Vistra Corp.

Ladies and gentlemen, thank you for standing by and welcome to the Vistra Energy first quarter 20 turning earnings call. At this time, our participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Molly Forge, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, and good morning, everyone. Welcome to Vistra's Investor Webcast covering first quarter 2020 results, which is being broadcast live from the Investor Relations section of our website at www.vistraenergy.com. Also available on our website are a copy of today's investor presentation, our Form 10-Q, and the related earnings release. Joining me for today's call are Kurt Morgan, President and Chief Executive Officer, and David Campbell, Executive Vice President and Chief Financial Officer. We have a few additional senior executives available to address questions in the second part of today's call as necessary. Before we begin our presentation, I encourage all listeners to review the safe harbor statements included on slides two and three in the investor presentation on our website that explain the risks of forward-looking statements, the limitations of certain industry and market data included in the presentation, and the use of non-GAAP financial measures. Today's discussion will contain forward-looking statements which are based on assumptions we believe to be reasonable only as of today's date. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied. We assume no obligation to update our forward-looking statements. Further, our earnings release, slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures are provided in the earnings release and in the appendix to our investor presentation. I will now turn the call over to Kurt Morgan to kick off our discussion.

Thank you, Molly, and good morning to everyone on the call. As always, we appreciate your interest in Vistra, especially during these extraordinary times. First and foremost, the Vistra family sends our heartfelt thoughts and prayers to those adversely impacted by the COVID-19 virus. We know the Northeast US has been hardest hit, and many of you on the call may have been affected. As tough as it is, there is hope, as I am convinced that we will get through this and we will be better than ever. I never thought I'd be hosting an earnings call from my home with our management team dispersed across the North Texas Metroplex. And yet, that is where we find ourselves today. These are challenging times as we face the highly disruptive COVID-19 disease, which has already created unprecedented harm to society, threatening the health of not only the population, but of our economy and businesses as well. Now more than ever, I am proud to lead a company that is providing such an essential service to society, the electricity that powers our lives. Roughly 3000 power plant Team members at Vistra have no choice but to go to work every day to fulfill our obligation to society, and they have done it with pride and without question. We would not be able to work from home, power medical equipment and devices, and keep critical infrastructure running without electricity. Since the onset of COVID-19 in the US, Vistra has been focused on keeping our people healthy and safe while maintaining our essential business operations. Vistra took action. Early on to prepare the company for a COVID-19 environment, putting us in a position of relative strength as we sit here today. In fact, we sowed the seeds of financial strength long before COVID-19 ever arrived. And we've been levered like the IPPs of the past. Back in October 2016, when we emerged from bankruptcy, we may be having a very different discussion today. A strong balance sheet is as important as ever, and we intend to continue on our path to 2020 to our leverage target. We have logged well over 100 new activities that we are performing on a daily and weekly basis because of COVID-19, and we have provided a high-level list of some of these actions on slide six. Through steps such as being one of the first U.S. generators to implement temperature testing and entry questionnaires at our locations, and contact tracing, instituting a work-from-home policy for all employees with remote work capabilities and non-specific work location requirements, requiring face coverings and social distancing, thoroughly cleaning facilities between shifts and emphasizing hygiene, and executing commercial transactions to better position Vistra for the anticipated market moves, we have been able to maintain the level of operational excellence our stakeholders expect from us and our customers deserve. It is very important to note that these health and safety procedures must be implemented in a holistic manner. We are continuing to evolve our health and safety guidelines with an eye toward widespread testing. About three weeks ago, we also launched our planning ahead team to evaluate coming back to work for the nonspecific work location team members. This team has already started developing the necessary plans. The productivity of our team members working from home has been so strong that we can afford to be very deliberate about our returning to work, and frankly, we will not return until we feel that it is safe to do so. On the generation side, in addition to going to work locations to continue to perform their normal functions, our team members also completed or are on schedule to complete 86 maintenance outages this spring in the midst of the pandemic to ensure plant reliability for the critical summer months ahead. We analyze the necessity and scope of each outage, rescheduling and scaling back if possible for the sake of our people without sacrificing reliability. On the retail side, our call center operations maintain service levels at greater than 90% for the first quarter and greater than 92% for the month of April, while managing the transition for most to working from home. And perhaps most important, I am proud that as of today, these procedures have contributed to limiting Our COVID-19 positive tests to only two in a population of approximately 5,500 employees and over 3,000 contractors on our site in 20 states and the District of Columbia, with both of these cases contracted outside of work. Fortunately, both of these affected individuals have fully recovered. I'm also proud that we have been able to help our customers and communities during this difficult time by implementing programs to waive late fees, extend payment dates, and provide payment plans for those impacted by the COVID-19. We are also offering additional payment assistance to those in need through our TXU Energy Aid Program, and we've donated $2 million for COVID-19 relief efforts to nonprofits and social service agencies in the communities we serve. This is not just good business. It is the right thing to do and reflects one of our guiding principles. I know the potential financial ramifications of COVID-19 on businesses is front of mind for investors today, which is why we have dedicated most of our prepared remarks to this topic. We believe Vistra is well positioned to deliver strong financial results in 2020, even in the face of lower demand driven by COVID-19. In fact, we are reaffirming our 2020 financial guidance today. Our confidence in our ability to continue to meet expectations in 2020, despite the challenges imposed by COVID-19, is a result of a few critical points, all set forth on slide seven. First, our generation business is now approximately 99% hedged from direct commodity price risk exposure for the balance of 2020, limiting the impact of near-term price volatility on our 2020 financial results. Second, our retail business derived approximately 90% of its adjusted EBITDA from the residential and mass business customer classes, and we expect residential lows will increase in 2020, mitigating the expected negative impact of lower business volumes. Last, approximately 70% of Vistra's adjusted EBITDA is derived from the ERCOT market, which is proving to be relatively resilient as compared to the other markets where we operate. Historically, Texas has outperformed other US markets during and coming out of economic downturns, and we expect it to be no different this time around. Our strong balance sheet and favorable position heading into the COVID-19 driven Thank you for joining us. which is critical to a well functioning society. Our strong balance sheet and highly efficient generation fleet have supported our ability to opportunistically hedge, minimizing the impacts of near term price volatility. And our lean integrated operations have created a foundation for us to produce relatively stable financial results in a wide range of wholesale power price environments. Unfortunately, you wouldn't be able to come to this conclusion just by looking at our stock price over the past several months. It remains perplexing to me why our stock would trade at such a high free cash flow yield with our 2020 guidance intact and a relatively robust long-term outlook. As always, we will continue to focus our efforts on execution. Hopefully, with time, the financial markets will begin to appreciate the relative stability this low debt integrated model can deliver, which when combined with our nearly 70% free cash flow conversion ratio, we believe makes for a very attractive investment. While our stock price is disappointing, I am optimistic that as we approach our leverage target this year, announce our long-term capital allocation plan, still scheduled for September of this year, and continue to execute and deliver in a variety of markets, that we will unlock the value of this company. Turning now to slide eight. Given the focus by the financial community on the impact of COVID-19 on electricity demand, We have summarized in a chart on this slide the impacts we are seeing across each of our markets as of mid to late April. Similar to what we observed during the 2008 to 2009 recession and consistent with my earlier comments, ERCOT is proving to be relatively resilient. This is an important point for Vistra, given that, as I mentioned previously, approximately 70% of our adjusted EBITDA is derived from the ERCOT market.