Good morning, and welcome to Vistra's Fourth Quarter and Full Year Results Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Meagan Horn, Vice President of Investor Relations. Please proceed.

Thank you. Good morning, everyone, and welcome to Vistra's investor webcast, discussing fourth quarter and full year 2022 results, which is being broadcast live on the Investor Relations section of our website at www.vistracorp.com. Also available on our website are a copy of today's investor presentation, the related press release and recent annual and quarterly reports on Forms 10-K and 10-Q. Joining me for today's call are Jim Burke, our President and Chief Executive Officer; and Kris Moldovan, our Executive Vice President and Chief Financial Officer. We have a few additional senior executives present to address questions during the second part of today's call, as necessary. Before we begin our presentation, I would like to note that today's press release, slide presentation and discussions on this call all include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are provided in the press release and in the appendix to the investor presentation available in the Investor Relations section of the company's website. Also today's discussion will contain forward-looking statements, which are based on assumptions we believe to be reasonable only as of today's date. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied. We assume no obligation to update our forward-looking statements. I encourage all listeners to review the safe harbor statement included on Slide 2 of the investor presentation on our website that explains the risks and forward-looking statements, the limitations of certain industry and market data included in the presentation and the use of non-GAAP financial measures. Thank you, and I'll now turn the call over to our President and CEO, Jim Burke.

Thank you, Meagan. Good morning. I'm pleased to be here with you all to discuss our fourth quarter and full year 2022 results, which we believe is a positive and straightforward message. Beginning on Slide 5, as we've reiterated over these past quarters, we remain vigilant and focused on our strategic priorities throughout the year, and the 2022 results demonstrate that focus and set us up well for the future. We believe that operating an integrated business model provides the stability and consistency that our customers and our shareholders expect, and our operations throughout extreme weather events this past year have proved this thesis. You'll recall that we initiated guidance for 2022 for adjusted EBITDA from ongoing operations with a midpoint of $3.06 billion. Despite extreme volatility in commodities and numerous weather events, including winter storm Elliott at the end of December, we ended the year exceeding this midpoint by $55 million. Importantly, we delivered strong adjusted free cash flows along with these higher earnings, delivering a final adjusted free cash flow before growth of $129 million above the midpoint of the narrow guidance range we introduced in the third quarter of 2022. Our integrated portfolio also supported our comprehensive hedging strategy we executed throughout 2022, with the goal of locking an out-year earnings potential in years 2023 to 2025. Kris will speak to this in more detail later, but we concluded the year at approximately 73% hedged across '23 to '25 across all markets. This hedging percentage and the current forward curves continue to support the estimated $3.5 billion to $3.7 billion midpoint of adjusted EBITDA earnings potentials in those years. And with our 2023 adjusted EBITDA guidance midpoint set at $3.7 billion, we look forward to executing squarely on these opportunities. We continue to see Vistra generate significant cash flows and our strategic priorities remain focused on returning meaningful value to our shareholders. Kris will provide a detailed update on our capital allocation plan, but I will note that we returned approximately $2.25 billion to shareholders via our share repurchase program from November 2021 through December 2022, approximately $250 million more than we had originally planned. Additionally, we paid out $300 million in common stock dividends in 2022, as planned, with each quarter's dividend per share growing as the share count was reduced. The fourth quarter dividend paid in December 2022 represented a 29% increase over the fourth quarter dividend paid in December of '21. We expect shareholders to continue to experience increases in dividend returns into 2023 as we expect to continue to pay out an aggregate $300 million in annual dividends. We remain vigilant this year in maintaining a strong balance sheet. While our debt balance did grow to provide the liquidity we needed to support our comprehensive hedging strategy, we achieved our goal of a sub-3x leverage after margin deposits are considered at year-end. We held our debt capacity steady at year-end as we saw less return of margin than originally expected. We have seen the margin deposits start to return to us in the first quarter of 2023, and we continue to actively manage our liquidity and focus on opportunistic timing and structures to further optimize our balance sheet, with the goal to achieve our long-term sub-3x debt leverage ratio target on a pre-margin deposit basis over time. Finally, we are proud of the results we saw in our Vistra Zero business this past year. We added over 400 megawatts of renewable and storage capacity in 2022, and we expect to add another 350 megawatts of storage capacity in California at our Moss Landing Phase 3 facility in mid-2023. We also retired approximately 2,900 megawatts of Ohio and Illinois coal facilities at our Zimmer, Joppa and Edwards plants. We appreciate the dedication of our teams who have worked at these sites for decades, powering our communities and always with a sharp focus on safety. We are pleased to be able to redevelop these sites into future Vistra Zero energy facilities. Notably, the Joppa and Edwards sites are part of our Illinois Coal to Solar program where we are transitioning numerous sites into solar and/or storage facilities. Turning to Slide 6. We had a strong 2022, ending the year with $3.115 billion of ongoing operations adjusted EBITDA. This is $55 million above the $3.06 billion midpoint we mentioned in the third quarter of 2021. We achieved nearly $2.4 billion of adjusted free cash flow before growth, $129 million higher than the narrowed guidance midpoint we set in the third quarter of '22. Our financial achievements were underscored by the strong performance of our retail and generation teams. Our flagship retail brand TXU Energy continues to execute well, growing Texas residential customers nearly 2% year-over-year, while maintaining its PUCT 5-star rating. Our Generation team has proven its ability to perform in extreme weather conditions in both the summer and winter months, optimizing the maintenance of our fleet to be ready to perform when needed. The team's commitment is illustrated by the 95.4% commercial availability achieved fleet-wide this past year. Safety remains our top priority, and the culture of continuous improvement is exemplified in our Vistra best defense safety program. I'm pleased with our performance in 2022, but through continuous improvement, we see opportunities to perform operationally at an even higher level in 2023. We now look forward to delivering on the financial guidance we set forth last quarter for 2023. We are reaffirming our $3.4 billion to $4 billion adjusted EBITDA from ongoing operations range for 2023, as well as reaffirming our $1.75 billion to $2.35 billion adjusted free cash flow before growth guidance range. It is early in the year, but notably, despite the volatility in commodity prices we've experienced lately, we continue to have the line of sight to achieve the expectations we've set for ourselves, given the potential value our comprehensive hedging program has locked in for 2023. I will now hand the call over to Kris to discuss the 2022 fourth quarter and annual performance in more detail.

