NRG Energy, Inc. Reports Third Quarter 2020 Results

: Business Wire; Posted On Thursday, 05 November 2020 13:01

Narrowing 2020 Adjusted EBITDA and increasing FCFbG guidance; maintaining 2021 Adjusted EBITDA and lowering FCFbG guidance due to deferral of certain items into 2021
Direct Energy acquisition on track to close by year end; updated financing plan no longer requires new equity issuance
Ongoing portfolio optimization, targeting a minimum $250 million equity proceed over next 6-12 months

PRINCETON, N.J.--(BUSINESS WIRE)--$NRG #earnings--NRG Energy, Inc. (NYSE: NRG) today reported third quarter 2020 income from continuing operations of $249 million, or $1.02 per diluted common share and Adjusted EBITDA for the Third quarter of $752 million.

“Our business performed well during the important summer months, delivering stable results amid the COVID-19 pandemic,” said Mauricio Gutierrez, NRG President and Chief Executive Officer. "As we move towards the end of the year, we look forward to closing the Direct Energy acquisition and continue advancing our customer-centric strategy.”

Consolidated Financial Results^a

	Three Months Ended				Nine Months Ended
($ in millions)	9/30/2020		9/30/2019		9/30/2020		9/30/2019
Income from Continuing Operations	$	249	$	374	$	683	$	657
Cash provided by Continuing Operations	$	694	$	472	$	1,386	$	889
Adjusted EBITDA	$	752	$	792	$	1,674	$	1,593
Free Cash Flow Before Growth Investments (FCFbG)	$	630	$	433	$	1,199	$	673
a. In accordance with GAAP, 2019 results have been recast to reflect the discontinued operations of the South Central Portfolio and Carlsbad Energy Center

Segments Results

Table 1: Income/(Loss) from Continuing Operations

($ in millions)	Three Months Ended				Nine Months Ended
Segment	9/30/2020		9/30/2019		9/30/2020		9/30/2019
Texas	$	288	$	348	$	800	$	757
East	149		121		319		280
West/Other^a	(188)		(95)		(436)		(380)
Income from Continuing Operations^b	$	249	$	374	$	683	$	657
a. Includes Corporate segment
b. In accordance with GAAP, 2019 results have been recast to reflect the discontinued operations of the South Central Portfolio and Carlsbad Energy Center.

Table 2: Adjusted EBITDA

($ in millions)	Three Months Ended				Nine Months Ended
Segment	9/30/2020		9/30/2019		9/30/2020		9/30/2019
Texas	$	514	$	581	$	1,087	$	1,085
East	146		143		374		380
West/Other^a	92		68		213		128
Adjusted EBITDA^b	$	752	$	792	$	1,674	$	1,593
a. Includes Corporate segment
b. In accordance with GAAP, 2019 results have been recast to reflect the discontinued operations of the South Central Portfolio and Carlsbad Energy Center.

Texas: Third quarter Adjusted EBITDA was $514 million, $67 million lower than third quarter of 2019. This decrease is driven by a reduction of load due to weather and COVID-19 partially offset by lower supply costs resulting from reductions in power and fuel prices.

East: Third quarter Adjusted EBITDA was $146 million, $3 million higher than third quarter of 2019. This increase is driven by higher gross margins and increased sales of portable power products; partially offset by lower capacity revenues and higher operating expenses.

West/Other: Third quarter Adjusted EBITDA was $92 million, $24 million higher than third quarter of 2019. This increase is driven by higher gross margin primarily due to MISO uplift payments resulting from out-of-market dispatch during an extreme weather event and increased California resource adequacy pricing, partially offset by lower realized pricing in the West, lower generation from forced outages at Cottonwood facility in 2020 and the sales of emissions in 2019.

Liquidity and Capital Resources
Table 3: Corporate Liquidity

($ in millions)	09/30/20		12/31/19
Cash and Cash Equivalents	$	697	$	345
Restricted Cash	6		8
Total	$	703	$	353
Total credit facility availability	2,815		1,794
Total Liquidity, excluding collateral received	$	3,518	$	2,147

As of September 30, 2020, NRG cash was at $0.7 billion, and $2.8 billion was available under the Company’s credit facilities. Total liquidity was $3.5 billion, including restricted cash. Overall liquidity as of the end of the third quarter 2020 was approximately $1.4 billion higher than at the end of 2019, driven by improved cash from operations and the increase in credit facilities of approximately $0.9 billion during the third quarter. This increase in credit facilities reflects mainly the additional liquidity associated with the new Receivables Securitization and Repurchase facilities but excludes the additional commitments to the Company's existing revolving credit facility which become available coincident with the closing of the Direct Energy acquisition.

NRG Strategic Developments

Acquisition of Direct Energy

On July 24, 2020, the Company entered into a definitive purchase agreement with Centrica to acquire Direct Energy. Direct Energy is a leading retail provider of electricity, natural gas, and home and business energy related products and services in North America.

