Q1 2023 Constellation Energy Corp Earnings Call

May 4, 2023

Power New business to go blind news into the Mark to market of hedges line. When a transaction is executed with this road and actually declining as we move through time and deliver on our plan. So in the first quarter, we executed $250 million of new business, and then increased our target by another $50 million.

<unk> into the $200 million reduction in the new business to go by.

In 2024, our total gross margin, including Ptc's is up $100 million from our last update the $9.05 billion. When we take into account upward revisions to our commercial business outlook of $100 million, our hedge positions and the P. D C down.

Hi protection of $100 million with the drop in forward power prices. The PTC is functioning as it should stepping in to provide downside protection as some of our non state supported units fell below the PTC threshold.

Taking into account the increase in gross margin and the cost lines. We show on slide 25 in the appendix you can see that our outlook for 2024 is also higher than consensus.

Turning to the financing and liquidity update on slide 10, we are delivering on our promise to return value to our shareholders. Our first quarter dividend has doubled from the level. We paid in 2022, and we started our $1 billion share repurchase program that was authorized by the board in mid February .

We view our stock is very attractive at these share price levels, and we aggressively initiated our share buyback completing nearly 25% of the authorized program by repurchasing three 2 million shares for approximately $250 million in March we will continue to be opportunistic for the remainder of the <unk>.

Authorized program and we still have an additional $2 billion of unallocated capital in 2023 and 2024, they can be used to create additional shareholder value through growth investments M&A or additional return of capital to our owners in the first quarter. We also accomplished.

Most of our financing plans for the year with good demand and at attractive rates, we remain on track to hit our credit metric targets and we continue to have constructive conversations with the ratings agencies, both our S&P and Moody's ratings and metrics remained firmly in the mid to high Triple B equivalent range.

I'll now turn the call back to Joe for his closing remarks.

Thanks, Dan and I'm going to go to slide 11, and conclude our prepared remarks and I'll.

I'll just end, where I started on the value that constellation brings to you our shareholders. We think it's a value that can't be found anywhere else, we own nearly 25% of the U S nuclear fleet producing the most carbon free energy in the country.

Nearly twice as much as our next competitor.

These plants can run for 80 years, that's a useful life that's longer than any other carbon free generation that exist today and in the case of renewables it will operate longer than any renewables that are built in this decade.

What are the best operator of nuclear plants period.

And we provide power to nearly a quarter of all competitive C&I customers in the U S, including three fourths of the Fortune 100.

All of this puts us in the best position to meet the growing demand for clean energy and reliable sustainable products. Our balance sheet strength is the is an advantage over others in the market.

Have unique opportunities to create additional value for our shareholders the increasing value of the PTC overtime through the inflation adjustment that's embedded in the law and our strong free cash flow allows us to fund our growing dividend robust organic growth and where we could find compelling M&A, we'll do it.

But if we can't find those opportunities then we're happy to return capital to you through share buybacks.

Now open the call to questions.

Yes.

Thank you at this time, ladies and gentlemen, if you have a question. Please press the star.

Star then one one on your Touchtone telephone if your question has been answered or you wish.

Please press star one one again.

In a moment as we compile our question.

Yeah.

Our first question is from David Arcaro from Morgan Stanley .

Hey, Good morning morning, David taking my question good morning.

Maybe starting out with the commercial with the results. They were very strong you had some good success in new business creation I'm wondering if you could just elaborate on what youre seeing or where youre seeing the strength and maybe more broadly the competitive environment in retail what are you seeing for churn and any changes in market share there.

Yes.

I think the financial retail and wholesale markets and in turn Mas.

Margin is really a reflection of the underlying physical power generation stack and then demand fundamentals.

And when we see that physical stack get tight.

It's under weather related stress or demand is increasing and we see higher volatility and markedly higher retail and wholesale prices.

We all notice relationship between the physical stack in the financial markets and the weather events and Elliot you already and many other unnamed storms demonstrate that effect off every year.

But the physical stack is undergoing rapid change from coal to other resources that are less reliable because they don't have onsite fuel or introduce intermittency of risk in the case of renewables.

