Talen Energy Reports Second Quarter Results, Highlights Strong First Half 2023 Financial and Operational Performance, and Establishes 2023 Guidance
"Since completing our restructuring on May 17th, we have continued to achieve strong operating and financial performance and made substantial progress on our strategic realignment to a regular-way public company," said Mac McFarland, President and Chief Executive Officer. "As the next step in that process, we are issuing 2023 guidance today, with a higher expected midpoint for Adjusted EBITDA and Adjusted Free Cash Flow than was previously disclosed in January. Talen made substantial capital investments prior to the completion of our restructuring, and we are fortunate today to have limited non-maintenance capital expenditures going forward. As a result, our current plan is to realize the financial benefits of those prior investments and prioritize returning capital to shareholders."
McFarland continued, "As part of our strategic realignment and simplification of our capital structure, we recently completed the
Key Highlights
- Reported second quarter 2023 Adjusted EBITDA of
$114 million $(30) million - Reported first half 2023 Adjusted EBITDA of
$774 million $464 million - Establishing 2023 guidance ranges for Adjusted EBITDA of
$1,070 million $1,245 million $550 million $595 million - On August 9, 2023, Talen successfully refinanced its non-recourse LMBE-MC subsidiary debt through upsizing the recently issued 2030 Term Loan B ("New TLB, 2030") by
$290 million - On August 10, 2023, Talen executed an agreement with Riverstone Holdings ("Riverstone") to acquire its total noncontrolling interests of approximately
14% in Cumulus Digital Holdings ("Cumulus Digital") and retire its warrant rights to purchase approximately 3.1 million shares of Talen common stock for total consideration of$60 million - Reported hedge position of approximately
64% of expected generation volumes in the second half of 2023 and approximately76% in 2024.
Summary of Financial & Operational Results (Unaudited) | ||
(Millions of Dollars Unless Otherwise Stated) | Three Months Ended | Six Months Ended June 30, 2023 |
Adjusted EBITDA | ||
Adjusted Free Cash Flow | ||
Total Generation (a) | 6.8 TWh | 13.5 TWh |
Carbon-Free Generation | 58 % | 60 % |
Equivalent Forced Outage Factor ("EFOF") (b) | 4.0 % | 2.6 % |
(a) | Generated MWhs sold after consumption for station use where applicable. |
(b) | EFOF is defined as the percentage of a given period in which a generating unit is not available due to forced outages and forced deratings. |
Given the impacts of fresh start accounting and the implementation of the plan of reorganization on GAAP earnings in 2023, Talen believes its non-GAAP financial measures of Adjusted EBITDA and Adjusted Free Cash Flow are more meaningful in evaluating its second quarter and first half 2023 performance. Talen's management team evaluates its financial and operational results utilizing these non-GAAP measures.
For the second quarter 2023, Talen reported Adjusted EBITDA of
For the first half of 2023, Talen reported Adjusted EBITDA of
Talen achieved strong operational performance with continued emphasis on safety in the first half of 2023, with a fleet EFOF of
Other operational highlights include:
- Plant Conversions
- The 1.5 GW Montour coal-to-gas conversion is nearly complete; Unit 2 went commercial (fully operational) on natural gas in early August; Unit 1 is expected to be commercial on natural gas by the end of August.
- The conversion of the 0.3 GW Wagner Unit 3 from coal to oil is underway, with completion expected by year-end 2023.
- Cumulus Data
- Substation SS03 is nearing full electrification, which will provide redundant power to Phase 1 of the Susquehanna data center campus.
- Limited incremental capital (approximately
$5 million - Talen is focused on realizing the value of prior investments through a campus sale or joint venture.
Establishing 2023 Guidance
($ in millions) | Range | |
Adjusted EBITDA | ||
Adjusted Free Cash Flow | ||
Talen is establishing 2023 Adjusted EBITDA and Adjusted Free Cash Flow guidance ranges, with higher expected midpoints than the last forecasted figures disclosed during the restructuring in the Company's January 27 Forecast Refresh. The range for 2023 Adjusted EBITDA is
Balance Sheet and Liquidity
Talen is focused on maintaining a strong balance sheet: targeting a net leverage ratio of less than 3.5x net debt-to-EBITDA, along with maintaining ample liquidity.
