Good day and thank you for standing by. Welcome to the Entergy Corporation Second Quarter 2021 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Bill Abler, Vice President Investor Relations. Please go ahead.

Good morning and thank you for joining us. We will begin today with comments from Entergy's Chairman and CEO, Leo Denault; and then Drew Marsh, our CFO, will review results. In an effort to accommodate everyone who has questions, we request that each person ask no more than one question and one follow-up. In today's call, management will make certain forward-looking statements. Actual results could differ materially from these forward-looking statements due to a number of factors, which are set forth in our earnings release, our slide presentation and our SEC filings. Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website. And now, I will turn the call over to Leo.

Thank you, Bill, and good morning, everyone. I'm happy to report another solid quarter. Our adjusted earnings were $1.34 per share, including a negative impact from milder-than-normal weather. The underlying utility performance was strong and our team successfully executed on multiple deliverables across the business. Our execution not only this year, but over the last several years has resulted in strong growth and lower risk. This in turn has provided us more financial flexibility, which was most recently recognized by Moody's. The result is enhanced ability to manage risk and lower equity needs to fund our growth. The bottom line is we're on track to deliver on our commitments including our financial results. We have a clear line of sight to achieving our 2021 guidance, as well as our longer-term financial outlooks. And with the added financial flexibility from our lower business risk profile, we expect to be in the top-half of those ranges. Our 3-year $12 billion capital plan is the foundation. It is designed to deliver important benefits to our customers and will result in 5% to 7% adjusted EPS and dividend growth. Our capital investments will improve customer outcomes along several dimensions, including reliability, resiliency, affordability and sustainability. Our plan also supports our expectation of at least 5,000 megawatts of renewables by 2030. delivering on our environmental stewardship commitments. There is a great deal of certainty around the execution of our plan as more than 90% of our investments today are tied to enhancing technology across our system to improve reliability and resiliency. 90% of our investments will be recovered through efficient and timely regulatory mechanisms, such as FRPs and riders. And 90% of these investments are ready for execution from a regulatory standpoint. Additionally, we were able to manage our costs to provide certainty to our…

Thank you, Leo. Good morning, everyone. Today, we are reporting results for another solid quarter. As you can see on Slide 5, we have experienced robust sales as we recover from the impact of COVID-19. And we continue to execute on our key deliverables. We're well on our way to achieving our goals for the year, and we are affirming our strong guidance and longer term outlooks, while pointing to the upper end of the range for each. Turning to Slide 6, you'll see the primary drivers for earnings in the quarter were straightforward. We continue to see the effects of our investments to improve customer outcomes, green rate changes to recover those investments. We also saw effects of the COVID-19 recovery. Sales were higher than last year, despite negative weather in the quarter. Our industrial sales improved 7.1% year-over-year driven by economic recovery and growth, our industrial customers are now running at levels exceeding 2019. Commercial sales also are continuing to recover as businesses reopen and residential sales are beginning to taper as workers go back to their offices. On Slide 7, you'll see a little more detail on key sector indicators for our industrial customers. These 4 sectors collectively represent nearly half of our industrial sales. As you can see the economic indicators are healthy and at or near multiyear high points. Inventories are back in alignment. Commodity spreads have improved and volumes and margins are doing better across the board. Overall, our industrial base has rebounded nicely from the challenges of 2020. You are fortunate to have a resilient and competitively advantaged industrial base. Turning back to the earnings drivers are spending increased as we return to more normal business conditions. This increase is expected, as we significantly reduced costs last year to offset the effects of…

Thank you. [Operator Instructions] Our first question comes from the line of Jeremy Tonet with J.P. Morgan. Your line is open. Please go ahead.

Hi, good morning. It's actually Rich on for Jeremy. Thanks for taking our questions today.

Good morning, Rich.

Maybe just starting with the equity message, first, I realize you laid out some of the drivers behind this. But just wanted to drill down more specifically on the share-count aspects for 2021 as well as just the overall evaluations. Can you speak a little bit more just to the timing of updating for the new Moody's outlook? And what other considerations around business mix and where the plan stands now could factor into the lower equity needs?

