Q1 2022 Vistra Corp Earnings Call
Okay.
Good morning, and welcome to visitors Investor webcast discussing first quarter 2022 results.
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I would now like to turn the conference over to Megan Horn, Vice President of Investor Relations. Please go ahead.
Thank you and good morning, welcome to the stress Investor webcast discussing first quarter 2022 result, which is being broadcast live from the Investor Relations section of our website at Www Dot That's your Corp Dot com.
So available on our website a copy of today's investor presentation, our Form 10-Q and related press release.
Joining me for today's call are Curt Morgan, our Chief Executive Officer, and Jim Burke, Our President and Chief Financial Officer.
We have a few additional senior executive president stretch or ask 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 two and 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 Meghan good morning to everyone and thank you for your continued interest in Vista.
Getting started with slide five.
I've mentioned before that 2022 is a year of executing on the strategic priorities, we outlined in the third quarter of 2021.
On this slide.
Importantly Vista has started on the right foot in 2022 with Q1 results consistent with our expectations and it is noteworthy that our confidence regarding 2022 has grown.
However to me the bigger story is the material movement.
In energy commodities complex forward curves for 'twenty three and beyond.
And our emphasis on a comprehensive hedge strategy capitalizing on this move that began last year.
Continued in the first quarter and continues today.
Notably we expect this upward trend to continue given how the U S and world energy situation is.
You set up.
Especially regarding ESG and board room actions in response.
Combined with strong demand and Geo political events.
Nutshell, the U S natural gas complex is already tight.
And likely to be increasingly tied to world gas economics.
As an expanding pivotal supplier on the world stage, we expect U S supply and demand to tighten even further.
Higher natural gas prices in turn lead to higher power prices.
And Mr is long power and natural gas equivalents.
Frankly.
My 40 years.
I have not seen a confluence of events quite like this.
Certainly Vista is in the right position to capitalize on the strong forward curves.
The effectiveness of our execution will be key as the day to day volatility is extraordinary.
It is a rare opportunity presented to us.
And it is our job to create the most value out of it while managing the risk.
Our prudent hedging strategy has resulted in best or locking in material out year value in the 23 to 25 timeframe and it is worth noting that the forwards have also risen materially out to 2030.
The market clearly believes there hasn't been a fundamental shift in the energy commodity complex and it started before the Russian aggression against Ukraine.
Yes sure.
As reflected in the forwards offers continued opportunities to hedge more while remaining mindful of the potential liquidity requirements against further commodity price moves.
The good news is there.
This offers right way risk with our open position as well as the significant value already hedged.
We also have tandem hedged other risk associated with our commodity hedge positions such as fuel and basis differentials.
Our generation fleet is also performed exceptionally well at an average commercial availability in the mid ninety's percent as a critical component of our hedging strategies.
We bolstered this exceptional historical performance by the additional expenditures after Uri to Derisk, our ERCOT plant operations and.
As we have mentioned in the past, we hold back generation to cover forced outages.
All to manage any risk exposure that hedges can expose us to.
Our primary focus when hedging is on managing risk while capturing value.
We are not focused on picking the absolute peak.
Our experience is that this futile endeavor leads to a significant risk of missing the opportunity entirely.
As it relates to 2022, while we were considerably hedged coming into the year, our open position in the summer months, but now benefit from the power price environment, which we expect to remain intact given the likely continued strength of natural gas prices as I just discussed.
This is our expectation even without an extreme weather event in.
In addition, our retail business continues to deliver strong margins, while organically growing customer counts as customers in ERCOT value quality retail names like T X you energy Anantha.
Tim and Jim will speak to the significant value capture opportunity in more detail momentarily, but in some.
The EBITDA outlook for Vista through 2020 five.
Now increase to potentially over a billion dollars, even with prudently conservative estimates and the market has only continued to move up.
As briefly mentioned a moment ago.
Our robust hedging strategy of course requires significant liquidity as collateral postings or require notably our commitment to a strong balance sheet with significant liquidity has positioned us with the cash and access to capital necessary to make the collateral postings, while continuing to execute swell solidly on our two.
Billion dollars share repurchase program and pay out significant dividends to our shareholders of record.
Of course in this environment.
You can never have enough liquidity.
As such we continually look for ways to efficiently manage our liquidity and are working diligently to enhance access to capital. So we can further take advantage of the long dated move up and forwards and capture value for our shareholders.
We believe these efforts will be successful given the significant strength of our business and the amount of forward value we can lock in.
Finally.
We remain committed to sensibly progressing our fleet of zero carbon generation.
As of today's call, we have completed construction of our bright side and Emerald girl grow solar facilities, and our decordova battery energy storage facility in ERCOT. Additionally, we've been working around the clock to install replacement connectors in the water base heat suppression safety systems at March three.
Hundred and Moss landing 100, and expect to begin bringing those megawatts back online ahead of the Hot California Summer months.
