Q3 2023 NRG Energy Inc Earnings Call
[music].
Okay.
Good day, and thank you for standing by and welcome to the NRG Energy, Inc. Third quarter 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
I ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is right to withdraw your question. Please press star one one again please.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your first speaker today, Kevin Cole head of Treasury and Investor Relations to read the safe Harbor and introduce the call.
Great. Thank you Gary Good morning, and welcome to NRG Energy's third quarter 2023 earnings call.
This morning's call will be 45 minutes and light and is being broadcast live over the phone via webcast, which can be located in the investors section of our website at www Dot NRG dot com under presentations and Webcasts.
Please note that today's discussion may contain forward looking statements, which are based on assumptions that we believe to be reasonable as of this date actual results may differ materially.
Everyone to review the Safe Harbor in today's presentation as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law.
Additionally, we will refer to both GAAP and non-GAAP financial measures for information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures. Please refer to today's presentation.
I'll now turn the call over to Mauricio Gutierrez, Nrg's, President and CEO.
Thank you Kevin.
Everyone. Thank you for your interest in NRG.
I'm joined this morning by Bruce Chong Chief Financial Officer also on the call and available for questions. We have members of the management team.
Before we go into the quarterly review I'd like to start with an overview of our value proposition.
Over the last six years, we have taken the necessary steps to position the NRG at the center of the energy transition.
Our consumer energy business that benefits from the increasing electrification of our economy, while generating significant excess cash well beyond its business needs.
A complementary smartphone business that increases the lifetime value of our customers and enables greater optimization of our customer centers yoga mat.
The financial flexibility to return significant capital to our shareholders, while maintaining a strong balance sheet.
As you can see we believe our compelling value today, and importantly, we have positioned our business to deliver value well into the future.
So with that I'd like to turn to the three key messages of our earnings presentation on slide five.
First.
We are raising our 2023 financial guidance driven by strong financial and operational results both in the third quarter and year to date.
Second.
We are initiating 2024 financial guidance above the plan, we shared with you at our June Investor Day.
And finally with line of sight to achieving our 2025 growth roadmap.
Accelerating our focus on behind the meter log management opportunities for homes and businesses.
Starting with our third quarter results on slide six.
We delivered top decile safety performance and $973 million of adjusted EBITDA.
103% improvement from the same period last year.
Driven primarily by strong operational performance across the business and the addition of burden.
This brings our year to date results $2 billion to $438 billion of adjusted EBITDA, a 74% increase above the prior year.
On our last earnings call, we indicated that we were trending towards the top end of our guidance range.
With strong third quarter performance and our current outlook for the balance of the year, we are increasing and narrowing our 2023 financial guidance ranges, which includes the closer of SPP and that increase in the company's annual incentive plan given the expected outperformance for the year.
During the quarter, we continued to make good progress on our strategic priorities.
<unk> integration is well underway and with early success on our growth initiatives.
Our racing again, our 2023 target from 60% to $75 million.
This is a 150% increase from our original $30 million targets set in May.
Also during the quarter, we continue executing on our portfolio optimization efforts with the retirement of the Joliet power station and the sale of Gregory and our interest in SPP.
Turning to capital allocation.
We are raising our 2023 share repurchase target by 15% to 1.15 billion.
Okay.
We have completed 200 million share repurchases year to date.
And with the close of SPP expect to execute the remaining $950 million under an accelerated share repurchase program.
Next we have executed $800 million of debt reduction as part of our liability management program.
Bruce will provide more details in his section.
Finally, we're initiating 2024 financial guide US ahead of our June Investor Day planning.
This earnings expansion.
Durable and represents high quality growth and overall strengthening of our business.
On capital allocation, we allocated.
500 million, so debt reduction and the remaining excess cash allocated 80% of return of capital and 20% of growth.
Now turning to slide seven for an update on our integrated energy business.
We experienced the hottest summer on record in our core Texas market.
Breaking the previous peak demand record 10 times.
While the power grid, and what strength given our record demand.
It performed quite well with only a few periods of scarcity pricing when renewable output was low.
Importantly.
The efforts, we undertook in our summer readiness and spring outage program resulted in a significant increase in our plant reliability.
In the bottom left hand chart is our in the money availability.
