Good day, and thank you for standing by. Welcome to the NRG Energy, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Brendan Mulhern, Head of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to NRG Energy's Third Quarter 2025 Earnings Call. This morning's call is being broadcast live over the phone and via webcast. The webcast presentation and earnings release can be located in the Investors section of our website at www.nrg.com under Presentations and Webcast. Please note that today's discussion may contain forward-looking statements, which are based upon assumptions that we believe to be reasonable as of this date. Actual results may differ materially. We urge everyone to review the safe harbor in today's presentation as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation and earnings release. With that, I will now turn it over to Larry Coben, NRG's Chair, President and Chief Executive Officer.

Thank you, Brendan. Good morning, everyone, and thank you for your continued interest in NRG. I'm joined today by Bruce Chung, our Chief Financial Officer, and other members of our management team are also on the line and available to answer questions. Let's start with the key messages on Slide 4. Strong performance across all areas of the business led us to raise 2025 financial guidance by $100 million in late September. This is the third consecutive year we have increased our full year outlook. And today, we are reaffirming that higher range. We are also introducing 2026 guidance that aligns with our long-term growth targets. This represents NRG's stand-alone outlook and excludes any contribution from the LS Power acquisition. We will provide updated guidance that includes LS Power around the time of closing. We expanded our data center power agreements this quarter, bringing total contracted capacity to 445 megawatts. We also rapidly grew our pipeline of potential projects under joint development and letters of intent to 5.4 gigawatts. Together, these actions build on the agreement announced in August and reflect rapidly growing momentum and validation of our data center strategy. The LS Power acquisition remains on track. Financings were executed in September on favorable terms. All regulatory filings have been submitted, and we expect to close in the first quarter of 2026. Turning to Slide 5. Adjusted EPS for the third quarter was 32% higher than the same period last year, and adjusted EBITDA reached the highest quarterly level in company history. I'd like to pause to congratulate all 18,000 of our employees for that achievement. Our results reflect strong performance across both Energy and Smart Home. In Energy, supply optimization and disciplined commercial execution drove margin improvement across both our home and C&I businesses. In Smart Home, growth…

Thank you, Larry. Beginning with Slide 10, NRG delivered strong financial and operational performance in the third quarter with $2.78 in adjusted earnings per share and $1.205 billion in adjusted EBITDA, representing a 32% and 14% increase from the same quarter of 2024, respectively. Adjusted net income was $537 million and free cash flow before growth was $828 million. Through the first 3 quarters of 2025, NRG delivered $7.17 of adjusted earnings per share and over $3.2 billion of adjusted EBITDA, a year-over-year increase of 36% and 12%, respectively. Our exceptional quarterly and year-to-date financial performance reflects continued execution in all of our businesses, driven primarily by a mix of expanded margins, favorable weather and excellent commercial and operational execution. Our Texas segment delivered third quarter and year-to-date adjusted EBITDA of $807 million and $1.618 billion, respectively, representing an improvement of 38% and 29% from the same periods in 2024. These results were driven by margin expansion across our operations in the region with lower realized supply costs and excellent optimization despite low summer volatility. The East segment contributed adjusted EBITDA of $107 million in the third quarter and $680 million through the first 3 quarters of 2025. These results reflect a modest decline from the same period of 2024, primarily driven by the net impact of higher supply costs throughout the region, partially offset by increased capacity revenues at our plants and favorable weather in the first quarter, which benefited our natural gas business. Our West Services Other segment had adjusted EBITDA of $19 million in the third quarter and $139 million for the first 3 quarters of 2025. The segment realized higher retail power margins, which were offset by the absence of earnings from the sale of our Airtron business in 2024 and the lease expiration at the…

Thank you, Bruce. Turning to Slide 15. 2025 has been an outstanding year across every part of our business, and our outlook continues to improve. Our near-term focus is on completing the LS Power acquisition and providing you with an updated long-term outlook following the close. We also continue expanding our data center portfolio, advancing our Texas energy projects, including completing the construction of the T.H. Wharton project and returning at least $1.3 billion to shareholders. These priorities reflect a disciplined approach to growth and capital allocation as we position NRG for 2026 and beyond, continuing to build a company defined by consistent execution and accelerating value creation. With that, we'll now open the line for questions.

[Operator Instructions]. Our first question comes from Shar Pourreza with Wells Fargo.

Welcome back to the workforce.

