka Storozynski:

So first, for the last maybe 20 years, you were trying to convince us that you are power price-agnostic. Clearly, not any longer. That's number one. So how do we think about it, this new backdrop, how it impacts your retail business versus wholesale business? Is this additional margin going to be realized by selling this more expensive power to the retail arm? So that's number one. Number two is, so this is gross margin. Is there like an additional O&M layer, we should think about or on maintenance, both on the cost side and CapEx side? Just to get a sense of how big an impact you will have on the EBITDA of the sway in power prices.

Robert Gaudette:

Angie, when you think about taking the gross margin expansion that you see on the chart and then trying to translate that across over to EBITDA, I would point out -- so think about it in 2 pieces, right? So on the plants that are the generation that's currently running today, right, the stuff that we've built into our numbers and are running today. When you see a step change in power that has zero impact on OpEx for those megawatts because they're already running.

Bruce Chung:

Yes, we would probably see something like an 80% translation to EBITDA and then probably like a 75% translation of the free cash flow.

Agnieszka Storozynski:

Yes.

Agnieszka Storozynski:

Okay. And then one other question. So you're talking about the gas-fired new build. I mean I was just doing some -- running some simple math here. Given growing supply of renewable power, right, you probably can't necessarily count on very high capacity factors for these assets, which would suggest that power prices need to be multiples of what we are seeing in the forward curve, in order to justify construction of these new gas plants. So I'm just wondering how you see it. Even in Texas, those peakers and combined cycle gas plant that you're pitching. Even with subsidized loans, it's hard to imagine that these assets would be economic at a $60 around-the-clock or north price.

Agnieszka Storozynski:

So but in light of that, I'm sorry, I'm asking [indiscernible] line questions. But in light of that, the fact that the new build is materializing at these prices, wouldn't that suggest that there's a cap on the upside to power prices? Because that's usually what it suggests, right, that the new build materializes and that sort of deflates the tightness of power markets.

Operator:

The next question comes from Steve Fleishman with Wolfe Research.

Steven Fleishman:

Got it. Okay. And then on the kind of sites opportunity and also on the new build generation. Could you give us maybe a little bit more color on how you're thinking about funding for those opportunities? And how much might come from NRG versus kind of third-party buying stakes or making the investment? Just maybe some kind of broader overlay how you're thinking about that.

Steven Fleishman:

Okay. And just last quick one. Obviously, the higher stock price, you mentioned still reaffirming the 15% to 20% growth. So that, I assume means you're expecting a better numerator there in terms of free cash flow to support that? And what is driving that? Is that mainly the higher power prices?

Operator:

The next question comes from Durgesh Chopra with Evercore ISI.

Robert Gaudette:

Yes. It's a great question, Durgesh, and it's one that we're working on and it's why we've set up this sort of new group to deal with data centers. I don't know the answer yet. I don't -- we're trying to figure that out. We see ginormous potential, but obviously, there's a ton of work to do in terms of -- to figure out exactly how quickly, what's best on this site? Is it better for a data center or a power plant? Is it better for colocation behind the meter, in front of the meter? So we're spending a lot of time working through those. And I think when we have more color on them, we'll certainly provide that to you all, but I'm not sure that will be in the next 2 or 3 months. It will probably be closer to the end of the year. As you know, the power plant development is an awful lot of work.

Robert Gaudette:

Let me begin by repeating what Bruce said, which is we are reaffirming our capital allocation that we promised everybody. Obviously, when your stock is trading at a 25% free cash flow yield, it's an easy decision, but we still believe we have enough capital to both do our investing and return capital to our shareholders. And I don't see that changing in the short or medium term. So I think we're going to just continue to be disciplined in terms of returning capital and given -- especially given the rises that we've been talking about here will likely should actually have more capital to invest ourselves.

Operator:

Next question comes from David Zimmerman at Morgan Stanley.

Robert Gaudette:

David, it's Rob. Yes. The markets can definitely go up. If you look at the large loans that are coming to the state into the system, ERCOT is already beginning to monitor and take a look at it. It's a lot. And you're seeing that price in. There is more upside in the curves from here.

Robert Gaudette:

So when we think about our out-year EBITDA, remember that a big part of our hedging program is through the retail book, right? So as we sell to our 8 million consumers, that ultimately takes a lot of that value and translates it over through the retail revenue rates. We're always looking way out the curve, David. If I thought that something was really high and out of whack, then I would say that we could take something off the table. But we like the position, we like the trend and we like where our portfolio is.

Robert Gaudette:

It's been a very stable performance. As you saw, we had strong performance in terms of customer growth year-over-year. We saw similarly good performance and load growth and our margins. And so we feel very good. I think there are a couple of new entrants in the market, but as we look at our outflow reports, we don't really see any meaningful traction there.

Ryan Levine:

A follow-up on some of the capital -- just a follow up on some of the capital allocation framework. Is there a price where you would reconsider buybacks? Or are you not trying to take any view on the value of the energy security?

Ryan Levine:

Okay. And then as you're looking at on investment opportunities related to power generation growth in your service territory. Are you are you focusing -- you mentioned a number of opportunities for new build and partnerships. Do you have a preference for partnerships? Or would you prefer to own the assets out right?

Ryan Levine:

Okay. And given the economic outlook that you suggested was attractive for these new builds, are there any customer commitments or duration of demand that you're looking for the data centers to commit to, to underwrite some of these new builds?

Ryan Levine:

And just one last question in terms of retail margin on electricity. The movement in ERCOT forward prices, do you think that will have any impact on the margin that you'll ultimately be able to realize on that part of your business?

Operator:

This concludes our question-and-answer session. I would like to turn it back to Larry Coben, Chairman and Interim President and CEO, for closing remarks.

Operator:

Thank you, ladies and gentlemen, for your participation in today's conference. This concludes the program.

Operator:

Good day and thank you for standing by. Welcome to the NRG Energy, Inc. Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Cole, Head of Treasury and Investor Relations. Please go ahead.

Larry Coben:

Thank you, Kevin. Good morning, everyone. And thank you for your interest in NRG. I'm Larry Coben, and I am the Chairman, Interim President and CEO. I'm joined this morning by Bruce Chung, our Chief Financial Officer and we also have members of the management team on the call and available for question. While I have been CEO for three months, I have been Chairman for seven and on the Board for 20 years. I have never been more excited about NRG as a company than I am today. Let's begin with the NRG value proposition on Slide four. We are the trusted partner to almost eight million residential customers earned every day through unique and differentiated offerings that simplify and improve our customers lives. We have 5.9 million energy and 2 million smart home customers and manage the second largest C&I Energy and Natural Gas retail portfolio in the country. We have taken the necessary steps to position NRG to win the energy transition. At the convergence of energy and technology in the home and grid, with the evolution of smart devices and generative AI data centers. We generate significant excess cash well beyond our current business needs, resulting in financial flexibility to return significant capital to our shareholders while maintaining a strong balance sheet. Our business and financial outlook has never been stronger. And I've never been more excited about the future of the company than I am today. Turning to Slide five. First, in 2023 we delivered record free cash flow before growth and near record adjusted EBITDA. We exceeded our Investor Day outlook and our previously increased 2023 guidance ranges. This is the direct result of the strategic initiatives and actions we've taken in recent years to strengthen and stabilize our business. Our outlook continues to get better and better, and today we are reaffirming our 2024 financial guidance ranges. Next, we made significant progress advancing our long term energy transition and electrification strategy. We have line of sight to achieving our current $550 million by 2025. And we are now turning our attention to the next phase of our growth. Lastly, we continue to execute our disciplined capital allocation strategy, which involves both a strong balance sheet and returning significant capital to you, our shareholders. Turning to Slide six. We delivered $844 million of adjusted EBITDA for the fourth quarter, 82% higher than the prior year. This brings our full year results to $3.282 billion of adjusted EBITDA, 76% higher than last year, primarily driven by improved operational performance of our Integrated Energy platform and the addition of our Smart Home Business. Our 2023 adjusted EBITDA was $152 million above our original guidance midpoint, and at the high end of our adjusted guidance, while free cash flow before growth came in above the high end of our increased guidance range at $1.92 billion, or $185 million above our original guidance midpoint. This resulted in $9.25 of free cash flow before growth per share in 2023, well ahead of the $8.50 per target provided at our June Investor Day. Bruce will provide more details certainly, but again, this performance is the direct result of our strategic initiatives and actions taken to strengthen and grow our business. And I know that these took place even with share purchases occurring at higher levels than projected about Investor Day. Turning to our 2023 scorecard, we delivered across our strategic priorities. As you know, safety is our top priority, and I'm pleased to share that we achieve top decile safety performance through a year with many distractions. I'd like to thank all of our employees for their focus, and dedication and hard work to making this happen, as well as the making our financial results happen. Next, we made progress in our continuous improvement goals for cost excellence. We completed the $300 million Direct Energy Synergy program announced earlier in the year, and we quickly turned our attention to identify and execute our previously announced next phase of cost initiatives $250 million by the end of 2025. Turning to growth, our success in achieving the $9.25 of free cash flow before growth per share versus our $8.50 target was primarily driven by faster execution of our growth plan. We are incredibly pleased with the results of our Smart Home acquisition and believe our current growth plan is just the beginning. We are only starting to scratch the surface. Lastly, on capital allocation, we executed over $1.5 billion in debt paid down and returned another $1.5 billion to shareholders. Turning to Slide seven, let's take a look at our 2024, outlook. Today, we are reaffirming our 2024 financial guidance ranges, and our Investor Day 15% to 20% growth strategic roadmap. We are well positioned across each of our businesses to deliver on our commitments. In consumer energy we expect the momentum gained in 2023, to continue into 2024, with volume margins and earnings growing across residential and small commercial as well as commercial and industrial customer segments. They success will be driven by our diverse and efficient marketing and sales engines, our leading care and retention capabilities, and our best-in-class innovative digital experience. We are also seizing numerous opportunities as they arise or as we create them. An exciting example is Lubbock, Texas, a market of just over 100,000 customers that opened in early January, with 65% of customers having already made their electricity provider choice. So far we are exceeding expectations for our success and winning customers and look forward to bring our innovative offerings and experiences to that market. We also continue to see momentum with Community Choice programs, as a way for customers to experience the benefits of electricity competition in markets that don't have favorable political and regulatory sentiment that would allow customers to have the ability to freely choose their electricity providers. Next, our diversified supply strategy manages our retail exposure in multiple scenarios to include events, like the extreme summer of 2023 and Winter Storm Heather this past January, well, at the same time handling the mild weather that we have seen most of this winter. Our targeted investments for reliability and flexibility across our fleet led to material improvements in the performance of our generation when we needed it, and we expect to realize continued improvements. We continue to evaluate various ways to enhance our supply strategy. We have three brownfield sites ready to go in Texas with dispatch flexibility, and we are considering additional storage options for the portfolio, primarily through longer term structured transactions, rather than outright ownership. And finally, the smart home business delivered a strong year driving impressive top and bottom line growth, recurring revenue and margin per customer increased through selling more products and services while simultaneously reducing net service costs per customer, we will continue to drive toward the horizontal expansion of our eight million customers wallet. Our customer retention is the best in the industry with an average customer life in the Smart Home Business of nine years, driven by unmatched customer engagement and world class, product performance and reliability. We continue to focus on integrating Smart Home and Energy in achieving the initiatives we have previously communicated to you. Turning to Slide 8, for a closer look at growth and cost initiatives. In 2023, we advanced our energy transition electrification, and continuous improvement strategy and delivered $138 million of incremental earnings, which was more times than twice our original $65 million target. We exceeded our goals for both growth and cost savings resulting in more than $100 million of growth in our core businesses and sales channel optimization and more than $35 million in cost savings. This outperformance was primarily the result of realizing synergies faster than originally anticipated. And today, we are reaffirming the full plan target of $550 million of growth and cost initiatives by the end of 2025. Outside of this $550 million program, we have also identified additional attractive initiatives that are in early development, leveraging the significant value creation opportunity from the convergence of energy and technology in the home in the grid. First, is for example, Virtual Power Plants are VPP, where we are uniquely positioned given our customers scale and reach, our data science, proficiency and decades of commercial market -- commercial and market experience. Importantly, VPP will increase in value as the grid tightens, and our Integrated Energy Business will allow us to monetize this value without requiring regulatory change. Second on data centers and AI. Today, we are one of the largest competitive providers of power to the hyperscalers and other data center managers. And we have been in direct conversations with several of these customers about using more load. We see this as a significant opportunity for NRG and for competitive markets more broadly. Finally, we continue to evaluate strategic dispatchable new build, with 1.5 gigawatts of brownfield projects in Texas ready to go. As you may know in November, Texas voters approved the Texas Energy Fund, which provides support for new dispatchable generation. We expect the rules for that to be adopted earlier this year with applications beginning mid-year. We anticipate providing an update on these projects over the coming months. With that I'd like to turn it over to our Chief Financial Officer, Bruce Chung, for a financial review.

Larry Coben:

Thank you, Bruce. On Slide 14, I want to provide a few closing thoughts about 2024, our priorities and our expectations. We are laser focused on delivering on our financial and operational commitments and adhering to our capital allocation principles. We will continue to integrate Smart Home with our energy businesses and deliver on our growth and cost initiatives. All while advancing our energy transition and electrification strategy. I have never been more excited about the future of energy. We are seeing signs of step change improvement in fundamentals across our platform, including the convergence of energy and technology in the home and grid through smart devices and generative AI. We believe this will put a spotlight on the scarcity of the critical products and services we sell and the durability of our platform. Said bluntly, I believe this step change will signify a change in the depressed valuations for NRG in our sector that have resulted in 20% plus cash flow yields. This will be good for NRG and the sector and its very exciting times. I look forward to updating you on our progress along the way. With that thank you for your time and your interest in NRG. We're now ready to open the line for questions.

Julien Dumoulin-Smith :

Excellent. Good morning, guys. Thank you very much for the time. I appreciate it. Look, I know you said it somewhat explicitly in the comments. But I wanted to come back to this. Obviously, with the shares materially higher here, how are you think about where you're positioned relative to the 15% to 20% FCF per share target through the forecast period? I just wanted to kind of tackle that, obviously doing very well against those targets here out of the gate year 1. I just wanted to elaborate on that. And then secondly, just wanted to come back to '24, here. Start of the year, looks like probably robust load. How do you think about that positioning you and as you think about reflecting that within what you've provided -- what would you have out there on targets, just in terms of the colder weather in Texas, specifically?

Julien Dumoulin-Smith :

Wonderful, excellent. If I could just nitpick a little bit on the comments from the -- you provided a second ago. You talked about longer term storage contract opportunities, this would presumably be an offtake arrangement, which you're an offtaker to some sort of battery investment that someone else makes. If I'm hearing you right, I just want to make sure I understood how you are thinking about batteries, and presumably are ERCOT here?

Julien Dumoulin-Smith :

Excellent. All right, guys. We'll leave it there. Thank you guys very much. Congrats again. Nicely done.

Operator:

Thank you, one moment for our next question. Our next question comes from Shar Pourreza with Guggenheim Partners. Your line is now open.

Larry Coben:

Good morning, Shar. How are you?

Larry Coben:

Yes.

Larry Coben:

The answer, sorry, is yes. Yes. Stay tuned.

Larry Coben:

Sure, Shar. I won't take it personally that you seem to be anxious to get rid of me.

Larry Coben:

No, look Shar, I don't think -- I think we're still looking for a bit person who spans the two types of things that we're doing, consumer and energy, as we said before. We have a terrific committee that's working exceptionally hard. And as I said to you, we had a huge list of candidates when we started, and they are whittling away at that. I think when we talked three months ago, I said three to nine months, and I still would stand by that time frame. So I guess that would be 0 to 6 months from now, if I do the math correctly. And there's a tremendous number of people who are looking at NRG, are excited by the prospects, are excited by the ability to drive valuation given the incredible cash flow yield given the incredible prospects that we have at the confluence of NRG and Smart Home. And so I'm excited by the people that we're seeing, and I think you will be, too.

Larry Coben:

Thank you, Shar.

Angie Storozynski :

Good morning. So just also a big picture question. So -- I mean if there's one thing that we've learned over the last couple of weeks is that investors increasingly value physical power plants, especially those that don't get a participation medal for just showing up. So I'm just wondering how does that fit in your strategy of being asset-light on the generation side in light of the tightening supply demand fundamentals and power. Again, I understand that there is the demand response and other ways to probably fit in, in this new picture. But I'm just wondering, just simplistically speaking, how do you deal with that?

Robert Gaudette:

Sure. So Angie, look, we're excited by the growing demand for power. Like I think that it's real. We know it's real because we talk to a lot of the growth guys, so it's the hyperscalers and others that you've all heard about. We talk to them a lot. And it's exciting for NRG for a couple of reasons. One, we sit in competitive markets, which is where I believe most of this demand growth is going to be. We're going to see expanded margins on our existing fleet, right? So as the product goes up, we're going to see more earnings off of our generation, and we've spent and invested inside of those plants so that we can capture that. Like Larry said, we've got the three projects that are ready to go. And the other thing to think about, Angie is we've got 21 plant sites across the country. So if this growth continues and we see it mix economic sense, then there's an opportunity there. But ultimately, these guys are going to turn to partners like NRG. As the market tightens, they're going to look for people who've got the expertise that we have. So it's going to be good for the industry, but it's definitely going to be good for us.

Robert Gaudette:

So generally, C&I margins themselves over the last few years have gone up. The difference in the margin from a hyperscaler versus a traditional C&I customer, there isn't -- we haven't seen a growth in margin on the hyperscalers. The way you should probably think about it is if you're going to get a bunch of demand into the system, which we believe is real. That's going to create tightness for all customers. And so C&I customers across the board not just data center customers are going to be looking for expertise, which means they're going to turn to the bigger players who can help them manage the risk in a higher price, tighter commodity environment. Does that help?

Larry Coben:

Larry, Angie. So just to clarify, we are not chasing an investment-grade rating. As we've always said, we are making sure that we want to hit the metrics that we believe correspond with an investment-grade rating, but that's not to say that we're necessarily going to be chasing it because ultimately, that is up to the agencies. We talk to the agencies very regularly and they like the path on which we are heading from a credit perspective. It's important to note that when you think about our credit metrics, it's not just debt to EBITDA that the agency is focused on. They obviously also look at cash flow driven metrics. And so we're kind of triangulating around all of that. Ultimately, whether we get the rating or not, like I said, is not necessarily within our control. But what is within our control is being able to hit those metrics. I'd say, as we sit here today, given as you note where we're going to end up at the end of 2024, we think there's probably some flexibility in 2025 with respect to what our original deleveraging plans were as part of the Investor Day plan, but more to come on that as we move along in the year.

Operator:

Our next question comes from Durgesh Chopra with Evercore ISI. Your line is now open.

Bruce Chung:

Yes, you bet. So in terms of the growth synergies, we feel obviously very good about where we set one year into the plan through 2025. You can think about the mix as roughly 50% is actually driven by organic growth in the business units. We had obviously a strong year in the base business. And the other 50%, driven by a combination of cross-sell and think of it as a share of wallet type initiatives that improved the revenue and margin profile per customer. And so we've had a strong start. We have a very high degree of confidence for the $300 million given we exceeded our initial guidance in year 1. And then as it relates to the cost side of things. The $100 million in cost synergies are really a function of elimination of two publicly traded companies, and we also exceeded our year 1 target for the cost side. And we have full line of sight to the $100 million by 2025. In fact, we will probably exceed our 2024 target towards that $100 million. And so as we sit here, we feel good on both ends, Durgesh.