The Company will pay an aggregate purchase price of $3.625 billion in cash, subject to purchase price adjustment, including a working capital adjustment. The Company updated its financing plan and is now expecting to fund the purchase price using a combination of increased cash on hand and approximately $2.9 billion in newly-issued secured and unsecured corporate debt — a $0.5 billion increase from the previous estimate. The portion of the purchase price previously expected to be funded by $750 million in equity/equity-linked securities is now expected to be funded with a combination of the expected increases of 2020 cash on hand and debt to be repaid in 2021 with future targeted asset sale proceeds.

As part of NRG’s ongoing portfolio optimization strategy, NRG expects to realize a minimum $250 million net proceeds (net of debt repayment associated with assets sold) over the next 6-12 months from ongoing and prospective monetization of non-core assets and businesses. The first $200 million in net proceeds will be used to repay a portion of the increased leverage associated with Direct Energy acquisition in order to maintain investment grade metrics in 2021 and any additional proceeds will be available for capital allocation.

The acquisition remains on track to close by year end 2020. The shareholders of Centrica approved the acquisition on August 20, 2020. The transaction has received approvals under the Canadian Competition Act and early termination of the waiting period under the HSR Act has been granted. The transaction remains subject to customary closing conditions, including the receipt of approval under the Federal Power Act.

Increase in collateral facilities to support the acquisition of Direct Energy

During the third quarter, the Company amended its existing credit agreement to, among other things, increase the existing revolving commitments by an aggregate amount of $1,075 million. The increase will become effective upon closing of the Direct Energy acquisition and total revolving commitments available at that time, and subject to usage, will be $3.7 billion.

In September 2020, the Company also entered into a revolving accounts receivable financing facility for an amount up to $750 million, subject to adjustments on a seasonal basis, and an uncommitted repurchase facility related to the Receivable Securitization for up to $75 million.

Finally, as of November 5, 2020, the Company had extended and increased its existing $80 million CDS LC facility by an incremental $87 million.

The incremental liquidity available under these facilities will cover approximately $2.0 billion of the $3.5 billion of incremental collateral needs associated with the Direct Energy acquisition.

Midwest Generation lease buyout

On September 29, 2020, Midwest Generation, LLC closed on the purchase agreement and acquired all of the ownership interests in the Powerton facility and Units 7 and 8 of the Joliet facility, which were being leased through 2034 and 2030, respectively, for approximately $260 million. The Company has initially funded the purchase with cash on hand and expects that before year end NRG will borrow under its Revolving Credit Facility in an amount equal to the operating lease liability of $148 million.

COVID-19

In March 2020, the World Health Organization categorized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. Electricity was deemed a 'critical and essential business operation' under various state and federal governmental COVID-19 mandates. NRG had activated its Crisis Management Team ("CMT") in January 2020 to proactively manage the Company's response to the impacts of COVID-19.

NRG continues to remain focused on protecting the health and well-being of its employees, while supporting its customers and the communities in which it operates and assuring the continuity of its operations. In June 2020, summer-critical office employees returned to the offices and safety protocols were successfully implemented. The Company will continue to evaluate additional return to normal work operations on a location by location basis as COVID-19 conditions evolve.

The Company continues to maintain certain restrictions on business travel and face-to-face sales channels, remote work practices remain in place and there are enhanced cleaning and hygiene protocols in all of its facilities. In addition, select essential employees and contractors are continuing to report to plant and certain office locations. The Company also continues to require pre-entry screening, including temperature checks, separation of work crews, additional personal protective equipment for employees and contractors when social distancing cannot be maintained, and a ban on all non-essential visitors. The Company has not experienced any material disruptions in its ability to continue its business operations to date.

2020 and 2021 Guidance

NRG has narrowed the range of its Adjusted EBITDA guidance, while increasing Cash From Operations and Free Cash Flow before Growth Investments (FCFbG) guidance for 2020; NRG is maintaining its Adjusted EBITDA guidance for fiscal year 2021 while lowering its Cash Flow From Operations and FCFbG guidance due to the deferral of certain cash flow items into 2021.

Table 4: 2020 and 2021 Adjusted EBITDA, Cash from Operations, and FCFbG Guidance

	2020	2021
($ in millions)	Narrowed Guidance	Updated Guidance
Adjusted EBITDA^a	$1,950-$2,050	$1,900-$2,100
Cash From Operations	$1,590-$1,690	$1,350-$1,550
FCFbG	$1,450-$1,550	$1,200-$1,400

a. Non-GAAP financial measure; see Appendix Tables A-5 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

As part of the Company's long-term capital allocation policy, the return of capital to shareholders during the nine months ending September 30, 2020 was comprised of a quarterly dividend of $.30 per share, or $221 million, and share repurchases of $228 million through August 6, 2020 at an average price of $33.05 per share. Upon completion of the previously announced November 2020 dividend, the total amount of capital returned to shareholders during 2020 will be $523 million.

