Vistra Corp.

Good morning and welcome to Vistra's Investor Webcast, discussing first quarter 2022 results. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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 Megan Horn, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. Welcome to Vistra's Investor Webcast discussing first quarter 2022 results which is being broadcast live from the Investor Relations section of our website at www.Vistacorp.com. Also available on our website are copies of today's investor presentation, our Form 10-Q, and the related press release. Joining me for today's call are Kurt Morgan, our Chief Executive Officer, and Jim Burke, our President and Chief Financial Officer. We have a few additional senior executives present to address questions during the second part of today's call, if necessary. Before we begin our presentation, I encourage all listeners to review the safe harbor statements included on slide two 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, today's press 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 press release and in the appendix to the investor presentation. I will now turn the call over to Kurt Morgan to kick off our discussion.

Thank you, Megan. Good morning to everyone and thank you for your continued interest in Vistra. Getting started with slide five. I've mentioned before that 2022 is a year of executing on the strategic priorities we outlined in the third quarter of 2021 shown on this slide. Importantly, Vistra has started on the right foot in 2022 with Q1 results consistent with our expectations And it is noteworthy that our confidence regarding 2022 has grown. However, to me, the bigger story is the material movement in energy commodities complex forward curves for 23 and beyond. And our emphasis on a comprehensive hedge strategy capitalizing on this move that began last year, continued in the first quarter, and continues today. Notably, we expect this upward trend to continue given how the U.S. and world energy situation is set up, especially regarding ESG and boardroom actions in response, combined with strong demand and geopolitical events. In a nutshell, the U.S. natural gas complex is already tight and likely to be increasingly tied to world gas economics. As an expanding pivotal supplier on the world stage, we expect U.S. supply and demand to tighten even further. Higher natural gas prices in turn lead to higher power prices, and Vistra is long power and natural gas equivalents. Frankly, in my 40 years, I have not seen a confluence of events quite like this. Certainly, Vistra is in the right position to capitalize on the strong forward curves. The effectiveness of our execution will be key as the day-to-day volatility is extraordinary. It is a rare opportunity presented to us and it is our job to create the most value out of it while managing the risk. Our prudent hedging strategy has resulted in Vistra locking in material out year value in the 23 to 25 time frame and it is worth noting that the forwards have also risen materially out to 2030. the market clearly believes there has been a fundamental shift in the energy commodity complex and it started before the russian aggression against ukraine this shift as reflected in the forwards offers continued opportunities to hedge more while remaining mindful of the potential liquidity requirements against further commodity price moves. The good news is that this offers right-way risk with our open position, as well as the significant value already hedged. We also have tandem hedged other risks associated with our commodity hedge positions, such as fuel and basis differentials. Our generation fleet has also performed exceptionally well at an average commercial availability in the mid-90s percent as a critical component of our hedging strategies. We bolstered this exceptional historical performance by the additional expenditures after URI to de-risk our ERCOT plant operations and, as we have mentioned in the past, we hold back generation to cover forced outages. all to manage any risk exposure that hedges can expose us to. Our primary focus when hedging is on managing risk while capturing value. We are not focused on picking the absolute peak. Our experience is that this futile endeavor leads to a significant risk of missing the opportunity entirely. As it relates to 2022, While we were considerably hedged coming into the year, our open position in the summer months could now benefit from the power price environment, which we expect to remain intact given the likely continued strength of natural gas prices as I just discussed. This is our expectation even without an extreme weather event. In addition, our retail business continues to deliver strong margins while organically growing customer counts as customers in ERCOT value quality retail names like TXU Energy and Ambit. Jim will speak to the significant value capture opportunity in more detail momentarily, but in sum, the EBITDA outlook for Vistra through 2025 has now increased to potentially over a billion dollars, even with prudently conservative estimates, and the market has only continued to move up. As briefly mentioned a moment ago, a robust hedging strategy, of course, requires significant liquidity as collateral postings are required. Notably, our commitment to a strong balance sheet with significant liquidity has positioned us with the cash and access to capital necessary to make the collateral postings while continuing to execute solidly on our $2 billion share repurchase program and pay out significant dividends to our shareholders of record. Of course, in this