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Vistra, TXU Parent, Reports Organic Residential Customer Growth In Texas

Retail Earnings Lifted By Acquisitions

CEO: Taking Company Private Would Not Be "Silver Bullet" To Valuation

February 28, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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Vistra Energy, the parent of TXU and several other retail energy brands, said in announcing full-year 2019 earnings that it organically grew its ERCOT residential customer count in 2019, for the second year, "with strong customer acquisition and retention strategies and execution."

This organic ERCOT residential retail growth was in Vistra's core retail brands that existed prior to the previously reported Crius and Ambit acquisitions which occurred in 2019

"Our Texas retail operations continue to demonstrate strength and stability, with our legacy residential business in Texas growing counts in 2019 for the second year in a row," said Curt Morgan, Vistra's president and chief executive officer

As of Q4 2019, Vistra across all markets was serving 2.817 million residential customers, with this total reflecting direct-to-consumer electric/gas residential counts and excluding municipal-aggregation and international customers

That compares to a Q3 2019 pro forma total (reflecting the contribution from the Ambit acquisitions which had not yet closed during Q3) of about 2.8 million residential customers, and a Q3 2019 actual Vistra total of 2.029 million residential customers

As of the year-ago period (Q4 2018), Vistra's direct-to-consumer residential customer count had been 1.534 million

Vistra said that it is now the largest competitive residential electric provider in the country, serving nearly 5 million customers

Based on numbers of meters, and excluding customers acquired in the Ambit and Crius Transactions, Vistra's total retail customer counts increased approximately 2% in 2019

Vistra reported retail volumes as follows. The Ambit volumes are as of Nov. 1, 2019

Vistra Retail Volumes (TWh)
            Q4 2018   Q4 2019 
Residential   4.5       4.4
Business      8.8       9.9 
Muni Agg.     2.8       2.3 
Crius                   1.9 
Ambit                   1.6 

Total        16.1       20.1

Vistra's retail business now consumes nearly 60% of Vistra's generation output annually

As previously reported, Vistra introduced two new retail brands, Brighten Energy and Better Buy, in Illinois, Ohio, and Pennsylvania

Vistra's Retail segment reported Adjusted EBITDA of $343 million for the fourth quarter of 2019, up $93 million from the year-ago total of $250 million, driven by retail acquisitions of Ambit and Crius

For the full year 2019, Vistra's Retail segment reported Adjusted EBITDA of $807 million, versus $845 million a year ago. As previously reported, Vistra had earlier in the year recorded a negative $40 million impact due to retail backwardation from long-dated retail contracts, see a full discussion of this in our prior story here

Specifically, Vistra said that the change in full-year Retail segment Adjusted EBITDA in 2019, versus 2018, was driven by the following factors ($ in millions)

• Unfavorable margins in ERCOT driven by increased power costs and timing of multi-year retail contracts due to backwardation of power curves: $(45)

• Impact of Crius acquired in July 2019 and Ambit acquired in November 2019: $79

• Unfavorable weather in ERCOT: $(34)

• Other driven by higher bad debt expense and other SG&A expense: $(38)

Total Retail segment operating revenues for the year 2019 were $6.872 billion, versus $5.597 billion a year ago. For the year 2019, the Retail segment recorded operating revenues of $5.061 billion in ERCOT and $1.818 billion in the Northeast/Midwest

For the year 2019, retail electricity sales volumes were 77,600 GWh, versus 63,731 GWh a year ago

In terms of strategy, Vistra presented illustrative cash generation of $2 billion/year, company-wide, through 2030, and projected investment of 25% of free cash flow, or ~$5 billion (annual equity investment of $500M a year from 2021 to 2030), over 10 years in renewables and retail

Asked by an analyst during an earnings call about the potential to take Vistra private, Morgan said, discussing strategic options, that the company will be "patient" through 2020 and into 2021

Morgan noted that the Vistra board continually thinks about how to unlock value, but said that value is unlocked the same way in a public or private setting -- over the long run, or by looking for an exit.

Morgan said that "exit is limited" for private equity. Morgan stated that many private equity firms would love to exit their generation, but there is no exit for them, and if they try to exit into the public markets, they have too much leverage on their books and they don't have an integrated business model, which is what Morgan said it takes to compete in a public market

"We think we can unlock this value in a public market setting," it just may take a longer period of time, Morgan said

Morgan doesn't see a "silver bullet" by becoming a private company, and doesn't see going private providing a huge value uplift, because the value of a company is monetized in the same way whether a company is public or private

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