Vistra Corp. (NYSE:VST) Q4 2022 Earnings Call Transcript
Vistra Corp. (NYSE:VST) Q4 2022 Earnings Call Transcript March 1, 2023
Operator: Good morning, and welcome to the Vistra's Fourth Quarter and Full Year Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Meagan Horn, Vice President of Investor Relations. Please go ahead.
Meagan Horn: Thank you. Good morning, everyone, and welcome to Vistra's investor webcast, discussing fourth quarter and full year 2022 results, which is being broadcast live on the Investor Relations section of our website at www.vistracorp.com. Also available on our website are a copy of today's investor presentation, the related press release and recent annual and quarterly reports on Forms 10-K and 10-Q. Joining me for today's call are Jim Burke, our President and Chief Executive Officer; and Kris Moldovan, our Executive Vice President and Chief Financial Officer. We have a few additional senior Executives present to address questions during the second part of today's call, as necessary. Before we begin our presentation, I would like to note that today's press release, slide presentation and discussions on this call all include certain non-GAAP financial measures.
Reconciliations to the most directly comparable GAAP measures are provided in the press release and in the appendix to the investor presentation available in the Investor Relations section of the company's website. Also today's discussion will contain forward-looking statements, which are based on assumptions we believe to be reasonable only as of today's date. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied. We assume no obligation to update our forward-looking statements. I encourage all listeners to review the safe harbor statement included on Slide 2 of the investor presentation on our website that explain the risks and forward-looking statements, the limitations of certain industry and market data included in the presentation and the use of non-GAAP financial measures.
Thank you, and I'll now turn the call over to our President and CEO, Jim Burke.
Jim Burke: Thank you, Meagan. Good morning. I'm pleased to be here with you all to discuss our fourth quarter and full year 2022 results, which we believe is a positive and straightforward message. Beginning on Slide 5, as we've reiterated over these past quarters, we remain vigilant and focused on our strategic priorities throughout the year, and the 2022 results demonstrate that focus and set us up well for the future. We believe that operating an integrated business model provides the stability and consistency that our customers and our shareholders expect and our operations throughout extreme weather events this past year, we believe, have proved this thesis. You'll recall that we initiated guidance for 2022 for adjusted EBITDA from ongoing operations with a midpoint of $3.06 billion.
Despite extreme volatility in commodities and numerous weather events, including winter storm Elliott at the end of December, we ended the year exceeding this midpoint by $55 million. Importantly, we delivered strong adjusted free cash flows along with these higher earnings, delivering a final adjusted free cash flow before growth of $129 million above the midpoint of the narrow guidance range we introduced in the third quarter of 2022. Our integrated portfolio also supported our comprehensive hedging strategy we executed throughout 2022, with the goal of locking an out-year earnings potential in years 2023 to 2025. Kris will speak to this in more detail later, but we concluded the year at approximately 73% hedged across '23 to '25 across all markets.
This hedging percentage and the current forward curves continue to support the estimated $3.5 billion to $3.7 billion midpoint of adjusted EBITDA earnings potentials in those years. And with our 2023 adjusted EBITDA guidance midpoint set at $3.7 billion, we look forward to executing squarely on these opportunities. We continue to see Vistra generate significant cash flows and our strategic priorities remain focused on returning meaningful value to our shareholders. Kris will provide a detailed update on our capital allocation plan, but I will note that we returned approximately $2.25 billion to shareholders via our share repurchase program from November 2021 through December 2022, approximately $250 million more than we had originally planned.
Additionally, we paid out $300 million in common stock dividends in 2022, as planned, with each quarter's dividend per share growing as the share count was reduced. The fourth quarter dividend paid in December 2022 represented a 29% increase over the fourth quarter dividend paid in December of '21. We expect shareholders to continue to experience increases in dividend returns into 2023 as we expect to continue to pay out an aggregate $300 million in annual dividends due to decreasing number of shares of Vistra common stock. We remain vigilant this year in maintaining a strong balance sheet. While our debt balance did grow to provide the liquidity we needed to support our comprehensive hedging strategy, we achieved our goal of a sub-3x leverage after margin deposits are considered at year-end.
We held our debt capacity steady at year-end as we saw less return of margin than originally expected. We have seen the margin deposits start to return to us in the first quarter of 2023, and we continue to actively manage our liquidity and focus on opportunistic timing and structures to further optimize our balance sheet. With the goal to achieve our long-term sub-3x debt leverage ratio target on a pre-margin deposit basis over time. Finally, we are proud of the results we saw in our Vistra Zero business this past year. We added over 400 megawatts of renewable and storage capacity in 2022, and we expect to add another 350 megawatts of storage capacity in California at our Moss Landing Phase 3 facility in mid-2023. We also retired approximately 2,900 megawatts of Ohio and Illinois coal facilities at our Zimmer, Joppa and Edwards plants.