Despite the challenges the supply chain issues or the uncertainties around solar panel procurement that the department of Commerce is anti circumvention investigation are causing the industry, we find ourselves well positioned to navigate these particular headwinds as we continue to advance the grow.
Of our Vista zero portfolio.
Our planned 2022 development projects are constructed and we've already procured panels for several of our next in line solar projects.
Further our remaining projects have a timeline that allows us to opportunistically contract at the right time.
It is important to note that we will remain disciplined in our development efforts, especially given that we either have procured the equipment or have flexibility to time, our projects with availability and pricing of equipment.
It is also important to note that the supply chain bottlenecks and government actions are dampening the build out of renewables in the U S. Placing more emphasis on the existing fleet of assets, especially natural gas field and nuclear power plants. As we have said many times before natural gas fueled power plants are.
Going to be critical to a rational and just transition to a D carbonized electric system.
Moving now to slide six in the first quarter, we achieved $547 million of adjusted EBITDA from ongoing operations in line with our expectations.
Notably this year, our first quarter results are a smaller contribution to our overall annual earnings as compared to certain prior year first quarters.
But this new earnings shape was expected for 2022 and is correlated to the seasonality of our retail business in the ERCOT market during the winter months with higher cost of goods sold locked in to hedge retail sales.
However.
There is greater margin opportunity expected in the remaining months in both our retail and wholesale businesses.
With that said the retail segment performed above expectations in Q1 in ERCOT with notable organic customer count growth and strong margin performance. Our generation segment came in a little below expectations largely due to a greater open position and lower realized prices from a weaker.
Winter however.
With very strong performance and commercial availability rates at the plants of approximately 96%.
In this first quarter.
We are reaffirming our previously announced guidance of adjusted EBITDA from ongoing operations of $2 eight $1 billion to $3 three 1 billion and adjusted free cash flows before growth from ongoing operations of $2.07 billion to $2 five $7 billion.
We retain the ranges as we are still early in the year.
Have the summer months ahead.
Ahead of us and at this point in time, we continue to carry a little more open position.
Then in the past for risk management purposes.
However, we reaffirm this guidance with increased confidence given the favorable energy commodities markets, we continue to experience.
In closing this is very well positioned, especially given the current market environment.
Execution is key in 2022.
And beyond.
Especially related to our hedging and forward years and managing adequate liquidity.
Now before I turn it over to Jim.
As you are likely all aware this will be my last earnings call.
As CEO of Vista.
It has been my distinct honor and privilege to serve you all for nearly six years.
I want to thank our many stakeholders for their support throughout my tenure.
In particular, all of you who entrusted us with your hard earned money.
I know I gave it my best to do business the right way.
And create value for our investors.
I'm proud of all that we've accomplished.
And believe <unk> is well positioned to drive continued industry leadership.
This is simply the right time for me to transition the CEO role to Jim.
Jim has done everything to be prepared for this demanding job.
After having worked with Jim for many years.
I have the utmost confidence in his capabilities commitment to best friend and his leadership skills.
He has a deep experience and knowledge of our business, including an understanding of how the disparate parts of the company worked together.
I am certain and our board is certain that he is the right person to lead us through our next phase as we execute on our capital allocation plan, including substantial return of capital and expansion of our Vista zero portfolio.
Finally.
Through the incredible team members at Vista.
I have never been more honored and proud to work with a group of people.
Your life has shone brightly through thick and thin.
And I am grateful for the time, we had together.
I believe there is a tremendous opportunity ahead for Vista.
As a leader in the power business and look forward to watching that come to fruition.
With that I will turn the call over to Jim.
Thank you Kurt I will get into additional details surrounding our first quarter's financial performance outlook and our strategy, but before I do so I want to express my appreciation for all Kurt has done to lead this company over the past six years.
Kurt has been a mentor and a friend to me, but more importantly, Kirk has been a champion of this girl and its many varied stakeholders.
Mr. His accomplishments undercurrents leadership since he took the helm in 2016 for many.
We grew our business by acquiring Dynegy curious and ambit moving from a Texas only company to one operating in over 20 states.
Levering over $850 million a year in annual value drivers, while pivoting the company to being predominantly a natural gas powered fleet, serving over 4 million retail customers and well positioned for future growth with Vickery zero.
Kurt champion the integrated model and highlighted the benefits of our commercial capability that is tightly integrated with our generation and retail businesses and the importance of a strong balance sheet.
He pioneered or ESG and D. I efforts. Despite the challenges we faced with Uri in a COVID-19 pandemic. These.
These accomplishments among many others resulted in a doubling in value for our shareholders. While also providing a strong foundation for the future.
I want to reassure you all on the call today that as CEO I'm ready to build on what we have achieved and I intend to remain focused on our previously announced capital allocation plan with a commitment as always to delivering sustainable long term value for our shareholders and other stakeholders.
I am grateful to Kurt and committed to do my best to lead Vista going forward alongside some of the finest most dedicated colleagues and our industry.
