Good day and thank you for standing by. Welcome to the Talon Energy Corporation Second Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sergio Castro, Vice President and Treasurer. Please go ahead.

Thank you, Amber. ...for results could differ in our Q&A.

Let me start by addressing our strategy, our flywheel strategy, like any good strategy on a view that is directionally accurate but not precise. Accurate in that the direction of travel maximizes value in any future, but not so precise in that this is constantly refreshed to take action of travel. Travel remains fundamental. PPL is a zone that has two times the generating capacity of current load. This means that large loads can be absorbed within the region, and that is what we use as well as many other loads in the PPL region. It does not change the fact that the base energy in PPL has more gens than load, and transmission doesn't allow it to be fixed as it is already in development. Terry and Cole would expand on supplementing these advantaged assets with our development into the digital space of land development. That is not our business. It's the AWS, front-of-the-meter solutions, solutions that provide the opportunity for long-term contracts of energy from our existing portfolio. Additionally, capacity for these contracts can come with capacity additions. The pipeline of new capabilities, peakers, and upgrades. Capacity with existing assets has been any behind-the-meter solution. And we think that is a winning proposition in the long run for our customers and is the basis for our forward-leaning, and we like the direction of travel with the Talon Flywheel. The fleet performed well, and we delivered $374 million of adjusted EBITDA and $212 million of adjusted free cash flow for the quarter, demonstrating the value of our recent acquisitions. In June, we closed on the Waterford, Darby, and Lawrenceburg plants, bringing over two-and-a-half gigawatts of efficient natural gas-fired generation assets into our portfolio just in time for the peak summer demand. Teams at these sites enter the talent-based and reliable operations for years to come. We executed on our share repurchase program by buying back 550,000 shares during the quarter, and we are committed to our target of returning 70% of adjusted free cash flow to shareholders. Our near-term cash return impacts our 27 and 28 increase in West Hub. Well, it's interesting to note that just a short while ago, we were discussing transacting long-term PPAs with hyperscalers at prices in the $80 per megawatt hour range, and now the Ford wholesale prices for capacity and energy are approaching those levels, if not exceeding them. A joke internally, Chris was finding interest in long-term contracts in the C&I space. Here is that while brokers are in the mid to upper market, we have seen 2030s. These are thinly traded, but one should also view this as a supportive sign of capacity pricing in the out years. and uncapped prices that would have settled in excess of $500 a megawatt day. Cornerstone transaction is closed. We are updating and raising our 2026 guidance, 47 and 28 for share outlets. Provide guidance for the upcoming year each of the two following years. A couple of additional times this year because of the uniqueness of adding a significant gas port.

