Q4 2023 NRG Energy Inc Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the NRG Energy 4th Quarter 2023 Earnings Conference. At this time, all participants are in a listen-only mode.

Good day, and thank you for standing by.

Welcome to the NRG energy East.

Inc's fourth quarter 2023 earnings conference call at this time, all participants are in a listen only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that you're handy. For all your questions, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Cole, Head of Treasury and Invest— Go ahead. Thank you.

After the Speakers' presentation, there will be a question and answer session.

To 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 that your hand is raised.

Draw. Your question. Please press star one one again.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your speaker today, Kevin Cole.

Kevin L. Cole: Treasury and Investor Relations. Please go ahead.

Okay.

Kevin L. Cole: Good morning, and welcome to NRG Energy's fourth quarter and full year 2023 earnings call. This morning's call will be 45 minutes in length and will be broadcast live over the phone and via webcast, which can be located in the investor section of our website at www.nrg.com under presentations and webcasts. Please note that today's discussion may contain forward-looking statements that are based upon assumptions that we believe to be reasonable as of this date. However, actual results may differ materially.

Kevin L. Cole: Good morning, and welcome to NRG Energy's fourth quarter and full year 2023 earnings call. This morning's call will be 45 minutes in length is being broadcast live over the phone or via webcast, which can be located in the investors section of our website at www NRG dot com under presentations and webcast.

Please note that today's discussion may contain forward looking statements, which are based upon assumptions that we believe to be reasonable as of the state.

Kevin L. Cole: Actual results may differ materially we urge.

Kevin L. Cole: We urge 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. In addition, we will refer to both GAAP and non-GAAP financial measures.

Kevin L. Cole: To 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. In addition, 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.

Kevin L. Cole: For information regarding our non-GAAP financial measures and reconciliations to most directly comparable GAAP measures, please refer to today's presentation. And with that, I'll now turn the call over to Larry Koppen, NRG's Chairman and Interim President and CEO. Thank you, Kevin.

Kevin L. Cole: Please refer to today's presentation.

Kevin L. Cole: I'll now turn the call over to Larry Coben, Nrg's chair and interim President and CEO.

Larry Coben: Thank you Kevin Good morning, everyone and thank you for your interest in NRG I'm Larry Tobin.

Larry Koppen: Good morning, everyone, and thank you for your interest in NRG. I'm Larry Coban, and I am the Chairman, Interim President, and CEO. I'm joined this morning by Bruce Chung, our Chief Financial Officer, and we also have members of the management team on the call and available for questions. While I have been CEO for three months, I have been chairman for seven, and on the board for 20 years.

I am the chairman interim President and CEO I'm joined this morning by Bruce <unk>, Our Chief Financial Officer, and we also have members of the management team on the call and available for questions.

Larry Tobin: While I have been CEO for three months I have been chairman for seven and on the board for 20 years.

Larry Koppen: I have never been more excited about NRG as a company than I am today. Let's begin with the NRG value proposition on slide four. We are the trusted partner to almost 8 million residential customers, earning revenue every day through unique and differentiated offerings that simplify and improve our customers' lives. We have 5.9 million energy and 2 million smart home customers and manage the second largest C&I energy and natural gas retail portfolio in the country. We have taken the necessary steps to position NRG to win the energy transition.

Larry Tobin: I've never been more excited about NRG as a company than I am today, let's begin with the NRG value proposition on slide four.

Larry Tobin: We are the trusted partner to almost 8 million residential customers earned every day through unique and differentiated offerings and simplify and improve our customers lives. We have $5 9 million energy and 2 million smart home customers and that is the second largest C&I energy and natural gas retail portfolio in the <unk>.

Larry Tobin: Entry.

Larry Tobin: We have taken the necessary steps to position NRG to win the energy transition.

Larry Koppen: At the convergence of energy and technology in the home and grid, with the evolution of smart devices and generative AI data centers, we generate significant excess cash well beyond our current business needs, resulting in financial flexibility to return significant capital to our shareholders while maintaining a strong balance. Our business and financial outlook has never been stronger, and I've never been more excited about the future of the company than I am today. Turning to slide five.

Larry Tobin: The convergence of energy and technology in the home and grid with the evolution of smart devices and generative AI data centers, we generate significant excess cash well beyond our current business needs, resulting in financial flexibility to return significant capital to our shareholders while maintaining.

Larry Tobin: A strong balance sheet.

Larry Tobin: Our business and financial outlook has never been stronger and I've never been more excited about the future of the company than I am today.

Larry Tobin: Turning to slide five.

Larry Koppen: First, in 2023, we delivered record-free cash flow before growth and near-record-adjusted EBITDA. We exceeded our investor day outlook and our previously increased 2023 guidance ranges. This is the direct result of the strategic initiatives and actions we've taken in recent years to strengthen and stabilize our business. Our outlook continues to get better and better, and today, we are reaffirming our 2024 financial guidance ranges. Next, we made significant progress advancing our long-term energy transition and electrification strategy.

Larry Tobin: First in 2023, we delivered record free cash flow before growth and near record adjusted EBITDA, we exceeded our Investor day outlook.

Larry Tobin: And our previously increased 2023 guidance ranges. This is the direct result of the strategic initiatives and actions. We've taken in recent years to strengthen and stabilize our business. Our outlet continues to get better and better and today, we are reaffirming our 2024 financial guidance.

Larry Tobin: Ranges net.

Next we made significant progress advancing our long term energy transition in electrification strategy. We have line of sight to achieving our current $550 million by 2025, and we are now turning our attention to the next phase of our growth.

Larry Koppen: We have a line of sight to achieving our current $550 million by 2025, and we are now turning our attention to the next phase of our growth. Lastly, we continue to execute our disciplined capital allocation strategy, which involves both a strong balance sheet and returning significant capital to you, our shareholders. Turning to slide six, we delivered $844 million of adjusted EBITDA for the fourth quarter, 82% higher than the prior year.

Larry Tobin: Lastly, we continue to execute our disciplined capital allocation strategy, which has been both a strong balance sheet and returning significant capital to you our shareholders.

Larry Tobin: Turning to slide six we delivered $844 million of adjusted EBITDA for the fourth quarter, 82% higher than the prior year. This brings our full year results to 328 $2 billion of adjusted EBITDA, 76% higher than <unk>.

Larry Tobin: Last year, primarily driven by improved operational performance of our integrated energy platform and the addition of our smart home business. Our 2023, adjusted EBITDA was $152 million above our original guidance midpoint and at the high end of our adjusted guidance.

Larry Koppen: This brings our full-year results to $3.282 billion of adjusted EBITDA, 76% higher than last year, primarily driven by improved operational performance of our integrated energy platform and the addition of our smart home business. Our 2023 adjusted EBITDA was $152 million above our original guidance midpoint and at the high end of our adjusted guidance, while free cash flow before growth came in above the high end of our increased guidance range at $1.92 billion, or $185 million above our original guidance midpoint. This resulted in $9.25 of free cash flow before growth per share in 2023, well ahead of the $8.50 target provided at our June Investor Day. Bruce will provide more details shortly, but again, this performance is the direct result of our strategic initiatives and actions taken to strengthen and grow our business. And I note that these took place even with share purchases occurring at higher levels than projected on Investor Day. Turning to our 2023 scorecard, we delivered on our strategic priorities. As you know, safety is our top priority, and I'm pleased to share that we achieved top-depth-style safety performance through a year with many distractions.

Larry Tobin: While free cash flow before growth came in above the high end of our increased guidance range at $1 92 billion or $185 million above our original guidance midpoint.

Larry Tobin: This resulted in $9 25, a free cash flow before growth per share in 2023, well ahead of the $8 50.

Larry Tobin: Target provided at our June Investor Day, Bruce who will provide more details certainly but again. This performance is the direct result of our strategic initiatives and actions taken to strengthen and grow our business and I note that these took place even with share purchases occurring at higher levels than <unk>.

Larry Tobin: <unk> at Investor Day.

Larry Tobin: Turning to our 2023 scorecard, we delivered across our strategic priorities.

Larry Tobin: As you know safety is our top priority and I am pleased to share that we achieved top decile safety performance through a year with many distractions I'd like to thank all of our employees for their focus and dedication and hard work to making this happen as well has been making our financial results happen.

Larry Tobin: Next we made progress in our continuous improvement goals for cost excellence, we've completed the $300 million direct energy synergy program announced earlier in the year and we quickly turned our attention to identify and execute our previously announced next phase of cost initiatives 250 million.

Larry Tobin: By the end of 2025.

Larry Tobin: Turning to growth our success in achieving the $9 25, a free cash flow before growth per share versus our 850 target was primarily driven by faster execution of our growth plan.

Larry Koppen: I'd like to thank all of our employees for their focus and dedication and hard work in making this happen, as well as in making our financial results happen. Next, we made progress in our continuous improvement goals for cost excellence. We completed the $300 million Direct Energy Synergy Program announced earlier in the year, and we quickly turned our attention to identifying and executing our previously announced next phase of cost initiatives, $250 million, by the end of 2025. Turning to growth, our success in achieving the $9.25 of free cash flow before growth per share versus our $8.50 target was primarily driven by faster execution of our growth plan. We are incredibly pleased with the results of our smart home acquisition and believe our current growth plan is just the beginning. We are only starting to scratch the surface.

