Investors

Investor News Release

NRG Energy, Inc. Reports Third Quarter 2018 Results and Initiates 2019 Guidance

  • Closed on sale of NRG’s interest in NRG Yield and the Renewables Platform for $1.348 billion1
  • Executing on second $500 million share repurchase commitment, totaling $1 billion in 2018
  • Announcing an additional $500 million share repurchase authorization
  • Redeemed $485 million balance of 2022 senior notes and prepaid $155 million of Term Loans, achieving corporate debt reduction target of $640 million; on track to achieve 3.0x net debt / EBITDA for 2018
  • Narrowing 20182 guidance to the upper-half of range and initiating 2019 Adjusted EBITDA and FCFbG guidance
  • C. John Wilder announces retirement from the Board of Directors

PRINCETON, N.J.--(BUSINESS WIRE)--Nov. 8, 2018-- NRG Energy, Inc. (NYSE: NRG) today reported third quarter 2018 income from continuing operations of $306 million. Income from continuing operations for the first nine months of 2018 of $601 million, or $1.91 per diluted common share, compares to income from continuing operations of $116 million, or $0.56 per diluted common share for the first nine months of 2017. Adjusted EBITDA for the three and nine months ending September 30, 2018, was $677 million and $1,580 million, respectively. Year-to-date cash from continuing operations totaled $758 million.

“Our quarterly and year to date results demonstrate the benefits of the integrated retail and generation platform,” said Mauricio Gutierrez, President and Chief Executive Officer, NRG. “We are making significant progress on achieving our Transformation Plan targets and capital allocation priorities.”

Consolidated Financial Results

On August 31, 2018, NRG completed the sale of its interest in NRG Yield and the Renewables Platform. As a result, the financial information for NRG Yield, the Renewables Platform and Carlsbad Energy Center has been deconsolidated from the current period and all historical periods have been recast to reflect the presentation of these entities as discontinued operations.

  Three Months Ended   Nine Months Ended
($ in millions) 9/30/18   9/30/17 9/30/18   9/30/17
Income from Continuing Operations $ 306 $ 185 $ 601 $ 116
Cash From Continuing Operations $ 401 $ 640 $ 758 $ 558
Adjusted EBITDA $ 677 $ 552 $ 1,580 $ 1,183
Free Cash Flow Before Growth Investments (FCFbG)   $ 556     $ 462     $ 856     $ 630

1 Sale price was reduced by $27 MM to account for the agreed-upon adjustment for Patriot Wind, which is expected to be sold to a third party
2 Adjusted for the deconsolidation of NRG Yield, the Renewables Platform, and Carlsbad Energy Center, and the expected sale of South Central

Segment Results

Table 1: Income/(Loss) from Continuing Operations

($ in millions)     Three Months Ended       Nine Months Ended
Segment 9/30/18   9/30/17 9/30/18   9/30/17
Retail $ (127 ) $ 72 $ 733 $ 380
Generation a 595 272 302 183
Corporate (162 ) (159 ) (434 ) (447 )
Income from Continuing Operations $ 306   $ 185   $ 601   $ 116  

a. In accordance with GAAP, 2018 and 2017 results have been restated to include full impact of the deconsolidation of GenOn, NRG Yield, the Renewables Platform and Carlsbad Energy Center

Table 2: Adjusted EBITDA

($ in millions)     Three Months Ended       Nine Months Ended
Segment 9/30/18   9/30/17 9/30/18   9/30/17
Retail $ 269 $ 279 $ 755 $ 615
Generation a 421 297 850 607
Corporate (13 ) (24 ) (25 ) (39 )
Adjusted EBITDA b $ 677   $ 552   $ 1,580   $ 1,183  

a. In accordance with GAAP, 2018 and 2017 results have been restated to include full impact of the deconsolidation of GenOn, NRG Yield, the Renewables Platform and Carlsbad Energy Center

b. See Appendices A-1 through A-4 for Operating Segment Reg G reconciliations

Retail: Third quarter Adjusted EBITDA was $269 million, $10 million lower than third quarter 2017, driven by higher margin enhancement costs. Gross margin was $25 million higher as a result of our margin enhancement initiatives (including both value expansion and customer growth), coupled with increased usage, partially offset by higher supply costs.

Generation: Third quarter Adjusted EBITDA was $421 million, $124 million higher than third quarter 2017, driven by:

  • Gulf Coast Region: $115 million increase due to higher generation and higher realized energy prices; and
  • East/West3: $9 million increase due to higher capacity revenues, partially offset by increased operating costs and the deconsolidation impact of the non-controlling interest in Ivanpah and Agua Caliente.

Corporate: Third quarter Adjusted EBITDA was $(13) million, $11 million better than the third quarter 2017, driven by lower G&A expenses associated with the Transformation Plan.

3 Includes International and Renewables

Liquidity and Capital Resources

Table 3: Corporate Liquidity

($ in millions)     9/30/18     12/31/17
Cash and Cash Equivalents $ 1,359 $ 767
Restricted Cash 28   279
Total $ 1,387 $ 1,046
Total credit facility availability   1,454     1,711
Total Liquidity, excluding collateral received   $ 2,841     $ 2,757

As of September 30, 2018, NRG-level cash was at $1.4 billion, and $1.5 billion was available under the Company’s credit facilities. Total liquidity was $2.8 billion, including restricted cash. Overall liquidity as of the end of the third quarter 2018 was $84 million higher than at the end of 2017.