I'm ready to go back to Garden to be honest.

I want to see the flowers.

So Larry, just do you think '26 is kind of that year you're going to be able to announce a data center agreement that includes new development as part of your GEV, Kiewit partnership?

Yes.

You tongue tied me again.

Well, you remember the last time I gave you a one-word answer, it showed up. So I'm giving you a one-word answer.

Any sense around timing next year? Are we thinking back half or earlier part of the year?

It's hard to tell, Shar. As my good friend, Max said yesterday, these are complex, but super excited by the process and never been more sure.

Got it. Okay. That's helpful. And then just lastly, just maybe share a little bit more about sort of the announced data center deals, how they kind of compare to those announced by your peers. So a little bit more color around the margins given other peer deals that come with generation linkages.

Yes. We put a little slide in the appendix, which kind of talks about margin and pricing. This is very similar to the one that we announced last quarter, just locationally different. Premium margin as a result of different things go into getting our premium margin on any deal, including land, including our commercial acumen. I mean I really need to say we have the best commercial team in the business at both gas and electricity, being able to really meet customer needs in a flexible way, all of those lead to the margin that you see on that appendix chart.

Our next question comes from Julien Dumoulin-Smith with.

Let's -- let me jump back to the -- let me ask the same question that our buddy just asked a second ago in a different way. Look, as far as GEV goes in this Kiewit partnership, do you have a certain time frame that you need to move some of this equipment, use it or lose it, if you will? Can you speak to that a little bit? Because I think that's probably an important nuance to speak to when you talk about your confidence and the time lines under which you're operating to execute on this.

Look, Julien, we haven't disclosed any time lines, but we're -- I'm very confident that we're going to meet all of the time lines that are required under that agreement. But what you're really trying to do, Julien, and I know is pin me to a month, and I'm not going to let you do that.

Absolutely. You know what we're all trying. I mean start too.

[indiscernible] Well done, but...

Not quite there. All right. I got it. Well, let me ask it this way. As far as it goes with the build your own power, BYOP as we're calling it, right, like there's clearly been an evolution in the marketplace. When you think about the scope of what's possible here, again, I know folks have been looking at co-located opportunities in the last couple of years, but now we firmly shifted. How meaningful, right? We've seen a few announcements here with a couple of hundred megawatts here, a couple of hundred megawatts this quarter. I mean when you say you're going to deliver updates next year, can you speak to BYOP and the scale of what's at hand here in terms of really building out contracted jet?

Sure. Look, just starting with the GEV, Kiewit deal, Julien, that's 5.4 gigs. So that's a good place to start from. I mean there are some things that could be added to that in a variety of ways that we're looking at. But I think if we brought even 5.4 gigs to the table, you would be and everyone would be super happy from us. So I mean, the scale -- I mean, that's kind of the scale that we're focused on right now, but we are looking at opportunities to see how we can make that even greater.

Got it. All right. And then let me just shift this slightly. When you think about the focus here, I mean, a lot of conversation has been around your portfolio in Texas and ERCOT specifically. Can you speak a little bit more broadly? Obviously, you guys have Illinois site, PJM is talking increasingly about bringing new assets to fore. Illinois just passed legislation in recent weeks. For instance, is there an opportunity in the PJM portfolio to both add gen -- add gas and storage specifically and perhaps tap into some of these developments that have been recently put to kind of quell the state's needs for new capacity?

Absolutely, Julien. And we are working hard on that, and we'll really accelerate those efforts, of course, once LS closes because until we own the generation assets there, that will really fault us into being a significant player, but there's no grass growing under our feet there in the meantime.

Got it. All right. And Illinois legislation, is there something for you guys to do there specifically to ask that more pointedly?

I don't think the legislation is really going to be the driver of this, Julien. So -- but as you know, we do have sites in Illinois. So...

Our next question comes from Agnie Storozynski with Seaport.

So first of all -- now I see the slide showing the sensitivity of your gross margin to changes in forward power curves. I mean we've had finally the move in curves we had waited for. And so I'm just wondering if anything has changed there? Are you waiting to update it for your enlarged portfolio? Any comments?

Agnie, you just hit the nail on the head. We are waiting to update it for our enlarged portfolio.

Okay. And you're not going to give me any sense how -- especially the PJM price is moving, how they are impacting the pro forma EBITDA of the company for now?

