Talen Energy Corporation

Good morning and welcome to the Talon Energy second quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ellen Liu, Senior Director of Investor Relations. Please go ahead.

Thank you, Kate, and welcome, everyone, to Talon Energy's second quarter 2023 conference call. Participating on today's call are Mac McFarland, Chief Executive Officer, and Terry Nutt, Chief Financial Officer. They are joined by other Talon senior executives to address questions during the second part of today's call as necessary. I'd like to highlight that we have provided slides on the investor relations section of our website, www.talentenergy.com. These slides provide additional information about our operations and second quarter results. We have also provided information reconciling our non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings materials. Today, we are making some forward-looking statements based on current expectations. Actual results could differ due to risk factors described in our financial disclosures and other periodic public filings. As a reminder, we have allotted additional time for a question and answer session at the end of our prepared remarks. We ask participants to please limit their questions to one primary and one follow-up. With that, I will now turn the call over to Max.

Great. Thank you, Ellen. Good morning, everyone, and thank you for joining us today. At Talon, we are focused on delivering consistent and predictable free cash flow. Today, Talon reported strong operational and financial performance in the first half of 2023, generating from a diverse fleet anchored by carbon-free nuclear power. With today's release, we are establishing 2023 adjusted EBITDA and adjusted free cash flow guidance, and given our strong first half of the year, the midpoint of our guidance ranges are higher than the last forecasted figures presented on January 27th. On May 17th, Talon emerged from its financial restructuring after successfully raising roughly $2 billion of funded emergence debt, a $700 million undrawn revolver, and $1.4 billion of new equity capital. This, together with the conversion of over $1.4 billion of unsecured debt to common equity, allowed us to emerge with modest leverage and long-dated maturity profile with ample liquidity to run the business. We are and will remain focused on disciplined capital allocation and prioritizing shareholder returns, and we will do so looking to maintain a net leverage ratio of less than three and a half times net debt to EBITDA. In connection with the emergence, we announced management and board changes to support Talon, I was delighted to join Talent at Emergence, and we have since rented out the management team, including the addition of Terry Nutt as Chief Financial Officer. Terry has more than 20 years of experience in the energy industry, including leadership roles and post-reorganization situations, and you'll hear from him later in this call. We also put in place an independent board of directors, each with deep industry expertise, and drawing on this experience in the new management team will allow us to drive value creation for shareholders. Prior to emergence, Tallinn was a private company for over six years. We are now realigning with regular way public company practices, including quarterly financial filings and earnings calls. Tallinn is currently listed on the OTCQX, and we anticipate listing on a major national exchange in the future. Management is focused on this initiative, which could be completed as soon as the end of this year. On August 9th, we simplified the capital structure further by refinancing our non-recourse Lower Mount Bethel and Martins Creek debt through the upsizing of our corporate term loan. The transaction brings the Lower Mount Bethel and Martins Creek generation assets into the talent group, and it frees up previously trapped cash flows that were amortizing the project-level term loan. Overall, this simplifies our capital structure and extends our debt maturity profile further. Additionally, on August 10th, Talon reached an agreement with Riverstone to acquire its roughly 14% interest in Cumulus Digital Holdings and to retire its 3.1 million warrants in Talon Energy for a total cash consideration of $60 million. By doing so, we are eliminating $49 million of liabilities associated with these warrants and their potential common equity dilution risk. We are also eliminating including all of Riverstone's equity and governance interest in Cumulus Digital and its economic rights in related intercompany PPA agreements. This transaction is expected to close in September and again further simplifies the ownership structure of Talent and Cumulus Digital, and it enables increased flexibility as the company continues to unlock value across its platform. Turning now to our results, We performed reliably and safely. We are proud of our safety record with an OSHA total recordable incident rate of 0.6 on a year-to-date basis, and we continue to emphasize safety across the fleet. Our TRIR is one of the best among peers. Our fleet ran well, generating 13.5 terawatt hours with an equivalent forced outage factor of 2.6% in the first half of the year. Approximately 60% of that generation was carbon-free, from our Susquehanna nuclear facility. Furthermore, our ERCOT plants performed consistently and profitably during the Texas summer heat wave. This strong operational foundation and a robust commercial strategy delivered $774 million of adjusted EBITDA year-to-date. And after funding our maintenance capital expenditures, we generated $464 million of adjusted free cash flow on a year-to-date basis. I'd like to take this opportunity to recognize and thank all of our employees across the fleet. They have worked safely to deliver excellent operational results from Montana to Texas to the Mid-Atlantic. Without their efforts and resolve, none of this would have been possible. While the majority of our generation is already produced through zero carbon nuclear and lower carbon gas fired facilities, we are reducing the carbon profile of our wholly owned coal fleet through the conversion to lower carbon fuels. The 1.5 gigawatt Montour gas conversion is nearly complete, and final testing will conclude this quarter. Montour Unit 2 became fully operational on natural gas in early August, and Unit 1 will be fully operational on gas by the end of August. The Wagner Unit 3 coal-to-oil conversion is also well underway, with expected completion before year end. As an update on Cumulus, we are near full electrification on substation three, which will provide fully redundant power to phase one of our data center campus. Going forward, we will have minimal growth investment in Cumulus data, as we need only $5 million or so of incremental spend for the final transformer that will give us an electrical infrastructure capability for up to 240 megawatts of data centers. As Terry and I have been on the road meeting with investors, many have asked about our plans for Cumulus Data and when we will announce a deal. The answer is, frankly, when we have the right deal. Talent has invested significant capital in Cumulus, and we are keenly focused on realizing the value of these prior investments through a sale or joint venture. The data center market is very active because of increased demand from AI and low availability of data center capacity. And we are uniquely positioned with a ready-to-go shell, abundant zero-carbon power, the ability to offer attractive long-term rates relative to other tariff rates, and a scalable campus with the potential capacity for up to one gigawatt of data centers. With that, I'll now turn the call over to Terry. Terry?