Indicating the availability of our units during periods when they are profitable.
Which is a relevant metric for our business and shows a significant improvement.
Retail saw strong performance throughout the quarter with in line customer growth and better than expected retention.
We continue to improve our digital experience with customers engaging more.
Increasing monthly average app usage by 20%.
Moving to retail supply.
The steps, we have taken to enhance our diversified supply strategy, we're successful in providing predictable supply costs under different laws on price scenarios.
Beyond investing in our plants, we adjusted our hedge ratios to lean long in key summer and winter months.
Finally, we are beginning our efforts in residential demand response and have increased participation by 10% this year.
We also manage a large C&I demand response business with two five gigawatts of capacity under management.
I will provide more color on the behind the meter opportunity later in the presentation.
Our smartphone business also performed well with strong customer growth and margin expansion as you can see on slide eight.
We continue to advance our technology platform with the launch of new innovative products, improving our customer experience that is consistently recognized as a best in the industry by consumer publications.
On the right hand side of the slide.
You will see the key performance indicators that we introduced in our last earnings call.
We continue to see exceptional performance in smart home with 7% subscriber growth, 9% revenue growth and 9% service margin improvement versus the same period last year.
System with improvements we reported in our second quarter results.
Acquisition costs are higher due to the impact of more products being sold and higher interest rates.
But were more than offset by higher revenue on your subscribers.
Our customers are engaging more with our platform and are staying for a longer period of time.
We are very encouraged by the performance, we're seeing across the business.
And the opportunities that are arising inside the home.
Now.
I want to provide an update on the opportunity for the man management, we see behind the meter or virtual power plants on slide nine.
We have been managing energy optimization programs for commercial and industrial customers for years.
And now we are seeing the growing opportunity in the residential space.
New distributor technologies, and our growing penetration of connected smart devices in the home have materially changed the industry <unk>.
Providing greater control to the consumer.
Grid reliability has also played a role in accelerating adoption of.
As flexible demand represents instantaneous, peaking capacity when the grid is a big low or in scarcity conditions.
We see two primary pathways for us to create value in this market.
First.
Through optimizing our existing customer peak demand in ERCOT, and PJM, where we can benefit from both energy and capacity value as well as reduced market risk.
Second.
Through <unk> services for smart home and utility customers, both in regulated and competitive markets.
We are uniquely positioned to win this space.
We have the scale.
With $7 6 million customers.
Decades of commercial and market expertise.
And an integrated energy business that allows NRG to monetize the value without having to go to the wholesale market or requiring regulatory change.
We also have vast data and insights from running the third largest commercial and industrial demand response program in the country.
While our focus in the near term continues to be optimizing our core and integrating driven.
Over the medium and long term, we see a significant value opportunity from these programs.
This value is not included in our joint investment plan.
And I look forward to providing you updates on our progress in the future.
Moving to slide 10 for an update on our integration efforts.
We are making good progress across our initiatives and are reaffirming the full plan targets totaling $550 million of recurring free cash flow before growth by the end of 2025.
Our growth and cross sell efforts have yielded strong results, allowing us to increase our 2023 growth target to $75 million.
On the right hand side of the slide you will see the increasing number of customers buying two or more products.
I want to highlight that this is not exclusively cross sell between energy and smart home, but.
But includes other consumer products sold across NRG that generate recurring revenues.
We have been hard at work executing pilots and collecting critical insights as we prepare to scale energy and smart home cross selling in 2024 and beyond.
In the appendix of today's presentation, you will find our latest growth and cost plan. The scorecard. So you can track our progress.
So with that I will pass it over to Bruce for the financial review.
Thank you Murray CEO.
Turning to slide 12, Nrg's third quarter and year to date financial performance significantly exceeded the same periods last year and.
NRG produced adjusted EBITDA of $973 million in the quarter, which is $493 million higher than the third quarter of 2022.
As you can see in the chart at the bottom of the page even when normalizing 2022 results for transitory items and the <unk> parish outage 2023, adjusted EBITDA still exceeded the prior year by $350 million.
Compared to our normalized 2022 third quarter 2023 performance was driven by $125 million of improved operations and margin expansion in our core energy business at 225 million of EBITDA, which was not included in our 2022 results.
