Talen Energy Corporation Q1 FY2026 earnings call

• First quarter results: Strong operational and financial results, including strong plant performance during winter cold events and good start to outage season. In startup at Susquehanna, slightly exceeding planned outage duration. • Cornerstone transaction: Signed a cornerstone transaction, advancing the talent flywheel strategy and adding meaningful free cash flow per share growth through acquisitions. Reaffirming 2026 guidance and providing preliminary view of 2027 and 2028 outlooks. 2026 guidance doesn't include cornerstone assets but expect to close by summer and update guidance then. Secured financing for cornerstone acquisition, optimized balance sheet by raising $4 billion of senior unsecured notes and reducing higher cost debt. • Fleet operations: Fleet achieved strong safety and reliability during the quarter despite frigid temperatures. Currently in spring outage season, refueling outage at Susquehanna Unit 1 progressed well with learnings from last year making it more efficient. Recordable incident rate was 0.37, below industry average. • Outage season: In startup at Susquehanna, slightly exceeding planned outage duration. Spring outage season across the fleet, refueling outage at Susquehanna Unit 1 synced back to grid. • Land development and contracting: Near term, several 1 plus gigawatt opportunities for long-term PPAs at existing and other sites in Pennsylvania. Progressing on several site development opportunities with land up to 3,000 acres supporting 3 to 4 gigawatts of data center capacity. Advancing mix of gas and storage generation projects totaling over 2 gigawatts at sites to support data center contracting and reliability needs. Submitted several new projects into PJM's Cycle 1 Interconnection Study Cluster, a mix of generation solutions including CTs, batteries, and CCGTs.

For the first three months of 2026, Talon Energy reported $473 million of adjusted EBITDA and $350 million of adjusted free cash flow. Adjusted EBITDA more than doubled and adjusted free cash flow quadrupled year over year, driven by the Freedom and Guernsey acquisitions, higher prices and SPAR spreads, higher capacity and ROR revenues starting in June 2025, and the ongoing AWS PPA ramp. The fleet achieved strong safety and reliability during the quarter, with a recordable incident rate of 0.37, below industry average, and generated approximately 16 terawatt hours of electricity with a 55% fleet-wide capacity factor. The cornerstone acquisition is pending, and once closed, it will impact the financial performance. Revenue contribution % information is not explicitly detailed in the provided transcript for each product segment.

• Reaffirming 2026 guidance: Adjusted EBITDA range is $1.75 to $2.05 billion, and adjusted free cash flow range is $980 million to $1.18 billion. These ranges do not include contribution from pending cornerstone acquisition, and expect to update 2026 guidance after closing the transaction. Forecasted 2026 net leverage ratio was 3.1 times excluding cornerstone acquisition impact, and expect to maintain below 3.5 times net leverage ratio by year-end 2026 upon closing cornerstone transaction. • Preliminary 2027 and 2028 outlooks: Include cornerstone assets and other updates. Show significant year-over-year growth in free cash flow per share and meaningful upside versus January outlook. Project free cash flow at approximately $34 per share in 2027 and approximately $36 per share in 2028 in basic case, and approximately $41 per share in 2028 when factoring in share repurchase program assuming 70% of available free cash flow is utilized. See upside through flywheel with creative M&A, acceleration of Amazon ramp, new data center contracting opportunities, and further SparkSpread expansion as markets continue to tighten. • 2026 potential upside: May have additional upside based on closing cornerstone acquisition this summer and executing on share repurchase program throughout the remainder of the year.

• Regulatory risks: Cornerstone acquisition is subject to regulatory approvals. Delays or issues with regulatory approvals could impact the closing of the cornerstone acquisition and the expected benefits. • Market risks: Market volatility risk was reduced by replacing higher cost debt, but ongoing market conditions and changes in energy prices, demand, and supply could impact financial performance. • Interest rate risks: Changes in interest rates could affect the cost of financing, including the financing for the cornerstone acquisition and the company's existing debt obligations. • Operational risks: Issues during outage seasons, such as unexpected delays or inefficiencies, could impact plant performance and financial results. • Execution risks: Uncertainties in executing the talent flywheel strategy, including successfully closing acquisitions, advancing development activities, and securing new contracts, could impact the company's growth and financial performance.

Q: Constantine from Wells Fargo asked about the tentative framework on new capacity versus existing capacity matching for site development for data centers and how flexible it would be, especially with the reserve auction trying to back-solve capacity issue.

A: Cole and Max responded that it's not a one-to-one ratio, but a percentage, solving for peak hours in tight periods, using a mix of batteries, CTs, and CCGTs.

Q: Rene Singh with Bank of America asked about when PPL might see a correction in price different from PGM West due to recency bias and catalysts.

A: Rudy and Chris responded that it's a temporal issue due to transmission work, and the basis will revert as load evolves.

Q: Moses Sutton with BNP Paribas asked about the view on the backstop auction clearing 15 gigawatts and market views.

A: Moses was told about cost, affordability, technology choices, and the need for interconnection queue clearing.

Q: Michael Sullivan with Wolf asked about why not lean into fully zoned sites versus those getting pushback and hang-ups on fully zoned sites.

A: Mike responded that the team has been working on a broader set of opportunities, not just the ones in the press, and the hybrid approach is a solution that checks boxes for hyperscalers.

Q: Angie Starosinski with Seaport asked about Ohio and comparison with Guernsey.

A: Mac and Andy responded that they've been active in Ohio, engaged with customers there, and developing options like in Pennsylvania.

Q: Bill Apicelli with UBS asked about levelized cost of energy for new build and concerns about bifurcated market.

A: Cole and Mac responded that the gap is wide, and they don't share the same level of concern about the bifurcated market.

Q: Julian Dumoulin-Smith with Jefferies asked about the repair pledge and its impact on strategy.

A: Mac responded that there's no discrete choice between RBP and bilateral markets, and the hybrid model is part of the strategy.

Q: Nick Amatushi with Evercore asked about color on potential counterparties waiting for backstop procurement clarity and milestones.

A: Dave responded that there's a balance, stakeholders are comfortable with the reliability backstop, and clarity helps but isn't necessary as demand continues.