Turning now to slide eight district delivered strong financial results during the quarter that were in line with our expectations with adjusted EBITDA from ongoing operations of approximately $547 million, we recognize a quarter over quarter comparison is not meaningful given the euro impacts to last year's earnings.
Retail ended the first quarter in 2022 at 163 million of adjusted EBITDA from ongoing operations and our collective generation segments ended the quarter with 384 billion and adjusted EBITDA from ongoing operations.
Despite the expected lower than historical contribution we believe these first quarter results from ongoing operations positions us to achieve or exceed the midpoint of the EBITDA guidance previously announced.
This quarter also continued the execution of our previously announced capital allocation plan, we repurchased approximately 18 6 million shares since our last reported share count as of February 22nd 2022.
As of May three 2022, we have repurchased approximately 54 million shares since the share buyback program was initiated accounting for a total of approximately 10, 5% of shares then outstanding.
Approximately 431.8 million shares remain outstanding as of May 3rd 2022, and $805 million remains available for additional share repurchases for the remainder of 2022.
The Board has also approved a quarterly dividend to be paid on the common stock in the amount of $17.07 per share payable on June 32022.
This is approximately 18% growth in dividend per share as compared to the dividend paid in the second quarter of 2021.
We continue to prioritize a strong balance sheet in the near term and are balancing the hedging opportunities to lock in value with ensuring sufficient liquidity for these dynamic markets, especially given that the hedging activity is locking in materially higher future earnings. We will continue to provide updates on the $1 5 billion dollar debt repayment as.
The year progresses.
And as we capitalize on opportunities to lock in value and manage liquidity.
Similarly, we are committed to our transformational growth and are actively exploring avenues to support the Vista zero portfolio with nonrecourse financing, where we find those financing markets remain open and with satisfactory interest rates.
We can't discuss our capital allocation plan in full without acknowledging the commodities and power pricing environment that we've been experiencing this past quarter as reflected on slide nine this quarter saw dramatic increases in both the ERCOT and PJM weighted spark spreads for 2023. These trends have continued through April and into May.
Given the favorable environment, we've continued our hedging strategy to lock in value in 2023 and beyond.
As of March 31, 2022, we were 93 and 96% hedged in Texas and East segments, respectively for 2022, and we were 60% and 67% hedged in those segments, respectively for 2023.
Turning now to slide 10, this slide illustrates in more detail the phenomena, we've all been observing reflecting that power price forwards are up dramatically in correlation with the increase in the gas price forwards this environment increases margins across our fleet.
The money gas generation plants coal nuclear and renewables. In addition to locking in the revenue values. We have also been hedging coal gas and nuclear fuel cost as a result of our comprehensive hedging strategy.
Vista is now over 50% hedged across the years 2023 to 2025 to.
To provide a sense of magnitude we have stated in the past that we expect to consistently earn above $3 billion of adjusted EBITDA from ongoing operations on a go forward basis.
Given the marks as of April 29th we now anticipate a risk adjusted midpoint in the range of $3 5 billion to $3 7 billion for adjusted EBITDA from ongoing operations for the years 2023 through 2025.
Again, we are just over 50% hedged. So there is still a significant range around this mid point. However, the curves have continued to move up materially since April 29. So we believe that range of estimates to be on the conservative side, we are continuing to execute on our comprehensive hedging strategy to lock in as much of that value as possible.
Notably our comprehensive hedging strategy requires significant liquidity for collateral postings, we are actively managing our liquidity requirements in a way that allows us to remain confident at this time that we can execute our hedging strategy and the capital allocation plan in tandem.
In closing we continue to focus on execution in 2022 execution on the growth of our Vista zero a portfolio of our comprehensive hedging strategy and of our previously announced capital allocation plan and we firmly believe in the value of this execution will bring to our shareholders. We look forward to updating.
Are you on our achievements as we progress throughout the remainder of 2022.
With that operator, we're now ready to open the lines for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from <unk>.
Severe Fraser from Guggenheim Partners. Please go ahead.
Hey, good morning, guys.
Hey, Shar how are you.
Alright, good Kurt.
So maybe if we could start with earnings.
Earnings in the hedging outlook and sort of in light of the current commodity environment. It looks like you guys hedged into 'twenty three fairly well here versus February and obviously, we appreciate the high level color on 24 and 25 in this lines, but can you give us any more detail on the amount of hedging you've done into the outer years of the curve.
If at all I mean put differently have you departed from your typical hedging profile here given the opportunities are fundamental view I'm really thinking about your approach to 'twenty five 'twenty six but I do obviously appreciate that are there.
The curves you can get a little bit of liquid on the power side quickly. So.
Yeah. So look I'll start with a couple of opening question, but Jim can fill in with some specifics and that is.
That his flavor to it but you know look I do think we've departed.
And we're going to depart.
If anything our message we deliver today.
We've got really one of the most rare opportunities in my career and I've been around a long time to lock in significant value in the out years. The curves have moved up Oh, sorry, even out into 'twenty 30.
You know the thing you have to balance all of us to even if you're investment grade is margins and posting and having enough liquidity and we feel very good that we will be able to do that.
