Mauricio Gutierrez
President & 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 Bruce Chung, Chief Financial Officer. Also on the call and available for questions are other members of our management team, including the heads of Home, Smart Home Business and Policy.
Just over a month ago, we held our Investor Day, where we provided an update on our long-term consumer strategy. We outlined the strength of our core energy business, how the acquisition of Vivint further enhances our energy platform and position us to capitalize on the convergence of electricity and smart technologies in the home. Today, I am going to focus on the results for the second quarter, starting on Slide 4 with our 3 key messages.
First, our business delivered strong quarterly results, and we are now trending towards the high-end of our 2023 EBITDA guidance range. Next, the Vivint Smart Home integration is well underway, and we are realizing early wins in our combined sales efforts. Finally, we are executing on our consumer strategy to deliver significant value to our shareholders.
Moving to the second quarter results on Slide 5. We delivered top decile safety performance and $819 million of adjusted EBITDA, a 112% increase from the same period last year, driven by excellent performance on our core energy business and the addition of Vivint Smart Home. Bruce will provide additional details on specific drivers, but our business benefited from strong plant operations, our enhanced supply strategy, customer growth and favorable market conditions.
During the quarter, we began the integration of Vivint Smart Home, which has yielded solid early results. Our revenue and cost synergy programs are well underway, and we are reaffirming the full plan targets. As a result of early wins in our growth initiatives, we are increasing our 2023 growth target to $60 million, doubling our previous expectation.
Finally, we hosted our Investor Day in June, which included our 5-year strategic plan and an update on our capital allocation framework. As a result of the sale of South Texas Project and our revised capital allocation plan, we are executing on a $2.7 billion share repurchase authorization and a $2.6 billion debt reduction plan. Through July, we were able to complete $50 million of share repurchases and $200 million of debt reduction.
As a result of the strong quarterly results and our position for the rest of the year, we are reaffirming our 2023 financial guidance, with our EBITDA currently trading at the higher end of the range.
Now turning to Slide 6 for an update on our Energy business. ERCOT has experienced record peak demand this summer, demonstrating robust load growth in our core Texas region on a weather-normalized basis. The electric grid has been stable through this record demand. During the quarter, thermal and wind generation performed close to expected levels, which kept our prices relatively muted.
As I mentioned during Investor Day, we implemented changes to our supply strategy that have worked well for us. We were more conservative on our plant operations and took additional maintenance outages that resulted in better performance from our fleet. We also purchased additional power above our expected load to give us more cushion against extreme weather. All of these have positioned us well this summer and for balance of the year. Parish Unit 8 is in testing mode and expected to come back to full service by the end of this month.
On the regulatory front, the PUCT last week approved a much discussed bridge solution, which establishes positive price floors at various levels of operating reserves. This eliminates negative pricing during many hours and should help existing dispatchable units.
Looking forward, ERCOT and the PUCT are moving ahead with the market design changes stemming from the recent legislative session. These changes were meant to increase reliability and incentivize new dispatchable generation. Key among these programs is PCM, the Performance Credit Mechanism, which will now go through our rule-making process prior to being implemented. Another major program coming from the legislator was the Texas Energy Fund, a program of low interest rate loans and completion bonuses for new generation. Prior to its implementation, the Texas Energy Fund must first be approved as a ballot measure by the public in November election.
On Slide 7, we are introducing our new scorecard for the growth and cost initiatives. These will be updated on a quarterly basis with our progress.
I have been very impressed with the level of collaboration and integration between our Energy and Smart Home teams.
During the Investor Day, we discussed the makeup of our $300 million growth program, 50% coming from organic growth at historical levels and 50% from cross-sell activities. For the quarter, Energy and Smart Home grew at historical target levels and in line with our plan. For the cross-sell activities, we have seen some early successes. As such, we are increasing our growth target in 2023 from $30 million to $60 million.
Our Energy and Smart Home call centers have begun transferring more leads to each other, and we are seeing positive customer conversion rates on qualified leads of around 6%. And with the addition of the DIY system introduced during the quarter, conversion rates are now moving closer to 10%, as this system is a good entry point to upsell and create more stickiness with the customer.
One of the best examples of cross-selling and leveraging capabilities across NRG is the Vivint Protection Plan. This is an equipment protection plan that leverages NRG's current capabilities. Vivint launched this program in the second quarter, and we are already at 120,000 plans sold. This is a new revenue stream with very little cost. Our focus for the remainder of the year is to continue testing different bundles and offers before we scale it up in 2024. We are very encouraged on what we're seeing across the 2 businesses and the opportunities that are arising inside the home.
One of the commitments during our Investor Day was to provide additional disclosures on our Vivint Smart Home business. On Slide 8, we have provided key performance indicators comparing quarter-over-quarter. As you can see, we have performed exceptionally well during the quarter, with subscribers growing 7% and recurring service margins up 9%. Our customers are engaging more with our platform and are staying for a longer period of time. Acquisition costs are higher due to the impact of higher interest rates and more products being sold, but they were more than offset by higher revenue on new subscribers. Overall, the profitability of the business is very strong.
On the right-hand side is our Vivint Smart Home pro forma free cash flow projection through 2025. Our target is to grow customer count in line with historical performance around 7%, while we continue to increase margin contribution and reduce overall cost of acquiring and servicing customers. We expect to more than triple the cash flow generator from the business over the next 3 years. It will provide NRG an earnings stream that is stable, predictable over a long period of time, and importantly, diversified from our current Energy business.
Turning to Slide 9. Our Investor Day focused on our commitment to operating excellence, disciplined growth and maximizing shareholder returns. I want to provide you some of the key highlights of the event: we outlined a 3-part strategic plan to optimize our integrated energy model, grow Energy and Smart Home and increased return of capital while achieving an investment-grade balance sheet.
Our integrated energy model has evolved in the last 7 years, providing more durable earnings. We have strengthened our supply portfolio with the right mix of assets to better serve our customer load. The recent sale of our interest in South Texas Project is a great example of our ability to optimize our platform and maximize shareholder value through monetizing an asset whose attributes can be readily replicated and replaced in the market. At the same time, we are signing renewable PPAs and evaluating dispatchable capacity development projects that better match our hedging needs.
We outlined our growth program for Energy and Smart Home, capitalizing on the convergence of electricity and smart technologies inside the home. We are going to use Vivint Smart Home technology platform to connect all of our products and services into a seamless experience for our customers. These will result in higher customer lifetime value.
Finally, we announced an update to our capital allocation framework, with 80% of capital available for allocation now returned to shareholders. With the acquisition of Vivint complete, we have line of sight to the investment needs of the company going forward with growth investments using only 20% of capital available for allocation. Consistent with this change, we increased our share repurchase authorization to $2.7 billion to be completed through 2025. We also accelerated the achievement of our investment-grade credit metrics targets to 2025.
I will pass it over to Bruce for the financial review.
