Bruce Chung
Executive Vice President and Chief Financial Officer at NRG Energy
Thank you, Rasesh.
Before I discuss our third quarter results, I'd like to provide a few updates on our key financial performance and valuation metrics. As you can see on the slide, we are introducing adjusted net income and adjusted earnings per share as part of our reporting framework. These metrics offer additional context for NRG's profitability and growth, capturing both underlying business growth driven by investments into our platform as well as the impact of our robust capital allocation program.
For 2024, we are on track to deliver $1.3 billion of adjusted net income, equivalent to $6.35 per share of adjusted EPS. The midpoint of our raised adjusted EPS guidance represents a 12% increase over the midpoint of our original guidance, reflecting the strong business performance. We are pleased to provide these additional tools for investors to use in their evaluation of the investment merits of NRG. We believe these new metrics, coupled with our pre-existing metrics, such as free cash flow before growth per share will continue to shine a spotlight on NRG's attractive valuation. We will continue to provide adjusted EBITDA and free cash flow before growth alongside these two new disclosures for the foreseeable future.
Going forward and including today's third quarter results, adjusted EBITDA has been updated to recast all amortization of capitalized customer acquisition costs, from SG&A and cost of operations into the depreciation and amortization line item. This change addresses a point of common confusion that investors have given us direct feedback on. This is part of our ongoing commitment to provide better visibility into our businesses and simplify the modeling process. More details are available in our 10-Q as well as in the Reg G tables appended to this presentation and this morning's press release.
As you can see on the right hand side of the slide, this change results in an upward adjustment to the midpoint of our 2024 guidance by $130 million from $3.56 billion to $3.73 billion. We have accordingly recast adjusted EBITDA for historical periods to conform with this methodology and to allow for direct comparison of our results across reporting periods. This is simply a geography change of noncash items and therefore, has no impact on any of our reported free cash flow before growth or adjusted EPS metrics and outlook.
Turning to Slide 16. NRG delivered another strong quarter of financial and operational performance, with adjusted EBITDA of $1.055 billion, an increase of $68 million over the third quarter of the prior year. Texas delivered $584 million of adjusted EBITDA for the quarter, $32 million higher than Q3 of 2023. When adjusted for asset sales executed in 2023, our outperformance was approximately $80 million. This improvement reflects the strength and resilience of our integrated platform.
Unlike last year, Texas was marked by a lack of power price volatility and generally lower pricing despite warm temperatures. Our integrated supply strategy and the ability to turn off units during periods of low pricing enabled us to maximize margins as we served our retail load. The ability to cycle our plants on and off as part of our overall supply strategy is what gives us confidence in delivering consistent financial results through a variety of market conditions.
Our East, West and Services segments also demonstrated improved year-over-year outperformance. Adjusted EBITDA for the quarter was $214 million, representing an $18 million increase from the prior year. This improvement was primarily driven by lower power and natural gas supply costs, resulting in margin expansion and an increase in average customer counts of 7%.
Finally, our Smart Home segment delivered $257 million of adjusted EBITDA for the quarter, an $18 million increase from the prior year. This was driven by mid single-digit growth in our subscriber count and continued net service margin expansion of 6%, reflecting the embedded operating leverage of the business as the subscriber base continues to grow.
As you can see on the table, we have added disclosures for adjusted net income and adjusted EPS. For the third quarter, NRG produced $393 million of adjusted net income, equivalent to $1.90 of earnings per share. This represents a 21% increase over Q3 2023 results, primarily driven by higher gross margin and share repurchases. Free cash flow before growth for the quarter was $815 million, a $460 million increase over Q3 2023. This reflects higher gross margin, favorable working capital, and lower capex given the completion of the Paris Restoration Work in 2023.
Lastly, we are reaffirming our revised 2024 financial guidance and have provided our guidance ranges across all the key reporting metrics, including adjusted net income and adjusted EPS.
Turning to 2024 capital allocation on Slide 17. We continue to deliver on our capital allocation priorities. There are only a few minor changes to the capital allocation waterfall from our second quarter earnings call. On our last earnings call, we announced an agreement to sell our Airtron HVAC business. That transaction closed in late September. As a result, we are updating the net cash proceeds from the Airtron sale to approximately $425 million. We are also increasing free cash flow before growth by $100 million.
