NRG Energy Inc (NRG) — Q3 2023 Earnings Call Transcript

Great. Thank you, Darren. Good morning. And welcome to NRG Energy’s third quarter 2023 earnings call. This morning’s call will be 45 minutes in length and is being broadcast live over the phone and via webcast, which can be located in the Investors section of our website at www.nrg.com under Presentations and Webcast. Please note that today’s discussion may contain forward-looking statements which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. We urge everyone to review the Safe Harbor in today’s presentation, as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today’s presentation. And with that, I will now turn the call over to Mauricio Gutierrez, NRG’s President and CEO.

Thank you, Kevin. Good morning, everyone, and thank you for your interest in NRG. I am joined this morning by Bruce Chung, Chief Financial Officer. Also on the call and available for questions, we have members of the management team. Before we go into the quarterly review, I’d like to start with an overview of our value proposition. Over the last six years, we have taken the necessary steps to position NRG at the center of the energy transition. Our Consumer Energy business benefits from the increasing electrification of our economy, while generating significant excess cash well beyond its business needs. A complementary Smart Home business that increases the lifetime value of our customers and enables greater optimization of our customers' energy demand and the financial flexibility to return significant capital to our shareholders while maintaining a strong balance sheet. As you can see, we delivered compelling value today, and importantly, we have positioned our business to deliver value well into the future. So, with that, I’d like to turn to the three key messages of our earnings presentation on slide five. First, we are raising our 2023 financial guidance, driven by strong financial and operational results, both in the third quarter and year-to-date. Second, we are initiating 2024 financial guidance above the plan we shared with you at our June Investor Day. And finally, with line-of-sight to achieving our 2025 growth roadmap, we are accelerating our focus on behind-the-meter load management opportunities for homes and businesses. Starting with our third quarter results on slide six. We delivered top decile safety performance and $973 million of adjusted EBITDA, a 103% improvement from the same period last year, driven primarily by strong operational performance across the business and the addition of Vivint. This brings our year-to-date results to $2.438 billion of adjusted EBITDA, a 74% increase above the prior year. On our last earnings call, we indicated that we were trending towards the top end of the guidance range. With strong third quarter performance and our current outlook for the balance of the year, we are increasing and narrowing our 2023 financial guidance ranges, which includes the close of STP and that increase in the company’s annual incentive plan given the expected outperformance for the year. During the quarter, we continued to make good progress on our strategic priorities. Vivint integration is well underway and with early success on our growth initiatives, we are increasing again our 2023 target from $60 million to $75 million. This is a 150% increase from our original $30 million target set in May. Also during the quarter, we continued executing on our portfolio optimization efforts with the retirement of the Joliet power station and the sale of Gregory and our interest in STP. Turning to capital allocation. We are raising our 2023 share repurchase target by 15% to $1.5 billion. We have completed $200 million of share repurchases year-to-date and with the close of STP, expect to execute the remaining $950 million under an accelerated share repurchase program. Next, we have executed $800 million of debt reduction, as part of our liability management program. Bruce will provide more details in his section. Finally, we are initiating 2024 financial guidance ahead of our June Investor Day plan. These earnings expansions are durable and represent high quality growth and overall strengthening of our business. On capital allocation, we allocated $500 million to debt reduction and the remaining excess cash allocated 80% to return on capital and 20% growth. Now turning to slide seven for an update on our Integrated Energy Business. We experienced the hottest summer on record in our core Texas market, breaking the previous peak demand record 10 times. While the power grid was given the record demand, it performed quite well with only a few periods of scarcity pricing when renewable output was low. Importantly, the efforts we undertook in our summer readiness and spring outage program resulted in a significant increase in our planned reliability. In the bottom left-hand