Hello, and welcome to Vistra's Third Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Meagan Horn, VP Investor Relations. Please go ahead.

Good morning, and thank you all for joining Vistra's investor webcast discussing our third quarter 2023 results. Our discussion today is being broadcast live from the Investor Relations section of our website at www.vistracorp.com. There you can also find copies of today's investor presentation and the earnings release. Leading the call today are Jim Burke, Vistra's President and Chief Executive Officer; and Kris Moldovan, Vistra's Executive Vice President and Chief Financial Officer. They are joined by other Vistra senior executives to address questions during the second part of today's call as necessary. Our earnings release presentation and other matters discussed on the call today include references to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are provided in the press release and in the appendix to the investor presentation available in the Investor Relations section of Vistra's website. Also today's discussion contains 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. I encourage all listeners to review the safe harbor statements included on Slide 2 of 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. Thanks. And I will now turn the call over to our President and CEO, Jim Burke.

Thank you, Meagan. Good morning, and I appreciate all of you for taking the time to join our third quarter 2023 earnings call. I am proud to deliver our third quarter results this morning, which was a very successful quarter for all facets of the business. We'll start this morning on Slide 5. I'll speak to this quarter's operational and financial performance in more detail in a moment, but notably, this quarter's adjusted EBITDA from ongoing operations of approximately $1.6 billion underscored Vistra's capability of achieving consistently strong earnings through its integrated business model, with excellent operational performance by each of our generation retail and commercial teams and a variety of pricing and weather environments. In the prior two quarters, we experienced average power prices clearing lower than our realized hedge prices, which highlighted the significant downside risk protection to our earnings at our comprehensive hedging strategy provides. This quarter that scenario held in the markets outside of ERCOT were milder weather kept prices lower. In these markets, we were able to capitalize on our dynamic position management of our hedged portfolio to capture significant earnings in our generation segment. We saw this paradigm flip in the ERCOT market and while we were significantly hedged, we did have some open length and the generation fleet's operating flexibility was optimized by our integrated teams to respond to higher market prices, while keeping the lights and much needed air conditioning on at competitive prices for our customers throughout the markets we serve. With each of our four strategic priorities, our aim is to challenge ourselves with high performance goals and then consistently deliver. To that end this quarter, you saw us continue to advance our other three strategic priorities as well, as we focus on a strong balance sheet, our capital return…

Thank you, Jim. Turning to Slide 11, Vistra's performance in Q3 2023 was a reflection of available opportunities and outstanding execution throughout the country by both our Generation and Retail segments. Generation segment exhibited the benefits of maintaining a diverse, flexible and durable fleet of assets with the team delivering strong results in both ERCOT, where third quarter temperatures were on average the hottest on record and outside of ERCOT where temperatures were milder. Notably, the $1.44 billion in adjusted EBITDA from ongoing operations delivered by the Generation segment, in Q3 2023, was almost $400 million higher than the same quarter last year. Moving to the Retail segment. Despite the challenges of high loads and prices in ERCOT in Q3, the Retail team delivered outstanding results for the quarter by focusing on customer counts and margins and consistently optimizing its supply position throughout the quarter. Although Retail is not typically expected to contribute much adjusted EBITDA, if any, in the summer months when prices are higher, the team was able to deliver $173 million in Q3 this year. Looking at year-to-date, each of the Generation and Retail segments are outperforming as compared to last year, with Vistra earning over $800 million more in ongoing operations adjusted EBITDA through the third quarter of this year, as compared to the same period in 2022. We are proud of the team's execution thus far this year. And we are looking forward to finishing the year strong. Turning to Slide 12. We provide an update on the execution of our capital allocation plan. As of November 2nd, we had executed approximately $3.26 billion of share repurchases, leading to an approximately 26% reduction in the number of shares that were outstanding in the fourth quarter of 2021. We expect to utilize the remaining approximately $1…

Thank you very much. We will now begin the question-and-answer session [Operator Instructions] Today's first question comes from Michael Sullivan with Wolfe Research. Please go ahead.

Hey, everyone. Good morning.

Hey, good morning, Michael.

