Talen Energy Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 14, 2024

There are 7 speakers on the call.

Operator

Good afternoon, and welcome to the Talend Energy 4th Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Ellen Liu, Senior Director of Investor Relations. Ellen, please go ahead.

Speaker 1

Thanks, MJ. Welcome to Talend Energy's Q4 2023 conference call. Participating on today's call are Chief Executive Officer, Mac McFarland and Chief Financial Officer, Terry Nutt. I'd like to highlight that we have posted materials on the Investor Relations section of our website, www.talonenergy.com, that provide additional information about our operations, Q4 and full year results. We have also provided information reconciling our non GAAP financial measures to the most directly comparable GAAP financial measures in our earnings materials.

Speaker 1

Today, we are making some forward looking statements based on current expectations. Actual results could differ due to risk factors described in our financial disclosures and other periodic public filings. As a reminder, we have allotted additional time for a question and answer session at the end of our prepared remarks. We ask participants to please limit their questions to one primary and one follow-up. With that, I will now turn the call over to Mac.

Speaker 2

Great. Thank you, Ellen. Good afternoon, everyone, and thank you for joining us today. As Ellen mentioned, we have materials posted and today we're going to follow along the slides. So I'm starting on Slide 3.

Speaker 2

I'd like to kick this call off by highlighting the transformative year we had in 2023. We were relentlessly focused on unlocking and maximizing value. 2023 was the strongest year in Talend's history with over $1,120,000,000 of adjusted EBITDA and $587,000,000 of adjusted free cash flow. Adjusted EBITDA was in line with our guidance midpoint and adjusted free cash flow exceeded the high end of our range. This performance was driven primarily by higher energy margins realized through our disciplined hedging strategy along with strong physical energy margin during ERCOT's record high demand this summer.

Speaker 2

As many of you know, Talend emerged from financial restructuring on May 17 last year with modest leverage, a long dated maturity profile and ample liquidity to run the business. Since then, we've been focused on unlocking value not currently recognized by the market through strategic initiatives, capital structure simplification and what I call regular way operations of an IPP. Looking at the first category, last week we were excited to announce the sale of our Qumulus data center campus to Amazon Web Services for over 2.5 times invested capital. Combined with 2 long term agreements that will help us drive earnings and cash flow growth. We'll talk more about this later in the call.

Speaker 2

In December, we reached a settlement with PPL on our long standing Tallinn Montana litigation, resetting the relationship with a key stakeholder and resulting in $100,000,000 of net proceeds available to support asset retirement obligations at Talend Montana. We've taken several significant steps to simplify our capital structure and unlock trapped cash flows. Took out a project financing associated with our Lower Mount Bethel and Martins Creek assets by upsizing our term loan. We simplified the ownership of Cumulus Digital by acquiring Riverstone's Cumulus ownership and retiring their warrants. We delevered Cumulus by paying off the Orion term loan and further simplified Cumulus equity ownership by buying Orion's approximately 5% share.

Speaker 2

Looking at our regular way improvements, last quarter we implemented a cost savings program capturing $50,000,000 of annual run rate operational savings. We're making really good progress towards this target and Terry will provide some more details on it. And we are actively reducing our collateral requirements to increase liquidity. Finally, prior to emergence, Talend was a private company for over 6 years. In 2023, we realigned with regular way public company reporting practices, including quarterly financial filings, earnings calls and establishing guidance for adjusted EBITDA and adjusted free cash flow.

Speaker 2

We listed on the OTCQX and in October announced a $300,000,000 share repurchase program to begin returning excess capital to shareholders. We bought back 225,000 shares to date for approximately $14,000,000 We have also actively engaged with the broader investment community by attending investment conferences, conducting numerous 1 on 1 investor meetings and working with the sell side analyst community to drive awareness of Talend as a reemerging public IPP. To increase stock liquidity and facilitate additional shareholder returns, we're targeting uplisting on a major national exchange in the Q2 of this year. Moving on to Slide 4. Here's how we plan to continue unlocking and maximizing value in 2024 and beyond.