chart is our in-the-money availability, indicating the availability of our units during periods when they are profitable, which is the relevant metric for our business and shows a significant improvement. Retail saw strong performance through the quarter with in-line customer growth and better-than-expected retention. We continue to improve our digital experience with customers engaging more, increasing monthly average app usage by 20%. Moving to retail supply. The steps we have taken to enhance our diversified supply strategy were successful in providing predictable supply costs under different load and price scenarios. Beyond investing in our plans, we adjusted our hedge ratios to lean long in key summer and winter months. Finally, we are beginning our efforts in residential demand response and have increased participation by 10% this year. We also manage a large C&I demand response business, with 2.5 gigawatts of capacity under management. I will provide more color on the behind-the-meter opportunity later in the presentation. Our Smart Home Business also performed well with strong customer growth and margin expansion, as you can see on slide eight. We continue to advance our technology platform with the launch of new innovative products, improving our customer experience, which is constantly recognized as the best in the industry by consumer publications. On the right-hand side of the slide, you will see the key performance indicators that we introduced in our last earnings call. We continue to see exceptional performance in Smart Home, with 7% subscriber growth, 9% revenue growth, and 9% service margin improvement versus the same period last year, consistent with the improvements we reported in our second quarter results. Acquisition costs are higher due to the impact of more products being sold and higher interest rates but were more than offset by higher revenue on new subscribers. Our customers are engaging more with our platform and are staying for a longer period. We are very encouraged by the performance we are seeing across the business and the opportunities that are arising inside the Home. Now, I want to provide an update on the management opportunity we see behind-the-meter or Virtual Power Plants on slide nine. We have been managing energy optimization programs for commercial and industrial customers for years and now we are seeing the growing opportunity in the residential space. New distributed technologies and a growing penetration of connected smart devices in the home have materially changed the industry, providing greater control to the consumer. Grid reliability has also played a role in accelerating adoption. As flexible demand represents instantaneous peaking capacity when the grid is at peak load or in scarcity conditions, we believe the primary pathways for us to create value in these markets are as follows. First, by optimizing our existing customer peak demand in ERCOT and PJM, where we can benefit from both energy and capacity value, as well as reduced market risks. Second, through VPP services for Smart Home and utility customers, both in regulated and competitive markets. We are uniquely positioned to win in this space; we have the scale with 7.6 million customers, decades of commercial and market expertise, and an Integrated Energy Business that allows NRG to monetize the value without having to go to the wholesale market or requiring regulatory change. We also have the data and insights from running the third largest commercial and industrial demand response program in the country. While our focus in the near-term continues to be optimizing our core and integration-driven, over the medium- and long-term, we see a significant value opportunity from these programs. This value is not included in our June Investor Day plan, and I look forward to providing you updates on our progress in the future. Moving to slide 10 for an update on our integration efforts. We are making good progress across our initiatives and are reaffirming the full plan targets, totaling $550 million of recurring free cash flow before growth by the end of 2025. Our growth and cross-sell efforts have yielded strong results, allowing us to increase our 2023 growth target to $75 million. On the right-hand side of the slide, you will see the increasing number of customers buying two or more products. I want to highlight that this is not exclusively cross-sell between energy and Smart Home, but also includes other consumer products sold across NRG that generate recurring revenues. We have been hard at work executing pilots and collecting critical insights as we prepare to scale energy and Smart Home cross-selling in 2024 and beyond. In the appendix of today’s presentation, you will find our latest growth and cost plan scorecard so you can track our progress. So, with that, I will pass it over to Bruce for the financial review.