Similar to the first two quarters of the year, our core energy business continued to benefit from expanded margins near record retention and increased customer count.
Our diversified supply strategy and solid plant performance continued to provide predictable supply costs through volatile volatile load and price conditions in Texas.
Looking at our segments and starting with Texas, adjusted EBITDA increased by $356 million versus the prior year on the back of higher gross margin of $378 million.
Continued unit margin expansion from lower supply costs, coupled with improved plant performance were the primary drivers for the increase in gross margin.
This increase in gross margin was partially offset by increased opex from higher selling and marketing and home energy, where we increased 50000 customers year over year.
And the East West segment, adjusted EBITDA declined to $88 million versus last year, driven primarily by lower spark spreads in Cottonwood discontinuation of equity earnings treatment driving cost and an increase in accruals as part of the company's annual incentive plan, reflecting the expected financial outperformance for the year.
In Q3, <unk> continued to deliver strong financial results contributing $225 million and adjusted EBITDA.
Revenue grew 9% year over year, driven by subscriber growth of 7% favorable retention and higher recurring monthly revenue per subscriber, which combined with reductions in monthly service cost per customer drove a 15% increase in adjusted EBITDA compared to <unk> 2022.
NRG is free cash flow before growth was $355 million for the quarter, bringing our year to date total to $983 million.
This represents a significant improvement over 2022 totals is driven by growth in adjusted EBITDA.
As a result of our year to date financial performance, we are raising and narrowing our full year 2023 guidance ranges.
315 billion to $3 3 billion for adjusted EBITDA, and $1 75 billion to $1 875 billion of free cash flow before growth.
The midpoint of our new guidance represents a $95 million increase in adjusted EBITDA and a $60 million increase in free cash flow before growth to the midpoint of our original guidance ranges.
Turning to slide 13 for an update on our 2023 capital allocation.
We have updated our 2023 excess cash to reflect the final net proceeds of divesting our interest and STP. The net proceeds from the sale of Gregory and the increase to our free cash flow midpoint for the year.
The remaining numbers on this slide are largely consistent with the update we gave on our second quarter earnings call with a few notable exceptions.
Moving from left to right. We have updated the capital we will spend on <unk> integration from 145 million to $50 million.
This does not reflect lower cost associated with the integration, but rather a shifting of those dollars to 2024 and 2025.
Much of the move is driven by systems integration decisions, which shifted the timeline for those costs to be incurred.
Continuing on as you can see in the debt reduction column, we have made significant progress toward our target of $1 4 billion in debt reduction with $800 million achieved through October 31 of this year.
With the closing of the STP transaction, we will complete the remaining $600 million of debt reduction by the end of 2023 through a targeted liability management program.
Finally, moving to the share repurchases column, you will see that we have completed $200 million of share repurchases, thus far in 2023.
This includes a $50 million, we completed at the time of the second quarter earnings call and the $150 million. We recently completed on October 31.
With the closing of the STP transaction, we intend to launch a $950 million accelerated share repurchase program imminently.
Between the $200 million already completed and the $950 million accelerated share repurchase program. Our total share repurchases for the year will be one $1 5 billion, which is $150 million more than what we had communicated at investor day and <unk> earnings.
Moving to slide 14, we are excited to introduce our guidance for 2024.
We are guiding 2020 for full year adjusted EBITDA with a range of $3 3 billion to $3 $5 5 billion, representing a midpoint of $3 45 billion.
We are also guiding 2020 for free cash flow before growth with a range of $1 $8 5 billion to $2 75 billion, representing a midpoint of $1 95 billion.
As you can see in the chart at the bottom of the page there are several drivers of year over year guidance.
Incremental EBITDA, reflecting a full year's worth of ownership is effectively offset by the lost EBITDA from the Greg from the STP and Gregory asset sales.
Our growth plan and cost synergies contribute $240 million.
Of incremental EBITDA, but is partially offset by an increase in the <unk> EBITDA harmonization adjustment.
The final driver reflects a continuation of the improved operations and margin expansion impacting our 2023 results and contributes $160 million to our 2024 at midpoint as.
As you can see with the impact of improved operations and margin expansion, our 2024 guidance midpoint exceeds the pro forma we provided at our Investor Day plan.
