Talen Energy Corporation

Good afternoon and welcome to the Talon Energy fourth 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. As to today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on a touchtone phone. And to withdraw your question, you may 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. Ellen, please go ahead.

Thanks, MJ. Welcome to Talent Energy's fourth quarter 2023 conference call. Participating on today's call are Chief Executive Officer Matt McFarland and Chief Financial Officer Terry Nutt. I'd like to highlight that we have posted materials on the investor relations section of our website, www.talentenergy.com, that provide additional information about our operations, fourth quarter, and full year 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 Mac.

Great. Thank you, Ellen. Good afternoon, everyone, and thank you for joining us today. As Ellen mentioned, we have materials posted, and today we're going to follow along the slides, so I'm starting on slide three. I'd like to kick this call off by highlighting the transformative year we had in 2023. We were relentlessly focused on unlocking and maximizing value. 2023 was the strongest year in Talon's history, with over $1.12 billion of adjusted EBITDA and $587 million of adjusted free cash flow. Adjusted EBITDA was in line with our guidance midpoint and adjusted free cash flow exceeded the high end of our range. This performance was driven primarily by higher energy margins realized through our disciplined hedging strategy along with strong physical energy margin during ERCOT's record high demand this summer. As many of you know, talent emerged from financial restructuring on May 17th last year. with modest leverage, a long-dated maturity profile, and ample liquidity to run the business. Since then, we've been focused on unlocking value not currently recognized by the market through strategic initiatives, capital structure simplification, and what I call regular way operations of an IPP. Looking at the first category, last week we were excited to announce the sale of our Cumulus Data Center Campus to Amazon Web Services for over two and a half times invested capital, combined with two long-term agreements that will help us drive earnings and cash flow growth. We'll talk more about this later in the call. In December, we reached a settlement with PPL on our longstanding Talon, Montana litigation, resetting the relationship with a key stakeholder and resulting in 100 million of net proceeds available to support asset retirement obligations at Talon, Montana. We've taken several significant steps to simplify our capital structure and unlock trapped cash flows. We took out a project financing associated with our lower Mount Bethel and Martins Creek assets by upsizing our term loan. We simplified the ownership of Cumulus Digital by acquiring Riverstone's Cumulus ownership and retiring their warrants. We delevered Cumulus by paying off the Orion term loan and further simplified Cumulus equity ownership by buying Orion's approximately 5% share. Looking at our regular way improvements, last quarter we implemented a cost savings program capturing $50 million of annual run rate operational savings. We're making really good progress towards this target and Terry will provide some more details on it. And we are actively reducing our collateral requirements to increase liquidity. Finally, Prior to emergence, Talon was a private company for over six years. In 2023, we realigned with regular way public company reporting practices, including quarterly financial filings, earnings calls, and establishing guidance for adjusted EBITDA and adjusted free cash flow. We listed on the OTCQX and in October announced a $300 million share repurchase program to begin returning excess capital to shareholders. We've bought back 225,000 shares to date for approximately $14 million. We have also actively engaged with the broader investment community by attending investment conferences, conducting numerous one-on-one investor meetings, and working with the sell-side analyst community to drive awareness of talent as a re-emerging public IPP. To increase stock liquidity and facilitate additional shareholder returns, we're targeting uplisting on a major national exchange in the second quarter of this year. Moving on to slide four. Here's how we plan to continue unlocking and maximizing value in 2024 and beyond. We are raising 2024 adjusted EBITDA guidance to $640 to $840 million and adjusted free cash flow guidance to $185,335 million based on adding earnings from the AWS contracts and existing Nautilus operations along with incremental capacity revenues from the recent PJM secondary auction for 2425. Operationally, now that the data campus is sold, we're working to fully transition it to the new owner and implement the processes we need to begin servicing and earning revenues from our new contracts with AWS. After observing an opening in the ERCOT M&A market, we launched a monetization process for our ERCOT fleet in late 2023, that continues to progress. We are also exploring strategic opportunities for our interest in Nautilus and how to leverage our recent data deal for other potential opportunities across our fleet. After we announced the planned June 2025 retirement of Brandon Shores and Wagner in 2023, PGM reached out to us with requests to continue operating both facilities under potential reliability must-run agreements, or RMRs. We believe RMR agreements should be used only as a last resort for grid reliability and without creating distortions in the market. To be sure, Talon does not want to be in an RMR situation. Operating that way is not our business model. Nonetheless, under the present circumstances, we are willing to work with PJM and other stakeholders to provide generation from Brandon Shores and Wagner under potential RMR agreements and we are currently engaged in those discussions. We will need relief from our agreement with Sierra Club to stop burning coal and extension of our Maryland permits, both of which we believe are doable and within the best interest of Maryland, PJM, and most importantly, in keeping the lights on in Baltimore. As for PJM and the IMM, we simply ask that Talon receive a fair return of and on equity and that any