Thank you, Mauricio. Turning to slide 12, NRG’s third quarter and year-to-date financial performance significantly exceeded the same periods last year. NRG produced adjusted EBITDA of $973 million in the quarter, which is $493 million higher than the third quarter of 2022. As you can see in the chart at the bottom of the page, even when normalizing 2022 results for transitory items and the WA Parish outage, 2023 adjusted EBITDA still exceeded the prior year by $350 million. Compared to a normalized 2022, third quarter 2023 performance was driven by $125 million of improved operations and margin expansion in our core energy business and $225 million of Vivint EBITDA which was not included in our 2022 results. Similar to the first two quarters of the year, our core energy business continued to benefit from expanded margins, near-record retention, and increased customer count. Our diversified supply strategy and solid performance continued to provide predictable supply costs through volatile load and freight conditions in Texas. Looking at our segments and starting with Texas, adjusted EBITDA increased by $356 million versus the prior year on the back of a higher gross margin of $378 million. Continued unit margin expansion from lower supply costs, coupled with improved plant performance, were the primary drivers for the increase in gross margin. This increase in gross margin was partially offset by increased OpEx from higher selling and marketing in Home Energy, where we increased 50,000 customers year-over-year. In the East/West segment, adjusted EBITDA declined $88 million versus last year, driven primarily by lower spark spreads of Cottonwood, the discontinuation of equity earnings treatment for Ivanpah, and an increase in accruals as part of the company’s annual incentive plan, reflecting the expected financial outperformance for the year. In Q3, Vivint continued to deliver strong financial results, contributing $225 million in adjusted EBITDA. Revenue grew 9% year-over-year, driven by subscriber growth of 7%, favorable retention, and higher recurring monthly revenue per subscriber which, combined with reductions in monthly service cost per customer, drove a 15% increase in adjusted EBITDA compared to Q3 2022. NRG’s free cash flow before growth was $355 million for the quarter, bringing our year-to-date total to $983 million. This represents a significant improvement over 2022 totals, driven by growth in adjusted EBITDA. As a result of our year-to-date financial performance, we are raising and narrowing our full year 2023 guidance ranges to $3.15 billion to $3.3 billion for adjusted EBITDA and $1.725 billion to $1.875 billion of free cash flow before growth. The midpoint of our new guidance represents a $95 million increase in adjusted EBITDA and a $60 million increase in free cash flow before growth to the midpoint of our original guidance ranges. Turning to slide 13 for an update on our 2023 capital allocation. We have updated our 2023 excess cash to reflect the final net proceeds of divesting our interest in STP. The net proceeds from the sale of Gregory and the increase to our free cash flow midpoint for the year. The remaining numbers on this slide are largely consistent with the update we gave on the second quarter earnings call with a few notable exceptions. Moving from left to right, we have updated the capital we will spend on Vivint integration from $145 million to $50 million. This does not reflect lower costs associated with the integration, but rather a shifting of those dollars to 2024 and 2025. Much of the move is driven by systems integration decisions that shifted the timeline for those costs to be incurred. Continuing on, as you can see in the debt reduction column, we have made significant progress toward our target of $1.4 billion in debt reduction, with $800 million achieved through October 31st of this year. With the closing of the STP transaction, we will complete the remaining $600 million of debt reduction by the end of 2023 through a targeted liability management program. Finally, moving to the share repurchases column. You will see that we have completed $200 million of share repurchases thus far in 2023. This includes the $50 million we completed at the time of the second quarter earnings call and $150 million we recently completed on October 31st. With the closing of the STP transaction, we intend to launch a $950 million accelerated share repurchase program imminently. Between the $200 million already completed and the $950 million accelerated share repurchase program, our total share repurchases for the year will be $1.15 billion, which is $150 million more than what we had communicated at Investor Day and the second quarter earnings. Moving to slide 14, we are excited to introduce our guidance for 2024. We are guiding 2024 full-year adjusted EBITDA with a range of $3.3 billion to $3.55 billion, representing a midpoint of $3.425 billion. We are also guiding 2024 free cash flow before growth, with a range of $1.825 billion to $2.075 billion, representing a midpoint of $1.95 billion. As you can see in the chart at the bottom of the page, there are several drivers of year-over-year guidance. Incremental Vivint EBITDA reflecting a full year’s worth of ownership is effectively offset by the lost EBITDA from the STP and Gregory asset sales. Our growth plan and cost synergies contribute $240 million of incremental EBITDA, but it’s partially offset by an increase in the Vivint EBITDA harmonization adjustments. The final driver reflects a continuation of the improved operations and margin expansion, impacting our 2023 results and contributing $160 million to our 2024 midpoint. As you can see with the impact of improved operations and margin expansion, our 2024 guidance midpoint exceeds the pro forma we provided in our Investor Day plan. On slide 15, we are providing our 2024 capital allocation plan. As you can see, our capital allocation plan adheres to the 80-20 principle of return on capital versus growth while ensuring we continue to meet our debt reduction commitments. Our plan currently calls for a debt reduction of $500 million in 2024. As we have always said, we are committed to a strong balance sheet and this debt reduction ensures that we remain on the path to achieving our target credit metrics by the end of 2025. Our return of capital plan is comprised of $825 million of share repurchases and $330 million of common dividends. The common dividends reflect an 8% increase in the common dividend per share from $1.51 to $1.63. Between capital return in 2023 and the expected capital return in 2024, we will have executed over 70% of our current share repurchase authorization and return $2.65 billion to shareholders. In summary, our third quarter and year-to-date results show robust financial performance across the company, and with our increased 2023 guidance, we are poised to close out the year in a strong position and enter 2024 on a similarly high note. We remain committed to executing the Investor Day plan we shared back in June and our focus on maintaining a high level of operational performance will not waver as we head into the end of the year. With that, I will turn it back to you, Mauricio.