Hey, Jim just wanted to start with maybe what kind of gives you conviction in being able to close the deal by the year-end and we'll be able to hear something from FERC in a timely manner here?

Yes, Michael. We've noted the progress that we've made with this transaction. Originally we thought NRC would be the longer pole in the tent and we were pleased to get that approval a few months ago. Where we sit at the moment is we've got feedback from DOJ and we think we've addressed DOJ's concern. We expect to have addressed FERC's concern by selling the Richland/Stryker facility. We did not think it was a concern at the time we initiated the deal and we still don't believe that's a concern. But out of an abundance of caution we are making that move. We have obviously responded to all of their information requests and the interveners have done the same. So our anticipation is that FERC has all the information that they need. We've asked for a feedback by the middle of November. We feel confident that we'll get to something by the end of this year and that we target to -- we're planning and targeting to close by the end of this year. But I think it's just been a process Michael and it's been one that we've been obviously very responsive to and I think from a FERC standpoint they've got the information and they've got to do their due diligence, but there's been no new issues raised to us at this point and that's why we think we're going to get this done by year end.

Okay. That's very helpful. And then just on the new financial outlook here I wanted to ask on some of the dynamics below EBITDA and at the free cash flow line. So it looks like the free cash flow for 2023 actually improved more than EBITDA. So I wanted to get a sense what's driving that? And then it looks like the conversion to free cash then drops again in 2024? And just also on that I wanted to confirm like does that include the interest cost associated with the debt you issued for Energy Harbor but obviously not the EBITDA yet. Yes. Sorry that was a bunch here but...

Yes, Michael, thank you for that. I'll start by saying that our results for this year which obviously we've continued to guide up as we've gone through the year. Most of that improvement is EBITDA-driven and we did a nice job operating in the third quarter with extreme opportunities with pricing and weather being coincident particularly in ERCOT. That EBITDA largely drops through to the bottom-line when we built the plan at the beginning of the year you wouldn't have expected the kind of weather conditions that actually played out. So that free cash flow in this near term obviously will fall through and you're seeing that improved conversion. We started the year with an expected lower conversion rate because we wouldn't have had this kind of EBITDA opportunity built into a more normal weather scenario. We actually talked about free cash flow conversion being a little bit lower in 2023 and 2024 when we set our plans and we talked about the capital required to run the units pulling in some of the long-term service agreement spend for CapEx was one of the main drivers. You'll see in the capacity factors that are in the back of the deck our units have been running really well but they've also been running hard. And so we'll spend some capital in 2024 and probably have to spend some capital in 2025 to make sure the fleet stays in tip top condition. And so I think the surprise was not where we see 24 playing out from a free cash flow conversion. We actually had some positive free cash flow conversion due to the EBITDA opportunities that came our way in 2023. As far as Energy Harbor interest and how we're thinking about that financing and its effect on our results in 2023 -- in 2024 I'll ask Kris to comment.

Yes, Michael I think you hit it. There are a couple of factors. For 2023 we did plan for some financing that would have some interest that would hit into 2023. And those were -- we didn't execute a financing until later in the year and the first interest payment on that financing will be next year. So, we actually -- it's a little bit counterintuitive but versus our plan from the start of the year we're in a benefit position on interest for 2023. And then you're right, 2024, the number that you're seeing here does take into account the interest expense on the debt that we raised for Energy Harbor and that we're holding right now. And as you noted, we don't have any contribution from Energy Harbor results.

Okay, super helpful. Thanks a lot.

Thank you, Michael.

Thank you. The next question is from Julien Dumoulin-Smith with Bank of America. Please go ahead.

Hey good morning team. Thank you guys very much. Really appreciate the opportunity to connect here. Just coming back to the capital allocation update commentary from the call real quickly. I mean obviously you're going to be introducing a new year in the first half of the year I think you said. But can you give us a little bit of a sense as to what the parameters are? I mean is it just really about how to capitalize the business? Are you thinking about this vis-à-vis new and novel growth avenues that could be emerging here pro forma for the acquisition and/or any other directions there? I just want to make sure I'm understanding what you're saying there? Is this more about addressing the potential 2025 and 2026 $1 billion buybacks? Or is there something more that you're kind of alluding to in terms of how you think about the future growth of the business here?