Larry Coben:

Look, let me just say, it will not impact one iota our capital allocation strategy or the buyback of shares. I want to make that clear again and again and again, and you can put that down as a headline. So very, very clear on that. Strategically, it's really -- we have a supply strategy that Rob has laid out on several occasions and looking at how these plants fit into that supply strategy, both for our existing customers, but also for the customers who are coming online with things like data centers like generative AI and some of the other things we've been talking about that are growth and tightening opportunities. Rob, do you want to add anything?

Durgesh Chopra:

Very clear. Thank you again.

David Arcaro:

Hey, good morning. Thanks so much for taking my questions. Maybe on the Smart Home side of things, again, strong KPIs in 2023. I was wondering if you could comment on how you're expecting a couple of those like subscriber growth and recurring revenue. How do you see those trending now heading into 2024?

David Arcaro:

Okay. Got it. Thanks for that color. That's helpful. Then I was wondering if you could maybe elaborate a bit more on the data center impact to the business. Am I understanding you correctly that as you see load growth from these data centers happen in ERCOT, for example, you could see, I guess, potentially higher pricing, more volatile pricing. And over time, that could lead to higher margins across the board, higher retail margins across customer classes for your business. Is that the right way to think about it?

David Arcaro:

Okay, great. Thanks for that. Much appreciated.

Michael Sullivan :

Hey, everyone. Good morning. Appreciate the new disclosures on the Energy business, by the way. But I wanted to just go back to Texas and new build there. And just maybe if you could just frame the broader political dynamic there, where things stand just in light of the Lieutenant Governor making some comments, I think, asking for new bill, do you kind of continue to see these headlines noise around the ECRS. I know we're not in a legislative session this year, but just kind of where the politics stand on market structure and the like?

Michael Sullivan :

Okay. That's helpful. Appreciate that's a tough one. And just if you do move forward with these brownfield plants, how long would it take to complete?

Michael Sullivan :

Okay. Great. And then just last 1 quick. You mentioned the new Lubbock market, any like rough sense of size of the opportunity set there? And is any of that baked into your plan? Or is that all upside?

Michael Sullivan:

Great. Thanks for all the color. Appreciated.

Ryan Levine:

Good morning. I am hoping to touch on retail energy gross margin outlook. It looks like your guidance is assuming about 100 basis points degradation there. How much is that weather normalized for '24? And is there any conservatism embedded in that forecast in light of your comments? Any color you could share around potential upside there, in particular, in Texas?

Elizabeth Killinger:

Yes. So we've demonstrated margin stability over the years in the home space. And that comes from -- and most of you were there, from some of the AI machine learning revenue management tools and models we created back in the transformation program and since have continuously improved them. The other thing I would highlight is that over this, call it, the last decade, we've been able to deliver stable and growing margins in a variety of supply cost environment. So this one, Bruce mentioned, where costs have significantly increased over the last few years, and we've either grown or held margins through that time frame, aside from the weather normalization that you mentioned.

Bruce Chung:

Ryan, that's probably one that we'll have to just get back to you on to make sure that we get you the right numbers on that.

Operator:

Thank you. This concludes the Q&A portion of today's call. I will now pass it back to Larry Coben for closing remarks.

Operator:

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program.

Operator:

Good day and thank you for standing by. Welcome to the NRG Energy, Inc. Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Kevin Cole, Head of Treasury and Investor Relations to read the Safe Harbor and introduce the call.

Mauricio Gutierrez:

Thank you, Kevin. Good morning, everyone, and thank you for your interest in NRG. I am joined this morning by Bruce Chung, Chief Financial Officer. Also on the call and available for questions, we have members of the management team. Before we go into the quarterly review, I’d like to start with an overview of our value proposition. Over the last six years we have taken the necessary steps to position NRG at the center of the energy transition. Our Consumer Energy business that benefits from the increasing electrification of our economy, while generating significant excess cash well beyond its business needs. A complementary Smart Home business, that increases the lifetime value of our customers and enable greater optimization of our customer’s energy demand and the financial flexibility to return significant capital to our shareholders, while maintaining a strong balance sheet. As you can see, we delivered compelling value today, and importantly, we have positioned our business to deliver value well into the future. So, with that, I’d like to turn to the three key messages of our earnings presentation on slide five. First, we are raising our 2023 financial guidance, driven by strong financial and operational results, both in the third quarter and year-to-date. Second, we are initiating 2024 financial guidance above the plan we shared with you at our June Investor Day. And finally, with line-of-sight to achieving our 2025 growth roadmap, we are accelerating our focus on behind-the-meter load management opportunities for homes and businesses. Starting with our third quarter results on slide six. We delivered top decile safety performance and $973 million of adjusted EBITDA, 103% improvement from the same period last year, driven primarily by strong operational performance across the business and the addition of Vivint. This brings our year-to-date results to $2.438 billion of adjusted EBITDA, a 74% increase above the prior year. On our last earnings call, we indicated that we were trending towards the top end of the guidance range. With strong third quarter performance and our current outlook for the balance of the year, we are increasing and narrowing our 2023 financial guidance ranges, which includes the close of STP and that increase in the company’s annual incentive plan given the expected outperformance for the year. During the quarter, we continue to make good progress on our strategic priorities. Vivint integration is well underway and with early success on our growth initiatives, we are raising again our 2023 target from $60 million to $75 million. This is 150% increase from our original $30 million target set in May. Also during the quarter, we continue executing on our portfolio optimization efforts with the retirement of the Joliet power station and the sale of Gregory and our interest in STP. Turning to capital allocation. We are raising our 2023 share repurchase target by 15% to $1.5 billion. We have completed $200 million of share repurchases year-to-date and with the close of STP, expect to execute the remaining $950 million under an accelerated share repurchase program. Next, we have executed $800 million of debt reduction, as part of our liability management program. Bruce will provide more details in his section. Finally, we are initiating 2024 financial guidance ahead of our June Investor Day plan. These earnings expansion is durable and represents high quality growth and overall strengthening of our business. On capital allocation, we allocated $500 million to debt reduction and the remaining excess cash allocated 80% to return on capital and 20% growth. Now turning to slide seven for an update on our Integrated Energy Business. We experienced the hottest summer on record in our core Texas market, breaking the previous peak demand record 10 times. While the power grid was given the record demand, it performed quite well with only a few periods of scarcity pricing when renewable output was low. Important thing, the efforts we undertook in our summer readiness and spring outage program resulted in a significant increase in our plan reliability. In the bottom left hand chart is our in-the-money availability. Indicating the availability of our units during periods when they are profitable, which is the relevant metric for our business and shows a significant improvement. Retail saw strong performance through the quarter with in-line customer growth and better-than-expected retention. We continue to improve our digital experience with customers engaging more, increasing monthly average app usage by 20%. Moving to retail supply. The steps we have taken to enhance our diversified supply strategy was successful in providing predictable supply costs under different load and price scenarios. Beyond investing in our plans, we adjusted our hedge ratios to lean long in key summer and winter months. Finally, we are beginning our efforts in residential demand response and have increased participation by 10% this year. We also manage a large C&I demand response business, with 2.5 gigawatts of capacity under management. I will provide more color on the behind-the-meter opportunity later in the presentation. Our Smart Home Business also performed well with strong customer growth and margin expansion as you can see on slide eight. We continue to advance our technology platform with the launch of new innovative products, improving our customer experience, that is constantly recognized as the best in the industry by consumer publications. On the right hand side of the slide, you will see the key performance indicators that we introduced in our last earnings call. We continue to see exceptional performance in Smart Home, with 7% subscriber growth, 9% revenue growth and 9% service margin improvement versus the same period last year, consistent with the improvements we reported in our second quarter results. Acquisition costs are higher due to the impact of more products being sold and higher interest rates, but were more than offset by higher revenue on new subscribers. Our customers are engaging more with our platform and are staying for a longer period of time. We are very encouraged by the performance we are seeing across the business and the opportunities that are arising inside the Home. Now, I want to provide an update on the opportunity for the management we see behind-the-meter or Virtual Power Plants on slide nine. We have been managing energy optimization programs for commercial and industrial customers for years and now we are seeing the growing opportunity in the residential space. New distributed technologies and a growing penetration of connected smart devices in the home have materially changed the industry, providing greater control to the consumer. Grid reliability has also played a role in accelerating adoption. As flexible demand represents instantaneous peaking capacity when the grid is at peak load or in scarcity conditions. We think the primary pathways for us to create value in these markets. First, through optimizing our existing customer peak demand in ERCOT and PJM, where we can benefit from both energy and capacity value, as well as reduced market risks. Second, through VPP services for Smart Home and Utility customers, both in regulated and competitive markets. We are uniquely positioned to win this space, we have the scale with 7.6 million customers, decades of commercial and market expertise and then Integrated Energy Business that allows NRG to monetize the value without having to go to the wholesale market or requiring regulatory change. We also have that data and insights from running the third largest commercial and industrial demand response program in the country. While our focus in the near-term, continues to be optimizing our core and integrating driven, over the medium- and long-term we see a significant value opportunity from these programs. These value is not included in our June Investor Day plan and. I look forward to providing you updates on our progress in the future. Moving to slide 10 for anomaly by integration efforts. We are making good progress across our initiatives and are reaffirming the full plan targets, totaling $550 million of recurring free cash flow before growth by the end of 2025. Our growth and cross-sell efforts have yielded strong results, allowing us to increase our 2023 growth target, $75 million. On the right-hand side of the slide, you will see the increasing number of customers buying two or more products. I want to highlight that this is not exclusively cross-sell between energy and Smart Home, but includes other consumer products sold across NRG that generate recurring revenues. We have been hard at work executing pilots and collecting critical insights as we prepare to scale energy and Smart Home cross-selling in 2024 and beyond. In the appendix of today’s presentation, you will find our latest growth and cost plan score card. So you can track our progress. So, with that, I will pass it over to Bruce for the financial review.

Mauricio Gutierrez:

Thank you, Bruce. I want to provide a few closing thoughts on today’s presentation on slide 17. As you can see, we have made significant progress across all of our key priorities and are also ahead of the five-year plan we provided to you during our Investor Day. I want to take a moment to thank all my colleagues at NRG for keeping focused on execution and for their hard work in achieving these results. We have the right strategy and the right team to deliver exceptional value today and well into the future. So, with that, I want to thank you for your time and interest in NRG. Darren, we are now ready to open the line for questions.

Shar Pourreza:

Hey, guys. Good morning.

Shar Pourreza:

Good morning. Bruce, can we just unpack the $160 million in improved ops and margins that you are calling out in the 2024 EBITDA guidance, walk a little more? How much of that is margin expansion and how sticky is that overall as we look to refine our models for 2025 and beyond?

Bruce Chung:

Sure. Hey, Shar. Good morning.

Bruce Chung:

So. I would say that, really when you think about the $160 million, it’s pretty much margin expansion across the entirety of the complex. So if we think about our Home Energy business, we are really seeing margin expansion, there is really on two fronts, one is on revenue management and on the cost of supply. So when you think about the durability of that, the revenue management side of it is really a function of the efforts we have done over the past several years around data-driven analysis to really make sure that we are targeting proper revenue rate for customers and then on the cost of supply, that’s really representing the benefits of our diversified supply strategy and just a general better plant performance relative to history. On the C&I side, we are seeing margin expansion there, which we would also believe is terrible. As we know, there has been volatility in the market and customers are locking in higher revenue rates reflecting that volatility, and obviously, those contracts tend to be longer tenor and so that should also provide durability. And then lastly on the Smart Home side. As you saw with the KPIs, we are seeing margin expansion both on the revenue front and higher revenue per subscriber, as well as lower cost to serve as we continue to optimize that piece of the business, and again, given the long duration nature of those customers, we would expect that to also continue to be durable. So, all-in-all, higher expansion on the margin side with durability.

Shar Pourreza:

Perfect. And we should -- 2024 free cash flow conversion rate, it looks like it’s in the mid-to-high 50s. I know you have indicated at the Analyst Day, your target is to step-up through the plan into the mid=to-high 60s. Can you just walk us through how you see that stepping up and what kind of shape that may take, i.e., linear as we also continue to update our models? Thanks.

Bruce Chung:

Yeah. I would say, Shar, I think, we continue to remain focused on that conversion rate. I don’t think it will be linear, because if you -- most of that conversion improvement is going to come from increasing the conversion at Vivint, right? And so if you remember, we provided some information that showed a free cash flow growth profile at Vivint going from $140 million to $445 million. by the end of 2025, so that’s a pretty steep increase in the cash flow at Vivint which is really going to help to drive that conversion higher on a go-forward basis.

Mauricio Gutierrez:

Sure. Well, as you know, Shar. We actually improve our diversified supply strategy. Some of it will be through own generation, some moving into rent and to complement with market purchases. So the team is constantly looking at the economics between buying from the market, renting or buying assets from other and creating options internally to develop those facilities either as brownfield development. So we are looking at all of it. We are evaluating the economics. At the end of the day, we are balancing operational risk, market risk, counterparty risk, that criteria permeates the evaluation that we are doing on all of these options. We are still awaiting to see changes in market design and other improvements to incentivize dispatchable generation. That also is going to shape the decisions that we are going to make. So as you can tell, this is not just a linear and a myopic view on assets to be bought in the market and development, we really also need to see what incentives are available given the changes in the regulatory construct in ERCOT. So I have said before that towards, I would say, the end of the year, we are going to have more visibility on those changes in ERCOT that is going to inform the next steps we are going to take.

Mauricio Gutierrez:

Thank you, Shar. Appreciate that.

Julien Dumoulin-Smith:

Hey, guys. Good morning. Thank you very much for taking the time. Appreciate it. Look, just checking in first on the buyback here just a technicality. Can we talk a little bit -- you have a big portion remaining for what you call 2023? You want to talk about your ability to get that done and then also how that might proves to be additive to kind of 2024 here, especially given the higher numbers that your guidance versus initial plan?

Julien Dumoulin-Smith:

…you get it done.

Bruce Chung:

Julien, I would just add that as you know, when you do an ASR, we obviously realize the vast majority of the shares having been bought in pretty much on an immediate basis, but it takes time for the banks to be able to go and purchase those shares properly. And so my guess is, we would probably anticipate that the program will be completed inside of the first quarter of next year. But to us, that’s actually a pretty good situation because then that provides the ability to then roll into a regular way share of repurchase program related to our 2024 capital allocation plan to really continue to maintain the momentum on the repurchase front.

Mauricio Gutierrez:

Yeah. So, well, the first thing that I will say is that, this opportunity is not included in the investor -- in the plan that we provided at Investor Day. The second thing I will say is, just given the focus and the availability of technologies today, we are accelerating the scale-up of this opportunity. I initially thought that this was going to be a five-plus year opportunity. What we are experiencing is that this is going to be able to be implemented and scaled up faster than that. I would say it’s probably a three-plus year. And I provided some initial numbers that I think are very realistic on what we can accomplish. So if you look at a 1 gigawatt VI [ph] position in Texas this past summer, it represented close to $200 million of gross margin. And 1 gigawatt for our portfolio is basically less than 10% of the load -- of the peak load that we currently serve. So it’s very achievable and that gives you just some indication that you are not talking here about a small opportunity, you are talking here about a very large opportunity. The other thing that I will say is that, this product that we are talking about is really leveraging the devices that we use to protect homes plus the distributed technologies available today to help consumers optimize demand. Don’t think of this as a conservation effort -- opt-in conservation effort. This is about optimizing and about convenience for our customers. So it is a very different product from the traditional VI. That’s why we are calling it more as an optimization of the energy demand behind the meter as opposed to a traditional demand response. That’s why we are so excited because this is something that consumers want and this is something that NRG is uniquely positioned not only to provide to consumers, but to be able to monetize that value in the wholesale market. There is no other entity with the scale of NRG that can do that today. That’s why we are an early mover on this.

Mauricio Gutierrez:

I think we are, for the most part, done on the optimization front. I mean remember, the optimization of our portfolio is driven by what we need to serve our load in the best possible way. STP, I already talked at great length, it’s block power, it is not necessarily, it is not flexible, it doesn’t move. We can replace that in the market. Gregory was also very specific. This is basically a plan that was built to provide steam to our host. So they really didn’t do provided the attributes of characteristics that we wanted from a flexible asset. I think after Gregory and STP I would say our optimization efforts are largely done.

Mauricio Gutierrez:

Thank you. Julien.

Angie Storozynski:

Good morning, guys.

Angie Storozynski:

Good morning. So first on Vivint. So one I was just wondering if you have heard any feedback from your activist investor about how holding onto Vivint is working out for you in the stock, so that’s one. And number two is, so you mentioned a number of positive updates on Vivint. One of the main ones, at least that’s stuck-up with me is the, basically lower attrition. So is it fair to say that the higher interest rates and thus lower migration is actually what’s benefiting your platform. Again not something that would everything to link higher interest rates as a benefit for a business like yours, but it’s deals that way.

Rasesh Patel:

You bet. Angie, good morning. I think the results reflect the strong value proposition that we provide to consumers. If you think about 7% subscriber growth. We are also seeing an increase in the number of products each subscriber is actually taking into 5% growth in recurring revenue, simultaneously the cost-to-serve customers is down 19% on a unit basis year-over-year. And as you mentioned, one of the most powerful aspects of the value proposition is the near -- I think that a record-low attrition rate for us and this economy to have a nine-year customer life. When you bring these things together, combined with the fact that the average consumer is engaging with our products, 33% more than they were this time last year. It’s a really robust flywheel that results in just improving customer lifetime value and so we feel really good about the business and we think there’s a long runway ahead forward.

Rasesh Patel:

Yeah. So, I will say, and we literally just finish a pilot where we are connecting our Smart Home technology to our commercial operations. So let me take a little bit of a step-back. We already cover residential demand response program on our traditional energy business and that is connected to the backbone of our commercial operations to make sure that we optimize the system. What we have been doing the last couple of weeks and then is to connect now the Smart Home technology platform to our commercial operations backbone. That was very successful. That’s why I said that, we are accelerating those efforts and instead of being a five-plus-year opportunity, I see that as a three-plus-year opportunity. The improvements and investments that we need to do on the technology backbone is included in that 20% of growth, we are not going to increase that. What I am saying is that, there is the need and the -- by the consumer and quite candidly by the power grid to accelerate these efforts. So really, really good progress there, Angie.

Mauricio Gutierrez:

Yeah. So, Angie, let me just say two things. Number one, we are -- when we serve our customers we are not short. We are actually leaning long. We don’t have to own every megawatt or produce every megawatt that we sell to our customers. That will be the first thing. The second thing is, and perhaps, to your point about, ERCOT. When I think about the market, my view is that, the marginal unit, which means the most cost-efficient today is renewable energy. It’s going to be wind and solar, intermit and generation. That’s zero variable cost generation. What that means is that, for the most part of ours in the market is quite clear at a very low price, except for those periods where perhaps renewable is not performing as normal, because the wind is not blowing and the sun is not shining. So you are going to see very few periods of scarcity conditions. But for the most part, the rest of the intervals, the rest of the hours are going to be very low price. So that’s why demand response and the optimizing demand management is so, so important, because that basically gives you instantaneous peaking capacity exactly for the duration that you want, which is very short durations. I think we have the improvement that we have made on our supply strategy is very consistent with what we expect the market will be paid in the future and the opportunity around the management is again completely consistent with that expectation in terms of price formation and market behavior. So I believe we have positioned the company very, very well for the foreseeable future. And I will just say one more thing, we literally experienced the hottest summer on record in Texas and the grid handled it very well. The only time when we saw scarcity pricing was really at phase where we have low renewable output and even there ERCOT was managing the grid very conservatively. So I will say that, for those of you who really wanted to test the ERCOT market and the improved supply strategy that we have at NRG. This was the test and we passed with high flying colors I think.

