Vistra Energy Expects Negative $60 Million Impact To Retail Segment Near-Term From COVID-19, Affirms 2020 Guidance

Residential Customer Count Lower

Retail Segment Quarterly Adjusted EBITDA Higher On Acquisitions Since Prior Year

May 5, 2020

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In reporting earnings today, Vistra Energy reported that it expects a negative $60 million impact to its Retail segment near-term from COVID-19, but affirmed 2020 guidance as the decline would be offset by gains in its Generation segment

Vistra Energy reaffirmed its 2020 guidance of Adjusted EBITDA of $3.285 billion to $3.585 billion

Among the drivers in maintaining guidance is a negative $40 million Retail bad debt impact from COVID-19, reflecting, "elevated near-term bad debt expectation due to COVID-19 economic stress."

Vistra also includes in its updated guidance a negative $30 million net impact from lower retail volumes, as forecast lower C&I volumes are to be partially offset by higher Residential volumes

Offsetting these negative drivers are a $10 million increase in cost savings in the Retail segment, reflecting lower costs and accelerated timing of synergy capture, as well as a $60 million in generation margins, resulting in no net change in guidance for 2020.

As part of reaffirming its guidance, Vistra said that ~90% of Retail EBITDA is derived from the residential and mass business customer classes, with residential load expected to increase in 2020

As part of reaffirming its guidance, Vistra said that ~70% of Adj. EBITDA is derived from the ERCOT market which, similar to the 2008-2009 recession, is proving to be relatively resilient

"Vistra's guidance reaffirmation reflects its meaningful hedge position (Vistra is approximately 99% hedged for the balance of the year) and its attractive retail customer mix (Vistra derives approximately 90% of its Retail segment Adjusted EBITDA from the residential and mass business customer classes), thereby minimizing the current and potential negative impacts of COVID-19 including lower business demand for electricity, lower power prices and volumes in 2020 reflecting this decreased demand, and anticipated increased bad debt in the Retail segment," Vistra said

With respect to its expectations for the ERCOT market for summer 2020, Vistra estimates that with sustained COVID-19 impacts 2020 summer peak load will be ~2,000 MW lower relative to the ERCOT December 2019 CDR, representing a decrease in peak demand of ~2.5%

Concerning ERCOT, Vistra said, "Even with lower demand, weather (wind and temperature) will continue to be a key variable for the realization of scarcity pricing intervals this summer."

Concerning the summer of 2020 in ERCOT, Vistra said, "Residential demand is relatively inelastic with the potential for increased air conditioning load due to temperature swings, especially with continued work from home."

In discussing future market impacts from COVID-19 in ERCOT, Vistra said that renewable development is likely to slow

"We are observing a slowdown in renewable penetration in ERCOT for projects slated to come online 2021+," Vistra said

"PPA appetite has also decreased among investment-grade offtakers," Vistra said

"Lower demand = lower 7x24 prices; difficult to capture full scarcity pricing through PPAs," Vistra said in a presentation

Also concerning ERCOT, Vistra said that it expects an increase in natural gas prices

"We expect gas prices to rise in 2021 and beyond as a result of decreased oil drilling activity," Vistra said, with Vistra adding that, "Higher gas prices could further push up the price of power."

For the first quarter of 2020, Vistra reported first quarter Adjusted EBITDA from the Retail segment of $311 million, $54 million higher than the $257 million reported in the first quarter of 2019, driven primarily by the previously reported additions of Ambit Energy and Crius Energy, which closed after the first quarter of 2019.

The increase in Retail segment Adjusted EBITDA reflects $101 million in higher margin, year-over-year, due to the addition of Crius acquired in July 2019 and Ambit acquired in November 2019, partially offset by a $47 million increase in SG&A expense and bad debt expense, versus the year-ago period

During Q1 2020, Vistra said that it, "Maintained customer pricing discipline throughout the portfolio and exceeded Business Markets sales performance goals for the quarter."

Vistra Energy reported a marginally lower residential customer count versus December 31, 2019. The following residential customer counts reflect direct-to-consumer Electric/Gas Residential counts, excluding municipal-aggregation and international customers.

Vistra was serving 2.791 million residential customers as of Q1 2020, versus 2.817 million as of Q4 2019, and 1.528 million a year ago. The year-over-year increase reflects the Crius and Ambit acquisitions which closed after the first quarter of 2019.

Vistra reported Retail volumes as follows.

Vistra Retail Volumes (TWh)
                               
            Q1 2019   Q1 2020
Residential   4.5       7.1
Business      9.5      10.9 
Muni Agg.     2.3       3.0 

Total        16.3       21.0

------------------------------

ERCOT         9.8       11.8
Non-ERCOT     6.6        9.2

Retail operating revenues for the first quarter of 2020 were $1.908 billion, versus $1.386 billion a year ago

Retail operating revenues for the ERCOT market for the first quarter of 2020 were $1.271 billion, versus $1.048 billion a year ago

On a net income basis, which reflects the unrealized net gain, or loss, resulting from hedging transactions, Vistra's Retail segment reported net income of $95 million for the first quarter of 2020, versus $15 million a year ago

Vistra said that it, "expects its integrated business model to continue to demonstrate its strength and relative stability in 2020."

Vistra reported total liquidity of $1.834 billion as of March 31, 2020, reflecting Cash of $717 million of Revolver Availability of $1.117 billion

"Vistra believes it will continue to maintain ample liquidity throughout the COVID-19 pandemic, even under stressed recessionary conditions," the company said

For 2020, Vistra's priority is to reduce debt to track toward long-term leverage target of ~2.5x Net Debt/EBITDA

Vistra anticipates >$1.3 billion of capital will be allocated toward debt reduction in 2020

For 2021, the core tenants of Vistra's long-term allocation plan include ~25% of capital allocated to growth investment opportunities each year (on average), but only if investment thresholds are met. The remaining ~75% of capital is to be returned to stakeholders through incremental share repurchases and what Vistra termed an, "attractive dividend yield."

"Vistra took steps within the quarter to reduce its long-term debt obligations. In Jan. 2020, Vistra redeemed the remaining $81 million of 8.000% senior unsecured notes due 2025, and in March 2020, Vistra Operations repurchased $100 million principal amount of Term Loan B-3 under the credit facility. On May 1, 2020, Vistra notified the holders of its 5.875% senior unsecured notes due 2023 that it will redeem all $500 million aggregate principal amount of such notes on June 1, 2020. Vistra continues to prioritize debt reduction in 2020 and, as a result, has not repurchased additional shares under its authorized share repurchase program since Nov. 2019. Net shares outstanding are approximately 488.6 million as of April 30, 2020. Vistra is on track to communicate its long-term capital allocation plan in late September of this year," Vistra said

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