Vistra Energy Corp. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Vistra Energy operated an integrated U.S. electricity generation, wholesale and retail business across six reportable segments. Unless stated otherwise, amounts are in millions of dollars.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Operating revenue | $2,923 | $765 |
| Operating income (loss) | $490 | $(394) |
| Net income (loss) | $224 | $(306) |
| Net income (loss) attributable to Vistra | $225 | $(306) |
| Basic / diluted EPS | $0.45 / $0.44 | $(0.71) / $(0.71) |
| Adjusted EBITDA (non-GAAP) | $802 | $241 |
| Cash provided by (used in) operating activities | $388 | $(22) |
- Cash and cash equivalents were $546; restricted cash was $42. Total available liquidity was $2.324 billion, including $1.753 billion of available capacity under the Vistra Operations revolving facility and $25 million under an alternative letter-of-credit facility.
- Total long-term debt, including current maturities, was $11.007 billion; $204 million was due currently. The company reported $350 million outstanding under its receivables securitization facility.
- Capital expenditures, including LTSA prepayments, were $118 million; cash used for investing activities was $149 million. Q1 financing activities used $344 million.
- Income tax expense was $77 million and the effective tax rate was 25.6%. Interest expense and related charges were $222 million.
Material changes and comparability
- Year-over-year results are not directly comparable: the 2018 quarter excludes Dynegy’s results before the April 9, 2018 merger. The increase in reported revenue and operating performance largely reflects the expanded business after the merger. For context, unaudited Q1 2018 pro forma revenue assuming the merger closed January 1 was $2.127 billion, with a pro forma net loss of $467 million.
- Management attributed the $530 million improvement in net income to acquired PJM, NY/NE and MISO operations and improved ERCOT and Retail results, partly offset by higher interest and tax expense. Adjusted EBITDA rose $561 million, including $335 million from the acquired segments, $134 million from ERCOT and $63 million from Retail.
- Commodity mark-to-market positions produced a $186 million unrealized net gain in Q1 2019, compared with a $415 million unrealized net loss in Q1 2018. Management noted that mark-to-market effects materially affected reported segment results; Adjusted EBITDA excludes these unrealized effects.
- Operating cash flow improved by $410 million year over year, reflecting the acquired operations and increased cash from margin deposits, partly offset by higher interest paid.
Outlook, capital allocation and risks
- Management stated that internal forecasts supported sufficient liquidity for anticipated cash requirements, including capital allocation initiatives, for at least the next 12 months; cash flows are seasonal and weighted toward the second half of the year. The company targets net debt to EBITDA of approximately 2.5x; an actual period-end leverage ratio is not provided here.
- The board declared and paid a quarterly dividend of $0.125 per share. During the quarter, Vistra repurchased 9.5 million shares for $236 million; $736 million remained available under the then-current share repurchase program at March 31.
- In February, Vistra agreed to acquire the operating business of Crius Energy for approximately $378 million, plus assumption of approximately $108 million of net debt. Closing was expected in Q2 2019, subject to remaining regulatory approvals, including FERC approval.
- In February, Vistra Operations issued $1.3 billion of 5.625% senior notes due 2027, using proceeds and cash on hand to fund a tender offer and redemptions of existing notes. Gross debt was broadly stable from year-end, while the debt mix and maturities changed.
- Key uncertainties include commodity prices and hedging outcomes, collateral and counterparty exposure, environmental regulation and potential plant compliance or retirement costs, and material legal matters. The filing identifies potential material exposure in gas-index pricing litigation and the Wood River rail arbitration. In the Advatech arbitration, an interim award included about $42 million of interest; $40 million had been recorded in merger purchase accounting and $2 million as interest expense, with a final award still pending.
- PG&E filed for bankruptcy in January 2019. Vistra reported no PG&E receivables at quarter-end, but noted potential impairment or higher-cost gas transportation risk if relevant agreements are rejected or not honored.
- Vistra adopted the new lease standard on January 1, 2019, recording operating-lease right-of-use assets and liabilities; it expected an immaterial ongoing effect on net income. The filing reported no material change to the risk factors from the 2018 Form 10-K.
Important facts for investors to verify
- Compare operating trends using merger-adjusted periods and distinguish realized performance from volatile mark-to-market gains and losses.
- Track progress toward the approximately 2.5x net debt/EBITDA target, refinancing needs, interest costs and available revolving capacity.
- Confirm the closing and financing of the Crius acquisition and assess its expected load, integration and risk-management benefits.
- Monitor share repurchases and dividends against cash generation, liquidity needs and debt covenants.
- Follow outcomes and potential costs of environmental proceedings, litigation and arbitrations, along with commodity collateral and counterparty exposures.