Vistra Corp.

and welcome to the Q2 2022 Vistra 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. 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, VP, Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to Vistra's Investor Webcast, discussing second quarter 2022 results, which is being broadcast live from the Investor Relations section of our website at www.vistracorp.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 Jim Burke, our President and Chief Executive Officer, and Chris Moldovan, our Executive Vice President and Chief Financial Officer. We have a few additional senior executives present to address questions during 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 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 our new CEO, Jim Burke, to kick off our discussion.

Thank you, Megan, and good morning to everyone. I am excited and eager to talk with all of you as I take on this new role for Vistra. Over the past few months, I've been asked what I envision for Vistra's path forward. Accordingly, turning to slide five before I discuss our second quarter results, I would first like to reinforce a few of my thoughts on Vistra's strategic direction and top priorities. I continue to remain confident in our short-term and long-term value proposition precisely because we intend to remain focused on the four key strategic priorities we initially defined in the third quarter of 2021. As we've shared in the past, Vistra is well positioned for the long term during this energy transition. In addition to ensuring that our customers and our communities have the power they need, our integrated approach enables us to deliver strong financial and operational performance, particularly in volatile commodity environments, through the operational excellence and expertise of our generation retail and commercial teams. As part of this integrated business, we are continuing to execute on the comprehensive hedging strategy that we announced last quarter, which is locking in significant future year earnings potential. This effort is supported by a high-performing generation team and a customer-focused retail team experienced in managing counts, margins, and customer experience. And both teams are supported by a strong commercial team that captures market opportunities and manages risk in a dynamic marketplace. Second, it is fundamental to a business that manages through volatile commodity markets to have the financial flexibility to hedge both fuel procurement and power sales for our fleet and for customers. We remain committed to a strong balance sheet and an ample liquidity position. As Chris will cover later, we anticipate paying down a significant amount of debt in the second half of this year as our 2022 hedges settle and the corresponding cash collateral is returned. At year end, we expect our net leverage ratio to be approximately three times based on the range of ongoing operations adjusted EBITDA we expect in 2023. Third, we are delivering on our capital allocation plan that prioritizes a significant return of capital to our shareholders through 2026. We remain committed to paying aggregate dividends of approximately 300 million per year With the per share amount increasing as we repurchase our shares, we continue to believe that share repurchases provide an efficient, attractive means to return capital to our shareholders. We are executing on our $2 billion share repurchase program on an accelerated basis, having completed approximately 80% to date, and expect to complete the balance before year end. Accordingly, we're pleased to announce that our Board has authorized an incremental $1.25 billion for share repurchases effective immediately, which brings our cumulative authorization to $3.25 billion and the remaining amount available for repurchases to approximately $1.65 billion. We expect to complete the full authorization by the end of 2023. As we deliver on our earnings potential, we will revisit the size of the share repurchase program on a regular basis. Finally, we've made great progress on the build-out of our Vistra Zero platform, which we expect to grow primarily by utilizing cost-effective third-party capital. I'll speak to updates on Vistra Zero in more detail momentarily. I am committed to the execution of our strategic priorities as I firmly believe that our successful execution of these priorities will enable Vistra to deliver sustainable, long-term value for all of our stakeholders. Now turning to slide six for our second quarter results, we achieved $761 million of adjusted EBITDA from ongoing operations. Our retail segment grew ERCOT residential customer counts in the quarter and year over year. In fact, our flagship TXU Energy brand had its best quarter residential counts performance in nearly 15 years while achieving our target margins in a dynamic market. This highlights our expertise as an integrated energy company to acquire and retain customers through volatile and high-priced commodity cycles. Our unique product offerings and multi-brand and channel strategy, combined with our commercial team's expertise in managing risk, drove this success. Our generation segment similarly performed above expectations, achieving commercial availability of 95%. a strong performance, especially considering the unseasonably warmer weather experienced in Texas in the second quarter. The teams worked diligently to perform regular maintenance on an expedited basis and in some cases truncated schedules to ensure the plants were available to the grid during the heat waves experienced in the latter half of the second quarter. We are reaffirming today our previously announced guidance of adjusted EBITDA from ongoing operations of $2.81 billion to $3.31 billion and adjusted free cash flow before growth from ongoing operations of $2.07 billion to $2.57 billion. We don't typically update current year guidance until our third quarter earnings discussion, but favorable weather and strong performance in our generation retail segments provide increased confidence that our 2022 outlook is tracking above the midpoint of guidance. Of course, the remaining summer months are important across the country