Vistra Corp (VST) 2019 Q2 法說會逐字稿

Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vistra Energy Second Quarter 2019 Results Conference Call. (Operator Instructions) Thank you.

Molly Sorg, Vice President of Investor Relations, you may begin your conference.

Thank you, and good morning, everyone. Welcome to Vistra Energy's investor webcast covering second quarter 2019 results, which is being broadcast live from the Investor Relations section of our website at www.vistraenergy.com. Also available on our website are a copy of today's investor presentation, our 10-Q and the related earnings release.

Joining me for today's call are Curt Morgan, President and Chief Executive Officer; and David Campbell, Executive Vice President and Chief Financial Officer. We have a few additional senior executives in the room to address questions in the second part of today's call, as necessary.

Before we begin our presentation, I encourage all listeners to review the safe harbor statements included on Slides 2 and 3 in the investor presentation on our website that explain the risks of forward-looking statements, the limitations of certain industry and market data included in the presentation and the use of non-GAAP financial measures.

Today's discussion will contain forward-looking statements, which are based on assumptions we believe to be reasonable only as of today's date. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied.

Further, our earnings release, slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures are in the earnings release and in the appendix to the investor presentation.

I will now turn the call over to Curt Morgan to kick off our discussion.

Thank you, Molly, and good morning to everyone on the call. As always, we appreciate your interest in Vistra Energy.

Before we get into the materials, I would like to comment on what has been happening to our stock price the last 3 months, seemingly started by the ERCOT CDR report and then exacerbated by a series of various events such as weather, prospect for PJM, capacity auction, potential new CCGTs and PJM and nuclear subsidies, clearly not a good stretch. It is important to note that we are grounded in today's reality and recognize where forward curves are today. However, that does not mean that we have to agree with the forwards, and we certainly do not have to transact at the current price levels especially in 2021 and beyond. It is as if some investors in the competitive power sector were conditioned to sell off at the first whisper of any potential bad news. Yet we are a vastly different company than the IPPs of the past with lower debt, integrated operations with strong retail brands and a much lower cost structure.

We have continued to execute, return capital, make sound investments, lower costs, strengthen our balance sheet and diversify our earnings stream from a substantially expanded and improved asset base and retail businesses, all things we committed to and delivered. We have clearly differentiated ourselves from the failed IPPs of the past, and we have strength and staying power.

We have inexplicably, to us anyway, lost approximately $3 billion of equity value, yet we expect our EBITDA for 2019 and 2020 will be over $3 billion with free cash flow expected to be in excess of $2 billion. Sure, the curves have fallen off, but we believe we have a concrete pipeline of future revenue streams on the way requiring minimal investment.

In our view, the question is, can we put up sustained strong numbers year in and year out in various market price environments while producing very strong free cash flow with the opportunity to return value to shareholders and/or invest in our business? To us, the answer is an unequivocal yes. As we have tried to emphasize, our view is that we are a value play, and we are executing accordingly with strong free cash flow to show for it. We have seen the volatility in commodity prices, yet our company continues to put up numbers given the stability of earnings from retail, cleared capacity auctions and hedging. Yet now the market is being led to believe that we should apparently be valued off of forward power curves in 2021 or beyond as if these forward curves will exist into perpetuity with no competitive response, no ability to manage the volatility and hedge and no opportunity to further enhance EBITDA through efficiency and/or growth.

As evidence of our resiliency, when we acquired Dynegy, the company came with an expected steep decline in EBITDA from 2019 to 2020, and the market valued Dynegy off of the lower 2020 expectation. We not only expect we will cover that decline but have also grown the overall pie.

Our current stock price implies over a 20% free cash flow yield or some extraordinarily low EBITDA and free cash flow assumption. Nevertheless, the market has spoken. But that does not mean we have to agree and we certainly do not.

As you know, we have been repurchasing our stock and, needless to say, we are eager to continue our current buyback program. As difficult as this current environment is to accept, we have not lost faith in our long-term value proposition, our strategic direction and our commitment to our shareholders who are committed to us.

Today's earnings presentation is the beginning of framing why we remain confident in our company's ability to succeed long term. As I mentioned earlier, we know where the power markets are today. We get it. But we have a view that in some cases can help shed additional light on a complicated and somewhat volatile business and the competitive position of our company. It is not a denial, but perspective. We believe you expect us to have a view. We also expect to continue this discussion on the third quarter call, when we further lay out our view of the long-term prospects for our company.