NRG Strategic Developments

Transformation Plan

Through the third quarter of 2018, NRG realized $375 million of its 2018 cost savings target as part of the previously announced Transformation Plan, and is on track to realize $500 million in savings in 2018. With respect to the asset sales under the Transformation Plan, on August 31, 2018, the Company completed the sale of its interest in NRG Yield, Inc. and the Renewables Platform to GIP, for approximately $1.348 billion in cash proceeds. NRG is narrowing asset sale proceeds to $3.1 billion from $3.2 billion. The $1 billion sale of South Central is targeted to close by year end 2018 and the balance, Carlsbad and Agua Caliente, in 2019.

Agua Caliente Deconsolidation

As a result of the sale of NRG Yield and the Renewables Platform, the Company no longer controls the Agua Caliente project. Due to this change in control, the Company has deconsolidated the Agua Caliente project from its financial results and is accounting for the project as an equity method investment going forward. This is unrelated to the Company’s planned sale of its remaining interest in Agua Caliente as described in the preceding paragraph.

2018 and 2019 Guidance

NRG has narrowed the range of its Adjusted EBITDA and FCF before Growth Investments guidance for 2018 to reflect the completed sale of NRG Yield and the Renewables Platform, as well as the previously announced sale of the South Central business unit. Additionally, NRG is initiating guidance for fiscal year 2019, which also reflects the aforementioned sales.

Table 4: 2018 and 2019 Adjusted EBITDA, Cash from Operations, and FCF before Growth Investments Guidance

    2018     2019
($ in millions)   Revised Guidance4     Guidance
Adjusted EBITDA5   $1,700-$1,800     $1,850-$2,050
Cash From Operations $1,240-$1,340 $1,405-$1,605
Free Cash Flow Before Growth Investments (FCFbG) $1,050-$1,150 $1,250-$1,450

4 Adjusted for the deconsolidation of NRG Yield, the Renewables Platform, and Carlsbad Energy Center, and the expected sale of South Central
5 Non-GAAP financial measure; see Appendix Tables A-1 through 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

During the third quarter of 2018, NRG executed on its second $500 million share repurchase commitment through an Accelerated Share Repurchase program. This brings the total amount of shares to be repurchased in 2018 to $1 billion. In addition, the Board of Directors of the Company has authorized an additional $500 million share repurchase program to be executed into 2019.

To remain leverage-neutral in connection with the $575 million convertible senior notes issued in second quarter of 2018, NRG completed the repurchase of $575 million of its 2022, 2027 and 2028 senior unsecured notes during the third quarter of 2018, generating approximately $20 million of annual interest expense savings7.

Additionally, the Company has completed its targeted $640 million of debt reduction through the redemption of $485 million of its outstanding 6.250% senior notes due 2022 and the prepayment of $155 million of Term Loans, and is on track to achieve a target net debt to Adjusted EBITDA ratio of 3.0x for 2018.

On October 17, 2018, NRG declared a quarterly dividend on the Company's common stock of $0.03 per share, payable November 15, 2018, to stockholders of record as of November 1, 2018, representing $0.12 on an annualized basis.

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.

Board of Directors

C. John Wilder informed the Board of Directors that he will retire from the Board, effective November 8, 2018. Mr. Wilder joined the Board in February 2017 and served on the Company’s Business Review Committee (dissolved in July 2017) and Finance and Risk Management Committee. In connection with Mr. Wilder’s resignation, the size of the Board will be reduced from eleven (11) to ten (10) members.

According to C. John Wilder, Independent Director of the Board, “Today, I am announcing my retirement from the NRG Board of Directors.” Mr. Wilder continues, “I applaud the advancements made by the company in the culture and strategy since Mauricio Gutierrez took over as CEO, and most recently with the adoption and execution of the Transformation Plan. This has been a critical year in the Company’s transformation and I am proud of the course charted by my fellow directors and management in rightsizing the business, strengthening the balance sheet, achieving cost excellence and adopting capital allocation principles. I believe NRG has the right team in place to continue its relentless execution that will create significant long-term value and I am excited to remain a long-term shareholder.”

Larry Coben, Chairman of the Board, continued, "On behalf of the Board of Directors, I want to thank John for his outstanding service on the Board and valued direction on all Board matters, particularly the Company's Transformation Plan. Going forward, the Board will continue to assess our size and composition to ensure the proper level of expertise and oversight on behalf of our shareholders."

Mr. Gutierrez added, “John has provided valuable insights and thoughtful counsel as a member of the Board. I want to thank him for his service, and look forward to having him as a valued long-term shareholder."

7 Interest savings assumes average 6.2% interest rate on $575 million debt retired in 2018

Earnings Conference Call

On November 8, 2018, 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 http://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 redefining power by putting customers at the center of everything we do. We create value by generating electricity and serving nearly 3 million residential and commercial customers through our portfolio of retail electricity brands. A Fortune 500 company, NRG delivers customer-focused solutions for managing electricity, while enhancing energy choice and 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, @nrginsight.

