Vistra Energy Corp. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Vistra Energy operates an integrated Texas power business through wholesale generation and retail electricity segments. It emerged from Chapter 11 on October 3, 2016. The quarter is reported on a “Successor” basis; the comparable 2016 quarter is “Predecessor.” Fresh-start accounting makes the periods not directly comparable.
Financial and operating performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Operating revenue | $1.357 billion | $1.049 billion |
| Operating income | $155 million | $39 million |
| Net income (loss) | $78 million | $(343) million |
| Basic and diluted EPS | $0.18 | Not presented for the predecessor period |
| Cash from (used in) operations | $141 million | $(191) million |
- Q1 2017 operating margin was approximately 11.4% and net margin approximately 5.7%, calculated from reported revenue and income. The prior-year comparison is affected by fresh-start accounting, bankruptcy-related items and changes in the business and reporting structure.
- Operating income was substantially influenced by commodity mark-to-market gains. Wholesale Generation reported $285 million of operating income, including $283 million of unrealized commodity gains, while Retail Electricity reported a $118 million operating loss, including $170 million of unrealized losses on affiliate positions and an impact from milder weather. Intersegment amounts largely offset in consolidation.
- Unrestricted cash was $916 million at quarter-end, up from $843 million at December 31, 2016. Investing activities used $50 million, including $43 million of capital and nuclear-fuel expenditures; financing activities used $18 million. Cash increased by $73 million during the quarter.
- Total debt and debt-like obligations reported in the long-term debt table were $4.586 billion, including $4.482 billion under the Vistra Operations Credit Facilities and $70 million of mandatorily redeemable preferred stock. The facilities had $1.070 billion of stated available capacity. Reported total liquidity was $1.986 billion, including cash and available facility capacity.
- Current assets were $2.185 billion and current liabilities $981 million. These include restricted cash and other balances that may not be available for general use. The company also reported $650 million of restricted cash supporting letters of credit.
Changes, outlook and risks
- The February 2017 credit-facility repricing generated a $21 million debt-extinguishment gain. Reported interest expense and related charges were $24 million, versus $335 million in Q1 2016, when predecessor results included $322 million of adequate-protection amounts paid or accrued to secured creditors.
- Vistra recorded $21 million of Tax Receivable Agreement accretion expense; the total obligation was $617 million at March 31, 2017, of which $16 million was current. The agreement generally requires payment of 85% of specified realized tax savings to rights holders.
- Management said current forecasts indicated sufficient facility availability and operating cash generation to fund anticipated requirements for at least the next 12 months. No specific earnings or revenue guidance was provided.
- As of April 21, 2017, management estimated hedges covered 100% of 2017 and 64% of 2018 natural-gas price exposure, and 91% of 2017 and 43% of 2018 heat-rate exposure. These are estimates, not guarantees of realized results.
- In May 2017, the company acquired development rights and entered a construction agreement for an approximately 180 MW Texas solar project, then expected to begin operating in summer 2018.
- Environmental proceedings remain a material uncertainty. EPA air-rule and regional-haze requirements, if ultimately implemented, could require substantial controls, affect plant economics or materially affect results, liquidity or financial condition. The company also disclosed an EPA appeal in a Clean Air Act case; it stated that it would defend its position.
- Commodity prices, market heat rates, weather, counterparty performance, collateral needs, and interest rates are key risks. A 100-basis-point increase in floating rates was estimated to reduce annual pretax earnings by approximately $15 million after interest-rate swaps. A specified default on more than $300 million of indebtedness could trigger cross-default provisions and potentially accelerate approximately $4.5 billion of facility debt.
Important facts for investors to verify
- Separate underlying operating performance from unrealized commodity gains and losses, particularly the effect of intersegment positions.
- Review the successor/predecessor accounting basis before drawing conclusions from year-over-year revenue, margin, earnings or cash-flow comparisons.
- Track unrestricted liquidity, restricted cash, letter-of-credit usage, debt maturities, facility covenants and any collateral calls.
- Monitor the Tax Receivable Agreement’s cash-payment obligations and the company’s expected tax payments.
- Follow environmental litigation and rulemaking, including potential compliance costs and implications for coal-fired generation assets.
- Assess the assumptions behind hedge coverage and the execution, cost and schedule of the solar project.