Operator:

Thank you. Our -- please wait one moment for our next question. Our next question comes from Michael Sullivan of Wolfe. Your line is now open.

Mauricio Gutierrez:

Good morning, Michael.

Mauricio Gutierrez:

I think right now we are comfortable accelerating the 2023 targets, just given the success on our growth and cross-sell. Yeah, I think, it’s early to start thinking about moving the $300 million by 2025. What I will say is that, that roadmap does not include the VPP or demand side management potential and that’s something that we are going to be talking to all of you, quantifying it and how big it be and when can we start realizing it. So that’s more to come there.

Mauricio Gutierrez:

I mean, it is one more data point that we are going to take into consideration. I think the first step for the loan program, it is the vote and then the second step is the rules around how the loan program is going to work. Obviously, all market participants are looking at it and we will -- again, it will be one more data point for us to inform our supply strategy, but it is only one more data point.

Mauricio Gutierrez:

Thank you, Michael.

Ryan Levine:

Good morning. I am hoping to start off saying more on the strategic side. At the Analyst Day, you indicated an aversion to larger strategic acquisitions. Given that the pre-capsule picture is becoming more favorable and maybe pricing for assets is going down. How committed are you to that vision and you think you highlight some potential VPP and power plant opportunities? Is there any scope around what type of incremental capital that could enable?

Ryan Levine:

Okay. I appreciate the clarification. And then one more on the modeling side in terms of the Vivint, subscriber acquisition cost coming up and that subscriber acquisition cost coming up, what’s driving that and what do you think from a trend standpoint in terms of customer acquisitions?

Ryan Levine:

Is the customer composition or the customer mix evolving or any comments you are able to make around the characteristics of your new subscriber cost?

Ryan Levine:

Okay. I appreciate you taking my question.

Operator:

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Mauricio Gutierrez for closing remarks.

Operator:

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program.

Operator:

Good day, and thank you for standing by. Welcome to the NRG Energy Incorporated. Second Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Kevin Cole, Head of Investor Relations. Please go ahead.

Mauricio Gutierrez:

Thank you, Kevin. Good morning, everyone and thank you for your interest in NRG. I'm joined this morning by Bruce Chung, Chief Financial Officer. Also on the call and available for questions are other members of our management team including the heads of Home, Smart Home Business and Policy. Just over a month ago we held our Investor Day, where we provided an update on our long-term consumer strategy. We outlined the strength of our core energy business, how the acquisition of Vivint further enhances our energy platform and position us to capitalize on the convergence of electricity and smart technologies in the home. Today, I am going to focus on the results for the second quarter, starting on Slide 4 with our three key messages. First, our business delivered strong quarterly results and we are now trending towards the end – the high end of our 2023 EBITDA guidance range. Next, the Vivint Smart Home integration is well underway and we are realizing early wins in our combined sales efforts. Finally, we are executing on our consumer strategy to deliver significant value to our shareholders. Moving to the second quarter results on Slide 5. We delivered top decile safety performance and $819 million of adjusted EBITDA, a 112% increase from the same period last year, driven by excellent performance on our core energy business and the addition of Vivint Smart Home. Bruce will provide additional details on specific drivers but our business benefited from strong plant operations, our enhanced supply strategy, customer growth and favorable market conditions. During the quarter, we began the integration of Vivint Smart Home, which has yielded solid early results. Our revenue and cost synergy programs are well underway and we are reaffirming the full plan targets. As a result of early wins in our growth initiatives, we are increasing our 2023 growth target to $60 million, doubling our previous expectation. Finally, we hosted our Investor Day in June, which included our five-year strategic plan and an update on our capital allocation framework. As a result of the sale of South Texas Project and our revised capital allocation plan we are executing on a $2.7 billion share repurchase authorization and a $2.6 billion debt reduction plan. Through July we were able to complete $50 million of share repurchases and $200 million of debt reduction. As a result of the strong quarterly results and our position for the rest of the year we are reaffirming our 2023 financial guidance with our EBITDA currently trading at the higher end of the range. Now turning to Slide six for an update on our Energy business. ERCOT has experienced record peak demand this summer demonstrating robust load growth in our core Texas region on a weather-normalized basis. The electric grid has been stable through these record demand. During the quarter thermal and wind generation performed close to expected levels which kept our prices relatively muted. As I mentioned during Investor Day we implemented changes to our supply strategy that have worked well for us. We were more conservative on our plant operations and took additional maintenance outages that resulted in better performance from our fleet. We also purchased additional power above our expected low to give us more cushion against extreme weather. All of these have positioned us well this summer and for balance of the year. Parish Unit eight is in testing mode and expected to come back to full service by the end of this month. On the regulatory front the PUCT last week approved a much discussed bridge solution which establishes positive price floors at various levels of operating reserves. This eliminates negative pricing during many hours and should help existing dispatchable units. Looking forward ERCOT and the PUCT are moving ahead with the market design changes stemming from the recent legislative session. These changes were meant to increase reliability and incentivize new dispatchable generation. Key among these programs is PCM the Performance Credit Mechanism which will now go through our rule-making process prior to being implemented. Another major program coming from the legislator was the Texas Energy Fund a program of low interest rate loans and completion bonuses for new generation. Prior to its implementation the Texas Energy Fund must first be approved as a ballot measure by the public in November election. On Slide 7 we are introducing our new scorecard for the growth and cost initiatives. These will be updated on a quarterly basis with our progress. I have been very impressed with the level of collaboration and integration between our Energy and Smart Home teams. During the Investor Day we discussed the makeup of our $300 million growth program 50% coming from organic growth at historical levels and 50% from cross-sell activities. For the quarter Energy and Smart Home grew at historical target levels and in line with our plan. For the cross-sell activities we have seen some early successes. As such we are increasing our growth target in 2023 from $30 million to $60 million. Our Energy and Smart Home call centers have begun transferring more leads to each other and we are seeing positive customer conversion rates on qualified leads of around 6%. And with the addition of the DIY system introduced during the quarter conversion rates are now moving closer to 10%, as this system is a good entry point to upsell and create more stickiness with the customer. One of the best examples of cross-selling and leveraging capabilities across NRG is the Vivint Protection Plan. This is an equipment protection plan that leverages NRG's current capabilities. Vivint launched this program in the second quarter, and we are already at 120,000 plans sold. This is a new revenue stream with very little cost. Our focus for the remainder of the year is to continue testing different bundles and offers before we scale it up in 2024. We are very encouraged on what we're seeing across the two businesses and the opportunities that are arising inside the home. One of the commitments during our Investor Day was to provide additional disclosures on our Vivint Smart Home business. On slide 8, we have provided key performance indicators, comparing quarter-over-quarter. As you can see, we have performed exceptionally well during the quarter, with subscribers growing 7% and recurring service margins up 9%. Our customers are engaging more with our platform and are staying for a longer period of time. Acquisition costs are higher due to the impact of higher interest rates and more products being sold, but they were more than offset by higher revenue on new subscribers. Overall, the profitability of the business is very strong. On the right-hand side is our Vivint Smart Home pro forma, free cash flow projection through 2025. Our target is to grow customer count in line with historical performance around 7%, while we continue to increase margin contribution and reduce overall cost of acquiring and servicing customers. We expect to more than triple the cash flow generator from the business over the next three years. It will provide NRG an earnings stream that is stable, predictable over a long period of time and importantly, diversified from our current Energy business. Turning to slide 9. Our Investor Day focused on our commitment to operating excellence, disciplined growth, and maximizing shareholder returns. I want to provide you some of the key highlights of the event. We outlined a three-part strategic plan to optimize our Integrated Energy model, grow Energy and Smart Home and increased return of capital, while achieving an investment-grade balance sheet. Our Integrated Energy model has evolved in the last seven years, providing more durable earnings. We have strengthened our supply portfolio with the right mix of assets to better serve our customer load. The recent sale of our interest in South Texas Project is a great example of our ability to optimize our platform and maximize shareholder value, through monetizing an asset whose attributes can be readily replicated and replaced in the market. At the same time, we are signing renewable PPAs and evaluating dispatchable capacity development projects, that better match our hedging needs. We outlined our growth program for Energy and Smart Home, capitalizing on the convergence of electricity and smart technologies inside the home. We are going to use Vivint Smart Home technology platform to connect all of our products and services into a seamless experience for our customers. These will result in higher customer lifetime value. Finally, we announced an update to our capital allocation framework with 80% of capital available for allocation now returned to shareholders. With the acquisition of Vivint complete, we have line of sight to the investment needs of the company going forward with growth investments using only 20% of capital available for allocation. Consistent with this change we increased our share repurchase authorization to $2.7 billion to be completed through 2025. We also accelerated the achievement of our investment-grade credit metrics targets to 2025. I will pass it over to Bruce for the financial review.

Mauricio Gutierrez:

Thank you Bruce. Turning to Slide 15. I want to provide a few closing thoughts on our 2023 priority score card. As you can see, our team has remained focused on execution as evidenced by our strong results for the quarter. Our core energy business is well-positioned for the summer. The integration of Vivint is off to a good start and we're working towards closing the sale of STP by the end of the year. We will remain focused on executing our strategic plan that creates significant shareholder value. I look forward to updating you on our progress. So with that, I want to thank you for your time and interest in NRG. Jana, we're now ready to open the line for questions.

Julien Dumoulin-Smith:

Good morning, team. Thank you very much for the time. I appreciate it as always. Maybe just first off just -- thank you for all the details on Vivint. Can you talk a little bit about your 6% conversion rate in terms of -- here? Just how does that compare versus expectations, and just perhaps provide a little bit of context?

Julien Dumoulin-Smith:

…of KPIs.

Julien Dumoulin-Smith:

Excellent. Thank you so much, again, really appreciate, over the phone. And then related can you talk a little bit about your commitment to building new generation in Texas? I mean, obviously, you want to see this corresponding support from the state here. Just where do we stand on that investment follow through? As well as just the ROFR or any potential commentary around the petition from your coders on STP?

Julien Dumoulin-Smith:

Got it. And just to clarify, it says you're not committed yet on making the repowering investments here?

Julien Dumoulin-Smith:

All right. Fair enough. I will leave it there. Thank you, guys.

Operator:

Thank you. One moment for our next question. Our next question comes from Shar Pourreza of Guggenheim Partners. Please go ahead.

Mauricio Gutierrez:

Good morning, Shar.

A - Mauricio Gutierrez:

Well, I mean, I'm not going to speculate on that. Like I said, the claims are without merit. Our plan is to close by the end of the year. I think is – and as we have done in the past, we will deploy capital when we have it, right? So right now our focus is on the share buyback and the debt reduction program that we have for 2023. As you saw, since we overperformed during the second quarter, we were able to allocate $50 million to share buybacks. If that overperformance continues, we will continue to allocate in capital to share buybacks until we have the – until we close the sale of STP, which is really an event that will increase substantially, the capital that we have available to redeploy.

Mauricio Gutierrez:

Yes. Let me start, and then I'll pass it over to Bruce for the specifics. I think the team did just a fantastic job in managing margins, both in terms of revenue optimization and also the enhanced supply – diversified supply strategy that we have on our commercial team, allowed us to realize lower supply cost. So really, really good management all around and our plants performed as expected, which I think that's what we expect going forward but Bruce, any other additional details?

Shahriar Pourreza:

Perfect. Fantastic job guys. I appreciate it. Have a good morning.

Operator:

Thank you. One moment, please. Our next question comes from Angie Storozynski of Seaport. Please go ahead.

Mauricio Gutierrez:

Yes. Good morning, Angie. So yes we are keeping – we're affirming our guidance ranges at this point. I have indicated that we're trending toward the high-end of the guidance. Obviously, the third quarter is a very important quarter. We are well positioned for it, our plants are performing well, our supply strategy is working well for us, but we'll have an opportunity to update you on our results in the third quarter call. So far, I am very pleased with how the business has performed across all business segments

Mauricio Gutierrez:

I mean we have -- remember the full requirement is really C&I. We share C&I customers across Texas and the East. I think Bruce already mentioned that what we are seeing is higher margins because there is greater volatility in the market right both in Texas and in the East. So greater volatility means higher load following premiums which means higher margins on the customers. This is a trend that we are also seeing in our business and again, the changes that we made to our diversified supply strategy are working really well both for C&I, but also for residential customers.

Mauricio Gutierrez:

Yeah. So I mean the increase is twofold. Number one, you have higher interest rates. And then number two, the customers are buying more products and that's a really good thing. Now what you also should be able to see on the KPIs that we're providing you, our revenues are also higher. And by the way much higher than that increase so net-net is an increase on profitability. But Rasesh perhaps you want to just provide a little bit more color?

Angie Storozynski:

Great. Thank you.

Operator:

Thank you. Your next question comes from Durgesh Chopra of Evercore ISI. Please go ahead.

Mauricio Gutierrez:

Hey, good morning, Durgesh.

Mauricio Gutierrez:

Yes. So I mean, we’re seeing top the unit in middle of July. We are working right now through additional testing and as you can appreciate this was basically a rebuild of the entire generator. But I'm confident that we're going to come back end of August. In terms of planning, you're correct. We actually took all the necessary steps to manage our low in the market at really good economics. So I feel that even if Parish comes back at the end of the month, it's not going to have an impact on the guidance that we provided you today.

Mauricio Gutierrez:

Thank you, Durgesh.

David Arcaro:

Hey, good morning. Thanks for taking my question.

David Arcaro:

On the Smart Home business, I was wondering if you could speak to what the free cash flow before growth was for the quarter there, or any color on the free cash flow conversion you're seeing from EBITDA? Wondering how you're trending versus the full year $140 million pro forma target there?

Bruce Chung:

Yeah, David. So as you know, we don't report free cash flow before growth for any individual segment of the company. But based on what we are seeing given the outperformance on the EBITDA side, we would expect to achieve the free cash flow before growth guidance that we had provided in our first quarter earnings call.

Mauricio Gutierrez:

Sure. I'll pass it over to Elizabeth, but I will say that our KPIs on our Retail Energy business are pretty much in line with our expectation, including customer growth. But Elizabeth can you provide more details?

David Arcaro:

Okay. Thanks. That’s really appreciated.

Operator:

One moment for our last question. Our final question comes from Ryan Levine of Citi. Please go ahead.

Mauricio Gutierrez:

Good morning, Ryan.

Bruce Chung:

Yes, Ryan. So, the primary drivers of that reduction, about 50% of that really is a function of fewer truck rolls and reduced supply chain constraints. We probably realized about 25% fewer truck rolls than we had in the past. The other 50% or the other 50% of the favorability really results from the ending of our payments to Alarm.com, which had started towards the -- towards the second half of last year.

Bruce Chung:

Yes. So Rasesh, why don't you take that one?

Ryan Levine:

So, if I'm hearing you correctly, you continue to see fewer truck rolls and decreasing number of truck rolls on a go-forward basis as a driver, or am I misinterpreting that?

Ryan Levine:

Thanks for the clarity.

Operator:

Thank you. I would now like to turn the call back to Mauricio Gutierrez, President and CEO for closing remarks.

Operator:

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.

Operator:

Good day and thank you for standing by. Welcome to the NRG Energy First Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kevin Cole, Treasurer and Head of Investor Relations.

Mauricio Gutierrez:

Thank you, Kevin. Good morning, everyone, and thank you for your interest in NRG. I'm joined this morning by Alberto Fornaro, Chief Financial Officer; and also on the call and available for questions are other members of our management team, including Rasesh Patel, Head of Vivint Smart Home. I'd like to start on slide four with the three key messages for today's presentation. First, our wholesale and retail businesses performed well during the first quarter and delivered strong financial results. We are focused on our core energy operations and have taken steps to make our platform more predictable and resilient. This brings me to my second point. We are seeing improving market fundamentals that should benefit our portfolio as we head into the summer. Finally, we completed the Vivint Smart Home acquisition and integration efforts have now begun in full. We are also updating our 2023 guidance ranges to account for this acquisition. Moving to the first quarter results on slide five. We delivered top decile safety performance and $646 million of adjusted EBITDA. This is a 28% improvement from last year when adjusted for asset sales and retirements. These results were driven primarily by strong operations in our core energy business, direct energy synergies and the addition of one month of Vivint earnings. During the quarter, we made good progress advancing our strategic priorities. We are on track to achieve the full synergy target for direct energy this year. We continue to be opportunistic on our portfolio optimization efforts with the sale of Astoria and we closed the Vivint acquisition in early March. Integration efforts for Vivint are now fully underway. Day one activities went well, and we have now defined the growth synergy target of $30 million for 2023. We will share additional details for the total program at our upcoming Investor Day. I want to take a moment and welcome the Vivint team to the NRG family. I continue to be impressed with the business and particularly the alignment in our corporate values that focuses on safety and customer experience. Finally, we are updating our 2023 guidance ranges to include Vivint and the alignment of adjusted EBITDA between our two companies. Alberto will unpack this in more detail, but let me provide you a quick overview. We're updating our full year guidance to $3.01 billion to $3.25 billion adjusted EBITDA, and $1.62 billion to $1.86 billion of free cash flow before growth. This includes 10 months of Vivint, expected growth and cost synergies for this year. This also reflects the harmonization of adjusted EBITDA to align both companies more with the consumer services industry. Excluding the impact of these changes, the traditional core energy business of NRG remains unchanged with previous stand-alone 2023 guidance ranges. Now, turning to slide 6. I want to provide a brief market update for Texas. We continue to see robust tenant demand growth on a weather-normalized basis north of 3%, driven by population growth and a strong state economy. We expect this trend to continue in the foreseeable future. As you can see in the chart on the left-hand side of the slide, the first quarter was characterized by mild weather and much lower natural gas and power prices, which settled well below market expectations. This benefited our integrated platform by allowing us to bring down our power plants during periods of low prices and performed additional preventive maintenance, while buying power from the market cheaper than our own generation. This resulted in margin expansion fully offsetting lower weather-driven demand, and this is exactly our platform was designed to perform. Looking ahead to this summer, our portfolio is well positioned to deliver stable results. Supply chain constraints are for the most part behind us, and our power plants are ready to run as we progress on our second year of increased maintenance spend. We are also more conservative on our hedging and the operating assumptions we're using for our power plants. Importantly, WA Parish unit remains on track to return to service before the summer. As you can see, we have taken steps to make our portfolio more predictable. Finally, I want to provide a brief update on ERCOT market design enhancements. After considering many alternatives during 2022, the Public Utility Commission of Texas unanimously approved the performance credit mechanism or PCM. This is a market-based solution that is widely supported by competitive entities and regulators. The Texas legislature is currently reviewing the PCM and other enhancements. We expect market design resolution by the end of May with the Texas legislative session, concluding on May 29. We anticipate that PCM will take a few years to be implemented. In the interim, ERCOT and the PUCT are considering a bridge solution that enhances the operating reserve demand curve or ORDC to increase online reserves. We applaud the efforts by the governor, legislature, PUCT and ERCOT to improve the reliability of the grid through market-based solutions. We have several brownfield projects in various stages of development, but all of them will require regulatory certainty before they can move forward. Moving to slide 7. I want to provide an update on our consumer-facing businesses. Beginning with our Retail Energy & Services platform, margins were up year-over-year by 7%, driven by lower supply costs and stable customer count. This was somewhat offset by lower load due to mild weather during the quarter. In the East, we grew through our customer acquisition efforts to provide consumers an alternative to rising incumbent utility prices. We continue to see no material increase in bad debt, which is a direct result of the essential nature of the services we provide. Finally, we launched a modernized digital experience on our web and model app that enables customers to manage their energy usage and provide actionable insights that we are uniquely able to generate regarding uses of energy in their home for their EVs and through their solar solutions. While we have only owned Vivint for one month, I want to provide a full first quarter statistics for comparison. Vivint grew customers by 9% and revenue by 14% compared to the same period last year. Like NRG, Vivint continues to experience strong retention and stable bad debt. The company was also busy in the quarter, enhancing their products and introducing innovative offerings, two of which I want to highlight. First, the Vivint app now includes solar production beta so our customers can actively monitor their energy conservation and cost savings. Second, they introduced a do-it-yourself product called driven basics that makes it easy for owners and renters alike to get the starter system for less than $300. Having a viable DIY and single point solutions is key to our strategy of creating more entry points for customers that we can later upgrade to our fully integrated smart home offering. Now, with respect to synergies, we are reaffirming our cost and growth targets for both 2023 and the full plan. Cost synergies are primarily the result of the combination of two public companies and are expected to total $100 million in recurring run rate free cash flow before growth. Growth synergies of $300 million will be achieved through a target for cross-sell, Vivint organic growth and sales channel optimization. In total, we expect $400 million of recurring synergies to be achieved over the next three years. The synergy and integration plan is now fully underway and is led by the same team responsible for the transformation plan and the direct energy integration. On the right-hand side of the slide, you will see the scorecard for Vivint. We have now introduced 2023 growth targets and cost to achieve. We plan to update this scorecard in the coming quarters to provide further transparency and keep you informed on our progress. I know I have said this before, but we are very excited about the opportunities for the combined company moving forward. Vivint brings a complementary business that expands our customer network by nearly 40% and that smart home technology and infrastructure to strengthen our platform. Together, we create the leading essential home services provider in North America, serving a network of nearly 7.5 million customers, and the acquisition also accelerates the plan we laid out at our 2021 Investor Day and creates the opportunity to deliver significantly shareholder value. During the first three years of integration, this value will be created through both cost and growth synergies, which are laid out on the slide. In the medium and long-term, I see even more opportunity to create value through growing customer count nationally, increasing the average number of solutions per customer and materially extending the customer lifetime. So, with that, I will pass it over to Alberto for the financials review.