Speaker 2

We are raising 2024 adjusted EBITDA guidance to $640,000,000 to $840,000,000 and adjusted free cash flow guidance to $185,335,000,000 based on adding earnings from the AWS contracts and existing Nautilus operations along with incremental capacity revenues from the recent PJM secondary auction for 20 fourtwenty five. Operationally, now that the data campus is sold, we're working to fully transition it to the new owner and implement the processes we need to begin servicing and earning revenues from our new contracts with AWS. After observing an opening in the ERCOT M and A market, we launched a monetization process for our ERCOT fleet in late 2023 that continues to progress. We are also exploring strategic opportunities for our interest in Nautilus and how to leverage our recent data deal for other potential opportunities across our fleet. After we announced the planned June 2025 retirement of Brandon Shores and Wagner in 2023, PJM reached out to us with request to continue operating both facilities under potential reliability must run agreements or RMRs.

Speaker 2

We believe RMR agreements should be used only as a last resort for grid reliability and without creating distortions in the market. To be sure, Talend does not want to be in an RMR situation. Operating that way is model. Nonetheless, under the present circumstances, we are willing to work with PJM and other stakeholders to provide generation from Brandon Shores and Wagner under potential RMR agreements and we are currently engaged in those discussions. We will need relief from our agreement with Sierra Club to stop burning coal and extension of our Maryland permits, both of which we believe are doable and within the best interest of Maryland, PJM and most importantly in keeping the lights on in Baltimore.

Speaker 2

As for PJM and the IMM, we simply ask that Talend receive a fair return of and on equity and that

Operator

Thank you for standing by. We have reestablished our connection with our speakers. Please go ahead.

Speaker 2

Great. Sorry about that interruption. It's a good thing we run power plants and not IT. I believe I was talking about needing relief from our agreement with Sierra Clubs when we got cut off to stop burning coal to stop burning coal and

Speaker 3

extension from our Maryland permits,

Speaker 2

both of which we believe are doable and within the best interest of Maryland PJM and most importantly in keeping the lights on in Baltimore. As for PJM and the IMM, we simply ask that Talend receive a fair return of and on equity and that any RMR not artificially distort the energy or capacity markets as I previously said. Bottom line, we're willing to work with PJM, Maryland, the Sierra Club on extending the lives of Brandon and Wagner for grid reliability under RMR under the right circumstances. Turning now to our shareholders. We have ample repurchase capacity under our $300,000,000 share repurchase program since we didn't have many opportunities to use it last quarter given our data deal and the possession of MNPI.

Speaker 2

Further, we are working with our Board on the best way to strategically deploy the net proceeds from our data center transaction as well as future cash flows. As we turn to Slide 5, I want to talk a bit about the broader power market dynamics. Power market demand is growing domestically and globally for the time in years. In a recent study of FERC filings submitted by U. S.

Speaker 2

Power balancing authorities, the estimate of nationwide electricity demand growth over the next 5 years nearly doubled between 20222023 from 2.6% to 4.7%, resulting in 38 gigawatts of additional demand by 2028. And to put that into perspective, 38 gigawatts is roughly half the installed capacity of ERCOT. Much of the new load growth demands, baseload reliable and 0 carbon energy, like we have at nuclear plants, to balance net zero targets and the need for grid stability. Reliable power is scarce and reliable low carbon power even more so, especially as large power consumers continue to prioritize and work towards their net zero targets. In PJM, where most of our fleet operates, the long term load forecast has increased notably over the past year and the primary driver of this growth is what I'd like to hit on next.