On August 9, 2023, Talen successfully refinanced its non-recourse LMBE-MC subsidiary debt through upsizing its New TLB, 2030 by
As of August 11, 2023, Talen had total available liquidity of approximately
Riverstone Buyout
On August 10, 2023, Talen reached an agreement with Riverstone to acquire its approximately
This consolidation further simplifies Talen's ownership structure and provides increased flexibility as the Company continues to unlock value across its platform. The transaction eliminates
Update on Hedging Activities and Nuclear Fuel Supply
As of June 30, 2023, Talen had hedged approximately
As an update on nuclear fuel supply activities, Talen has eliminated its exposure to all Russian-related uranium suppliers and has further hedged its uranium and uranium conversion positions. Currently,
Investor Day and Upcoming Investor Conference Participation
Talen will be holding an Investor Day at its Susquehanna nuclear plant site and Cumulus Digital campus on October 24, 2023, with more information to be announced soon.
Anticipated conference participation for Talen's executives in September 2023:
- Barclays CEO Energy/Power Conference: September 5th – 7th in
New York City - Bank of America IPP Day: September 21st in
Houston - Wolfe Research Utilities, Midstream & Clean Energy Conference: September 27th – 28th in
New York City
Earnings Call
The Company will hold an earnings call on Tuesday, August 15, 2023, at 9:00 a.m. EDT (8:00 a.m. CDT). To participate in the call, please register for the webcast here. Participants can also join by phone through registering here prior to the start time of the call to receive a conference call dial-in number. For those unable to participate in the live event, a digital replay of the earnings call will be archived for approximately one year and will be available on Talen's Investor Relations website at https://talenenergy.investorroom.com/financials-presentations.
About Talen
Talen owns and operates approximately 12.4 GW of high-quality power infrastructure in
Talen trades on the OTCQX® Best Market under the ticker "TLNE." OTCQX companies meet high financial standards, follow best practice corporate governance, demonstrate compliance with
Additional Information
For additional information and updates about Talen, please visit our Investor Relations webpage at https://talenenergy.investorroom.com, or contact:
Investor Relations:
Ellen Liu
Senior Director, Investor Relations
InvestorRelations@talenenergy.com
281-203-5435
Media:
Taryne Williams
Director, Corporate Communications
Taryne.Williams@talenenergy.com
610-601-0327
Non-GAAP Financial Measures
We include in this earnings release Adjusted EBITDA and Adjusted Free Cash Flow, which we use as measures of our performance and liquidity and are not financial measures prepared under U. S. Generally Accepted Accounting Principles ("GAAP"). Non-GAAP financial measures, such as Adjusted EBITDA and Adjusted Free Cash Flow, do not have definitions under GAAP and may be defined differently by, and not be comparable to, similarly titled measures used by other companies or used in our credit facilities, the indentures governing our notes or any of our other debt agreements. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position, or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. Management cautions investors not to place undue reliance on such non-GAAP measures, but to consider them along with their most directly comparable GAAP measures. Adjusted EBITDA and Adjusted Free Cash Flow have limitations as analytical tools and should not be considered in isolation or as a substitute for analyzing our results as reported under GAAP. Nothing contained herein should be construed as legal, business, tax or accounting advice. You should consult your own attorney, business advisor, tax advisor and accounting advisor as to legal, business, tax, accounting and related matters. The materials should not be relied upon for the maintenance of your books and records for any tax, accounting, legal or other procedures.
Adjusted EBITDA. We use Adjusted EBITDA to: (i) assist in comparing operating performance and readily view operating trends on a consistent basis from period to period without certain items that may distort financial results; (ii) plan and forecast overall expectations and evaluate actual results against such expectations; (iii) communicate with our Board of Directors, shareholders, creditors, analysts, and the broader financial community concerning our financial performance; (iv) set performance metrics for the Company's annual short-term incentive compensation; and (v) assess compliance with our indebtedness.
Adjusted EBITDA is computed as net income (loss) adjusted, among other things, for certain: (i) nonrecurring charges; (ii) non-recurring gains; (iii) non-cash and other items; (iv) unusual market events; (v) any depreciation, amortization, or accretion; (vi) mark-to-market gains or losses; (vii) gains and losses on the NDT; (viii) gains and losses on asset sales, dispositions, and asset retirement; (ix) impairments, obsolescence, and net realizable value charges; (x) interest expense; (xi) income taxes; (xii) legal settlements, liquidated damages, and contractual terminations; (xiii) development expenses; (xiv) Cumulus Digital noncontrolling interests; and (xv) other adjustments. Such adjustments are computed consistently with the provisions of our indebtedness to the extent that they can be derived from the financial records of the business. We believe Adjusted EBITDA is useful to investors and other users of the financial statements to evaluate our operating performance because it provides an additional tool to compare business performance across companies and across periods.