But this is a rare opportunity for us and this is a good news story, it's all about execution.
And we feel good about it and then of course as these hedges.
Realize you.
You got to run the assets and the one thing that we've been very proud of through the years as you know just the incredible performance of our generating fleet to backup the hedges. So this is one of the best opportunities I've ever seen for a company like ours, and we just needed to capitalize on it.
So philosophically we are departing a bit.
And you know, where we are looking to hedge 'twenty four 'twenty five I suspect just given the way that the energy commodity price.
World markets are set up we think this is this is going to be around a while and we'll roll hedges into 'twenty six 'twenty seven.
And beyond because we believe that youre going to see a strong natural gas market for many years to come. So so rare rare situation and one we have to just step up and capitalize on and Jim can tell you a little more about the specifics.
We've done in 'twenty four 'twenty five.
Because we have done some significant hedging which is rare for us because you know this for sure generally these curves are backward dated.
And we are seeing we are seeing pricing that is at or above our.
Our point of view and we told you that when we see prices at or above our point of view, we expect to hedge.
And we're not trying to pick the highs were just trying to lock value and then we just have to execute from that Jim do you want to add.
You bet Kurt.
Sure the way Kurt described it it it looked like a unique opportunity and we're taking advantage of it because we have typically seen tremendous backwardation. So we'll see prompt months, maybe a year show up but then the outer periods have not responded I think on slide 10, where you saw that.
Curve moves, particularly gas driven but also the sparks that have driven a considerably higher in the in the 'twenty three 'twenty four period, we decided to layer on more hedges. That's what gave us the confidence to talk about 23 to 25 as you know we would normally talk.
About 2023 after the summer and we would do.
Generally and I cannot recall that we've ever spoken specifically with confidence two and three years out but.
But we're representing that in our materials today, because we have hedged over 50% in total for that three year period, a little bit more in the front and twenty-three little bit less than 25, we're still a range around that and that's the important thing in that range could go higher it could also go lower we recognize that and that's why we.
Talk about that range as a mid point. So there's there's a chance for that number to go down we would put this in the range of potentially $5 600 million to the downside, possibly that to the upside.
And we think that's reasonable and so.
Giving you a sense of how much we've hedged and putting that out we thought it was important for investors because these opportunities as Curt said don't come around very often.
Got it got it.
Sure sure.
I know you guys model.
Everybody does we wanted to give you some idea of this but I think it's important to also note that I think the skews to the upside, especially given the commodity prices have moved up in that three five to three seven range was a 429 vintage and we've seen a pretty big move up this week alone.
And so you know just we're just trying to give you an idea, but the earnings power of this company for the next at least three years and beyond.
It's significantly higher and it's just it's just the reality of the situation.
And like I said, it's our job now to manage that because it's not without risk, but that's what we do and we do it well. So that's this is a good news story, but we need to execute.
Got it got it and then as we think about sort of the potential for extra cash to come in the door versus your plans last fall how does your I guess calculus shift at all I mean at a high level, how would you maybe prioritize the incremental cash should we be thinking about returning to shareholders more delevering growth cap.
<unk> like this or zero acceleration and the reason why I'm asking. This is this is obviously in light of your view that the curves the moves in the curves aren't really transitory right.
You know look.
I think it really doesn't change much I mean, we still like the value proposition of buying our shares and so but you know this you know this is it's a function of where you are trading at in terms of your share price, but you know if you said, okay. What would you do if you had a you know a pile more cash today.
Say, we buyback our shares but we also want to maintain a strong balance sheet for sure.
And we want to pay a healthy dividend.
The buyback our shares has helped us.
Pay a healthy dividend and increase and increase that over time for those to shareholders of record. So I'm not sure that we would change that much.
We said that we would prefer not to use the cash flow from the core business.
Zero to allow Mr zero to raise its own capital because we can get cost effective capital there.
And we still have a high free cash flow yield and so that may not be the best place to put it. So I think it's the real three primary.
On capital allocation.
It's that we've always talked about and share repurchases. You know would continue to be strong on that list, but again, that's a function of you know where you're trading at any given time.
Terrific. Thanks, guys I'll jump back in the queue and Curt and Jim Congrats on phase two and curve, we'll certainly Miss you a lot. So thanks guys.
Thanks sure.
Thank you Sir the next.
The next question comes from Michael Sullivan with Wolfe Research. Please go ahead.
Hey, everyone. Good morning, Kurt.
And all the best and Jim Congrats to you as well and good luck here exciting times.
Yeah.
Thank you thanks, Michael.
Yeah, maybe just wanted to start and in just with a quick clarification that the.
$3 five to $3 $7 billion range. You gave is that true in each individual year or is that an average over the 23 to 25.
Jim do you want to take that.
Yeah. So Michael it is first of all it is a range that applies to all three years. Okay. So oh, we see all three years within that range.
We didn't want to put out individual year guidance in individual year hedge percentages at this point because this is moving.