And so that physical stack is changing today.

And today I think when you participate in either the retail markets in the wholesale markets you have to ask yourself really three basic questions.

I have physical generation.

Is it the kind of physical generation, that's going to show up and extreme events.

Do I have the financial balance sheet to deal with negative outcomes.

Many folks who haven't asked those questions historically have been hurt some driven out of business entirely.

But this is where I think our fleet really shocks. This is where our business model really shines because we have the physical assets that operate in extreme weather events, they're clean energy assets that are going to live for a long time and our commercial business is both smart and benefited.

By the fact that we have a strong balance sheet. So in effect, we have physical generation that runs we are a commercial business that as a competitive advantage of others and so when others see risk of volatility.

They add those costs into the price that they're willing to offer in wholesale and retail markets. Because we don't have those risks that translates into incremental margins in our businesses and so that's what we're seeing I think thats really been the story of the first quarter and really it's been an evolving store.

Right.

It's going to continue for some time at some point people don't price and risk and they will get hurt again, but right now theyre pricing and the risk and for US that's margin expansion, because we have the right fleet and the right business model.

Got it that's helpful. I appreciate that perspective.

And wondering if you could also give an update on the inflationary pressures that you're seeing just in terms of labor.

Contracted material costs.

<unk> consistent with your expectations heading into the year, how do you see it.

Trending for the year I heard your confidence in being able to achieve it im wondering if youre seeing any difference in the pressures.

On the business this year so far.

No I think we predicted it well and our plan and we're right on plan.

Okay got it straightforward enough I'll leave it there thanks so much.

Okay.

Operator, we're ready for the next set of questions. Thank you. Our next question comes from Steve Fleishman of Wolfe. Your line is open.

Good morning, David.

Yes, good morning. Thanks.

Yes, just on the commercial upside you're seeing I know.

I'm just.

Yes.

The 24 gross margin a lot better than.

We would've expected just on power prices.

Some of this benefit the way you contract go into 25, even just given the way your contract.

Or is it more kind of $23 24.

Yes, Steve.

We're obviously not put numbers out there for 25, but yes.

<unk>.

This trend doesn't end in 2012.

Okay.

Great and then.

Big picture question.

Just.

Any concerns you have about <unk> related to just this debt ceiling.

Issue with.

Republicans, having higher array removing the bill.

Just any thoughts on likelihood that that is a real risk.

Steve at this point, we just see that as kind of.

That's hard to use the word normal, but the political back and forth that's occurring.

I don't think theres any prospects that president <unk> is going to cut.

<unk> got the IRI.

Deal with this issue and at the end of the day, we're confident it will get solved.

Okay.

And then lastly, just on.

Upgrades.

The.

I know you kind of came out with some growth investment for up rates that were I think more <unk>.

Ones that were a little more normal course, but I think we're still working on.

Kind of the potential for others over time, just any update on how youre thinking about operate opportunities.

Nothing that we're ready to announce today, Steve but to your point, we are working through some other opportunities and we think their wellbeing.

Okay.

Okay, Great I'll leave it there thank you.

Thanks, Steve.

Thank you one moment for our next question.

And our next question comes from Shar <unk> of Guggenheim Partners. Your line is now open.

Good morning, Chuck good.

Good morning, guys. Good morning, Dan Good morning, Joe.

Quick ones here.

You guys mentioned on the fourth quarter call that you were working with kind of state policymakers to potentially reduce their support in light of sort of the federal PTC any updates on those efforts, especially as we look at states like New York.

Now Charlie the only thing I would say on that.

Those conversations have continued to evolve nothing unexpected.

There is nothing that is different about the way, they're looking at it and the way we're looking at it based on the conversations we've had we just havent those agreements having been memorialized in it and in some cases might not get memorialized until after the guidance is actually issue because because it's obviously.

Slightly still.

Still have a whole year really to go before we get to it but I think those conversations are progressing very well.

Okay, perfect and then on the gross margin side, obviously, you talked about a little bit.