Adjusted Free Cash Flow. Adjusted Free Cash Flow, a key non-GAAP financial measure, is a useful metric utilized by our chief operating decision makers to evaluate cash flow activities. Adjusted Free Cash Flow is computed by Adjusted EBITDA reduced by capital expenditures including nuclear fuel but excluding development, growth and (or) conversion capital expenditures, cash payments for interest and finance charges, cash payments for taxes (excluding income taxes paid from the nuclear facility decommissioning trust ("NDT")) and pension contributions.
We believe Adjusted Free Cash Flow is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to determine a company's ability to meet future obligations and to compare business performance across companies and across periods. Adjusted Free Cash Flow is widely used by investors to measure a company's levered cash flow without regard to items such as ARO settlements; income taxes paid from the NDT; nonrecurring development, growth and conversion expenditures; and cash proceeds or payments for the sale or purchase of assets, which can vary substantially from company to company and period to period depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired.
For a reconciliation of Adjusted EBITDA to the most comparable GAAP financial measure, please refer to the reconciliations at the end of this earnings release. Adjusted EBITDA is not intended to replace "Net Income Attributable to Stockholders (Successor) / Member (Predecessor)," which is the most comparable measure calculated and presented in accordance with GAAP.
Forward Looking Statements
This communication contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to substantial risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this communication, or incorporated by reference into this communication, are forward-looking statements. Throughout this communication, we have attempted to identify forward-looking statements by using words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "forecasts," "goal," "intend," "may," "plan," "potential," "predict," "project," "seek," "should," "will," or other forms of these words or similar words or expressions or the negative thereof, although not all forward-looking statements contain these terms. Forward-looking statements address future events and conditions concerning, among other things capital expenditures, earnings, litigation, regulatory matters, hedging, liquidity and capital resources and accounting matters. Forward-looking statements are subject to substantial risks and uncertainties that could cause our future business, financial condition, results of operations or performance to differ materially from our historical results or those expressed or implied in any forward-looking statement contained in this communication. All of our forward-looking statements include assumptions underlying or relating to such statements that may cause actual results to differ materially from expectations, and are subject to numerous factors that present considerable risks and uncertainties.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
| ||
Successor | Predecessor | |
May 18 through | January 1 through | |
(Millions of Dollars, except share data) | 2023 | 2023 |
Capacity revenues | $ 26 | $ 108 |
Energy and other revenues | 188 | 1,042 |
Unrealized gain (loss) on derivative instruments | 87 | 60 |
Operating Revenues | 301 | 1,210 |
Energy Expenses | ||
Fuel and energy purchases | (57) | (176) |
Nuclear fuel amortization | (25) | (33) |
Unrealized gain (loss) on derivative instruments | (46) | (123) |
Total Energy Expenses | (128) | (332) |
Operating Expenses | ||
Operation, maintenance and development | (69) | (285) |
General and administrative | (18) | (51) |
Depreciation, amortization and accretion | (28) | (200) |
Impairments | — | (381) |
Operational restructuring | — | — |
Other operating income (expense), net | (3) | (37) |
Operating Income (Loss) | 55 | (76) |
Nuclear decommissioning trust funds gain (loss), net | 39 | 57 |
Interest expense and other finance charges | (33) | (163) |
Reorganization income (expense), net | — | 799 |
Other non-operating income (expense), net | (11) | 60 |
Income (Loss) Before Income Taxes | 50 | 677 |
Income tax benefit (expense) | (19) | (212) |
Net Income (Loss) | 31 | 465 |
Less: Net income (loss) attributable to noncontrolling interest | 2 | (14) |