The Company does not anticipate executing any further share repurchases over the remainder of 2020 and has allocated all of its remaining 2020 excess capital to fund the Direct Energy acquisition.

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

Earnings Conference Call

On November 5, 2020, 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 more than 3.7 million residential, small business, and commercial and industrial 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, and by 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 press release 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, hazards customary in the power industry, weather conditions, competition in wholesale power markets, the volatility of energy and fuel prices, failure of customers to perform under contracts, changes in the wholesale power markets, changes in government regulations, the condition of capital markets generally, 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, repowerings or asset sales, our ability to implement value enhancing improvements to plant operations and companywide processes, our ability to achieve margin enhancement under our publicly announced transformation plan, our ability to achieve our net debt targets, our ability to maintain investment grade credit metrics, 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, our ability to retain retail customers, our ability to realize value through our commercial operations strategy, the ability to consummate the Direct Energy acquisition, 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, and our ability to execute our Capital Allocation Plan. Achieving investment grade credit metrics is not a 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, free cash flow guidance and excess cash guidance are estimates as of November 5, 2020. 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 press release 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)	2020		2019		2020		2019
Operating Revenues
Total operating revenues	$	2,809	$	2,996	$	7,066	$	7,626
Operating Costs and Expenses
Cost of operations	2,034		2,153		4,925		5,649
Depreciation and amortization	99		91		318		261
Impairment losses	29		—		29		1
Selling, general and administrative costs	253		210		670		615
Reorganization costs	—		1		3		16
Development costs	1		1		6		5
Total operating costs and expenses	2,416		2,456		5,951		6,547
Gain on sale of assets	—		—		6		2
Operating Income	393		540		1,121		1,081
Other Income/(Expense)
Equity in earnings of unconsolidated affiliates	36		29		37		8
Impairment losses on investments	—		(107)		(18)		(107)
Other income, net	11		17		52		49
Loss on debt extinguishment, net	—		—		(1)		(47)
Interest expense	(99)		(99)		(292)		(318)
Total other expense	(52)		(160)		(222)		(415)
Income from Continuing Operations Before Income Taxes	341		380		899		666
Income tax expense	92		6		216		9
Income from Continuing Operations	249		374		683		657
(Loss)/income from discontinued operations, net of income tax	—		(2)		—		399
Net Income	249		372		683		1,056
Less: Net income attributable to redeemable noncontrolling interests	—		—		—		1
Net Income Attributable to NRG Energy, Inc	$	249	$	372	$	683	$	1,055
Earnings per Share
Weighted average number of common shares outstanding — basic	244		254		246		266
Income from continuing operations per weighted average common share — basic	$	1.02	$	1.47	$	2.78	$	2.47
(Loss)/income from discontinued operations per weighted average common share — basic	$	—	$	(0.01)	$	—	$	1.50
Earnings per Weighted Average Common Share — Basic	$	1.02	$	1.46	$	2.78	$	3.97
Weighted average number of common shares outstanding — diluted	245		256		247		268
Income from continuing operations per weighted average common share — diluted	$	1.02	$	1.46	$	2.77	$	2.45
(Loss)/income from discontinued operations per weighted average common share — diluted	$	—	$	(0.01)	$	—	$	1.49
Earnings per Weighted Average Common Share — Diluted	$	1.02	$	1.45	$	2.77	$	3.94

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(In millions)
Net Income	$	249	$	372	$	683	$	1,056
Other Comprehensive Income/(Loss)
Foreign currency translation adjustments	4		(4)		2		(4)
Available-for-sale securities	—		(14)		—		(13)
Defined benefit plans	—		(41)		—		(47)
Other comprehensive income/(loss)	4		(59)		2		(64)
Comprehensive Income	253		313		685		992
Less: Comprehensive income attributable to redeemable noncontrolling interest	—		—		—		1
Comprehensive Income Attributable to NRG Energy, Inc	$	253	$	313	$	685	$	991

