NRG Energy, Inc. Reports Third Quarter 2015 Results, Increases Cost Reduction Program to $250 Million and Initiates 2016 Financial Guidance

NRG Energy, Inc. recently reported third quarter Adjusted EBITDA of $1,145 million.1 Year-to-date adjusted cash flow from operations totaled $1,728 million. Net loss for the first nine months of 2015 was ($78) million, or ($0.25) per diluted common share compared to net income of $35 million, or $0.02 per diluted common share for the first nine months of 2014. “Strong operational performance across our wholesale, retail and renewable platforms, including near record results at Home Retail and strong performance in Commercial Operations, paved the way for a solid third quarter and provides the foundation to support our efforts under the NRG Reset to free up capital for shrinking and enhancing the balance sheet as part of our ongoing capital allocation plan.” said David Crane, NRG’s Chief Executive Officer. “The strategic processes associated with a majority sell down of the GreenCo businesses and asset sales are all underway. We expect to be able to announce a series of additional outcomes over the next several months that will both streamline the Company and simplify the investor proposition.”

Segment Results

Table 1: Adjusted EBITDA

(1) In accordance with GAAP, 2014 results have been restated to include the full impact of the NRG Yield drop down transactions which closed on January 2, 2015 and June 30, 2014.
(2) See Appendices A-6 through A-9 for NRG Business regional details.
(3) See Appendices A-1 through A-4 for Operating Segment Reg G reconciliations; excludes negative contribution of $42 million and $129 million from Home Solar for the three and nine months ended September 30, 2015, respectively, and $24 million and $31 million for the three and nine months ended September 30, 2014, respectively.

Table 2: Net Income/(Loss)

(1) In accordance with GAAP, 2014 results have been restated to include full impact of the assets in the NRG Yield drop down transactions which closed on January 2, 2015 and June 30, 2014.
(2) Includes mark-to-market gains and losses of economic hedges.

NRG Business: Third quarter Adjusted EBITDA was $670 million; $33 million higher than in the third quarter 2014 primarily driven by:

– Gulf Coast Region: $69 million increase due to higher average realized prices in Texas reflecting ERCOT hedge gains, higher realized energy margins at South Central gas plants, and higher gas plant generation across the Gulf Coast region
– East Region: $35 million lower due to lower energy margins caused by declining gas prices and dark spreads, partially offset by higher capacity revenues from increase in PJM cleared auction capacity prices and lower operating costs from reduced scope of outages and decreased run times across the fleet

NRG Home Retail: Third quarter Adjusted EBITDA was $225 million, $58 million higher than third quarter 2014 driven primarily by favorable supply costs as well as effective margin and cost management across the portfolio.

NRG Renew: Third quarter Adjusted EBITDA was $81 million, $5 million higher than third quarter 2014 primarily due to the ramp up of Ivanpah as generation continues to increase year over year, partially offset by higher development costs.

NRG Yield: Third quarter Adjusted EBITDA was $198 million, $32 million higher than third quarter 2014 primarily due to the Desert Sunlight and Alta Wind acquisitions.

Liquidity and Capital Resources

Table 3: Corporate Liquidity

NRG-level cash as of September 30, 2015, was $955 million, an increase of $294 million over the end of 2014, and $1,449 million was available under the Company’s credit facilities at the end of the current quarter. Total liquidity was $4,211 million including restricted cash and cash at non-guarantor subsidiaries (primarily GenOn and NRG Yield)3.

NRG Reset – Update

NRG has begun implementation of a company-wide cost reduction program of $150 million across its general and administrative, marketing and development expenses in connection with which the Company expects to incur one-time severance and associated costs of approximately $60 million4 in 2015 and 2016.

In addition, to supplement this cost reduction program, NRG is announcing today an additional $100 million per year cost reduction initiative associated with the O&M spend across its wholesale/business, retail and renewable businesses to be achieved on a recurring basis beginning in 2016, measured against projected 2015 aggregate O&M spend. The impact of this program is reflected in the Company’s financial guidance for 2016 also announced today and brings the aggregate cost savings expected in 2016 to $250 million.

The Company continues to make progress with respect to the asset rebalancing component of the NRG Reset program, which is aimed at freeing up the balance of the $1.1 billion in 2016 available capital for allocation through the elimination of capital expenditures, asset dispositions, and targeted non-recourse financings. The Company has already reduced 2016 growth capital expenditures by over $100 million by suspending or modifying its fuel conversion plans at two coal facilities. NRG is now fully prepared to launch the process to raise non-recourse debt financing to fund the remaining capital required to complete the environmental capital expenditures for its Midwest Generation fleet, which is expected to result in an increase of $250 million in available NRG capital previously intended to fund these expenditures.

Finally, the “GreenCo” Runway for the clean energy businesses included within the Runway (NRG Home Solar, NRG Renew (C&I solar business) and NRG EVgo), which will operate under a $125 million defined limit of financial support from NRG beginning in 2016 is established and will be effective January 1, 2016. In addition, the Company has launched strategic processes with respect to the “GreenCo” businesses aimed at attracting a majority partner that can further enhance those businesses prospects for short, medium and long term success.

Closing of Drop Down to NRG Yield

On November 3, 2015, NRG completed the sale of a 75% interest in an 814 net megawatt (MW) portfolio of twelve wind facilities, representing 611 net MW to NRG Yield for $210 million in total cash consideration (subject to working capital adjustments).

Outlook for 2015 and Initiation of 2016 Guidance

NRG has narrowed the range of its Adjusted EBITDA and FCF before growth investments guidance for 2015 and is also initiating guidance for fiscal year 2016 as set forth below.

As in previous quarters, the Company’s guidance assumes normalized weather in its core markets.

Table 4: 2015 and 2016 Adjusted EBITDA and FCF before Growth Investments Guidance

(1) 2015 guidance excludes expected negative contribution of $175 million from NRG Home Solar.
(2) 2016 guidance excludes “GreenCo” entities which are limited to the $125 million revolver facility. 2016 guidance includes the impact of the recently announced $150 million expense reductions across general & administrative, marketing and development expenses and the $100 million of operation and maintenance costs across the Business segment.

2015 Capital Allocation Update

During September and October, NRG repurchased $251 million of its common stock at an average cost of $15.05 per share. Together with repurchases completed during the first half of 2015, NRG has purchased a total of $437 million of NRG common stock since December 31, 2014, or approximately 7% of shares outstanding5.On October 12, 2015, NRG declared a quarterly dividend on the Company’s common stock of $0.145 per share, payable November 16, 2015, to stockholders of record as of November 2, 2015, representing $0.58 on an annualized basis.The Company’s common stock dividend and share repurchases are subject to available capital, market conditions and compliance with associated laws and regulations