Good morning, everyone and welcome to the Vistra Second Quarter 2021 Investor Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Molly Sorg, Head of Investor Relations. Please go ahead.

Thank you and good morning everyone. Welcome to Vistra’s second quarter 2021 results conference call, which is being broadcast live from the Investor Relations section of our website at www.vistracorp.com. Also available on our website are a copy of today’s investor presentation, our Form 10-Q and the related press release. Joining me for today’s call are Curt Morgan, Chief Executive Officer and Jim Burke, 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 Slides 2 and 3 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 Curt 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 on this crowded earnings reporting day. As we find ourselves at the start of August already, the fact that the power markets are in a state of transition continues to be apparent. California, Texas and New York have all requested conservation at various times during the summer. June of 2021 was America’s hottest June in 127 years of records, meeting the prior record from June of 2016 by 0.8 degrees. Much of this record-breaking heat has been observed in the Pacific Northwest. North Texas was actually slightly below the 10-year average in June with April and May also being very mild. So as a nation, there is no question that temperatures have been on the rise in 2021 as have the extremes in weather conditions. These weather extremes, coupled with the greater percentage of renewable resources making up the supply stack in various markets, have resulted in a heightened sensitivity to scarcity conditions by the system operators, reinforcing the importance of thermal resources, especially natural gas and maintaining a reliable grid now and several years into the future. Power markets and systems must also balance decarbonization efforts with affordability and reliability, which is proving to be a challenge as evidenced in California and Texas. Given the uncertainty with COVID-19, especially the Delta variant and the country’s desire to return to normal, we have continued to prioritize the safety of our number one asset, our people, while delivering reliable and affordable power to our customers. The second quarter results we are announcing today reflect this dedication and focus. During the quarter, we continued our rebound from the very unfortunate impacts from Uri, most notably hardening our assets, participating in the Texas…

Thank you, Curt. As shown on Slide 10, Vistra delivered strong financial results during the quarter, with adjusted EBITDA from ongoing operations of $825 million. Excluding the Uri-related bill credits and fuel cost adjustments, Vistra’s adjusted EBITDA from ongoing operations was $909 million, results that are comparable to our exceptionally strong second quarter 2020 financial results. Period-over-period, our retail segment results were $109 million higher than second quarter 2020, driven by the realization of our self-help initiatives in ‘21. The collective generation segments ended the quarter $213 million lower than second quarter 2020 driven primarily by lower realized prices in Texas after an exceptionally strong 2020 and lower capacity revenues. Importantly, the long-term earnings power of this company has not been affected by Uri, which was a highly unusual event. In fact, without the impact of Uri, we expect we would have been reaffirming our pre-Uri guidance today, which had an adjusted EBITDA from ongoing operations midpoint of $3.275 billion. Next year, excluding the impact from Uri bill credits, we believe we have the ability to deliver adjusted EBITDA from ongoing operations in the $3.4 billion range, with 60% to 70% conversion to free cash flow before growth. All of this to say, we continue to believe this business will have significant capital to allocate in the years ahead, which takes me to Slide 11. Last week, our Board approved our third quarter 2021 dividend of $0.15 or $0.60 on an annual basis, subject to Board approval at the appropriate times. We remain committed to maintaining a strong balance sheet, though as Curt mentioned, we believe we are still a couple of years out from a potential investment grade credit rating. In the second quarter of 2021, we did execute one capital markets transaction, issuing $1.25 billion of 4.375% senior…

Thank you. [Operator Instructions] And our first question today will come from Shar Pourreza with Guggenheim. Please go ahead.

Hey, good morning guys.

Hey, Shar. Good to hear from you.

Yes, same Curt. Just quickly, Curt, just on your comments regarding a review of your strategic direction, how you allocate capital, you mentioned in your prepared remarks. As you kind of continue to generate cash, can you maybe just speak on how you’re thinking about buybacks versus perhaps a special dividend, especially as we’re thinking about ‘22 and beyond, maybe more inorganic retail deals? Also, you kind of specifically also noted strategic direction, could that also imply that there is maybe an internal debate around a go-private scenario, if you continue to trade at these unsustainable high free cash flow yields? Could kind of go-private scenario be the avenue to realize value? Just maybe if you can elaborate a little bit more on that strategic direction comment and would you be prepared to discuss this by November or could this be pushed out? Thanks.