Speaker 2

Turning to Slide 6, The primary load growth drivers are rapid data center growth with the rise of AI and machine learning as well as industrial and manufacturing companies incentivized by the current administration's industrial policy to build factories as well as continued electrification and transportation and buildings. Data centers, in particular, used for AI and machine learning could require 5 to 7 times more power than traditional facilities. Tech companies are expected to invest nearly $1,000,000,000,000 in this space over the next 5 years, with U. S. Data center power demand projected to nearly triple by 2,030.

Speaker 2

More than 60% of data centers are expected in the MISO, Cal ISO, PJM and Southeast by 2027, as illustrated on the map to the right of this slide. This makes a compelling case for generators like us to spend time working on unique solutions to data center power for hyperscalers and co locators. We believe the Qumulus Data transaction is one of those unique solutions that will be transformative. And as I said before, this is not just for talent, but for all IPPs. But to be clear, no matter the solution for growing demand, there hasn't been a better time in recent history to be an existing generator or an IPP and we don't believe the current forwards reflect this new reality.

Speaker 2

Moving on to Slide 7 and focusing on some of our results, we leveraged our solid operational foundation and strong commercial strategy to turn over $1,120,000,000 of adjusted EBITDA as I said previously. And after maintenance CapEx, interest, pension payments and taxes, we generated $587,000,000 of adjusted free cash flow and Terry is going to walk you through that in a bit. We continue to focus on capital discipline and balance sheet management maintaining liquidity of approximately $1,000,000,000 and net leverage below 2 times. Our fleet ran well generating 33 terawatt hours with 55% of that generation coming from our carbon free Susquehanna nuclear facility. Our whole team works safely with an OSHA total recordable incident rate of 0.6 on a full year basis.

Speaker 2

This is in line with our peers and we continue to emphasize safety across the fleet. We had an equivalent forced outage factor of 5.5 percent in 2023, primarily driven by an extended at our Nueces Bay facility in ERCOT and another shorter unplanned outage at Susquehanna Unit 1 in November. The Nueces Bay extended outage started in September when the main power transformer failed, potentially due to significant rain and wind during tropical storm Herald. We've repaired that existing transformer and brought the unit back online. We also purchased a spare transformer which is on-site and can provide backup for both Nueces Bay and Barney Davis.

Speaker 2

The Susquehanna outage was caused by a condenser leak, which is not associated with the nuclear reactor island. Our team took rapid diagnostic and corrective actions at Susquehanna and brought the unit back online within 10 days. I'd like to take this opportunity to recognize and thank our employees across the company. They have worked safely to deliver impressive operational results from Montana to Texas to the Mid Atlantic. These team members are key to our overall financial performance as they operate, maintain and improve our generation fleet and other assets.

Speaker 2

Without their hard work and commitment to excellence, none of this is possible. Moving on to our most recent announcement, the transformative transaction with AWS. I'd like to just hit on a few highlights. To recap, on March 1, Talend sold the physical and intangible assets of Cumulus Data or what we call the campus with up to 9 60 megawatts of data center capacity for $650,000,000 gross. This represents a multiple of invested capital of greater than 2.5 times.

Speaker 2

Of the $650,000,000 sales proceeds, Talend expects to receive $361,000,000 net of debt pay down, fees and minority interest payoff. We will deploy these net proceeds in line with our existing capital allocation strategy supporting our net leverage target of less than 3.5 times and commitment to our shareholder returns program. As the campus is developed, Talend will supply carbon free power directly from the nuclear plant through a power purchase agreement or PPA and separate from powering the campus through this PPA, Talend will also receive an additional revenue from AWS related to the remaining carbon free power that Susquehanna sells to the PJM wholesale market. Some of you have heard us refer to this separate revenue stream as carbon free energy or CFE. AWS has significant experience in procuring power through PPAs and a solid investment grade balance sheet.