This results in a free cash flow conversion rate in the mid-60s. keeping our focus of generating strong cash flows for our shareholders. We have over $1.9 billion of liquidity, thank you for all allocation flexibility, and enables us to focus on shareholder returns. This remains our top priority across the fleet, and our team works safely during a busy spring outage season. Incident rate was 0.2 below the industry average. I would like to thank the men and women of talent who continue to demonstrate strong while also integrating new generation assets into the fleet. The team to operate in a safe and reliable manner is an important part of talent. Our fleet ran well with a 3.9% equivalent force outage factor, and we generated approximately 30 terawatt hours of electricity, achieving a 51% fleet-wide capacity factor, which is 14 percentage points higher than the prior year, as we added Freedom and Guernsey to the fleet, and our intermediate and peaking assets continue the trend of higher run times to support. Moving to slide four, I would like to talk about the overall market fundamentals and load growth across the U.S. and in PJM. Since the inception of the modern-day PJM, 70% have occurred over the last 15 months, in the green on the upper left graph. These peak load days were just in the month of July. This means higher run times, which you can see as our total generation grew by 13% when compared to a pro forma amount from last year, which also includes the assets that we have acquired. In PJM, demand is forecasted to grow over 17% through the end of the decade, meaning higher run times for our existing generation fleet. I add some color on what that means for talent. A few years ago, our Montour plant was utilized as a peaking asset, with multiple startups and shutdowns and running only over the peak demand hours during the day. However, the last two years have produced a very different run profile, with the plant running at full capacity for 30 to 40 days at a time to meet the revenue market demand. Turning to the upper right of the slide, total U.S. power demand is forecasted to continue to grow by over 20% through the end of the decade. All of this helps validate one of our driving theses. Significant low growth is here, and more is coming. Sparks are widening, both as of March 31st of this year and continuing through today, as compared to the July 2025 pricing that was used at our investor day. See from the graph on the bottom right hand of the slide, 2028 PPL spark spreads are up 28%, while 80 hub sparked. In the last couple of years, forward power markets were showing limited reaction to the demand growth, but that has shifted over the past several months as load continues to verify in the PGM real-time market and record peak demand events get factored into the forward curves. Turning to slide 6, let me provide some color on the basis in PPL that we know. Historically, the PPL power price discount compared to PJM West Sub, was approximately $9 per megawatt hour. The last several months, we have seen the basis grow to approximately $20 per megawatt hour. Widening is driven by several factors, including a significant amount of recent transmission work that has been taking place over the spring and summer. The transmission outages related to this work have been taking place south of our generation system upgrade, in between PPL zone and the load pockets of VG&E and Dominion. This transmission Transmission work will provide more reliable transmission into those southern zones. While the status work has been conducted during the spring and summer, it limits the power flow south and that shows up as a larger discount in PPL pricing in the day ahead in real-time energy markets. The forward PPL zone curve is then impacted by the recency trend that has been seen in the cash market. Two main drivers will work to compress that basis as we move forward. Transmission upgrade work between the north and south regions of PJM. And second, further load growth within the PPL zone. As you can see on the upper right, PPL is currently a net exporter of power. But as load grows in the zone, assuming no further generation supply, the volumes exported should decline, and that will have a positive impact on the PPL basis price. Now this represents an opportunity to narrow the basis, which will result in higher prices. I'll turn the call over to Cole to discuss our financial performance. Thanks, Terry.