Yes, Shar. So thank you. That’s a great question, a lot in that question. So – but that – I mean I knew that I figured we get that question. I think after the Uri event, I think most people would expect that management team and the Board, we’re going to sit down and have a discussion about our business. And something that – obviously, it was a risk that we did not contemplate and to just brush it off and say we’re going to go at things business as usual. I don’t think that would have sat well with anybody and certainly not with me and not with the Board. So I think the first and foremost that we felt a sense of urgency. And of course, you got – you know this, I mean, our stock sold off big and more so actually than the actual math that you would put into it in terms of our shares divided into the loss itself. So there was a loss in confidence. And I understand that. But we had to rethink things going forward, and I think that’s what we’re doing. I don’t know that anything has really changed that much. But we – I think there are four main pillars that are driving us as we go through our strategic direction and as we think about allocating capital. Number one is our stock is incredibly cheap. And we went – we’ve done a lot of analysis, and we still believe that we’re significantly undervalued. And so we have to think about what’s the best way to invest in our own company. If others don’t believe in us, then we need to believe in ourselves, and we generate a lot of cash. And so I think we have to take…

So just to reiterate, Curt, the strategic direction really isn’t about a debate on whether investors will ever properly reflect the value of an IPP as a public company and whether you’re debating whether we should go private because that’s what private is willing to pay for assets. This is more of a strategic direction, maybe a change in how you’re thinking about buybacks versus dividend versus organic growth versus inorganic growth as a publicly traded company. This isn’t a debate between whether we should go private or stay public.

Yes. No, look, we’re for sale every day. So if somebody wanted to pay an attractive price, but we’re not out with hanging our shingle out there because I’ll just tell you – I’ve said this before, you know this, . I’ve said it to you, but I don’t – I’ve been in the private setting. I know what it is. I know what it takes. I know what private investors want. And I think that there are others out there that have gone private that are realizing that if you go private, it’s the same thing that if we were public for these businesses, that it’s a long-term gain and the idea that a private equity firm would come in here and can somehow then exit in 3 to 5 years. I just don’t know who that exit would be. And the thing that makes it difficult for us is that it would take a big equity check and a significant capital raise in order to get this done. That doesn’t mean that it can’t happen, but that is not our primary direction. We want to take a direction that we control. We don’t control that direction. And so we do something that we control and that we think can unlock this value. So that’s where we’re focused.

Fantastic. Thank you guys so much. Appreciate it.

Yes. Thank you.

And our next question will come from Stephen Byrd with Morgan Stanley. Please go ahead.

Hi, good morning. Thank you so much for taking my question.

Hi, Stephen.

Wanted to just talk a bit more about the opportunities for renewables that you’re seeing and just get your latest view on sort of the state of play there and as much as I love the idea of growing in renewables, it does strike me as challenging to kind of beat the economics of your own stock. And I know you just went through a long discussion of your review, so I understand that this is in process. But just would you mind talking a bit about that opportunity set in renewables? What you’re seeing broadly? I would guess there might be some degree of distress among some of those smaller players out there. But just could you talk a little bit more about what you’re seeing there?

Yes. Good question, Stephen. So look, I think I tried to say this, but I’ll make it as clear as I can. We think, at the top of our list of things to use the capital from this great cash generation machine that we have is our stock right now. And so you see the free cash flow yields. The math is pretty clear. And so – but we also want to have a strong balance sheet. I went through all these things and we do think paying a dividend made some sense. And so we are going to do that. The real challenge is can we return capital and grow what we believe is a very good and like I said, burgeoning renewables and battery storage business. I mean these are opportunities because of the sites that we have and we’re in locations like California. California is talking about 12,000 megawatts plus of batteries that they need to put in. We’ve got sites that can do that. We can’t walk away from that value proposition. We want to partner with PG&E and others in the state of California and with the state of California to help them solve their – where they are trying to take their state. And we have the sites to do that. And so I think what we’ve concluded is there are ways to do both. And that’s where we’re headed. We also want – we believe that partnering with people, who have, let’s say, an advantaged cost of capital and will put us in a position of having an advantaged cost of capital will put us in a better position. We have everything else there is to compete in this business, and we have the full suite of capabilities. So I don’t think it’s a question of whether you can do one or the other. I think we can do both. The real question is, how do we go about doing that? And that’s where we’re spending the time right now is concluding that effort, so that we can pursue both. There are great companies out there. I used NextEra as one. I think NextEra is a great company, and they have been able to do both. And I think we can do both. And so we’re going to just have to balance that. That’s where we’re headed.

Makes a lot of sense. I wanted to follow-up on Illinois and just get your latest thoughts on kind of the state of play there, the opportunity set. It strikes me sometimes folks don’t appreciate the potential there for you all. But I’m just curious what you’re seeing on the ground? What your view is of where that may head?