Larry Tobin: We're incredibly pleased with the results of our smart home acquisition and believe our current growth plan is just the beginning we are only starting to scratch the surface.

Larry Tobin: Lastly on capital allocation, we executed over one 5 billion in debt Paydown and returned another $1 5 billion.

Larry Tobin: To shareholders.

Larry Tobin: Turning to slide seven we will take a look at our 2024 outlook today, we are reaffirming our 2024 financial guidance ranges and our Investor day, 15% to 20% growth strategic roadmap, we are well positioned across each of our businesses to deliver on our commitments.

Larry Tobin: And consumer energy, we expect the momentum gained in 2023 to continue into 2024 with volume margins and earnings growing across residential and small commercial as well as commercial and industrial customer segments. This success will be driven by our diverse and efficient marketing and sales engines.

Larry Tobin: Our leading care and retention capabilities and our best in class innovative digital experience. We are also seeing numerous opportunities as they arise or as we create them and exciting example is Lubbock, Texas a market of just over 100000, new customers that opened in early January.

Larry Tobin: With 65% of customers, having already made their electricity provider choice. So far we are exceeding expectations for our success in winning customers and look forward to bringing our innovative offerings and experiences to that market. We also continue to see momentum with community choice program.

Larry Koppen: Lastly, on capital allocation, we executed over $1.5 billion in debt paydown and returned another $1.5 billion to shareholders. Turning to slide seven, let's take a look at our 2024 outlook. Today we are reaffirming our 2024 financial guidance ranges and our investor day 15 to 20% growth strategic roadmap. We are well positioned across each of our businesses to deliver on our commitment. In consumer energy, we expect the momentum gained in 2023 to continue into 2024, with volume, margins, and earnings growing across residential and small commercial, as well as commercial and industrial customer segments. This success will be driven by our diverse and efficient marketing and sales engines, our leading care and retention capabilities, and our best-in-class innovative digital experience. We are also seizing numerous opportunities as they arise or as we create them. An exciting example is Lubbock, Texas, a market of just over 100,000 customers that opened in early January, with 65% of customers having already made their electricity provider choice.

Larry Tobin: As a way for customers to experience the benefits of electricity competition in markets that don't have favorable political and regulatory sentiment that would allow the customers to have the ability to freely choose their electricity providers next.

Larry Tobin: Next our diversified supplier strategy Matt.

Larry Tobin: Manages our retail exposure in multiple scenarios to include events like the extreme summer of 2023 and winter storm Heather This past January while at the same time handling the mild weather that we have seen most of this winter.

Larry Tobin: Our targeted investments for reliability and flexibility across our fleet led to material improvements in the performance of our generation when we needed it and we expect to realize continued improvements.

Larry Tobin: We continue to evaluate various ways to enhance our supply strategy. We have three brownfield sites ready to go in Texas with dispatch flexibility and we are considering additional storage options for the portfolio primarily through longer term structured transactions rather than.

Larry Tobin: Outright ownership.

Larry Tobin: And finally, the smart home business delivered a strong year driving impressive top and Bottomline growth.

Larry Tobin: Recurring revenue and margin per customer increased through selling more products and services, while simultaneously, reducing net service cost per customer we will continue to drive towards the horizontal expansion of our 8 million customers wallets.

Larry Tobin: Our customer retention is the best in the industry with an average customer life in the smart home business of nine years, driven by unmatched customer engagement and world class product performance and reliability. We continue to focus on integrating smart home in energy and achieving the initiatives we have previously communicated.

Larry Tobin: Added to you.

Speaker Change: Got it.

Speaker Change: Turning to slide eight for a closer look at growth and cost initiatives in 2023, we advanced our energy transition electrification and continuous improvement strategy and delivered $138 million of incremental earnings which was more than twice our original.

Larry Koppen: So far, we are exceeding expectations for our success and winning customers and look forward to bringing our innovative offerings and experiences to that market. We also continue to see momentum with community choice programs as a way for customers to experience the benefits of electricity competition in markets that don't have favorable political and regulatory sentiments that would allow customers to have the ability to freely choose their electricity providers. Next, our diversified supply strategy manages our retail exposure in multiple scenarios to include events like the extreme summer of 2023 and winter storm Heather this past January, while at the same time handling the mild weather that we have seen most of this winter. Our targeted investments for reliability and flexibility across our fleet led to material improvements in the performance of our generation when we needed it, and we expect to realize continued improvement. We continue to evaluate various ways to enhance our supply strategy.

Speaker Change: $65 million target.

Speaker Change: We exceeded our goals for both growth and cost savings, resulting in more than $100 million of growth in our core businesses and sales channel optimization and more than $35 million in cost savings. This outperformance was primarily the result of realizing synergies faster than originally anticipated.

Speaker Change: And today, we are reaffirming the full plan target of $550 million of growth and cost initiatives by the end of 2025.

Speaker Change: Outside of this $550 million program.

Speaker Change: We have also identified additional attractive initiatives that are in early development leveraging the significant value creation opportunity from the convergence of energy and technology in the ALM and the grid.

Speaker Change: First is for example, virtual power plant or DPP, where we are uniquely positioned given our customers scale and reach our data science proficiency and decades of commercial market commercial end market experience importantly, VP will increase in value as the grid tightenings in our integrate.

Speaker Change: Energy business will allow us to monetize this value without requiring regulatory change.

Speaker Change: On data centers and AI today, we are one of the largest competitive providers of power to the Hyperscale and other data center managers and we have been in direct conversation with several of these customers about using more load. We see this as a significant opportunity for NRG and for competitive Mark.

Speaker Change: What's more broadly.

Speaker Change: Finally, we continue to evaluate strategic dispatch symbol newbuild with one five gigawatts of brownfield projects in Texas ready to go as.

Larry Koppen: We have three brownfield sites ready to go in Texas with dispatch flexibility, and we are considering additional storage options for the portfolio, primarily through longer-term structure transactions rather than outright ownership. And finally, the smart home business delivered a strong year, driving impressive top and bottom line growth. Recurring revenue and margin per customer increased through selling more products and services, while simultaneously reducing net service costs per customer. We will continue to drive toward the horizontal expansion of our 8 million customers' wallets. Our customer retention is the best in the industry, with an average customer life in the smart home business of nine years, driven by unmatched customer engagement and world-class product performance and reliability.

Speaker Change: As you May know in November, Texas voters approved the Texas Energy Fund, which provides support for new dispatch of thermal generation. We expect the rules for that to be adopted early this year with applications beginning mid year, we anticipate providing an update on these projects over the coming months with that.

Speaker Change: I would like to turn it over to our Chief Financial Officer, Bruce Chen for our financial review.

Bruce Chen: Thank you Larry moving to slide 10 for 2023, NRG produced adjusted EBITDA of $3 2 billion exceeding our original guidance and at the high end of our upward revised guidance range and free cash flow before growth of 195 billion.

Bruce Chen: Exceeding the high end of our upward revised guidance range.

Speaker Change: Our 2023 free cash flow before growth in adjusted EBITDA represent the highest and second highest respectively and Nrg's history.

Speaker Change: This strong financial performance is a direct result of excellent execution across our businesses and made possible by the continued focus and effort from each of our employees in a year full of potential distractions.

Larry Koppen: We continue to focus on integrating smart home and energy and achieving the initiatives we have previously communicated to you. Turning to slide 8 for a closer look at growth and cost initiatives, in 2023, we advanced our energy transition electrification and continuous improvement strategy and delivered $138 million of incremental earnings, which was more than twice our original $65 million target. We exceeded our goals for both growth and cost savings, resulting in more than $100 million of growth in our core businesses and sales channel optimization and more than $35 million in cost savings. This outperformance was primarily the result of realizing synergies faster than originally anticipated.

Speaker Change: Our 2023, adjusted EBITDA improved by $1 4 billion as compared to 2022, driven by strong performance in our Texas region. The addition of the <unk> smart home business and execution of our growth and cost efficiency plans.

Speaker Change: Taking a closer look at the drivers within our segments and beginning with Texas, our full year adjusted EBITDA increased by $806 million over 2022.

Speaker Change: This was driven by higher revenue rates, coupled with lower supply costs are diversified supply strategy worked as designed throughout a volatile year.

Speaker Change: Lowering our supply costs during the mild start to the year and providing stable pricing through the summer extreme heat.

Speaker Change: As we discussed throughout 2023, the margin expansion, we saw across both our residential and C&I energy businesses was produced through a combination of careful revenue rate management, and providing our customers with differentiated products that address their needs for affordability comfort and peace of mind.

Larry Koppen: And today, we are reaffirming the full plan target of $550 million of growth and cost initiatives by the end of 2025. Outside of this $550 million program, we have also identified additional attractive initiatives that are in early development, leveraging the significant value creation opportunity from the convergence of energy and technology in the home and the grid. First, Virtual Power Plant, or VPP, where we are uniquely positioned given our customer scale and reach, our data science proficiency, and decades of commercial and market experience.