Julien, thank you for the question. Good morning. I appreciate the comprehensive question on capital allocation. I think it's several things. First of all, as asked earlier, we want to close this Energy Harbor acquisition get -- make sure we've got embedded fully a multiyear view of the potential for that business as well as the synergies that we're anticipating to be able to deliver over a multiyear basis. We also -- because we've raised the Vistra stand-alone guidance, we see more cash available for allocation. So, we want to put all of that together and go through that process of discussion obviously with our Board when we can have a comprehensive discussion about a number of things. We've mentioned some Vistra Zero opportunities in this deck that we will continue to execute on. The buyback program we've been executing actually slightly ahead of pace. We would anticipate that when we come back through the approval process with the Board, they'll remain supportive of the buyback program potentially at the current or even a potential higher pacing than where we've been executing. We did not feel like going out too far at this point given that we need to close the acquisition and put the full plan together. We didn't feel just highlighting one element of a buyback amount in 2025 or 2026 was appropriate at this point, but our commitment to our four strategic priorities and I think the execution against those has been on track if not exceeded and I would expect that to continue. As far as growth vectors, there are a lot of things that the future holds that are still being sorted out particularly with the Inflation Reduction Act. And are there going to be opportunities here to utilize behind-the-meter opportunity some of the hydrogen…

I think Julien, it is a little bit from a timing standpoint, an apple and an orange, but I do think you can take a couple of pieces and add them together. So if you look at our stand-alone guidance for next year, we're looking at a midpoint of $3.9 billion. And then we unpacked the Energy Harbor 2024 2025 numbers, because we what we wanted to do we gave you an average last time of 750. Now we're unpacking it saying 700 for 2024. That's still using some data that we got originally, through our cases but we're tracking curves. We have a sense of things are about where they were at the time, we announced the deal from a power price standpoint. So there alone you're taking the 3.9 and the 700 here, you're getting to 4.6. We had been at a midpoint of 4.35, on average when we gave you that direction when we announced the deal. So, I think the two pieces just added together put us north of where we have been signaling the combined opportunity. And this still has the targeted synergy levels in here. I think we could potentially exceed those targeted synergy levels, but we need to get into the business fully have the details around that execution plan before, we would upsize anything there Julien. So, I do appreciate you calling out, because I think there's been some consensus that is included. Energy Harbor and some that has been stand-alone. Our stand-alone is well north of anything that we have signaled, at this point and we think our Energy Harbor at this point is on track. And when we get into it, I think we might be able to find some additional upside. But at this point, we're not reflecting that. Q – Julien Dumoulin-Smith: At least, on track with those synergies it seems. But thank you very much again for time, guys. Appreciate and I’ll pass it.

Thank you, Julien.

Thank you. The next question comes from David Arcaro with Morgan Stanley. Please go ahead. Q – David Arcaro: Hi. Thanks. Good morning. Thanks for taking the question.

Good morning, David. Q – David Arcaro: Could you comment on the retail trends that you're seeing, do you expect this retail strength to continue? And I guess looking into the 2024 guidance, you've got some solid growth that you're reflecting year-over-year in the Retail segment. Wondering if 2024, could be potentially considered kind of a new baseline, I guess for the performance of that segment?

Yes, David I'll start off. I'd like Scott Hudson, our President of Retail to add some commentary. I think the business – obviously, we break our business apart, quite a bit. There's different geographies in the business. ERCOT has its own unique design. The other markets obviously, have a different one more with the TDU, the wires company doing the billing. Our business has a very heavy residential footprint from an earnings profile standpoint, but a very large-scale business and profitable business in the Commercial & Industrial segment. The business has performed better than we expected it to perform this year relative to plan. And next year is pretty flat to that. So I think it's actually more stable is how I would describe the retail business not a large growth assumption or a moonshot required for us to be delivering in our 2024 guidance. And the team has done a really nice job adapting to a variety of weather conditions extreme weather and ERCOT and actually milder than normal weather in most of the rest of the country. But I think the underlying trends are a function of the creative products and the marketing channels. I'd like Scott to comment on that. So, you get a feel beyond just the numbers of how the team actually executes dynamically to meet customer needs.