Mauricio Gutierrez:

Thank you, Alberto. Turning to slide 14. I want to provide a few closing thoughts on today's presentation. We delivered strong results for the first quarter and are well positioned for the balance of the year. With the Vivint acquisition complete, we turn our focus to integration, growth and synergies. Our efforts are well underway, and it is now all about execution. I look forward to providing you a comprehensive update on our home business and strategy at our upcoming Investor Day. So with that, I want to thank you for your time and interest in NRG. Sean, we're now ready to open the lines for questions.

Julien Dumoulin-Smith:

Hey good morning team. Thank you guys very much for the time. Appreciate it. Nicely done here.

Julien Dumoulin-Smith:

Good morning, Mauricio. Pleasure. Just wanted to follow up on the synergy scorecard here and just thinking through Vivint here. I mean you're laying out -- you've got the $300 million and $100 million in revenue and cost synergies, respectively. How do you think about that translating back to consolidated EBITDA for Vivint here again? And/or, how does that fit with the 12% to 15% FCF target as well? Just want to try to tie it out at least $225 million as best you can today, if we can be a little bit more specific.

Julien Dumoulin-Smith:

Right. So -- yeah, clearly 15% to 20%. And more to the point, as you think about layering on additional assumptions rolling out potentially updated guidance with this Analyst Day. Any initial thoughts on what else can be done with the Vivint platform to continue to grow it. I'll note that the commentary here at the outset is really focused on synergies. You talked about revenue and growth here in the first couple of years, how do you think about compounding that beyond the 2025 period that you're providing here today? Maybe any initial thoughts on how far you can go at this prospective Analyst Day.

Julien Dumoulin-Smith:

Wonderful. All right. I’ll leave it there. Thank you guys very much. Have a great day.

Operator:

At this time, I would like to turn it back to Mauricio for closing comments.

Operator:

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program.

Operator:

Good day, and thank you for standing by. Welcome to the NRG Energy Inc. Fourth Quarter 2022 Earnings Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Cole, Head of Investor Relations.

Mauricio Gutierrez:

Thank you, Kevin. Good morning, everyone, and thank you for your interest in NRG. I'm joined this morning by Alberto Fornaro, Chief Financial Officer. And also on the call and available for questions, we have Elizabeth Killinger, Head of Home, Rob Gaudette, Head of Business and Market Officer; and Chris Moser, our Head of Competitive Markets and Policy. Starting on Slide 4 with our key messages for today's presentation. We have made significant progress in advancing our strategic priorities in 2022. And while our financial results were lower than expected, our business is well positioned in 2023. Today, we are reaffirming our 2023 financial guidance ranges. The Vivint Smart Home acquisition is on track to close by the end of the first quarter. Today, we are providing further disclosures around revenue synergies to ensure you have additional tools to properly value the transaction. Finally, the core of NRG is strong, supported by favorable fundamentals. The acquisition of Vivint enhances our ability to achieve our free cash flow before growth per share targets. Now turning to Slide 5 for the financial and operational results of 2022. Beginning with our scorecard for the year, we executed well across our strategic priorities. We delivered our second consecutive year of record safety performance. For me, it always starts and ends with the wellbeing of our people. I want to thank everyone at NRG for staying focused during a challenging year. Our retail group took deliberate actions to manage price volatility and delivered record customer retention and extended the average term of a new customer to 2 years. Also, our bad debt remained below historical levels despite higher inflation and tightening financial conditions. Our plant operations performance was below expectations, primarily impacted by the outage at [indiscernible] Paris right before the summer. We are taking additional steps to strengthen our supply and mitigate operational risk during specific conditions. The direct energy integration is nearing completion and on track to deliver our run rate synergy targets in 2023. We executed on our test and learn program during the year, which culminated in the announcement of the Vivint Smart Home acquisition. We also continue our portfolio optimization with 2 gigawatts of coal retirements and asset sales. Finally, on capital allocation, we executed $645 million of share repurchases out of the $1 billion program. We will execute the remaining amount when cash is available and when we have full visibility to achieve our targeted credit metrics. We also increased our dividend by 8%. Since it was reestablished in 2020, we have raised our dividend more than 25% and returned almost $1 billion to shareholders this way. I view our dividend as an integral part of our return on capital policy. Moving to financial results. We delivered $435 million of adjusted EBITDA in the fourth quarter bringing our 2022 full year result to $1.754 billion, below expectations. For the fourth quarter, we highlighted in our last earnings call that reaching the bottom end of the financial guidance included a little over $100 million of optimization opportunities. Specifically, making our natural gas units available to capture value during periods of high power prices. This opportunity did not materialize as mild weather during the quarter, the power price is much lower than expected. We were also impacted by winter storm Elliott in late December primarily from PJM capacity performance payments, where we risk adjusted downward our bonus payments pending additional information from PJM. Alberto will provide more information on our financial results. Turning to Slide 6, our 2023 outlook. We are reaffirming our 2023 financial guidance. We see improving fundamentals in our business, including more stable supply costs driven by lower natural gas prices, less supply chain issues for coal and chemicals, more favorable retail market conditions in the East and economic resilience in our customer base. In the East, we see opportunity for customer growth given rising rates from public utilities, enabling competitive retailers to demonstrate the value of our services to customers on an equal playing field. In Texas, the Public Utility Commission proposed market design improvements that will result in more dispatchable generation and greater reliability of the aircraft grid. I want to commend the Texas Governor's office, legislature, and for taking swift action to enhance grid resilience while ensuring the integrity of the competitive market. Also, retail competition will open in , Texas in the fall, a city with more than 100,000 electric customers. We look forward to having the opportunity to earn and serve customers in that area later this year. In 2023, we will continue executing on our strategic priorities focusing on strengthening our core business while growing ideation products and services, as you can see on the right-hand side of the slide. We continue our focus on optimizing our portfolio to better serve our customers. To that effect, we are targeting $500 million in net cash proceeds from asset sales by the end of the year. Having completed our test and learn phase in 2022, we are now focused on the next phase of our strategic road map, growing the business. This includes completing the direct energy integration and increasing the number of customers that purchase multiple products from us. Today, we have sold more than 1 product to 15% of our customers. We are making good progress on cross-selling and will provide additional disclosures as we integrate Vivint. To support this growth, we will continue to strengthen our power supply by expanding our capital-light PPA program for renewables to dispatchable generation at some of our existing sites. Finally, we are on track to close dividend in the first quarter with all regulatory approvals received and no shareholder required. We expect to close financing soon and have begun day one integration efforts. I want to provide additional insights on how Vivint enhances our core energy platform and brings additional capabilities at scale on Slide 7. Vivint is a leader in smart home solutions with nearly 2 million highly engaged customers with an average life of 9 years. Their system brings together automation, security and residential solar under a single proprietary technology and data platform. This business is highly complementary to our core energy offering. We will use their smart home ecosystem to connect all our currently isolated products and services, including green power, batteries, EVs and other products into a seamless experience that is highly engaging and personalized. This engagement will provide tremendous insights into pricing, customer experience, a new solutions that create greater brand loyalty and longer average customer lifetime. As we leverage the smart home ecosystem, we expect to optimize energy demand inside the home, providing valuable services to the wholesale markets. In other words, NRG will be the bridge between the home and energy markets with a unique ability to optimize and monetize value between the two. Vivint will also complement our existing energy product offerings and sales channels by adding home automation, security and residential solar at scale including a proven acquisition engine with a solid track record of growth and nearly 2 million customers. On the right-hand side of the slide is the virtuous cycle that we have discussed in the past. By leveraging our existing platform, we can access meaningful cost synergies. This economic advantage, coupled with better insights and more personalization, resulting in a better experience for our customers. All of this translates into a deeper understanding of how consumers interact with their homes, additional margin and better retention on our core products and then the cycle repeats as we grow, creating a more valuable business. Now I want to disclose the value of opportunities that this combination represents on Slide 8. We have identified 3 main areas of value, growing and optimizing our network of customers, leveraging the platform to achieve cost synergies and improving the value of our core energy customers. With respect to the growth opportunity, we are targeting $300 million of incremental free cash flow before growth by 2025. We are encouraged by the preliminary work we have done on both sets of customers and look forward to fully optimize once the transaction closes. As you can see on the left-hand side of the slide, there is some overlap in our core energy markets, but it's relatively small. This is important because Vivint already has teams ready to be deployed in our core energy markets and because the addressable market opportunity for new customers will be even greater. We expect to achieve this growth target in several ways as we target Tier 1 customers which we define as single-family homeowners with high credit scores within select urban areas. We will focus on 2 immediate and actionable opportunities. One, cross-selling existing products into our combined customer network of 7.5 million customers; two, selling bundle offers to new customers outside of our network representing 15 million potential households. In addition, we will grow dividends organically in line with historical levels. These opportunities will be enhanced by optimizing our combined sales channels and best practices, leveraging the strength of both NRG and Vivint. The capital required to achieve this growth is expected to range $500 million to $600 million over the next 3 years. For gross synergies, we have identified $100 million to be achieved by 2025, primarily from combining 2 public companies. For these, we expect $160 million of onetime cost to achieve. Finally, on our existing core energy customers, cross-selling means we can have direct access to our customers in the East and the opportunity to expand margin and extend customer lifetime value. In total, we see a $400 million opportunity by '25 and a larger opportunity beyond given the size of the smart home addressable market. I am confident in our ability to deliver these targets as we have a strong history of integration and synergy achievement. Just to remind you, since 2016, we have achieved significant value on integration synergies, cost reductions and enhancement programs. This effort will be led by the same team as the transformation plan and direct energy integration. I look forward to providing you a more comprehensive update later this year during our Investor Day. Now turning to Slide 9. We want to give you an update on our pro forma outlook and how the dividend transaction supports our growth targets. On the left-hand side of the slide is a free cash flow before growth pro forma walk from 2023 to 2025, including the expected growth contribution from Vivint that we just discussed on the previous slide. This illustrates the earnings power of the company and will be further unpacked once the transaction is closed. On the right-hand side of the slide is the expected capital allocation through 2025. As you can see, the combined platform provides the financial flexibility to have a balanced approach between growth and return of capital while maintaining a strong balance sheet. The acquisition of Vivint and more specifically, the growth opportunity that it represents will better support our per share growth targets while materially high-grading our earnings quality and customer lifetime value. So with that, I will pass it over to Alberto for the financial review.

Mauricio Gutierrez:

Thank you, Alberto. On Slide 15, I want to briefly outline our 2023 priorities and expectations. First and foremost is delivering on our core energy business goals. We will continue to strengthen our integrated platform and further optimize our portfolio. Second, we are focused on closing the dividend acquisition, integrating the business and delivering on our synergy commitments. Finally, we will stay disciplined on our capital allocation plan as we execute on our strategic priorities. I am excited about this next phase of our evolution and look forward to providing you a comprehensive update at our Investor Day later this year. So with that, I want to thank you for your time and interest in NRG. Josh, we're ready to open the line for questions.

Julien Dumoulin-Smith:

Listen, I wanted to talk to you guys about the '25 outlook and just clarify this. As it pertains to the original conversation around, call it, $12.50 a share of , is this an implicit increase in expectations or roughly in the same ballpark? As I look at sort of what's implied on the numerator and denominator, seems like there could be a slight increase there. I just want to come back and clarify that as best you guys see it. And I have a quick follow-up.

Julien Dumoulin-Smith:

Excellent. And just clarifying this. I know you discussed an Analyst Day here, would you expect to roll that 25 forward at the time of the Analyst Day? Or could we get something sooner with the close and then considering that closed -- just super quick, if I can, we've seen some litigation out there around and what is possible, if you will, in recent days. Can you clarify how that may be impacting the process itself at this point? Just if you don't mind for a moment?

Operator:

Our next question comes from Angie Storozynski with Seaport.

Mauricio Gutierrez:

Yes. No, Angie, I mean I'm glad that you went down the list because when I think about 2023, I would say that it's more conservative than we have did in 2022. Not only from what we control. So if you think about the characteristics of our plans, the assumptions that we use in our forecast are more conservative we have also -- remember now this is the second year that we have increased maintenance CapEx around our plans. So we expect greater reliability on them. And there is a lot of tailwinds on our guidance. You already mentioned the dynamics in the East where prices for the default service utility providers are much higher, and I think we're going to have a great opportunity to gain market share. With the falling gas prices, that creates really good environment for us for managing our retail margin. So all of this is positive. Now, let's just -- it's only February, right? So I want to make sure that we see at least a couple of months, and we have greater visibility on the rest of the year before we can provide you additional adjustments. But I think it's fair to say that I feel very confident that we can achieve our guidance and perhaps we are hearing on the conservative side with the number. But I think it is -- I think it's prudent given the type of volatility and extreme weather that we have seen in the past couple of years.

Mauricio Gutierrez:

Sure. I'll let Alberto cover.

Mauricio Gutierrez:

Yes. So I think it's fair to say that penalties -- we have taken all of that into consideration and bonuses, we need more information from PJM. So we have risk adjusted down for that.

Mauricio Gutierrez:

Yes. No, I mean that's correct. So my expectation is that it will happen this year and obviously being very consistent with our capital allocation principles, we want to focus first on achieving our credit metrics and then we will -- once we have the visibility in terms of achieving that and obviously, as we get cash proceeds in the door throughout the year, we will be executing on the share repurchases. So my commitment to everybody is that we will execute them, but we need to have first assurance is that we have -- that we meet our commitment on credit metrics and that we have the cash available. So that's how we're thinking about it.

Mauricio Gutierrez:

No.

David Arcaro:

I was wondering if you could elaborate on what assets might be considered for sale and what the potential timing might look like in terms of executing any processes related to that?

David Arcaro:

Okay. That's helpful. And then I was wondering if you could speak a bit to just fleet reliability and resilience here. Wondering -- just if you could talk to the strategy to improve the risk profile of the business during extreme heat and cold events. Are there further investments that you could make in your fleet to improve their resilience or more you could do to beef up the supply side of the equation?

Operator:

Our final question comes from Steve Fleishman with Wolfe Research.

Mauricio Gutierrez:

Yes. So we already sold Astoria. And let me just give you my view on the 2023 guidance, which I started talking to and about it, and then I'll pass it on to Alberto to tell you exactly what's the amount. But the way to think about the 2023 speed is more conservative forecast that we have done in the past, both from an operational productivities of the power plants, how we're managing our retail load but also because of the dynamics that existed in 2022 that don't exist today, like if you remember, we have the supply chain issues on coal and chemicals. That has abated for the most part. We are falling to stable natural gas prices now that allows us to better manage our retail margins. We have an environment in the East where we feel very comfortable that we can gain market share on our retail business. So I think in general, I would say that 2023 is a lot more conservative. The guidance is right on top of what we provided to you back at the Investor Day when you adjust for asset sales which we provided you the bridge back then. So actually, in the Investor Day deck, you have the ins and outs, given the portfolio optimization that we have done. And we're literally on top of where we should have been so -- 2 things. One, I feel very confident that this is in line with what we provided you. And two, that is taking -- we're taking a little bit more of our conservative approach in so the number. Obviously, we will update you throughout the year. But just keep in mind that we're just at the beginning of the year. But I don't know if there is anything else that we need to add.

Mauricio Gutierrez:

Yes. So in the guidance, obviously, we have the Parish that is not in the first half of the year because it's on average. What I will tell you in Parish and I think that's probably the largest risk. The progress that we have made is pretty significant. As a matter of fact, I think just last week, we've had the generator now on site and has been listed and put in the deck. So we're making really, really good progress on what I'm seeing today, I'm confident that we will come back on time. Obviously, the commercial team is monitoring very closely that with the plan. If there is any delays or there is any acceleration that we either mitigate the risk in the market or that we take advantage if it comes in earlier. But in fact, that it's already embedded in guidance but Alberto?

Steven Fleishman:

And then asset sales?

Mauricio Gutierrez:

But it's already -- Astoria, it has already been taken into consideration.

Steven Fleishman:

Okay. And how much is that?

Steven Fleishman:

Okay. Great. Appreciate it. So it's really the core business, yes.

Mauricio Gutierrez:

Thank you. Thank you for your interest in NRG, and I look forward to updating you once we close the transaction on Vivint. Thank you.

Operator:

Good day and thank you for standing by. Welcome to the NRG Energy, Inc. Third Quarter 2022 Earnings Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Cole, Head of Investor Relations. Please go ahead.