Speaker Change: We believe this margin expansion will be durable over the foreseeable future and this view is reflected in our 2020 for guidance.

Speaker Change: In addition to improved margins are residential energy business delivered strong customer retention of nearly 80% while maintaining average customer tenure of six years. This is a testament to the strength of our brands and customer experience.

Speaker Change: Our east West services segments were lower by $142 million versus the prior year.

Speaker Change: This was due to $60 million from asset retirements in sales with the remainder of the variance from the combination of lower average realized pricing at the Cottonwood facility as well as a challenging housing market and more conservative consumer discretionary spending impacting our HVAC and <unk> zero services businesses.

Larry Koppen: Importantly, VPP will increase in value as the grid tightens, and our integrated energy business will allow us to monetize this value without requiring regulatory change. Second, on data centers and AI, today we are one of the largest competitive providers of power to hyperscalers and other data center managers. And we have been in direct conversations with several of these customers about using more load. We see this as a significant opportunity for NRG and for competitive markets more broadly. Finally, we continue to evaluate strategic dispatchable new build with 1.5 gigawatts of brownfield projects in Texas ready to go. As you may know, in November, Texas voters approved the Texas Energy Fund, which provides support for new dispatchable generation. We expect the rules for that to be adopted early this year, with applications beginning mid-year.

Speaker Change: Finally, the addition of smart home contributed $753 million and adjusted EBITDA, finishing above the high end of our upwardly revised guidance for this segment.

Speaker Change: Throughout 2023, smart home delivered across all of its key metrics, most notably smart home achieved 6% ending subscriber growth in an otherwise challenging macro environment. In addition to improving monthly recurring service margins of 9% through increasing average monthly revenue per subscriber coupled with a continued focus on.

Speaker Change: Cost efficiency.

Speaker Change: Turning to free cash flow before growth NRG achieved $1 $95 billion in 2023, setting a new record for the company.

Speaker Change: This represents an improvement of $1 $4 billion over the prior year, primarily driven by our stronger EBITDA performance, along with improved working capital initiatives across our businesses.

Speaker Change: At our Investor Day in June we communicated a 2023 target of $8 50 of free cash flow before growth per share.

Speaker Change: Our strong performance in 2023 resulted in $9 25, a free cash flow before growth per share even after repurchasing shares at a 25% premium to what we had originally assumed in our Investor Day plan.

Bruce Chun: We anticipate providing an update on these projects over the coming months. With that, I'd like to turn it over to our Chief Financial Officer, Bruce Chun, for a financial review. Thank you, Larry. Moving to slide 10.

Speaker Change: Our platform is designed to generate significant cash flow and based on that $9 25 per share and our current share price that represents an implied free cash flow yield of 18%.

Speaker Change: Given this dislocation repurchasing our shares remains one of the best investments, we can make and as such we remain firmly committed to staying the course with our capital allocation framework.

Bruce Chun: For 2023, NRG produced adjusted EBITDA of $3.282 billion, exceeding our original guidance and at the high end of our upward revised guidance, and free cash flow before growth of $1.925 billion, exceeding the high end of our upward revised guidance. Our 2023 free cash flow before growth and adjusted EBITDA represent the highest and second highest, respectively, in NRG's history. This strong financial performance is a direct result of excellent execution across our businesses and made possible by the continued focus and effort from each of our employees in a year full of potential distractions. Our 2023 adjusted EBITDA improved by $1.4 billion as compared to 2022, driven by strong performance in our Texas region, the addition of the Vivint smart home business, and execution of our growth and cost efficient initiatives. Taking a closer look at the drivers within our segments This was driven by higher revenue rates coupled with lower supply costs.

Speaker Change: Throughout 2023, we have demonstrated the strength and resiliency of our strategy and coupled with the compelling long term macro tailwind from the increasing electrification of the economy and convergence of energy with Smart technologies, we are confident in the outlook for our share price.

Speaker Change: Turning to the next slide I'd like to provide some additional context for 2023 financial results.

Speaker Change: On the left side of the page, we highlight the resiliency of our core energy business, Our Texas fleet performed well through the second hottest summer in Texas history, and most recently continued to perform through the volatility experienced during January winter storm Heather.

Speaker Change: Over the last few years, we have strategically invested capital and improving the reliability of our facilities in anticipation of volatility across both summer and winter conditions, and we are seeing the impact of those investments through material improvements in our in the money availability factor.

Speaker Change: This is a performance measure illustrating the availability of our generation assets during periods when we need them the most.

Speaker Change: As you can see in the Bar chart, we realized a 14% and 13% improvement in summer and winter respectively. In this metric for.

Speaker Change: Furthermore, we saw nearly 20% improvement in this metric when comparing the fleets performance during winter storm Heather versus winter Storm Elliot.

Speaker Change: This level of improvement was and will be critical to ensuring we are able to serve our retail load cost effectively.

Speaker Change: Moving to the right side of the page our smart home business surpassed the original expectations, primarily driven by expanded monthly recurring service margins.

Bruce Chun: Our diversified supply strategy worked as designed throughout a volatile year, lowering our supply costs during the mild start to the year and providing stable pricing through the summer's extreme heat. As we discussed throughout 2023, the margin expansion we saw across both our residential and C&I energy businesses was produced through a combination of careful revenue rate management and providing our customers with differentiated products that address their needs for affordability, comfort, and peace of mind. We believe this margin expansion will be durable over the foreseeable future, and this view is reflected in our 2024 guidance. In addition to improved margins, our residential energy business delivered strong customer retention of nearly 80% while maintaining average customer tenure of six years. This is a testament to the strength of our brands and customer experience. Our East-West services segments were lower by $142 million compared to the prior year.

Speaker Change: Notably the margin expansion was a function of both higher average revenue per subscriber coupled with lower cost to serve.

Speaker Change: We're also seeing higher take rates on smart home products and services at the point of sale, which is a testament to the effectiveness of our smart home sales channels and smart home customers recognizing the benefit of increasing the intelligence of their homes through additional seamlessly integrated devices.

Speaker Change: Yes.

Speaker Change: Turning to slide 12 for an updated view of our 2020 for capital allocation.

Speaker Change: As you can see from the slide not much has changed since our third quarter earnings call, where we provided our initial view on 2020 for capital allocation.

Speaker Change: We are still planning on $500 million of debt Paydown in 2024, and expect to return nearly $1 2 billion to shareholders in the form of share repurchases and common dividends.

Speaker Change: Coupled with the 2023 share repurchase program, we will have executed nearly 75% of the current $2 $7 billion authorization by the end of 2024.

Speaker Change: We expect.

Speaker Change: The 2023 accelerated share repurchase program to conclude by the end of Q1 this year at which point, we will begin executing our 2020 for repurchase plan on a more regular and programmatic basis throughout the year.

Bruce Chun: This was due to $60 million from asset retirements and sales, with the remainder of the variance from the combination of lower average realized pricing at the Cottonwood facility, as well as a challenging housing market and more conservative consumer discretionary spending impacting our HVAC and Goal Zero services business. Finally, the addition of Smart Home contributed $753 million in adjusted EBITDA, finishing above the high end of our upward revised guidance for this segment. Throughout 2023, Smart Home delivered across all of its key metrics. Most notably, Smart Home achieved 6% ending subscriber growth in an otherwise challenging macro environment, in addition to improving monthly recurring service margins of 9% through increasing average monthly revenue per subscriber coupled with a continued focus on cost efficiency. Turning to free cash flow before growth, NRG achieved $1.925 billion in 2023, setting a new record for the company.

Speaker Change: As I mentioned earlier at an implied yield of 18%, we see our shares as an excellent investment for shareholder capital and as such remain committed to the 80 20 principle, we rolled out during Investor day.

Speaker Change: In terms of incremental changes since our last earnings call and moving from left to right 2020 for excess cash increased $74 million because of the over performance in 2023.

Speaker Change: Other investments increased $33 million, primarily from a calendar year shifts and integration costs and capital deployed to small book acquisitions in our residential retail business.

Speaker Change: Finally, we have $41 million of unallocated capital available for allocation in 2020 for which we will evaluate the use of as we move along the year.

Speaker Change: Before I hand, it back to Larry I'd like to point out that we included some new slides in the appendix of today's presentation, which provide more disclosure around our energy business.

Speaker Change: We believe this disclosure will enable investors to model, our energy business with a level of granularity they did not have before.

Speaker Change: These slides will be updated with each earnings call. We have going forward. We hope you find them helpful and our Investor Relations team is more than happy to answer any questions. You may have regarding the new disclosures.

Speaker Change: With that I will turn it back to you Larry.

Larry: Thank you Bruce.

Bruce Chun: This represents an improvement of $1.4 billion over the prior year, primarily driven by our stronger EBITDA performance, along with improved working capital initiatives across our business. At our investor day in June, we communicated a 2023 target of $8.50 of free cash flow before growth per share. Our strong performance in 2023 resulted in $9.25 of free cash flow before growth per share, even after repurchasing shares at a 25% premium to what we had originally assumed in our investor day plan. Our platform is designed to generate significant cash flow, and based on that $9.25 per share and our current share price, that represents an implied free cash flow yield of 18%.