Yes. Thank you Jim, and thanks for the question. We did see strong margins and growth across all of our customer segments and geographies in the quarter-over-quarter. On the residential side in ERCOT, which is a large concentration of what we do, Jim mentioned, the summer campaigns that we had very successful across six brands we have in the markets across multiple different products, our seasonal discount product, which helps flatten the customer bill with the discount in the summer for the customer is very popular. And then on the retention side, we have an advanced analytics team that actually identifies customers that we give customer credits to. We call them comfort credits and that's also a way to retain customers in these very extreme summer periods. That's a program we've had in place for several years, but we continue to refine. On the C&I side, what we see is that really strong margin performance. When there's volatility in these markets and power costs are up and down, this is really an opportunity for us for really providers at scale that have reliable generation and sophisticated commercial capabilities. So we saw some nice margin expansion both in ERCOT and in the Midwest and Northeast market. So those are just a few examples to give you a flavor, but to Jim's point, we're always looking to optimize our customer counts, our margins, our risk capabilities along with the customer experience. And it really is that optimization that allows the business to be consistent and stable.

And David the thing I would conclude on Scott's remarks, which we're spot on with how we think about the business is the customer could be put under a lot of pressure with volatile pricing. With the hedging strategies, which we've described before are pretty conservative about the way in which we procure to handle extreme weather. Our goal is to insulate the customer as much as possible from those kinds of bill shocks. That helps franchise value in the long run. It helps the customers sort of get through the seasonal events. But it does take resources to be -- to hedge at that level. It takes capital you have to post collateral at times. You have to be a little bit more conservative on how you think about some of your pricing structures. But I think it pays off in the long run. And that's why the business not only had a really strong financial quarter they grew accounts in the quarter. Growing accounts in the quarter as being one of the largest market share participants is not an easy thing to do. But if you're providing that stable value proposition to the customer, the customers do respond well. And I think that's where we shine better is when we've got this kind of volatility that's when the model I think really differentiates itself.

Yes. Excellent. Yes, I appreciate that color. And thanks for the clarification on the trajectory into 2024. And could I ask just does the retail contribution as you look into 2025 and the indicative midpoint guidance there? Does it stay flat into that year off of $24 million?

David, we haven't put anything out specifically on retail, but we've given you a sense of where we see 2025 on a combined entity. But, yes, we see it staying fairly flat. And most of the delta that we'd expect to see if any in 2025 would be more driven by where the generation segment is. We're highly hedged in 2025, but we have to carry more open there. So you might see a little bit more variation there than we'd expect to see in retail.

Yes. Got it. Understood. And just to push out even further just any directional thoughts on 2026 how much might be hedged at this point and just directional trend off to 2025?

Sure. Yes. If you look at the curves David 2026 is looking stronger than 2025. That particularly has moved in the ERCOT region from the last time we spoke. In fact when we had our call in August it was August 9 and August 10 was the all-time peak in ERCOT. So we were busy and we talked about how we needed to make sure that we got through the summer. Most of the pricing volatility in ERCOT came in the back half of August. And I think the forward curve started to reflect that the sort of on paper level of reserve margin may not actually be what the actual reserve margins are under stress conditions. So we have seen the curves move up. As Kris noted they are higher than where they were in May of 2022 still backwardated, but they are higher. And I think that's a reflection of the supply-demand calculation that folks are revising for ERCOT. We are still majority open out in the 2026 time period. We have not provided a hedge position, but our anticipation at the moment is that Energy Harbor also has largely remained open in 2026. That's why we were comfortable saying we expect it to be around that $900 million range. And then we see upside from where we sit today for the rest of the Vistra stand-alone for 2026 relative to 2025.

Okay. Excellent. I appreciate it. Thanks for the time.

Thank you, David.

Thank you. The next question comes from Andrew -- I'm sorry Angie Storozynski with Seaport. Please go ahead.

Good morning.

Good morning, Angie

Good morning. I just had a question about market power issues if any and how those could prevent you from any additional transactions. So you were clearly surprised by the issue that came up with Energy Harbor at the FERC level. And again is there any lesson learned from it? Again do you think that you have grown to the point where you might encounter those issues in other PJM zones?