Good afternoon, everyone. Now turning to the financial results for the quarter, we are reporting adjusted EBITDA of $374 million and adjusted free cash flow of $212 million. These results are substantially higher when compared to the same period last year and continue to be primarily driven by the contribution of freedom and guarantee, higher PZAM capacity pricing, higher generation volumes from Susquehanna and the fossil fleet, and the AWS contract, which continues to ramp. Year-to-date, we are also seeing the benefits of higher realized market prices on our open generation portfolio. These strong results demonstrate the strengthening cash flow profile. As I mentioned earlier, now that the Cornerstone acquisition has closed, we are raising our 2026 guidance ranges. Our adjusted EBITDA range for 2026 has increased to $5 billion to $2.225 billion, which includes the Cornerstone acquisition impact, updated market conditions, and an offset due to the pending sale of our interest in Keystone. We are also raising our adjusted free cash flow range to $1.2 billion to $1.35 billion, It also includes impacts from our financing. In the Cornerstone transaction back in January, we indicated a pro forma 2027 EBITDA of approximately $2.6 billion, and I'm pleased to say that we are exceeding that level with this update. We expect to provide formal 2027 guidance on our upcoming Q3 earnings call, increasing our 2027 and 2028 outlooks. Our base case holds share count flat as of the end of the 7.9 million shares. This is net of equity issues in conjunction with the cornerstone acquisition and share repurchases made during the quarter. For our 2027 base case, our free cash flow outlook remains $34 per share, increasing to $40 per share in 2028. We also anticipate generating approximately $4 billion of adjusted free cash flow between the balance of this year through the end of 2028 and forecast returning at least 70% of this cash, $2.8 billion, to shareholders for share buybacks. For context, that is almost 20% of our current market cap. Note that our authorized share repurchase program has $1.7 billion remaining, so in time, we will require board approval. For buybacks, we forecast 2027 cash flow at approximately $37 a share, and 2028 now at $48 a share, or over 14% free cash flow yield on 2028 cash flows at current share price levels. This leaves more than $1.3 billion of excess cash to fund additional value creation opportunities. For example, more buybacks at mid-teens free cash flow yields for selective growth investments. Whatever is the highest and best use of capital for our shareholders. All while continuing to target our net leverage ratio at 3.5 times. Significant upside opportunities for a variety of levers. The creative M&A, acceleration of our existing 2 gigawatt PPA, and expanding our flywheel strategy with new data center PPAs. Each of which could add 10% or more to our cash rise and normalization of zonal basis are also additional upside levers, and ones that we are well positioned for given the market fundamentals that Terry discussed. To be clear, our forecasts include recent PPL marks that reflect the widened basis, and a good rule of thumb is that for every $1 improvement in zonal basis across our portfolio, it equates to approximately $1 increase in adjusted free cash flow per share. Each of these levers provides meaningful opportunities that can see our adjusted free cash flow exceed $50 per share by 2028, continuing to widen the potential free cash flow yield into the high team. I want to emphasize that we will continue to maintain capital discipline with a clear focus on accretive levers that meaningfully increase the free cash flow for share available to investors through the Calen flywheel. Speaking of the flywheel, as we discussed last quarter, we have several opportunities for long-term PPAs that support a range of customer solutions. This includes approximately 4 gigawatts of advantaged data center sites with utility load commitments that provide speed to market advantages. These opportunities include organic sites adjacent to our generation, as well as sites that we have acquired and advanced development on over the past. We've also advanced our two plus gigawatts of new build capacity projects backed with interconnection queue positions and are in the process of additional developments related to both upgrades and new capacity projects. We are working on these developments to support the flywheel with our overall goal of contracting more of our base load. We'll continue to focus on meeting the highest priority needs of our potential customers with two key areas of focus. We continue to engage with counterparties on solutions that rely on our existing generation portfolio, i.e. leveraging both our existing energy and capacity, and we see the customer universe expanding beyond hyperscalers to include co-locators, neoclouds, and even large C&I customers. The exact structure of these deals will vary by counterparty, but it is clear to us that existing generation is going to be needed to power data centers that are energized on solutions that will also provide some level of new capacity. In our hybrid structure, we are pairing our existing energy from the baseload talent portfolio with our new capacity development projects to cover at least a percentage of the load needs. This percentage is likely to vary by circumstance and counterpart. Our speed-to-market sites already provide access to grid power, which is the primary preference of our customers and where we remain focused as we target long-term PPAs supplied by our existing portfolio. On the next slide, we show the evolution of our contracted profile as our existing nearly 2 gigawatt contract ramped through 2030 alongside an illustrative view of what that portfolio could look like in 2030 and beyond. In our 2028 outlook, our margin composition is primarily driven by PJM energy and capacity revenues, which allows us to participate in widening PJM power pricing and sparse grid in the near term. As the AWS campus ramps to full build out, projected to be sometime between 2028 and 2030, our long-term contracted margin increases from 10% to 35%. This makes contracted gross margin with a double-A credit counterparty our largest revenue stream, de-risking longer-term exposure to PJM capacity in energy markets. We show an illustrative beyond 2030 that reflects the impact of an additional approximately 2 gigawatts of long-term contracts, assuming similar economics on their long-term contracts. This potential mix would significantly reduce our reliance on the merchant PJM markets and continue shifting towards a more infrastructure-like cash flow profile. We believe this is a differentiated position with growing cash flows that are tied in the near term to favorable market dynamics with the potential to convert to increasingly durable cash flows under long-term contracts. I'll turn it back to Matt.