Thank you, Jim. Starting on Slide 8, Vistra delivered solid fourth quarter results in 2022 with ongoing operations adjusted EBITDA of approximately $771 million, including $359 million from Retail and $412 million from Generation. For the year, Vistra delivered $3.115 billion of adjusted EBITDA from ongoing operations, including $923 million from Retail and $2.192 billion from Generation. Retail's results exceeded the midpoint of its component of our 2022 adjusted EBITDA from ongoing operations guidance of $700 million by $223 million. Our favorable results were primarily driven by strong residential margins, claim management and customer counts in ERCOT, offset partially by PJM and New York, New England counts and margins. Moving now to Generation. Its adjusted EBITDA from ongoing operations results came in under the midpoint of the Generation component of guidance by $168 million, primarily driven by low first quarter prices in ERCOT, coal constraints and higher default service costs, partially offset by higher realized prices and strong commercial availability. Turning now to Slide 9. We are providing an update on the progress we've made on our capital allocation plan. As of February 23, we had executed approximately $2.45 billion of share repurchases since beginning the program in the fourth quarter of 2021. This includes an incremental $200 million since the end of 2022. We expect to utilize the remaining approximately $800 million of authorization by year-end 2023. Notably, as of February 23, our outstanding share count had fallen to approximately 381 million shares outstanding, which represents an approximately 21% reduction from the aggregate number of shares that were outstanding just under 16 months ago. Additionally, in 2022, we delivered on our goal to pay $300 million in dividends to our common stockholders each year, and we continue to execute against that goal as we head into 2023. To that end, we recently declared the quarterly dividend to be paid on Vistra's common stock in the amount of $0.1975 per share or approximately $75 million in the aggregate, payable on March 31, 2023. This represents an approximately 16% growth in dividend per share as compared to the dividend paid in the first quarter of 2022. While returning cash directly to our shareholders remains a priority, we also continue to focus on maintaining a strong balance sheet. Importantly, we continue to target a long-term net leverage ratio, excluding any non-recourse debt at Vistra Zero of less than 3x. While we ended the year with a higher debt balance than we planned, that higher balance corresponds to the higher levels of adjusted EBITDA opportunities we now have in years 2023 through 2025 as a result of our comprehensive hedging strategy, the execution of which required additional liquidity. Even with the higher debt balance, we achieved a sub-3x leverage on an after margin deposit basis at year-end. As we have reported in prior quarters, we continue to pursue Vistra Zero growth, and once again, we emphasize that we anticipate financing that growth primarily by using third-party capital along with the remaining proceeds from the issuance of the $1 billion of green preferred stock and ongoing Vistra Zero free cash flow. Turning to Slide 10. As Jim mentioned earlier, we are reaffirming our guidance for ongoing operations adjusted EBITDA with a $3.7 billion midpoint for 2023. As you can see on Slide 10, we are providing an update on the forward power and gas price curves as of February 23. While there has been noticeable volatility over the past year, prices are still holding in the range of the April 29, 2022 curves, which were the basis for the estimate of $3.5 billion to $3.7 billion of potential ongoing operations adjusted EBITDA midpoint range for each of years '24 and '25. Importantly, as of the end of 2022, we were approximately 73% hedged on average across all markets for 2023 through 2025, with 2023 approximately 90% hedged and 2024, approximately 76% hedged. As Jim stated, we are pleased with our 2022 accomplishments, but we are focused on continuous improvement as we deliver on our 2023 priorities. With that, operator, we're ready to open the line for questions.