Net Income (Loss) Attributable to Stockholders (Successor) / Member (Predecessor) | $ 29 | $ 479 |
Per Common Share (Successor) | ||
Net Income (Loss) Attributable to Stockholders - Basic | $ 0.49 | N/A |
Net Income (Loss) Attributable to Stockholders - Diluted | 0.49 | N/A |
Weighted-Average Number of Common Shares Outstanding - Basic (in thousands) | 59,029 | N/A |
Weighted-Average Number of Common Shares Outstanding - Diluted (in thousands) | 59,088 | N/A |
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) | |
Successor | |
June 30, | |
(Millions of Dollars. except share data) | 2023 |
Assets | |
Cash and cash equivalents | $ 127 |
Restricted cash and cash equivalents | 588 |
Accounts receivable, net | 150 |
Inventory, net | 318 |
Derivative instruments | 169 |
Other current assets | 116 |
Total current assets | 1,468 |
Property, plant and equipment, net | 3,863 |
Nuclear decommissioning trust funds | 1,499 |
Derivative instruments | 2 |
Other noncurrent assets | 191 |
Total Assets | $ 7,023 |
Liabilities and Equity | |
Revolving credit facilities | $ — |
Long-term debt, due within one year | 14 |
Accrued interest | 29 |
Accounts payable and other accrued liabilities | 298 |
Derivative instruments | 50 |
Other current liabilities | 57 |
Total current liabilities | 448 |
Long-term debt | 2,832 |
Liabilities subject to compromise | — |
Derivative instruments | 28 |
Postretirement benefit obligations | 335 |
Asset retirement obligations and accrued environmental costs | 444 |
Deferred income taxes | 372 |
Other noncurrent liabilities | 104 |
Total Liabilities | 4,563 |
Commitments and Contingencies - Note 12 | |
Stockholders' (Successor) / Member's (Predecessor) Equity | |
Member's equity | — |
Common stock - | — |
Additional paid-in capital | 2,325 |
Accumulated retained earnings (deficit) | 29 |
Accumulated other comprehensive income (loss) | (3) |
Total Stockholders' (Successor) / Member's (Predecessor) Equity | 2,351 |
Noncontrolling interests | 109 |
Total Equity | 2,460 |
Total Liabilities and Equity | $ 7,023 |
(a) | As of June 30, 2023: 350,000,000 shares authorized; 59,028,843 shares issued and outstanding. |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) | ||
Successor | Predecessor | |
May 18 through June 30, | January 1 through | |
(Millions of Dollars) | 2023 | 2023 |
Operating Activities | ||
Net income (loss) | $ 31 | $ 465 |
Non-cash Reconciliation adjustments: | ||
Unrealized (gains) losses on derivative instruments | (39) | 65 |
Nuclear fuel amortization | 25 | 33 |
Depreciation, amortization and accretion | 27 | 208 |
Impairments | — | 381 |
Operational restructuring | — | — |
Nuclear decommissioning trust funds (gain) loss, net (excluding interest and fees) | (33) | (43) |
Deferred income taxes | 16 | 195 |
Reorganization (income) expense, net | — | (933) |
Other | 17 | (43) |
Changes in assets and liabilities: | ||
Accounts receivable, net | (5) | 261 |
Inventory, net | (11) | 10 |
Other assets | 22 | 98 |
Accounts payable and accrued liabilities | (89) | (69) |
Accrued interest | 25 | (124) |
Other liabilities | 13 | (42) |
Net cash provided by (used in) operating activities | (1) | 462 |
Investing Activities | ||
Property, plant and equipment expenditures | (20) | (138) |
Nuclear fuel expenditures | (14) | (49) |
Nuclear decommissioning trust funds investment purchases | (279) | (959) |
Nuclear decommissioning trust funds investment sale proceeds | 273 | 949 |
Proceeds from the sale of non-core assets | — | 46 |
Equity investments in affiliates | — | (8) |
Other investing activities | 2 | 2 |
Net cash provided by (used in) investing activities | (38) | (157) |
Financing Activities | ||
Contributions from member | — | 1,393 |
Exit Financing proceeds, net of discount | — | 2,219 |
Repayment of Prepetition Secured Indebtedness | — | (3,898) |
Payment of make-whole premiums on Prepetition Secured Indebtedness | — | (152) |
DIP Facilities proceeds, net | — | — |
Deferred Capacity Obligation and Inventory Repurchase Obligations, net repayments | — | — |
LMBE-MC TLB payments | (1) | (7) |
Deferred finance costs | — | (74) |
Derivatives with financing elements | — | (20) |
Other | 1 | — |
Net cash provided by (used in) financing activities | — | (539) |
Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash and Cash Equivalents | (39) | (234) |
Beginning of period cash and cash equivalents and restricted cash and cash equivalents | 754 | 988 |
