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NRG Energy, Inc. Reports Third Quarter 2021 Results

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·14 min read
In this article:
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  • Narrowing 2021 guidance and initiating 2022 financial guidance

  • Direct Energy integration and synergies plan on track

  • Increasing 2022 annual dividend by 8% from $1.30/share to $1.40/share

  • ERCOT advancing comprehensive market reforms

HOUSTON, November 04, 2021--(BUSINESS WIRE)--NRG Energy, Inc. (NYSE: NRG) today reported a third quarter 2021 net income of $1,618 million, or $6.60 per diluted common share and Adjusted EBITDA for the third quarter of $767 million.

"Our platform has demonstrated resilient year-to-date performance, despite facing supply chain constraints driven by economy-wide shortages. As a result, we are focusing on mitigating near-term impacts," said Mauricio Gutierrez, NRG President and Chief Executive Officer. "As we turn towards the remainder of the year, we will look forward to continued progress on our strategic priorities, including the completion of our announced asset sales and furthering our customer-focused strategy."

Consolidated Financial Results

Three Months Ended

Nine Months Ended

($ in millions)

9/30/2021

9/30/2020

9/30/2021

9/30/2020

Net Income

$

1,618

$

249

$

2,614

$

683

Cash provided by Operating Activities

$

1,478

694

$

1,855

$

1,386

Adjusted EBITDAa

$

767

$

752

$

1,990

$

1,674

Free Cash Flow Before Growth Investments (FCFbG)

$

395

$

625

$

1,163

$

1,157

a. Three and nine months ended 9/30/2021 excludes the loss due to Winter Storm Uri of $21 million and $1,070 million, respectively

Segments Results

Table 1: Net Income/(Loss)

($ in millions)

Three Months Ended

Nine Months Ended

Segment

9/30/2021

9/30/2020

9/30/2021

9/30/2020

Texas

$

251

$

287

$

600

$

799

East

1,976

145

3,107

307

West/Services/Othera

(609)

(183)

(1,093)

(423)

Net Income

$

1,618

$

249

$

2,614

$

683

a. Includes Corporate segment

Third quarter net income was $1,618 million, $1,369 million higher than third quarter 2020, driven by the acquisition of Direct Energy and the resulting mark-to-market on economic hedge positions in 2021 versus 2020 which were driven by large movements in gas prices and power prices.

Table 2: Adjusted EBITDA

($ in millions)

Three Months Ended

Nine Months Ended

Segment

9/30/2021

9/30/2020

9/30/2021

9/30/2020

Texas

$

446

$

514

$

1,004

$

1,087

East

229

140

781

359

West/Services/Othera

92

98

205

228

Adjusted EBITDAb

$

767

$

752

$

1,990

$

1,674

a. Includes Corporate segment

b. Three and nine months ended 9/30/2021 excludes the loss due to Winter Storm Uri of $21 million and $1,070 million, respectively

The following discussion of financial results exclude the impact from Winter Storm Uri:

Texas: Third quarter Adjusted EBITDA was $446 million, $68 million lower than third quarter of 2020. This decrease was driven by increased costs to service retail load resulting from increased power and fuel costs as well as replacement power due to the extended forced outage at Limestone. These were partially offset by an increase due to the acquisition of Direct Energy.

East: Third quarter Adjusted EBITDA was $229 million, $89 million higher than third quarter of 2020. This increase was driven by the acquisition of Direct Energy partially offset by lower retail volumes and higher supply costs.

West/Services/Other: Third quarter Adjusted EBITDA was $92 million, $6 million lower than third quarter of 2020. This decrease is due to lower equity earnings from the sale of Agua Caliente in February 2021 and prior year MISO uplift payments resulting from out-of-market dispatch during extreme weather. These were partially offset by an increase due to the acquisition of Direct Energy.