Sure. So I'll talk about the time. This is Drew. I'll talk about the timing first. We have been working on this a long time. But we just got the recognition from Moody's in the past week or so as I mentioned. And so, we are still early in the assessment of what the overall impact means. I pointed to a couple of the early elements associated with it. We expect to complete that this fall. It could be sooner. I would say probably no later than EEI. But it could be sooner than that. And as it relates to something like the share count or specifics around size, I don't have those kinds of details available to give you today, other than to say, we believe it'd be meaningful, it'll be a meaningful change. In terms of the evaluation, which is I think part of the question that you had in there, we still want to make sure that we are hitting our earnings and credit expectations. We will still need to issue a little bit of equity to do that. But the opportunity is much more robust in front of us now. We think it's been significantly de-risked. We have a lot more confidence, as I said, in our ability to execute. But we don't have specifics that we can give you today. A couple other sizing or I should say evaluation perspectives, one is that as we have talked about extensively, we have a significant growth opportunity ahead of us. And we want to make sure that we have the capacity to invest into that opportunity as it materializes. And then, Moody's specifically also talked about SERI and our ability to manage that risk as it's presented right now, specifically around the uncertain tax position case. And their perspective was that we should be able to manage that risk and still meet the expectations around earnings and credit. And so, we want to make sure that we have that capacity built in as well. And of course, we still believe that we're going to be successful in SERI. I know that wasn't really a question. But if that doesn't materialize, that would be incremental opportunity for us to invest in the business.

Got it. Thanks for the color there. And then, maybe just switching gears to the CCGT in Texas, what is the timeline for regulatory approval? And do you expect the hydrogen aspect to impact approvals process at all?

It's Rod. Good morning. From the procedural standpoint, the process will begin at the commission right around the Labor Day timeframe. We're zeroing in on that. And then the procedural schedule will be set by the PUCT. And that process could run 6 to 12 months if we're efficient in the way that we're pursuing it. But again, that's up to the PUCT in Texas. And you asked the question around the hydrogen component. I want to make sure I heard the question correctly.

Sure, just curious if, given the novel nature of the hydrogen component, if you expect that to impact the approvals process at all?

No, the hydrogen component as it's currently configured represents approximately 5% of the overall cost. And we believe we have a compelling case for why having that flexibility benefits our customers, and certainly would support the CCN. So it's novel, of course, and we're prepared to explain why it's beneficial. But more importantly, bringing our customer benefits along, when we think about the industrial opportunity that we're - that both Leo and Drew referenced. We think that also adds to the viability of hydrogen being part of the CCN process at this stage.

Jeremy, I'll just add to what Rod said, there are 2 advantageous components to the hydrogen piece of this. One is certainly in the environmental space, that hydrogen is a cleaner fuel. The other is that what we are going to end up with at the end of the day is a dual-fuel unit. It'll be able to run on natural gas, or hydrogen, or any combination in between. And so, if you think about resiliency, that optionality provides not only environmental benefits, but an added level of resiliency, which we've all seen is something that we need, as we start to deal with weather events.

Understood. Thank you for the color there.

Thank you.

Thank you. And our next question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is open. Please go ahead.

Hey, good morning, team. Congratulations on some of these updates. Really well done.

Good morning, Julien.

If I can, if I can try to rehash a little bit. I know it's early in the process, but maybe the other way to ask this is, what are the big puts and takes as you think about the outlook now, relative to new targets, et cetera? I just want to make sure that, as you think about it, what are the building blocks that you're, shall we say, assessing here early in the process? And then related to that, if you can just sneak this in there? Where are you just in the financing plan year to date? I know, this is all fluid and dynamic. But what have you done thus far this year, relative to the full year plan and expectations here if you can around that?