Mauricio Gutierrez:

Thank you, Kevin. Good morning, everyone and thank you for your interest in NRG. I am joined this morning by Alberto Fornaro, Chief Financial Officer. Also on the call and available for questions, we have Elizabeth Killinger, Head of Home; Rob Gaudette, Head of Business and Market Operations; and Chris Moser, our Head of Competitive Markets and Policy. I’d like to start with the three key messages for today’s presentation on Slide 4. We are narrowing our 2022 EBITDA guidance to the bottom end of the range, as we indicated on our last earnings call and we are initiating 2023 financial guidance in line with our Investor Day plan. We continue to make good progress on our strategic priorities and have now completed the initial phase of our test and learn program. The insights that we have gained from this process will inform our next phase of growing from our core energy business into adjacent essential home services. Finally, as I committed to you, we are announcing our 2023 capital allocation plan, which includes an incremental $600 million share repurchase program, consistent with our long-term capital allocation principles. Our business performed well during the third quarter, which was characterized by extreme price volatility and record load in our key Texas market. I am very proud of our team which once again achieved another quarter of top decile safety performance despite these challenging market conditions. As you can see on Slide 5, we delivered $452 million of adjusted EBITDA entirety of the change compared to last year was previously identified with 60% coming from asset sales and transitory impacts and 40% from the unplanned outage at our W.A. Parish facility. With these results, we are narrowing our 2022 EBITDA guidance to the bottom end of the range. Alberto will provide additional details in his section. We also made good progress on all our key strategic priorities. We have now achieved our direct energy synergy target for 2022 and remain on track to achieve the full run-rate of $300 million by next year. We continue to optimize our generation portfolio by retiring uneconomic fossil fuel plants, monetizing non-core assets and partnering for brownfield development. As part of this effort, we are selling the Astoria side for approximately $200 million in net cash proceeds. On our growth program, we continue to focus on cross-selling power and gas to our existing customer network. And with respect to our test and learn program, we have gained significant insights and are ready to start executing on our plan. I will discuss in greater detail later in the presentation. We also have made good progress on our $1 billion share repurchase program for 2022 with $603 million completed to-date and $397 million yet to be completed. Finally, today, we are introducing 2023 financial guidance of $2.27 billion to $2.47 billion of adjusted EBITDA and $1.52 billion to $1.72 billion of free cash flow before growth in line with our Investor Day outlook. As I mentioned to you, weather conditions in Texas were extreme this past summer, with ERCOT surpassing the old peak demand record 39x driven by record heating the early part of the summer and a strong Texas economy. As you can see on the bottom left of the Slide 6, power price expectations, which are shown in the light blue bars were as wide as I have ever seen them. This volatility was the result of record low, coupled with uncertainty around production from non-dispatchable renewable generation. Importantly, it took record sustained hit coupled with low renewable production to materialize into the high real-time power prices we experienced in May and July. It is worth pointing out that even during these scarcity periods, we never triggered an emergency event, not even once. This is a testament that the Texas grid is strong and working as intended with enough capacity to meet current and future demand. Turning to the right hand side of the slide, we continue to see strong demand from our customers with no notable increase in bad debt levels. Retention has also remained strong, driven in part by our unmatched insights to pricing and customer preference, which enables us to navigate periods of high price and high volatility. We have also been successful in extending the average term of a new Texas customer contract to 2 years. This extension is good for both our customers and our shareholders, given it adds stability and predictability to customer bills and our earnings. On the supply side, our generation portfolio performed well during the summer while the team managed the impact of the W.A. Parish Unit 8 outage. We were able to expand our maintenance program ahead of the summer, which resulted in better operational performance. Looking ahead, and as I discussed in our last call, we will increase maintenance capital in our plants, given higher power prices. Now I’d like to spend some time talking about our ongoing efforts in moving closer to the customer. We introduced the diagram on Slide 7 during our Investor Day to capture our vision of the smart home. As you can see from the table on the right, we have made substantial progress in laying the foundation to execute on our vision to become the leading provider of essential services at home. During the year, we evaluated over a dozen adjacent offerings and engaged in multiple partnership pilots for EVs on solar and other home services. By starting small, it allowed us to stay nimble, while gathering critical market intelligence to inform how we approach these new customer offerings. The result of these programs helps validate our assumptions and provides confidence in how to execute our customer-centric strategy. Now, let me put a finer point on our key findings on Slide 8. First, the Internet of Things is here and is enabling the smart home opportunity. People are connecting new devices everyday with an average of 25 devices per home. This number has more than doubled since 2019 and continues to grow rapidly, resulting in multiple interfaces that don’t necessarily interact with each other. Customers want simple, connected and customized experiences. It is clear that a single interface for the home is of increasing importance and customer attitudes around these services are shifting from nice to have to need to have. Next, the electrification of the economy through smart technology and clean energy choices is real. We are seeing an increasing number of devices and appliances connected like HVAC, water heaters, battery, rooftop solar, and other, in addition to having greater penetration of electric vehicles. Finally, customers are demanding access to cleaner, affordable and more resilient solutions. This is in part driven by a desire to be a part of a more sustainable future, reinforced by a need for resiliency in the face of more extreme weather. And importantly, this has been accelerated by advancements in technology and policy. With this integrated ecosystem at home, there is a significant value opportunity as you can see on the right hand side of the slide. For NRG, we can offer adjacent products and services that leverages our existing energy operating platform, allowing us to access cost savings and provide superior customer experience. This advantage means broader insights into how customers interact with their homes, which translates into additional margin opportunities and increased brand loyalty. Now turning to Slide 9, in 2023, we will increase efforts to grow our bundled expansion products and services through a mix of existing offerings, strategic partnerships and vertical integration. All of them aimed at making NRG the leading provider of essential services at home. We are also providing our capital allocation plan for 2023, which is in line with our long-term capital allocation principles. Our plan is to return 50% of our capital available for allocation to our shareholders with an incremental $600 million share repurchase program and an 8% increase in our annual dividend. For the remaining 50%, we are allocating $331 million to identify growth investments and reserving $620 million to be deployed throughout the year to the highest return opportunity between growth and share repurchases. So with that, I will pass it over to Alberto for the financial review.

Mauricio Gutierrez:

Thank you, Alberto. I want to provide some closing thoughts on Slide 16. We have made significant progress across all of our key priorities this year, including the direct energy integration, portfolio optimization and our test and learn program and returning capital to shareholders. I’m incredibly proud of the team’s efforts and focus over the last 24 months on executing our strategy. As we look into 2023 and beyond, we remain on track to achieve our long-term goals of high grading our earnings quality by expanding our customer lifetime value. and providing a compelling annual total return to our shareholders of 15% to 20% free cash flow before growth per share and 7% to 9% annual dividend growth. Our platform is well positioned to deliver strong and predictable results and create significant shareholder value as the leading essential home services provider. I look forward to updating you on our progress along the way. So with that, I want to thank you for your time and interest in NRG. Katherine, we’re now ready to open the line for questions.

Julien Dumoulin-Smith:

Hey, good morning, Mauricio and team, pleasure to speak here. Thank you, guys.

Julien Dumoulin-Smith:

Good morning. I hope the parade made things okay this morning.

Julien Dumoulin-Smith:

Absolutely, absolutely. Well, hey, listen, I just wanted to start off strategically here. We’ve been at it for a little bit here in the transformation, power prices remained relatively higher. How do you think about this state of the generation portfolio overall, how are you thinking about and evolving your decision tree on that? Obviously, we saw a story here in the quarter. But even beyond that, how are you seeing things, whether that’s tied to or driven by IRA or otherwise here in terms of optimizing your generation portfolio?

Julien Dumoulin-Smith:

Got it. Alright. Fair enough. I’ll leave it there. Let me dive if I can to the other side of this equation, and that is just the guidance and sort of the cadence of the guidance. Great. Obviously, the implied fourth quarter is reasonably elevated. And certainly, that’s despite some of the ongoing pressure points that we saw in the third quarter. Can you talk about what that implies to the cadence of results into ‘23 here? How do you think about the first half? How do you think about third quarter going forward, given the sort of evolution in your business model? Should third quarter into the future be perhaps a little bit more depressed relatively speaking? Can you just elaborate on what the implications are? Maybe that’s been an Alberto question here?

Alberto Fornaro:

Yes. I think more than looking at first half versus the second half, I would say that probably you will see these two critical quarters have been the second and the third. And so you will see probably more balance and more in line, as Mauricio said, with the past and potentially even the fourth quarter that this year is higher than normal. So I would say, again, probably get back to 2021 profile is what we should expect.

Mauricio Gutierrez:

Yes. I mean if you think about some of these coal supply issues, we were very transparent last year when we introduced them. And the team has done a tremendous job in mitigating these core supply chain issues, particularly in Texas, I mean we continue to have some things in the East, and team is just working through that. But as I mentioned to all of you when we introduced these are temporary. The call supply chain was significantly stretched because of the very rapid increase in natural gas prices. And I also said with time both coal suppliers and railroad providers scale off again their operations, and that’s what we’re seeing in our – with our key suppliers.

Mauricio Gutierrez:

Go Stros. Thank you, Julien.

James Kennedy:

Hey, guys. Good morning. It’s actually James for Shar. Congrats on update, and thanks for taking the question.

James Kennedy:

So I guess just starting with the ‘23 capital allocation plan, what are the trigger points of the time line expectations for the balance of the uncommitted capital? Are you potentially looking at more growth as we get through the year? Or is this just simply a function of waiting to see how the business performs through the first half?

James Kennedy:

Okay. And then I guess kind of a similar question on the growth CapEx. How should we think about the timing and shape of any EBITDA accretion as you ramp up that spend? Is it something that we get more color on in steps as we roll the coming quarters or just any color there?

James Kennedy:

Okay, I will leave it there. Thank you very much, guys.

Operator:

Thank you. Our next question comes from Angie Storozynski with Seaport. Your line is open.

Mauricio Gutierrez:

Good morning. Angie, I’ll pass it to Alberto.

Angie Storozynski:

Okay. Thank you. And then separately, also related to the same legislation, so I am assuming that you are seeing some pickup in renewable power growth, especially in Texas and I am just wondering if that means that you should soon announce some additional PPAs again, given that the availability of specialty solar assets should increase in Texas?

Rob Gaudette:

Hi Angie, good morning. So, when you think about the IRA, you are spot on, right. It provides clarity to the renewable developers. We are in the market all the time, right. So, it’s not – we have been kind of at this for a while. So, there is a couple of factors in here that we think about. One is availability for them to get their panels on the ground and get them installed. It’s the developers in the pipeline that they are kind of working through. And then the IRA provides them some clarity around their financing. So, what I would expect, I haven’t seen it yet, but I would expect that some of this clarity starts coming into more certainty around offers into us. And as opportunities show up, we will lock those up as they make sense for our portfolio. But you are right, the IRA should push solar, wind and battery development across all markets in the U.S.

Angie Storozynski:

Okay. And my last question is the maintenance expense, maintenance CapEx in 2023. So, I understand that you are spending more money in light of the higher level of power prices. But is this a level that we should actually expect going forward? Is this just a one-off year with like some major maintenance something that was either pulled forward or catch up from previous years?

Alberto Fornaro:

Yes. I just would like to point you to in the appendix, there is a page in which we highlight the impact on our maintenance CapEx coming in 2022 from Limestone and Parish and also for 2023. Long story short, when you eliminate the impact of these specific CapEx that we spend, you will see that there is around $40 million to $50 million increase in the maintenance CapEx, and this is really due to the fact that Mauricio was mentioning that given the current prices, we think that it is appropriate to increase the reliability of our fleet to basically catch all the opportunity that the current price environment is offering to us.

Mauricio Gutierrez:

Thank you, Angie.

Michael Lapides:

Hey guy. Congrats on a good quarter.

Michael Lapides:

I am looking at Slide 14. And I just want to make sure I understand some of this and a little bit of this may be more nuanced. So, the growth plan, the $220 million, can you – what asset – is that for one big asset, or is it for lots of little things?

Michael Lapides:

So, let me just – and this might be one for Alberto. So, the $220 million in the growth plan and the $111 million and the other investments, are these all – like when I look through the three statements at this time next year, are they going to flow through CapEx or are they going to flow through cash from operating activities, meaning is it working capital, or do some of these actually weigh on EBITDA until they start generating EBITDA? Like your guidance for EBITDA would be higher if you weren’t – if you weren’t doing the spin.

Michael Lapides:

Meaning some of the – alright, so the $111 million is all based – about $111 million is all capitalized. And the $220 million, some of it is capitalized and some of it is flowing through G&A or O&M? And therefore, I am just trying to make sure because like I am trying to think about recurring versus non-recurring impacts on EBITDA.

Mauricio Gutierrez:

And just to put a finer point here, Michael. I mean the $220 million, and I want to highlight what could impact, right. But as we are in the process of executing and depending on how do we finalize the go-to-market will have an impact on whether it goes to CapEx and OpEx. So, that’s as they say, CBD [ph] to be determined, Michael. But we will provide that transparency as we start executing on the plan.

Mauricio Gutierrez:

Thank you, Michael.

David Arcaro:

Hi. Good morning. Thanks so much for taking my question.

David Arcaro:

I am wondering if you could talk a little bit to customer growth trends that you are seeing and any churn in the business? Are you still seeing kind of a flight to safety in this backdrop and this high commodity price backdrop, noticed that there was a slight decline in the total customer count versus the prior quarter? So, I am curious any information there.

Elizabeth Killinger:

Yes. Thanks for the question, David. We were really pleased with our performance, the team and the engine during a really volatile third quarter. We did perform, continued to perform in third quarter as we had year-to-date better than our budget. You may recall from prior discussions, we do generally see customer attrition from large M&A, which was DE, which was very large as well as from small book acquisitions, which we have done a handful of those year-to-date. But the good news is we are performing better than expected on both DE and the customer books. From a sales engine perspective, we are – we have a very strong engine over-performance in the quarter occurred in both our face-to-face and our digital channels. And cross-serve also performed very well during the quarter, better than budget. And from a retention perspective, we also are seeing really strong performance given the backdrop of very high prices from both the cost increases associated with the power to fulfill for them as well as the higher usage during some of the weather that we experienced. So, really pleased with the attrition during the quarter and looking forward to continuing to deliver for you guys.

David Arcaro:

Got it. Great. That’s helpful. Thanks. And then I was wondering if – maybe two quicker ones, but does the 2023 outlook include business interruption insurance proceeds coming in? Wondering how much of that might be in the guidance? And then maybe just a little more higher level, Mauricio, is there still more to do in terms of portfolio and real estate optimization with where the business currently stands? Is that something you will be looking at into 2023 as well?

Alberto Fornaro:

Yes. Regarding the business insurance proceeds, I can confirm what we said in the prior year call and basically the negative impact of Parish 8 in the first half of 2023 will be absorbed by the insurance proceeds, and we have factored in our forecast.

David Arcaro:

Okay. Great. Thanks so much. I appreciate it.

Operator:

Thank you. And our final question comes from Steve Fleishman with Wolfe Research. Your line is open.

Mauricio Gutierrez:

Hey. Good morning Steve. I will turn it to Alberto.

Steve Fleishman:

Okay. And then the $175 million boost in East-West other. Could you just explain what’s driving that?

Steve Fleishman:

Okay. And then just as we think about the ‘23 guidance, are you assuming that, that better optimization continues or that, that…

Steve Fleishman:

Okay.

Steve Fleishman:

Okay. Thank you. And then just the $400 million – $397 million of buyback, you intend to complete that fully in the market by year-end, not when you are going to do an ASR or something or?

Steve Fleishman:

Okay. And then on ERCOT market structure, I mean it’s kind of gotten quiet, but I think there is a lot about to happen. So, just to the degree that they put in some kind of dispatchable market, separate market, how are you thinking about how that impacts your portfolio and how you manage that through the retail side?

Steve Fleishman:

Okay. Thank you.

Operator:

Thank you. And there is no further questions in the queue. I would like to turn the call back to Mauricio Gutierrez, President and CEO, for closing remarks.

Mauricio Gutierrez:

Thank you, Catherine. Well, thank you all for your interest in NRG. And I look forward to continue updating you as we move to our next phase in the company. So, thank you all for your attention.

Operator:

Good day and thank you for standing by. Welcome to the NRG Energy Inc.'s Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the call over to today’s speaker, Kevin Cole, Head of Investor Relations. Please go ahead.

Mauricio Gutierrez:

Thank you, Kevin. Good morning, everyone and thank you for your interest in NRG. I'm joined this morning by Alberto Fornaro, our Chief Financial Officer. Also on the call and available for questions we have Liza Killinger, Head of Home; Rob Gaudette, Head of Business and Market Operations; and Chris Moser, Head of Competitive Markets and Policy. I'd like to start with the three key takeaways of today's presentation on Slide 4. We are maintaining our financial guidance ranges as we continue to navigate through volatile market conditions and are increasing our capital available for allocation by $140 million. We continue to make good progress in achieving our strategic growth priorities particularly on direct energy integration. And finally, our share repurchase program continues with approximately $600 million in remaining capacity to be executed this year. Moving to the second quarter financial and operational results on Slide 5, we delivered $358 million of adjusted EBITDA for the second quarter. 70% of the difference compared to last year are items that we previously identified, including asset sales and transitory items. The remaining variance is primarily driven by the forced outage of our 610 megawatt coal unit at the W.A. Parish facility. This outage began on May 9th, and is expected to be back for summer operation next year. The unit is covered by both business interruption and property damage insurance. I am pleased to report that we once again achieved top decile safety performance for the quarter and that we published our 12th sustainability report, a testament to our commitment to transparency and accountability. We also continued to realize strong customer retention which I will discuss in more detail shortly. We continue to make progress on our five key strategic priorities. Integrate direct energy, perfect our integrated platform by better matching retail with supply, grow our core electricity and natural gas businesses, integrate adjacent products or services that will allow us to expand margins and term from our customers, and return capital to our shareholders. I'd like to give you a quick update on those priorities. The direct energy integration is going well and we are on track to achieve our run rate synergies of $300 million by the end of 2023. In late June, we received ERCOT securitization proceeds related to Winter Storm Uri in line with our expectations. We have continued to make progress on our mitigation efforts, and now expect an additional $80 million in recovery, bringing our total mitigation efforts to 70% of the original impact. We continue to optimize our supply portfolio through monetization of the Watson Generation facility in California and retirements of fossil assets in PJM. We have also expanded our capital like PPA strategy to focus on energy storage and quick start natural gas generation. I expect PPA market conditions to improve into year-end, especially if the proposed Inflation Reduction Act is passed. Our retail brands continue to perform well with the strong customer count, retention metrics, and an unmatched ability to generate insights on price elasticity. We remain focused on expanding our product offerings and improving our digital customer experience. I am proud that one of our flagship brands, Reliant Energy was also recognized as the best electricity company in Houston, our hometown. Last quarter, I spoke about Goal Zero, our resilience and battery storage business and the significant opportunity it represents given growing grid instability and extreme weather events. During the quarter, we launched a marketing campaign in one of its core markets, California to increase awareness for the product and brand with very strong results. As a result of these targeted campaigns, web traffic increased 400% and the average order increased by almost a third. We continued to make progress in other areas, but remain keenly focused on pacing our investments as we navigate ongoing supply chain constraints and recessionary environment. Finally, we are maintaining our financial guidance range, but due to the impact of the W.A. Parish unit outage, we're currently trending towards the bottom end. We have been focused on taking steps like one time cost savings and incremental direct energy synergies to improve our results. Alberto will provide details on this and the additional capital available for allocation. Turning to Slide 6 for our market review in Texas. ERCOT experienced record hit during the quarter, 32% above the 10-year average, resulting in record peak demand. However, real-time power prices were mixed versus what the forward indicated, driven primarily by the performance of renewable energy on any given day. As we look into the summer, we expect prices to remain volatile and highly dependent on renewable performance. Turning to the right-hand side of the slide, beginning with retail. We saw a strong performance through the quarter with retention 5% ahead of expectations and customer count increasing 1.2%. We also extended term length of customer offers, which enables new [ph] management and improves margin predictability. This occurred while consumers grappled with inflation, only further demonstrating the resilience of our retail brands and pricing strategy. On supply, the unplanned outage at W.A. Parish Unit 8 impacted performance. While there is an earnings recognition delayed given the time line to receive business interruption insurance proceeds, insurance is an effective tool to mitigate this risk. Beyond that, we have seen strong operational performance from our fleet due to our expanded spring outage maintenance plan and opportunistic maintenance outages, that best positions our fleet to perform through these extreme and extended summer conditions. Finally, our balanced hedging strategy that uses both own generation and third-party contracts further derisks our portfolio through optimizing operational versus counterparty risk, which are important attributes through current market conditions. Now moving to Slide 7. Just like we did last quarter on Goal Zero, today I want to focus on one area of growth that is complementary to our core offerings and presents an exciting opportunity, heating and pulling our HVAC maintenance and installation. Airtron is our Home Services HVAC company, which was acquired as part of Direct Energy. It represents a complementary offering to our existing core products as HVAC systems use the most energy of any single home appliance, responsible for up to 50% of a home energy consumption. The HVAC industry with a total U.S. addressable market of $100 billion is highly fragmented and traditionally served by local providers with limited scope and reach. In contrast, Airtron operates in nine states, which represents a $10 billion serviceable market, including Texas, where they hold leadership positions in both Houston and Dallas with a single recognizable brand and scale that is unmet. Combined with our existing consumer services platform, we can grow both within our existing customer base and through expansion into new territories, creating a significant and compelling opportunity. In the last three years, Airtron has grown revenues 11% per year to $450 million with gross margins of 30% or more. The revenues come from residential new construction, services and maintenance, as well as direct-to-consumer home replacement. Our early insights suggest that there is significant growth potential in direct-to-consumer home replacement, given energy efficiency initiatives and extreme weather that shortens the lifetime of HVAC systems. The ability to leverage our existing consumer base and sales channels to augment the direct-to-consumer growth while cross-selling with our electricity and gas customers is precisely the type of value opportunity that increases margin and retention that we highlighted during our Investor Day. I look forward to providing you updates on their progress as we integrate these solutions closer with our core energy offerings. So with that, I will pass it over to Alberto for the financial review.