Yes.
On slide 15, we are providing our 2024 capital allocation plan.
As you can see our capital allocation plan adheres to the 80 20 principle of return of capital versus growth, while ensuring we continue to meet our debt reduction commitments.
Our plan currently calls for debt reduction of $500 million in 2024.
As we've always said we are committed to a strong balance sheet and this debt reduction ensures that we remain on the path to achieving our target credit metrics by the end of 2025.
Our return of capital plan is comprised of $825 million of share repurchases and $330 million of common dividends to common dividends reflect an 8% increase in the common dividend per share from $1 51 to $1 63.
Between capital returned in 2023, and the expected capital return in 2024, we will have executed over 70% of our current share repurchase authorization and returned to $2 65 billion to shareholders.
In summary, our third quarter and year to date results show robust financial performance across the company and with our increased 2023 guidance. We are poised to close out the year in a strong position and enter 2024 on a similarly high note.
We remain committed to executing the Investor day plan, we shared back in June and our focus on maintaining a high level of operational performance, we will not waver as we head into the end of the year.
With that I'll turn it back to you Horacio.
Bruce.
I want to provide a few closing thoughts on today's presentation on slide 17.
As you can see we have made significant progress across all of our key priorities.
And are also ahead of the five year plan, we provided to you during our Investor day.
I want to take a moment to thank all my colleagues at NRG for keeping focus on execution.
For their hard work in achieving these results.
We have the right strategy and the right team to deliver exceptional value today and well into the future.
So with that I want to thank you for your time and interest in NRG Varian, We're now ready to open the line for questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone.
For your name to P&L.
Withdraw your question. Please press star one again please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of <unk> <unk> of Guggenheim. Your line is now open.
Hey, guys good morning.
Hey, good morning Shar.
Good morning, Richard can we just unpack the $160 million and improved ops and margins that youre, calling out in 2004, EBITDA guidance walk a little more how much of that is margin expansion and how sticky is that overall as we look to refine our models for 25 and beyond.
Sure sure.
Sure Hey, Shar good morning.
So I would say that really when you think about the 160, it's pretty much margin expansion across the entirety of the complex. So if we think about.
If we think about our home energy business.
We're really seeing margin expansion. There is really on two fronts. One is on revenue management and on and on the cost of supply.
So when you think about the durability of that the revenue management side of it is really a function of the efforts we have done over the past several years around.
Data driven analysis.
We make sure that we're targeting proper revenue rates for customers and then on the cost of supply that's really representing the benefits of our diversified supply strategy and just general better plant performance.
Relative to history.
On the C&I side, we are seeing margin expansion, there, which we would also believe it is durable.
We know there has been volatility in the market and customers are locking in higher revenue rates, reflecting that volatility and obviously those contracts tend to be longer longer tenor.
So that should also provide durability and then lastly on the smart home side as you saw with the Kpis. We are seeing margin expansion both on the revenue front and higher revenue per subscriber as well as lower cost to serve as we continue to optimize that piece of the business and again given the.
The long duration nature of those customers, we would expect that to also continue to be durable. So all in all.
Higher expansion on the margin side with durability.
Sure I mean, this is really just a reflection of the improvements we have done in the business.
I see them as durable sustainable for the foreseeable future.
Perfect and then rest of the 24 of free cash flow conversion rate looks like it's in the mid to high Fifty's I know you've indicated at the analyst day your targets to step up through the plan into the mid to high <unk> can you just walk us through how you see that stepping up and what kind of shape that may take ie linear as we also continue to update.
Our models thanks.
Sure Bruce do you want to.
Yes, I would say sure I think we continue to remain focused on that conversion rate.
I don't think it will be linear because most of that conversion improvement is going to come from increasing the conversion at Ed visits right and so if you. If you remember we provided some information that showed a free cash flow growth profile at <unk> and going from 100.
$40 million to $445 million.
By the end of 2025, so that's a pretty steep increase in the cash flow at dividend, which is really going to help to drive that conversion higher on a go forward basis.
Got it perfect and then lastly, just on the just a strategy question I guess can you just update us on how you're kind of approaching.