You are now looking at about $100 million in PTC credits for the non state supported plants can we get a little bit more detail on where that is coming from me. It looks like from the sensitivities it might be weighted towards Lasalle, but any.

Additional color you can provide here as we see this creep up in gross margin for the first time.

Yes, Shar. This is and I think if you look at the sensitivity here.

Good morning, the sensitivity table on page 23.

You can see the moves up or down would example, NIE of and PJM west fleets, which would suggest.

That we are having plans in both markets. We're out of the boss theyre going to be able to blow the PUC threshold, we've really picked up there remember that RPC sensitivity is only for the plan to do not have state support.

Narrow that down right is going to be a lasalle of the Midwest and in Limerick Peach in Calvert.

The east so it is affecting non whole side you can see the sensitivity to prices. There was hope is useful tool for you guys as you satisfy their models.

Okay, Perfect and then just lastly, sort of asking I'm getting questions on it this morning, but.

Would you have guided to the top half without the additional PJM invoice uplift.

Yes.

Fantastic all right guys I appreciate it congrats Susan.

Thank you.

And thank you one moment for our next question.

Our next question comes from Paul Zimbardo of Bank of America. Your line is open.

Hey, good morning, Paul.

Hi, Good morning, Thank you team nice update across the board well done.

Thank you.

Following up on the capital allocation discussion see reference growth and potential consolidation is influencing the timing.

Are there things discrete that youre watching for and just in general when should we expect you to start to move some of that unallocated to the allocated bucket.

Let me flip that to Dan Hey, Paul Good morning, I think that Joe talked about.

The upgrade I was asked earlier, we're looking at a number of growth opportunities that take.

Take a little time to manifest so we're going to continue to work through those all we continue to look at the market for.

Pencil M&A opportunities I think Newport handling comes to the top of that list.

We're going to be pretty focus there, we have $750 million of the buyback to work our way through as things got a little time to get through that and we'll continue to analyze.

The scope of opportunity and then.

When we can put that out so I'm not going to give you an exact timeline, but we're certainly keeping a close eye on.

How quickly can deploy opportunistically.

Okay.

Great and then I heard the opening commentary on your view on 'twenty, three and 'twenty four.

Still a fair expectation 2020 for formal EBITDA guidance will come on the fourth quarter call or could that come together.

Yes.

It all kind of formal guidance come on the fourth quarter call, but Paul what what we've been trying to do with these new disclosures.

To give you all of the moving pieces, which will update quarter to quarter. So.

Youll see the formal guidance, but you can start to piece together the story office.

Yes, yes for sure and thank you all.

Thanks, Paul.

Thank you one moment for our next question.

Okay.

Our next question is from Doug is sopra of Evercore ISI. Your line is open.

Hey, good morning team. Thanks for giving me time, just a joke.

Final point on capital allocation, you talked about the attractiveness of the share price.

Just wanted to be clear in terms of the unallocated $2 billion for 22% and 24 could that potentially go towards an upside of share buyback.

Yes sure.

But it would mean that the other opportunity sets that we've talked about whether that be organic or inorganic growth opportunities didn't materialize in the timeframe.

We have and we understand it's kind of a short time period to execute in 'twenty three 'twenty four on those opportunities.

And if they don't occur.

As I said.

The prepared remarks, all day long, we bought our stock price at this level.

Thanks, and then just maybe Dan going back to the BDC.

Hundreds million accretion in gross margin.

Can you is there a way for us to get to what.

A dollar BTC value using two to get to that like an average across the different assets that you have.

No I'm not going to at least to give you a specific unit or price comparison because of the bus.

Thus far differences in the plants, what I would say.

You can look back at the sensitivities on 'twenty three at a plus or minus five dollar movie you can see how much the the PTC would change from where we are so you can price out on those trajectories for plant somewhat you could price out how much move you would have to get the PTC back to zero and that's probably the best way to think.

Nevada right now.

Okay. Thanks, guys I appreciate the time.

Thank you one moment for our next question.

And our next question comes from Ross Taylor of UBS. Your line is open.