Larry: On slide 14, I want to provide a few closing thoughts about 2024, our priorities and our expectations.

Larry: We are laser focused on delivering on our financial and operational commitments and adhering to our capital allocation principles. We will continue to integrate smart home with our energy businesses and deliver on our growth and cost initiatives.

Larry: All while advancing our energy transition and electrification strategy.

Larry: I have never been more excited about the future of NRG.

Larry: We are seeing signs of step change improvement in fundamentals across our platform, including the convergence of energy and technology in the home and grid through smart devices and generative AI.

Larry: We believe this will put a spotlight on the scarcity of the critical products and services, we sell and the durability of our platform.

Speaker Change: Said bluntly I believe this step change.

Speaker Change: Signify a change indeed depressed valuations for NRG in our sector that have resulted in 20% plus cash flow yields this will be good for NRG and the sector and it's very exciting times I look forward to updating you on our progress along the way.

Bruce Chun: Given this dislocation, repurchasing our shares remains one of the best investments we can make, and as such, we remain firmly committed to staying the course with our capital allocation framework. Throughout 2023, we have demonstrated the strength and resiliency of our strategy, and coupled with the compelling long-term macro tailwinds from the increasing electrification of the economy and convergence of energy with smart technologies, we are confident in the outlook for our share price. Turning to the next slide, I'd like to provide some additional context for the 2023 financial results. On the left side of the page, we highlight the resiliency of our core energy business. Our Texas fleet performed well through the second hottest summer in Texas history and, most recently, continued to perform through the volatility experienced during January's winter storm Heather.

Speaker Change: With that thank you for your time and your interest in NRG.

Speaker Change: We're now ready to open the line for questions.

Speaker Change: As a reminder to ask a question. Please press star one on your telephone.

Speaker Change: And wait for your name to be announced.

Speaker Change: Draw. Your question. Please press star one one again.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from Julien Dumoulin Smith with Bank of America. Your line is now.

Speaker Change: Excellent. Good morning, guys. Thank you very much for the time I. Appreciate it look I know you said it.

Speaker Change: Explicitly in the comments, but I wanted to come back to this obviously with the shares materially higher here. How are you thinking about where you're positioned relative to the 15% to 20% scf per share targets.

Bruce Chun: Over the last few years, we have strategically invested capital in improving the reliability of our facilities in anticipation of volatility across both summer and winter conditions, and we are seeing the impact of those investments through material improvements in our in-the-money availability factor. This is a performance measure illustrating the availability of our generation assets during periods when we need them the most. As you can see in the bar chart, we realized a 14% and 13% improvement in summer and winter, respectively, in this metric. Furthermore, we saw a nearly 20% improvement in this metric when comparing the fleet's performance during winter storm Heather versus winter storm Elliot.

Speaker Change: Through the forecast period I, just wanted to kind of tackle that obviously doing very well against those targets here out of the gate in year. One I just wanted to elaborate on that and then secondly, I just wanted to come back to <unk>.

Speaker Change: 24 here started the year it looks like probably robust load. How do you think about that positioning you and as you think about reflecting that within what you've provided would you have out there.

Speaker Change: Im targets just in terms of the colder weather in Texas specifically.

Speaker Change: Sure Hey, Julien its Bruce here, so with respect to the 15% to 20%, we still are committed to achieving that 15% to 20% growth in free cash flow before growth per share.

Bruce Chen: We believe that we are increasing both the free cash flow and the EBITDA as you know if you look at the 24 number that's about $150 million above what we had already kind of indicated as part of the Investor Day plan. So we are seeing drivers both on the in the numerator and then obviously, we remain committed to the capital allocation plan and.

Bruce Chun: This level of improvement was and will be critical to ensuring we are able to serve our retail load cost effectively. Moving to the right side of the page, our smart home business surpassed original expectations, primarily driven by expanded monthly recurring service markets. Notably, the margin expansion was a function of both higher average revenue per subscriber coupled with lower costs to serve.

Bruce Chen: So we're going to also be driving the denominator. So we still remain committed to that 15% to 20%.

Bruce Chen: With respect to the other question as we think about 2024.

Bruce Chen: We're basically positioned in the same way as we were in 2023, and so that gives us a lot of comfort in terms of being able to handle what may be on what.

Bruce Chun: We're also seeing higher take rates on smart home products and services at the point of sale, which is a testament to the effectiveness of our smart home sales channels and smart home customers recognizing the benefit of increasing the intelligence of their homes through additional, seamlessly integrated devices. Turning to slide 12, for an updated view of our 2024 capital allocation. As you can see from the slide, not much has changed since our third quarter earnings call where we provided our initial view on 2024 capital allocation. We are still planning on $500 million of debt paydown in 2024 and expect to return nearly $1.2 billion to shareholders in the form of share purchases and common dividends. Coupled with the 2023 share repurchase program, we will have executed nearly 75% of the current $2.7 billion authorization by the end of 2024.

Bruce Chen: What may be coming for us from a from a load perspective.

Speaker Change: Winter Storm, Heather we performed very well the fleet performed very well.

Speaker Change: So we're pretty confident about where we stand at this stage.

Speaker Change: Wonderful excellent if I could just nitpick, a little bit on the comments from the.

Speaker Change: You provided a second ago, you talked about longer term storage contract opportunities. This would presumably be an offtake arrangement, which youre off taker to some sort of battery.

Speaker Change: Investment that someone else makes if I'm hearing you right just want to make sure I understood. How you were thinking about batteries and presumably ERCOT here yes.

Speaker Change: Look I think that yes that is the answer but we will always come back and take a look at the capital that we do have to allocate but there is an awful lot of people here in Texas, we are willing to spend their money on.

Speaker Change: And providing storage for us and that will probably be the optimal use of capital, but as you know Julien, we always evaluate and reevaluated as we put our supply strategy together to optimize our capital structure.

Speaker Change: Okay.

Speaker Change: Excellent alright, guys. So we'll leave it there. Thank you guys very much congrats again nice Scott.

Bruce Chun: We expect the 2023 Accelerated Share Purchase Program to conclude by the end of Q1 this year, at which point we will begin executing our 2024 repurchase plan on a more regular and programmatic basis throughout the year. As I mentioned earlier, at an implied yield of 18%, we see our shares as an excellent investment for shareholder capital, and as such, remain committed to the 80-20 principle we rolled out during Investor Day. In terms of incremental changes since our last earnings call and moving from left to right, 2024 excess cash increased $74 million because of the overperformance in 2023. Other investments increased $33 million primarily from a calendar year shift in integration costs and capital deployed to small book acquisitions in our residential retail business.

Speaker Change: Thank you Julien.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: Our next question comes from sharp Horizon with Guggenheim Partners. Your line is now open.

Sharp Horizon: Hey, Larry good morning.

Sharp Horizon: And Shar how are you.

Sharp Horizon: Good morning.

Sharp Horizon: Wanted to ask a bit of a higher level question and Thats, obviously building off of Bruce's do disclosure comments and in light of the sort of maybe that step function change in valuation we saw with one of your peers yesterday have you given any consideration to maybe transitioning to etfs at some point.

Sharp Horizon: In the future and providing maybe a bit of a longer range look.

Sharp Horizon: Yes.

Sharp Horizon: Okay.

Sharp Horizon: Yes.

Speaker Change: Alright ill leave it at that.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Good morning.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: It's yes, yes, hey tuned.

Speaker Change: Alright.

Speaker Change: And then.

Speaker Change: Perhaps maybe just going back to the CEO search process I mean, obviously, it's kind of a little bit more competitive recently with sort of on the power and utility headhunting side can you just give us some more color on where things stand today in terms of down selecting and curious if you're now a bit more focused on our power purse.

Bruce Chun: Finally, we have $41 million of unallocated capital available for allocation in 2024, which we will evaluate the use of as we move along the year. Before I hand it back to Larry, I'd like to point out that we included some new slides in the appendix of today's presentation, which provide more disclosure around our NRG. We believe this disclosure will enable investors to model our energy business with a level of granularity they did not have before. These slides will be updated with each earnings call we have going forward. We hope you find them helpful, and our investor relations team is more than happy to answer any questions you may have regarding the new disclosure. With that, I will turn it back to you, Larry. Thank you, Bruce.

Speaker Change: And or a retail consumer person. Thanks.

Speaker Change: Okay.

Speaker Change: Sure sure I won't take it personally that you seem to be anxious to get rid of me.

Speaker Change: But I want you to start.

Speaker Change: That reality.

Speaker Change: Look so I don't I.

Speaker Change: I think we're still looking for a person who spends the two types of things that we're doing consumer and energy as we said before.

Speaker Change: We have a terrific committee thats working exceptionally hard.

Speaker Change: We had a huge list of candidates when we started and they are whittling away at that I think.

Speaker Change: When we talked three months ago, I said three to nine months and I still would stand by that timeframe. So I guess that would be zero to six months from now if I do the math correctly.

Larry Koppen: On slide 14, I want to provide a few closing thoughts about 2024, our priorities, and our expectations. We are laser focused on delivering on our financial and operational commitments and adhering to our capital allocation principles. We will continue to integrate smart home technology with our energy businesses and deliver on our growth and cost initiatives, all while advancing our energy transition and electrification strategy. I have never been more excited about the future of NRG.