Mauricio Gutierrez:

Thank you, Alberto. I want to provide some closing thoughts on Slide 13. During the quarter, we continued to make progress on all our strategic priorities. As we have done in the past, over the remainder of 2022, our team will work tirelessly to improve our results. I am confident we have built the right platform and have the right strategy to deliver strong and predictable earnings and create significant shareholder value. So with that, I want to thank you for your time and interest in NRG. Felicia, we're now ready to open the line for questions.

Julien Dumoulin-Smith:

Hey, good morning team. Thanks for the time. How are you guys doing?

Julien Dumoulin-Smith:

Yeah, hey. So Mauricio, I'd love to hear -- I want a couple of strategy questions to you today. As you think about this year, how do you think about the desire to continue with the generation portfolio, have the latest events pushed you towards saying maybe we should reevaluate the integrated strategy and the pivot towards retail or actually, are you even more convinced in this strategy and could we see you engaging in more contracting? And maybe to that end, could you also marry this up with some of the comments around PPA strategy you guys have been undertaking in prior periods, are you thinking about doubling down on that considering the higher energy price environment today?

Julien Dumoulin-Smith:

And just to clarify and boil that down to make sure I heard that essence of the last one. Are you talking about contracting out more gas peakers and could that result in new gas peakers in for instance, ERCOT here, just to make sure I'm hearing this right?

Julien Dumoulin-Smith:

Right. And just to make sure I'm hearing you right, this would be effectively monetizing upfront the development rights that you have on your brownfield to another party that you're developing megawatts, not taking the operational risk, but ultimately enabling new assets to be developed in ERCOT.

Julien Dumoulin-Smith:

Alright, excellent. I have asked you enough here, but thank you so much for elaborating on that, really critical here. Thank you.

Operator:

Our next question comes from Shahriar Pourreza of Guggenheim Partners.

Mauricio Gutierrez:

Good morning Shar.

Mauricio Gutierrez:

Yes. I mean there will be a combination of things, Shar. As Alberto pointed out, I mean, we're looking at -- and we've been working on this because as part of the transitory items, we wanted to mitigate also those transitory items. So we've been working on this throughout the year. That is -- do we have the opportunity for onetime cost savings, obviously, the Direct Energy synergies, we feel very comfortable with the number, but we are now looking at spicing that and working on it. Obviously, we need to make insurance proceeds and whether we can accelerate some of these insurance proceeds, and Alberto already mentioned some of that. Look, I mean, that's not completely dependent on us, but that doesn't mean that we're going to work hard to accelerate that. And then -- so I would say that some are some of them are levered. I also want to mention that we run this business for cash. And I think the sale of Watson, it is an example of us being completely focused in monetizing the value of our portfolio. And if we can accelerate some of the divestitures of noncore assets, we're going to continue to do that, to bring cash in this year to make up for the cost of the unit insurance outage. So there is a number of things that we're doing Shar to make up for the lost earnings of the Unit 8 outage.

Mauricio Gutierrez:

Sure. I'll turn it over to Elizabeth for kind of the East Texas split, but I will tell you that the -- I mean, the retail engine is really, really strong. And as I said in the previous answer, we're seeing a flight to safety and our brands are that flight to safety. So we're seeing really, really strong numbers, but Elizabeth, can you provide additional detail.

Shahriar Pourreza:

Perfect, that is super helpful. Very good color this morning guys. Thanks.

Operator:

Our next question comes from Michael Lapides of Goldman Sachs.

Mauricio Gutierrez:

Yes, Michael. So I think in the last earnings, I provided an indication of our hedge for 2023. And if you recall, that one had against the expected law that we have for 2023 half comes from third-party megawatts about half comes from our economic generation. And then we have an economic generation that is maintained as insurance, our own uneconomic generation. So there is a co -- it's just a lot of combination in that third-party megawatts. We have some tolling agreements with combined cycle plants. We have some heat rate options with peakers, we actually have some heat rate options with -- or actually out-of-the-money call options from the financial market. So there is a combination of tools that we have to be able to manage weather variability in any given year. Now as you mentioned, I mean, the second quarter was pretty extreme. We always plan for some weather variability but what we actually saw in the Spring and July is record-breaking heat in Texas. And while we manage for some variability, it is incredibly expensive to manage for all weather variability now. Now perhaps one of the lessons learned here is as we think about 2023 and given that we have a lot of time to plan for how to set up the portfolio for that year, I expect that we're going to buy a little bit more insurance for extreme weather than in the past. And I think that's -- I mean, that's going to be the prudent thing to do given what we're seeing in Texas. I mean the peak -- the record peak was broken by, I think, 5,000 megawatts. I mean the old peak was 75,000. Now the new peak is close to 80,000 megawatts. I mean year-over-year 7%, 8% increase. I mean, that's pretty significant. And I think we need to recognize that. Perhaps we're going to see greater weather, extreme weather events, and we need to plan for it.

Mauricio Gutierrez:

Yes, well, absolutely. So two things on that, if demand is growing at 3% to 4% a year, that's really good for us because if we maintain our market share, that means we're growing our retail business, and that's really, really good, and that's what we want to see. Now obviously, we need to make sure that we keep up our supply strategy with that incremental demand. And the way we're going to do it is, one, as I mentioned, I think there is an opportunity for us to bring new megawatts in some of our current sites and those would be primarily gas peaking and energy storage. And we are -- as I mentioned, we already have at least one project that is being fully permitted and is shovel-ready and now it's just a matter of what's the right partner to bring into the table. We have another one that is right behind it and is in the process of getting permitted. And I'm sure that -- and I will tell you, the team is already looking at other opportunities where we can bring storage there. So I think you're going to see us participate on that new dispatchable quick-start generation opportunity in our sites, but not necessarily with our capital. And we will be the off-taker. In addition to that, we're going to continue bringing new wind and solar and energy storage as we have done already with our current PPA. So we're looking at these in kind of these two ways, bring new megawatts that are viable [ph] cost in the form of wind, solar and perhaps storage. And bring contract also with new gas peaking dispatchable generation in our existing sites, but not necessarily with our capital.

Elizabeth Killinger:

So from a customer count perspective, year-over-year between -- since the DE acquisitions, relatively steady, a slight decline. And as I have mentioned before on calls, from a customer count perspective, year-over-year between -- since the DE acquisition, relatively steady, a slight decline. And as I have mentioned before on calls, when we do both book acquisitions and large acquisitions, there's a bit of a settling period in the first year or two. And so we've seen that. But as I mentioned earlier, we're performing better than we expected and modeled from those acquisitions. From customer usage perspective, in the ERCOT market relatively steady, although with weather we're seeing an increase especially in this second quarter versus prior period. So we do expect customer usage to be either steady or growing with the electrification of people’s lives and communities.

Michael Lapides:

Got it, thank you guys. Much appreciated Mauricio.

Operator:

The next question comes from Angie Storozynski of Seaport.

Mauricio Gutierrez:

Yes, good morning Angie. Well, I mean, so clearly, this deal could potentially be a positive for nuclear owners, including us. And as you mentioned, I mean, I think everybody is looking at, okay, what is that trigger that will allow us to get the PTCs or not. So that's a moving target. And obviously, that's a moving target with the market, right, like everybody else. So I'm not sure if I can give you that level of specificity in terms of what price is hedged because we look at it on a portfolio basis. But I mean, this is something that we'll start to -- I guess, outlined as this bill progresses and if passed, then we will need to have that level of clarity to ensure that we can support and justify the incremental PTC, but that's something to be worked on.

Mauricio Gutierrez:

Yes, Angie. So as you mentioned, we always plan for some forced outages and some weather variability. I think the impact here is that the outage was in a pretty large coal unit close to 600 megawatts with prices where they were in the forward market starting in May. That unit is pretty deep in the money. So as you mentioned, I mean, the coal conservation that we have was really in the shorter months and perhaps in some of these shorter hours. But in the peak hours, this unit was expected to be there to help manage and supply our load. The unique situation here is both happened at the same time. We had a forced outage on a large coal unit exactly at the time when we had record-breaking heat, and that really goes outside of kind of this planning area that we look at. So this was the combination of these two very extreme conditions. And it's not like we don't plan for it, but we don't plan the intersection of both of them exactly as we're leading into the summer. Now we use some of our uneconomic generation, and it was very effective, but this uneconomic generation that we have, some of the gas peakers, they come at a really high cost given where the natural gas price is today. So if you're at $8, $9 gas and you're deploying 12, 13 peak rate peakers, the cost of that is pretty high, although it -- us from buying the cap, for example, but it's still pretty high compared to where the cost of generation is for our coal plant. Anything to add, Alberto.

Agnieszka Storozynski:

Great, thank you.

Operator:

Our next question comes from Steve Fleishman of Wolfe Research.

Mauricio Gutierrez:

Good morning Steve.

Mauricio Gutierrez:

Well, I mean we're a value -- yes, Steve I mean we're going to evaluate these. But obviously, if your plants are a lot more profitable than they were, let's say the last five to six years under a low gas environment, they can support incremental maintenance CAPEX. And not only they can support, it's advisable, right. Because right now, every megawatt counts. Before we had a lot more megawatts that were marginal and we don't necessarily need it to have that maximize the output of the plant. Now we really need to maximize the output of the plant. And look, the capacity factors, the amount of time that these plants are going to run are going to be more than they have been in the past, and we need to take that into consideration. So I would say that there will be an increase. I don't think it's a step-up change from the maintenance CAPEX. But it is -- we need to right size it to the amount of run hours that the unit is going to have, number one. And number two, for the profitability of the plant, right. So every megawatt counts, and I want to make sure that we have it available when we need them.

Mauricio Gutierrez:

Alberto?

Steven Fleishman:

Okay. So just high level, you have the $200 million plus cost this year. Then next year, there will be some cost that continues in the first half, but then you'll have a benefit for business interruption that should offset -- should be more meaningful than the cost in 2023?

Steven Fleishman:

Yes. Okay. And then just a high level, I know somebody asked about the impact of IRA for the nuclear plant. But just maybe more broadly, could you -- there's a lot of provisions in this bill in different ways that could impact the business, so just could you just talk to anything else that particularly you're particularly focused on?

Steven Fleishman:

Okay, thank you.

Operator:

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. I will now turn the call back over to Mauricio.

Operator:

Good afternoon. Thank you for attending today's Vivint Smart Home First Quarter 2022 Financial Results Conference Call. My name is Nate, and I will be your moderator for today's call. [Operator Instructions] I'd like to pass the conference over to our host, Nate Stubbs with Vivint. Nate, please go ahead.

David Bywater:

Great. Thank you, Nate, and good afternoon, everyone. We appreciate your ongoing interest in the Vivint story. We continue to work hard every day to earn your confidence and your support. To that end, I am pleased to report that our strong track record of execution as a public company continued through the first quarter of 2022 as we grew total revenue by nearly 15% and adjusted EBITDA by almost 26%. We originated over 66,000 new smart home subscribers, which is a record for the first quarter period. Our last 12-month attrition rate was 11.2%, which was a 15-quarter low and a 60 basis point improvement versus the prior year. We believe our attrition rate is the lowest among national smart home companies by a significant margin. Our improving customer retention is a result of years of work and collaboration to improve the overall credit quality of our customers as well as performance enhancements across our portfolio of products and services. We ended Q1 with net service cost per subscriber near all-time lows, a strong indication that we are operating the business efficiently and effectively while delighting our customers. Our recurring revenue model has proven resilient during challenging economic times. And we believe the peace of mind and security we provide is relevant in any environment. We believe the momentum in the first quarter sets the stage for us to meet our full year targets for total subscribers, revenue and adjusted EBITDA that we communicated to the market in late February. Given the challenges presented by rising interest rates and supply chain constraints, we are lowering the bottom end of our guidance range for free cash flow while leaving the top end of the range unchanged. Dale will speak to the specifics of this change in his remarks. We are focused on redefining the home experience with technology, products and services that create a smarter, greener, safer home, while saving our customers' money every month. Our integrated platform is the core enabler that allows us to deliver on this mission. We process more than 1.1 billion events per day across our subscriber portfolio. Our average customer has about 15 devices in their home and interacts with their system nearly 11 times per day and stays with us for approximately 9 years. Our proprietary platform allows us to not only protect our customers' homes and families, but to make their homes more enjoyable and intelligent as we integrate solutions with artificial intelligence to make smart decisions on their behalf. As we work to also bundle Smart Energy and Smart Insurance, we will leverage our integrated, easy-to-use operating system to help customers save money on their electric bills and insurance premiums. We believe our strategy provides distinct advantages that will allow us to increase the lifetime value of our customers, which in turn should drive strong economic value for our shareholders. We expect that the unit economics of our customers should also improve, further enhancing the cash flow generation of the company and allowing us to reinvest in compelling value-accretive initiatives. We are confident in our strategy as our data indicates that at scale, a customer who bundles smart home with Smart Energy and/or Smart Insurance has a greater lifetime value than a smart home customer alone. Moreover, the lifetime value of a smart home customer increases by $200 to $400 with each additional year they remain on the platform. And we believe that customers who bundle services will remain with us longer than the current 9-year average. We believe our broader platform strategy will further cement Vivint as being in a Category of One. And as we leverage the advantages from our intelligent and integrated platform, we will further extend our leadership in the do-it-for-me smart home segment. Of course, executing on our strategy of making smart homes smarter, leaner and safer requires us to focus on operational excellence, continuous product innovation and a commitment to enhancing the experience of our customers. I am pleased to welcome Rasesh Patel, our new Chief Operating Officer, to the Vivint team. Rasesh would join us in mid-May, and he brings to Vivint 20-plus years of experience in building technology service businesses, driving innovation and improving the customer experience, most recently as the Chief Product and Platform Officer of AT&T Business, a segment with $35 billion in annual revenue. He will oversee all of our customer-facing operations as well as our technology and product platform. We look forward to Rasesh helping us refine our approach to expanding the lifetime value of our customers. Turning to our key strategic adjacencies. As one of the first smart home companies to expand into Smart Energy, we are very encouraged by the momentum we saw in the first quarter. Due to the seasonality of our business, we would expect the majority of our sales to come in the back half of the year. And we remain on track to double the 45 megawatts we sold in 2021. Our Vivint sales force and strategic partners who seamlessly bundle a Vivint smart home system with solar are seeing a considerably better sales realization rate than those who are only selling solar. This is an incredible demonstration of the power we bring by offering a bundled solution. And it strikes directly at one of the issues that solar industry struggles with, wasted upfront costs on the sales of a solar system that never get installed. Our long-term vision is to combine energy production and consumption into an integrated platform that uses data-infused AI to manage power consumption more intelligently. Our nationwide footprint and ability to install our award-winning smart home solution within a day or 2 of a customer signing up for solar, we believe, is a game changer for the industry and for our customers. We believe that as we grow and solidify our go-to-market partnerships, we will prove to be a powerful and differentiated combination to grow and retain smart home customers. Even Pack, who I've worked with for several years at Vivint Solar, joined the Vivint leadership team a few months back to lead our smart home energy initiative and manage our relationships with these key partners. I'm confident he is the right person to lead our smart home energy business in this next phase of growth. Surveys show that less than 4% of the addressable homes in the U.S. have adopted solar at this point with our nearly 1.9 million customers across North America. We believe there is a significant opportunity to provide bundled Smart Energy to our existing customers as well as the hundreds of thousands of new subscribers we add to our portfolio every year. Now to briefly discuss our Smart Insurance initiative, we continue to believe that our data-rich platform can help better price the risk of a customer who has a professionally installed and actively monitored smart home system that can potentially mitigate the severity of loss events. We believe Vivint customers present a lower risk than homeowners without a smart home system or with an unmonitored DIY system that was inadequately scoped and poorly installed. We continue to invest in this initiative. And in March, we welcomed Ron Davies to a newly created role as the Chief Insurance Officer. In this role, Ron leads all aspects of the Smart Insurance business, including the development of our marketing strategy as well as the process of becoming a Managing General Agent, which will allow us to develop specific homeowner coverages and enables us to provide proprietary insurance offerings. Ron is a proven leader that has showcased his ability to transform and build insurance companies over a career spanning more than 2 decades at universally recognized brands such as Progressive, Allstate and most recently, Safe Auto, which was recently purchased by Allstate. In closing, we're extremely pleased with our performance in the first quarter of 2022, and we're excited about the future. The markets in which we operate are large, they're growing and provides significant headroom for growth. Our business model provides a platform for growth in smart home as well as adjacencies like Smart Energy, Smart Insurance and more. We believe that we'll continue to grow at a much faster rate than our do-it-for-me peers and do so in a profitable way while generating positive free cash flow that we can invest in value-accretive opportunities. With that, I will turn the call over to Dale to further discuss our first quarter results and our outlook for the year.

Operator:

[Operator Instructions] Our first question from Rod Hall with Goldman Sachs.

Dale Gerard:

Yes. I'll start with that. This is Dale. And then, David, you can jump in here and add anything. I think we're continuing to see attrition or retention of our customers perform really well. They're probably ahead of our -- again, our expectation in the first quarter. But again, we think when you have the interaction 11 times a day that individuals are acting with our system -- interacting with our system, they're using the system, they're finding value in it, they're more likely to keep staying with the system they're paying for. And I think that's what we're seeing. And I think over time, our product and our service also continues to get better, and there's more functionality that they're able to get out of it. And so that's leading to, again, customers that are wanting the system and wanting this service that we provide. In terms of what we see, I think we've said, hey, guidance-wise, we expect attrition to probably be in the 12% range for the full year. And I think that's what we said coming into this year in terms of guidance there. I think we still expect that. We're cautious. I mean there's lots going on with the economy, as you know, Max, and why we think the attrition will continue to perform really well, and we believe it will, I think for guidance-wise, what we said we're expecting. A part of that is we have -- we know that the end of term percentage of customers will go up from where it is today as we go through renewals here later in the year. I think we're at 10.2% of customers that are at their initial end of contract for this last 12-month period. We expect that to go up higher than that as we go through 2022. And so that's why we're saying, hey, based upon the hydraulics, when you have more customers at end of turn, the attrition usually of those cohorts at that point in time or higher, then we expect 12% or somewhere in that range for full year guidance. The one thing I would point out and then, David, you can jump in if there's anything else, is the last time we were at this type -- this low was in, I think, the second quarter of 2018, and we had a -- we have 10.8%, like I said, of customers during the term this period. It was 12.2% or 12.3% at that point. So we've got -- we're performing better across the board. And so we're really excited about where that is and continue to perform better than what we expect. And we continue to think that will happen throughout the year. David, I don't know if you have anything more.