We've taken advantage of a lot of the hedging opportunities that the month of April .
It is where we really started to see this move but actually we're pretty flat over that three year period, because we are a little bit more hedges on at the beginning when they move started in the near term and a little bit more open to the out even though there's still a backwardation.
They captured value ends up being pretty similar across that three year period.
Okay. That's super helpful color and then maybe just on the liquidity side, Jim If you could give us.
An update there and on some of the steps you're taking them I think there was a revolver update yesterday and just as things continue to evolve here.
And it sounds like you expect things to get increasingly more volatile just how youre thinking about that and what are some of the steps you can take to manage that liquidity just more color there would be helpful.
You bet, yes, and Curt emphasize some liquidity in his remarks and it is it is front and center for us being able to capture this opportunity and make sure that as we continue to hedge because we'd like to do that we like to continue to put more hedges on at these levels that we have adequate liquidity. So you saw us in.
Kris commodity linked revolver, so that we have $2 $1 billion of available liquidity.
As it as of yesterday that is very helpful. In managing the hedge levels that we already have put on.
We also are looking to do some some additional raise and work with other counterparties in a more.
Credit efficient way, which we can do with some of our first lien opportunities to hedge with parties and we do that already but we expect to increase that level of activity and so our view is that that now is the time to make sure we have ample liquidity, because we want to not only hedge more.
I want to be able to withstand any further moves because the goal here is all of this liquidity comes back to US right. It all comes back as we operate and deliver the power through the various calendar years and so it's relatively cost effective for us to to load up on even additional liquidity.
<unk> to make sure we can hedge more because we know we know that this cash does return and just make sure that we have the line of sight and continue to bring in a range of outcomes in the out years, you know even tighter and I think as Curt noted I think the midpoint of this range is skewed to the upside I think the midpoint can cause.
To move up and we can give you that confidence as we continue to put hedges on but we've had great access to liquidity.
All of our partners that have worked with US have been had been have been very helpful. Because they understand this is right way risk as these hedges.
We continue to be put on and we have to post more they know the franchise value of the enterprise is continuing to grow that's a great place to be and this is going to be something that we'll continue to actively manage.
Great.
Michael if I could just adds up to two.
The nice thing about having this liquidity is that we can we can keep it outstanding.
And Keith keep this on our balance sheet as long as it's necessary. So if we continue in a high priced volatile market.
We can continue to extent extend this liquidity and lock in value and in the annual cost of that liquidity relative to the value locked in as Jim just said is very low so it's a it's a compelling value proposition. If we were to come back to you now.
A more recent historical normal level of commodity prices, which I'm not sure it will happen, but let's just say that we did.
We can always then re optimize the balance sheet.
And and shrink the amount of liquidity that we have to the volatility in the marketplace at that given time. So we can flex it and because it's right way risk and also because we tandem hedge all the risks not just the commodity risk, but also basis and fuel.
We have a high comp and we can perform at a high level with our generation, we have a high confidence of achieving cash flow levels that the hedges bring to us.
Which obviously satisfy the cost of.
The added liquidity. So in this case in this instance, right now in this world for Us.
Liquidity is very important to us we have access to it and it allows us to go out and locked at significant value in for years to come and that's a rare opportunity for companies to have.
Thanks, a lot for all that I appreciate it.
Thank you thank you Michael.
The next question comes from Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good morning.
Congratulations to both of you, but it very well earned retirement here sorry Julien.
Hey, good morning, leaving on a high note as we say I suppose.
[laughter] I'm just coming back to this this this quasi guidance if you will.
Just to reconcile the $1 billion number you throw out in the comments versus the $3 six midpoint that you just talked about a second ago.
The $1 billion that was relative to what just to make sure I understood that appropriately.
You mean, when I said Julian was $1 billion of value that we're adding you're talking about what are my remarks.
Yeah, I mean, you can answer that because you know yeah go ahead yeah.
Sure Julian that was in our remarks, we said through 2025 nearly $1 billion that was the cumulative.
Minimum value increase from 'twenty three 'twenty four 'twenty five of $1 billion. So think about that is $333 million a year of minimum.
That gets to our three five to three seven which is higher than where anyone would really thinking. We were ahead of this commodity moves where they where you said where a three plus billion dollar business. Some would say you are a 3233 kind of business. So we're taking that delta.
Saying assume 300 plus million a year that gets you to this midpoint of the range. We're talking about for three years is $1 billion.
And can I add that we debated on this one Julien because if you take the 3 billion plus that we always say that number is you know close to 2 billion. If you take you know sort of.
The three three that we sort of I.
I guess gave a.
Our wink and a nod to for 2023 previously then that number is closer to a little over $1 billion. So.
The reality is it's you know, it's a significant amount above it depending on what you want to use as your baseline.
And you know, we we looked at consensus too and that number as well.
No matter, how you slice it it was at least over $1 billion and so that's why we felt comfortable saying that.