Our first question will come from Shar Pourreza with Guggenheim Partners.

Realize it's still kind of far off, but I guess given the volatility we've seen in the backdrop, I think it'd be kind of helpful for the market on how should we sort of think about the EBITDA in '26 and beyond? The curves would imply a bit of a step-down, obviously, not as liquid that far out from a hedging perspective. And I guess, any general sense you can give there like you've been doing for '25?

Shar, this is Jim. We knew when we put out 3-year kind of views, we would get asked about it before and it's not surprising. What's interesting about the curves is that '26 is actually hanging in there relative to '25. You see gas, obviously, still has a little bit of contango in it. We're seeing the heat rates hold up. We're certainly way more open in '26, and the liquidity there is not obviously the same as the near term. But right now, it's just that we're really open in '26, Shar, but actually, the '26 view, based on where the curves are today, if we could actually lock that in, we feel pretty good about where we would guide for '26. It's just that it's a long way off and it's not as liquid as we'd like it to be to be able to act on it. I'm not even sure from a point of view that we would act on it fully, if we could. I think we think that some things might be a little bit overdone on at least as we see the view now with the mild winter and that putting downward pressure we've seen on the complex overall. But it's a good question. It's one we talk about every day, as we look at how we commercially optimize the business, but '26 is hanging in there.

Perfect. And then, Jim, a lot of different data points flying around this winter on the PCM and ERCOT. I realize it's not yet a completely done deal, but I guess how should we sort of think about potential uplift to your assets, if it's passed? You guys should have done the math, and obviously, is there still a door open to do something else down there?

The PCM, as you know, is the leading concept at the moment as a proposal passed by the Public Utility Commission in January. A lot of alternatives are still being discussed there. The one thing to note about the PCM is that it was passed more with the conceptual framework. The details are still to be worked out, things like what the reliability standard that the state is actually going to procure resources to ensure reliability and what the net CONE is, and what's the slope of the demand curve. There's just a lot of things to work out. So this idea of trying to calculate its value, I think there are really a couple of concepts we would want to make sure to consider when we get through the stakeholder process. One is, is it material enough to attract investment? And that's one of the ideas that is the concept behind doing anything with market reform. And is it enough to retain the Generation that's currently there? To the extent that we end up with a PCM that just does not have a lot of value in it, it could be a concept and could be implemented, but it may not do much attracting of investment or retaining of assets. You'll hear the debate that's happening in Austin; there are many stakeholders that do not believe that we need significant market reform. We're concerned about market reform from the standpoint that the state of Texas from a reliability perspective will need to actually incentivize new generation while retaining the existing because we are such a strong economy, and we're seeing load growth here in markets unlike anywhere else in the country. So I think, Shar, it's too early to say what the PCM is going to provide. Obviously, we believe in a dispatchable resource emphasis around PCM. We think that's core to grid reliability, but there's too many things to still work out in the stakeholder process if this is the leading concept coming out of the legislative session.

Perfect. And then, Jim, one last one for me, I promise. Just on the inorganic side, I mean we've seen nuclear assets in the East come to market in recent months. One of your peers has been very vocal that they couldn't bridge the bid-ask there. Is this something you've considered or would you consider in the future? Any thoughts there would be appreciated.

Yes, we're not going to comment on any specific aspect of mergers and acquisitions, but as you've seen before, if acquisitions can leverage our core capabilities, it would be something we consider. We've done this with companies like Dynegy, Crius, and Ambit. I believe we excel in three key areas: operating plants, serving customers, and integrating these functions commercially, especially in a volatile commodity market. We continuously evaluate opportunities as part of our core strategy to maximize value for shareholders. However, our investors are clear in their support for our capital return strategy, which we strive to maintain consistently. This remains our priority, so any new considerations in this area would need to align with that approach. If we can pursue such opportunities while also leveraging our core capabilities, we would be interested.