Safe Harbor Disclosure

In addition to historical information, the information presented in this communication 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, 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, cyber terrorism and inadequate cyber security, 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 company-wide processes, our ability to implement and execute on our publicly announced transformation plan, including any cost savings, margin enhancement, asset sale, and net debt targets, our ability to proceed with projects under development or the inability to complete the construction of such projects on schedule or within budget, the timing or completion of GenOn's emergence from bankruptcy, the inability to maintain or create successful partnering relationships, our ability to operate our businesses efficiently, our ability to retain retail customers, our ability to realize value through our commercial operations strategy, the ability to successfully integrate businesses of acquired companies, 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. 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 8, 2018. 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 Earnings 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) 2018   2017 2018   2017
Operating Revenues
Total operating revenues $ 3,061   $ 2,740   $ 7,795   $ 7,246  
Operating Costs and Expenses
Cost of operations 2,307 2,072 5,730 5,589
Depreciation and amortization 112 163 370 490
Impairment losses 74 60
Selling, general and administrative 212 190 591 634
Reorganization costs 27 12 70 18
Development costs 1   6   9   18  
Total operating costs and expenses 2,659 2,443 6,844 6,809
Other income - affiliate 87
Gain on sale of assets 14     30   4  
Operating Income 416   297   981   528  
Other Income/(Expense)
Equity in earnings/(losses) of unconsolidated affiliates 20 9 26 (20 )
Other income/(expense), net 17 19 (4 ) 43
Loss on debt extinguishment, net (19 ) (22 )
Interest expense (121 ) (139 ) (361 ) (432 )
Total other expense (103 ) (111 ) (361 ) (409 )
Income from Continuing Operations Before Income Taxes 313 186 620 119
Income tax expense 7   1   19   3  
Income from Continuing Operations 306 185 601 116
Loss from discontinued operations, net of income tax (354 ) (22 ) (320 ) (798 )
Net (Loss)/Income (48 ) 163 281 (682 )
Less: Net income/(loss) attributable to noncontrolling interest and redeemable noncontrolling interests 24   (8 ) 1   (63 )
Net (Loss)/Income Attributable to NRG Energy, Inc. common stockholders $ (72 ) $ 171   $ 280   $ (619 )
(Loss)/Earnings per Share Attributable to NRG Energy, Inc. Common Stockholders
Weighted average number of common shares outstanding — basic 299 317 309 317
Income from continuing operations per weighted average common share — basic $ 0.94 $ 0.61 $ 1.94 $ 0.56
Loss from discontinued operations per weighted average common share — basic $ (1.18 ) $ (0.07 ) $ (1.03 ) $ (2.51 )
(Loss)/Earnings per Weighted Average Common Share — Basic $ (0.24 ) $ 0.54   $ 0.91   $ (1.95 )
Weighted average number of common shares outstanding — diluted 299 322 313 317
Income from continuing operations per weighted average common share — diluted $ 0.94 $ 0.60 $ 1.91 $ 0.56
Loss from discontinued operations per weighted average common share — diluted $ (1.18 ) $ (0.07 ) $ (1.02 ) $ (2.51 )
(Loss)/Earnings per Weighted Average Common Share — Diluted $ (0.24 ) $ 0.53   $ 0.89   $ (1.95 )
Dividends Per Common Share $ 0.03   $ 0.03   $ 0.09   $ 0.09  

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

(Unaudited)

  Three months ended September 30,       Nine months ended September 30,
2018   2017 2018   2017
(In millions)
Net (loss)/income $ (48 ) $ 163 $ 281 $ (682 )
Other comprehensive income/(loss), net of tax
Unrealized gain on derivatives, net of income tax expense of $0, $0, $1, and $0 4 7 24 7
Foreign currency translation adjustments, net of income tax expense of $0, $0, $0, and $0 (2 ) 2 (8 ) 9
Available-for-sale securities, net of income tax expense of $0, $0, $0, and $0 1 1 2
Defined benefit plans, net of income tax expense of $0, $0, $0, and $0 (1 ) (1 ) (3 ) 25  
Other comprehensive income 1   9   14   43  
Comprehensive (loss)/income (47 ) 172 295 (639 )
Less: Comprehensive income/(loss) attributable to noncontrolling interest and redeemable noncontrolling interest 26   (5 ) 15   (61 )
Comprehensive (loss)/income attributable to NRG Energy, Inc. common stockholders $ (73 ) $ 177   $ 280   $ (578 )