Thank you, Bruce. I want to provide a few closing thoughts on today’s presentation on slide 17. As you can see, we have made significant progress across all of our key priorities and are ahead of the five-year plan we provided to you during our Investor Day. I want to take a moment to thank all my colleagues at NRG for keeping focused on execution and for their hard work in achieving these results. We have the right strategy and the right team to deliver exceptional value today and well into the future. So, with that, I want to thank you for your time and interest in NRG. Darren, we are now ready to open the line for questions.

Hey, guys. Good morning.

Hey. Good morning, Shar.

Bruce, can we just unpack the $160 million in improved ops and margins that you are calling out in the 2024 EBITDA guidance, walk a little more? How much of that is margin expansion and how sticky is that overall as we look to refine our models for 2025 and beyond?

Sure. Hey, Shar. Good morning. So I would say that, really when you think about the $160 million, it’s pretty much margin expansion across the entirety of the complex. So if we think about our Home Energy business, we are really seeing margin expansion on two fronts: one is revenue management and on the cost of supply. So when you think about the durability of that, the revenue management side of it is really a function of the efforts we have done over the past several years around data-driven analysis to really make sure that we are targeting proper revenue rates for customers and then on the cost of supply, that’s really representing the benefits of our diversified supply strategy and just a general better plant performance relative to history. On the C&I side, we are seeing margin expansion there, which we would also believe is durable. As we know, there has been volatility in the market and customers are locking in higher revenue rates reflecting that volatility, and obviously, those contracts tend to be longer tenor and so that should also provide durability. And then lastly on the Smart Home side. As you saw with the KPIs, we are seeing margin expansion both on the revenue front and higher revenue per subscriber, as well as lower cost to serve as we continue to optimize that piece of the business, and again, given the long duration nature of those customers, we would expect that to also continue to be durable. So, all-in-all, higher expansion on the margin side with durability.

So, Shar, I mean, this is really just a reflection of the improvements we have done in the business and I see them as durable sustainable for the foreseeable future.

Perfect. The 2024 free cash flow conversion rate appears to be in the mid-to-high 50s. I understand that at the Analyst Day, you mentioned your target to increase this rate to the mid-to-high 60s. Could you explain how you envision this progression and what form it may take, such as whether it will be linear as we continue to refine our models? Thanks.

Yeah. I would say, Shar, I think, we continue to remain focused on that conversion rate. I don’t think it will be linear because most of that conversion improvement is going to come from increasing the conversion at Vivint, right? And so if you remember, we provided some information that showed a free cash flow growth profile at Vivint going from $140 million to $445 million by the end of 2025, so that’s a pretty steep increase in the cash flow at Vivint, which is really going to help to drive that conversion higher on a go-forward basis.

Got it. Perfect. And lastly, Mauricio, could you update us on your approach to the prospects for new builds in ERCOT? I understand there are many existing assets in the market right now, as we've seen in Carolina and Texas generation. Are you interested in second-hand plants? Thank you, I appreciate it.