Liquidity and Capital Resources

Table 3: Corporate Liquidity

($ in millions)

09/30/21

12/31/20

Cash and Cash Equivalents

$

259

$

3,905

Restricted Cash

14

6

Total

$

273

$

3,911

Total Revolving Credit Facility and collective collateral facilities

3,041

3,129

Total Liquidity, excluding collateral received

$

3,314

$

7,040

As of September 30, 2021, NRG cash was at $0.3 billion, and $3.0 billion was available under the Company’s credit facilities. Total liquidity was $3.3 billion. Overall liquidity as of the end of the third quarter 2021 was approximately $3.7 billion lower than at the end of 2020, driven by the closing of the $3.6 billion Direct Energy acquisition, the impact of Winter Storm Uri and $255 million of deleveraging.

NRG Strategic Developments

Texas Legislation and Winter Storm Uri Updates

Following Winter Storm Uri, the Texas legislature passed an omnibus reliability and customer-protection bill, SB3, in addition to two other statutes, HB4492 and SB1580, that provide for the financial stabilization of the market through securitization. The Public Utility Commission of Texas (PUCT) has implemented these laws by adopting mandatory weatherization standards for the electric sector, proposing market design reforms that prevent extraordinary energy price excursions in ERCOT while providing supplementary revenues for dispatchable resources, and issuing orders that cumulatively provide for $2.9 billion of financial relief to load-serving entities and their customers, as well as short-paid entities. The PUCT is expected to announce additional information regarding the ERCOT market re-design on December 20, 2021. ERCOT is also expected to publish its calculation of eligible entities’ share of securitization proceeds related to extraordinary uplift costs on December 7, 2021, with such proceeds expected to be disbursed in the first quarter of 2022. ERCOT expects to disburse proceeds of the smaller market-participant default securitization in 2021.

The Company expects Winter Storm Uri's total 2021 loss before income tax to be $1,070 million driven by resettlement data, ERCOT system wide counterparty defaults, provisions for credits losses, increased uplift charges to load, ancillary charges, and other estimates including results from other regions. The Company plans to mitigate the loss by a range of $370-$570 million which includes, but is not limited to, customer bad debt mitigation, counterparty default recovery, ERCOT default and uplift regulatory securitization as noted above, and one-time cost savings. The total net impact to cash flow is expected to be $600 million based on the mid-point of the mitigants, of which $65 million will be realized in 2022 for bill credits owed to large Commercial and Industrial (C&I) customers.

Issuance of 2032 Senior Notes and Redemption of 2026 and 2027 Senior Notes

On August 23, 2021, the Company issued $1.1 billion of aggregate principal amount at par of 3.875% senior notes due 2032. The 2032 Senior Notes were issued under NRG's Sustainability-Linked Bond Framework, which sets out certain sustainability targets, including reducing greenhouse gas emissions. Failure to meet such sustainability targets will result in a 25-basis point increase to the interest rate payable on the 2032 Senior Notes from and including August 15, 2026.

The proceeds along with cash on hand were used to fund the redemption of higher interest notes including $1.0 billion 7.250% Senior Notes due 2026 and $355 million of 6.625% senior notes due 2027 on August 24, 2021. In connection with the redemptions, a $57 million loss on debt extinguishment was recorded, which included the write-off of previously deferred financing costs of $9 million, during the nine months ended September 30, 2021. The Company will realize annual interest savings of $53 million.

Narrowing 2021 Guidance and Initiating 2022 Guidance

NRG is narrowing its Adjusted EBITDA, Adjusted Cash from Operations, and Free Cash Flow Before Growth Investments (FCFbG) guidance for 2021 which excludes the full year impact of Winter Storm Uri. NRG is also initiating guidance for fiscal year 2022.

Table 4: 2021 and 2022 Adjusted EBITDA, Adjusted Cash from Operations, and FCFbG Guidance

2021

2022

(In millions)

Revised Guidance

Guidance

Adjusted EBITDAa

$2,400 - $2,500

$1,950 - $2,250

Adjusted Cash Flow from Operations

$1,640 - $1,740

$1,380 - $1,680

FCFbG

$1,440 - $ 1,540

$1,140 - $1,440

a. Non-GAAP financial measure; see Appendix Tables A-4 for GAAP Reconciliation to Net Income that excludes fair value adjustments related to derivatives. The Company is unable to provide guidance for Net Income due to the impact of such fair value adjustments related to derivatives in a given year.

