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NRG Energy, Inc. Reports Second Quarter Results and Reaffirms 2017 Financial Guidance

PRINCETON, N.J.--(BUSINESS WIRE)--NRG Energy, Inc. (NYSE:NRG) today reported second quarter income from continuing operations of $99 million. The loss from continuing operations for the first six months in 2017 of $70 million, or $0.05 per diluted common share, compared to a loss from continuing operations of $220 million, or $0.34 per diluted common share for the first six months in 2016. Adjusted EBITDA for the three and six months ended June 30, 2017, was $685 million and $1,071 million, respectively. Year-to-date cash from continuing operations totaled $112 million.

“NRG delivered another quarter of solid operational and financial performance,” said Mauricio Gutierrez, NRG President and Chief Executive Officer. “We are fully engaged in implementing the Transformation Plan we announced in July that will enhance our leading integrated platform, provide a low-cost structure, and create a best-in-class balance sheet needed to thrive in all market cycles.”

Consolidated Financial Results

GenOn's results are excluded from the results for three and six months ended June 30, 2017 and for 2016 following the bankruptcy filing of GenOn and certain of its subsidiaries on June 14, 2017. As a result, NRG no longer consolidates GenOn and its subsidiaries for financial reporting purposes.

Three Months Ended Six Months Ended
($ in millions) 6/30/17 6/30/16 6/30/17 6/30/16
Income/(Loss) from Continuing Operations $ 99 $ (163 ) $ (70 ) $ (220 )
Cash From Continuing Operations $ 195 $ 533 $ 112 $ 880
Adjusted EBITDA $ 685 $ 698 $ 1,071 $ 1,339
Free Cash Flow Before Growth Investments (FCFbG) $ 240 $ 209 $ 208 $ 259

Segment Results

Table 1: Income/(Loss) from Continuing Operations

($ in millions) Three Months Ended Six Months Ended
Segment 6/30/17 6/30/16 6/30/17 6/30/16
Generation $ (90 ) $ (458 ) $ (56 ) $ (433 )
Retail 341 657 311 807
Renewables 1 (47 ) (71 ) (79 ) (111 )
NRG Yield 1 45 64 44 66
Corporate (150 ) (355 ) (290 ) (549 )
Income/(Loss) from Continuing Operations 2 $ 99 $ (163 ) $ (70 ) $ (220 )

1.In accordance with GAAP, 2016 results have been restated to include full impact of the assets in the NRG Yield Drop Down transactions which closed onSeptember 1, 2016, and March 27, 2017.

2.Includes mark-to-market gains and losses of economic hedges.

Table 2: Adjusted EBITDA

($ in millions) Three Months Ended Six Months Ended
Segment 6/30/17 6/30/16 6/30/17 6/30/16
Generation 1 $ 152 $ 203 $ 205 $ 471
Retail 203 216 336 372
Renewables 2 56 33 82 65
NRG Yield 2 270 257 454 455
Corporate 4 (11 ) (6 ) (24 )
Adjusted EBITDA 3 $ 685 $ 698 $ 1,071 $ 1,339

1.Generation regional Reg G reconciliations are included in Appendices A-1 through A-4.

2.In accordance with GAAP, 2016 results have been restated to include full impact of the assets in the NRG Yield Drop Down transactions, which closed onSeptember 1, 2016, and March 27, 2017.

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

Generation: Second quarter Adjusted EBITDA was $152 million, $51 million lower than second quarter 2016 primarily driven by:

  • Gulf Coast Region: $70 million decrease due primarily to lower realized energy margins in Texas from lower hedged prices and higher coal transportation costs, which was partially offset by lower operating expenses in South Central
  • East/West1: $19 million increase following the distribution from our Doga (Turkey) asset and favorable trading results in BETM

Retail: Second quarter Adjusted EBITDA was $203 million, $13 million lower than second quarter 2016 due primarily to lower margins from mild weather and higher supply costs, which was partially offset by customer growth and reduced operating costs.

Renewables: Second quarter Adjusted EBITDA was $56 million, $23 million higher than second quarter 2016 due to higher solar and wind generation, and insurance recoveries at Ivanpah for property damage incurred during 2016.

NRG Yield: Second quarter Adjusted EBITDA was $270 million, $13 million higher than second quarter 2016 due to the acquisition of the Utah utility-scale solar assets, partially offset by a forced outage at Walnut Creek.

Corporate: Second quarter Adjusted EBITDA was $4 million, $15 million higher than the second quarter 2016 due to the elimination of operating losses at residential solar following its full wind down of operations.

1 Includes International, BETM and generation eliminations.

Liquidity and Capital Resources

Table 3: Corporate Liquidity

($ in millions) 6/30/17 12/31/16
Cash at NRG-Level 1 $ 514 $ 570
Revolver Availability 1,497 989
NRG-Level Liquidity $

2,011

$

1,559

Restricted Cash 469 446
Cash at Non-Guarantor Subsidiaries 238 368
Total Liquidity $ 2,718 $ 2,373

1.Includes unrestricted cash held at Midwest Generation (a non-guarantor subsidiary), which can be distributed to NRG without limitation.

NRG-Level Cash as of June 30, 2017, was $514 million, a decrease of $56 million from December 31, 2016, and $1.5 billion was available under the Company’s credit facilities at the end of the second quarter 2017. Total liquidity was $2.7 billion, including restricted cash and cash at non-guarantor subsidiaries (primarily NRG Yield).