Yes. So look, I mean this is an interesting one because Governor Pritzker would like to move the state of Illinois in a very progressive way to a leadership position in the area of clean generation. And he’s pushing very hard on doing that. And he sees an opportunity with an Omnibus energy bill, if that’s going to happen. And I’m interpreting he is not telling me this. I’m telling you what I’m reading through the discussions that I’ve had. And in so doing, that’s a difficult thing because he would like to see emissions rates from thermal resources to decline and part of the legislation is pushing hard on that. And of course, that creates disruption. And there are some co-ops that own coal plants have just built them or munis I should say. That just built them not too long ago, and they still have a huge amount of debt that are on a number of different municipalities. And that creates a lot of angst. And of course, there is others like us that own thermal resources, and we’re trying to sort out how does that happen. And I think even within his own party, there is a debate going on as to how you actually accomplish that. So – and that has created a bit of a divide. And I think at the end of the day, they are going to try to work together. And I believe they will because there is too much at stake here. And they will come to a reasonable conclusion to move the state forward in terms of lowering its emissions. We are in the middle of that trying to help that. The one thing that I have tried to mention to people is that if you get the Omnibus bill…

That’s really helpful. Thank you so much.

Thank you.

And our next question will come from Steve Fleishman with Wolfe Research. Please go ahead.

Hey, good morning.

Hi Steve.

Hi, Curt. Just on the – could you just remind us the current capital plan? What was in there in terms of dollars for renewables CapEx over the next few years? And maybe just also give us an update on where you stand on projects there, particularly the ones you were planning to do in Texas?

Yes. So Steve, we had said that we would put $0.5 billion – roughly $500 million. Jim, while I am answering this, Jim may be able to find the exact numbers that we have. But $0.5 billion a year, we have said for 10 years. And when we put out that 10-year view – and I think we are largely – it’s a little bit more and a little bit less in a couple of years, but we were going to reinvest that amount into renewables and batteries. And we are tracking sort of in that range and that was the investment. In terms of the projects themselves, I don’t have the list in front of me, but I know that we have, and I don’t know, Jim, if you have that list and if you have been able to find that, but if you can pull up that list of where we are on each of the different projects.

Sure. Steve, we had in our Investor Day, we had talked about a capital allocation plan that would put over $600 million into ‘21. We said $650 million approximately in ‘21 and $500 million in ‘22. We scaled the $650 million down to $425 million for this year. And we did that as part of the earlier questions. We are kind of reading the market signals on where we should best allocate our capital. And we control these sites. So, these were sites that we can bring on in the timeframe that we would like. We are going to be the off-taker predominantly for the Texas sites. And so this gives us a lot of flexibility to be able to bring them on and do it in the timeframe that makes the most sense for us. As far as the sites themselves, we have both the Moss 300 and 100 which were completed and those are operating with an RA agreement from PG&E. The other sites that we are focused on are the Brightside Solar project, the DeCordova battery project, which is our hybrid project here in Texas. We have got Emerald Grove, and we have got just a little bit of spend to keep some options alive at a few other sites. That’s the bulk of our spend for this year. And we are going to continue to build out for the balance of this year. We have got some Phase 1 projects that we had announced earlier. We just slowed the path down, and we haven’t gotten going yet on Phase 2. So, the strategic review that Curt has mentioned, will obviously dictate a lot in terms of the pace and can we find a cheaper form of financing that helps us accelerate this, but still use our capital for kind of its highest return. And so we will share that as we bring the details of that going forward. But it’s the pipeline we talked about before, just a little bit slower go given we were resetting post Uri. But the projects that we have are moving forward well and the battery projects in California are performing well.

And Steve, one thing – one other thing to add on that, Andrews County is one that we pulled back when we pulled back to this lower spend. And that was initially – this is why I talked about having the capability and having the discipline in development. If you are a development company, then all you are going to do is kind of build this thing up and flip it, it’s a little bit different. But we were going to have to live with it. But we had some issues with congestion. And we have worked with Encore, and we now believe that side, you could go up to 200 megawatts. But this is the kind of stuff that we have a dedicated group on transmission that are incredible at what they do. And they can keep us out of issues by over-developing in an area and then having congestion and having the price reduced significantly. And so that – we have pulled that back, but now since we have been able to work it, it’s a project we will do later. And as Jim said, we control that site. So, that was part of why we also pulled that back.

Okay. Just I guess, a high-level question related to the renewables is just in your slide, you mentioned the alternatives to accelerate the pace of development using a cheaper cost of capital, which makes a lot of sense and it frees up a lot more capital for buyback. In terms of then the mix of the company, if someone else is going to own some of this, like can you grow the business fast enough, quicker that even if somebody is going to own some of it, the overall company keeps moving a lot greener over the period, if someone, if you have a partner?