Speaker 2

So these contracts establish a low risk growth trajectory for Susquehanna and Talend as a whole. That allows us to focus on what we do best, which is generating power reliably, safely and profitably, and in this case, carbon free. The contracted earnings from our long term agreements with AWS are expected to increase significantly as the campus grows, translating into higher EBITDA and cash flow as well as enterprise value at the consolidated level. I want to note that the long term earnings and cash flow impacts from this transaction could be impacted by final nuclear PTC regulations from treasury, particularly around what is included in the calculations of gross receipts. And with that, let me turn it over to Terry.

Speaker 4

Thank you, Mac, and good afternoon, everyone. For the Q4 2023, Talend reported adjusted EBITDA of $123,000,000 and a net use of adjusted free cash flow of $22,000,000 This quarter was positively impacted by lower O and M and G and A cost and lower benefit funding, but negatively impacted by compressed spark spreads and an unplanned outage at our Susquehanna facility in November, which we mentioned during our Q3 call. I also want to note that certain periodic cash payments occur in the Q4 that reduce cash flow. For example, our primary debt service payments that happened twice a year and CapEx associated with our plan outages that occurred during the 4th quarter all occur at this time. In the Q4, we also continued to make progress on our previously announced cost savings plan.

Speaker 4

We've completed over 80% of the initiatives identified to reduce both O and M cost and G and A cost in 2024 and beyond by $50,000,000 per year. Looking at full year 2023, as Max said earlier, we experienced one of our strongest financial performances to date with over $1,120,000,000 of adjusted EBITDA and $587,000,000 of adjusted free cash flow, largely due to solid operational performance and effective risk management from our hedging program. We finished in line with the midpoint of our 2023 adjusted EBITDA guidance and are happy to report that we exceeded the high end of our adjusted free cash flow guidance, mostly through maintaining discipline and managing cost and capital spend. Our financial performance for the year was driven by our fleet solid operational performance and our commercial hedging strategies. Let me provide some more regional detail on the wholesale power markets.

Speaker 4

In PJM, mild temperatures and ample gas supply drove lower market prices, but our earnings and cash flows were protected by hedge program gains. Our PJM segment earned over $1,000,000,000 of adjusted EBITDA in 2023. In ERCOT, the plants ran well during elevated periods of peak demand, especially in the summer, driving significant physical energy margin. So that was partly offset by outages, including as Mac noted earlier, the extended outage at our Nueces Bay facility. We were also impacted by congestion costs in South Texas.

Speaker 4

Together, our ERCOT and WEX segment earned adjusted EBITDA of $109,000,000 in 2023. Moving to slide 10. With the Cumulus Data monetization behind us, we updating 2024 adjusted EBITDA and adjusted free cash flow ranges with midpoints higher than the initial guidance we gave last quarter. Our adjusted EBITDA range is $640,000,000 to $840,000,000 while our adjusted free cash flow is $185,000,000 to $335,000,000 We're raising these targets to include the addition of earnings and cash flows from our AWS agreements and our Nautilus operations, along with some incremental capacity revenues from the recent PJM secondary auction for planning year 2024 2025. Moving to market overviews on Slide 11, I'd like to briefly discuss the 2024 outlook for the power and gas markets we operate in, starting with PJM.

Speaker 4

As many of you are aware, we run a seasonal business and make most of our money in PJM during the core winter and summer months. We experienced exceptionally mild weather late in 2023, which combined with ample gas supply reduced much of the risk premium that was previously sitting in Q1 of 2024. With winter power prices squeezed from the gas market, PJM West Hub power prices dropped in January February of 2024 as well as across the balance of the curve for the remainder of the year. PJM spark spreads compressed in January February of 2024 leading to lower expectations until the summer. However, our hedging program is set up to mitigate these effects.

Speaker 4

Turning now to ERCOT, gas pricing at Henry Hub also dropped substantially following a mild winter, robust storage and continued strong production from domestic gas producers in the U. S. ERCOT South Hub power prices declined sharply in Q1 2024 in response to lower gas prices, though summer prices have retained a premium. As you know, summer is the most profitable period for our ERCOT fleet. So we're keenly focused on what happens to projected spark spreads during that time.