Capital Allocation Update

On October 15, 2021, NRG declared a quarterly dividend on the Company's common stock of $0.325 per share, payable on November 15, 2021 to stockholders of record as of November 1, 2021. Beginning in the first quarter of 2022, NRG will increase the annual dividend by 8% to $1.40 per share.

The Company deleveraged by a total of $255 million of senior notes through September 30, 2021. The Company’s deleveraging program will extend into 2023 growing into its target investment grade metrics of 2.5 - 2.75x, primarily through the full realization of Direct Energy’s run-rate earnings. The Company remains committed to maintaining a strong balance sheet and to achieving investment grade credit metrics.

The Company's common stock dividend and debt reductions are subject to available capital, market conditions, and compliance with associated laws and regulations.

Earnings Conference Call

On November 4, 2021, NRG will host a conference call at 9:00 a.m. Eastern to discuss these results. Investors, the news media, and others may access the live webcast of the conference call and accompanying presentation materials by logging on to NRG’s website at www.nrg.com and clicking on "Investors" then "Presentations & Webcasts." The webcast will be archived on the site for those unable to listen in real time.

About NRG

At NRG, we’re bringing the power of energy to people and organizations by putting customers at the center of everything we do. We generate electricity and provide energy solutions and natural gas to millions of customers through our diverse portfolio of retail brands. A Fortune 500 company, operating in the United States and Canada, NRG delivers innovative solutions while advocating for competitive energy markets and customer choice, working towards a sustainable energy future. More information is available at www.nrg.com. Connect with NRG on Facebook, LinkedIn and follow us on Twitter @nrgenergy.

Forward-Looking Statements

In addition to historical information, the information presented in this presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These statements involve estimates, expectations, projections, goals, assumptions, known and unknown risks and uncertainties and can typically be identified by terminology such as "may," "should," "could," "objective," "projection," "forecast," "goal," "guidance," "outlook," "expect," "intend," "seek," "plan," "think," "anticipate," "estimate," "predict," "target," "potential" or "continue" or the negative of these terms or other comparable terminology. Such forward-looking statements include, but are not limited to, statements about the Company’s future revenues, income, indebtedness, capital structure, plans, expectations, objectives, projected financial performance and/or business results and other future events, and views of economic and market conditions.

Although NRG believes that its expectations are reasonable, it can give no assurance that these expectations will prove to be correct, and actual results may vary materially. Factors that could cause actual results to differ materially from those contemplated herein include, among others: the potential impact of COVID-19 or any other pandemic on the Company’s operations, financial position, risk exposure and liquidity; general economic conditions, including global supply chain disruptions; hazards customary in the power industry; weather conditions and extreme weather events; competition in wholesale power and gas markets; the volatility of energy and fuel prices; failure of customers or counterparties to perform under contracts; changes in the wholesale power and gas markets; changes in government or market regulations; the condition of capital markets generally and our ability to access capital markets; cyberterrorism and inadequate cybersecurity; unanticipated outages at our generation facilities; adverse results in current and future litigation; failure to identify, execute or successfully implement acquisitions or dispositions; our ability to implement value enhancing improvements to plant operations and companywide processes including weatherization of our physical assets; our ability to achieve our net debt targets; our ability to achieve investment grade credit metrics; our ability to achieve our growth plan; our ability to retain retail customers; our ability to realize value through our market operations strategy; the ability to successfully integrate businesses of acquired companies, including Direct Energy; our ability to realize anticipated benefits of transactions (including expected cost savings and other synergies) or the risk that anticipated benefits may take longer to realize than expected; our ability to proceed with projects under development or the inability to complete the construction of such projects on schedule or within budget; the inability to maintain or create successful partnering relationships; our ability to operate our business efficiently; and our ability to execute our Capital Allocation Plan. Achieving investment grade credit metrics is not an indication of or guarantee that the Company will receive investment grade credit ratings. Debt and share repurchases may be made from time to time subject to market conditions and other factors, including as permitted by United States securities laws. Furthermore, any common stock dividend is subject to available capital and market conditions.