Yes, sure. So yes, I mean that’s a really good question and one that we have spent a lot of time. Jim and I have recently, by the way. But you are talking about whether – how do you do this, is this a JV and those things tend to have governance associated with them, and there is a lot to them. I think the way we are thinking about it, Steve, is there is a couple of ways to do this. There is – you can have an equity investment, you can also have sort of, what I will call, a structured financing where it’s – maybe it’s a preferred – convertible preferred or something like that. There is a number of ways to cut this in terms of how do you raise the capital against the spend and the value of the company that can allow you to grow this company and to maintain the ownership and the governance that allows you to control the shots, because you can’t get into a situation if you don’t have the right partner, where it can get gummed up. And that’s not what we are looking to do. What we are looking to do is get access to – there is a lot of capital out there right now and a lot of infrastructure funds and a lot of people looking for companies like us that are legitimate that have a capability. And so we think that we can raise reasonably priced capital in a governance-friendly manner to continue to allow us to grow our business. And so we will see and the extent of how much the party would have a governance position in the company will depend on the size of the capital investment and the type of capital investment, and there will be a balance that we will make there. We have got a number of good friends out there that are interested in this. And we know this because there are people – there are inbounds coming to us because I am making comments like this on calls like this. But we know that there is interest in this. And then it comes down to just what do the terms look like. But we have people that we know that were like-minded with that we can – that we could work with. And that we believe that understand what we are trying to do, which is accelerate this, not slow it down.

Okay, great. It makes a lot of sense. Thank you.

Thank you.

And our next question will come from Durgesh Chopra with Evercore ISI. Please go ahead.

Hi. Good morning team. Just on the sort of the – just on the strategic review, you have mentioned the size of the check. I am just wondering like as you go into the sort of the Q3 call and as you think through this, is there a possibility to not sell the company outright, but perhaps get a like-minded partner, who sees the value in the cash flow stream, sell a portion of the assets or a portion of companies. Is that a possibility?

Yes. Absolutely.

Okay, perfect. And then just in terms of just the buyback you mentioned, obviously, the currencies, is heavily discounted. On the Q3 call, should we expect sort of a form of program to be announced or like what to sort of – you had this previous guidance of – I think it was $1.5 billion worth in share buyback. So, should we expect a larger program or would you have done – you have taken some actions before then?

I hesitate to get into precise numbers because we are working through this. We have a pretty big program that we already have out there for the next couple of years. I think what you are going to hear though is what we would like to do even longer term. I mean I think we would like to paint a picture, again. We have got this core business that generates a lot of cash. And I think we would like to earmark that to returning a bunch of cash. And so we want to give a picture of the future that goes multi-years and just kind of shows just how much return of capital that we can do over that period of time from that business. And then I think we also would like to paint a picture of what the growth side of our business would look like. And those two, let’s call them, two separate businesses and two separate tracks. But at some point, those two ultimately merge again. I think our biggest problem has been is that people can’t envision the company long-term. They say, well, at some point, those thermal assets are going to go away. But if you have two tracks, one that you are generating a lot of cash and you are returning it to shareholders from your core business and you are building this large burgeoning renewable and battery business. At some point, those merge again. And then you have solved your long-term terminal value because our retail business isn’t going anywhere. And we are going to grow that business. It’s how we manufacture power, electricity that matters. And we have got a great business that returns a lot of capital. And I think will continue to do so for a long time that we can return to shareholders. We also have advantaged sites in a core capability to be able to grow in renewables and batteries. And we want to be able to unlock both of those things. We think bringing in partners and additional capital is the way to do that. And then at some point in time, those two merge again and that you have this – you can then visualize this company in the long run because the supply side of our business has been essentially replaced from thermal to renewable and batteries. That’s really the vision here. And then we need to get into the details of how that happens.

That makes a ton of a sense, Curt. Thank you. Just a quick one here, could you – could there be share buybacks this year in 2021? Potentially, previously, you have said because of Uri and sort of the balance sheet there would be no share buybacks in 2020, but could you reevaluate that?

We could. We could reevaluate that. Yes.

Okay, perfect. Thank you so much. I appreciate you taking time.

Yes. Thank you. Thanks for the questions.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Curt Morgan for any closing remarks.

Thanks again everybody for joining the Q2 call. I know it’s a busy – a very busy day. We tried to – we thought it was a pretty yeoman like quarter. The company has rebounded well. So, we didn’t want to take the full hour. Hopefully, this will give you some time. But we – a lot to talk about in the future, in the near-term we will be getting back to you soon with the strategic direction and the capital allocation. So, thanks again. I hope everybody is well. Take care.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines at this time.