environment, you can never have enough liquidity. As such, we continually look for ways to efficiently manage our liquidity and are working diligently to enhance access to capital so we can further take advantage of the long-dated move up and forwards and capture value for our shareholders. We believe these efforts will be successful given the significant strength of our business and the amount of forward value we can lock in. Finally, we remain committed to sensibly progressing our fleet of zero carbon generation. As of today's call, we have completed construction of our Brightside and Emerald Grove solar facilities and our DeCordova battery energy storage facility in Irka. Additionally, we've been working around the clock to install replacement connectors in the water-based heat suppression safety systems at Moss 300 and Moss Landing 100 and expect to begin bringing those megawatts back online ahead of the hot California summer months. Despite the challenges, the supply chain issues, or the uncertainties around solar panel procurement that the Department of Commerce's anti-circumvention investigation are causing the industry, we find ourselves well-positioned to navigate these particular headwinds as we continue to advance the growth of our VISTA Zero portfolio. Our planned 2022 development projects are constructed, and we've already procured panels for several of our next in line solar projects. Further, our remaining projects have a timeline that allows us to opportunistically contract at the right time. It is important to note that we will remain disciplined in our development efforts, especially given that we either have procured the equipment or have flexibility to time our projects with availability and pricing of equipment. It is also important to note that the supply chain bottlenecks and government actions are dampening the build out of renewables in the U.S., placing more emphasis on the existing fleet of assets, especially natural gas fueled and nuclear power plants. As we have said many times before, natural gas-fueled power plants are going to be critical to a rational and just transition to a decarbonized electric system. Moving now to slide six, in the first quarter we achieved $547 million of adjusted EBITDA from ongoing operations, in line with our expectations. Notably this year, our first quarter results are a smaller contribution to our overall annual earnings as compared to certain prior year first quarters. But this new earning shape was expected for 2022 and is correlated to the seasonality of our retail business in the ERCOT market during the winter months with higher cost of goods sold locked in to hedge retail sales. However, there is greater margin opportunity expected in the remaining months in both our retail and wholesale businesses. With that said, the retail segment performed above expectations in Q1 and ERCOT with notable organic customer count growth and strong margin performance. Our generation segment came in a little below expectations, largely due to a greater open position and lower realized prices from a weaker winner. with very strong performance in commercial availability rates at the plants of approximately 96% in this first quarter. We are reaffirming our previously announced guidance of adjusted EBITDA from ongoing operations of $2.81 billion to $3.31 billion and adjusted free cash flows before growth from ongoing operations of $2.07 billion to $2.57 billion. We retain the ranges as we are still early in the year, have the summer month ahead of us, and at this point in time, we continue to carry a little more open position than in the past for risk management purposes. However, we reaffirm this guidance with increased confidence given the favorable energy commodities markets we continue to experience. In closing, Vistra is very well positioned, especially given the current market environment. Execution is key in 2022 and beyond, especially related to our hedging in forward years and managing adequate liquidity. Now, before I turn it over to Jim, as you are likely all aware, this will be my last earnings call as CEO of Vistra. It has been my distinct honor and privilege to serve you all for nearly six years. I want to thank our many stakeholders for their support throughout my tenure. In particular, all of you who entrusted us with your hard-earned money. I know I gave it my best to do business the right way and create value for our investors. I'm proud of all that we've accomplished and believe Vistra is well positioned to drive continued industry leadership. This is simply the right time for me to transition the CEO role to Jim. Jim has done everything to be prepared for this demanding job. After having worked with Jim for many years, I have the utmost confidence in his capabilities, commitment to Vistra, and his leadership skills. He has a deep experience and knowledge of our business, including an understanding of how the disparate parts of the company work together. I am certain, and our board is certain, that he is the right person to lead us through our next phase as we execute on our capital allocation plan, including substantial return of capital and expansion of our Vistra Zero portfolio. Finally, to the incredible team members at Vistra. I have never been more honored and proud to work with a group of people. Your light has shone brightly through thick and thin, and I am grateful for the time we had together. I believe there is a tremendous opportunity ahead for Vistra as a leader in the power business and look forward to watching that come to fruition. With that, I will turn the call over to Jim.