For liability management preferred dividends, we've reduced our 2024 allocation to $420 million from $602 million. Our aggressive debt reduction over the past few years, coupled with improved financial performance will result in achieving our target credit metrics by the end of 2024, a full year earlier than originally intended. As a result, we have reduced the amount of liability management we had intended to pursue in 2024 and have reallocated that cash to our remaining unallocated CAFA.
We have increased our share repurchase total from $825 million to $925 million, which reflects the increase in our 2024 FCFbG guidance. Through October 31, we completed $544 million of repurchases, and we expect to complete the remaining repurchases by year-end. Inclusive of our year-to-date activity, we have executed over $3.8 billion in share repurchases at an average price of around $50 since 2019, representing nearly 30% of our shares outstanding.
In our other investments, we have allocated $122 million for other growth, including updated spend associated with our ERCOT newbuild project. Finally, we expect to end 2024 with approximately $605 million of unallocated capital, which we have rolled into 2025 for application towards continued share buyback programs.
Turning to the next slide. We are excited to introduce our financial guidance for 2025. We are guiding 2025 full year adjusted EBITDA to a range of $3.725 billion to $3.975 billion, representing a midpoint of $3.85 billion or an 8% increase from our original 2024 guidance midpoint. As you can see from the chart at the bottom, this is driven by the completion of our previously announced growth and cost synergy programs, margin expansion from higher power prices, and partly offset by the lost EBITDA from the sale of Airtron.
We are also guiding 2025 full year free cash flow before growth to a range of $1.975 billion to $2.225 billion, representing a midpoint of $2.1 billion, also an 8% increase over the midpoint of our original 2024 guidance. In addition to adjusted EBITDA and free cash flow before growth, we are initiating guidance for adjusted net income and adjusted earnings per share. For full year 2025, we are initiating guidance on adjusted net income to a range of $1.33 billion to $1.53 billion, representing a midpoint of $1.43 billion, and a range of $6.75 to $7.75 for adjusted EPS, representing a midpoint of $7.25 per share.
Moving to the next slide. We are providing a five-year road map with the major drivers of our adjusted EPS and free cash flow before growth investment outlook on a per share basis. As you can see on the slide, we are targeting long term adjusted EPS and FCFbG per share growth of greater than 10%. These growth rates are pegged against our recently increased 2024 guidance. More modeling disclosures can be found in the appendix of today's presentation.
Our 5five-year outlook is underpinned by visible organic growth, resulting in $750 million of incremental run rate adjusted EBITDA, and a robust capital return program of nearly $9 billion over the 2025 to 2029 period. I'd also highlight that this five-year outlook assumes flat power pricing and does not include any of the additional upside opportunities Larry touched on earlier.
As you can see on the slide, our organic growth plan and share repurchases comprised nearly $4 of EPS growth and nearly $6.50 of FCFbG per share growth. Offsetting this growth is an increase in taxes as available tax credits expire in 2025 and as NRG continues to generate strong earnings that utilize its NOL balance. In addition to taxes, we are projecting the impact of higher interest costs on earnings and free cash flow growth as maturing low cost debt is refinanced at higher rates.
Turning to 2025 capital allocation on the next slide and starting on the left side of the chart, we are showing approximately $2.7 billion of cash available for allocation, which includes the carryover amounts from 2024. As I have already noted, we will achieve our target credit metrics earlier than originally forecasted. And as such, our liability management program in 2025 will be comprised of selling the convertible note hedge and preferred stock dividends.
As you can see, the primary focus of our 2025 capital allocation activity will continue to be share repurchases with $1.36 billion planned for 2025. Together with the planned 8% increase in the common dividend to $1.76 per share, our total return of capital is currently expected to be about 85% of CAFA after liability management and integration costs. Importantly, for those keeping a scorecard, we are on track to significantly exceed the original return of capital commitment shared as part of our 2023 Investor Day with more than $4.5 billion to be returned from 2023 through 2025.
Given our outstanding performance relative to the 2023 Investor Day plan, our Board of Directors approved an increase in total authorization for repurchases from $2.7 billion to $3.7 billion. As of October 31st, approximately $2 billion is remaining under the total authorization inclusive of this increase. In 2025, we have allocated $165 million to other investments, which includes continued progress on our ERCOT newbuild program and investment in near-term actionable initiatives related to our long-term organic growth plan. Finally, we are showing $235 million of unallocated capital, which we will allocate over the course of 2025.
With that, I'll turn it back to you, Larry.