Good morning, Ralph Good morning, Good morning, Dan how are you.

Very good thank you.

Congrats on the good quarter.

Joe I heard your earlier comments.

I just wanted to follow up on Paul's question on Loopnet, So if I kind of think.

There's a lot of puts and takes less before we get to the fourth quarter call and sort of guidance for 'twenty four but if I kind of go back to slide 25, where you're pointing us to.

And I kind of take gross margin less the adjusted O&M and then the key OTI.

I'm sort of that three.

<unk> $73 8 billion of course, there's a lots of puts and takes and there'll be a range around that but that's the context of your comments that your material higher than consensus expectations. Because consensus is is that true.

Right around a three four okay. Okay, just wanted to make sure I got that correctly.

Yes, you got it.

Like I said I think all the pieces are right there in front of me.

Perfect. Thank you.

Thank you I would now like to turn it back to Joe Domingos for final remarks.

Well, thanks again for joining.

It really has been kind of a remarkable quarter and the progress we've seen in the business.

That points to a really a nice outcome for us this year.

Next is.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program you may all disconnect and everyone have a great day.

Yes.

[music].

Yes.

[music].

Yes.

Okay.

Yes.

[music].

Hum.

[music].

Yes.

[music].

Okay.

[music].

Yes.

Okay.

[music].

Okay.

[music].

Okay.

[music].

Yes.

Okay.

Yes.

[music].

Yes.

[music].

Okay.

[music].

Yes.

Okay.

Great.

[music].

Sure.

Okay.

[music].

Sure.

Yes.

Okay.

Sure.

[music].

Okay.

[music].

Yes.

[music].

Sure.

[music].

Yes.

[music].

Okay.

Yes.

Thanks.

Okay.

[music].

Okay.

Yes.

[music].

Yes.

Okay.

Sure.

Thanks.

Right.

Okay.

[music].

Okay.

[music].

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

Okay.

Yes.

Okay.

Thank you.

Sure.

Okay.

Thank you.

Okay.

Thank you.

Okay.

Yes.

Okay.

Yes.

Okay.

Perfect.

Good morning.

Thank you.

Okay.

[music].

Thank you.

Okay.

Thanks.

Right.

That's helpful.

Got it.

Okay.

Thank you.

Okay.

Sure.

Okay.

[music].

Okay.

Thank you.

Okay.

Yes.

Okay.

Thank you.

Okay.

Thanks.

No.

Thank you.

Okay.

Yes.

[music].

Okay.

Thank you.

Please go ahead.

Yes.

Okay.

Yes.

Thanks.

Okay.

Thank you.

Okay.

Sure.

Thank you.

Yes.

Thank you.

Okay.

Yes.

Thanks.

Thank you.

[music].

Okay.

Yes.

Okay.

Thank you.

Okay.

Thank you.

Okay.

Thanks.

Yes.

Okay.

[music].

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

[music].

Okay.

Sure.

Okay.

Yes.

Okay.

Yes.

Thanks.

Okay.

Yes.

Thank you.

[music].

Yes.

Okay.

Yes.

Great.

Okay.

Yes.

Okay.

Sure.

Thank you.

Okay.

Hum.

Yes.

[music].

Okay.

Thank you.

Yes.

Okay.

Sure.

Okay.

Yes.

Sure.

Okay.

Thanks.

Thank you.

[music].

Thanks.

Okay.

Sure.

Okay.

Yes.

Thank you.

Yes.

Uh huh.

Okay.

Thanks.

Yes.

Sure.

Yes.

Okay.

Sure.

Great.

Yes.

Okay.

Yes.

Okay.

Thank you.

Yes.

Sure.

Okay.

[music].

Yes.

Thanks.

Yes.

Okay.

Thanks.

[music].

Yes.

Sure.

[music].

Yes.

Okay.

[music].

Okay.

[music].

Yes.

Thank you.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

Okay.

[music].

Yes.

Q1 2023 Constellation Energy Corp Earnings Call

Request a DemoDemo

CEG

Constellation

Earnings