Not at this stage. Well, certainly, we will provide, obviously, a very fulsome update soon after we close on the transaction.

Okay. And then the second thing is, so we've had some companies, new power companies or pretending to be new power companies that have aspirations to build gas plants without any prior expertise in power. So I mean, it is surprising that they could be ahead of you in the pecking order. It's not for the fact that you guys actually have sites, have equipment, know how to hedge gas, et cetera. So is it that they just talk more about their opportunities versus you guys? Or do you still feel like you have a head start over those companies?

Agnie, I'm convinced that we're in a great position to do what I was describing. We had this a long time, so of you, there's a lot of announcements -- when I actually see to use Sam Altman's new term electrons flowing, then I will actually believe that they're real or you'll see steel in the ground. But we're not one -- we tell you what we've done. We don't tell you what we're going to do, and that's kind of my philosophy in all this. So there's going to be a lot of announcements because a lot of people think they're data center and power developers. Some of those are probably real, but I'm very, very comfortable with where we sit in the pecking order, both with respect to building power plants and with respect to hyperscalers.

Okay. And then one more. I mean, we are still seeing a lot of assets, private assets being offered to companies like you, hopefully. You do have a large pending acquisition. And I'm just wondering if you would still have interest in single asset transactions before the LS Power transaction closes.

We look at everything. And if there's something that's economically attractive, that's a great fit for our portfolio, we would be interested. We don't feel we need to add any additional capacity given the LS acquisition, the Rockford acquisition and the TEF projects, but we are always opportunistic when these things are out there.

And then lastly, Bruce, you mentioned the free cash flow guidance for '26 and the fact that you're sort of running out of the tax shield. I mean, the LS Power transaction brings the tax shield, right? So there would be presumably an improvement sort of free cash flow generation of the current business on the back of that transaction. Is that fair?

Yes, I think that's generally a fair statement, Agnie. The one thing that I'll just clarify for you is that uptick in cash tax that we talk about on a stand-alone basis isn't necessarily related to our NOLs disappearing. It's really more about certain tax credits that we had from our days when we owned renewable assets that eventually expired. And so regardless of the LS transaction, we're still going to have a very sizable NOL position. But clearly, the LS transaction is going to give us even more, which should inure to a cash flow benefit.

Next question comes from James West with Melius Research.

Larry, in your prepared comments, both at the beginning and the end, I think you made it very clear that you guys are not just standing still waiting to close OS, but you've got a lot of other things going on. If you were to kind of rank order what you're most excited about outside of that transaction, what would you say are the top kind of 1, 2, 3 other things or items that you're waiting to hopefully announce to us in the near term?

I'm going to do them in no particular order because otherwise, that's like picking favorites among your kids.

Understood.

I mean we have -- both on the C&I and on the retail side and energy and in Smart, we have a lot of -- people have kind of lost sight of. We have a very exciting growth plan where we're killing it. Second, our residential VPP excites me tremendously. And after LS close, I'm also even more excited about our demand response potential. So I look at all of those things. And I guess the fourth thing I would say is bringing our first project online and making progress on the other 2. So there's a lot going on here that we don't -- we haven't even begun to put into our numbers. And -- so even if there were no -- I just -- as a reminder, even if there were no data centers at all and no changes in power prices, we're still showing a 14% CAGR, and we still have a double-digit free cash flow discount rate. So I'm sorry, I'm super excited about that. I don't know where I could get in the market such as -- with not much downside, those kind of numbers, leaving out all the other great things that we're doing. So I am as bullish as I've ever been.

Our next question comes from Nick Campanella with Barclays.

Maybe I could just follow up on the BYOP combo, just your conversation with policymakers at the states you operate in, how does that look in terms of BYOP? How have the customer conversations evolved over the last 6 months? And is it a fair assumption that all deals going forward just need some type of additionality in this space now? Or how would you kind of frame that?

I mean I don't -- speaking to all deals is hard, but it starts with the Secretary of Energy, who's been very, very explicit on this. And I think as regulators more and more look at the affordability question and how to distribute the cost of this new power, the simplest way to do it and the fairest way to do it, I think, is probably bring your own gen. Now whether that's megawatt hour per megawatt hour or 75% or 50% or some other measure, I think, remains to be seen. But I think every policymaker is looking at this for 2 reasons. One is the affordability factor and two is everyone knows they need new power. Everyone knows they need new infrastructure. So to the extent if you're the governor of, say, New Jersey or Pennsylvania or somewhere like that, you would rather spread that cost across Amazon or Meta or Googles or Microsoft's billions of customers around the world rather than your own rate payers. So this is a trend that we started talking about a year ago and prepared for it with our GEV and Kiewit joint venture, and it's now really coming home to roost and accelerating in the last few months.