We appreciate the dedication of our teams who work at these sites for decades, powering our communities and always with a sharp focus on safety. We are pleased to be able to redevelop these sites in the future Vistra Zero energy facilities. Notably, the Joppa and Edwards sites are part of our Illinois Coal to Solar program where we are transitioning numerous sites into solar and/or storage facilities. Turning to Slide 6. We had a strong 2022, ending the year with $3.115 billion of ongoing operations adjusted EBITDA. This is $55 million above the $3.06 billion midpoint we said in the third quarter of 2021. We achieved nearly $2.4 billion of adjusted free cash flow before growth, $129 million higher than the narrowed guidance midpoint we set in the third quarter of '22.
Our financial achievements were underscored by the strong performance of our retail and generation teams. Our flagship retail brand TXU Energy continues to execute well, growing Texas residential customers nearly 2% year-over-year, while maintaining its PUCT 5-star rating. Our Generation team has proven its ability to perform in extreme weather conditions in both the summer and winter months, optimizing the maintenance of our fleet to stand ready to perform when needed. The team's commitment is illustrated by the 95.4% commercial availability achieved fleet-wide this past year. Safety remains our top priority and the culture of continuous improvement is exemplified in our Vistra best defense safety program. I'm pleased with our performance in 2022, but through continuous improvement, we see opportunities to perform operationally at an even higher level in 2023.
We now look forward to delivering on the financial guidance we set forth last quarter for 2023. We are reaffirming our $3.4 billion to $4 billion adjusted EBITDA from ongoing operations range for 2023 as well as reaffirming our $1.75 billion to $2.35 billion adjusted free cash flow before growth guidance range. It is early in the year, but notably, despite the volatility in commodity prices we've experienced lately, we continue to have the line of sight to achieve the expectations we've set for ourselves given the potential value our comprehensive hedging program has locked in for 2023. I will now hand the call over to Kris to discuss the 2022 fourth quarter and annual performance in more detail.
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Kris Moldovan: Thank you, Jim. Starting on Slide 8, Vistra delivered solid fourth quarter results in 2022 with ongoing operations adjusted EBITDA of approximately $771 million, including $359 million from Retail and $412 million from Generation. For the year, Vistra delivered $3.115 billion of adjusted EBITDA from ongoing operations, including $923 million for retail and $2.192 billion from Generation. Retail's results exceeded the midpoint of its component of our 2022 adjusted EBITDA from ongoing operations guidance of $700 million by $223 million. Our favorable results were primarily driven by strong residential margins, claim management and customer counts in ERCOT, offset partially by PJM and New York, New England counts and margins.
Moving now to Generation. Its adjusted EBITDA from ongoing operations results came in under the midpoint of the Generation component of guidance by $168 million, primarily driven by low first quarter prices in ERCOT, coal constraints and higher default service costs, partially offset by higher realized prices and strong commercial availability. Turning now to Slide 9. We are providing an update on the progress we've made on our capital allocation plan. As of February 23, we had executed approximately $2.45 billion of share repurchases since beginning the program in the fourth quarter of 2021. This includes an incremental $200 million since the end of 2022. We expect to utilize the remaining approximately $800 million of authorization by year-end 2023.
Notably, as of February 23, our outstanding share count had fallen to approximately 381 million shares outstanding, which represents an approximately 21% reduction from the aggregate number of shares that were outstanding just under 16 months ago. Additionally, in 2022, we delivered on our goal to pay $300 million in dividends to our common stockholders each year, and we continue to execute against that goal as we head into 2023. To that end, we recently declared the quarterly dividend to be paid on Vistra's common stock in the amount of $0.1975 per share or approximately $75 million in the aggregate, payable on March 31, 2023. This is an approximately 16% growth in dividend per share as compared to the dividend paid in the first quarter of 2022.
While returning cash directly to our shareholders remains a priority, we also continue to focus on maintaining a strong balance sheet. Importantly, we continue to target a long-term net leverage ratio, excluding any nonrecourse debt at Vistra Zero of less than 3x. While we did in the year with a higher debt balance than we planned, that higher balance corresponds to the higher levels of adjusted EBITDA opportunities we now have in years 2023 through 2025 as a result of our comprehensive hedging strategy, the execution of which required additional liquidity. Even with the higher debt balance, we achieved a sub-3x leverage on an after margin deposit basis at year-end. As we have reported in prior quarters, we continue to pursue Vistra Zero growth, and once again, we emphasize that we anticipate financing that growth by using primarily third-party capital along with the remaining proceeds from the issuance of the $1 billion of green preferred stock and ongoing Vistra Zero free cash flow.
Turning to Slide 10. As Jim mentioned earlier, we are reaffirming our guidance for ongoing operations adjusted EBITDA with a $3.7 billion midpoint for 2023. As you can see on Slide 10, we are providing an update on the forward power and gas price curves as of February 23. While there has been noticeable volatility over the past year, prices are still holding in the range of the April 29, 2022 curves, which were the basis for the estimate of $3.5 billion to $3.7 billion of potential ongoing operations adjusted EBITDA midpoint range for each of years '24 and '25. Importantly, as of the end of 2022, we were approximately 73% hedged on average across all markets for 2023 through 2025, with 2023 approximately 90% hedged and 2024, approximately 76% hedged.
As Jim stated, we are pleased with our 2022 accomplishments, but we are focused on continuous improvement as we deliver on our 2023 priorities. With that, operator, we're ready to open the line for questions.
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