The prospects for new builds in ERCOT I know, there's obviously a lot of existing assets in the market right now we've seen talent, we've seen tax Jen would you have any interest in secondhand plants. Thanks, guys I appreciate it.
Sure well as you know Shar, we actually improved our diversify supply strategy.
Some of it will be two owned generation some will be to rent and to complement with market purchases. So the team is.
Constantly looking at the economics between buying from the market renting or buying.
Assets from other and creating options internally to develop those facilities.
Facilities, either brownfield development. So we're looking at all of it we are.
<unk> the economics at the end of the day.
We.
Balancing.
Operational risk market risk counterparty risk that criteria permeates the evaluation that we're doing on all of these options.
We are still awaiting to see changes in market design and other improvements to incentivize responsible generation that also is going to shape. The decision that we're going to make so as you can tell this is not just a linear and <unk>.
Myopic view on assets to be biased to be bought in the market and development. We really also need to see what incentives are available given the changes in the regulatory construct in aircraft. So I have said before that towards I would say the end of the year, we're going to have more risk.
Those changes in aircraft.
He is going to inform.
The next steps, we're going to take.
Fantastic guys. Congrats on the results Susan Thank you Shar I appreciate it.
Thank you one moment for our next question.
Our next question comes from the line of Julien Dumoulin Smith of Bank of America. Your line is now open.
Hey, guys. Good morning. Thank you very much for taking the time I. Appreciate it look just checking in first on the buyback here just a technicality can we talk a little bit you have a big portion remaining for what you call quote 2023, you want to talk about your ability to get that done and then also how that might.
Okay.
It would be additive to kind of 2024 year, especially given the higher numbers that you are.
Guidance versus initial initial plan.
Sure Julien So you get it.
Yes, as we mentioned we're going to do the ASR imminently that means so sooner.
Possible.
And.
Yes, what I will characterize the execution of that ASR, we're going to do it as fast and as efficient as we can so I think the apps.
The spirit and the intent of <unk>.
Watching of launching this ASR as soon as possible.
Yeah, Julian I would just add that.
As you know when.
When you do an ASR, we obviously realize that.
The vast majority of the shares having been bought in pretty much on on an immediate basis, but it takes time for the banks to be able to go and purchase those shares properly and so Mike.
My guess is we would probably anticipate that the program will.
<unk> be completed inside of the first quarter of next year, but to us that's actually a pretty good situation. Because then that provides the ability to then roll into a regular way share repurchase program related to our 2024 capital allocation plan to really continue to.
Maintain the momentum.
On the repurchase front.
Got it guys. Thank you very much I appreciate that maybe just pivoting a little bit back here I mean.
Obviously very nicely done on 24 are nicely done.
Comments on keeping it sticky and the number you see on the next piece of this is you've taught.
Virtual power plant distributed opportunity on the call today and prior remarks, how do you see that feeding into a what youre talking about in 'twenty four I presume, that's not really necessarily reflective.
In size, but at the same time you talk up.
An opportunity there I presume that there is a certain degree of customer election and choice in that but how do you see that scaling here when does that really meaningfully impacting and.
And how meaningful are we talking here I mean I've heard some of your comments earlier, if you could elaborate.
Yes, so while the first thing that I will say that this opportunity is not included in the investor.
In the plan that we provided on Investor day.
The second thing I'll say is just given the.
Focus and the availability of technologies today.
We are accelerating that.
The scale of this opportunity I initially thought that this was going to be a five plus year opportunity what we are experiencing.
Experiencing is that this is going to be able to implement on a scale up faster than that I would say, it's probably a three plus year.
And.
I provided some initial numbers that I think are very realistic on what we can accomplish so if you look up.
A one gigawatt.
Dr position in Texas, This past summer and represented close to $200 million of gross margin and one gigawatt for our portfolio of these basically less than 10% of below the peak load that we currently serve so he is very achievable and that gives you just some indication that you are not talking here about.
A small opportunity youre talking here about.
A very large opportunity the other thing that I will say is that these product that we're talking about is really leveraging the devices that we use to protect homes plus the distributor technologies available today to help consumers optimize demand.
Don't think of these as a conservation.
Effort opt in conservation effort.
This is all about optimizing and about convenience for our customers. So it is a very different product from the traditional VR, that's why we're calling it.
More as an optimization of the energy.