for us, so we're focused on proactively maintaining our fleet during times of lower demand to avoid unplanned outages as much as possible. We understand that execution is key to delivering the full value we believe possible in this environment. Turning to slide seven, as we discussed in the first quarter, we are currently experiencing a highly favorable pricing environment. We've used this opportunity to continue to execute on the comprehensive hedging strategy we previously discussed. As a result of our comprehensive hedging strategy, Vistra is now over 60% hedged across the years 2023 to 2025, with 2023 now hedged at approximately 80%. Last quarter we stated that given the marks as of April 29th, we anticipated a risk-adjusted midpoint opportunity in the range of $3.5 billion to $3.7 billion for the years 2023 through 2025. Curves moved up considerably in May and early June before coming off in late June with the drop in natural gas prices. For 2023, when comparing where we were as of April 29th, and rolling that forward to July 29th. Overall, the curves are in a similar place despite the volatility we've seen over the past three months. However, for 2024 and 2025, since April 29th, as the graphs indicate, both power and gas curves have continued moving up. As our hedge percentages have increased, our confidence in this earnings potential has grown. And more than that, we continue to believe this range could be on the conservative side. Of course, given that we are not fully hedged, there remains a significant range around this earnings potential, especially in 24 and 25. Looking ahead, assuming the forward curves continue to hold or improve, you can expect us to continue to execute on this comprehensive hedging strategy to lock in more value while maintaining sufficient generation length as insurance against the unforeseen. As discussed last quarter, our hedging strategy requires ample liquidity for collateral postings, We continue to proactively manage our liquidity requirements in a way that allows us to remain confident that we can execute this hedging strategy and the capital allocation plan in tandem. Chris will go into more detail on our liquidity management activities later in the call. Turning now to slide eight, I wanted to provide a brief update on our VISTA Zero growth trajectory and how we are positioning VISTA to capitalize on this significant opportunity. This past quarter, we returned both phases of our MOS landing energy storage facility to service with over 98% of its maximum capacity on the expected schedule and ahead of California's hot summer months. We successfully restored and addressed root cause concerns during this timeframe, and we anticipate the final few megawatts to be restored by the fall. In addition, we began construction on the 350 megawatt phase three expansion of our Moth Landing facility, which we expect to be online by June 2023. In Illinois, we bid in a competitive process, and in May, we're selected by the Illinois Power Agency to provide over 460,000 annual renewable energy credits, or RECs, over the course of 20 years. The contracted sale of these RECs will serve to provide stability to the revenue streams of our coal-to-solar projects. In June, we were also awarded energy storage grants at our Joppa, Havana, and Edwards sites to be received over 10 years. We expect to bring our Illinois projects online in the 2024 timeframe ahead of the required dates for the awarded contracts. Finally, our development projects in Texas continue to make great progress as well. In April, we announced that our 50-megawatt solar facility, Brightside, was online. This was followed by announcements in May that our 260-megawatt energy storage facility at DeCordova was online. And in June, our 108-megawatt ERCOT solar facility, Emerald Grove, was online. We now have 608 megawatts for Vistra Zero online of solar and energy storage serving the ERCOT grid, in addition, of course, to our Comanche Peak nuclear facility. Our teams did an excellent job of delivering these projects in Texas, as well as returning phases one and two of our MOS landing facility to normal operation in California. Some of our early stage projects that we are evaluating are facing potential impacts from supply chain constraints and inflation. We prudently reevaluate the business cases of these projects on a regular basis. For example, we have reassessed the timing of certain ERCOT solar projects, and we will move ahead with these projects only if we have confidence in the returns. Since we own these sites and we have the flexibility on timing, this is something we expect to remain dynamic. We are excited about the pipeline and the growth potential of achieving 7.3 gigawatts in Vistra Zero generation online by 2026, but we are also going to remain disciplined on the projects. Of course, in light of the newly introduced Inflation Reduction Act, it is possible that our VISTA Zero development projects could see enhanced returns. It is certainly a dynamic time in the marketplace, and VISTA is extremely well positioned with both a strong outlook on our core generation of retail businesses, but also with VISTA Zero. With that, I will turn the call over to Chris Moldovan, our recently named CFO, to discuss the quarter's financial performance and our capital allocation progress in more detail. Many of you already know Chris well and his track record of successfully driving shareholder value for Vistra, and as of late, his active and effective management of our liquidity position. As background, he practiced as an attorney for over a decade, including gaining significant experience through representing clients in merger and acquisition activity, as well as complex financing transactions. Chris has been with Vistra and its predecessor for 16 years and joined the finance team in 2010, where he has focused on some of the most complex financial transactions in our industry. I've had the privilege to work with Chris for many years and can attest personally to his insights and capabilities, and I am very much looking forward to partnering with him as we take Vistra forward in these exciting times of transition and growth. Chris?