Speaker Change: And.

Speaker Change: There is a tremendous number of people who are looking at NRG are excited by the prospects are excited by the ability to drive valuation given the incredible cash flow yield given the incredible prospects that we have at the confluence of energy and smart home and so.

Speaker Change: I'm excited by the people that we're seeing and I think you will be too.

Speaker Change: Perfect perfect and thank you guys and for the record Larry.

Speaker Change: Personally I would like to stay.

Speaker Change: It's not a reality.

Larry Koppen: We are seeing signs of step change, improvement, and fundamentals across our platform, including the convergence of energy and technology in the home and grid through smart devices and generative AI. We believe this will put a spotlight on the scarcity of the critical products and services we sell and the durability of our platform. Said bluntly, I believe this step change will signify a change in the depressed valuations for NRG and our sector that have resulted in 20% plus cash flow yield. This will be good for NRG and the sector, and it's very exciting times.

Speaker Change: Thanks, Paul.

Speaker Change: Yes.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from Angie <unk> with Seaport. Your line is now open.

Angie: Good morning.

Angie: Good morning Angie.

Angie: Good morning.

Angie: If I take a big picture question so.

Angie: I mean, if there's one thing that we've learned over the last couple of weeks.

Angie: Investors increasingly bayou physical power plants.

Angie: Especially Dallas.

Angie: You don't get the participation metal for just showing up so I'm just wondering how does that fit.

Angie: Our strategy of being asset light on the generation side in light of the.

Larry Koppen: I look forward to updating you on our progress along the way. With that, I thank you for your time and your interest in NRG. We're now ready to open the line for questions. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. For all your questions, please press star 1 1 again. Stand by while we compile the Q&A raw. Our first question comes from Julian Dumoulin-Smith. Bank of America, your lines are now open.

Angie: Tightening supply demand fundamentals and power.

Angie: Again, I understand that there is demand response and other ways to participate in this new chapter I'm. Just wondering just simplistically speaking, how do you deal with that.

Speaker Change: And I'm going to let Rob expand on that but I've never I don't think we're asset light where asset optimal and will always be asset optimal.

Rob: And then maybe semantics, but I think it's important semantics, we have three brownfield projects that are ready to go and you'll get some updates on those pretty soon but that's one five gigawatts.

Julien Dumoulin: Excellent. Good morning, guys. Thank you very much for your time.

Julien Dumoulin: I appreciate it. Look, I know you said it somewhat explicitly in the comments, but I wanted to come back to this. Obviously, with the shares materially higher here, how are you thinking about where you're positioned relative to the 15% to 20% FCS per share targets through the forecast grid? I just wanted to kind of address that. Obviously, doing very well against those targets here out of the gate in year one. I just wanted to elaborate on that. And secondly, I just wanted to come back to 24.

Speaker Change: <unk> capacity and we have some more potential in the pipeline, maybe Rob you want to expand on that please sure. So Andrew we're excited by the growing demand for power.

Rob: It's real we know it's real because we talk to a lot of the growth guys. So it's the hyper scaler and others to evolve heard about when we talked about a lot and it's exciting for NRG for a couple of reasons. One we sit in competitive markets, which is where I believe most of this demand growth is going to be.

Rob: We're going to see expanded margins on our existing fleet right. So as the product goes up we're going to see more earnings off of our generation and we've spent in.

Julien Dumoulin: Start of the year, looks like probably a robust load. How do you think about that positioning you and as you think about reflecting that within what you have out there on targets, just in terms of the colder weather in Texas specifically? Sure. Hey, Julian. It's Bruce here.

Rob: In investment inside of those plants. So that we can capture that like Larry said, we've got the three projects that are ready to go.

Speaker Change: And the other thing to think about Angi is we've got 21 plant sites across the country.

Bruce Chun: So with respect to the 15 to 20%, we still are committed to achieving that 15 to 20% growth in free cash flow before growth per share. You know, we believe that we're increasing both free cash flow and EBITDA. As you know, if you look at the 24 number, that's about $150 million above what we had already kind of indicated as part of the investor day plan. So we are seeing drivers both in the numerator, and then obviously, we remain committed to the capital allocation plan. And so, you know, we're also going to be driving the denominator.

Speaker Change: So if there if this growth continues and we see it makes economic sense. Then there is an opportunity there.

Speaker Change: But ultimately these guys are going to turn to partners like NRG as the market. Tightens, then we're going to look for people who've got the expertise that we have so it's going to be good for the industry, but it's definitely going to be good for us.

Speaker Change: But what does that mean that.

Speaker Change: In a sense you're shifting events.

Speaker Change: Ross on the energy side towards C&I customers.

Speaker Change: If I remember that historically that was a very small portion of this medicine.

Speaker Change: Hello, meaningfully lower margins than the rest of the participants.

Speaker Change: So anyway, you sound like a different earnings and margin profile. So those tech.

Bruce Chun: So we still remain committed to that 15 to 20%. With respect to the other question, you know, as we think about 2024, we're basically positioned in the same way as we were in 2023, and so that gives us a lot of comfort in terms of being able to handle what may be on, what may be coming for us from a load perspective. Winter Storm Heather: we performed very well, the fleet performed very well, and so we're pretty confident about where we stand at this stage. wonderful, excellent. If I could just take a little bit on the comments you provided a second ago, you talk about longer-term storage contract opportunities. This would presumably be an offtake arrangement, where you're an offtaker to some sort of battery investment that someone else makes.

Speaker Change: Company versus that traditional C&I load. Thank you Sir.

Speaker Change: So generally C&I margins themselves over the last few years have gone up.

Speaker Change: The difference in our margin.

Speaker Change: Scalar versus a traditional C&I customers there isn't like we haven't seen a growth in margin on the hyperscale.

Speaker Change: The way you should probably think about it is if youre going to get a bunch of demand.

Speaker Change: Into the system, which we believe has real that's going to create tightness for all customers.

Speaker Change: And so C&I customers across the board not just.

Speaker Change: Data center customers are going to be looking for expertise that which means theyre going to turn to the bigger players who can help them manage the risk in a higher price tighter commodity environment that helps.

Julien Dumoulin: If I'm hearing you right, I just want to make sure I understood how you were thinking about batteries and, presumably, are cut here. Yeah. Look, I think that, yes, that is the answer. But we'll always, you know, come back and take a look at the capital that we do have to allocate. But there are an awful lot of people here in Texas who are willing to spend their money on providing storage for us.

Speaker Change: Okay. Thanks, and then changing topics.

Speaker Change: Sure.

Speaker Change: <unk> aspirations.

Speaker Change: Obviously that see the metrics on that targeted metrics for the end of 'twenty four.

Speaker Change: Can you can you tell us if you've had any discussions with credit agencies, how do you see that business risks besides just hitting them.

Speaker Change: And then the medical thresholds.

Larry Koppen: And that will probably be the optimal use of capital. But as you know, Julian, we always evaluate and reevaluate it as we put our supply strategy together to optimize our capital structure. Excellent. All right, guys, we'll leave it there. Thank you guys very much. Congratulations again.

Speaker Change: Yes.

Speaker Change: The investment grade rating.

Speaker Change: Sure Angie so.

Speaker Change: Just to clarify.

Angie: We are not chasing an investment grade rating as we've always said, we we are making sure that we want to hit the metrics that we believe.

Angie: Correspond with an investment grade rating, but that's not to say that we're necessarily going to be chasing it because ultimately that is up to the agencies, we talked to the agencies very regularly.

Julien Dumoulin: Nicely done. Thank you, Joanne. Thank you. One moment for our next question. Our next question comes from Shahriar Pourreza with Guggenheim Partners. Your line is now open. Hey Larry, good morning. Good morning, Shahriar. How are you?

Angie: And they like the path on which we are heading from a credit perspective, it's.

Angie: It's important to note that when you think about our credit metrics, it's not just debt to EBITDA that the agencies focus on they obviously also look at cash flow driven metrics and so we're kind of triangulating around.

Shahriar Pourreza: Not too bad. Good morning. I wanted to ask a bit of a higher level question and this is obviously building off of the Disclosure comments and in light of the sort of maybe that step function change evaluation we saw with one of your peers yesterday. Have you given any consideration to maybe transitioning to EPS at some point in the future and providing maybe a bit of a longer range look? Yes. All right, well, I'll leave it at that one.

Speaker Change: Around all of that ultimately, whether we get the rating or not like I said is not necessarily within our control, but what is within our control is being able to hit those metrics I'd say as we sit here today given as you note, where we're going to end up at the end of 2024, we think theres, probably some flexibility in 2025 with respect to.

Speaker Change: To what our original deleveraging plans were as part of the Investor Day plan.

Speaker Change: But more to come on that as we move along in the year.

Larry Koppen: The answer, Shahriar, is yes. Yeah, stay tuned. And then, um, perhaps maybe just going back to the CEO surge process. I mean, obviously, it's gotten a little bit more competitive, sort of on the power and utility headhunting side.

Speaker Change: Okay. Thank you.