Sure. Well, as you know, Shar, we actually improve our diversified supply strategy. Some of it will be through own generation, some moving into rent and to complement with market purchases. So the team is constantly looking at the economics between buying from the market, renting or buying assets from others and creating options internally to develop those facilities either as brownfield development. So we are looking at all of it. We are evaluating the economics. At the end of the day, we are balancing operational risk, market risk, counterparty risk, that criteria permeates the evaluation that we are doing on all of these options. We are still awaiting to see changes in market design and other improvements to incentivize dispatchable generation. That also is going to shape the decisions that we are going to make. So as you can tell, this is not just a linear and myopic view on assets to be bought in the market and development, we really also need to see what incentives are available given the changes in the regulatory construct in ERCOT. So I have said before that towards, I would say, the end of the year, we are going to have more visibility on those changes in ERCOT that is going to inform the next steps we are going to take.

Fantastic guys. Congrats on your results. See you soon.

Thank you, Shar. Appreciate that.

Good morning, everyone. Thank you for being here. I want to check in on the buyback. You have a significant amount left for 2023. Can you discuss your ability to complete that and how it might positively impact 2024, especially considering the higher numbers in your guidance compared to your initial plan?

Sure, Julien. So… Yeah. As we mentioned, we are going to do the ASR imminently, which means as soon as possible. And what I will characterize the execution of that ASR, we are going to do it as fast and as efficient as we can. So I think that’s the spirit and the intent launching this ASR as soon as possible.

Julien, I would just add that as you know, when you do an ASR, we obviously realize the vast majority of the shares having been bought in pretty much on an immediate basis, but it takes time for the banks to be able to go and purchase those shares properly. And so my guess is, we would probably anticipate that the program will be completed inside of the first quarter of next year. But to us, that’s actually a pretty good situation because then that provides the ability to then roll into a regular way share repurchase program related to our 2024 capital allocation plan to really continue to maintain the momentum on the repurchase front.

Got it, guys. Thank you very much. I appreciate that. Maybe just pivoting a little bit back here. I mean, obviously, very nicely done on 2024, nicely done on the comments on keeping it sticky. And then, Mauricio, next piece of this is, you have talked up this virtual Power Plant distributed opportunity on the call today in prior remarks, how do you see that feeding into, A, what you are talking about in 2024? I presume that’s not really necessarily reflected in size. But at the same time, you talk up an opportunity there, I presume that there’s a certain degree of customer election and choice in that. But how do you see that scaling here? When does that really meaningfully impact and how meaningful are we talking here? I mean, I have heard some of your comments earlier, if you could elaborate.

The first thing I want to mention is that this opportunity is not part of the Investor Day plan we shared. Additionally, due to the current focus and availability of technologies, we are speeding up the scaling of this opportunity. Initially, I believed this would take more than five years, but we are finding that it can be implemented and scaled more quickly, likely within three years. I have shared some preliminary figures that I find quite realistic regarding what we can achieve. For example, a 1 gigawatt VI position in Texas this summer generated nearly $200 million in gross margin. One gigawatt represents less than 10% of the peak load we currently serve, making it a very attainable goal. This illustrates that we are discussing a substantial opportunity. Furthermore, the product we are introducing aligns with devices used to protect homes and the distributed technologies available today to help consumers optimize demand. This should not be viewed merely as an opt-in conservation effort; it is focused on optimizing customer experience and convenience. Thus, it represents a different concept from the traditional VI. We are referring to it as an optimization of energy demand behind the meter rather than traditional demand response. We are excited about this because it meets consumer needs and allows NRG to monetize that value in the wholesale market. NRG has a unique scale that no other entity currently has, enabling us to take the lead in this area.

Awesome. Excellent. Thank you. Just a quick clarification from the last question from Shar. When he asked you about acquisitions or divestments on gas, I presume that what we saw with Gregory here is perhaps an indication of the margin of continued divestment on the margin of your portfolio as you move over time, right? We should set the expectation that more of these kinds of transactions are in the wings. Again, I get that Gregory was a very specific pattern here we assume.

I think we are, for the most part, done on the optimization front. I mean remember, the optimization of our portfolio is driven by what we need to serve our load in the best possible way. STP, I already talked at great length, it’s block power, it is not necessarily, it is not flexible, it doesn’t move. We can replace that in the market. Gregory was also very specific. This is basically a plant that was built to provide steam to our host. So it really didn’t provide the attributes or characteristics that we wanted from a flexible asset. I think after Gregory and STP, I would say our optimization efforts are largely done.