Terrific, guys. Congrats on the execution and much appreciated.

Our next question will come from David Arcaro with Morgan Stanley.

I was wondering if you could provide more details about the Winter Storm Elliott events. Can you elaborate on how your Generation facilities performed and whether you encountered any penalties? Additionally, how did you handle the unexpectedly high load during that weather event on the Retail side?

Sure, that's a good question. We ended the year with a strong weather system that impacted multiple markets. During these events, especially after the lessons learned from Uri, we take on more long positions because winter events can lead to fuel disruptions along with asset performance issues. We consider this when planning, holding back on the Generation side, and anticipating that retail load can vary more than usual in extremely cold weather. We expect these factors to balance each other out, and that's what occurred during Winter Storm Elliot. Our ERCOT fleet performed well, and the additional energy we had helped cover the unexpected swings on the retail side. Regarding penalties in PJM, while we don’t have complete information, we believe we are in a net bonus situation, albeit minor. However, we've adjusted our bonus expectations due to concerns about default risk, and it might take eight to nine months to receive payments from those in penalty. Thus, we have assumed a breakeven penalty bonus situation in PJM with a cautious approach to bonuses. We emerged from the storm as expected and are confident in our ability to handle such events. In the aftermath, we may see more volatility in the forward curve, which we hedge against to provide our guidance. We approach each event without anticipating a significantly positive or negative outcome since we are positioned on both the Generation and Retail sides. Overall, we had good performance during Elliott.

Got it. That's great to hear. Obviously, a very tough event for a lot of generators. And then I was curious if you could just give an update on the margin deposits so far this year. Is there a level that you could give us as to what that currently stands at? I think you mentioned that it was kind of coming back in slower than expected. So curious if that's starting to improve.

Yes. This is Kris. So as of the end of the fourth quarter, we talked about, we expected to start seeing margin deposits come back as we settled some of those hedges in the fourth quarter. With the volatility that continued in the fourth quarter, especially in December, we actually saw margin deposits go up from September 30 through the end of the year. Over the past month and a half, prices and volatility have settled a little bit, and we are seeing some return of cash. We've also settled some additional hedges. So we are seeing cash come back in, and we do expect more cash to come in, in the near term and over the course of the year. We would expect a significant portion of the over $3 billion of cash that we had posted to come back.

Our next question will come from Durgesh Chopra with Evercore ISI.

Jim, could you share your latest thoughts on capital allocation and share buybacks? During the Q2 call last year, you mentioned $1.25 billion in additional share buybacks that you plan to complete this year. Can you provide an update on this? Also, when should investors expect information regarding your future share buyback plans?

Durgesh, this is Kris. Thank you for the question. When we increased the program in the middle of last year, it was partly because we saw more opportunities for 2023, so we decided to add that increase then. We added an additional $250 million. As we mentioned this morning, we completed approximately $2.25 billion of the program by the end of the year. We have a $3.25 billion upsized program that we expect to finish by the end of this year, which leaves $1 billion for 2023. We also disclosed that through February 23, we executed around $200 million, leaving approximately $800 million for the remaining 10 months of the year, consistent with our expectations going into the year. Similar to last year, we are not likely to consider or discuss any changes to capital allocation, including share buybacks, with our Board until after we get through the important winter and summer months. Therefore, I am not predicting any changes or updates like we did last year, but if there are any adjustments, they would likely come after we navigate a few of the summer months.

Got it. So back half of the year. And then my next question is on the nuclear fuel. I see sort of you kind of reiterated your nuclear fuel expense projections for 2023. Some of your peers are showing a pretty sizable ramp-up in nuclear fuel costs looking out in the future. Can you comment on that, please?