Max Gamperl:

Got it. That's helpful. And then another question would be, just from a macro perspective, how are you thinking about direct-to-home sales heading into the summer? With COVID largely in the rearview mirror for the first time in, I guess, 2 years, I guess that should probably help your direct-to-home sales, but we also have a tough operating environment with rising labor costs. So wondering about your direct-to-home sales strategy for this year?

Dale Gerard:

Yes. Having COVID behind us is a great thing, but also, we're seeing the sales productivity hasn't really been hurt by kind of the economic chaos going on. So we're still cautious, but so far, so good. So let's see how a few more weeks stack up, and we'll report in August, but feeling good about it.

Ashish Sabadra:

So maybe just a quick question on the free cash flow guidance. I was just wondering what takes you to the high end versus the low end of the guidance range. And maybe just a follow-up question there. Like why do we see that impact on the free cash flow, but haven't really seen those headwinds impacting the EBITDA or other line items? So any color there will be helpful as well.

Ashish Sabadra:

That's very helpful color. And maybe just on my follow-up. Thanks for that disclosure on the Smart Energy partners and the new subscribers which are generated from that channel. And just given the higher energy prices, it seems to be a strong demand for solar energy. So I was wondering what are you seeing on that front. And how should we think that partnership helping drive accelerated subscriber growth going forward?

Ashish Sabadra:

That's great color. And again, solid results and good to see the great momentum in both subscriber and revenue growth.

Operator:

Our next question goes to Erik Woodring with Morgan Stanley.

Dale Gerard:

Thanks for the question. It's really embedding conservatism. I don't know if it's conservatism or it's being cautious to what we're seeing in the marketplaces, frankly, right? It was a great first quarter. And as David just mentioned, we're bullish on the full year prospect. But we're also -- there's lots of things going on in the economy that we just don't know how consumer behavior, if it will change. We haven't seen it today. And as David -- we're feeling good about the start of the direct-to-home sales season. That's a couple of weeks in. But for where we are today, we're 5 months into the year, I think we feel pretty good saying, "Hey, that's where we think we'll be." And as we get deeper into the year and we get second quarter credit, if there's a need to make any revisions, and I'm sure we will. But it's really just thoughtful about everything that's going on out there. With supply chain, David, you can jump in this, but I think everyone with supply chain in 2022 -- like we went through 2021 and were like, supply chain, you can't get any worse from that or it's going to get better in '22. And we're not. We're still seeing it's -- every day, it's a battle to make sure we got de-commenced from subcomponents and suppliers, and we've got to work then to get those components recommitted or we've got to go out and find other suppliers to bring us those components. You've got -- they've got labor constraints. I think you got China shut down, which is where a lot of subcomponents actually come out of. We don't really manufacture finished goods in China, but a lot of the subcomponents that go into our finished cameras and panels and so forth come out of there. And so after disruption, we don't know what's -- I don't know what's going to -- how long that's going to go on or what that really will look like. And it's not only in just timing, it does, but it's also in cost. There's got to be more cost. They have to use more air freight. It's going to be higher manufacturing costs because they're going to have to use more labor and overtime to catch -- keep the volumes that we need to come into production. So there's just a lot of things out there that we see, but don't have like full visibility to what those could -- how those could impact us. And so that's why we're kind of leaving that full year kind of where it is today from what we know and what we see. David, I don't know if you have to say anything else.

Erik Woodring:

I appreciate all that color, and I think you're taking the right strategy, so kudos to you. Maybe just my follow-up. David, I think you mentioned a comment earlier where you said the customer stays for 9 years. Is that just a subtle hint that you think your long-term attrition rate, which was originally thought to be closer to 12%, could actually be lower than that because you now see customers staying kind of 9 years versus the high end of 7 or 8 years? That was kind of the prior estimation. I just want to make sure if that was just a comment in passing or if that's something that you think has fundamentally changed, where now the long-term attrition rate might now be lower than it was -- than you were thinking maybe 3, 6, 9, 12 months ago?

Operator:

Our next question goes to Paul Chung with JPMorgan.

David Bywater:

Well, Paul, it's David. In Q1, most of that was driven through our inside sales. So the seasonality of our direct home, they really kick in as we've diversified our channels. You really see the strength of direct-to-home in Q2 and Q3 and then part of Q4. But -- so really Q1, the majority of that is from inside sales. And I really think that's a function of many things. One, once again, I think our product is getting better. And so that's folks who are researching our product, they're seeing the accolade that we have from our product. We call ourselves a Category of One. We really do think that we have the best product out there for the money. And so I think people see that. The success of our direct-to-home, you see all the advertisers, all the homes that have the signs out front, you know that -- we benefit from that. So there's a symbiotic relationship here between the 2. But that was really around just digital marketing and the effectiveness of that and just the brand awareness. We've done a fair bit of survey work around our brand awareness. It's surprisingly high for how little we spend on brand. And we think that's earned brand. That's from doing this now for 20 years and really earning that on a word-of-mouth basis, which is the most valuable brand awareness you can possibly have. So once again, it's hard earned. And that was really largely from inside sales, which I think stands on the merit of the efficacy of the product.

David Bywater:

And you see that in the numbers.

Dale Gerard:

Yes. So I'll start with Smart Insurance and work our way back. Paul, this is Dale. We're not really giving out -- we haven't given out. I think we're still very early into the life cycle of the insurance business and building out. I mean we got 7,000 or so sold policies last year. So that's very early, continue to build out. We're spending and investing there. That's one of the investments that we're making in 2022 to build out the MGA that we're working on. Ron has been in place -- Ron Davies, who we brought in to lead, has been in place for 60 days, I think, at this point. So very early there. We think -- we definitely believe it's accretive to our EBITDA margin and definitely drives extended and increased lifetime value of the customer. But we'll give those down when I think it's appropriate, when we have a better feel for what those really look like because there's a lot of movement there still today. I think on the Smart Energy side, I think that 45 megawatts that we did last year would be -- that's probably 5,000 homes or so. So if you double that this year, you get to 90, you're probably in the 9,500 to 10,000 homes. And we believe that we'll be able to drive incremental value and margin out of that business. And then what I think comes -- there's 2 pieces of that, right? There's the revenue that's generated from the selling of that solar to that customer and we get the margin from that. And then there's also, from this partnership, the development and increased Vivint Smart Home customers that have very strong margins in terms of lifetime value. So there's kind of 2 pieces to that. I think we want to make sure we think of it that way. I think we can drive 10,000-ish or more new subs from that, smart home subs. And then you'll have -- last year, I think we said that 45 megawatts was, call it, $45 million to $50 million of revenue. And so you can kind of back in, if we're doubling where we are this year, then we're probably looking at somewhere between, call it, $85 million and $95 million of revenue from that. And then we're still working. It's early. I think we feel good about where our cost structure will come out there. But it's probably a little still early, but I think it will be somewhere north of 10%, what we'd say, as the margin on that. And I think our goal is to get into the mid- to high teens, but there's -- we're still working on that.

Dale Gerard:

Again, I think, Paul, to make sure it's incremental to what we've done today, so it's positive to whatever we've done today in terms of EBITDA we're getting from that. And I think it's really about, as David said previously, it's about the lifetime value of the customer. And if you can take that customer that has a 75% to 80% service margin from the smart home side, you can add incremental revenue that you're getting to net customer related to a solar sale or the annual insurance premiums coming in from that customer, it really expands out, we believe, the lifetime value of that customer.

Dale Gerard:

That right. It's really quite powerful. We saw some people were saying, hey, the margin is dilutive. And I'm like, you've got to open your aperture. If you're one of this business on your own, you make your investment because you're protecting and elongating and adding and, most importantly, you're adding value to the customer, which makes you a must-own asset. So as you open your aperture and think about value of the customer, defending your base and incrementally adding margin on a very risk-adjusted basis, it is a no-brainer to do. And the way we're doing it in an asset-light friendly way, it's very, very...

Brian Ruttenbur:

First of all, in terms of second quarter, can you talk a little bit about where you see G&A going because you had a dramatic drop in G&A year-over-year sequentially in the first quarter. Where do you see that going in the second quarter?

Brian Ruttenbur:

Okay. Very good. The other question is more macro. It's kind of your road map. Can you talk a little bit more about the insurance offering, where you are now in terms of the rollout, are you going to be farming this out? Are you self-insuring your customers here? How -- what's the structure? And then maybe what other offerings could you potentially be selling through your channel?

Operator:

All questions have been exhausted. So I will turn the conference back over to David Bywater for closing remarks.

Operator:

That concludes today's Vivint Smart Home First Quarter 2021 Financial Results Conference Call. Thank you for your participation. You can now disconnect your lines.

Operator:

Good day and thank you for standing by. Welcome to the NRG Energy Incorporated Fourth Quarter and Full Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Kevin Cole, Head of Investor Relations.

Mauricio Gutierrez:

Thank you, Kevin. Good morning, everyone, and thank you for your interest in NRG. I'm joined this morning by Alberto Fornaro, Chief Financial Officer. Also on the call and available for questions we have Elizabeth Killinger, Head of Home Retail; and Chris Moser, Head of Operations. This is my 25th earnings call as CEO and I wanted to start with a quick look back on what we have achieved. Over the past six years, we have transformed our company from a complex industrial story into one that is much simpler and focused on our core strengths. Along the way, we have made significant progress in our strategy to get closer to the customer, optimize our generation portfolio to serve those customers, strengthen the financial health of our company and created significant shareholder value. We now turn to the next phase in our evolution of growing our business and realizing the potential around the customer. I am excited about the future and look forward to sharing our progress with all of you in the months to come. Moving on to the three key messages of today's presentation on slide four. Our business delivered results in line with the 2021 guidance, effectively navigating supply chain constraints and volatile market conditions, further validating the strength and durability of our model. Next, I am pleased to report that we have successfully executed our winter storm Uri mitigation plan and we are increasing 2022 capital available for allocation. Finally, we continue to advance our five-year strategic road map in moving closer to the customer and our commitment to being excellent stewards of shareholder capital. The 2021 financial and operational results are on slide five. Beginning with our scorecard. We executed on all our priorities. I want to thank all the employees at NRG for maintaining focus during a challenging year, which included a global pandemic, Winter Storm Uri, asset sales and the integration of Direct Energy. Importantly, we were able to operate through these conditions while setting another record for safety. This is the fourth straight year we have set a new company safety record, an incredible accomplishment worthy of recognition. Direct Energy integration remains ongoing and we are on track to achieve our run rate synergies. During the year, we outperformed our initial expectations achieving $175 million versus our original expectation of $135 million. This integration is led by the same team and supported by the same governance of the transformation plan, which gives me the utmost confidence in our ability to reach if not exceed our run rate targets. Following multiple years of rightsizing our business, 2021 marked a significant milestone in capitalizing our best-in-class consumer services platform. We added roughly 3 million customers to our portfolio and expanded the scale and scope of home power and natural gas services. Also during the year, we monetized 4.8 gigawatts of non-core fossil assets in our East and West regions. And now the retirement of 1.6 gigawatts of coal assets in the East and signed an additional 800 megawatts of renewables PPAs. Next, we continue to adhere to our disciplined capital allocation principles. In late 2021, we announced a $1 billion share repurchase program to be completed throughout 2022. We also increased our dividend per share 8% in line with our stated dividend growth rate of 7% to 9%. In June, we held our Investor Day where we revealed our five-year strategic road map to create significant stakeholder value by moving closer to the customer, while also returning significant capital to our shareholders. Moving to the right-hand side of the slide for the financial results. We delivered $433 million of adjusted EBITDA for the fourth quarter, 31% higher than the prior year. This brings our full year results to $2.42 billion of adjusted EBITDA, 21% higher than the prior year primarily driven by the acquisition of Direct Energy and excluding the impact from Winter Storm Uri. Finally, we are maintaining our 2022 adjusted EBITDA and free cash flow before growth guidance ranges. We are seeing promising results in mitigating winter supply chain constraints, and I look forward to updating you next quarter. As a result of our Winter Storm Uri mitigation plan, we are increasing our 2022 capital available for allocation by $212 million, which Alberto will discuss in more detail. Now turning to slide 6 for a brief update on the ERCOT market. Following Winter Storm Uri, it was clear that market reforms from well-head to light bulb were necessary to improve grid resilience. In the months following the event, we actively engaged in discussions with legislators, regulators and other market participants to introduce comprehensive and competitive solutions across the entire system to address areas that fail. In 2021, Texas made significant progress in hardening the electric grid through power plant and transmission weatherization standards, improved market design with changes in scarcity pricing, ancillary reforms and consumer protection improvements. In 2022, we expect Texas to expand its focus on hardening the natural gas infrastructure and implementation of phase 2 of power reforms which includes resource adequacy by establishing a load-side reserve requirement and on-site fuel security. I want to comment that Texas governor's office, legislature, PUCT and ERCOT for taking swift action and accelerating effective reforms that would normally take years and addressing them within months. While our work is not done yet, we believe Texas performance through a tough winter is a strong reflection of effective actions and policies. Moving to the right-hand side of the slide for an update on the financial impact from Winter Storm Uri. I am pleased to announce that we have successfully executed our mitigation strategy. Today, we're updating the net financial impact from the storm to $380 million from our prior expected range of $500 million to $700 million. Now turning to Slide 7. It is important that we recognize our ESG principles and highlight a few of our 2021 accomplishments. We created a sustainable framework with a strong foundation based on our corporate values and our sustainability program that brings all stakeholders working together with a common purpose from our customers to our employees to our operations. Our sustainability program consistently upholds a high standard of accountability and transparency across the pillars of environmental leadership, social focus and strong governance. I want to start with an update on our environmental leadership. As you know we committed to a stringent decarbonization path in line with the 1.5-degree Celsius scenario, which has been certified by the science-based target initiative. That means reducing our carbon emissions 50% by 2025 and net zero by 2050. As you can see on the right-hand side of the slide since 2014 we have reduced our carbon emissions by 44% and we have a clear line of sight to our 2025 goal. So just to put this in perspective this is equivalent to taking 5.8 million passenger vehicles off the road for a year. In addition as advocates for the electrification of transportation, in 2021 we set a goal to electrify 100% of our light-duty vehicle fleet by 2030 further demonstrating our commitment to progress. All these efforts have resulted in the diversification of our revenue streams to cleaner solutions. Since 2014 coal generation as a percentage of revenues has decreased by 80% and now represents less than 5% of our total revenues. If you recall not long ago coal made up almost one-third of our revenues. We still have much work to do, but I am confident we are on the right track and have the right team to succeed on our goals. On the social front, our engagement with our employees, communities and customers continues to advance. As I mentioned in my opening remarks in 2021 we once again achieved top-decile employee safety performance. We also implemented employee programs to support financial, physical and mental well-being. Our diversity equity and inclusion value continues to shape our culture and inform our decision-making as we strive to unlock the power of DEI as a way to better understand our customers and the communities we serve, while also making our team stronger. In our communities, we supported more than 750 non-profit organizations through our philanthropic arm Positive Energy. We also focused our volunteer efforts on food security through virtual and in-person food donations and packaging meals for those in need. And for our customers, we are always innovating. We have been a leader in facilitating renewable energy for our residential customers, as well as providing a path for small and medium sized businesses to participate in the sustainable energy transition. And as we all know, more than ever the home is the center of our lives. So we continue to advocate for individual customers choice in the products and services that best suit their values and lifestyle, delivered with reliability and affordability. Finally, regarding our strong governance, I am particularly proud of our transparency in reporting and accountability on our goals. In just this last past year, we released our 11th annual Sustainability Report, our fifth reporting compliance with SASB standards, and 12 CDP or climate disclosure project questionnaire. We also formally issued our first TCFD or task force on climate-related financial disclosure, as a way to improve and ensure our stakeholders have the right tools to make informed decisions and track our progress. In 2021, we issued our second sustainability-linked bond. If you recall we were the first company in North America to do it back in 2020. These bonds tie our financing cost to achieving our carbon reduction goals. As you can see, our culture of sustainability is ingrained in every part of our organization and we continue to play an integral part in our transition to a consumer services company. I am looking forward to sharing more details of our ESG journey with you later this spring in our 2021 sustainability report. Now, I want to provide you an update on our growth program. As I shared with you during Investor Day, our focus over 2021 and 2022 is twofold

Mauricio Gutierrez:

Thank you, Alberto. Moving to our 2022 priorities and expectations on slide 16. First, we will always be focused on the blocking and tackling of delivering on our financial, operational and ESG commitments, while adhering to our capital allocation principles. Beyond this, we're focusing our efforts in two key areas, provide additional disclosure to help better model our business and provide greater detail around our growth strategy. First, on our disclosures. Following the Direct Energy acquisition and our move towards consumers, we're working on a comprehensive rework that will enhance your ability to model the value of the customer. In the meantime, I want to start with the new hedging methodology slide in the appendix of today's presentation, which should help shed light on our rigorous risk management and supply optimization program that helps stabilize our business. On growth, as I discussed earlier, we will be transparent in the process and I look forward to updating you on this throughout the year. Finally, while 2021 was a challenging year, today our company is stronger and more promising than ever before. I am very excited about 2022 and the significant opportunities we have to create shareholder value. So with that, I want to thank you for your time and interest in NRG. Amy, we're now ready to open the line for questions.

Jonathan Arnold:

Hi, good morning guys.

Jonathan Arnold:

Mauricio, thank you for the mention on the new disclosures that you just made. I'm just curious, if you can give us some sort of gauge of when we might expect to see those? Is that kind of midyear, next quarter or later in the year just some framework there?

Jonathan Arnold:

Yes. No very helpful. Thank you, Mauricio. And then, on the -- one thing I noticed was that you're now talking about growing into the credit metrics. I think before you'd said you anticipated being there by the end of 2023. So, is that a change or just me overreading the slide.

Jonathan Arnold:

Actually I had seen those and I was -- maybe I'll just ask a quick one on those while I have you. You're obviously giving a look that shows that you're I guess 15% over-hedged effectively or covered. I don't know how you would best describe it in ACA. Can you give us a little bit of an insight into how does that look by season? Is that sort of skewed winter versus summer? Just anything beyond just that kind of annual look.

Jonathan Arnold:

Great. Thank you very much for all the time guys.

Operator:

Your next question is from Michael Lapides of Goldman Sachs.

Mauricio Gutierrez:

Yes Michael. Good morning. So, obviously, the integration of Direct Energy was a three-year integration if you remember, Michael. And I am just very pleased with the performance of the team and achieving the synergies. We actually increase the synergies that we achieved in our first year. As we enter into the second year, I will tell you this I am incredibly comfortable that we're going to achieve them. But being mindful that this was a three-year program and we're literally just entering the second year. I will assess the potential of additional synergies. And I think what you should expect is throughout the year we will give you an update on our performance there. But I feel -- I remain very confident that we're going to achieve our numbers. And we'll give you an update if -- throughout the year we decide to update on that.

Mauricio Gutierrez:

Okay. Michael, I will turn that over to Alberto. And obviously, as you said, I mean I think this was a little technical and we can always follow up with you. But I mean Alberto is there something that you want to add here.

Mauricio Gutierrez:

And Michael, just to remind you, working capital was an area of focus during the transformation and we were very successful on that. We kind of have the road map on how to optimize our working capital and we're going to -- we are applying although those lessons learned through the integration of Direct Energy.

Mauricio Gutierrez:

Thank you, Michael.

Paul Zimbardo:

Hi, good morning.

