Talen Energy Corporation

Good day, and thank you for standing by. Welcome to the Talent Energy Corporation full-year 2024 earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Emily Liu, Senior Director of Investor Relations. Please go ahead.

Thank you, Kevin. Welcome to Talon Energy's year-end 2024 conference call. Speaking today are Chief Executive Officer Matt McFarland and Chief Financial Officer Terry Nutt. They are joined by other Talon senior executives to address questions during the second part of today's call as necessary. We issued our earnings release this afternoon along with the presentation, all of which can be found in the investor relations section of Talon's website, www.talonenergy.com. Today, we are making some forward-looking statements based on current expectations and assumptions. Actual results could differ due to risk factors and other considerations described in our financial disclosures and other SEC filings. Today's discussion also includes references to certain non-GAAP financial measures. We have provided information reconciling our non-GAAP measures to the most directly comparable GAAP measures in our earnings release and the appendix of our presentation. With that, I will now turn the call over to Matt.

Great. Thank you, Ellen. Before we get into our results, I'd like to start with some brief remarks. Talon has been the beneficiary of strong tailwinds since we signed the AWS contract last March and joined NASDAQ last July. Our investors have seen strong results, whether they have been with us since the restructuring or invested in the stock more recently. Then and today, we have real conviction about Talon, our value, and path forward. Recent news has clearly caused some to question the IPP investment space and the unprecedented demand growth expected from data centers. Let me be clear, our value proposition remains unchanged in our view and the talent story continues to excite us. Market fundamentals remain incredibly strong for IPPs in general and in talent's footprint specifically. And we see real opportunity in the events of the last several weeks. We have a clear vision about our path forward. Talon has a billion dollars plus of dry powder in our share repurchase program and balance sheet flexibility to execute this SRP or act strategically if the right opportunities present themselves. Talon has an existing relationship with a hyperscaler who shows no signs of pulling back on growth and has invested material capital and sweat equity into the Susquehanna arrangement to date and on an ongoing basis. Talon has a PPA that we are executing right now with visibility to 300 megawatts before we need to concern ourselves with regulatory issues about our co-location arrangement. And site development continues as we work through startup with AWS. With this visibility towards the first 300 megawatts, Talon has time to convert the contract to a different commercial arrangement and or resolve the regulatory questions. And we are confident and focused on executing on one of those options, if not both, over time. Talon is long power, long PGM, and will continue to benefit from a capacity market in the midst of promising reform efforts and a demand cycle that continues to show increasing strength. Talon has a clear line of sight to our cash flows with the nuclear PTC, the PGM capacity market price increases, the RMR that we executed recently in Baltimore, and the beginnings of revenues under the AWS contract as we electrify the site. To reiterate, we have strong conviction in our view that talent is well positioned for powering the future and our strategy remains unchanged. Now I'd like to highlight our operational and strategic achievements for 2024. Starting on slide two of our presentation with our strong operational and financial performance. We generated $770 million of adjusted EBITDA and $283 million of adjusted free cash flow for the year. Our fleet achieved record levels of safety and reliability, and I would like to thank the men and women of Talon who have made this a reality. Without their efforts, none of this is possible. Our strong performance has continued into 2025, and we are reaffirming our 25 guidance and 26 outlook. We've seen cold weather hit the mid-Atlantic with PGM setting a new winter instantaneous peak load record of over 145,000 megawatts on January 22nd, and it has been a strong start to the year. We continue to deliver under our contract with AWS. We are earning revenues from them already, and construction continues on the campus. While AWS obviously drives the schedule, we are working with them to deliver power under our PPA in the currently approved 300 megawatt ISA, or interconnection services agreement. We are also moving forward on the commercial and legal paths to ramp up to the full 960 megawatts for the campus, among other opportunities across our fleet. As I previously mentioned, in late January, we agreed to a reliability must-run, or RMR, with PJM, FERC staff, the Maryland PSC, and local utilities. These RMR arrangements extend the life of Brandon Shores and Wagner from May 25 to May 29, or until necessary transmission upgrades in the region are complete. The timing aligns us with the PGM planning year, thus the extension through May of 29. Beginning June 1, 2025, we will receive annual payments of $145 million for Brandon Shores and $35 million for Wagner and be reimbursed for variable costs and project investments. These annual revenues include incentive fees for performance that we intend to achieve. The settlement is subject to final approval, and we are encouraged by the level of support from key stakeholders. Through these arrangements, we provide critical infrastructure and protect grid reliability in Maryland, as well as the broader PJM. Moving to our strategic achievements on page three, 2024 was focused on unlocking value from our existing assets and returning it to shareholders while exercising balance sheet discipline. I think everyone knows the story and we are going to continue down this path of maximizing value with a focus on shareholder returns in 2025 while seeking compelling growth opportunities. Like I said, the story remains the same. Turning to slide four, here's an update on a page we've provided before. The green bars in the chart are from our investor day last September where we talked about tripling free cash flow per share by 2026, assuming share count was held flat. As we said in September, this could be improved with buying back shares, and that's what we did. The effect of the share buybacks we executed in 2024 is now reflected here in the blue bars, which uses a static share count as of 12-31-2024 for the years 25 and 26. These actions taken late last year have moved the midpoints of free cash flow per share in 25 and 26 by approximately 11%. I want to remind everybody that when we present our free cash flow per share metric, we do not exclude growth capex. So what you see here is what you get when it comes to capital allocation and cash available for shareholder returns. And we do not include our future share repurchases, if any, in the calculations. Looking for more of the same in 2025, maximizing value and returning it to shareholders. That will always be our investment benchmark as we evaluate opportunities for future growth. Turning to slide five, this slide supports what I said at the beginning of this call. News happens, markets move, and markets are fickle. But Talon's underlying value proposition remains the same and still points up and to the right. We clearly see significant load growth coming over the next decade. AI is in its early innings, and Talon is executing a data center power arrangement today and is well positioned to power the future. Turning to the next slide, slide six, this is especially true in PJM and the PPL zone specifically. Looking at the graphs, even if only part of this demand comes to pass, it would still be a huge step up from the last decade and has yet to manifest itself in the forward curves as we see it. In fact, 26 and 27 is backwardated right now, and that doesn't make sense to us. Demand growth means higher run times at higher prices for our existing generation fleet, and more attractive economics for potential data center arrangements. Turning to slide seven, we are encouraged by what we've seen on the regulatory side in the last couple months. FERC, PJM, state governments, and other stakeholders are aware of these growing power needs and have started taking some much needed action. We appreciate all the groups working efficiently to keep capacity auctions moving forward as soon as possible. incentivizing new generation, and provide more clarity on serving important data center customers. We recently filed comments in support of Governor Shapiro's settlement in PJM on the capacity auction. We think this is a good interim step to reduce volatility. However, we believe the market should be allowed to work. The market needs clarity on long-term rules for capacity auctions. We need to get back to the normal course of running these auctions well in advance, as intended by the RPM. Said simply, we need regulatory certainty around the capacity market because it is critical for long-term investments. We will continue being active participants in the regulatory process. We will work constructively with PJM and the states where we operate. Successful outcomes here are critical to ensuring grid reliability and bringing new generation online. The RPM has worked since its inception, bringing tens of thousands of megawatts of new generation to PJM, And now is the time to redouble our efforts on this front. Recently, FERC instructed PJM to evaluate its tariff and propose rules for governance of co-located load connections. We will advocate for a simple and non-controversial solution. If the generator, the local utility, the RTO, and the customer agree on terms, and the customer agrees to pay for what it uses from the grid, then the load should be able to connect. With that, I'll turn the call over to Terry.