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

  September 30, 2018       December 31, 2017
(In millions, except shares) (Unaudited)  
ASSETS
Current Assets
Cash and cash equivalents $ 1,359 $ 767
Funds deposited by counterparties 30 37
Restricted cash 28 279
Accounts receivable, net 1,297 960
Inventory 408 486
Derivative instruments 683 624
Cash collateral paid in support of energy risk management activities 209 171
Accounts receivable - affiliate 19 186
Prepayments and other current assets 248 179
Current assets - held for sale 116
Current assets - discontinued operations 4   705  
Total current assets 4,285   4,510  
Property, plant and equipment, net 3,599   6,435  
Other Assets
Equity investments in affiliates 452 182
Notes receivable, less current portion 10 2
Goodwill 539 539
Intangible assets, net 602 507
Nuclear decommissioning trust fund 719 692
Derivative instruments 392 159
Deferred income taxes 11 6
Other non-current assets 281 294
Non-current assets held-for-sale 43
Non-current assets - discontinued operations 560   10,181  
Total other assets 3,566   12,605  
Total Assets $ 11,450   $ 23,550  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt and capital leases $ 593 $ 204
Accounts payable 824 711
Accounts payable - affiliate 14 57
Derivative instruments 550 537
Cash collateral received in support of energy risk management activities 30 37
Accrued expenses and other current liabilities 659 769
Accrued expenses and other current liabilities - affiliate 1 161
Current liabilities - held-for-sale 72
Current liabilities - discontinued operations 52   864  
Total current liabilities 2,723   3,412  
Non-Current Liabilities
Long-term debt and capital leases 6,658 9,180
Nuclear decommissioning reserve 278 269
Nuclear decommissioning trust liability 432 415
Deferred income taxes 18 21
Derivative instruments 357 143
Out-of-market contracts, net 177 195
Other non-current liabilities 1,177 1,002
Non-current liabilities - held-for-sale 8
Non-current liabilities - discontinued operations 547   6,859  
Total non-current liabilities 9,644   18,092  
Total Liabilities 12,367   21,504  
Redeemable noncontrolling interest in subsidiaries 19 78
Commitments and Contingencies
Stockholders’ Equity
Common stock 4 4
Additional paid-in capital 8,453 8,377
Accumulated deficit (6,001 ) (6,269 )
Less treasury stock, at cost - 129,948,876 and 101,580,045 shares, at September 30, 2018 and December 31, 2017, respectively (3,334 ) (2,386 )
Accumulated other comprehensive loss (58 ) (72 )
Noncontrolling interest   2,314  
Total Stockholders’ Equity (936 ) 1,968  
Total Liabilities and Stockholders’ Equity $ 11,450   $ 23,550  

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

  Nine months ended September 30,
(In millions) 2018       2017
Cash Flows from Operating Activities
Net income/(loss) $ 281 $ (682 )
Loss from discontinued operations, net of income tax (320 ) (798 )
Income from continuing operations 601 116
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions and equity in earnings of unconsolidated affiliates 10
Depreciation, amortization and accretion 403 490
Provision for bad debts 57 57
Amortization of nuclear fuel 38 37
Amortization of financing costs and debt discount/premiums 21 15
Adjustment for debt extinguishment 22 3
Amortization of intangibles and out-of-market contracts 21 79
Amortization of unearned equity compensation 36 27
Impairment losses 89 60
Changes in deferred income taxes and liability for uncertain tax benefits (6 ) (1 )
Changes in nuclear decommissioning trust liability 50 20
Changes in derivative instruments (17 ) 36
Changes in collateral deposits in support of energy risk management activities (30 ) (103 )
Gain on sale of emission allowances (20 ) 21
Gain on sale of assets (30 ) (4 )
GenOn settlement in July 2018 (125 )
Loss on deconsolidation of business 13
Changes in other working capital (375 ) (295 )
Cash provided by continuing operations 758 558
Cash provided by discontinued operations 324   178  
Net Cash Provided by Operating Activities 1,082   736  
Cash Flows from Investing Activities
Acquisitions of businesses, net of cash acquired (209 ) (12 )
Capital expenditures (345 ) (172 )
Purchases of emission allowances (30 ) (47 )
Proceeds from sale of emission allowances 54 104
Investments in nuclear decommissioning trust fund securities (449 ) (402 )
Proceeds from the sale of nuclear decommissioning trust fund securities 398 382
Proceeds from sale of assets, net of cash disposed and sale of discontinued operations, net of fees 1,555 309
Deconsolidation of business (268 )
Changes in investments in unconsolidated affiliates (62 ) 24
Other   30  
Cash provided by continuing operations 644 216
Cash used by discontinued operations (703 ) (638 )
Net Cash (Used) by Investing Activities (59 ) (422 )
Cash Flows from Financing Activities
Payment of dividends to common stockholders (28 ) (28 )
Payment for treasury stock (1,000 )
Proceeds from issuance of long-term debt 995 308
Payments for short and long-term debt (970 ) (343 )
Receivable from affiliate (26 ) (125 )
Net distributions to noncontrolling interests from subsidiaries (17 ) (18 )
Payment of debt issuance costs (19 ) (39 )
Other (4 ) (8 )
Cash used by continuing operations (1,069 ) (253 )
Cash provided by discontinued operations 403   39  
Net Cash Used by Financing Activities (666 ) (214 )
Effect of exchange rate changes on cash and cash equivalents 1   (10 )
Change in Cash from discontinued operations 24   (421 )
Net Increase in Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash 334 511
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at Beginning of Period 1,083   860  
Cash and Cash Equivalents, Funds Deposited by Counterparties and Restricted Cash at End of Period $ 1,417   $ 1,371  

Appendix Table A-1: Third Quarter 2018 Adjusted EBITDA Reconciliation by Operating Segment

The following table summarizes the calculation of Adj. EBITDA and provides a reconciliation to income/(loss) from continuing operations:

($ in millions)   Gulf Coast   East/

West1

    Generation   Retail   Corp/

Elim

  Total
Income/(Loss) from Continuing Operations   417     178       595     (127 )   (162 )   306  
Plus:              
Interest expense, net 10 10 1 105 116
Income tax 7 7
Loss on debt extinguishment 19 19
Depreciation and amortization 43 30 73 30 9 112
ARO Expense 9 4 13 13
Contract amortization 2 2 2
Lease amortization       (2 )     (2 )           (2 )
EBITDA 471 220 691 (96 ) (22 ) 573
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 2 25 27 27
Reorganization costs 1 2 3 6 18 27
Deactivation costs 3 3
Gain on sale of business 1 1 (14 ) (13 )
Other non recurring charges 1 (12 ) (11 ) 2 (9 )
Mark to market (MtM) (gains)/losses on economic hedges   (268 )   (22 )     (290 )   359         69  
Adjusted EBITDA   207     214       421     269     (13 )   677  