So I'll turn it back to the operator.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your phone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and one follow-up only. Please stand by while we compile the Q&A roster. Our first question comes from Carly Davenport of Goldman Sachs. Your line is open.

Hey, good afternoon, team. Thanks for taking the questions and all the updates today. Maybe to start, you know, there's been a lot of news flow out of PJM over the last couple of weeks here. Just maybe you can give us your thoughts on anything that stood out to you in PJM's first filing last week on the RBP framework. And are you able to share to what degree you plan to participate in either the central procurement or the bilateral process and how that might relate to the development pipeline that you've highlighted today?

29th and then executed on the concepts that we thought were beneficial, you know, the 555 cap, largely as expected but with the holistically, but, you know, we're still thinking about how we might comment. And then, like I said.

Okay, appreciate all those thoughts. That's really helpful. And then maybe just one clarification question from the prepared remarks. On the updated 27 and 28 free cash flow per share outlooks, can you just expand on the pricing assumptions that are embedded there and then if there's any assumption on a PPL basis narrowing to sort of bridge to that 28 figure?

Hey, Carly, it's Cole. Yeah, happy to answer that. So what we use and what I said in the remarks is we use the PPL mark as is. as we said, are 27 and 28.

That does. Thanks so much for the time. I appreciate it.

Thank you. Our next question comes from Moses Sutton of BNP Paribas. Your line is open.

Thanks for taking my question. Great update. Can you discuss any changes being contemplated for the hedging strategy, perhaps, with the curves in PJM, the comments between zones, all that's truly in flux, and we could be in a position where 2028 to 2030 could have more stepwise moves. And then when you have your AWS contract, capacity auction support, maybe from the four gigawatt opportunity stuff even more. So there's a lot of free cash flow support. So sorry for the long-winded question, but how are you thinking about maintaining upside potential under scenarios, whether that's a PPL comment, broader PJM, where we get more stepwise moves and you can kind of capture that value both through volume on running higher capacity factors, but, of course, on sparks potentially rising more.

We try to get it together. We do, but we put a little sense around, I mean, the best way for the tightness,

and to your point, will they reflect even further tightness as you get out beyond 28? Because you have to be seeing the marks are pretty thin out there. The second point that I'd make is not only does it reflect about hedges, it also impacted how we thought about acquisitions. We purposely got longer baseload generation, our ability to say we felt as though energy and capacity was underpriced and it's going to be more valuable.

And to underwrite it, but it's a perspective that incredibly helpful from both of you. If I could just add one follow-up to Carly's comments on the base SDF going up $4 on your 2028 outlook. You know, it's not buyback. That's a different point there. Cornerstone is already in there. If curves were already up, so maybe I just want to see if I could clarify a little more. Is there anything else? Because you're saying the narrowing of the zones would be upside there. Anything in like OpEx, post-acquisitions, maybe Synergy's there, or, you know, volumes, terawatt hours expected in there, that's part of the increase in the base outlook for 2028. It's good to see, just trying to understand a little more on what's actually in there, going from $36 to $40.

It's an update and a bring down on all the things that have moved in the out years, and I'm not going to do this as a reality of doing this.

Very helpful. Thanks again.

Thank you. Our next question comes from James West of Nelius Research. Your line is open.

Hey, good afternoon, guys. Hey. So with the hybrid strategy that you guys have in place and it's all grid connected, you seem to be in a very enviable position here because we're hearing and we've heard this in the last week and a half from some of the hyperscalers that, you know, power is going to be a constraint. It's not going to be a constraint. It is a constraint and may actually cause them in some ways to moderate their CapEx growth because there's waiting for energy. But you've got some of it now, and you'll build some of it with this strategy. I mean, when do you anticipate contracting on this, and is there some gating item, whether it's the auction or just figuring out all the regulations and finalizing those in PJM? Is there some gain item, or is this coming down the pipe pretty quick?