Thanks guys.

Thank you, Julien.

Good morning, guys.

Good morning, Angie.

Good morning. So first on Vivint. So one I was just wondering if you have heard any feedback from your activist investor about how holding onto Vivint is working out for you in the stock, so that’s one. And number two is, so you mentioned a number of positive updates on Vivint. One of the main ones, at least that stuck-up with me is the basically lower attrition. So is it fair to say that the higher interest rates and thus lower migration is actually what’s benefiting your platform? Again not something that would everything to link higher interest rates as a benefit for a business like yours, but it’s deals that way.

Yes, Angie. So let me take the first one and then I am going to ask Rasesh to answer your second question. The focus of the management team and the company is to execute on our consumer strategy. And I think what you are seeing in the last two quarters is that we are basically delivering on the commitments that we provided to all of you on Investor Day. That’s our focus. I have been on the road talking to investors to help them better understand the strategy, to help them better understand the value proposition that this consumer strategy represents and not just to the activist, but to all shareholders. And that has been our focus. That’s what we can do as a company, as a management team and I am very pleased with the results that we are delivering and I think shareholders in general are appreciating the value of our consumer strategy. And what I will say is that also market participants as a whole, whether it’s ISOs or whether it is the regulators, they are starting to see the benefit and the opportunity that demand represents to better manage the entire power grid given the greater electrification that we are going to see in the years to come. So I think that’s finally happening. But Rasesh, could you address the second question?

You bet. Angie, good morning. I think the results reflect the strong value proposition that we provide to consumers. If you think about 7% subscriber growth. We are also seeing an increase in the number of products each subscriber is actually taking into 5% growth in recurring revenue, simultaneously the cost-to-serve customers is down 19% on a unit basis year-over-year. And as you mentioned, one of the most powerful aspects of the value proposition is the near record-low attrition rate for us and this economy, with a nine-year customer life. When you bring these things together, combined with the fact that the average consumer is engaging with our products 33% more than they were this time last year, it’s a really robust flywheel that results in just improving customer lifetime value and so we feel really good about the business and we think there’s a long runway ahead forward.

Okay. Just one follow-up on Vivint. So, Rasesh, you remember, as you said yourself, you are bringing forward this DR driven this growth on the Vivint side. I thought that the reason why we had expected the growth to materialize on the 2025 and beyond was because you actually needed some software upgrades, some sort of investment to facilitate that growth. So have you put those forward, hence the growth is materializing earlier?

Yeah. So, I will say, and we literally just finished a pilot where we are connecting our Smart Home technology to our commercial operations. So let me take a little bit of a step back. We already cover residential demand response program on our traditional energy business and that is connected to the backbone of our commercial operations to make sure that we optimize the system. What we have been doing the last couple of weeks and then is to connect now the Smart Home technology platform to our commercial operations backbone. That was very successful. That’s why I said that we are accelerating those efforts and instead of being a five-plus-year opportunity, I see that as a three-plus-year opportunity. The improvements and investments that we need to do on the technology backbone are included in that 20% of growth; we are not going to increase that. What I am saying is that, there is the need and the by the consumer and quite candidly by the power grid to accelerate these efforts. So really, really good progress there, Angie.

Okay. And then the last question, and again, I understand the explanation behind the divestiture of STP and I see that the EBITDA contribution from Gregory was very small, but you are getting shorter and shorter power in Texas. And again, I know that not for a given summer because you hedge, but we just survive this the summer, I mean, better than survived, but anyway, I mean, all of these conservation alerts from ERCOT are causing anxiety among us and new investors, I am sure. So just strategically speaking, getting rid of more power plants in Texas, how do we manage this risk of matching the retail load with self-generation in Texas?