Behind the meter as opposed to a traditional demand response, that's why we're so excited because this is something that consumers want.
And this is something that NRG is uniquely positioned not only to provide to consumers, but to be able to monetize that value in the wholesale market. There is no other entity with the scale.
Well the NRG that can do that today. That's why we are an early mover on this.
Awesome excellent. Thank you just a quick clarification.
Last question from Shar.
When he asked you about acquisitions and divestments gas.
I presume that we start with Gregory here is perhaps an indication on the margin of continued divestment.
On the margin of your portfolio as you move over time right.
We should set the expectation that more of these kinds of transactions are in the wings again I get the Gregory was a very specific back pattern here with Cheniere.
I think for the most part Don on the optimization front I mean remember the optimization of our portfolio is driven by what we need to serve our loyalty in the best possible way STP I already talked to our.
Greg Lang is blocked power is not unnecessarily.
He is not flexibility doesn't move we can replace that in the market. Gregory was also very specific vc's basically a plan that was built to provide steam to our host. So it really didn't do that provided the attributes are the characteristics that we wanted from a flexible asset.
I think our third Gregory on SDP I would say.
Our optimization efforts are largely done.
Awesome guys. Thank you.
Thank you Julien.
Thank you one moment for our next question.
Our next question comes from the line of Angie store Brzezinski from Seaport your.
Your line is now open.
Good morning, guys.
Good morning, Ed.
Good morning, So first on the dividend.
So one I was just wondering if you heard any feedback from your activist investor about.
How.
Holding on to vision.
Working out for you in the stock. So that's one and number two is so you mentioned a number of positive updates on Jayson.
One of the main ones.
With me is the.
Basically lower attrition so.
Is it fair to say that.
The higher interest rates and Thats what were migration is actually what's benefiting your platform again, not something that would ever think to link higher interest rates as the benefits for a business like yours, but it feels that way.
Yes, Sanjay So let me take the first one and then I'm going to ask questions too.
So your second question.
The focus of the management team of the company is to execute on our consumer strategy and I think what youre seeing in the last two quarters is that we're basically delivering on the commitments that we've provided to all of you at Investor day that is our focus.
I have been on the road talking to investors to help them better understand the strategy to help them better understand the value proposition that this consumer strategy represents and not just to the actavis, but to all shareholders and that has been our focus.
That's what we can do.
Company as a management team.
And I am very pleased with the results that we're delivering and I think shareholders in general are appreciating the value of our consumer strategy and what I will say that also market participants as a whole whether it's <unk> or whether it is right.
Our regulators they are starting to see the benefit.
And the opportunity is there.
That demand represents to better manage the entire power grid, given the greater electrification of that we're going to see in the years to come. So I think that's finally happening, but Russia is the second question can you address EBIT Andy Good morning, Jim.
I think the results reflect the strong value proposition that we provide to consumers. If you think about seven.
7% subscriber growth.
We are also seeing an increase in the number of products each subscribers is actually taking and so 5% growth in recurring revenue.
Simultaneously the cost to serve customers is down 19% on a unit basis year over year.
As you mentioned one of the most powerful aspects of the value proposition.
Is the near this is Ed.
Record low attrition rate for us in this economy to have a nine year customer life. When you bring these things together combined with the fact that the average consumer is engaging with our products, 33% more than they were at this time last year.
It's a really robust flywheel that results in.
Improving customer lifetime value and so we feel really good about the business and we think there's a long runway ahead for growth.
Okay, just one follow up on the dividend so I wish I could remember as you said yourself.
These forward does Dr driven growth on the <unk> side I thought that the reason why we had expected the growth to materialize on the 25 and beyond was because you actually needed some software upgrades some sort of investments to facilitate that growth. So so have you.
Those forward, hence the growth is materializing earlier.
Yes, so I will say and we literally just finished.
A pilot, where we are connecting our smart home technology to our commercial operations. So let me take a little bit of a step back we already cover residential demand response program on our traditional energy business and that is connected to the backbone of our commercial operations to make sure that we optimize the system.
What we've been doing the last couple of weeks and then east to connect now the smart home technology platform to our commercial operations backbone that was very successful that's why I said that we're accelerating bill saw.