We'll get the IRAS. We do think that, in addition to that, helps being built out. I know people worry noise and say, that's regulatory norm. I think the biggest factor is these guys are all spending $50 billion a year thinking about where do they put their chips down. They're working on the very near term, like, what are we doing to put those chips down? It's on 29, where each of them are, and it builds out quicker. So I think it's a matter of when, not if, is the real point here, and I don't know that the – Okay, that's very helpful, Mac, and that explains a lot.

Just one quick follow-up for me on the backstop auction with the cap at, I think, 555. Does that kind of change what you add into that – or what you bid into that auction? Does that shift towards more batteries? because I would think new-build gas would not pencil at that level. Maybe I'm wrong.

But the way that that 555 works is it's, you know, successful. I consider a near-term sort of can get on. We have a market that's working. And let me just say something on that for just a second. I think the RDP is the first step in the right direction because it's procuring incremental generation, right? It's bringing new gen in to help solve the problem. I think the IRAs, which is going to come out in this, which is just connected, managed by another name, is talking about curtailing loads during emergency, at least that's how it was originally proposed. We've got to see what the rule looks like. But we as an industry need to focus on not curtailing loads, figuring out how to solve the load problem. This is like one of the greatest opportunities we've seen in this sector in a long time. And we should focus on how to bring new generation to bear to solve the load, the tail load, or particularly given the economic developments and everything else that goes along with it. So I respect it, but that's those are my thoughts.

No, that was great.

Thank you. Our next question comes from Angie Storonofsky from Seaport. Your line is open.

Thank you. So first on the Connect and Manage, So I'm just wondering, I know you guys have been waiting for regulatory clarity, but given the sort of matching or potential matching of both existing capacity with new capacity, how important is Connect and Manage to your strategy, again, given the new builds portfolio that you've been working on and given the locational benefits that your existing assets have, especially in the PPL zone?

I'm glad you used that phrase in another name. It's a hypothetical, and I know you have to appreciate, and I appreciate why it's irrelevant to the question, Angie, but you also have to appreciate it's a bit of a hypothetical until we get the proposal that comes out, because there were some changes. It's really about operations, which PJM already did a little bit in allocating it based towards getting it this front.

We would mention, and I'm going to go back to a comment that Matt made in the script, we've got advantage assets. But what I mean by that is keep in mind that, so let's talk about the interim resource and take a look at the discussion that we've had around basic. So I do think that our app comes out on Friday.

Great. And just one follow-up. So you guys mentioned that the forward curves plus capacity have basically caught up with the terms of your existing CESCO HANA contract. And so I'm wondering if you could maybe tell us, you know, what is the premium or what is the spread over those currently observable forwards that you could contract gas assets at. And I understand that it's a spark spread as opposed to the total price, but I'm hoping directionally if there's been sort of any compression of that premium as the forwards pick up or the market expectations continue to grow along with the forwards or the hyperscaler or your expectations.

Appreciate it.

So we like where we are.

Thank you. Our next question comes from David Arcaro from Morgan Stanley. Your line is open.

Hey, thanks so much for taking my questions. I guess just curious if you could maybe elaborate to the extent you can just, what's the interest level that you're seeing in new megawatts, you know, bringing new capacity and, you know, just broader trend toward, you know, more and more need for getting new megawatts onto the grid. So I'm curious if there's more of a trend in your data center discussions toward hybrid, you know, new build solutions overall versus.

I'll start here. Look, as outlined in the, again, we're seeing folks, hyperscalers and others, engaging on the hybrid model. Certainly, bring your own new capacity or bring new capacity to the system is of interest. And I think that's a compelling offering that we have. And it's one of kind of the two main areas that we're looking at. And we honestly wouldn't be talking about it so much if we didn't think that hyperscalers and others had significant interest.

