President and Chief Executive Officer at NRG Energy
Thank you, Kevin. Good morning, everyone, and thank you for your interest in NRG. I'm joined this morning by Alberto Fornaro, Chief Financial Officer; and also on the call and available for questions are other members of our management team, including Rasesh Patel, Head of Vivint Smart Home. I'd like to start on slide four with the three key messages for today's presentation. First, our wholesale and retail businesses performed well during the first quarter and delivered strong financial results. We are focused on our core energy operations and have taken steps to make our platform more predictable and resilient. This brings me to my second point. We are seeing improving market fundamentals that should benefit our portfolio as we head into the summer. Finally, we completed the Vivint Smart Home acquisition and integration efforts have now begun in full. We are also updating our 2023 guidance ranges to account for this acquisition. Moving to the first quarter results on slide five. We delivered top decile safety performance and $646 million of adjusted EBITDA. This is a 28% improvement from last year when adjusted for asset sales and retirements. These results were driven primarily by strong operations in our core energy business, direct energy synergies and the addition of one month of Vivint earnings. During the quarter, we made good progress advancing our strategic priorities. We are on track to achieve the full synergy target for direct energy this year. We continue to be opportunistic on our portfolio optimization efforts with the sale of Astoria and we closed the Vivint acquisition in early March. Integration efforts for Vivint are now fully underway. Day one activities went well, and we have now defined the growth synergy target of $30 million for 2023. We will share additional details for the total program at our upcoming Investor Day.
I want to take a moment and welcome the Vivint team to the NRG family. I continue to be impressed with the business and particularly the alignment in our corporate values that focuses on safety and customer experience. Finally, we are updating our 2023 guidance ranges to include Vivint and the alignment of adjusted EBITDA between our two companies. Alberto will unpack this in more detail, but let me provide you a quick overview. We're updating our full year guidance to $3.01 billion to $3.25 billion adjusted EBITDA, and $1.62 billion to $1.86 billion of free cash flow before growth. This includes 10 months of Vivint, expected growth and cost synergies for this year. This also reflects the harmonization of adjusted EBITDA to align both companies more with the consumer services industry. Excluding the impact of these changes, the traditional core energy business of NRG remains unchanged with previous stand-alone 2023 guidance ranges.
Now, turning to slide six. I want to provide a brief market update for Texas. We continue to see robust tenant demand growth on a weather-normalized basis north of 3%, driven by population growth and a strong state economy. We expect this trend to continue in the foreseeable future. As you can see in the chart on the left-hand side of the slide, the first quarter was characterized by mild weather and much lower natural gas and power prices, which settled well below market expectations. This benefited our integrated platform by allowing us to bring down our power plants during periods of low prices and performed additional preventive maintenance, while buying power from the market cheaper than our own generation. This resulted in margin expansion fully offsetting lower weather-driven demand, and this is exactly our platform was designed to perform. Looking ahead to this summer, our portfolio is well positioned to deliver stable results. Supply chain constraints are for the most part behind us, and our power plants are ready to run as we progress on our second year of increased maintenance spend. We are also more conservative on our hedging and the operating assumptions we're using for our power plants.
Importantly, WA Parish unit remains on track to return to service before the summer. As you can see, we have taken steps to make our portfolio more predictable. Finally, I want to provide a brief update on ERCOT market design enhancements. After considering many alternatives during 2022, the Public Utility Commission of Texas unanimously approved the performance credit mechanism or PCM. This is a market-based solution that is widely supported by competitive entities and regulators. The Texas legislature is currently reviewing the PCM and other enhancements. We expect market design resolution by the end of May with the Texas legislative session, concluding on May 29. We anticipate that PCM will take a few years to be implemented. In the interim, ERCOT and the PUCT are considering a bridge solution that enhances the operating reserve demand curve or ORDC to increase online reserves. We applaud the efforts by the governor, legislature, PUCT and ERCOT to improve the reliability of the grid through market-based solutions. We have several brownfield projects in various stages of development, but all of them will require regulatory certainty before they can move forward.
Moving to slide seven. I want to provide an update on our consumer-facing businesses. Beginning with our Retail Energy & Services platform, margins were up year-over-year by 7%, driven by lower supply costs and stable customer count. This was somewhat offset by lower load due to mild weather during the quarter. In the East, we grew through our customer acquisition efforts to provide consumers an alternative to rising incumbent utility prices. We continue to see no material increase in bad debt, which is a direct result of the essential nature of the services we provide. Finally, we launched a modernized digital experience on our web and model app that enables customers to manage their energy usage and provide actionable insights that we are uniquely able to generate regarding uses of energy in their home for their EVs and through their solar solutions. While we have only owned Vivint for one month, I want to provide a full first quarter statistics for comparison. Vivint grew customers by 9% and revenue by 14% compared to the same period last year. Like NRG, Vivint continues to experience strong retention and stable bad debt. The company was also busy in the quarter, enhancing their products and introducing innovative offerings, two of which I want to highlight. First, the Vivint app now includes solar production beta so our customers can actively monitor their energy conservation and cost savings.
Second, they introduced a do-it-yourself product called driven basics that makes it easy for owners and renters alike to get the starter system for less than $300. Having a viable DIY and single point solutions is key to our strategy of creating more entry points for customers that we can later upgrade to our fully integrated smart home offering. Now, with respect to synergies, we are reaffirming our cost and growth targets for both 2023 and the full plan. Cost synergies are primarily the result of the combination of two public companies and are expected to total $100 million in recurring run rate free cash flow before growth. Growth synergies of $300 million will be achieved through a target for cross-sell, Vivint organic growth and sales channel optimization. In total, we expect $400 million of recurring synergies to be achieved over the next three years. The synergy and integration plan is now fully underway and is led by the same team responsible for the transformation plan and the direct energy integration. On the right-hand side of the slide, you will see the scorecard for Vivint. We have now introduced 2023 growth targets and cost to achieve. We plan to update this scorecard in the coming quarters to provide further transparency and keep you informed on our progress. I know I have said this before, but we are very excited about the opportunities for the combined company moving forward. Vivint brings a complementary business that expands our customer network by nearly 40% and that smart home technology and infrastructure to strengthen our platform.
Together, we create the leading essential home services provider in North America, serving a network of nearly 7.5 million customers, and the acquisition also accelerates the plan we laid out at our 2021 Investor Day and creates the opportunity to deliver significantly shareholder value. During the first three years of integration, this value will be created through both cost and growth synergies, which are laid out on the slide. In the medium and long-term, I see even more opportunity to create value through growing customer count nationally, increasing the average number of solutions per customer and materially extending the customer lifetime. So, with that, I will pass it over to Alberto for the financials review.