Talen Energy Corporation

Ladies and gentlemen, thank you for standing by. Welcome to Talent Energy Corporation third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. And to ask a question during the session, you would need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. And we ask that you please limit to one question and one follow-up. And to withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Sergio Castro, Vice President and Treasurer. Please go ahead.

Thank you, Michelle. Welcome to Talent Energy's third quarter 2025 conference call. Speaking today are Chief Executive Officer Mack McFarland and Chief Financial Officer Terry Nutt. They are joined by other Talent Senior Executives to address questions during the second part of today's call as necessary. We issued our earnings release this afternoon along with a presentation, all of which can be found at the investor relations section of our website, talentenergy.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 relief and the appendix of our presentation. With that, I will now turn the call over to Mac.

Great. Thanks, Sergio, and welcome, everyone, to today's call. We appreciate your ongoing interest and talent. Before we review the quarter, I'd like to start with where we are as Talon and talk about the broader landscape as we implement the Talon flywheel. Sitting here today, the overall market continues in the same trajectory as we've discussed in prior calls. AI and data center capital budgets continue to impress and expand. It seems like every day there is another announcement, investment, or idea floated on how to power growing data center demand. Demand for power keeps coming and we will need an all of the above approach to solve the growth from the supply side. Pennsylvania continues to drive economic growth through data center development and remains a pro-business place to invest. Governor Shapiro, the Pennsylvania PUC, and the local communities have embraced these investments and recognize the advantages Pennsylvania brings to developers, including speed to market. while at the same time they recognize the need to properly allocate costs, build new generation, and keep residential rates in check. We are doing our part by evaluating options to solve short-term capacity questions and longer-term resource adequacy. It's why we recently signed an MOU with Eos Energy to partner on battery development in Pennsylvania and PJM using Pennsylvania manufactured batteries. As I've said in the past, for the next five years, we are going to need to solve a capacity issue, not necessarily an energy issue. And we believe batteries and peaking plants can solve this need much more readily than CCGTs and at overall lower cost. CCGTs will be needed too, and we will look to build them in collaboration with the right partners and customers, but that is further off on the horizon. And while I have focused on Pennsylvania in these comments, we continue to be excited about the prospects in Ohio given load there already exists, but more on that in the coming quarters. At Talon, we have a number of things in flight. First, we continue to execute under our existing agreements with AWS and the Susquehanna site continues to be built at an amazing speed and has been electrified. Second, We are working diligently to close the Freedom and Guernsey acquisitions, which will add to our base load fleet and to our large load contracting strategy. As you know, we refiled our HSR application at the Department of Justice for a second time, restarting the 30-day timeline, which now runs through November 17th. We believe it was prudent to give the DOJ additional time because the transaction fails zero market power screens. We remain confident that we will close these acquisitions. I do note that this might take a little longer and bleed into Q1 of 2026. That said, we are pressing to get these deals closed as soon as possible and might be able to get them done as early as late this year. We are optimistic that FERC can then act on our 203 filings in short order. In addition to pushing our regulatory approvals or pushing them along, we also recently closed on a highly successful financing package. And lastly, with respect to the acquisitions, Dale and the fossil team are well underway on the planning to add both Freedom and Guernsey to the fleet. And Chris and the commercial team are ready to fold them into the portfolio when they can. We are truly excited to get going with these assets and want to thank the CAFEMIS team on the professional transition to date. Third, we continue to pursue additions to the flywheel through large load contracts and additional megawatts for the portfolio. On the contracting side, there has been a fair amount of noise in the markets about our ability to contract, when we might be able to contract, how we might do so, and how we will manage the so-called gas risk. Trust me, when we hear all of that, we just go about our business. We built a good, comprehensive playbook with the Amazon-Sesquihanna contract and our focus currently on execution. Our strategy remains the same. Our efforts have only been redoubled, and our focus has sharpened. and our commercial learnings continue to expand. We have been working on the next thing since we signed the first AWS contract in early 2024 and gained a lot of commercial knowledge by changing that contract to front of the meter. Refiling of our HSR on Freedom and Guernsey does not change our path. Let me be more explicit as to why the exact closing of these deals doesn't impact our near-term strategy. In the rest of the portfolio, excluding Freedom and Guernsey, we have approximately 4 gigawatts of gas fired generation between Montour, Lower Mount Bethel, and Martins Creek, as well as 300 megawatts of carbon-free power at Susquehanna remaining. Our efforts at Montour continue, and I'm sure you have seen that we are working on zoning and permitting at the site, which, by the way, if you were with us back in 2023, was the same activity we were undertaking at Susquehanna then. All of this activity goes on, all well before we close the acquisitions. And as I've said, we remain confident that we will still close the acquisitions in short order. So timing of closing of Freedom and Guernsey is really irrelevant to our contracting power strategy. We feel good about our ability to look at further expansion of the portfolio through acquisitions and continue to explore free cash flow accretive deals. And we are constantly challenging ourselves to reshape the portfolio. And I'm sure some Someone will ask when we might expect to announce the next part of the flywheel. And I'll say the same thing that we always say, which frankly is next to nothing. You'll be the first to know when we're done. We want the right deals, not any deals and not on anyone else's timeline. In the meantime, 2026 is setting up well. We are reaffirming 26 guidance and we are starting to see forwards tick up. Gas is up, sparks are expanding and load continues to be strong. all factors that continue to impact commercial positioning on long-term transactions. Terry and Chris will walk you through what we are seeing in the markets in just a bit. Moving to the present and Q3 on slide two, as we said during our investor day call, we saw limited volatility and limited opportunity to capture incremental value in the third quarter, and the quarter was a little light of our internal expectations, but we already knew that and acknowledged that in September at our investor day. Going into the summer, we were looking to regain some of the lost opportunity from the spring outage at Susquehanna, but it just didn't materialize. Both July and August experienced fewer peak load days when compared to June, and we experienced incremental forest outages as our fleet continues to run with higher capacity factors and longer run times between maintenance. Terry will provide a few more details on this later. During the quarter, we delivered $363 million of adjusted EBITDA and $223 million of adjusted free cash flow. So far in Q4, things are a bit better given the market move up, but we are still projecting to be at the lower end of our guidance range as we previously stated at that September investor day. Before I turn this over, I'd like to thank our entire TALEN team for their hard work and dedication, and I'm happy to let you know that we have reached a five-year extension of our local 1600 contract with the IBEW, so a special thanks to Rusty and the IBEW leadership team. At TALEN, we are powering the future together.