So, Julien, this is Drew. In terms of the big puts and takes, I mean, I think the first thing is just sort of the back of the envelope math, in terms of what the - how much put and take is out there. And when you go from 15% to 14%, given the size of our cash flow, it's somewhere in the $1.7 billion to $2 billion range. And it is sort of growing over time. So it's a lot of extra capacity. And what we are considering in terms of the building blocks, I think, as I mentioned, I think there's probably 3 big ones, right? One is, now, okay, so how much incremental equity do we really need right now, that'll take up some of that capacity. One is, how much opportunity is really out there for growth in the commercial industrial space, as we ramp up our ability to work alongside our customers to manage their Scope 1 and Scope 2 positions. I mean, those are probably the 2 big ones. Then Moody's specifically talked about our ability to manage identifiable risks that are out there. And they pointed to SERI specifically, and if you take the ALJ's recommendation around uncertain tax position, that's in the ballpark of a little over $500 million. That could be a piece of capacity as well. Certainly, we are very comfortable in the way that we are positioned in that case. And we can go through that. And we have in the past, as you know, Julien. So, I mean, I think that is additional, something that we're thinking about as well, making sure that we have the capacity to manage that risk like that. And that Moody's was pointing at that. So, I mean, those are the 3 things. And, we certainly had a forecast before this ruling last week that said, we were going to hit our earnings expectations, we were going to hit our targets on credit, those are still the case. Now, we have extra capacity to do that and manage through these new opportunities and these risks. So it's incrementally better for us, because it really de-risks our ability to execute.

Right. And the press, is that still in the current here. I just want to understand on this specific financing.

I'm sorry, I didn't hear that, Julien. What was the question again? That's certainly something that's on the table for us still. But we are looking at - we're sort of stepping back and thinking about, “Okay, so what's the best way for us to proceed, given that we have this extra capacity?” And so, we want to think through it a little bit before we proceed with any specific financings. And once we get finished with that, then we will start moving forward and communicate with you all about what our plan is.

And sorry to rehash slightly, your comments on the upper half, I just want to be extra clear about this. That is strictly tied to dilution and equity needs and that is not reflective of any changes in your cost cutting efforts and/or perhaps more critically low trends and especially industrial low trends there and et cetera.

Yeah, so we were very comfortable in our guidance and outlooks before, just to be clear. And this - the fact that we don't need to issue as much equity starts to move the earnings per share up. So that is a driver for helping us move to the upper half of the range. And that in the additional confidence that we have, because we have now had additional flexibility to achieve this earnings outcomes and the financial flexibility that we have available to us now. So the combination, I would say of those 2 things that allows us to, say, we think we're going to be in the top half of the range with some work to do to refine that for you all going forward.

Right. But these are the factors, presumably are still independent?

That's correct.

Right. Excellent. Well done. We'll speak to you shortly. All the best in this process.

Thanks. Appreciate it.

Thank you. And our next question comes from the line of Jonathan Arnold with Vertical Research. Your line is open. Please go ahead.

Hi, good morning, guys.

Good morning, Jonathan.

Just a quick one, again, on financing, given the lower need does that make you sort of more likely to look at something which might put this whole and their need to bed quicker, as opposed to sort of doing it through the plan, any thoughts on that at this early stage?

Yeah, Jonathan, that's a good question. Certainly, that is a possibility now, we have pleaded our assessment. But that is something that we would consider if we could do it. We're mindful of the so-called equity overhang. We understand that. And so we're thinking about that is definitely a consideration as we're doing our assessment.

Okay. And then, could I just to double set, I want to make sure I'm clear on what the prior plan was? I think, it was up to $2.5 billion, but that was out through 2024. Is that correct?

That's correct.

Okay. And then just finally, you obviously from the Analyst Day, you also had a 2024 range out there, which you've not been including in the last couple of slide decks. I've just 3 reasons, why we wouldn't sort of continue to use that and why your comments about the upper end wouldn't also sort of fold into that longer-term outlook that you gave, whenever it was.

Yeah, so I mean, I can't go out right now, because we haven't got that information available. But our expectation is to drive steady, predictable earnings and dividend growth. And to the extent that we want to be steady and predictable that might imply what you're looking for.

Okay. Thanks very much and thanks for the update.

Thanks, Jonathan.

Thank you. And our next question comes from the line of Steve Fleishman with Wolfe Research. Your line is open. Please go ahead.