Definitely recognize that. Maybe just with PJM being a more important jurisdiction pro forma of this LS Power deal. Can you talk about the capacity auction and just the prospects and timing for the collar to potentially be extended or just what you're advocating for with stakeholders, where you think the industry is heading and ultimately, what outcome you think would be good for the industry?

It's Rob. Look, nothing's changed since the last auction as far as supply and demand. So I would expect that, that means that we're going to price at the top of that cap and collar. The -- as far as long term goes, they're looking at lots of different ways to solve the equation. Ultimately, we -- everybody is generally concerned about reliability and they're concerned about things like affordability. But in order to get reliability, you have to have price signals. And so the market has to reflect something for something to get built. As far as the collar being extended, we were supportive of the collar last time. I could see it being extended again because it provides certainty for everyone in the market. Whether or not the top end of that collar is at the right place, that's yet to be determined.

Our next question comes from Carly Davenport with Goldman Sachs.

Larry, you mentioned before your excitement about the resi VPP program and the pilot there. I guess, any updates on how that's tracking in terms of uptake? And is that something that we should expect to see sort of regular updates on in subsequent calls?

Yes. I'm going to kick that over to Brad.

Thank you. Yes. No, we've been very pleased with the progress from VPP. So as you're aware, we did raise guidance earlier this year for the balance of '25. So we went from 20 megawatts to 150, and we remain on track for our 1 gig by year-end. We received a lot of...[indiscernible] We received a lot of great feedback from customers about the value and the experience of our offering. So we're really excited about that, and we're actually installing more customers than anticipated. And I think as we had shared in our last earnings, we're actually seeing the upgrade of additional equipment kind of 2x our expectations. But apart from that, we're also piloting some additional new home automation offerings which not only deliver the demand response, but will also help reduce home energy consumption, which will enable us to offer customers home energy savings. So as affordability and grid capacity become more critical, energy will really have the only solution to meet those needs to be able to reduce energy consumption and save customers money. So we're really excited about piloting that, not just in Texas, but we will also be taking that out to the East early next year.

Great. Okay. That's super helpful. And then maybe just on the data center pipeline, you have one agreement with first delivery in '26, another in '28. I guess, is there any trends that you're seeing in terms of when customers are looking to be energized on these fields?

I mean I think they're looking to be energized as quickly as possible, but there are some bottlenecks, as you know, with interconnection and things of that nature as well as if you do really need to bring your own power plant, obviously, that doesn't occur in a day. So I think customers are -- would love to start ramping yesterday, and they're doing what they can to do that. But I think if I look at the graph from now through 2031, there's more and more power coming on ramping each of those years. So I don't think anybody comes to the table thinking, well, we really want to start in 2033, but I think they're also realistic about building their own businesses and the constraints that exist.

Our next question comes from David Arcaro with Morgan Stanley.

When you say that you're -- let's see, on the data center power agreements, increasing your kind of expectations for pricing to now be above $80 a megawatt hour. What's that reflecting? Is that a reflection of where market prices have gone? And just thinking about the upper end of your prior $70 to $90 range, like does that upper end go up as well? Kind of curious just like would you be repricing like bring your own power type deals also upward?

I think everything is pricing upward as a result of increasing demand. If you look at the capital expenditure announcements by the hyperscalers, they continue to rapidly increase across the board. I think it's a recognition from people of the commercial -- of our rather unique ability commercially to supply them in ways that they want to be supplied and to bring new power to the table and just really heightened interest from multiple hyperscalers and developers in a very accelerating fashion, just kind of using the basic laws of supply and demand. So all of those are factors that led us to raise this really to kind of take the top of the range and raise the bottom of the range.

Got it. Okay. Great. That's helpful. Then separately, I was just wondering if you could comment on the retail competitive backdrop, retail -- your outlook for retail margins from here? Can they remain strong looking out at your forecast?