Angie we -- I don't think we've really learned anything, specifically, from this other than deals get a lot of scrutiny. We actually have in all of our filings and all of the screens we've done that we need to do in order to make our filings complete we did not see and still don't believe that these assets are pivotal in that regard. So I still think we look at the situation in the exact same way as we did when we made the announcement. But we do want to move forward and get this deal done. So we made the modification that we made. Even in ERCOT, our market share -- because the markets continue to grow we're more like a 14%, 15% market share number so there's even headroom for us to do something in ERCOT and that's where we have the highest level of relative size compared to others in the market. So no, I think the field is still open, Angie. I think, we'd love to obviously get this done and move forward and we want to be constructive and work with the regulatory bodies to make sure that that happens in a way they're comfortable. But no, I don't think, there's anything to read through at this point. Of course, we haven't heard finally from FERC on this matter, but we feel very good about our position on this and we think we have headroom to do additional transactions in all the markets.

Great. And then you mentioned that you guys are waiting for some clarifications around the IRA, especially as those relate to the behind the meter installations. So I'm just wondering, if that's specifically referring to nuclear PTCs and how transactions with affiliates or non-affiliates will be counted towards the energy growth whatever receipts or margin that is currently in the role. Again, a little bit more clarity around what you're waiting for to see.

Yeah. So, we obviously await guidance from the IRS on a couple of matters. The whole hydrogen topic and whether nuclear -- existing nuclear is going to qualify as a clean energy source whether it's behind the meter or what they call hydrogen by wire where it's more contracted through a PPA type structure we await clarification on that. We don't have growth built into our plans for that. We're not assuming an upside yet on our plans. But that's something Angie that we obviously await guidance on. I think the more immediate material guidance will be the nuclear PTC. And what is the revenue basis for determining whether an asset has earned some of the PTC, because the realized revenue rate is below the floor. We expect to get that guidance some point in the spring, but we're not sure how soon it could come. Obviously it goes into effect beginning of next year. Once again we've not assumed any PTC value in our long-range plan. But the way we think about it is the curves are right at and slightly above where we see the PTC floor. So it's unclear that it would apply at this moment. Now, there is indexing to that PTC. So if the curve stayed flat you might inflate your way into earning some of the PTC. It is still unclear about how affiliate transactions would work. But I feel like, there's been a commentary and some acknowledgment that some basis of spot whether it's real-time or day-ahead prices that there needs to be some reflection of what the market value is of the power and not just how the hedge transactions either were done at the portfolio level or at the asset level. I think that's a cleaner way to think about, it is to think about something in the real-time or day ahead market as a better benchmark for the value at the hub of the power. But again, we await that guidance. It's not baked into the plan. And I think it provides some downside protection. We're not 100% sure how much yet. But since we still have the upside of where the curves could go for the nuclear assets whether it's Texas or Pennsylvania Ohio, we view it as a real opportunity that the IRA provides. We just don't have clarity on the size of that opportunity at this point.

Great. And if I could ask one last one. So there's some additional media scrutiny around the supply of nuclear fuel and the reliance on Russia here. I remember that, you mentioned that Energy Harbor is well hedged for nuclear fuel. But given that, you are doubling down on nuclear power, I'm just wondering if you have a way to manage the Russia risk, either direct or indirect exposure to 10x especially…