Hey, everyone.

Good morning, Steve.

A couple of things, just on those 3 considerations, you mentioned, Drew, that one of them was the growth opportunity. I assume this is on, as you talked about, on the industrials as they look to clean up and electrify more. Just when you talk about that as a growth opportunity, are you referring it to more as a kind of rate based CapEx or as a sales and cash flow?

So, Steve, that's a good question. There's a couple of growth opportunities that we're assessing right now. One, as I mentioned in my script, which doesn't have to do with your environmental benefits, necessarily, is part of it is. The assessment we're doing a resiliency across the system, which could lead to more T&D investment going forward. So that's an area that that I did want to point out, the assessment of that, in conjunction with what's going on with infrastructure in Washington, could be a combination of your rate base assets, plus some costs that are actually picked up by the states and the federal government through potentially infrastructure bill depending on how that all works out. The big opportunity, though, and we've been talking about this for a while, obviously, the size of the emissions footprint of our industrial base. And if you just go on the internet look at our industrial customers are, and look at their websites, they all have sustainability objectives that many of which are public. And so there's a couple of ways for us to help them out. One, what we already do when they provide electricity from us and some of the cleanest electricity in the country. So their Scope 2 emissions are lower. To drive those even lower, we've been discussing things like green tariffs with those customers. And that really makes the deployment of our renewables more efficient. And so, for example, we've got that solar facility that we got approval for in Arkansas, filing a green tariff in Arkansas, we already have customers like Walmart, who want to talk to us about taking a slice of those facilities, and make the deployment of those more efficient, in a way that could accelerate our investment in renewables. If there's a…

Okay. Great. And just one other question on just the change in the equity plan, so obviously, it's great that you're targeting, seeing things now in the upper half. But actually, the amount of equity, just that difference to get you in the upper half by 2020 - in these years is actually, it's only, I don't know, maybe $300 million less equity, and you talk to potentially $1.7 billion, $2 billion of more capacity. So could you just try to kind of tie that together in terms of how to think about that? Is it - how should I just think about that?

Well, this is Drew. I think that we are early in our assessment is probably the best way to think about that. So we got the news, that we got the recognition last week. And so we haven't completed our assessments about, what this might mean for us going forward. And, I think, what we wanted to get you early out there that we see ourselves in the top half of the range, we have more work to do around that we have a couple of things that need to factor into the analysis like you just discussed with Leo, around the growth potential that's out there, there are a couple of risk items found there that we want to make sure that we haven't had to manage. And if we can manage through them without using that capacity that's incremental capacity is available for us. But, yeah, I think you're looking at the right thing. There's a good opportunity for us out there going forward.

Okay. So it sounds like you're obviously going to update balance sheet, but also almost really a full refresh of the capital plan to for some of these things that Leo just mentioned.

That's right. There's that opportunity out there that we're still framing it all.

Okay. Thank you.

Thanks, Steve.

Thank you. And our next question comes from the line of Paul Freeman with Mizuho. Your line is open. Please go ahead.

Thanks and congratulations. I guess, my first question is, should we assume that the longer term FFO to debt target now is going to be 14%?

No, not right off the bat, because we still have some expectation of having some capacity to manage risks that are out there. But I do fully expect us to utilize some of the capacity for sort of the capital formation changes that we were just talking about and for some of the growth opportunity that we're talking about. So I wouldn't say goes all the way down to 14%, unless some of those risks were to materialize, but that's not what we're trying to do right now. The idea would be to get pass some of those risks, and then maybe we reassess whether we go down to 14%. But I don't think it would go all the way to 14%, right now.

So at some point, you'll provide sort of an amended FFO to debt target?

I think, I have one more thing. From an Entergy perspective, I don't know that we're going to change Entergy's perspective. I mean, I think we're talking about going from 15% to 14%. The Entergy - our Entergy view is going to be well above 15%. I think, we may still actually stay above 15%, either Moody's addressed down closer, between 15% and 14%. But we may not actually amend to the Entergy target, we are still working through that.

And then do you need clarity on SERI, and in order to sort of determine what your ultimate equity needs are going to look like and when would you anticipate a final SERI order?