<unk> and instead of being a five plus year opportunity I see that as a three plus year opportunity.
The improvements on the investment that we need to do on the technology backbone is included in that 20% of growth, we're not going to increase that.
I am saying is that varies the need and the.
Yes.
By the consumer and quite candidly by the power grid to accelerate these efforts.
So.
Really really good progress there Andrew.
And then the last question and again I understand the explanation behind the divestiture of STP and I see that the EBIT contribution from Gregory was very small but.
You are getting shorter and shorter power in Texas.
I know thats not for a given summer because you hedge but.
We just survive Mr. Sundaram, I mean better than survived but anyway I mean, all of these conservation alerts on ERCOT.
Causing anxiety among us and your.
Investors I'm sure. So just just strategically speaking getting rid of more power plants in Texas, how do we.
Managed this risk of matching that retail load with with <unk>.
Self generation in Texas.
Yeah, So Andy let me just say two things number one.
We are when we serve our customers we're not sure we're actually leaning long.
Don't have to own every megawatt or produce 70 megawatt, but we sell to our customers that will be the first thing. The second thing is and perhaps to your point about aircraft.
When I think about the market my view is that the marginal unit, which means.
The most cost efficient unit today is renewable energy is going to be wind and solar intermittent generation. That's zero variable cost generation what that means is that for the most part of ours in the market is going to clear at a very low price.
Set for those periods, where perhaps a renewable is not performing.
As normal because wind is not blowing in the Sun is not shining so youre going to see very few periods of scarcity conditions, but for the most part the rest of the impact of the rest of the hours are going to be very low price. So that's why demand response and optimizing demand management.
So so important.
That basically gives you instantaneous, peaking capacity exactly for the duration that you want which is very short durations I think we have the improvements that we have made on our supply strategy is very consistent with what we expect the market will behave in the future and the opportunity around the mathematical Mint is again complete.
Consistent with that expectation in terms of price formation.
Market behavior. So I believe we have positioned the company very very well for the foreseeable future and I will just say one more thing we literally experienced the hottest summer on record in Texas.
And the agreed handle it very well the.
The only time when we saw a scarcity pricing was really up periods, where we had low renewable output and even their aircraft was managing the green very conservatively. So I will say that for those of you who really wanted to test.
The aircraft market and.
The improved supply strategy that we have at NRG.
This was the test and we passed with high flying colors I think.
Great. Thank you.
Thank you our please wait one moment for our next question.
Our next question from.
From Michael Sullivan of Wolfe. Your line is now open.
Hey, Ron good morning.
Good morning, Michael.
Just wanted to follow on one of the questions from earlier in terms of the.
Growth target.
Realization looks like that's coming in OLED sooner than expected does that indicate any potential upside to the 2025 number of $300 million run rate.
I think right now we're comfortable accelerating the 2023 target just given the success on on our growth and cross sell.
Yes, I think it's early to start thinking about moving the $300 million by 2025, what I will say is that that roadmap does not include the <unk> or demand side management potential and that's something that we're going to be.
Talking to all of you quantifying it in.
How big can it be and when can we start realizing it so that's more to come there.
Okay, Great and then just.
Specifically on the ERCOT portfolio.
Next at next week's vote on the loan Bill does that drive any decision, making in terms of opt.
Optimization of the fleet or newbuild or anything like that.
I mean, it is one more data point that we're going to take into consideration I think the first step for the loan program is the vote and then the second step is the rules around how the loan program is going to work obviously all market participants are looking at it and we will.
Again, it will be one more data point for us to inform our supply strategy, but but it is only one more data point.
Okay, great. Thank you.
Thank you Michael.
Thank you one moment for our next question.
Our final question comes from the line of Ryan Levine with Citi. Your line is now open.
Good morning.
To start off saying Mark on the strategic side at the analyst day.
Indicating an embarrassing larger strategic acquisitions.
Given that the free cash flow picture is becoming more pan polo, maybe pricing for assets is going down.
Committed are you to that to that vision.
You think you highlight some potential ETT and power plant opportunities is there any scope around what type of incremental capital that could enable.
Well the first thing I will say is as I mentioned on the Investor day.
We don't see any more acquisitions.