Speaker 4

Overall, ERCOT South spark spreads expanded by benefiting from the declining gas prices, but continued expectations of tight supply and demand conditions for the peak period. Moving to Slide 13 and turning now to the balance sheet. We remain committed to maintaining modest leverage levels at or below our net leverage target of 3.5 times and using excess cash flows to maximize return on capital. Our net debt to EBITDA ratio using 2023 adjusted EBITDA was approximately 1.6 times. As of March 8, we have ample liquidity of approximately $1,000,000,000 including $459,000,000 of unrestricted cash.

Speaker 4

As Mac noted earlier, paying off the Orion term loan was an important step that we took this quarter to further simplify our capital structure. Removing this project financing debt allows cash distributions from our share of the Nautilus facility to flow up to the talent parent and to be used in our overall capital allocation strategy. Furthermore, buying back Orion's minority equity stake enables Talend to capture a higher percentage of the cash distributions. As an update to our $300,000,000 share repurchase program, we've repurchased approximately 225,000 shares for approximately $14,000,000 to date. That's a weighted average price of approximately $63 per share.

Speaker 4

With only these modest purchases to date, we have significant repurchase capacity remaining. With that, I'll hand the call back to Mac.

Speaker 2

Great. Thanks, Terry. Before we open the call for Q and A, I just want to reiterate our continued commitment to our strategic priorities. We run a low carbon intensity fleet, which is anchored by a top decile nuclear plant and we generate power safely, reliably and profitably. Those are the table stakes.

Speaker 2

We believe having a diverse generation portfolio is important to helping us manage risk. Our fleet provides a solid base of stable cash flows from the new bolstered by the PTC, while maintaining the flexibility to capture upside through both physical generation and our commercial hedging strategies like we did in 2023 and like our hedges are doing in 2024. We're focused on unlocking and maximizing value from our assets as demonstrated by our Qumulus transaction and some of the other strategic initiatives we have in flight. And with our available cash, we prioritize maintaining a healthy balance sheet and then returning excess capital to shareholders. We thank you for your interest in Talend and we thank you for joining us on today's call.

Speaker 2

We'll now open the line for questions and I'll turn it back to the operator, MJ.

Operator

Thank you very much. We will now begin the question and answer session. Today's first question comes from Michael Sullivan with Wolfe Research. Please go ahead.

Speaker 3

Hey, guys. Good afternoon.

Speaker 2

Hey, Michael.

Speaker 3

Hey, Mike. Wanted to maybe just parse out the 20 24 guide raise a little more. I guess, first, were there any offsets to some of those positives that you talked about that were factored in? And then, can you be specific maybe on how much of the guide raise is coming from the Nautilus coin operation and just how you're thinking about strategic options there?

Speaker 4

Yes, sure, Michael. This is Terry. I'll take that question. So there's 3 components in there. The secondary the PJM secondary auction revenues is single digit millions.

Speaker 4

So it's not a significant portion. And then what I would tell you is the remainder of that is really split between, the additional earnings from the new contracts with AWS and the Nautilus operations.

Speaker 3

Okay, great. And yes, and how do you think about just the future of Nautilus and how you could better monetize that or do something strategic?

Speaker 4

So Michael, as Mac mentioned earlier, obviously, we're looking at strategic alternatives for that. And we'll continue to focus in that arena. I think, obviously, you can imagine the volatility around Bitcoin and that obviously influences. But we'll look for the right transaction and we'll look at the transaction that maximizes value for our shareholders.

Speaker 2

Yes, Michael, maybe just to piggyback on both the questions and answers from Terry. First of all, if you go back to our presentation about the Qumos data deal, we showed $15,000,000 in 2024. So that's what's been embedded and then you can just view a little bit as Terry said for the residual auctions and then add on the Nautilus distributions that we anticipate through the year and that's what moved the midpoint of the guidance. I think we've said previously that we're not necessarily in the coin business. We are right now because we own 75%, but that's not necessarily our long term strategy to be in the coin business.

