Vistra Energy Corp. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Vistra operates an integrated U.S. electricity generation and retail business. Results include Crius and Ambit only from their 2019 acquisition dates, so comparisons with Q1 2019 are not fully like-for-like.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Operating revenue | $2.858 billion | $2.923 billion |
| Operating income | $391 million | $490 million |
| Operating margin | 13.7% | 16.8% |
| Net income | $45 million | $224 million |
| Net income attributable to Vistra | $56 million | $225 million |
| Diluted EPS | $0.11 | $0.44 |
| Adjusted EBITDA (non-GAAP) | $833 million | $802 million |
| Cash from operating activities | $552 million | $388 million |
| Capital expenditures, including nuclear fuel and LTSA prepayments | $261 million | $153 million |
Revenue declined about 2%, while operating income and net income fell substantially. Management attributed the net income decline principally to $61 million less in unrealized hedging gains, an $84 million Joppa-related impairment, and a $28 million loss on the NELP transaction. Adjusted EBITDA increased $31 million; this non-GAAP measure excludes specified items and should be considered alongside GAAP results.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $717 million; restricted cash was $78 million. Total assets were $26.669 billion and total equity was $7.926 billion.
- Total long-term debt, including current maturities, was $10.138 billion, compared with $10.379 billion at year-end 2019. Separate current borrowings included $700 million under the revolving credit facility and $450 million under the receivables securitization program.
- Available liquidity was $1.834 billion: $717 million cash plus $1.117 billion available revolving capacity. The company reported compliance with its applicable first-lien net leverage covenant at quarter-end.
- Operating cash flow improved by $164 million year over year, primarily from stronger cash generation and lower cash margin deposits. Cash and restricted cash ended the quarter at $795 million.
- In April, after quarter-end, Vistra repaid $550 million of revolving borrowings. It also announced redemption of $500 million of 5.875% notes due 2023, scheduled for June 1, 2020.
Material changes and unusual items
- Retail revenue rose with the addition of Crius and Ambit; retail electricity sales volume increased to 20,994 GWh from 16,333 GWh. Retail Adjusted EBITDA increased to $311 million from $257 million.
- Q1 included an $84 million impairment in MISO: $52 million related to the Joppa/EEI coal facility and $32 million for a related capacity contract. The company cited lower forecast wholesale power prices and a shorter estimated useful life.
- Interest expense and related charges rose to $300 million from $222 million, largely because mark-to-market losses on interest-rate swaps increased. Interest paid/accrued decreased by $22 million year over year.
- SG&A increased $70 million, primarily due to the acquired businesses and a nonrecurring gross-receipts-tax charge of about $10 million.
- The NELP transaction closed March 2: Vistra exchanged its joint-venture interest for full ownership of the Sayreville facility and recorded a $28 million loss.
- No share repurchases were made in the quarter. A $0.135-per-share dividend was paid in March; another $0.135 dividend was declared in April for June payment.
Outlook, risks and contingencies
- Management said it expected sufficient liquidity to fund anticipated cash needs, including capital allocation initiatives, for at least 12 months; cash flows are seasonal and weighted toward the second half of the year. The filing provides no specific earnings or revenue guidance.
- Management reported no material adverse impact from COVID-19 on Q1 results and no operational disruption to date, but said demand reductions began in March and continued into Q2, particularly in MISO, PJM and the Northeast, and to a lesser extent ERCOT. Longer-lasting economic effects could materially affect demand, collections, liquidity and results.
- COVID-related state customer protections, including limits on disconnections and late fees, could affect retail collections. Management noted potential mitigations including reducing capital expenditures, voluntary debt repayments and costs.
- Under the CARES Act, Vistra anticipated about $64 million of accelerated AMT refunds in 2020 and an approximately $500 million increase in interest-expense deductions across 2019 and 2020; it did not expect a material effective-tax-rate impact. The company also expected approximately $128 million of AMT refundable credits within 12 months.
- Commodity prices, hedging and collateral demands, counterparty credit, customer bad debt, environmental compliance and plant-retirement obligations remain important risks. At quarter-end, commodity derivative liabilities with credit-related contingent features represented stated liquidity exposure of $602 million after specified offsets and collateral.
- Environmental and legal matters include coal-ash groundwater and closure requirements, emissions rules, rail disputes and other litigation. The company said some outcomes and potential costs cannot currently be estimated; required remediation could be material. Total asset retirement obligations were $2.240 billion.
Important facts for investors to verify
- How COVID-19 affected Q2 demand, customer payment performance, bad-debt expense and liquidity after the reporting date.
- Whether reported liquidity and debt figures reflect the subsequent $550 million revolving-facility repayment and planned June note redemption.
- The drivers and sustainability of Adjusted EBITDA growth, particularly acquisition contributions, hedge results and the distinction between non-GAAP and GAAP earnings.
- Further changes to the Joppa impairment outlook, Illinois plant retirements, and environmental remediation or compliance costs.
- Updated acquisition purchase-price allocations, CARES Act tax benefits, and the timing and amount of future payments under the Tax Receivable Agreement.