And you know those two we tried to reconcile those what Jim said that 3537, and what I said, but it no matter how you slice it it's $1 billion or more and you can argue with the 3 billion plus number it's closer to 2 billion.
Yeah, No no no. Indeed, both both numbers are conservative I Gotcha, I hear you well listen I mean, it just it's just to keep that focus going on the commodity front. What are you seeing with your cold Counterparties in your logistics Counterparties here I mean is it are the pier b suppliers finally ramping up an end to that and how have you made arrangements into or what are you seeing.
With logistics and ultimately whats priced into that three six for instance on delivered P. R. B in your lignite, etc.
Well look I'll say, Jim you can talk.
Yeah.
No.
Julien I'll start and then.
Kurt thank thank.
For that we have.
Factored in that even in 2022 it has been tough for some of the P. R be suppliers to fully ramp up as you would expect as gas continues to move up.
Everyone is trying to get more coal and that's logical but it is difficult for some of these coal supply chains to respond and some of it is simply hiring and having enough people actually operate the equipment and some of it is weather driven there's been storms that have actually disrupted some supplies we.
We factored that in to how we think about 2022 and we have factored in in the ranges. We just gave you.
So we are not assuming perfect execution on the coal supply chain. We do think over time this will get resolved either because there will be.
A more fulsome response to the supply chain.
Maybe even outside of the 2022 time frame before that happens or gas may actually at some point dissipate and not put quite as much strain on the system, but it has been a challenge more on the pier B and the train sets us so with the barge coal.
That we that we have access to for for our Ohio plants, but that is something that we took into consideration when we when we provided these numbers go ahead Kurt.
Well all I'll add to it all adds to this feeling is that you know we have good relationships with the B N also with K C. S. And then down with collateral Creek, it's it's a U P.
And we have good relationships with long term historical relationships.
I think you know we're going to continue to work and I am in show as Jim with the leadership of those companies to try to to help us through this especially given you know they've got a some are coming up in Texas, we want to make sure. We have you know.
Adequate access to coal.
But it is you know if they're struggling like everybody else in the supply chain side and having enough labor.
I can't remember the number Jim, but it's like six to nine months to train new people.
You know on the railroad. So you know it takes a long time to get new people fresh people in and get them trained. So you know this this is an issue of the good news is as you know were we we've been conserving where we can we're going into the summer with a decent pile, we'd like to have more and we'd like to see the train.
That's getting picked up I think we'll be able to work that out and that's just something you just have to work together with the railroads on.
Got it okay, but your pricing and kind of current strip pricing.
Okay, Alright got it excellent guys believe it there again congratulations Julian Thank you. Thank you.
The next question comes from Jonathan Arnold with vertical Research partners. Please go ahead.
Yeah, Good morning, guys and congratulations to you both.
Hey, Jonathan Thanks, Jonathan.
Just a quick one on given this big shift in.
The market does it change any of your.
It's around planned retirements that you you have scheduled.
Curious, though.
You know not so some of our retirements are already scheduled because they're part of agreements that we have.
I'd say there are some that are not and certainly we're going to look at.
You know the whole suite of things that we look at when we decide whether we retire a plant.
You know I think the other thing we have to balance as markets are tight and we're part of the reliability of market and also the affordability of our products.
Well as emissions and so.
I could see a situation, where maybe we would extend.
Some of the the the coal plants, but but we've also agreed to shut those down as part of the coal combustion residual.
You know rule at EPA, and so you know a lot to take into account, but could we say maybe go from 25 to 26 for something we mine and I think we just have to consider what does the market look like you know whats the need of the power plant.
And it's not you know it's not a foregone conclusion that you know all of these are economic even with these these prices having said that we're you know we're economic people, but we're also about trying to help with reliability in the markets that we serve and keeping prices affordable. So we'll have to balance all that and see what they are.
That brings us we haven't made any definitive decisions.
Decisions on any of those other coal plants other than the ones that we have committed to retiring as part of some sort of a commitment.
Okay, I mean, you've not assumed anything like that in this outlook I'd imagine okay.
That's right that's correct we have not.
Okay.
And then could I just just a couple of things on liquidity could you maybe update for US just what the current numbers are relative to the the ones you put in the release for.
For the end of March.
Yes, the April moves I think he said.
I had two available rather than one, but I want to make sure that the moves in commodity, but I just want to make sure we got that.
Yes, Jim or Jonathan we had three yes, we had $3 1 billion of available as of the end of March.
We now have 2.1 available and we added 1 billion to the commodity linked revolving facility for capacity.
Because of the moves, particularly in April and we wanted to take advantage of hedging more in the month of April . So we increased our capacity some but we still have the ability you know we still have the 2.1 available to us after all postings that we've made to date.
Okay.
The implication of your prior comments is that you feel confident you could flex more if you needed to.
Correct.
Correct.
And it's just a different kind of liquidity question, but yeah as you out in the out years in the.
Past, it's been challenging to find liquidity in power.
Yes, but maybe gas as being more liquid if any.
Could you give us a sense of is that.