Speaker Change: Our next question comes from <unk> Chopra with Evercore ISI. Your line is now open.

Speaker Change: Okay.

Chopra: Hey, good morning team, Thanks for giving me John.

Chopra: Just wanted to kind of.

Chopra: Over the cost improvements and the growth opportunity the $550 million target that you have to buy.

Shahriar Pourreza: Can you just give us some more color on where things stand today in terms of downsizing? And curious if you're now a bit more focused on a power person or a retail consumer person. Thanks. Sure, Shahriar. I won't take it personally that you seem to be anxious to get rid of me.

Deepak Chopra: By 2025, so obviously this year, you've kind of hit the ground running exceeded expectations, maybe can you sort of help us.

Deepak Chopra: Break that apart 100 million in growth opportunities how much of that is cross selling.

Deepak Chopra: How much of that is actual margin expansion within our existing services and then you know as you.

Larry Koppen: I think we're still looking for a BERT person who spans the two types of things that we're doing, consumer and energy, as we said before. We have a terrific committee that's working exceptionally hard, and, as I said to you, we had a huge list of candidates when we started, and they're whittling that list away. I think... When we talked three months ago, I said three to nine months, and I still would stand by that time frame.

Deepak Chopra: Think about cost improvements.

Deepak Chopra: There's a big step change from $37 million this year of about $100 million.

Speaker Change: Maybe just walk through the drivers of that.

Speaker Change: Yes, you bet good morning, so in terms of.

Speaker Change: The growth synergies, we feel obviously very good about where reset one year into that plan through 2025 you.

Speaker Change: You can think about the mix as roughly 50% is actually driven by organic growth in the business units.

Speaker Change: That obviously, a strong year in the base business and the other 50% driven by a combination of cross sell and think.

Larry Koppen: So, I guess that would be zero to six months from now, if I do the math correctly. And there's a tremendous number of people who, you know, are looking at NRG, are excited by the prospects, are excited by the ability to drive valuation, given the incredible cash flow yield, given the incredible prospects that we have at the confluence of energy and smart home. And so, I'm, you know, I'm excited by the people that we're seeing, and I think you will be too. Perfect. Perfect. And thank you, guys. And for the record, Larry.

Speaker Change: Think of it as a share of wallet type initially.

Speaker Change: Initiatives that improve the revenue and margin profile per customer.

Speaker Change: And so we've had a strong start we have a very high degree of confidence for the $300 million given we exceeded our initial guidance in year, one and then as it relates to the cost.

Speaker Change: The $100 million in cost synergies are really a function of elimination of two publicly traded companies.

Speaker Change: We also exceeded our year one target.

Speaker Change: For the cost side, and we have full line of sight to the $100 million by 2025 in fact.

Shahriar Pourreza: Thank you, Shahriar. Hmm. Thank you. One moment for our next question. Our next question comes from Angie Storozynski. Seaport, your line is now open.

Speaker Change: We will probably exceed our 2024 target.

Angie Storozynski: Good morning. Good morning, Angie. Good morning.

Speaker Change: Towards that $100 million and so as we sit here.

Larry Koppen: So just also a big picture question. So, I mean, if there's one thing that we've learned over the last couple of weeks, it's that investors increasingly value physical power plants, especially those that don't get a participation medal for just showing up. So I'm just wondering how that fits in with your strategy of being acid light on the generation side in light of tightening supply-demand fundamentals in power. Again, I understand that there is demand response and other ways to probably fit in with this new picture, but I'm just wondering, just simplistically speaking, how do you deal with that? Angie, I'm going to let Rob expand on that, but, you know, I don't think we're asset light; we're asset optimal, and we'll always be asset optimal. And that may be semantics, but I think they're important semantics.

Speaker Change: We feel good on both ends.

Speaker Change: Got it. Thank you and then maybe just one five gigawatt.

Speaker Change: Dispatch mode generation opportunity.

Speaker Change: Can you maybe walk us through your thought process here sounds like it'll be making decisions in the second half of this year, how do you kind of.

Speaker Change: <unk> that versus buying back shares as I'm thinking about the long term outlook 2025 and beyond.

Speaker Change: Okay.

Speaker Change: Let me just say it will not impact one iota, our capital allocation strategy or the buyback of shares I want to make that clear again, and again and again and you can put that down as a headline.

Speaker Change: So very very clear on that.

Speaker Change: Strategically it's really we have a supply strategy that Rob is laid out on several occasions and looking at how these plants fit into that supply strategy, both for our existing customers, but also for the customers who are coming online with things like data centers like generative AI and some of the other things we've been.

Rob: You know, we have three brownfield projects that are ready to go, and you'll get some updates on those pretty soon. But that's 1.5 gigawatts of dispatchable capacity, and we have some more potential in the pipeline. Maybe, Rob, you want to expand on that, please? Sure. So, Angie, look, we're excited by the growing demand for power. Like, I think that it's real.

Speaker Change: Talking about that our growth in tightening opportunities, Rob do you want to add anything.

Rob: The thing I would tell you is recall we've been working on these for a while.

Rob: And we continue to work today, so we continue to get closer to closer to.

Rob: Being able to make.

Rob: Final commitments and.

Speaker Change: In March the rules for taxes come out.

Speaker Change: And then you can expect people to put a put their names and for the Texas Energy Fund probably June I would expect that you guys will hear from us as to what we decide like Larry said, we're getting on our capital allocation plan sticks.

Rob: We know it's real because we talk to a lot of the growth guys. So it's the hyperscalers and others that you've all heard about. We talk to them a lot, and it's exciting for NRG for a couple of reasons. One, we sit in competitive markets, which is where I believe most of this demand growth is going to be. We're going to see expanded margins on our existing fleet, right? So as the price goes up, we're going to see more earnings off of our generation, and we've spent and invested inside of those plants so that we can capture that. Like Larry said, we've got three projects that are ready to go.

Speaker Change: And it all comes down to the financial opportunities that we see in either building the plants or doing something different and right now and as you guys have all seen those plants have flexibility, which is good for how we manage our portfolio and ultimately good for what the current needs in Texas.

Speaker Change: Very clear thank you again.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from David Arcaro.

David Arcaro: With Morgan Stanley. Your line is now open.

Rob: And the other thing to think about, Angie, is we've got 21 plant sites across the country. So if this growth continues and we see it makes economic sense, then there's an opportunity there. But ultimately, these guys are going to turn to partners like NRG.

David Arcaro: Oh, Hey, good morning, Thanks, so much for taking my questions.

David Arcaro: Good morning, David.

David Arcaro: Maybe on the smart home side of things.

David Arcaro: Again strong Kpis in 2023 I was wondering if you could comment on how you are expecting a couple of those like subscriber growth and recurring revenue how do you see those trending now heading into 2024.

Rob: As the market tightens, they're going to look for people who've got the expertise that we have. So it's going to be good for the industry, but it's definitely going to be good for us. But does that mean that, you know, in a sense, you're shifting a bit of the growth on the energy side towards C&I customers? Because I remember that, historically, that was a very small portion of the business, and all of them had meaningfully lower margins than the rest.

Speaker Change: Yes. Thank you.

Speaker Change: We felt really good about how we exited the year and 'twenty three.

Speaker Change: Mentioned with 6% subscriber growth.

Speaker Change: 11% revenue growth, 17% adjusted EBIT growth EBIT growth.

Speaker Change: Really that's a function of a few things first is the unit economics of the business are in great shape. If you look at the revenue per customer.

Speaker Change: Service cost reduction per customer of 21% that really drives an expansion of our service margin and we expect that increased elevated margin to continue into 2024 as it relates to.

Angie Storozynski: So anyway, is there like a different earnings or margin profile for those tech companies versus the traditional C&I load that you used to serve? So generally, C&I margins themselves have gone up. But the difference in a margin from a hyperscaler versus a traditional C&I customer, there isn't, we haven't seen a growth in margin on the hyperscaler.

Speaker Change: Retention and brand loyalty, we are we had amongst our best years ever in terms of retaining our customers with a strong and durable customer relationships.

Rob: The way you should probably think about it is if you're going to get a bunch of demand into the system, which we believe is real, that's going to create tightness for all customers. And so CNI customers across the board, not just data center customers, are going to be looking for expertise, which means they're going to turn to the bigger players who can help them manage the risk in a higher price, tighter commodity environment. Does that help?

Speaker Change: We expect that to continue as well and then in terms of the subscriber growth.

Speaker Change: We expect to be in the mid single digits from a subscriber growth perspective as well so.

Speaker Change: We feel we feel good about how the business is set up in 24, if you zoom out we operate in a large growing and fragmented market and our products and services.

Speaker Change: Have a very high degree of engagement and loyalty relative to peers and so we.

Angie Storozynski: Yeah. And then changing topics and your IG aspirations. So, I obviously see the metrics, or the targeted metrics for the end of 24. Can you tell us if you've had any discussions with credit agencies about how they see the business risks besides just hitting the numerical threshold?

Speaker Change: We think there is a lot of room ahead for us to continue to grow the business.

Speaker Change: Okay got it thanks for that color that's helpful.

Speaker Change: And I was wondering if you could maybe elaborate a bit more on the data center impact.