Speaker 2

But let's just talk about that for a sec. One of the things that we had to do in order to get the strategic flexibility on Nautilus were the steps that we've taken. We had to buy out our partners, right, that allows us to control the governance. We had to remove the Orion debt. We've done those things.

Speaker 2

So now we have a significant amount of freedom or a significant amount of more freedom to do what we want to do strategically with Nautilus.

Speaker 3

Okay. That's super helpful. And then, I think I know the answer to this, but just anything I guess other than timing of the ERCOT sale that would prevent a timely uplisting with the Q2 target there?

Speaker 2

So on the ERCOT process, Michael, we continue to progress that, okay? And that's about all we can say on that. And obviously, if there's some if we're at a certain point in that path and it has a complication like the data complication had with MNTI that would obviously do 2 things. 1, it would conflict us from being able to exercise our share repurchase program and 2, could have an implication on the timeline that we stated, which is Q2 for the uplisting.

Speaker 3

Okay. But outside of ERCOT, there's no other real hurdles?

Speaker 2

No, for the uplifting.

Speaker 3

Yes. Okay. Thank you very much.

Speaker 4

Thanks, Michael.

Operator

Thank you. The next question comes from Angie Storozynski with Seaport. Please go ahead.

Speaker 5

Thank you. So maybe I just wanted to start with a very simple question about the net debt calculation. So what is included in that number, the $1,700,000,000 you're showing us? And then just a bridge from that point to what you're showing me for the end of 2024. So I want to know stimulus proceeds, share buybacks, again how those are reflected in these two numbers, those two ranges?

Speaker 5

Yes.

Speaker 2

Angie, that was a very detailed question. So I'll let Terry take that.

Speaker 4

Hey, good afternoon, Angie. So in the 1.74, we've got our secured debt of just over just under dollars and then we've got included in that, think the PEDFAA bonds are in there as well. So that gets you to about $2,200,000,000 And then obviously, we've got a significant amount of unrestricted cash at this point in time of $459,000,000 And so that's what gets you down to the 1.74. And then your second question, I believe, is was on 2024?

Speaker 5

Yes. I mean, so basically, it doesn't seem that number, that range, 1 point I forgot what the number is, $1.24 to $1.55 that range includes any buybacks. And so I'm just trying to bridge this with the free cash flow generation and the lack of buybacks.

Speaker 4

Angie, could you help me what slide are you looking at or what material you're looking at?

Speaker 5

So you do provide guidance for the net debt, right? So that's Slide 20 3, right? Net debt for 24, right? 1.405 to 1.555. That's Slide 23 now.

Speaker 5

And so I'm just basically trying to understand how that how I get from this 1.74% currently to this range? And basically, I'm trying to account for the cash flow generation during the year and buybacks.

Speaker 4

I understand. I understand. So Angie, and I apologize, I'm looking at this myself. And apparently, we like small font for footnotes. So this on Slide 23 does not reflect anything around our capital allocation strategy or potential share buybacks.

Speaker 4

So you would have to factor that in. And we don't forecast buybacks obviously from a commercially sensitive standpoint.

Speaker 5

Yes. But just going back to the starting point, and again, I'm sorry, I know we can do it offline, but I'm just this accounts for the initial 3 $50,000,000 of proceeds from Cumulus. So I'm still waiting for additional $300,000,000 which is waiting in escrow or is this already reflected in this starting point?

Speaker 4

It reflects the net proceeds of $361,000,000 from the Cumulus transactions. So keep in mind that that $361,000,000 is our net proceeds number after the pay down of the Orion debt after fees, taxes and the like.

Speaker 5

Okay. Okay. And then secondly, so now that you've optimized the Cumulus and there are those 2 other routes, right, the Texas assets and the COIN. I mean, how do you consider your earnings concentration risk? What is the next step?

