NRG Energy Management Discusses Q2 2012 Results - Earnings Call Transcript

NRG Energy (NRG)

Q2 2012 Earnings Call

August 08, 2012 10:00 am ET

Executives

Chad Plotkin - Vice President of Investor Relations

David W. Crane - Chief Executive Officer, President, Executive Director and Member of Nuclear Oversight Committee

Mauricio Gutierrez - Chief Operating Officer and Executive Vice President

Kirkland B. Andrews - Chief Financial Officer and Executive Vice President

Christopher S. Moser - Chairman, Chief Executive Officer, and President

Analysts

Jonathan Cohen - ISI Group Inc., Research Division

Angie Storozynski - Macquarie Research

Dan Eggers - Crédit Suisse AG, Research Division

Gregg Orrill - Barclays Capital, Research Division

Brian Chin - Citigroup Inc, Research Division

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Keith Stanley - Deutsche Bank AG, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 NRG Energy Incorporated Earnings Conference Call. My name is Erin, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to your host for today's conference, Mr. Chad Plotkin, Vice President, Investor Relations. Please proceed, sir.

Chad Plotkin

Thank you, Erin, and good morning, everyone. Welcome to our second quarter earnings call. This morning's call is being broadcast live over the phone and via webcast, which can be located on our website at www.nrgenergy.com. You can access the call, associated presentation material, as well as the replay of the call in the Investor Relations section of our website. This call, including the presentation and Q&A session, will be limited to no more than 45 minutes. [Operator Instructions]. Before we begin, I urge everyone to review the Safe Harbor statement provided in the presentation, which explains the risks and uncertainties associated with future events and the forward-looking statements made in today's press release and presentation material. We caution you to consider the important risk factors contained in our press release and other filings with the SEC that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. In addition, please note that the date of this conference call is Wednesday, August 8, 2012, and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events except as required by law. During this morning's call, we will refer to both GAAP and non-GAAP financial measures of the company's operating and financial results. For complete information regarding our non-GAAP financial information, the most direct comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today's press release and this presentation. With that, I'll turn the call over to your host, David Crane, NRG's President and Chief Executive Officer.

David W. Crane

Thank you, Chad, and let me add my good morning to everyone, and thank you for joining us on this -- our second quarter call. I'm joined, as usual, by Mauricio Gutierrez, our Chief Operating Officer, who will be presenting; as well as Kirk Andrews, our Chief Financial Officer, who will be presenting. Chris Moser, who runs commercial operations for NRG, is with us and available to answer any questions that you might have. As we go into this call, I think that while that it may be anti-climatic compared to previous earnings calls because as everyone, I think, on the phone is aware, we did speak with everyone just 2.5 weeks ago, where in the context of announcing the pending transaction with GenOn, we gave a sense of where we would be for the second quarter. We are acutely aware that most of you on the phone were kind enough to give us your time at that point, so we don't expect -- we figure what we can give back to you here is we're going to keep this call shorter than normal, no more than 45 minutes. One other small matter that I wanted to mention to everyone before we get into the call, which is a little bit unusual, is that I'm actually not physically with my colleagues in the Princeton office, but in fact, I'm participating in this call from Nevada, where I spent the last few days visiting our Ivanpah project under construction in the desert, about 45 miles south of Las Vegas. And since I've been down there, I am pleased to report to all of the NRG shareholders on the phone that construction is proceeding smoothly at that site. We expect to start testing the first unit in November this year, and we're on track for completion in 2013, and it is a truly impressive undertaking there. And our partners in this transaction, our ownership partners, Google and our technology partner, BrightSource and the construction company, Bechtel, are doing a fabulous job. So let's get into this. I'm going to refer to the slide presentation that's on our website. So on Slide 4, in terms of second quarter highlights, starting financially, I think as most of you know, given the normal seasonality, the second quarter is not generally the most exciting quarter for competitive power companies or IPPs. For us, it's better than most, and this is in part due to the fact that the summer comes earlier in Texas than it does in the Northeast, United States, and also -- and that has a good result on both our wholesale and our retail business, and of course, the advantage we have over most others is the fact that we do have a particularly vibrant retail business in our second quarter results, which are listed on this page and which Kirk is going to greater detail on, shows this $539 million of EBITDA for the quarter, which rolls up to $839 million for the first half of the year. Not listed on this page is a very robust free cash flow performance for the quarter, but Kirk's going to go on that, so I don't want to steal his thunder. We did list the retail contribution, and this is very important, obviously, in a year where I think to date in the summer, as I'm sure people are wondering about even as we get into the third quarter, we've had sort of broadly good weather, summer weather across most of the United States. We have not had the extreme weather in Texas that we had last year, and so the contribution from retail is very important and very positive. As we mentioned 2.5 weeks ago, and we will reaffirm yet again today, we are reaffirming our guidance for the year 2012 and in a good position to reach that. We also -- again, reiterating what we talked about 2.5 weeks ago, we are giving preliminary guidance for 2013 and 2014 and per undertakings that we've made since then. Kirk's going to give a little bit more detail on how we get to those points. Obviously, this guidance in this presentation is given for the company on a standalone basis, which actually serves as a building block for what we actually expect to achieve when we successfully close the deal with GenOn at the end of the year. I think the important thing to me about this preliminary guidance. In -- there was a lot of discussion on this in the last quarterly call is that after several years of -- in a declining low commodity price environment, with hedges wearing off, which has sort of led to declines in our full year, full company performance, is that we intend to and expect to stop that decline in terms of the range of outcomes that we expect. And this is largely, as people will see when Kirk talks about it, because the other parts of our business are coming on to support our original wholesale business. Beyond our financial results is listed on this page very quickly. As everyone knows, we also are moving on several fronts in terms of doing things, which we think are in the great interest of our shareholders. We will be making our first dividend payment, first-ever record date, August 1, payment to be made on August 15. We increased our overall corporate liquidity position through the sale of Schkopau, which was our last remaining non-core asset in Germany. And as I mentioned, with Ivanpah, our other solar projects remain on track. And you may have seen a recent announcement that Agua Caliente is now the largest operating photovoltaic plant in the U.S. and is massively ahead of schedule. Moving to Slide 5, which just, again, a slide which sort of depicts the strategic direction of our company in the wake of what -- of the NRG-GenOn proposed combination. I think this is well known to everyone on the phone that the combination itself is the center of our management focus, but in the context of our investor outreach over the last couple of weeks, we really didn't find any investor that had any serious question about how this fit with the strategic direction of NRG. So I'm not going to dwell upon it. Obviously, as the -- while the strategic logic is clear and compelling, as management, what we're paid by our shareholders to do is to achieve the financial results that can come out of the combination. So we're very focused already in terms of integration planning on this $300 million of combination, synergies that we expect that we can get out of this transaction, and planning is proceeding very well for that, even though it's in the early days. So finally, before I turn it over to Mauricio to talk about the second quarter operating performance on Page 6, we put down the approvals that we need to achieve in order to get the GenOn, again, transaction done. Again, it's early days, but the filings are proceeding on time. We haven't really come across anything or had anyone sort of raise their hand and say they see a big problem with this. And so we're very confident about the direction of this transaction and the timetable and continue to be on target for closing by the first quarter of 2013. I look forward to answering any questions that you have later. And with that, I'll turn over the call over to Mauricio.

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