Speaker Change: To the business am I understanding you correctly that as.

Speaker Change: As you see load growth from these data centers happened in ERCOT. For example, you could see I guess, some potentially higher pricing more volatile pricing and over time that could lead to higher margins across the board higher retail margins across customer classes for your business is that the right way to think about it.

Bruce Chun: as a, you know, vis-a-vis the investment rating. Sure, Angie. So... You know, just to clarify, we are not chasing an investment grade rating. As we've always said, we are making sure that we want to hit the metrics that we believe correspond with an investment-grade rating, but that's not to say that we're necessarily going to be chasing it, because ultimately that is up to the agencies. We talk to the agencies very regularly, and they like the path on which we are heading from a credit perspective. It's important to note that when you think about our credit metrics, it's not just debt to EBITDA that the agencies focus on.

Speaker Change: It's Rob yes, so degenerative AI has got a load or created additional demand across the markets. The way to think about how that affects the businesses generally is let's start with that expands the margins on our existing generation portfolio and it also makes that one five gigawatts.

Speaker Change: More interesting and then when you think across the other parts of the business C&I youre going to see people turning towards bigger players like us like we've seen it historically when things get tighter they run to quality providers were there and then from a home perspective, the consumer perspective, we've had a.

Speaker Change: Our retail platform that has historically and will in the future.

Speaker Change: Managed through different commodity cycles, and as prices move our retail platform because of the experience we have beyond just being a commodity provider.

Bruce Chun: They obviously also look at cash flow-driven metrics, and so we're kind of triangulating around all of that. Whether we get the rating or not, like I said, it's not necessarily within our control, but what is within our control is being able to hit those metrics. I'd say as we sit here today, given, as you would note, where we're going to end up at the end of 2024, we think there's probably some flexibility in 2025 with respect to what our original deleveraging plans were as part of the investor-day plan, but more to come on that as we move along in the year.

Speaker Change: We do well in those markets too.

Speaker Change: Okay, great. Thanks for that how much I appreciate it.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from Michael Sullivan with Wolfe. Your line is now open.

Michael Sullivan: Hey, Ron good morning.

Michael Sullivan: Appreciate it Michael.

Michael Sullivan: Hey, I appreciate the new disclosures on the on the energy business.

Michael Sullivan: The way.

Michael Sullivan: But wanted to just go back to Texas and Newbuild, there and just maybe if you could just frame the broader.

Michael Sullivan: Political dynamic there where things stand just in light of Hulu.

Michael Sullivan: The lieutenant Governor, making some comments I think asking for Newbuild.

Angie Storozynski: Our next question comes from Durgesh Chopra with Evercore ISI. Your line is now open. Hey, good morning team. Thanks for giving me time.

Michael Sullivan: To see these headlines.

Michael Sullivan: Noisy around the Crs.

Michael Sullivan: Not in a legislative.

Michael Sullivan: And this year, but just kind of where the politics stand on market structure and the like.

Durgesh Chopra: I just wanted to kind of go over the cost improvements and the growth opportunity, the $550 million target that you have by 2025. So obviously, this year, you've kind of hit the ground running and exceeded expectations. Maybe you can sort of help us break that apart, the $100 million in growth opportunities, how much of that is cross-selling versus how much of that is actual margin expansion within existing services. And then as we think about cost improvements, there's a big step change from $37 million this year to about $100 million. Maybe just walk through the drivers of that.

Michael Sullivan: Okay.

Speaker Change: If I could understand Texas politics, I'd be in a different business, probably Michael but.

Speaker Change: It's not a legislative session I think it's fair to say that people are now looking to see.

Speaker Change: Whether everything that was passed in the last session is actually going to generate capacity in the state before people start breaking it up again and starting over.

Speaker Change: The PUC has a lot awful lot of work to do just to implement the <unk> things that were passed in the legislature.

Speaker Change: And I think a combination of those measures plus the tightening market and the improving economics in the market and the expanding margins will probably generate the capacity that Texas will need to meet growth in the foreseeable future at least that's our view of what's happening in politics that doesn't mean.

Speaker: Yeah, you bet, good morning. So in terms of, you know, the growth synergies, we feel obviously very good about where we sit one year into the plan through 2025. You can think about the mix as roughly 50% is actually driven by organic growth in the business units. That's obviously a strong year in the base business. And the other 50% is driven by a combination of cross-sell and, you know, think of it as a share of wallet type initiatives that improve the revenue and margin profile per customer. And so we've had a strong start. We have a very high degree of confidence for the $300 million given that, you know, we exceeded our initial guidance in year one.

Speaker Change: People from time to time won't try to use the energy business as a political football, but on balance we actually see a fair amount of stability on the legislative front.

Speaker Change: Okay. That's helpful. I appreciate that's a tough one.

Speaker Change: Just if you do move forward with these brownfield plants, how long would it take to complete.

Speaker Change: Okay.

Speaker Change: So the.

Speaker Change: If you recall with the portfolio has three different projects.

Speaker Change: With <unk>.

Speaker Change: We could get in in two years and starting from whenever we broke ground and then our CCT takes about four so you could expect if.

Speaker: And then as it relates to the cost side of things, you know, the $100 million in cost synergies is really a function of the elimination of two publicly traded companies. And we also exceeded our year one target for the cost side, and we have full line of sight to the $100 million by 2025. In fact, we'll probably exceed our 2024 target, you know, towards that $100 million. And so as we sit here, you know, we feel good on both ends. Got it. Thank you. And then maybe just a 1.5 gigawatt dispatchable generation opportunity.

Speaker Change: If we were to go soon 2026, and 2028, what kind of be good years, so to think about from additional capacity perspective.

Speaker Change: Okay, Great and then just last one quick you mentioned the new Lubbock market.

Speaker Change: Any rough sense of size of the opportunity set there and is any of that baked into your plan or is that all upside.

Speaker Change: Yes. So this is elizabeth thanks for the question. So we are really excited about a lot of that opening two things about it 165% of consumers made a choice.

Durgesh Chopra: Can you maybe walk us through your thought process here? Sounds like you'll be making decisions in the second half of this year. How do you kind of gauge that versus buying back shares, as I'm thinking about the long-term outlook 2025 and beyond?

Speaker Change: And if.

Elizabeth: If you have a reference point like when the Texas market opened 5% made a choice so demonstrating that consumers actually care.

Elizabeth: They do business with in energy.

Elizabeth: NRG participated in the presale process, that's where the 65% made the choice and those customers will come on slow in March and that is baked into our 2024 and beyond growth plan.

Larry Koppen: Look, let me just say, it will not impact one iota our capital allocation strategy or the buyback of shares. I want to make that clear again and again and again, and you can put that down as a headline. So very, very clear on that. Strategically, we have a, you know, a supply strategy that Rob has laid out on several occasions and are looking at how these plants fit into that supply strategy, both for our existing customers but also for the customers who are coming online with things like data centers, like generative AI, and some of the other things we've been talking about that are growth and tightening opportunities. Rob, do you want to add anything?

Elizabeth: One other thing I would say is so far nrg's over performing we have about 39% share of customers in Texas on the home front and we're over performing relative to that so again and Larry mentioned it by about 100000 customers in the marketplace.

Elizabeth: That are in that are making the choice and so they'll they'll start NB hour and other retailer customers in March.

Speaker Change: Great. Thanks for all the color I appreciate it.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from Ryan Levine with Citi. Your line is now open.

Rob: So the only thing I would tell you is, you know, recall, we've been working on these for a while. We continue to work today. So we continue to get closer to being able to make final commitments. In March, the rules for Texas come out, and then you can expect people to put their names in for the Texas Energy Fund probably in June.

Ryan Levine: Good morning, Im hoping to touch on retail energy gross margin outlook it looks like.

Ryan Levine: Your guidance is assuming about 100 basis points degradation, there and how much of that's weather normalized for 24 and is there any conservatism embedded in that forecast in light of your comments.

Ryan Levine: Any color you can share around potential upside there.

Ryan Levine: In particular in Texas.

Ryan Levine: Hey, Brian its Bruce the 2024 number is certainly.

Rob: I would expect that you guys will hear from us as to what we decide. But like Larry said, our capital allocation plan stands, and it all comes down to the financial opportunities that we see in either building the plants or doing something different. And right now, and as you guys have all seen, those plants have flexibility, which is good for how we manage our portfolio and ultimately good for what the grid needs. Very clear. Thank you again.

Bruce Chen: On a weather normalized basis, but the 24 number does reflect a higher assumption on Cogs for the retail business and so there's just a bit of a timing lag between the realization of that Cogs relative to when that gets pushed through in revenue right, but Elizabeth if you want to provide a little bit more color. Yeah. So so we've demonstrated margin stability.

Elizabeth: Over the years.

Elizabeth: The home space and that comes from and most of you were there from some of the AI machine learning revenue management tools and models, we created back in the transformation program and since have continuously improve them.

Durgesh Chopra: Thank you. One moment for our next question comes from David O'Carroll. Morgan Stanley, your line is now open. Oh, hey, good morning. Thanks so much.