Changing or how are you whats the nature of the hedges, you're able to put on that far out.
<unk>.
It has been changing Jonathan I think for I think both the sell side as well as the buy side has sees this as you know either opportunity or potentially risk if they don't if they don't buy long term. So we've been able to hedge both gas and power.
Out through 'twenty, five with with fairly deep markets compared to what we've seen historically.
And I think that is something that has occurred as people are thinking this is not temporary.
<unk> generally seen as we talked earlier things move up in the very short run and then you see some assumed corrections, but you don't even see that with the Nymex curve now for the next 10 years. So I think folks are seeing that the complex is moving up they see difficulty in supply chains. They see difficulties with some of the environmental <unk>.
Striction that are happening. So I think folks are concerned about where this whole commodity complex could go. So there has been focus on the other side willing to make longer dated purchases that we haven't seen the same depth in prior markets.
Yeah.
Okay, great. Thank you very much.
Thank you.
Thank you Max.
The next question comes from there.
They're gonna say Toprol from Evercore. Please go ahead.
Hey, good morning team. Thank you for taking my question.
Maybe there are good and or Jim maybe can you talk to the first quarter 2022 EBITDA am I.
I appreciate sort of the profiling is changed voiced here, but just maybe a little bit color. There and then when you talk about margin opportunity a greater margin opportunity rest of the year I get I mean, obviously, there's there's upside from the commodity standpoint, and open positions, but is there something on the retail side in terms of profiling where expenses that were missed.
So any color there is appreciated.
Sure.
Yeah. Your guess what ended up happening post Uri is the.
First quarter cost structure shifted up remarkably as people started to conclude that the winter has potentially.
Even if not more volatility built into it then the summer ERCOT as you know has always been.
Some are focused people have always talked about peak capacity and peak demand in the summer Yuri shifted that and now we saw the first quarter.
Part of the curve move up considerably retail has to buy that.
But they generally flat price their customers, we don't have a lot of indexed based structures with particularly residential customers. So when we flat price. It basically means that the margins get squeezed considerably still.
Still positive, but but definitely lower in the first quarter than historical patterns. What that means is it really opens up the margins into Q4 Q relative to what we have seen in the past. So when Curt was alluding to we have greater earnings power in the back part of the year, that's not assuming anything with the <unk>.
And position that's just simply if you were to model retail margins on a monthly basis, you would have historically seen a better first quarter margin than we're seeing at the moment because of the shape of the 12 month curve.
Got it okay. So so just to be clear, it's it's the the retail margins that we're talking about the profiling of the retail margins.
Q1, and then rest of the rate I mean, we're expecting correct pick up okay. Yeah, I mean, if I can add though I mean look the prices have moved up too, though on the wholesale side, but what we were talking about specifically about what we what we were seeing and we actually had factored in.
And do our guidance was what Jim talked about which was that shift in retail margin.
And you know we don't you know that this is a little bit disappointing is that we don't give quarterly guidance and unfortunately.
There is a consensus out there which is generally built on.
Kind of an assumption of the percentage of EBITDA of the annual and the reality of the situation is that does move at times and we tandem hedge when we sell retail we can them hedge with wholesale and we knew this was this was in our guidance number all along.
And we knew that we were gonna be a little skinnier on the first quarter, but higher in the second and the fourth now we've also seen a move up a little bit on the third because of wholesale pricing, we'll see if that comes to fruition, but that's just how things work and we just want to be clear that we we understood. This phenomenon.
And we don't we're not seeing it in the outer years either.
We think things will probably at least over time move back to more of a traditional split or you know or shape of earnings.
But it just happened in 'twenty, two just given the way that Q1 traded relative to when we locked in retail.
Got it that's super helpful color, just one quick one for me I'm on the topic of share repurchase as you know the latest guidance you have for 'twenty three and beyond is I believe at least 1 billion a year and rate and we're looking a sizable EBITDA cash flow upside.
The you alluded to them you know in your commentary and in the EBITDA estimates going forward when should we expect sort of an update on that but the use of that excess cash that I know you were seeing you know over 'twenty 'twenty three and beyond is that that sometime later this year or when should be up.
Expect an update on that.
Use of the cash proceeds thank you.
Yeah, well, Jim I don't want to because I'm not gonna be her daughter's one, but but but I wouldn't expect that.
Is it just the way we normally done is later this year after we get through the summer and we've also we've done some more hedging my guess is we'll talk about at least about 23, and we will see about 24 and 'twenty five.
Got it.
You take sorry go ahead Jim.
No I was going to say.
Kurt I agree with I agree with that completely I think we need to get through the summer, let's look at the additional hedges that we anticipate.
Putting on at these kind of levels and obviously, we wont hedge all the way up but we still think theres value to capture here. So again emphasis on liquidity. All this money will come back to us eventually but.
But we do want to preserve long term value and take advantage. So I think it would be prudent for us to come to talk about that in the fall when we give the guidance for next year.
That'll be a good time for us to update our cash flow and our capital allocation assumptions for 'twenty three.
