Larry Coben
Interim President and Chief Executive Officer at NRG Energy
Thank you, Kevin. Good morning, everyone, and thank you for your interest in NRG. I'm Larry Coben, and I am the Chairman, Interim President and CEO. I'm joined this morning by Bruce Chung, our Chief Financial Officer. And we also have members of the management team on the call and available for questions. While I have been CEO for three months, I have been Chairman for seven and on the board for 20 years. I have never been more excited about NRG as a company than I am today. Let's begin with the NRG value proposition on slide four. We are the trusted partner to almost eight million residential customers earned every day through unique and differentiated offerings and simplify and improve our customers' lives. We have 5.9 million Energy and two million Smart Home customers and manage the second-largest C&I energy and natural gas retail portfolio in the country. We have taken the necessary steps to position NRG to win the energy transition. At the convergence of energy and technology in the home and grid with the evolution of smart devices and generative AI data centers. We generate significant excess cash well beyond our current business needs resulting in financial flexibility to return significant capital to our shareholders while maintaining a strong balance sheet. Our business and financial outlook has never been stronger, and I've never been more excited about the future of the company than I am today.
Turning to slide four. First, in 2023, we delivered record-free cash flow before growth and new record adjusted EBITDA. We exceeded our Investor Day outlook and our previously increased 2023 guidance ranges. This is the direct result of the strategic initiatives and actions we've taken in recent years to strengthen and stabilize our business. Our outlook continues to get better and better, and today, we are reaffirming our 2024 financial guidance ranges. Next, we made significant progress advancing our long-term energy transition and electrification strategy. We have line of sight to achieving our current $550 million by 2025, and we are now turning our attention to the next phase of our growth. Lastly, we continue to execute our disciplined capital allocation strategy which bring about both a strong balance sheet and returning significant capital to you, our shareholders. Turning to slide six. We delivered $844 million of adjusted EBITDA for the fourth quarter, 82% higher than the prior year. This brings our full year results to $3.282 billion of adjusted EBITDA, 76% higher than last year, primarily driven by improved operational performance of our integrated energy platform and the addition of our Smart Home business. Our 2023 adjusted EBITDA was $152 million above our original guidance midpoint and at the high end of our adjusted guidance. While free cash flow before growth came in above the high end of our increased guidance range at $1.92 billion or $185 million above our original guidance midpoint. This resulted in $9.25 of free cash flow before growth per share in 2023, well ahead of the $8.50 per share target provided at our June Investor Day. Bruce will provide more detail shortly. But again, this performance is the direct result of our strategic initiatives and actions taken to strengthen and grow our business.
And I note that these took place even with share purchases occurring at higher levels than projected on Investor Day. Turning to our 2023 scorecard, we delivered across our strategic priorities. As you know, safety is our top priority, and I'm pleased to share that we achieved top decile safety performance through a year with many distractions, I'd like to thank all of our employees for their focus and dedication and hard work to making this happen as well as to making our financial results happen. Next, we made progress in our continuous improvement goals for cost excellence. We completed the $300 million direct energy synergy program announced earlier in the year and we quickly turned our attention to identify and execute our previously announced next phase of cost initiatives, $250 million by the end of 2025. Turning to growth. Our success in achieving the $9.25 of free cash flow before growth per share versus our 850 target was primarily driven by faster execution of our growth plan. We are incredibly pleased with the results of our Smart Home acquisition and believe our current growth plan is just the beginning. We are only starting to scratch the surface. Lastly, on capital allocation, we executed over $1.5 billion in debt paydown and returned another $1.5 billion to shareholders. Turning to slide seven. We take a look at our 2024 outlook. Today, we are reaffirming our 2024 financial guidance ranges in our Investor Day 15% to 20% growth strategic road map. We are well positioned across each of our businesses to deliver on our commitments. In consumer energy, we expect the momentum gained in 2023 to continue into 2024, with volume, margins and earnings growing across residential and small commercial as well as commercial and industrial customer segments.
This success will be driven by our diverse and efficient marketing and sales engines, our leading care and retention capabilities and our best-in-class innovative digital experience. We are also seizing numerous opportunities as they arise or as we create them. An exciting example is Lubbock, Texas, a market of just over 100,000 customers that opened in early January with 65% of customers having already made their electricity provider choice. So far, we are exceeding expectations for our success in winning customers and look forward to bringing our innovative offerings and experiences to that market. We also continue to see momentum with community choice programs as a way for customers to experience the benefits of electricity competition in markets that don't have favorable political and regulatory sentiment that would allow customers to have the ability to freely choose their electricity providers. Next, our diversified supply strategy manages our retail exposure in multiple scenarios to include events like the extreme summer of 2023 and Winter Storm Heather this past January, while at the same time, handling the mild weather that we have seen most of this winter. Our targeted investments for reliability and flexibility across our fleet led to material improvements in the performance of our generation when we needed it, and we expect to realize continued improvements. We continue to evaluate various ways to enhance our supply strategy.
We have three brownfield sites ready to go in Texas with dispatch flexibility, and we are considering additional storage options for the portfolio, primarily through longer-term structured transactions rather than outright ownership. And finally, the Smart Home business delivered a strong year, driving impressive top and bottom line growth. Recurring revenue and margin per customer increased through selling more products and services while simultaneously reducing net service cost per customer. We will continue to drive towards the horizontal expansion of our eight million customers' wallets. Our customer retention is the best in the industry with an average customer life in the Smart Home business of nine years driven by unmatched customer engagement and world-class product performance and reliability. We continue to focus on integrating Smart Home and Energy in achieving the initiatives we have previously communicated to you. Turning to slide eight for a closer look at growth and cost initiatives. In 2023, we advanced our energy transition electrification and continuous improvement strategy and delivered $138 million of incremental earnings, which was more times than twice our original $65 million target. We exceeded our goals for both growth and cost savings, resulting in more than $100 million of growth in our core businesses and sales channel optimization and more than $35 million in cost savings. This outperformance was primarily the result of realizing synergies faster than originally anticipated.
And today, we are reaffirming the full planned target of $550 million of growth in cost initiatives by the end of 2025. Outside of this $550 million program, we have also identified additional attractive initiatives that are in early development leveraging the significant value creation opportunity from the convergence of energy and technology in the home and the grid. First is, for example, virtual power plant or VPP where we are uniquely positioned given our customer scale and reach, our data science proficiency and decades of commercial market -- commercial and market experience. Importantly, VPP will increase in value as the grid tightens, and our integrated energy business will allow us to monetize this value without requiring regulatory change. Second, on data centers and AI. Today, we are one of the largest competitive providers of power to the hyperscalers and other data center managers and we have been in direct conversations with several of these customers about using more load. We see this as a significant opportunity for NRG and for competitive markets more broadly. Finally, we continue to evaluate strategic dispatchable new build with 1.5 gigawatts of brownfield projects in Texas ready to go. As you may know, in November, Texas voters approved the Texas Energy Fund, which provides support for new dispatchable generation. We expect the rules for that to be adopted early this year with applications beginning midyear. We anticipate providing an update on these projects over the coming months. With that, I'd like to turn it over to our Chief Financial Officer, Bruce Chung, for a financial review.