Speaker 5

I understand the app list is coming, but do you have any preferred path and say 6 to 12 months? You want to be still a standalone company? Again, how do you what is your strategy going forward?

Speaker 2

Yes. Thanks, Angie. I think we've been fairly clear that what we're doing is maximizing value and doing that for our shareholders. And when we think about that, that includes the uplifting in Q2. We've said that we don't believe that the ERCOT assets were accurately being reflected in our valuation.

Speaker 2

We're comfortable with selling those. We look at what we have to offer and while you phrased it as concentration associated with an asset, we're actually capturing a significant amount of value in 2024 right now associated by widening sparks as gas has come down, power got sticky, sparks have widened and some of our out of the money options, optional assets Bruner, Montour, Martins Creek have started to create value that we're capturing through our hedging strategies. We like that profile. We have downside protection through the PTC. And I would suggest to you that one of the things that we can offer on that base of 7.40 midpoint is growth through the development of that data center in our EBITDA and our free cash flow, defined growth with an A credit, higher than A credit, investment grade counterparty.

Speaker 2

And again, we like where that portfolio is positioned and we think that there's an appetite for an IPP like that.

Speaker 5

Okay. And then lastly on NOLs, again, as we are getting ready to hear updates about COIN and the Texas assets, What should we expect as a, what are the potential tax leakage from those sales?

Speaker 4

So Angie, I think what I would share with you is, at the end of 2023, we had approximately $1,260,000,000 of federal NOLs that remain. So obviously, we've got a little bit of a tax shield there. There are limitations on those NOLs from a post bankruptcy standpoint. But that's our NOL shield that remains.

Speaker 5

Okay. Thank you.

Operator

Thank you. The next question is from Ian Zaffino with Oppenheimer. Please go ahead.

Speaker 6

Hi, great. Thank you very much. Question, I guess, just following up on the buyback or the leverage. It does seem like you have meaningful room to take your leverage up to get to your target. And so how are you thinking about an ultimate buyback, right?

Speaker 6

Because the authorization only gets you part of the way to your max leverage or where you want to go. So are you going to raise the authorization? How do we think about that? And then a follow-up on Mac's question would be, are you in blackout periods right now? As you look sort of throughout the quarter, are there going to be periods where you're not going to be blacked out?

Speaker 6

Because I know there are cuts going on. So how do you think about the days or the opportunities or how large the opportunities are to start buying back stock? Thanks.

Speaker 2

Yes. Hey, I'll take that and then Terry can add on. But look, we because of M and A activity, we're not going to say whether we're in a blackout period or not in a blackout period. And you'll have to wait till the quarter end to see just like we did here. We provided subsequent event with our filing and let you know how much shares we've repurchased.

Speaker 2

But you're going to have to wait till the end of the quarter and do those types of things. We're looking to utilize as part of the share repurchase program, both the ability to look at market purchases as well as potentially a 10b5-1 program that gets implemented during an open trading window. And but they are going to have the there's going to be a confluence here of things, which is we've told you we're progressing in ERCOT process. We're looking at strategic alternatives with Nautilus. We have the $300,000,000 of development milestones, escrow We still have a lot of dry powder on the share repurchase program.

Speaker 2

But as we add this cash to our balance sheet and we significantly reduced the net leverage that we were just walking through with ANGI there by the end of year end 'twenty four, we're going to further add to that and we'll look at what is the best way to optimize that return of cash, excess cash to shareholders.

Speaker 6

Okay. Thank you. And then, this Slide 6 is great. It really kind of lays out the need for power from the hyperscalers. Is there any other opportunities for you to capitalize on this because the Susquehanna data center is locked up and I guess done.

Speaker 6

So looking at this map, is there anything else that would impact your business as kind of the need for power and data centers grow? Thanks.