Second we are completely committed to this capital allocation framework of 80% of return, 20% to grow and third the 20% each inclusive all the opportunity that we see on the PPP. So we will continue.
On packing what that opportunity is in the investment, but it will be contained within the 20% during the planning period that we provided to you.
Okay. Appreciate the clarification and then one more on the modeling side in terms of the debate.
Scriber acquisition costs coming up in net subscriber acquisition costs coming up and what's driving that and what are you seeing from a trend standpoint in terms of customer acquisition.
Yes, it's really yet function of two things one is the increase in interest rates year over year into is a function of the consumer buying more products.
When they take our service and.
Sure.
On the second point, we feel very good.
Out that both the payback period as well as the IRR you see the boost in recurring revenue per subscriber that's disclosed in the Kpis and I want to remind you that that's across the entire $2 1 million subscriber base.
If you would only look at the new customer acquisition cohort the revenue increase the service revenue increases even more substantive than that and so we feel very good about the payback of that incremental investment in the consumer as they take more product from us.
Is the customer composition or a customer mix evolving or any comments, you're able to make around the characteristics of.
Muse with Evercore.
No other than other than.
The new customers are sort of taking more product.
As we continue to extend our product portfolio.
There is no change in the mix, we have a very very high quality subscriber base at credit scores and so.
Very resilient business from that standpoint.
Okay appreciate taking my questions.
Thank you Ryan.
Thank you. This concludes the question and answer session.
I would now like to turn it back to Mauricio Gutierrez for closing remarks.
Thank you Gary I'd like to thank all of you for your interest in the company and your support and look forward to providing you updates in the future. Thank you.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program.
[music].
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
[music].
Yes.
Yes.
Okay.
Sure.
Yes.
Okay.
Okay.
Okay.
Sure.
[music].
Yes.
[music].
Okay.
[music].
Okay.
Okay.
[music].
Okay.
Yes.
Okay.
Okay.
Yeah.
Okay.
[music].
Yes.
Okay.
Thank you.
[music].
Okay.
[music].
Yes.
Okay.
Okay.
Okay.
[music].
Okay.
Yes.
Sure.
Okay.
Yes.
Sure.
Okay.
Okay.
Okay.
[music].
Yes.
[music].
Okay.
Yes.
Okay.
[music].
Yes.
Okay.
[music].
Sure.
Yes.
[music].
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
[music].
Yes.
Right.
Okay.
<unk>.
Yes.
Okay.
Yes.
Yes.
Sure.
[music].
Yes.
Okay.
Thanks.
Okay.
Okay.
Yes.
Sure.
Okay.
[music].
Okay.
Yes.
Okay.
Sure.
[music].
Okay.
Okay.
Okay.
Yes.
Yes.
Okay.
Okay.
Okay.
Okay.
[music].
Yes.
Okay.
Okay.
Okay.
Sure.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Sure.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Sure.
Okay.
Okay.
Okay.
[music].
Okay.
Sure.
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.
Yes.
Yes.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Okay.
Sure.
Yes.
Okay.
Okay.
Okay.
Sure.
Sure.
Yes.
Yes.
Okay.
Sure.
Yes.
Okay.
Thanks.
Yes.
Sure.
Thank you.
Yes.
Okay.
Yes.
Okay.
Okay.
Thank you.
Okay.
Yes.
Okay.
[music].
Yes.
Yes.
Yes.
Okay.
Yes.
Sure.
Yes.
Okay.
Yes.
Perfect.
Okay.
Okay.
Yes.
Okay.
Okay.
[music].
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Thanks.
Okay.
Okay.
Yes.
Yes.
Yes.
Okay.
Sure.
Okay.
Yes.
Okay.
Okay.
[music].
Okay.
Yes.
Okay.
Okay.
Yes.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Thanks.
[music].
Okay.
Okay.
Okay.
Yes.
Yes.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
Thanks.
Okay.
Okay.
Yes.
Okay.
Great.
Yes.
Yes.
Okay.
Sure.
Sure.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.
Sure.
Yes.
Okay.
Yes.
Okay.
Okay.
Okay.
Yes.
Okay.
Yes.
Okay.
Yes.
Okay.
[music].
Yes.
Okay.
Yes.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
Yes.
Okay.
Okay.
Sure.