1 Includes International, remaining renewables and Generation eliminations

Third Quarter 2018 condensed financial information by Operating Segment:

($ in millions)   Gulf Coast   East/

West1

    Generation   Retail   Corp/

Elim

  Total
Operating revenues   782   497     1,279   2,202   (480 )   3,001
Cost of sales   413     192       605     1,702     (477 )   1,830  
Economic gross margin2 369 305 674 500 (3 ) 1,171
Operations & maintenance and other cost of operations 3 146 111 257 89 (3 ) 343
Selling, marketing, general and administrative 29 25 54 144 14 212
Other expense/(income) 4   (13 )   (45 )     (58 )   (2 )   (1 )   (61 )
Adjusted EBITDA   207     214       421     269     (13 )   677  

1 Includes International, remaining renewables and Generation eliminations
2 Excludes MtM loss of $69 million and contract amortization of $2 million
3 Excludes deactivation costs of $3 million
4 Excludes gain on sale of business of $13 million, reorganization costs of $27 million and loss on debt extinguishment of $19 million

The following table reconciles the condensed financial information to Adjusted EBITDA:

($ in millions)   Condensed financial information   Interest, tax, depr., amort.   MtM   Deactivation   Other adj.   Adjusted EBITDA
Operating revenues   3,061   (5 )  

(55

)       3,001
Cost of operations   1,961     (7 )   (124 )           1,830  
Gross margin 1,100 2 69 1,171
Operations & maintenance and other cost of operations 346 (3 ) 343
Selling, marketing, general & administrative 212 212
Other expense/(income) 1   236     (246 )           (51 )  

(61

)
Income/(Loss) from Continuing Operations   306     248     69     3     51     677  

1 Other adj. includes gain on sale of assets of $13 million, reorganization costs of $27 million and loss on debt extinguishment of $19 million

Appendix Table A-2: Third Quarter 2017 Adjusted EBITDA Reconciliation by Operating Segment

The following table summarizes the calculation of Adjusted EBITDA and provides a reconciliation to income/(loss) from continuing operations:

($ in millions)   Gulf Coast   East/

West1

    Generation   Retail   Corp/

Elim

  Total
Income/(Loss) from Continuing Operations   155     117       272     72     (159 )   185  
Plus:              
Interest expense, net 24 24 1 111 136
Income tax 1 1
Depreciation and amortization 69 59 128 28 7 163
ARO Expense 4 3 7 7
Contract amortization 3 1 4 (1 ) 3
Lease amortization       (2 )     (2 )           (2 )
EBITDA 231 202 433 100 (40 ) 493
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates (6 ) 14 8 (1 ) 7
Acquisition-related transaction & integration costs 3 3
Reorganization costs 3 3 5 4 12
Deactivation costs 2 2 3 5
Other non recurring charges (1 ) (3 ) (4 ) 1 7 4
Mark to market (MtM) (gains)/losses on economic hedges   (135 )   (10 )     (145 )   173         28  
Adjusted EBITDA   92     205       297     279     (24 )   552  

1 Includes International, remaining renewables and Generation eliminations

Third Quarter 2017 condensed financial information by Operating Segment:

($ in millions)   Gulf Coast   East/

West1

    Generation   Retail   Corp/

Elim

  Total
Operating revenues   655   520     1,175   1,935   (397 )   2,713
Cost of sales   395     204       599     1,460     (394 )   1,665  
Economic gross margin2 260 316 576 475 (3 ) 1,048
Operations & maintenance and other cost of operations3 143 111 254 87 3 344
Selling, marketing, general & administrative 35 16 51 109 30 190
Other expense/(income)4   (10 )   (16 )     (26 )       (12 )   (38 )
Adjusted EBITDA   92     205       297     279     (24 )   552  

1 Includes International, remaining renewables and Generation eliminations
2 Excludes MtM loss of $28 million and contract amortization of $3 million
3 Excludes deactivation costs of $5 million
4 Excludes acquisition-related transaction & integration costs of $3 million and reorganization costs of $12 million

The following table reconciles the condensed financial information to Adjusted EBITDA:

($ in millions)   Condensed financial information   Interest, tax, depr., amort.   MtM   Deactivation   Other adj.   Adjusted EBITDA
Operating revenues   2,740   (5 )   (22 )       2,713
Cost of operations   1,723     (8 )   (50 )           1,665  
Gross margin 1,017 3 28 1,048
Operations & maintenance and other cost of operations 349 (5 ) 344
Selling, marketing, general & administrative 190 190
Other expense/(income) 1   293     (305 )           (26 )   (38 )
Income/(Loss) from Continuing Operations   185     308     28     5     26     552  

1 Other adj. includes acquisition-related transaction & integration costs of $3 million and reorganization costs of $12 million

Appendix Table A-3: YTD Third Quarter 2018 Adjusted EBITDA Reconciliation by Operating Segment

The following table summarizes the calculation of Adj. EBITDA and provides a reconciliation to income/(loss) from continuing operations:

($ in millions)   Gulf Coast   East/

West1

    Generation   Retail   Corp/

Elim

  Total
Income/(Loss) from Continuing Operations   156     146       302     733     (434 )   601  
Plus:              
Interest expense, net 46 46 2 301 349
Income tax 1 1 18 19
Loss on debt extinguishment 22 22
Depreciation and amortization 128 131 259 86 25 370
ARO Expense 21 12 33 33
Contract Amortization 7 1 8 8
Lease amortization       (6 )     (6 )           (6 )
EBITDA 312 331 643 821 (68 ) 1,396
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 5 47 52 1 53
Acquisition-related transaction & integration costs 2 3 5
Reorganization costs 5 5 10 10 50 70
Deactivation costs 10 10 8 18
Gain on sale of business 2 2 (29 ) (27 )
Other non recurring charges 27 13 40 3 10 53
Impairments 74 74 74
Market to market (MtM) (gains)/losses on economic hedges   14     5       19     (81 )       (62 )
Adjusted EBITDA   363     487       850     755     (25 )   1,580  

1 Includes International, remaining renewables and Generation eliminations

YTD Third Quarter 2018 condensed financial information by Operating Segment:

($ in millions)   Gulf Coast   East/

West1

    Generation   Retail   Corp/

Elim

  Total
Operating revenues   1,923   1,286     3,209   5,502   (897 )   7,814
Cost of sales   1,028     439       1,467     4,130     (895 )   4,702  
Economic gross margin2 895 847 1,742 1,372 (2 ) 3,112
Operations & maintenance and other cost of operations3 494 363 857 236 (10 ) 1,083
Selling, marketing, general & administrative 83 82 165 385 41 591
Other expense/(income)4   (45 )   (85 )     (130 )   (4 )   (8 )   (142 )
Adjusted EBITDA   363     487       850     755     (25 )   1,580  

1 Includes International, remaining renewables and Generation eliminations
2 Excludes MtM gain of $62 million and contract amortization of $8 million
3 Excludes deactivation costs of $18 million
4 Excludes gain on sale of business of $27 million, acquisition-related transaction & integration costs of $5 million, reorganization costs of $70 million and loss on debt extinguishment of $22 million

The following table reconciles the condensed financial information to Adjusted EBITDA:

($ in millions)   Condensed financial information   Interest, tax, depr., amort.   MtM   Deactivation   Other adj.   Adjusted EBITDA
Operating revenues   7,795   (12 )   31       7,814
Cost of operations   4,629     (20 )   93             4,702  
Gross margin 3,166 8 (62 ) 3,112
Operations & maintenance and other cost of operations 1,101 (18 ) 1,083
Selling, marketing, general & administrative 591 591
Other expense/(income) 1   873     (765 )           (250 )   (142 )
Income/(Loss) from Continuing Operations   601     773     (62 )   18     250     1,580  

1 Other adj. includes gain on sale of assets of $27 million, acquisition-related transaction & integration costs of $5 million, reorganization costs of $70 million and loss on debt extinguishment of $22 million

Appendix Table A-4: YTD Third Quarter 2017 Adjusted EBITDA Reconciliation by Operating Segment

The following table summarizes the calculation of Adjusted EBITDA and provides a reconciliation to income/(loss) from continuing operations:

($ in millions)   Gulf Coast   East/

West1

    Generation   Retail   Corp/

Elim

  Total
Income/(Loss) from Continuing Operations   50     133       183     380     (447 )   116  
Plus:              
Interest expense, net 74 74 3 349 426
Income tax 2 2 (9 ) 10 3
Depreciation and amortization 207 178 385 81 24 490
ARO Expense 11 9 20 20
Contract Amortization 10 3 13 13
Lease amortization       (6 )     (6 )           (6 )
EBITDA 278 393 671 455 (64 ) 1,062
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 15 43 58 (11 ) 47
Acquisition-related transaction & integration costs 3 3
Reorganization costs 3 3 5 10 18
Deactivation costs 3 3 7 10
Other non recurring charges (25 ) (25 ) 1 16 (8 )
Impairments 42 18 60 60
MtM (gains)/losses on economic hedges   (152 )   (11 )     (163 )   154         (9 )
Adjusted EBITDA   161     446       607     615     (39 )   1,183  

1 Includes International, remaining renewables and Generation eliminations

YTD Third Quarter 2017 condensed financial information by Operating Segment:

($ in millions)   Gulf Coast   East/

West1

    Generation   Retail   Corp/

Elim

  Total
Operating revenues   1,752   1,348     3,100   4,868   (910 )   7,058
Cost of sales   1,049     500       1,549     3,671     (904 )   4,316  
Economic gross margin2 703 848 1,551 1,197 (6 ) 2,742
Operations & maintenance and other cost of operations3 442 370 812 246 13 1,071
Selling, marketing, general & administrative 97 73 170 334 130 634
Other expense/(income)4   3     (41 )     (38 )   2     (110 )   (146 )
Adjusted EBITDA   161     446       607     615     (39 )   1,183  

1 Includes International, remaining renewables and Generation eliminations
2 Excludes MtM gain of $9 million and contract amortization of $13 million
2 Excludes deactivation costs of $10 million
3 Excludes acquisition-related transaction & integration costs of $3 million and reorganization costs of $18 million

The following table reconciles the condensed financial information to Adjusted EBITDA:

($ in millions)   Condensed financial information   Interest, tax, depr., amort.   MtM   Deactivation   Other adj.   Adjusted EBITDA
Operating revenues   7,246   (11 )   (177 )       7,058
Cost of operations   4,508     (24 )   (168 )           4,316  
Gross margin 2,738 13 (9 ) 2,742
Operations & maintenance and other cost of operations 1,081 (10 ) 1,071
Selling, marketing, general & administrative 634 634
Other expense/(income) 1   907     (933 )           (120 )   (146 )
Income/(Loss) from Continuing Operations   116     946     (9 )   10     120     1,183  

1 Other adj. includes acquisition-related transaction & integration costs of $3 million and reorganization costs of $18 million

Appendix Table A-5: 2018 and 2017 Three and Nine Months Ended September 30 Adjusted Cash Flow from Operations Reconciliations

The following table summarizes the calculation of adjusted cash flow operating activities providing a reconciliation to net cash provided by operating activities:

  Three Months Ended
($ in millions)   September 30, 2018   September 30, 2017
Net Cash Provided by Operating Activities 402   555
Reclassifying of net receipts for settlement of acquired derivatives that include financing elements (2 )
Merger, integration and cost-to-achieve expenses (1) 27 14
GenOn Settlement (2) 132 13
Adjustment for change in collateral   27     (86 )
Adjusted Cash Flow from Operating Activities   588     494  
Maintenance CapEx, net (3) (30 ) (32 )
Environmental CapEx, net (1 )
Distributions to non-controlling interests   (1 )    
Free Cash Flow Before Growth Investments (FCFbG)   556     462  

(1) 2018 includes cost-to-achieve expenses associated with the Transformation Plan announced on July 2017 call.
(2) 2018 includes settlement consideration of $261 million, transition services credit of $28 million, and pension contribution of $12 million, less $151 million repayment of intercompany revolver loan, accrued interest and fees of $12 million, certain other balances due to NRG of $6 million; 2017 includes pension contribution of $13 million.
(3) Includes insurance proceeds of $4 million in 2017.

  Nine Months Ended
($ in millions)   September 30, 2018   September 30, 2017
Net Cash Provided by Operating Activities 758   558
Merger, integration and cost-to-achieve expenses (1) 71 14
Sale of Land 3 8
GenOn Settlement (2) 132 13
Adjustment for change in collateral (3)   45     182  
Adjusted Cash Flow from Operating Activities   1,009     775  
Maintenance CapEx, net (4) (135 ) (102 )
Environmental CapEx, net (1 ) (25 )
Distributions to non-controlling interests   (17 )   (18 )
Free Cash Flow Before Growth Investments (FCFbG)   856     630  

(1) 2018 includes cost-to-achieve expenses associated with the Transformation Plan announced on July 2017 call.
(2) 2018 includes settlement consideration of $261 million, transition services credit of $28 million, and pension contribution of $12 million, less $151 million repayment of intercompany revolver loan, accrued interest and fees of $12 million, certain other balances due to NRG of $6 million; 2017 includes pension contribution of $13 million.
(3) 2018 includes $15MM return of collateral to GenOn, and 2017 reflects change in NRG’s cash collateral balance as of 3Q2017 including $79MM of collateral postings from deconsolidated affiliate (GenOn).
(4) Includes insurance proceeds of $22 million in 2017.

Appendix Table A-6: Third Quarter YTD 2018 Sources and Uses of Liquidity

The following table summarizes the sources and uses of liquidity through third quarter of 2018:

($ in millions) Nine Months Ended

September 30, 2018

Sources:
Adjusted cash flow from operations 1,009
Convertible Note Issuance 575
Asset sales 1,468  
Uses:
Share repurchases (1,000 )
Debt Repayment, net of proceeds (683 )
Deconsolidation of Ivanpah and Agua Caliente (268 )
Decrease in credit facility (257 )
Growth investments and acquisitions, net (151 )
GenOn Settlement (157 )
Maintenance and environmental capex, net (136 )
Cost-to-achieve expenses(1) (114 )
Nuclear Decommissioning Trust (51 )
Collateral (2) (38 )
Common Stock Dividends (28 )
Distributions to non-controlling interests (17 )
Other Investing and Financing (68 )
Change in Total Liquidity 84  

(1) Includes capital expenditures associated with the Transformation Plan
(2) Excludes impact of Funds deposited by Counterparties

Appendix Table A-7: 2018 and 2019 Adjusted EBITDA Guidance Reconciliation

The following table summarizes the calculation of Adjusted EBITDA providing reconciliation to net income:

  2018 Adjusted EBITDA

Revised Guidance

($ in millions)   Low   High
Income from Continuing Operations 1 405     505
Income Tax 15 15
Interest Expense 445 445
Depreciation, Amortization, Contract Amortization and ARO Expense 490 490
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 65 65
Other Costs 2 280     280
Adjusted EBITDA   1,700       1,800
  2019 Guidance
($ in millions)   Low   High
Income from Continuing Operations 1 965     1,165
Income Tax 15 15
Interest Expense 350 350
Depreciation, Amortization, Contract Amortization and ARO Expense 430 430
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 40 40
Other Costs 2 50     50
Adjusted EBITDA   1,850       2,050

1. For purposes of guidance, discontinued operations are excluded and fair value adjustments related to derivatives are assumed to be zero.
2. 2018 includes impairments, loss on debt extinguishment, deactivation costs, and cost-to-achieve expenses; 2019 includes deactivation costs and cost-to-achieve expenses