End of period cash and cash equivalents and restricted cash and cash equivalents | $ 715 | $ 754 |
See Note 19 in Notes to the Condensed Consolidated Financial Statements for supplemental cash flow information. | ||
NON-GAAP RECONCILIATIONS – ADJUSTED EBITDA & ADJUSTED FREE CASH FLOW (Unaudited) | ||
Three Months | Six Months | |
(Millions of Dollars) | 2023 | 2023 |
Net Income (Loss) | $ 448 | $ 496 |
Less: Bankruptcy, Liability Management, and Restructuring Activities | ||
Hedge termination losses, net (a) | — | — |
Reorganization (gain) loss, net (b) | (838) | (799) |
Operational and other restructuring activities | 17 | 25 |
Bankruptcy exit fees | 4 | 4 |
Liability management costs and other professional fees | — | — |
Total Bankruptcy, Liability Management, and Restructuring Activities | $ (817) | $ (770) |
Other Adjustments | ||
Interest expense and other finance charges | 92 | 196 |
Income tax (benefit) expense | 217 | 231 |
Depreciation, amortization and accretion | 96 | 228 |
Nuclear fuel amortization | 34 | 58 |
Unrealized (gain) loss on commodity derivative contracts | 53 | 22 |
Nuclear decommissioning trust funds (gain) loss, net | (50) | (96) |
Stock-based compensation expense | 16 | 16 |
Environmental and ARO revisions on fully depreciated property, plant and equipment | — | — |
(Gain) loss on non-core asset sales, net (c) | (15) | (50) |
Non-cash impairments | 16 | 381 |
Unusual market events (d) | 2 | 15 |
Net periodic defined benefit cost (e) | (1) | (3) |
Development expenses | 5 | 12 |
Non-cash fuel inventory net realizable value and obsolescence charges (f) | 35 | 59 |
Cumulus Digital activities and noncontrolling interest | (17) | (22) |
Other | — | 1 |
Total Adjusted EBITDA | $ 114 | $ 774 |
Capital expenditures, net (g) | (54) | (119) |
Interest and finance charge payments (h) | (84) | (182) |
Tax payments (i) | (5) | (6) |
Pension contributions | (1) | (3) |
Total Adjusted Free Cash Flow | $ (30) | $ 464 |
(a) | 2022 relates to a nonrecurring charge on terminated power contracts. See Note 5 in Notes to the Condensed Consolidated Financial Statements for additional information. |
(b) | Represents amounts incurred directly related to Talen's bankruptcy. See Note 3 in Notes to the Condensed Consolidated Financial Statements for additional information. |
(c) | See Note 21 in Notes to the Condensed Consolidated Financial Statements for additional information. |
(d) | 2023 relates to the true up of capacity penalty charges due to the receipt of finalization of amounts by PJM compared to estimates recognized in 2022 related to Winter Storm Elliot. |
(e) | Consists of "Postretirement benefits service cost" and "Postretirement benefits gains (loss), net" presented on the Condensed Consolidated Statements of Operations. |
(f) | See Note 8 in Notes to the Condensed Consolidated Financial Statements for additional information. |
(g) | Excluding capital expenditures associated with Cumulus entities and Montour and H.A. |
(h) | Excluding |
(i) | Excluding income taxes paid from the NDT. |
NON-GAAP RECONCILIATIONS – ADJUSTED EBITDA & ADJUSTED FREE CASH FLOW 2023 GUIDANCE (Unaudited) | |||||
($Millions) | 2023E | ||||
Low | High | ||||
Net Income (Loss) | $ 395 | $ 570 | |||
Adjustments | |||||
Bankruptcy, liability management, and restructuring activities (a) | $ (770) | $ (770) | |||
Interest expense and other finance charges | 330 | 330 | |||
Income tax (benefit) expense | 240 | 240 | |||
Depreciation, amortization and accretion | 370 | 370 | |||
Nuclear fuel amortization | 105 | 105 | |||
Unrealized (gain) loss on commodity derivative contracts | 100 | 100 | |||
Nuclear decommissioning trust funds (gain) loss, net | (100) | (100) | |||
Non-cash impairments | 420 | 420 | |||
Other | (20) | (20) | |||
Adjusted EBITDA | $ 1,070 | $ 1,245 | |||
Capital expenditures, net (b) | $ (220) | (240) | |||
Interest and finance charge payments (c) | (300) | (300) | |||
Tax payments (d) | (20) | (20) | |||
Pension contributions | (30) | (50) | |||
Various items | 50 | (40) | |||
Adjusted Free Cash Flow | $ 550 | $ 595 | |||
(a) | Represents amounts incurred directly related to Talen's bankruptcy. See Note 3 in Notes to the Condensed Consolidated Financial Statements for additional information. |
(b) | Excluding capital expenditures associated with Cumulus entities and Montour and H.A. |
(c) | Excluding |
(d) | Excluding income taxes paid from the NDT. |
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