Speaker 2

Well, yes, I think as I stated, we're looking at other opportunities. There are people out there and you've heard some of our colleagues in the industry state that people are looking at gas. And I will tell you, it's not that far fetched that people are actually looking and considering thinking about coal. I know that seems odd, given that we just did a 0 carbon deal, but there are there is a tremendous amount of need for power. So I think that there is an opportunity to expand this.

Speaker 2

But let's not lose sight and one of the things that you covered on what we're focused on in 20 24 in maximizing value is the implementation of the transition of the data campus as well as the milestones and getting that data center built. And if we can do that and do that faster than in the schedule that we laid out on Page 8 on our March 4th presentation, that's incremental value too. So I wouldn't say that the Susquehanna deal was 1 and done. It's 1 and we're going to work to perfect it over time. It's got the minimums in there, but we're not driving towards the minimums.

Speaker 2

We're looking for the maximums and to get it done sooner than the schedules that we laid out on the 120 megawatts there. So we're looking to help facilitate that. We don't control that, but we can certainly help facilitate that.

Speaker 4

And Ian, just to add to Mac's comments, I think the other thing, when we think about the AWS transaction for the broader talent and you think about obviously a question that everybody asks is, well, what is the growth profile? In the information that we shared with the market last week, once you get the development of that campus, you can see a sizable growth profile that we would have. I mean, for example, if you took our guidance range for adjusted EBITDA this year and then factored in potential growth, 3, 4, 5 years down the road, we're fairly happy with what that shows from a growth profile for Talend.

Speaker 2

And Terry has grown it off of $24,000,000 which let's not forget right now we're sitting at a $1.75 gas market, right? So we're sitting at a year in which the capacity clears and PJM were $50 a megawatt day for RTO. So we're sitting at a fairly low point in the commodity curves. And this is why I said, I don't believe all this demand that you said was on Page 6. That demand or any other demand that's coming back, it's for the first time we're seeing load growth being projected in all these ISOs.

Speaker 2

That load growth, power markets don't have that much length and tenor, right? The visible market is 18 months, maybe 24 months, and then it gets very thin thereafter. But I can tell you the current market environment does not reflect this load growth. And we're going to start to see it show up over the next couple of years.

Speaker 6

And that's great color. I really appreciate it. A good quarter and thanks for the updated guidance.

Speaker 2

Yes. Thank you, Ian. Thanks, Ian.

Operator

Thank you very much. This concludes our question and answer session. I'd like to hand the call back over to Mr. McFarland for closing remarks.

Speaker 2

Well, great. And thanks everyone for joining us and for your continued support of Talend. Apologize about the technical difficulties and the short intermission there where you got to listen to music. So I hope everyone has a good day. Take care.

Operator

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.

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Key Takeaways

  • Talend delivered its strongest financial year ever in 2023 with $1.12 billion of adjusted EBITDA and $587 million of adjusted free cash flow, meeting EBITDA guidance and exceeding cash flow targets.
  • The sale of the Qumulus data center campus to Amazon Web Services for $650 million gross (over 2.5× invested capital) provided $361 million net proceeds and established long-term PPAs for carbon-free power.
  • Significant capital-structure simplifications included upsized term loans, acquisition of partner stakes, payoff of project debt, and a $50 million annual cost savings program, resulting in net leverage of ~1.6× and ~$1 billion of liquidity.
  • 2024 guidance was raised to $640–840 million of adjusted EBITDA and $185–335 million of adjusted free cash flow, incorporating AWS earnings, Nautilus operations, and incremental PJM auction capacity revenues.
  • Management is pursuing strategic initiatives such as monetizing the ERCOT fleet, exploring alternatives for Nautilus, discussing potential RMR agreements for Maryland coal units, and targeting an uplisting on a major exchange in Q2.
AI Generated. May Contain Errors.
Earnings Conference Call
Talen Energy Q4 2023
00:00 / 00:00