Dynegy Inc. (DYN)

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Dynegy Inc. (DYN)

Q1 2010 Earnings Call

May 10, 2010 9:00 am ET

Executives

Norelle Lundy – VP, Investor and Public Relations

Bruce Williamson – Chairman, President and CEO

Holli Nichols – EVP and CFO

Chuck Cook – EVP, Commercial and Market Analytics

Lynn Lednicky – EVP, Operations

Analysts

Lasan Johong – RBC Capital Markets

Brian Russo – Ladenburg Thalmann

Julien Dumoulin-Smith – UBS

Angie Storozynski – Macquarie

Brian [Inaudible] – Unidentified Company

Presentation

Operator

Welcome to the Dynegy 2010 annual and first quarter financial results teleconference. (Operator Instructions) I would now like to turn the conference over to Ms. Norelle Lundy, Vice President of Investor and Public Relations. Ma'am, you may begin.

Norelle Lundy

Good morning, everyone and welcome to Dynegy's investor conference call and webcast covering the company's first quarter 2010 results. As is our customary practice before we begin this morning, I would like to remind you that our call will include statements reflecting assumptions, expectations, projections, intentions or beliefs about future events particularly with respect to 2010 financial estimates and views of long-term market dynamics.

These and other statements not relating strictly to historical or current facts are intended as forward-looking statements. Actual results though may vary materially from those expressed or implied in any forward-looking statement. For a description of the factors that may cause such a variance I would direct you to the forward-looking statements legend contained in today's news release and in our SEC filings which are available free of charge through our website at Dynegy.com.

With that I will now turn it over to our Chairman, President and CEO, Bruce Williamson.

Bruce Williamson

Good morning and thank you for joining us. With me this morning is Holli Nichols, our Chief Financial Officer, along with several other members of the management team.

Let's now turn to the agenda for the call which is highlighted on slide three for those of you who are following along online via the Webcast. I will begin today with our first quarter highlights. Holli will then provide first quarter financial results, discuss regional performance drivers for the quarter and given an update on commercial strategies. She will also discuss 2010 guidance which we are reaffirming today. I will then wrap up by providing some market observations, discussing our strategic outlook and then we will go to Q&A.

Please turn to slide 4. During the first quarter we saw the continuation of low power prices and this market factor weighed on our results. While economic and market factors may be beyond our control we continue to demonstrate our commitment to operating and commercializing well during the quarter. Our natural gas and coal fired power plants maintained strong reliability levels during the quarter with our base load fleet delivering end-market availability of 93%.

Volumes for the fleet were down 16% period over period from 11 million megawatt hours for the first quarter of 2009 to 9.3 million megawatt hours for the first quarter of 2010. While Holli will describe our business segment results in more detail I would like to point out that coal volumes increased period over period primarily due to fewer outages while combined cycle volumes were down primarily as a result of compressed spark spreads. As we have covered previously our commercial strategy remains significantly open in 2012 and beyond to capture potential upside associated with an improving U.S. economy and energy market conditions.

Turning to our performance durance the quarter, Dynegy’s first quarter 2010 adjusted EBITDA was down 24% period over period primarily due to the reduced contribution from hedging activities and compressed spark spreads. In terms of our balance sheet we de-consolidated Plum Point as a result of new accounting standards. This is really a better reflection of our minority participation in this non-strategic project. It accounts for the removal of $744 million of private debt from our balance sheet.

We are also achieving cost savings through our four-year companywide initiative launched last year and we are on track to meet or beat these cost savings goals. In addition, we initiated a proposal for a 1 for 5 reverse stock split. The proposal has been approved by the board of directors and will be voted on by our stockholders at the annual meeting later this month. Let me provide you with the rationale for this proposal.

With the strategic transaction that took place last year Dynegy became a 100% public company for the first time in its corporate history. We therefore believe it is appropriate to restructure the number of shares outstanding which historically were based on the ownership of a number of large block private shareholders. If approved the reverse stock split would reduce the number of shares outstanding to a level more comparable with our peers and present a more reasonable price per share.

Finally, as I said, we are reaffirming our 2010 guidance estimates today which Holli will explain in more detail. Now I would like to turn it over to Holli to cover our first quarter results.

Holli Nichols

Thanks Bruce. Before starting I would like to point out that these materials do contain non-GAAP measures that are reconciled in the Appendix of this presentation for your reference.

Now let’s turn to slide 6 for a look at our first quarter highlights. Adjusted EBITDA decreased by 24% from $199 million in the first quarter of 2009 to $152 million in the first quarter of 2010. As Bruce noted this was primarily due to lower energy margins driven by lower realized prices. On a GAAP basis we reported net income of $145 million for the first quarter of 2010 which includes after-tax mark-to-market gains of $152 million. This compares to a net loss of $335 million for 2009 which includes after-tax impairment charges of $436 million partially offset by $105 million of after-tax mark-to-market gains.

Read the rest of this transcript for free on seekingalpha.com