Yes. We have -- this is Brad. We continue to see strong margins in Texas. And we have had -- primarily because it's a competitive marketplace. And so as prices have gone up, we've been able to maintain those margins. As I mentioned earlier, we are looking at solutions to help give some customers relief in terms of helping reduce energy consumption. As we know, affordability will be a challenge as everyone does raise prices. In the East, a little bit different dynamic when we're up against the price to compare. And so that one, we have seen a little bit of margin erosion that we are managing very closely. But as I mentioned earlier, being able to bring an integrated value proposition to the consumer that gets beyond competing for price per kilowatt hour and give them a solution that actually brings their energy consumption down and give them home protection and home automation in the home. We believe that's a solution that we will be able to scale and slightly change the conversation. So a little bit different dynamic, as you know, between the East and what we see in Texas.

Our next question comes from Ryan Levine with Citi.

Hoping to follow up on the Smart Home business. Good to see the 9% annual year-over-year growth there. What are you assuming for '26 stand-alone business contribution for Smart Home growth? And how do you see that trend evolving into your longer-term outlook?

Yes. In terms of customer counts, we're assuming something very similar to what we saw this year. We've seen really strong growth across really all of our channels of distribution. We're also launching more of a good, better, best. Historically, Vivint has been pushing the higher-end systems, but we're able to, as I mentioned earlier, offer a much more affordable entry-level offering that not only gives customers some security protection, but also that energy management savings that I touched on. So with the additional kind of good, better, best, it opens up new channels of distribution. And so we expect really strong growth in '26 as well.

Ryan, I just want to remind when we announced that $750 million growth plan, we had indicated Smart Home net customer growth to be in that 5% to 6% range. And so I think when Brad alludes to the customer growth that we're assuming for '26, it's still going to be pretty consistent with that original growth plan -- probably higher.

And then in terms of the hyperscaler data center conversations, I appreciate the additional guidance around pricing and momentum. But in terms of duration of the contracts, are you seeing any change there around the tenor of contracts that the customers are looking for as demand has continued to accelerate?

No, we still continue to see people wanting at least 10 years, some even more than that. So if anything, tenure will be increasing, particularly if you're going to bring your own generation, you really need a longer tenured contract in order to drive your own cost down. So we're seeing longer contracts, not shorter ones, Ryan.

Okay. And anything around inflation provisions? Are they becoming more standardized around some of the other commercial terms embedded in these contracts?

I mean we are -- most of the contracts are going to be allowing us to pass through and allow us to keep our margins relatively fixed kind of across the board for a variety of factors.

Our final question comes from Andrew Weisel with Scotiabank.

First question on buybacks. I see that you're guiding to a moderation in next year to $1 billion. I think you previously alluded to that. Forgive me, I'm still a bit new to the story. Is that a function of LS Power and TEF CapEx, which is sort of onetime in nature? Or should we think of the $1 billion as a good run rate going forward? I can do the math, $3 billion through 2028 kind of implies that. But how are you thinking about this longer term?

Yes. It's really just staying consistent with what we had indicated when we announced the LS Power transaction, Andrew. We had indicated buybacks of $1 billion per year until we get through our deleveraging. And so that's all -- we just wanted to keep it consistent, recognizing that we were going to be updating capital allocation once we close.

Okay. That makes sense. And similarly, on that last point there, you said that you'll update all the financials when LS Power closes. Does that mean like an 8-K or press release as soon as it closes? Or are you talking about the 4Q update in February?

I think it's really just going to be dependent on when we actually close and how that timing lines up with when we might otherwise regularly report earnings, fourth quarter earnings. And so we'll assess based on where things are lining up with respect to close to figure out what the best way to communicate with the investment community will be.

Okay. That makes sense. And one last one. You covered a lot of good details, so this is kind of a nuanced one, but I'm seeing some headlines that potential sale of the Gladstone asset in Australia. A lot of people might not even remember that you have that. But how are you thinking about that asset? And could there be value there?

Look, I mean, we don't -- to the extent that there is value, it's really more -- it's going to be nominal at best. I wouldn't necessarily think of that as being a particularly significant driver. And if anything, it's really more to just continue to simplify our portfolio and streamline our operations.

I'm showing no further questions at this time. I'd now like to turn it back to Larry Coben for closing remarks.

I want to thank you all for taking the time to listen and for your interest in NRG. I have never been more excited about our prospects as we are today, and I look forward to seeing you all on road shows and wherever so that we can discuss them in more detail. Thank you, operator, and thank you, everyone.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program.