And, Cole, when you think about it, I think we use the word hyperscaler as it's, and everybody has the same, that's in, we had neoclouds there, and it would be okay to be curtained the way that it was under ConnectManage, don't take that the wrong way, but they should be incented, and some people may be okay with that, and some people might not be okay with that and want to bring capacity and some people may be okay with we've developed a suite of options advancing that suite of options with the exception as I mentioned before behind the meter because

yeah got it understood that's helpful color and then just curious if you could elaborate a bit on how you're thinking about M&A the M&A landscape and just how you prioritize that in terms of allocation of capital currently, we're doing steam.

I'll take that, and Matt and others can chime in. Obviously, we'll look at it, at anything else. But first and foremost, we've always talked about what we've done in the past, overall mix.

Absolutely. Got it.

Our next question comes from Char Porreza from Wells Fargo. Your line is now open.

Good afternoon, team. It's actually Constantine. All right. I really appreciate all the great answers, and maybe we can just clean up a couple of housekeeping items and leftovers. But maybe just to help clarify on the site development plan, the four gigawatts, there's no change from kind of the prior three to four that you were looking at, right? And are those kind of contemplating the same characteristics that you highlighted in the first quarter, like the 28, 29 grid connections and gigawatt-type sites? Just maybe any impacts that you've seen on those from the PJM rule changes?

Partly speaking, we're advancing a number of sites, megawatts, those that can be scaled.

I would say that the one thing that we've added in there for this quarter, and it's on the back of closing the Cornerstone transaction, is we do have some up rates that we're looking at. Obviously, adding these additional gas plants into the system, that's something that we can look at from a new build standpoint. But once again, going back to one of the earlier questions.

And any impact from the PJM rule changes that's kind of starting to get felt within that development portfolio or still too soon? Okay. And then we've seen some waves on data center development from Texas this week being made. And do you see that creating any opportunities like sending projects to PJM or other areas just in general, maybe kind of your view on the scarcity signals for on-grid solutions? I'm just curious kind of where the strategic focus lies as these dynamics evolve, and would you look outside of PJM or just double down on the current plan? Okay, understood.

Hey, if they want to throw a bunch of data, it's all there.

And then maybe just a quick follow-up on kind of the basis issues and the mismatch with the PTL zone. Do you have any thoughts around kind of how to monetize that basis mismatch, whether it's you know FDR strategies or just flexibility around hedging strategy you but like the and don't trade that far and about it internally I go back

over a decade and and Pico and piece egg were pretty quite West Hub it's on gas and get really complicated but people do things as West Hub and that's just our transmission that's being built there is load that's coming there was some line outages that were taken out of service in order to like make improvements to be more of those that go on and then loads coming.

Thank you. Our last question comes from Michael Sullivan of Wolf. Your line is open.

Hey, guys. In terms of these new capacity options that you have, can you give us any sense where you're at in terms of sourcing equipment and what costs might be looking like? Yeah, just the peakers, the batteries, the new capacity solutions that you're looking to offer where you're at in terms of sourcing equipment and what costs are looking Michael, this is Terry.

We've talked to a number of different suppliers across the board, both batteries and peakers. The supply is there. It's available. It's just a question of pricing at the end of the day. And then what's the end? And once again, going back to what we mentioned earlier, obviously, we're not going to, you know, go down the road of a project like that unless we know what the return is.

And then lastly, just on the future of the PJM capacity auction, And maybe just first when you think we'll have clarity on the structure there post, you know, the cap rolling off, and then also how to think about the IRS provision of pulling out a new load that isn't matched with new gen and the implications there for the future of the auction.

I think you asked when do we think longer-term capacity reforms are going to be post the caps. I think we're going to – I think that was the first question. And we're going to find out, trying to figure out how to solve the load by bringing new gen, not connecting, managing it, not getting we can make some meaningful reform. I didn't quite hear on IRAS, but let me just give some feedback that we haven't gotten to. We've gone to appreciate everybody's questions. We're looking forward to catching up with the coming as well after this. We're catching up with everybody. Have a great day.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.