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2020		December 31, 2019
(In millions, except share data)	(Unaudited)		(Audited)
ASSETS
Current Assets
Cash and cash equivalents	$	697	$	345
Funds deposited by counterparties	15		32
Restricted cash	6		8
Accounts receivable, net	1,126		1,025
Inventory	330		383
Derivative instruments	578		860
Cash collateral paid in support of energy risk management activities	77		190
Prepayments and other current assets	258		245
Total current assets	3,087		3,088
Property, plant and equipment, net	2,573		2,593
Other Assets
Equity investments in affiliates	376		388
Operating lease right-of-use assets, net	345		464
Goodwill	579		579
Intangible assets, net	721		789
Nuclear decommissioning trust fund	828		794
Derivative instruments	315		310
Deferred income taxes	3,087		3,286
Other non-current assets	314		240
Total other assets	6,565		6,850
Total Assets	$	12,225	$	12,531
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	3	$	88
Current portion of operating lease liabilities	69		73
Accounts payable	753		722
Derivative instruments	495		781
Cash collateral received in support of energy risk management activities	15		32
Accrued expenses and other current liabilities	651		663
Total current liabilities	1,986		2,359
Other Liabilities
Long-term debt	5,792		5,803
Non-current operating lease liabilities	297		483
Nuclear decommissioning reserve	311		298
Nuclear decommissioning trust liability	508		487
Derivative instruments	318		322
Deferred income taxes	17		17
Other non-current liabilities	1,062		1,084
Total other liabilities	8,305		8,494
Total Liabilities	10,291		10,853
Redeemable noncontrolling interest in subsidiaries	—		20
Commitments and Contingencies
Stockholders' Equity
Common stock; $0.01 par value; 500,000,000 shares authorized; 423,041,349 and 421,890,790 shares issued and 244,147,420 and 248,996,189 shares outstanding at September 30, 2020 and December 31, 2019, respectively	4		4
Additional paid-in-capital	8,511		8,501
Accumulated deficit	(1,157)		(1,616)
Less treasury stock, at cost - 178,893,929 and 172,894,601 shares at September 30, 2020 and December 31, 2019, respectively	(5,234)		(5,039)
Accumulated other comprehensive loss	(190)		(192)
Total Stockholders' Equity	1,934		1,658
Total Liabilities and Stockholders' Equity	$	12,225	$	12,531

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine months ended September 30,
(In millions)	2020		2019
Cash Flows from Operating Activities
Net Income	$	683	$	1,056
Income from discontinued operations, net of income tax	—		399
Income from continuing operations	683		657
Adjustments to reconcile net income to cash provided by operating activities:
Distributions from and equity in losses/(earnings) of unconsolidated affiliates	6		(5)
Depreciation and amortization	318		261
Accretion of asset retirement obligations	46		31
Provision for credit losses	74		87
Amortization of nuclear fuel	40		40
Amortization of financing costs and debt discount/premiums	23		20
Loss on debt extinguishment, net	1		47
Amortization of emissions allowances and energy credits	60		28
Amortization of unearned equity compensation	17		15
Gain on sale and disposal of assets	(22)		(20)
Impairment losses	47		108
Changes in derivative instruments	(7)		36
Changes in deferred income taxes and liability for uncertain tax benefits	202		(3)
Changes in collateral deposits in support of energy risk management activities	96		129
Changes in nuclear decommissioning trust liability	39		27
Changes in other working capital	(237)		(569)
Cash provided by continuing operations	1,386		889
Cash provided by discontinued operations	—		8
Net Cash Provided by Operating Activities	1,386		897
Cash Flows from Investing Activities
Payments for acquisitions of assets and businesses	(277)		(348)
Capital expenditures	(167)		(183)
Net proceeds from notes receivable	—		2
Net (purchases)/sales of emission allowances	(15)		14
Investments in nuclear decommissioning trust fund securities	(360)		(295)
Proceeds from the sale of nuclear decommissioning trust fund securities	318		271
Proceeds from sale of assets, net of cash disposed and sale of discontinued operations, net of fees	15		1,293
Changes in investments in unconsolidated affiliates	2		(94)
Contributions to discontinued operations	—		(44)
Cash (used)/provided by continuing operations	(484)		616
Cash used by discontinued operations	—		(2)
Net Cash (Used)/Provided by Investing Activities	(484)		614
Cash Flows from Financing Activities
Payments of dividends to common stockholders	(221)		(24)
Payments for share repurchase activity	(229)		(1,322)
Payments for debt extinguishment costs	—		(24)
Purchase of and distributions to noncontrolling interests from subsidiaries	(2)		(1)
Proceeds from issuance of common stock	1		3
Proceeds from issuance of long-term debt	59		2,668
Payments of debt issuance costs	(24)		(34)
Repayments of long-term debt	(62)		(2,892)
Net repayments of Revolving Credit Facility	(83)		(215)
Other	(6)		—
Cash used by continuing operations	(567)		(1,841)
Cash provided by discontinued operations	—		43
Net Cash Used by Financing Activities	(567)		(1,798)
Effect of exchange rate changes on cash and cash equivalents	(2)		—
Change in Cash from discontinued operations	—		49
Net Increase/(Decrease) in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash..	333		(336)
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at Beginning of Period	385		613
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at End of Period	$	718	$	277

Contacts

Media:
Candice Adams
609.524.5428

Investors:
Kevin L. Cole, CFA
609.524.4526

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