Yeah, Angie, good question. It is something that the whole industry is paying attention to, because it can affect prices for domestic and more global sources beyond Russia as a source. So it's got implications whether you're sourcing directly from Russia or not. We have increased some of our nuclear fuel purchases. We've done that as Vistra. And we have done that both for our own needs, but also in anticipation of closing this transaction. So I feel very good about our financial and our physical supply with or without any Russian exposure over the next several years. And we feel that we're in good shape from a Vistra standalone actually for the next four to five years. But from a combined basis since we don't have all the detail beyond the next couple of years at this point from Energy Harbor, I think our fleet-wide purchases will actually help bridge, anything we'll see on a combined basis. But we have our -- we started working this issue. We started working even before we made an announcement about Energy Harbor, because obviously this conflict dates back in time. But I think we have done a very nice job. The team has done a nice job not only hedging for the physical part, but financially hedging curves are up for nuclear fuel. There's no doubt. You'll see nuclear fuel quotes in the $9 to $10 a megawatt hour kind of raise that's kind of an all-in value. We're still -- and I mentioned we're -- historically, we were closer to $5, trending up to $6 for Vistra standalone through 2026. That's still where we are. We don't have all the details on the Energy Harbor cost per -- I know they reset some of theirs early on as they did their restructuring, but we could have some exposure towards the back-end of a five-year planning horizon on price, just because the curves have moved up. But there's also a discussion about domestic sources and incentivizing additional supply, non-Russian that may come into play towards the back-end of our planning horizon. But I think we've substantially de-risked physically and financially there, Angie.

Great. Thank you.

Thanks Angie

Thank you. The final question comes from Durgesh Chopra with Evercore ISI. Please go ahead.

Hey. Good morning, Jim. Thanks for taking my questions. Hey, Jim just a more pointed question on the capital allocation and I appreciate you're going to go to the Board and we'll have a plan here in the first half of next year. But given the move in the stock and I asked you this on the last call as well, do you kind of still view that the security is undervalued here as we think about buybacks prospectively beyond 2024?

Yeah. Durgesh, it's always difficult for management teams to predict where things will go. But yes, if you look at the multiples and ours now raised EBITDA guidance levels and our expected free cash flow generation, I think the multiples are just staying where they've been. And we're just reflecting a much stronger business profile. I think you can obviously make your case as to what's the right multiple to put on the business. I think there's been a view that the free cash flow yields need to be 20-plus percent in order to compensate for the risk of being in the business. I think our integrated model has shown a real stability to the business model. And we've seen various weather conditions, pricing conditions play out over the course of this year. And I think our team has managed through that exceedingly well and we've raised the out year. So I know Kris put in more of an exclamation point on this on the last call and I'd love to be interested to see if his view has changed, but I'm pretty sure it hasn't. But I'd like to let him close on this, because I want to make sure you guys know we're sticking with these four core principles.

Yeah. Durgesh, I'll just point out obviously as you can see by the pace of our buybacks, we've actually picked up the pace in the third and fourth quarter. And as Jim mentioned as we look forward and we still have to get with the Board and talk about a comprehensive plan. But as Jim mentioned our intention would be to maintain the pace that we set this year and potentially look to see whether it should stay that same on same pace going forward or whether it should be increased. So we still feel good about the prices at which we're buying our stock today.

Got it. That's perfectly clear guys. Thank you both. And then just, can I go back to the 16%, I think that was the number, one-six, of customer count growth in the retail segment. Can you just provide a little bit more color? Is that predominantly ERCOT? And then just for us to digest that what's like a five-year average, so we can see how strong this quarter was really?

Yeah, I can take that. This is Scott Hudson. The number that was referenced is in the appendix slide in the materials, but it's volumetric growth in our C&I market business. And we've seen a lot of success in that business both in ERCOT and in the Midwest Northeast markets through these times of volatility. I think what you find is that larger sophisticated customers want to work with players of scale, because we can structure a lot of complex products whether those be indexed, fixed, stability and pass through, new charges in the ERCOT markets, we see a shift of customers to the larger players in this particular environment.

Yeah, Durgesh. I think Scott -- we had residential growth, but the 16% was a business is a volumetric growth. And so -- but both businesses grew and they grew their business not only in Texas, but outside of Texas. So it was really strong performance for the business to fundamentally grow in a very dynamic power market.

Thanks. Appreciate the color guys. Thank you.

Thanks, Durgesh.

Thank you. This concludes our question-and-answer session. I would now like to hand the call back to Jim Burke for closing remarks.

Yes. I want to close by thanking the men and women of Vistra for their hard work and for delivering an exceptional quarter for our customers and the communities we serve. We appreciate your interest in Vistra. And as you saw in our presentation, we have a lot to still accomplish and layouts and we look forward to laying that out for you and speaking to you again soon. Hopefully after we have closed here on the Energy Harbor acquisition and we wish you all a great morning. Thank you.

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.