NRG undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The adjusted EBITDA and free cash flow guidance are estimates as of November 4, 2021. These estimates are based on assumptions the company believed to be reasonable as of that date. NRG disclaims any current intention to update such guidance, except as required by law. The foregoing review of factors that could cause NRG’s actual results to differ materially from those contemplated in the forward-looking statements included in this presentation should be considered in connection with information regarding risks and uncertainties that may affect NRG's future results included in NRG's filings with the Securities and Exchange Commission at www.sec.gov.

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three months ended
September 30,

Nine months ended
September 30,

(In millions, except for per share amounts)

2021

2020

2021

2020

Operating Revenues

Total operating revenues

$

6,609

$

2,809

$

19,943

$

7,066

Operating Costs and Expenses

Cost of operations (excluding depreciation and amortization shown below)

3,692

2,034

13,496

4,925

Depreciation and amortization

199

99

569

318

Impairment losses

29

306

29

Selling, general and administrative costs

318

216

973

592

Provision for credit losses

64

26

715

74

Acquisition-related transaction and integration costs

17

12

81

13

Total operating costs and expenses

4,290

2,416

16,140

5,951

Gain on sale of assets

17

6

Operating Income

2,319

393

3,820

1,121

Other Income/(Expense)

Equity in earnings of unconsolidated affiliates

15

36

23

37

Impairment losses on investments

(18)

Other income, net

8

11

42

52

Interest expense

(122)

(99)

(374)

(292)

Total other expense

(156)

(52)

(366)

(222)

Income Before Income Taxes

2,163

341

3,454

899

Income tax expense

545

92

840

216

Net Income

1,618

249

2,614

683

Income per Share

Weighted average number of common shares outstanding — basic

245

244

245

246

Income per Weighted Average Common Share — Basic

$

6.60

$

1.02

$

10.67

$

2.78

Weighted average number of common shares outstanding — diluted

245

245

245

247

Income per Weighted Average Common Share — Diluted

$

6.60

$

1.02

$

10.67

$

2.77

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three months ended September 30,

Nine months ended September 30,

(In millions)

2021

2020

2021

2020

Net Income

$

1,618

$

249

$

2,614

$

683

Other Comprehensive (Loss)/Income

Foreign currency translation adjustments

(11)

4

(6)

2

Defined benefit plans

1

20

Other comprehensive (loss)/income

(10)

4

14

2

Comprehensive Income

$

1,608

$

253

$

2,628

$

685

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2021

December 31, 2020

(In millions, except share data)

(Unaudited)

(Audited)

ASSETS

Current Assets

Cash and cash equivalents

$

259

$

3,905

Funds deposited by counterparties

1,748

19

Restricted cash

14

6

Accounts receivable, net

3,096

904

Inventory

445

327

Derivative instruments

8,528

560

Cash collateral paid in support of energy risk management activities

21

50

Prepayments and other current assets

461

257

Total current assets

14,572

6,028

Property, plant and equipment, net

1,976

2,547

Other Assets

Equity investments in affiliates

167

346

Operating lease right-of-use assets, net

293

301

Goodwill

1,801

579

Intangible assets, net

2,915

668

Nuclear decommissioning trust fund

957

890

Derivative instruments

2,671

261

Deferred income taxes

1,994

3,066

Other non-current assets

619

216

Total other assets

11,417

6,327

Total Assets

$

27,965

$

14,902

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Current portion of long-term debt and finance leases

$

504

$

...

Current portion of operating lease liabilities

79

69

Accounts payable

1,967

649

Derivative instruments

6,032

499

Cash collateral received in support of energy risk management activities

1,748

19