NRG Strategic Developments

Transformation Plan

On July 12, 2017, NRG announced its Transformation Plan designed to significantly strengthen earnings and cost competitiveness, lower risk and volatility, and create significant shareholder value. The three-part, three-year plan is comprised of the following targets:

Operations and cost excellence — Cost savings and margin enhancement of $1,065 million recurring, which consists of $590 million of annual cost savings, $215 million net margin enhancement program, $50 million annual reduction in maintenance capital expenditures, and $210 million in permanent SG&A reduction associated with asset sales.

Portfolio optimization — Targeting $2.5-$4.0 billion of asset sale net cash proceeds, including divestitures of 6 GWs of conventional generation and businesses (excluding GenOn) and the monetization of 50-100% of its interest in NRG Yield, Inc. and its renewables platform.

Capital structure and allocation — A prioritized capital allocation strategy that targets a reduction in consolidated total (net) debt from $19.5 billion ($18 billion, net) to $6.5 billion ($6 billion, net). Following the completion of the contemplated asset sales, the Company expects $4.8-$6.3 billion in excess cash to be available for allocation through 2020 after achieving its targeted 3.0x net debt / Adjusted EBITDA corporate credit ratio.

The Company expects to fully implement the Transformation Plan by the end of 2020, with significant completion by the end of 2018. The plan also expects to realize (i) $370 million non-recurring working capital improvements through 2020 and (ii) approximately $290 million in one-time costs to achieve.

The full Board of Directors will maintain oversight of the execution of the Transformation Plan with monthly updates provided to the Board’s Finance and Risk Management Committee. A scorecard will be provided to the investment community and will be updated on future quarterly earnings calls.

NRG Yield Drop Downs

On August 1, 2017, the Company closed on the sale of its remaining 25% interest in NRG Wind TE Holdco, a portfolio of 12 wind projects, to NRG Yield for total cash consideration of $41.5 million, excluding working capital adjustments. The transaction also includes potential additional payments to NRG dependent upon actual energy prices for merchant periods beginning in 2027.

The Company offered NRG Yield a 38 MW portfolio of distributed and small utility-scale solar assets, primarily comprised of assets from NRG's Solar Power Partners (SPP) funds, in addition to other projects developed since the acquisition of SPP. NRG’s interest in SPP is not part of the ROFO Agreement.

In addition, NRG offered NRG Yield, Inc. the opportunity to form a new distributed solar partnership enabling up to $50 million in investment by NRG Yield, Inc.

GenOn Energy Chapter 11 Bankruptcy Filing

On June 12, 2017, NRG, GenOn and certain of its subsidiaries, and the ad hoc group of Noteholders entered into a restructuring support agreement (RSA). Pursuant to the RSA, on June 14, 2017, GenOn, GenOn Americas Generation and certain of their directly and indirectly-owned subsidiaries, (collectively the GenOn Entities) filed voluntary petitions for relief under Chapter 11 of Title 11 of the U.S. Bankruptcy Code, in the United States Bankruptcy Court for the Southern District of Texas, Houston Division.

As a result of the bankruptcy filings and beginning on June 14, 2017, GenOn and its subsidiaries were deconsolidated from NRG’s consolidated financial statements. NRG has determined that this disposal of GenOn and its subsidiaries is a discontinued operation; and, accordingly, the financial information for all historical periods have been recast to reflect GenOn as a discontinued operation. In connection with the disposal, NRG has recorded a loss on disposal of $208 million during the three months ended June 30, 2017.

2017 Guidance

After adjusting for the deconsolidation of GenOn and the impact of the Transformation Plan on 2017 as announced on July 12, 2017, NRG is reaffirming its guidance range for fiscal year 2017 with respect to both Adjusted EBITDA and FCFbG.

Table 4: 2017 Adjusted EBITDA and FCF before Growth Investments Guidance

1.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

On July 20, 2017, NRG declared a quarterly dividend on the company's common stock of $0.03 per share, payable August 15, 2017, to stockholders of record as of August 1, 2017, 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.

Earnings Conference Call

On August 3, 2017, NRG will host a conference call at 8:00 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.” The webcast will be archived on the site for those unable to listen in real time.

About NRG

NRG is the leading integrated power company in the U.S., built on the strength of our diverse competitive electric generation portfolio and leading retail electricity platform. A Fortune 500 company, NRG creates value through best in class operations, reliable and efficient electric generation, and a retail platform serving residential and commercial businesses. Working with electricity customers, large and small, we implement sustainable solutions for producing and managing energy, developing smarter energy choices and delivering exceptional service as our retail electricity providers serve almost three million residential and commercial customers throughout the country. More information is available at www.nrg.com. Connect with NRG Energy on Facebook and follow us on Twitter @nrgenergy.

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, including wind and solar performance, 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, 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 companywide 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, risks related to project siting, financing, construction, permitting, government approvals and the negotiation of project development agreements, our ability to progress development pipeline projects, the timing or completion of the GenOn restructuring, 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 and the creation of NRG Yield, 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, our ability to close the Drop Down transactions with NRG Yield, 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 August 3, 2017. 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 presentation 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
June 30,

Six months ended
June 30,

(In millions, except for per share amounts) 2017 2016 2017 2016
Operating Revenues
Total operating revenues $ 2,701 $ 2,248 $ 5,083 $ 4,907
Operating Costs and Expenses
Cost of operations 1,837 1,443 3,696 3,271
Depreciation and amortization 260 262 517 528
Impairment losses 63 56 63 56
Selling, general and administrative 223 266 482 520
Acquisition-related transaction and integration costs 1 5 2 6
Development activity expenses 18 18 35 44
Total operating costs and expenses 2,402 2,050 4,795 4,425
Other income - affiliate 42 48 90 96
Gain/(loss) on sale of assets 2 (83 ) 4 (83 )
Operating Income 343 163 382 495
Other Income/(Expense)
Equity in (losses)/earnings of unconsolidated...

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