Sure. Yes, it’s a good question. It’s one that we’re staying close to. We forward buy nuclear fuel, as you would expect. We buy the various components that allow us to have the fuel assemblies for our reloads. On a historical basis, we’ve seen it be somewhere around $5 per megawatt hour as a fairly good estimate, if you were to take all of the capital costs and kind of spread them out over the megawatt hours of production. The team has been forward buying, and that’s why you saw a bigger CapEx number in ‘22. We have a bigger CapEx number in ‘23. Our best view of this is, as you spread that out over the time period in 2025 and 2026, that fuel cost is working its way up from $5 to just below $6. If you put that on a Comanche Peak size unit, $1 is about a $20 million per year impact. So it’s not jumping to $6, just kind of migrating from a $5 cost on average historically to hedge. It looks like it’s going to be sub-$6 but heading towards $6 around that 2026 time frame. That gives you a sense that it is definitely on the upward trend, where there’ll be some domestic opportunities for supply down the road. That remains to be seen, but I think the team has done a very nice job of getting ahead of the nuclear fuel cost escalation and sourcing, and that gives you a kind of range of magnitude as to how we’re managing through it.

Next question will come from Angie Storozynski with Seaport.

So maybe a little bit more about Vistra Zero. So thank you for the additional slides. I'm just wondering, I mean it doesn't seem like the market is giving you any credit for that business. So if you could comment both on how you could extract some value from this business? And two, what's the long-term view on the profitability of this business? Or maybe as a percentage of total EBITDA, what do you think is going to come from that business? Again, any way to extract value.

Sure. Angie, thank you. That's a very good question. Vistra Zero has been off to, in our view, a really strong start on the projects that we've got line of sight to. Right now, we delivered the three that were in Texas in 2022, actually on time, on budget. Our focus right now is Moss 350, which will come online for this summer, which adds to the already large battery assembly of 400 megawatts, bringing the total to 750. We have nine Coal to Solar projects in Illinois that we're focused on in the balance of this year and in 2024 to bring those online in late '24 and '25. What we've done is pull together a projection that you're still looking at about a $200 million to $250 million kind of EBITDA business. So on the basis of the 3.7, it's still not a sizable share, but it's a meaningful share. What we've done in Texas is slow down some of the merchant solar development because we've seen those returns be challenged based on not only EPC costs and panel costs, but solar is already starting to cannibalize solar in terms of price realization. So we would want to do additional solar under the right circumstances, likely if it were contracted. We slowed our process down at this point because we want to make sure those projects make sense for us. Since we announced Vistra Zero, we hold these options ourselves. They're not on a time constraint that if we don't exercise them, we lose them. Some of these sites can be more valuable through time as we see these interconnect queues that are really hard to get through all over the country. We own dozens of interconnect queues that we're not utilizing right now that we'd like to, so it is absolutely an option for us. I think you'll see that we will continue to grow this in a very deliberate way, but we have been disciplined that we did not give you a headline megawatt number and just go pursue it regardless of returns. We've been very disciplined about the approach. The market opportunity, clearly, with the Inflation Reduction Act is improving some of these returns even on the projects that we've already announced that are executing like Moss 350 and Coal to Solar. I feel very good about our portfolio that we're executing, but there is still uncertainty about the back half of the Vistra Zero portfolio and whether they can generate adequate returns. If they do, we'll pursue it, and if they don't, then we're going to be disciplined and wait because we still own the sites and have the options.

Okay. And there were questions about Comanche Peak. I'm looking at the size of your generation in Texas and your retail book. I mean, how core of an asset is it to serve your retail load? And again, just judging by your multiple and comparable comps for nuclear plants, it seems like it would be an easy way to generate value by selling the assets. I'm just wondering how core of an asset is it for your generation-retail strategy?

Dispatchable assets are core to serving retail load. In fact, we have seen, and this is what Steve Muscato and his commercial team focus on every day, is that you can serve retail loads successfully, simply with renewables and batteries. It’s a really difficult effort to manage the risk around that. Dispatchable assets clearly are required to be successful with risk management on retail. Comanche Peak itself, we talked about was the anchor tenant in Vistra Zero when we first announced it. Obviously, it’s got additional support from the production tax credit. We just put in for the relicensing of it, and it operates at one of the lowest cost structures, if not the lowest, in the industry. We do occasionally get inbounds from people that ask those questions, and we are obviously interested in long-term value creation, but we like the Comanche Peak asset. It fits within our portfolio in Texas, given our sizable retail presence. Nuclear has been given a new level of interest now, especially with the Inflation Reduction Act, but we will always engage ideas. The core competencies of our business are that we run plants well, we serve customers well, and we commercially risk manage the two. I think it’s a core asset.

This concludes our question-and-answer session. I would now like to turn the conference over to Jim Burke for any closing remarks.

I just want to thank everybody for joining. I want to thank the hard-working team at Vistra for a strong 2022, and we have turned our attention, and we’re focused on delivering in 2023. So I hope everybody has a great morning. Look forward to talking to you again soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.