Perfect guys. Thank you. Thanks for taking my question and congratulations to both of you as you transition into new roles. Thank you.
Thank you. Thank you for your gas.
And the last question today, who will come from James.
The lacquer from BMO capital. Please go ahead.
Alright, thanks, guys good morning.
Hi, James how are you Hey, James Oh, good congratulations Curt there really been a pleasure.
Thank you.
Just had two real quick questions just following up on Julians coal question. I know you said your outlook reflects basically the current curves on coal pricing.
But is that coal pricing based on an F O b basis, I know that the rails are also having some labor issues also on deliveries and that could be.
Impacting our upward pressure on transport costs. So just wondering what you guys are seeing there.
Yes.
Go ahead Jim.
Yeah, I was going to say we have.
We have some long dated transportation arrangements for our key facilities James So our issue has been less rail.
Rail transport cost it has been simply about quantity as it relates to <unk> getting all the quantity that our plants could consume in the entire kind of power pricing and natural gas price world. So we have been less exposed to the cost of transport, it's been for us a little bit more on the quantity side.
Okay, Great that's helpful and then.
And just sticking along that same line do you think that some of the recent move in power.
Could also be a reflection of gas plants being dispatched out of merit to preserve some of these coal stockpiles.
Some of the more regulated utilities, we've talked to we're down to like 2025 days as we move into the summer just wondering if that could be contributing to the sharpness in the move recently.
Absolutely.
In fact.
I'm certain of that.
That that is.
Because some people are.
They're they're holding on in the shoulder periods, where you know the margin isn't that great on cold or backing off gases.
Having to come on at setting price. So yes, you know.
That interplay between gas and coal is going to continue until you know the KOL consult the issue, but yes that that that definitely is having an impact on price.
Okay, Great and then just the last question and this is kind of you know I apologize for being greedy and I know that we're only a week. After the you know when you guys priced.
You know your upside of $1 billion through 2025, but obviously prices has continued to kind of move up but are you going back to that previous question, Kurt and Jim do you think that pricing will kind of hold in this level and that you feel good about kind of being able to lock in that say $300 million across the 2025 or do you think.
That.
We're kind of at a peak here and we shouldn't really be sort of baking in any incremental upside from here.
Well Jeremy Hamblin.
Well keep in mind, Jim I'd Love to hear what you have to say I'll pull out my Crystal ball here.
I think here's what I would say about it.
You know we would like to continue.
To hedge.
And you know.
70% to 80% would would feel pretty good to us in those out years right now the ones that we've talked about.
But the one thing we're just gonna make sure James is that you know we also have the liquidity to go along with it so you know.
We're just we're being prudent about it but I would also say that whether it's going to stay at this level or go a little bit higher in the near term things seem to be you know there seems to be a fair amount of fear in the market around gas right now how long that lasts I don't know, but I do believe that we're gonna stay pretty strong levels on gas and power.
For a while and we'll we'll pick our shots, but you know look.
We see a real opportunity here, we have a sense of urgency as a company.
This you don't get this opportunity very often and so you can be rest assured that we're working urgently to lock in.
With these kind of levels and so I wouldn't be surprised to see as you know having increased our hedging between now and the next quarter. When we talk to you again, I mean, I, just think that and we're not going to worry about whether it's at the peak or not well just what we really care about is it is there.
It.
Fundamentally good value for the company.
Jim you want to add to that.
Yes, Kurt I agree completely and I would just add.
That.
If prices stay where they are and we continue to increase our hedge percentage.
And then we would see this range move up.
From where it is that's what we meant by we were being conservative because we made this range off of the April 29th.
Curved James and as you noted they've moved up so if they stay where they are and we can continue to hedge into that.
I would expect that you'd see this midpoint of this range move up.
Okay, great Yeah, sorry about the greedy question, but I was just curious because it seems to get bigger so the limit or that you guys probably have to your point. It is really just maintaining adequate liquidity.
As well as probably just ask me and sourcing liquidity in the markets, especially as we probably get out past 'twenty four 'twenty five 'twenty six I would think that.
Gets a little bit more send out there and so you might have to take some discount to sort of get those ads yourself.
Yeah.
Well I, we James but as Curt said, we're not trying to get every last nickel here. So there's plenty of room for us to lock this in.
And move the mid points up and as you said liquidity is.
A key area of focus we feel good about it but we're gonna keep actively working that so that we can capture this opportunity sorry that Kurt.
No no that's it I think that's right.
Okay. That's great. Thank you so much for fitting me in I know, we're at the right time here, but congratulations again and thanks for the great call.
Alright take care of it.
This concludes our question and answer session I would like to turn the conference back over to Curt Morgan for any closing remarks.
Thanks, again, and it looks like we ran over time, sorry about that great working with everybody I'm, hoping that I get to see people between now and August 1st and now that we're also getting to see each other but enjoyed it and look forward to you're in good hands with Jim and the company is as good a shape as ever.
So we're excited about the future. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
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