Paul Zimbardo:

I wanted to check in on kind of your achievement on the customer growth strategy and just any insights you can share on customer counts given some of the commodity volatility and if you're seeing any change in attrition recently?

Elizabeth Killinger:

Yeah. Thanks for the question. We definitely achieved our customer count commitment for the year than what we had planned to achieve. We actually beat it by a bit. But as Mauricio mentioned, retention was extremely strong, really one of our best years ever. And that is a product of some of the efforts over the last kind of five years of increasing the tools and techniques we use, leveraging the data that we have to make sure we're putting the right renewal offers in front of customers that will entice them to stay with us. We did have some opportunity to recover in our sales channels as well with COVID, our face-to-face channels were set back quite a bit. And so we saw some improvements there. And then finally, on the DE integration front, we met or beat our expectations for retaining those customers. As you all know and have seen from us over the years as we acquire customers whether it's through M&A or small books, you do see some attrition in the year or two following that. And as long as we keep meeting or beating what we expect from that, we're going to be really pleased. But I'm super proud of the work the team has done from the frontline folks either face-to-face or in our call centers and the digital teams for all that they've done and I'm excited about the potential for 2022 and beyond.

Mauricio Gutierrez :

Yes. I mean, as you know, we completed a pretty large divestiture in 2021 and the optimization of the portfolio is it's a focus of ours. As you remember on the Investor Day presentation, I said that in the growing the core is one of our key strategic priorities. That's going to continue. The North Star of that is we're going to have assets that better help us serve our customers. So whatever those are, they are core. And if not they're not core and we're going to look to optimize. Now with respect to Texas, obviously, we have our capital-light renewable PPA strategy that has been very successful close to 2.60 gigawatts. And we're going to continue to focus on that. We're constantly in the market. We're running RFPs basically on a continuous basis. We're going to be very selective on that. And it already has yielded tremendous value for us. And that's going to continue to be a focus now. As Texas is changing some of the market design changes to incentivize dispatchable generation, we are definitely looking into that. We have lots of sites that we can evaluate opportunities. And as we have done in the East, I mean, we're going to do it in Texas if we find the right partner, we're going to do it. But we're going to do it in a way that is a good use of our capital. So I expect that to continue. I know the teams are completely focused in evaluating additional opportunities that we have to bring additional supply to serve our customers.

Mauricio Gutierrez :

Great. Thank you.

Angie Storozynski:

Thank you. So given what's happening in Europe and your disclosures on gas hedges, is it fair to say that even though there's this wide expansion of the positive gas bases in New England that should not have any negative impact on your gas retail margins in 2022?

Angie Storozynski:

Okay.

Chris Moser:

No. I think you hit the high points. Thanks, Mauricio.

Mauricio Gutierrez:

Great.

Mauricio Gutierrez:

Yes Angie. So if you remember, we provided you, I think we call it, transitory items on all three, I think they're very constructive and positive signs that we're going to mitigate them. Obviously, we're just in February. So I want to wait for the first quarter call. But Alberto, can you just provide a little bit more specificity on where we are on all these the three items that we highlighted on the last earnings?

Mauricio Gutierrez:

Right. And just to, I guess put a little finer point on the ancillary services as the customers that are reopening contracts will be able to pass through these ancillary services. I think of it as a change in law if you remember Angie. So, I think there is an opportunity for those customers that we couldn't pass it through we will in the reopening. And then, I am just incredibly pleased with the commercial team and how they've been managing the supply chain constraints around coal. We're still in the middle of the winter, but so far they've done a fantastic job and we will have an opportunity to provide you additional visibility and quantify that in the next earnings call.

Mauricio Gutierrez:

Great. Thank you, Angie.

Operator:

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program.

Operator:

Good day, and thank you for standing by. Welcome to the NRG Energy, Inc.'s Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. There will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your host today, Kevin Cole, Head of Investor Relations, to read the Safe Harbor and introduce the call.

Mauricio Gutierrez:

Thank you, Kevin. Good morning, everyone, and thank you for your interest in NRG. I'm joined this morning by Alberto Fornaro, Chief Financial Officer, also on the call and available for questions; we have Elizabeth Killinger, Head of Home Retail; and Chris Moser, Head of Operations. I'd like to start on Slide 4 of today's presentation. Our consumer services platform performed well through this summer and delivered stable results. We are narrowing our 2021 financial guidance at the low end of the range and initiating 2022 financial guidance. Our platform is navigating the unprecedented supply chain constraints, and we are actively working to mitigate the financial impact. Finally, we continue to make progress on our five-year growth plan. In the near-term, we are focused on the Direct Energy integration, organic growth in power and gas, and expanding our customer base with dual product options. Moving to the financial and operational results for the third quarter on Slide 5. Beginning on the left-hand side of this slide, I want to start with safety. We delivered another quarter of top decile safety performance. This marks 10 straight quarters at this level of performance, a testament towards our strong safety culture. As we continue our return to the office, the safety and well-being of our employees remains our top priority. During the third quarter, we delivered $767 million of adjusted EBITDA, which brings our year-to-date results to $1.99 billion, or 19% higher than the previous year, driven primarily by the acquisition of Direct Energy. We are, however, narrowing our 2021 guidance to the lower half of the range, primarily as a result of unanticipated supply chain constraints impacting fourth quarter results. This will also impact 2022 guidance, which I will address shortly. During the quarter, we made good progress on our key strategic initiatives. First, Direct Energy integration is well ahead of pace, achieving a $144 million year-to-date, or 107% of the original full-year plan. We are increasing our 2021 target to $175 million, which reflects the early realization of synergy targets in 2021. We are maintaining the full plan target of $300 million run rate in 2023. Next, in ERCOT, the PUCT continues to advance necessary actions to improve market reliability. In October, the PUCT implemented phase 1 of the winter weatherization standards, which will be in effect for these upcoming winter. This weatherization standard adopts best practices and addresses weather-related issues that are current during yearly. We are making the necessary investments in our fleet to be in compliance and ready for winter operations. On market design, the PUCT remains focused on our comprehensive solution to improve reliability and incentivize dispatchable resources. At NRG, we support this direction and have taken a leading role in offering ideas for the PUCT's consideration. We have proposed a comprehensive solution to prioritize reliability and achieve it through competitive solutions. The PUCT also approved the final orders for securitization to ensure a healthy and competitive market. I want to commend and thank the governor, legislature, and PUCT for tirelessly working to address the issues Uri exposed and to harden the ERCOT system and protecting the integrity of the competitive markets that have benefited consumers over the years. Now, turning to Home Retail. We continue to advance our best-in-class customer experience during the quarter. Our Reliant brand was recognized with two awards during the quarter. The North American Customer Centricity Award in the Crisis Management category, and the 2021 Innovation Leader Impact Award for the Make It Solar offering, which is our renewable energy initiative that allows customers to support solar energy without installing panels. Now, moving to the right-hand side of this slide to discuss 2022. First, as we detailed during our June Investor Day, 2022 is a staging year for high-grading our business and achieving our five-year 15% to 20% free cash flow per share growth plan. In 2022, we remain focused on integrating Direct Energy and achieving the plants high-quality synergies, removing or streamlining our East generation business that continues to weigh on our valuation, given earnings and terminal value concerns that otherwise would have masked our retail growth, deploying smaller amounts of capital to prepare the platform for growth and returning a significant amount of capital to shareholders. With that, we're introducing 2022 financial guidance of $1.95 billion to $2.25 billion of adjusted EBITDA and free cash flow before growth of $1.14 to $1.44 billion. This guidance reflects our plan to fully realize our planned synergies and to streamline our East generation business. Also impacting this guidance are temporary impacts from unforeseen supply chain constraints, ancillary services charges in ERCOT, and our previously announced Limestone Unit 1 outage through April 2022. But leave no doubt. Now that we have identified these near-term headwinds, we are focused on mitigating these impacts into 2022. Finally, we are also announcing an 8% increase in our 2022 dividend in line with our stated dividend growth rate of 7% to 9%. Now, let me turn the call over to Alberto for a more detailed financial review. And after, I will discuss how we are advancing our Consumer Services five-year roadmap. Alberto?

Mauricio Gutierrez:

Thank Alberto. So turning to Slide 12, I want to provide an update on our progress executing our five-year growth roadmap. As I told you at Investor Day, two of our strategic priorities are to optimize the core and to grow the core. Optimizing the core will focus on strengthening our power and gas businesses, completing the Direct Energy Integration and continuing the decarbonization of our generation fleet. The Direct Energy transaction significantly increased our scale and materially enhance our natural gas capabilities. This created 2 near-term opportunities, increasing our number of pure natural gas customers, and expanding our dual product capabilities within our existing network of customers. Efforts in both of these areas are well underway, and we will leverage the collective experience of NRG and NRG Energy teams to execute on our growth in these targeted areas. In addition to natural gas and dual product customer growth, we will continue to invest in our core power business to extend our market-leading position in competitive retail electricity by continuing to meet the customers where they are, and to deliver the innovation that customers have come to expect from NRG, and its family of brands. The Direct Energy Integration is well on track and today, we are reiterating our full synergy plan targets. Upon closing Direct Energy, we immediately begun rationalizing offices in areas with significant employee geographic overlap and completed a number of critical system consolidations without any meaningful impact to the operations of the Company. Given that the integration is being led by the same team responsible for executing the transformation plan, we are highly confident in our ability to achieve the synergy targets that we have shared with you. Our portfolio decarbonization efforts remain ongoing. The 4.8 gigawatt asset sale to ArcLight remains on track to close by year-end with only New York PSC approval outstanding. We have 1.6 gigawatts of coal assets in PJM slated to retire in mid-2022 with the remainder of our PJM fleet under strategic review. We continue to execute on our renewable PPA strategy, having signed 2.7 gigawatts nationally, and expect to procure more renewable power through additional air-force for solar, wind, and battery storage in our core markets. Now, shifting to grow the quarter, our objectives are centered around distinct customer experiences in both Power Services and Home Services. As we work to shape these distinct customer experiences, we will break them down into discrete pieces and apply a test and learn discipline in order to refine our customer value proposition, optimal business model, and go-to-market strategy. By starting small, it allows us to stay nimble and deploy limited capital while gathering critical market intelligence to inform how we approach these new customer offerings for sustained long-term growth. 2022 will serve as a staging year where we will be focused on the test and learn environment [Indiscernible] discussed. Although this staging year will not be as growth capital intensive as the later years, it is a crucial year in which we will need to develop data back conviction in our initiatives in order to have the confidence to deploy more significant capital in 2023 and 2024. We will be sure to share more on our 2022 efforts as the year progresses. Now, as we're turning our attention to 2022 with limited cost on our capital, I want to take a moment to review our capital allocation framework and capital available for allocation. Beginning on the left hand side of this slide, we expect to have over $1.6 billion in capital available for allocation, including 375 million of on allocated cash from 2021. We will apply our capital allocation principles that are outlining the right side of this slide. Beyond sake and operational excellence, our first use of capital for allocation is to achieve and maintain a strong balance sheet. Our focus is to grow into our target metrics of 2.5 to 2.75 times by the end of 2023, resulting in the vast majority of our excess cash to be available for allocation throughout our 50% return of capital and 50% opportunistic frameworks. I look forward to providing you a comprehensive capital allocation update on our next earnings call. But these should give you a good idea of our financial flexibility. I am proud of the strength of our platform that despite near-term supply chain constraints, continues to provide our customers differentiated products and services. And for our shareholders, the financial flexibility to both execute our ambitious five-year growth, plan while returning significant cash to our investors. Now turning to Slide 14, I want to provide a few closing thoughts on today's presentation. During the third quarter, we continue to make significant progress on our strategic priorities, but we still have work to do this year. Over the remainder of the year, we expect to close on our announced asset sales and saw consequently execute on our capital allocation priorities. As we move into 2022, I am confident our platform is well-positioned to deliver strong and predictable results and create significant shareholder value. So with that, Benjamin will open the line for questions.

Julien Dumoulin-Smith:

Hey, good morning, team. Thanks for the time.

Alberto Fornaro:

Good morning.

Mauricio Gutierrez :

Yes, Julien. So let me start by – we’ve all seen and experienced a pretty solid increase in natural gas prices. So when natural gas prices move up, where coal-generation flexes up and that caused a stress in the coal supply chain because I mean, we have been, for the past four or five years, generating at a certain level, not only us, but the entire coal-generation industry. So when you rapidly flex up, your coal supply chain doesn't flex up as quickly as you would like it to be, whether it's the commodity, the delivery, which is rail or chemicals, which is to control the emissions. Now, when that happens, in a normal circumstance, we will use that incremental generation to serve our month-to-month customers that are on their variable pricing. Now, when we are constrained, when we cannot flex up because of the supply constraints, then we have to go-to-market and procure at higher prices, which means then we have to make a decision, how much of these higher cost we pass through our customers. Keep in mind that we are balancing here margin stability and retention. So -- and one of the objectives that we have when we see these sudden increases -- short-term sudden increases, we don't want to cause a bill shock to our customers. We want to make sure that we maintain that we pass some of the cost, but not all of the cost. Obviously in the mid and the long-term, you can pass all the costs. But in the short-term, you really want to avoid bill shocks because if you lose the customer, you're also going to spend money in acquiring back the customer. So that's why this is a very deliberate, this is a balancing act between margin and stability and retention. Now, in terms of the duration of these, I expect these to be primarily in the first-half of the year. I think this will ease off in the second half because supply chain and the coal supply chain will respond to increasing pricing levels. Now to your question around realized and unrealized, most of these right now is on realized, but - because these are month-to-month customers. So, we have some levers to mitigate the impact. I mean, the first one is, obviously, how do we optimize our coal generation? Should we be looking only at running when you have really high-margin hours and then backing down in low-margin hours? We are in constant communication and testing the market in terms of our retail pricing strategy and priorities. I mean, the other leverage, Direct Energy synergies, and we're going to continue looking at if we can expand those Direct Energy synergies. And then finally, as you mentioned, I mean, this is a very evolving story, so things can change fairly quickly, just like the entire system moved up in the back of natural gas. It can come back down to more normal levels, and therefore, this will -- these constraints will ease, and we'll be back to a more normalized, I guess, environment. So I hope that these provides you that that framework and that explanation on what we're seeing today.

Mauricio Gutierrez :

Absolutely. And I think that's what – that’s how we wanted to lay it out for all of you. I mean, there - we think of this as transitory, specifically for 2022, both some of these supply chain plus the outage in Limestone, I expect that to normalize in 2023 and that's why we wanted to provide you the earnings power of our platform on a – in a normalized basis ‘23 and beyond.

Mauricio Gutierrez :

Thank you, Julien.

Michael Lapides:

Hey, guys. Just curious you talked about a lot of these things being kind of abnormal or one-off items. As you think about the opportunity set for investing capital, would you be willing to push out the date you get to the 2.25 to 2.75 net debt to EBITDA to use capital for either a gross initiatives that generates a really high return or to use it to repurchase equity, which may generate an equally higher or even higher return? How do you evaluate when the market gives you opportunities that may be transient in nature about the timing of wanting to do debt pay down versus the timing of other more accretive investments?

Michael Lapides :

Got it. How do you think about for 2022 cash available for allocation? About when you would make the decisions on the other 50%.

Michael Lapides :

Got it. And hey, last question I'll be quick here. Just curious when the Board, and we can look at the various financial metrics in the proxy that outline with the goals of the Company. But just curious when you have conversations with the Board, what tends to be most important, EBITDA growth, free cash flow per share growth, or is there another metric we should think about?

Michael Lapides :

Got it. Thank you guys. Appreciate it Mauricio.

Operator:

Your next question comes from the line of Shahriar Pourreza from Guggenheim.

Mauricio Gutierrez :

Good morning, Shahriar.

Mauricio Gutierrez :

The ancillary service was ERCOT instituted a short-term increasing ancillaries to maintain their reliable Think of the system. Chris, do you want to provide a little bit more specifically around and before I go into the before I pass it on to you, I just want to make sure that everybody understands our run rate. we actually have it on slide 8. We have normalized that to around $2.32 billion. And we say they're transitory, because the transitory supply chain is, when you're flexing off your coal generation, their supply chain takes a little time. I think about mining railroad sets that are allocated to call and chemicals. You can -- when the plant, can flex up fairly quickly. A supply chain that has been sized for the type of generation that we have experienced for the past five or six years. It doesn't flex up that quickly, so that's why I said it's going to take a little bit of time. I expect this to be in the first-half of the year. I think this is going to ease off in the second-half of the year, so that's why I refer to them as transitory. But, Chris, can you just go into detail around the ancillary service s?

Mauricio Gutierrez :

And now, Shahriar, just to be still to be clear. Some of these ancillary costs that preceded describing a lot of them, we pass them through already, our customers, some of them we -- like I said, we don't want to create a bill shock. So in the medium to long run, all of these ancillaries will be passed through to customers. But in the short-term, we're managing these bill shock versus stability of margin and our retention numbers, just keep that in mind. That's why I call this transitory.

Mauricio Gutierrez:

And over the medium to long run they all make it -- to pass it out.

Mauricio Gutierrez :

Yes, once again, I think that's in short term. We are seeing some supply chain issues in the solar, particularly in solar. We are going to be constantly in the market running RSPs to get solar wind and we are actually now looking at batteries. They continue to be very attractive from an economic standpoint. We are probably taking off our feet from the pedal just because it's -- we are aware of the supply chain, so we are slowing down a little bit on these PPAs. We want to see how these works out and then re-engage. I think that's the prudent thing to do. I'm very pleased with where we are today in terms of the PPAs that we have been able to sign and the economics that we have been able to achieve. But I also recognize that there is a transitory issue right now with supply chain that I don't want to be signing PPA's at higher costs. We've been very disciplined in terms of where we actually execute these PPAs. So my expectation is it has slowed down over the past couple of months, I think it's going to continue like that. And we're going to start picking up when we start seeing these supply chain issues ease off a little bit.

Mauricio Gutierrez :

Thank you, Shahriar.

Steve Fleishman:

Hi, good morning.

Steve Fleishman:

Another [Indiscernible] in cost as gas prices which is also lifting up power prices and you don't mention that as a pressure in '22. Is that something that you feel like you're able to pass along to customers essentially or is that also kind -- because there is some lag and things and everything like how much is that additional pressure?

Alberto Fornaro :

Less on the price of nymex and more on the basis. So I feel very confident that our team has the ability to manage because of that very large infrastructure network -- natural gas networks that we have. So I'm actually quite comfortable with the exposure of our higher natural gas prices on our natural gas business. And then on the power side, I think we -- I already described it, Steve, in terms of higher gas prices, you have this issue on the coal constraints, but in general, think of these almost as inflationary pressure. We can pass it through and we actually choose to pass some of that. In the long term -- in the medium to long term you pass everything. And it's going to be a balancing act between -- you don't want to

Steve Fleishman:

Okay. And then just more explicitly asking, I think what others maybe were earlier. The -- obviously when you look at debt to EBITDA targets, EBITDA is lower. It affect meaningfully where you are. Just this '22 EBITDA guidance. Are you going to be targeting off of that or are you just going to say this is not normal and we're just going to ignore it?

Steve Fleishman:

Okay, thank you.

Angie Storozynski:

Thank you. I wanted to start with a question about buybacks. And they need to support the stock clarity. Okay. Well, I understand that the Board usually makes those decisions in the fourth quarter. Well, I'll argue that given today's updates, an earlier decision would have been badly needed. Your peer made some unique decisions on that front. You guys -- seems like most of the money that would go to buybacks is not going to materialize anytime soon, and again, there is a need to support the stock. So would you be open to some unorthodox solutions here to again accelerate the buybacks either -- I don't know, either use revolver or something else to just support the stock now?