Well, I mean, talk about the SERI order first. Yeah, I could the first part of that uncertain tax position in the sale leaseback we expect possibly by the end of the year, but more likely into next year. Yeah, it could be in the first quarter, it could lead into the spring. So yeah, we're getting closer on that. But I don't think we need that to start thinking about what we might do differently. We might be mindful of that as an ability to continue to hit our marks. But I don't know that we necessarily need that to get started on our changes in our capitalization plan.

So it's more likely that you'll have a better feel for the equity around the end of the year, around EEI, right?

Yeah, I know what I said earlier was that, I would think EEI at the latest, hopefully sooner.

Great. I think that's it for questions for me. Thank you.

Thank you.

Thanks, Paul.

Thank you. [Operator Instructions] And it looks like our last question will come from the line of Paul Patterson with Glenrock Associates. Your line is open, please go ahead.

Hey, how's it going? Good morning.

Good morning.

Good morning. How are you, Paul?

I'm managing. So, just I think I got everything. So around EEI, we're going to be getting an update. It sounds like on all these opportunities, is that how we should think about the - you guys are in early assessments right now, but we'll get more of a picture as to sort of what these opportunities and how it folds into the capital plan, everything, is that the timeframe we're looking at?

Certainly, we'll have update on what opportunity-set looks like, what we're thinking and how it's evolved by then. The good news about the opportunity that we were just talking about is that it's a pretty long runway opportunity. It's significant opportunity that's got a long path. As you imagine, our customer base is going to be reducing their emissions over time. Some of them have, for example, their own net-zero objectives. Some of those might be as early as 2035. Some of those go out to 2050, that sort of thing. So, it's a significant opportunity that's got a long runway. So we'll get to the early parts of it as it develops. So it's kind of thing we'll continue to update. And as I said in the answer to Steve's question, it's really a load growth question and then the resource mix that we acquire to meet that load, which, again, the objective is clean energy. So it'll probably have implications for what you see in the generation mix.

Okay. And just to sort of clarify, this is basically because of the, just to make sure that I understand, the customer footprint that you guys have, their ambitions and their decarbonization ambitions and the potential to help. Is there any cost advantage that you think these customers might get? Is it just purely decarbonization? Or is there is there anything else that would be driving this? Is it just basically, look, we're the utility, they want to do this? That would mean electrification, and we're in a pretty good position to do that? Or is this the deployment of new technology or anything that we should think about that, that would be turbo-charging and evolving?

Well, obviously, cost is going to be a factor, our load rates factor into it. And we certainly need to continue to help our customers be competitive as they go forward. It's going to depend on the process, for example, Shore Power is the exact same opportunity, where you've got - a ship pulls into dock. It's burning diesel fuel, to keep the lights on while they do maintenance on the ship before they go back out into the Gulf of Mexico, for example, to help with oil services out there. When we electrify that ship, we not only reduce their emissions, which was the original discussion around it, but it does lower their cost, because the trade from our electricity to diesel fuel is positive. So it does 2 things for them. It lowers their cost and it improves their emissions, both of which make them more competitive as they bid for offshore work. So it's going to be a combination of all of those things.

Awesome. Well, it sounds like a great opportunity. I look forward to hearing more about it.

Great. Thanks, Paul.

Thank you. And I'm showing no further questions and I would like to turn the conference back over to Mr. Bill Abler for any further remarks.

Thank you, Michelle, and thanks to everyone for participating this morning. Our quarterly report on Form 10-Q is due to the SEC on August 9, and provides more details and disclosures of our financial statements. Events that occur prior to the date of the 10-Q filing that provide additional evidence of conditions that existed at the date of the balance sheet will be reflected in our financial statements in accordance with Generally Accepted Accounting Principles. Also, as a reminder, we maintain a webpage as part of Entergy's Investor Relations website called regulatory and other information, which provides key updates of regulatory proceedings and important milestones on our strategic execution. While some of this information may be considered material information, you should not rely exclusively on this page for all relevant company information. And this concludes our call. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.