Yeah. So, Angie, let me just say two things. Number one, when we serve our customers, we are not short. We are actually leaning long. We don’t have to own every megawatt or produce every megawatt that we sell to our customers. That will be the first thing. The second thing is, and perhaps, to your point about ERCOT. When I think about the market, my view is that the marginal unit, which means the most cost-efficient today is renewable energy. It’s going to be wind and solar, intermittently generation. That’s zero variable cost generation. What that means is that for the most part of ours in the market is quite clear at a very low price, except for those periods where perhaps renewable is not performing as normal because the wind is not blowing and the sun is not shining. So you are going to see very few periods of scarcity conditions. But for the most part, the rest of the intervals, the rest of the hours are going to be very low price. So that’s why demand response and optimizing demand management is so, so important because that basically gives you instantaneous peaking capacity exactly for the duration that you want, which is very short durations. I think the improvements that we have made on our supply strategy are very consistent with what we expect the market will be paid in the future and the opportunity around the management is again completely consistent with that expectation in terms of price formation and market behavior. So I believe we have positioned the company very, very well for the foreseeable future. And I will just say one more thing, we literally experienced the hottest summer on record in Texas and the grid handled it very well. The only time when we saw scarcity pricing was really at phases where we had low renewable output and even there ERCOT was managing the grid very conservatively. So I will say that, for those of you who really wanted to test the ERCOT market and the improved supply strategy that we have at NRG, this was the test and we passed with high-flying colors, I think.

Great. Thank you.

Hey, everyone. Good morning.

Good morning, Michael.

Hey, just wanted to follow-up one of the questions from earlier in terms of the growth target realization looks like that’s coming little bit sooner than expected. Does that indicate any potential upsides to the 2025 number of $300 million run rate?

I think right now we are comfortable accelerating the 2023 targets, just given the success on our growth and cross-sell. Yeah, I think it’s early to start thinking about moving the $300 million by 2025. What I will say is that that roadmap does not include the VPP or demand-side management potential, and that’s something that we are going to be talking to all of you, quantifying it and how big it can be and when can we start realizing it. So that’s more to come there.

Okay. Great. And then just specifically on the ERCOT portfolio, next week’s vote on the loan bill, does that drive any decision-making in terms of optimization of the fleet or new builds or anything like that?

It is an additional data point that we will consider. The first step for the loan program is the vote, followed by the rules governing how the program will function. Clearly, all market participants are paying attention, and this will provide us with further insight to guide our supply strategy, but it is just one more data point.

Okay. Great. Thank you.

Thank you, Michael.

Good morning. I am hoping to start off saying more on the strategic side. At the Analyst Day, you indicated an aversion to larger strategic acquisitions. Given that the pre-capsule picture is becoming more favorable and maybe pricing for assets is going down. How committed are you to that vision and you think you highlight some potential VPP and power plant opportunities? Is there any scope around what type of incremental capital that could enable?

Well, the first thing I will say is, as I mentioned on Investor Day, we don’t see any more acquisitions. Second, we are completely committed to this capital allocation framework of 80% of return, 20% of growth. And third, the 20% is inclusive of the opportunity that we see on VPP. So, we will continue unpacking what that opportunity is and the investment, but it will be contained within the 20% during the planning period that we provided to you.

Okay. I appreciate the clarification. And then one more on the modeling side in terms of the Vivint, subscriber acquisition cost coming up and that subscriber acquisition cost coming up, what’s driving that and what do you think from a trend standpoint in terms of customer acquisitions?

It really comes down to two main factors. First, there is the year-over-year increase in interest rates, and second, we are seeing consumers purchase more products when they use our service. On this second point, we are quite optimistic about both the payback period and the internal rate of return. You can see the increase in recurring revenue per subscriber as shown in the key performance indicators. It's important to note that this applies to our entire subscriber base of 2.1 million. If you focus solely on the new customer acquisition group, the increase in service revenue is even more significant. Therefore, we are confident about the return on our additional investment as consumers engage with more of our products.

Is the customer composition or the customer mix evolving or any comments you are able to make around the characteristics of your new subscriber costs?

No. Other than the new customers are sort of taking more products as we continue to expand our product portfolio. There’s no change in the mix. We have a very, very high quality subscriber base and high credit scores. And so it’s a very resilient business from that standpoint.

Okay. I appreciate you taking my question.

Thank you, Ryan.

Thank you, Darren. Well, I would like to thank all of you for your interest in the company and your support and look forward to providing you updates in the future. Thank you.