NRG(US:NRG)2024-11-08 20:40PART I — FINANCIAL INFORMATION Condensed Consolidated Financial Statements and Notes NRG reported a Q3 2024 net loss of $767 million, with total assets decreasing to $23.7 billion, and detailed notes on key financial activities Condensed Consolidated Statements of Operations NRG reported a Q3 2024 net loss of $767 million, driven by an $812 million operating loss from mark-to-market hedging Condensed Consolidated Statements of Operations (Unaudited) | (In millions, except for per share amounts) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $7,223 | $7,946 | $21,311 | $22,016 | | Operating (Loss)/Income | $(812) | $561 | $1,470 | $(453) | | (Loss)/Income Before Income Taxes | $(1,014) | $408 | $733 | $(866) | | Net (Loss)/Income | $(767) | $343 | $482 | $(684) | | Net (Loss)/Income Available for Common Stockholders | $(784) | $326 | $431 | $(722) | | (Loss)/Income per Weighted Average Common Share — Basic | $(3.79) | $1.42 | $2.08 | $(3.14) | | (Loss)/Income per Weighted Average Common Share — Diluted | $(3.79) | $1.41 | $2.02 | $(3.14) | Condensed Consolidated Balance Sheets NRG's total assets decreased to $23.7 billion from $26.0 billion, driven by reduced derivative assets and liabilities Condensed Consolidated Balance Sheet Highlights (Unaudited) | (In millions) | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $8,611 | $9,727 | | Property, plant and equipment, net | $1,818 | $1,763 | | Goodwill | $5,018 | $5,079 | | Total Assets | $23,724 | $26,038 | | Total current liabilities | $7,348 | $9,500 | | Long-term debt and finance leases | $10,422 | $10,133 | | Total Liabilities | $21,204 | $23,132 | | Total Stockholders' Equity | $2,520 | $2,906 | Condensed Consolidated Statements of Cash Flows Cash from operations significantly improved to $1.35 billion, reversing a prior-year use, driven by derivative changes Cash Flow Summary (Unaudited) | (In millions) | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :--- | :--- | :--- | | Cash provided/(used) by operating activities | $1,354 | $(462) | | Cash provided/(used) by investing activities | $163 | $(2,631) | | Cash (used)/provided by financing activities | $(1,041) | $1,590 | | Net Increase/(Decrease) in Cash | $477 | $(1,503) | Notes to Condensed Consolidated Financial Statements Notes detail NRG's business segments, Airtron sale, debt management, capital returns, derivative positions, and legal contingencies - NRG's business is segmented into Texas, East, West/Services/Other, Vivint Smart Home, and Corporate activities28 - On September 16, 2024, the Company sold its Airtron business unit for net proceeds of $484 million, recording a gain of $208 million55 - In Q2 2024, NRG entered into Capped Call transactions to lock in a $257 million conversion premium on its remaining $232 million of Convertible Senior Notes102118 - The company is involved in several material legal proceedings, including a competitor lawsuit against Vivint Smart Home resulting in a $190 million verdict (under appeal) and a patent infringement verdict of $45 million against Vivint (under appeal)138140 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses NRG's strategy, Q3 2024 operating loss of $812 million from hedging, Airtron sale, debt refinancing, and strong liquidity Executive Summary NRG's strategy integrates energy and smart home services, navigating regulatory changes, and highlights the Airtron sale and demand surge - NRG's strategy is to be a leader in the convergence of energy and smart automation in home and business, leveraging brands like Reliant, Direct Energy, and Vivint155 - The company sold its Airtron business unit on September 16, 2024, for net proceeds of $484 million, resulting in a $208 million gain175 - In October 2024, the Board authorized an additional $1.0 billion for share repurchases, bringing the total authorization to $3.7 billion, with $2.0 billion remaining as of October 31, 2024113176 - The electric industry is expected to see a surge in demand, with forecasts showing a potential for 500 TWh of incremental load across the U.S. through 2030, driven by manufacturing, industrial, and data center growth182 Consolidated Results of Operations NRG reported a Q3 2024 operating loss of $812 million, primarily due to a $1.66 billion unfavorable change in mark-to-market hedging activities Consolidated Results of Operations Summary | (In millions) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $7,223 | $7,946 | $21,311 | $22,016 | | Cost of operations | $7,239 | $6,406 | $17,229 | $20,137 | | Operating (Loss)/Income | $(812) | $561 | $1,470 | $(453) | | Net (Loss)/Income | $(767) | $343 | $482 | $(684) | - The Q3 2024 operating loss was primarily driven by a $1.64 billion loss from mark-to-market on economic hedges in operating costs, compared to a $17 million gain in the prior year period207208 - Economic gross margin for Q3 2024 was $2.15 billion, slightly higher than the $2.04 billion in Q3 2023194197 - For the nine months ended Sep 30, 2024, the $1.92 billion improvement in operating income was primarily due to a $1.71 billion favorable change in mark-to-market for economic hedging activities within cost of operations186 Liquidity and Capital Resources NRG's total liquidity increased to $6.4 billion, with significant Q4 2024 debt refinancing and capital allocation activities Liquidity Position | (In millions) | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,104 | $541 | | Total availability under Credit Facilities | $5,330 | $4,278 | | Total liquidity | $6,444 | $4,843 | - In Q4 2024, the company undertook major debt refinancing, issuing approximately $3.1 billion in new notes and loans to repay existing debt, including Vivint's Senior Secured Term Loan and Notes179264 - During the nine months ended September 30, 2024, the company repurchased $343 million principal of its Convertible Senior Notes for $603 million cash, resulting in a $260 million loss on debt extinguishment99255269 - Cash from operations for the first nine months of 2024 was $1.35 billion, a $1.82 billion positive swing from a use of $462 million in the prior year, mainly due to changes in cash collateral280282 Quantitative and Qualitative Disclosures About Market Risk NRG manages commodity price, credit, and interest rate risks, with average Q3 2024 VaR at $58 million and $1.2 billion net credit exposure Value at Risk (VaR) for Commodity Portfolio | (In millions) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | | :--- | :--- | :--- | | VaR as of September 30, | $67 | $63 | | Average | $58 | $64 | | Maximum | $67 | $75 | | Minimum | $50 | $45 | - As of September 30, 2024, net counterparty credit exposure was $1.2 billion, with 75% concentrated in utilities, energy merchants, and marketers, and 59% with investment-grade counterparties301303 - A hypothetical $0.50 per MMBtu decrease in natural gas prices would cause an increase in margin collateral posted of approximately $1.3 billion308 - A hypothetical 1% decrease in market interest rates would have increased the fair value of the Company's long-term debt by $464 million as of September 30, 2024309 Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2024, with no material changes to internal control over financial reporting - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period covered by the report311 - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2024, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting311 PART II — OTHER INFORMATION Legal Proceedings The company refers to Note 14 for detailed discussion of material legal proceedings, including environmental, consumer, and patent lawsuits - For a detailed discussion of material legal proceedings, the report refers to Note 14, Commitments and Contingencies313 Risk Factors No material changes to the Risk Factors from the Company's 2023 Form 10-K were reported for the nine months ended September 30, 2024 - No material changes to the Risk Factors from the Company's 2023 Form 10-K were reported for the nine months ended September 30, 2024314 Unregistered Sales of Equity Securities and Use of Proceeds NRG repurchased 2,906,382 shares of common stock at an average price of $78.70 per share during Q3 2024 under its repurchase program Issuer Purchases of Equity Securities (Q3 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Approx. Dollar Value of Shares Remaining Under Plans (in millions) | | :--- | :--- | :--- | :--- | :--- | | July 2024 | 1,128,299 | $76.28 | 1,127,232 | $1,374 | | August 2024 | 933,540 | $78.26 | 932,019 | $1,301 | | September 2024 | 844,543 | $82.41 | 844,543 | $1,231 | | Total | 2,906,382 | $78.70 | 2,903,794 | | Other Information Two executive officers adopted Rule 10b5-1 trading plans in Q3 2024 for potential stock sales in early 2025 - Executive Vice President Robert Gaudette and Chief Financial Officer Woo-Sung Chung adopted Rule 10b5-1 trading plans in September 2024 for the potential sale of company stock in early 2025319