Appendix Table A-8: 2018 and 2019 FCFbG Guidance Reconciliation

The following table summarizes the calculation of Free Cash Flow before Growth providing reconciliation to Cash from Operations:

 

    2018     2019
($ in millions)     Revised Guidance     Guidance
Adjusted EBITDA     $1,700 - $1,800     $1,850 - $2,050
Cash Interest payments (445 ) (350 )
Cash Income tax (15 ) (15 )
Collateral / working capital / other           (80 )
Cash From Operations $1,240 - $1,340 $1,405 - $1,605
       
Adjusted Cash flow from operations $1,240 - $1,340 $1,405 - $1,605
Maintenance capital expenditures, net (170) - (180) (145) - (165)
Environmental capital expenditures, net

(0) - (5)

(0) - (5)
Distributions to non-controlling interests     (10) - (20)     -
Free Cash Flow - before Growth     $1,050 - $1,150     $1,250 - $1,450

EBITDA and Adjusted EBITDA are non-GAAP financial measures. These measurements are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The presentation of Adjusted EBITDA should not be construed as an inference that NRG’s future results will be unaffected by unusual or non-recurring items.

EBITDA represents net income before interest (including loss on debt extinguishment), taxes, depreciation and amortization. EBITDA is presented because NRG considers it an important supplemental measure of its performance and believes debt-holders frequently use EBITDA to analyze operating performance and debt service capacity. EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations are:

  • EBITDA does not reflect cash expenditures, or future requirements for capital expenditures, or contractual commitments;
  • EBITDA does not reflect changes in, or cash requirements for, working capital needs;
  • EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt or cash income tax payments;
  • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and
  • Other companies in this industry may calculate EBITDA differently than NRG does, limiting its usefulness as a comparative measure.

Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to use to invest in the growth of NRG’s business. NRG compensates for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only supplementally. See the statements of cash flow included in the financial statements that are a part of this news release.

Adjusted EBITDA is presented as a further supplemental measure of operating performance. As NRG defines it, Adjusted EBITDA represents EBITDA excluding impairment losses, gains or losses on sales, dispositions or retirements of assets, any mark-to-market gains or losses from accounting for derivatives, adjustments to exclude the Adjusted EBITDA related to the non-controlling interest, gains or losses on the repurchase, modification or extinguishment of debt, the impact of restructuring and any extraordinary, unusual or non-recurring items plus adjustments to reflect the Adjusted EBITDA from our unconsolidated investments. The reader is encouraged to evaluate each adjustment and the reasons NRG considers it appropriate for supplemental analysis. As an analytical tool, Adjusted EBITDA is subject to all of the limitations applicable to EBITDA. In addition, in evaluating Adjusted EBITDA, the reader should be aware that in the future NRG may incur expenses similar to the adjustments in this news release.

Management believes Adjusted EBITDA is useful to investors and other users of NRG's financial statements in evaluating its operating performance because it provides an additional tool to compare business performance across companies and across periods and adjusts for items that we do not consider indicative of NRG’s future operating performance. This measure is widely used by debt-holders to analyze operating performance and debt service capacity and by equity investors to measure our operating performance without regard to items such as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired. Management uses Adjusted EBITDA as a measure of operating performance to assist in comparing performance from period to period on a consistent basis and to readily view operating trends, as a measure for planning and forecasting overall expectations, and for evaluating actual results against such expectations, and in communications with NRG's Board of Directors, shareholders, creditors, analysts and investors concerning its financial performance.

Adjusted cash flow from operating activities is a non-GAAP measure NRG provides to show cash from operations with the reclassification of net payments of derivative contracts acquired in business combinations from financing to operating cash flow, as well as the add back of merger, integration and related restructuring costs. The Company provides the reader with this alternative view of operating cash flow because the cash settlement of these derivative contracts materially impact operating revenues and cost of sales, while GAAP requires NRG to treat them as if there was a financing activity associated with the contracts as of the acquisition dates. The Company adds back merger, integration related restructuring costs as they are one time and unique in nature and do not reflect ongoing cash from operations and they are fully disclosed to investors.

Free cash flow (before Growth) is adjusted cash flow from operations less maintenance and environmental capital expenditures, net of funding, preferred stock dividends and distributions to non-controlling interests and is used by NRG predominantly as a forecasting tool to estimate cash available for debt reduction and other capital allocation alternatives. The reader is encouraged to evaluate each of these adjustments and the reasons NRG considers them appropriate for supplemental analysis. Because we have mandatory debt service requirements (and other non-discretionary expenditures) investors should not rely on free cash flow before Growth as a measure of cash available for discretionary expenditures.

Free Cash Flow before Growth is utilized by Management in making decisions regarding the allocation of capital. Free Cash Flow before Growth is presented because the Company believes it is a useful tool for assessing the financial performance in the current period. In addition, NRG’s peers evaluate cash available for allocation in a similar manner and accordingly, it is a meaningful indicator for investors to benchmark NRG's performance against its peers. Free Cash Flow before Growth is a performance measure and is not intended to represent net income (loss), cash from operations (the most directly comparable U.S. GAAP measure), or liquidity and is not necessarily comparable to similarly titled measures reported by other companies.

Source: NRG Energy, Inc.

For NRG Energy, Inc.
Media:
Candice Adams
609.524.5428
or
Investors:
Kevin L. Cole, CFA
609.524.4526