David O'Carroll: Morning, David. Maybe on the smart home side of things. Strong KPIs in 2023. I was wondering if you could comment on how you're expecting a couple of those, like subscriber growth and recurring revenue. How do you see those trendsing now heading into 2023? Yeah, thank you. We felt really good about how we exited the year in 23, as you mentioned, with 6% subscriber growth, 11% revenue growth, and 17% adjusted EBITDA growth. And really, that's a function of a few things.

Elizabeth: The other thing I would highlight is that over this call at the last decade, we've been able to deliver stable and growing margins.

Elizabeth: In a variety of supply cost environment. So this one Bruce mentioned where costs have significantly increased over the last few years and we've.

Elizabeth: These are grown or held margins through that timeframe.

Elizabeth: <unk> from the weather normalization.

Elizabeth: You mentioned.

Speaker Change: How much cost escalation are you assuming for 2024, that's being offset.

Bruce Chen: Other measures.

Bruce Chen: Ryan that's probably one that will have to just get back to you on to make sure that we get you the right numbers on that.

Bruce Chen: Okay.

Bruce Chen: The attack.

Speaker Change: Thank you.

Speaker: First, the unit economics of the business are in great shape. If you look at the revenue per customer, and the service cost reduction per customer of 21%, that really drives an expansion of our service margin. And we expect that increased elevated margin to continue into 2024. As it relates to retention and brand loyalty, we had amongst our best years ever in terms of retaining our customers with a strong and durable customer relationship.

Speaker Change: This concludes the Q&A portion of today's call.

Speaker Change: I will now pass it back to Larry Cohen for closing remarks.

Larry Cohen: On to thank all of you for joining us on the call today and for your interest in NRG and.

Larry Cohen: I think you can see we are the most exciting point probably in Nrg's history.

Larry Cohen: Thank you can hear in the voices of the management and in our actual results what we have and are planning to achieve going forward.

Speaker: We expect that to continue as well. And then, in terms of subscriber growth, we expect to be in the mid-single digits from a subscriber growth perspective as well. So, we feel good about how the business is set up in 2024. If you zoom out, we operate in a large..., www.nrg.nlm.nl, Got it. Thanks for that color.

Larry Cohen: We look forward to speaking with you more in the days ahead, we will be at the conferences in New York next week in the meantime, please feel free to reach out to Kevin and Brendan with any further questions that you might have thank you all.

Larry Cohen: Okay.

Speaker Change: Ladies and gentlemen, thank you for your participation in today's conference.

Speaker Change: This concludes the program.

Larry Cohen: Yes.

Larry Cohen: [music] okay.

David O'Carroll: It's helpful, maybe elaborate a bit more on the data center impact to the business. Am I understanding you correctly that, you know, as you see load growth from these data centers? Urquhart for, www.nrg.nlm.nl, Cross-customer classes for your business, is that the right way to... It's Rob. Yes.

Rob: So generative AI is going to load or create additional demand across the markets. The way to think about how that affects businesses generally is, let's start with, it expands the margins on our existing generation portfolio and also makes that 1.5 gigawatts more interesting. And then when you think across the other parts of the business, C&I, you're going to see people turning towards bigger players like us, or we've seen it historically. When things get tighter, they run to quality providers.

Larry Cohen: Yes.

Larry Cohen: [music].

Rob: We're there. And then from a home perspective, a consumer perspective, you know, we've had a retail platform that has historically and will in the future manage through different commodity cycles. And as prices move, our retail platform, because of the experience we have beyond just being a commodity provider, does well in those markets. Great, thanks.

Michael Sullivan: Thank you. One moment for our next question. Our next question comes from Michael Sullivan with Wolf. Your line is now open. Hey, everyone. Good morning.

Michael Sullivan: I appreciate it. Hey, I appreciate the new disclosures on the energy business, by the way. But I wanted to just go back to Texas and Youville there.

Larry Koppen: And just maybe if you could just frame the broader political dynamic there, where things stand just in light of the lieutenant governor making some comments, I think asking for a new bill, that you kind of continue to see these headlines noisy around the ECRS. I know we're not in a legislative session this year, but just kind of, yeah, where the politics..., market structure and the like. If I could understand Texas politics, I'd be in a different business, probably, Michael. But there's not a legislative session.

Larry Koppen: I think it's fair to say that people are now looking to see whether everything that was passed in the last session is actually going to generate capacity in the state before people start breaking it up again and starting over. You know, the PUC has a lot, an awful lot of work to do just to implement the many things that were passed in the legislature, and I think a combination of those measures, plus the tightening market and the improving economics in the market and the expanding margins will probably generate the capacity that Texas will need to meet growth in the foreseeable future. At least that's our view of what's happening in politics.

Michael Sullivan: That doesn't mean that people from time to time won't try to use the energy business as a political football, but on balance, we actually see a fair amount of stability on the legislative front. Okay, that's helpful. I appreciate that it's a tough one. And just if you do move forward with these brownfield plants, how long would it take to complete?

Rob: So, if you recall, the portfolio is three different projects; the peakers, you know, we could get in within two years and start them from whenever we break ground, and then a CCGT takes about four. So, you know, you could expect, if we were to go soon, 2026 and 2028 would kind of be good years to think about from an additional capacity perspective. Okay, great. And then, just last one quick, you mentioned the new Lubbock market. Any, like, rough sense of the size of the opportunity set there, and is any of that baked into your plan, or is that all upside? Yeah, so this is Elizabeth.

Elizabeth: Thanks for the question. So we are really excited about the Lubbock opening. Two things about it. One, 65% of consumers made a choice. And if you have a reference point, like when the Texas market opened, 5% made a choice. So demonstrating that consumers actually care who they do business with in energy. NRG participated in the presale process. That's where the 65% made the choice.

Elizabeth: And those customers will come on stream in March. And that is baked into our 2024 and beyond growth plan. The only other thing I would say is so far, NRG is overperforming. We have about 39% share of customers in Texas on the home front, and we are overperforming relative to that.

Elizabeth: Okay.

Michael Sullivan: So again, and Larry mentioned it, but about 100,000 customers in the market are making a choice, and so they'll start and be our and other retail customers in March. Great. Thanks for all the color.

Larry Cohen: Okay.

Larry Cohen: [music].

Ryan Levine: I appreciate it. Thank you. One moment for our next question. Our next question comes from Ryan Levine with Citi, who lines up now morning. I'm hoping to touch on retail energy gross margin outlook. It looks like your guidance there. How much of that's weather normalized for 24 and is there any conservatism embedded in that forecast? and Kari, in particular.

Ryan Levine: Yes.

Ryan Levine: So, hey, Ryan, it's Bruce. The 2024 number is certainly on a weather-normalized basis, but, you know, the 24 number does reflect a higher assumption on COGS for the retail business. And so, there's just a bit of a timing lag between, you know, the realization of that COGS relative to when that gets pushed through in revenue.

Ryan Levine: Okay.

Ryan Levine: [music].

Ryan Levine: Right.

Larry Cohen: [music].

Bruce Chun: But, Elizabeth, if you want to provide a little bit more cover there, yeah. So, we've demonstrated margin stability over the years in the home space. And that comes from, and most of you were there, some of the AI, machine learning, revenue management tools, and models we created back in the transformation program and have continuously improved them. The other thing I would highlight is that over this, you know, call it the last decade, we've been able to deliver stable and growing margins in a variety of supply cost environments. So, this one Bruce mentioned where costs have significantly increased over the last few years, and we've either grown or held margins through that, aside from the weather normalization that you mentioned. How much does that glade cost?

Michael Sullivan: Okay.

Larry Cohen: Okay.

Bruce Chun: Sure.

Bruce Chun: [music].

Bruce Chun: Okay.

Bruce Chun: [music].

Ryan Levine: Are you? Ryan, that's probably one that we'll have to just get back to you on to make sure that we get you the right numbers on that. Hi, Thank you. This concludes the Q&A portion of today's call. I will now pass it back to Larry Kobin for closing remarks. I want to thank all of you for joining us on the call today and for your interest in NRG. I think you can see we are at the most exciting point, probably, in NRG's history.

Ryan Levine: Yes.

Ryan Levine: [music].

Ryan Levine: Okay.

Ryan Levine: Okay.

Ryan Levine: Yes.

Ryan Levine: Okay.

Ryan Levine: Okay.

Ryan Levine: [music].

Larry Kobin: I think you can hear in the voices of the management and in our actual results, what we have and are planning to achieve going forward. We look forward to speaking with you more in the days ahead. We'll be at the conferences in New York next week. In the meantime, please feel free to reach out to Kevin and Brendan with any further questions that you might have. Thank you all. Ladies and gentlemen... Thank you for your participation in today's conference. This concludes the program. Thank you for watching! ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Thank you for watching! ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??

Ryan Levine: Yes.

Larry Kobin: Yes.

Larry Kobin: [music].

Larry Kobin: Okay.

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Larry Kobin: Yes.

Larry Kobin: Okay.

Larry Kobin: Yes.

Larry Kobin: Yes.

Larry Kobin: Sure.

Larry Kobin: Okay.

Larry Kobin: Yes.

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Larry Kobin: Yes.

Larry Kobin: Okay.