Now finally I will move to the presentation beginning on Slide 6. Vistra finished the second quarter of 2019 reporting adjusted EBITDA from its ongoing operations of $707 million, results that are in line with both consensus and management's expectations for the quarter. Compared to the second quarter of 2018, Vistra's results were approximately $44 million favorable, driven by higher retail gross margin reflecting the seasonality of power cost quarter-over-quarter.

Vistra has been able to deliver these strong results despite some recent headwinds, including a June that was the mildest Texas has recorded in the past 15 years, with average temperatures approximately 20% below normal. Our diversified, integrated energy company model centered on low cost and market-leading operations continues to prove out its ability to weather these types of externalities and produce relatively stable EBITDA and free cash flow. Importantly, we believe our commitment to achieving our merger synergy and operations performance improvement targets also support this relatively stable earnings profile. I am happy to say we remain on track to realizing $430 million of EBITDA value leverage in 2019 with the full run rate of $565 million expected to be realized in 2021. We are also increasing the after-tax free cash flow benefit expected to be derived from the merger to $320 million following our recent financing transactions.

Our team continues to show proficiency in identifying and capturing savings opportunities, which ultimately drives value to the bottom line. In total, through cost cutting and OP initiatives, combined with merger synergy opportunities, Vistra has meaningfully reduced the cost and enhanced the value of its operations, adding more than $1.25 billion of value since our predecessor entity emerged from bankruptcy in October 2016. And that value creation does not include the nearly $1 billion of value we expect to realize from the net operating losses acquired in the Dynegy merger.

Year-to-date, Vistra's adjusted EBITDA from ongoing operations is $1.522 billion, right in line with management expectations and approximately $276 million higher than the estimated adjusted EBITDA for the pro forma merged company for the 6 months of 2018. We believe our performance in the first half of the year sets a solid foundation for 2019. We are reaffirming our full year 2019 ongoing operations guidance today, reiterating our adjusted EBITDA guidance range of $3.22 billion to $3.42 billion and our adjusted free cash flow before growth guidance range of $2.1 billion to $2.3 billion.

After receiving FERC approval, we closed the acquisition of Crius Energy Trust on July 15. Our teams are actively integrating the Crius and Vistra portfolios and working to capture the approximately $15 million in annual EBITDA synergies and additional approximately $12 million of annual free cash flow synergies anticipated from the Crius transaction. We expect the acquisition of Crius will contribute approximately $50 million to Vistra's 2019 financial results.

We are not increasing 2019 guidance ranges to reflect the addition of Crius at this time given that we have key months ahead for our business. To be clear, we continue to expect the Crius acquisition to be EBITDA and free cash flow accretive on a per-share basis on day 1. Given the overall size of Crius relative to the overall company, we believe it is most prudent to maintain our 2019 guidance ranges at this time.

Beyond 2019, we still expect we will be able to deliver 2020 adjusted EBITDA that will be relatively flat to or within the range of 2019 results. Clearly, the recent decline in ERCOT and PJM forward curves have put some pressure on potential 2020 outcomes. But with seeming clarity on the MPS and Dynegy merger value lever realization, we have a reasonable path at holding 2020 EBITDA in the range of 2019. Including Crius would put us in a strong position to possibly exceed 2019.

Importantly, we still have nearly half a year before the start of 2020, leaving plenty of time for incremental volatility in forward prices. In fact, it was the fall of 2018 when 2019 forward curves in ERCOT started to meaningfully move up as retailers more aggressively procured power for the 2019 summer. We expect we'll be able to provide an update on the anticipated MISO plant retirement as well as an OP update on the third quarter call, along with guidance for 2020 adjusted EBITDA and adjusted free cash flow before growth.

In general, we believe the recent pullback in our stock, which appears to be in direct response to ERCOT and PJM forward curves, has been overdone. Unfortunately, in our view, it seems as though we are currently suffering from the sins of the over-levered IPPs of the past. So I as I noted earlier, we believe Vistra is very different from these predecessors.

Turning now to Slide 7. Vistra's retail segment has delivered an average of $800 million of adjusted EBITDA for the past 10 years in periods of both rising and declining wholesale power prices. Importantly, this relatively stable EBITDA profile contributes to lower earnings volatility for Vistra's consolidated operations and is generally achievable year-over-year as a result of our proven ability to lock in term margin through forward power purchases combined with the flexibility we maintain in pricing our month-to-month portfolio. Of course, we expect the overall contribution to EBITDA from our retail business to increase with the addition of Crius.

Our sizable retail portfolio also supports our ability to weather near-term volatility in the wholesale power market as we typically observe a delayed competitive market response to declines in wholesale power prices. As a result, when power prices are on the decline, our retail business can capture relatively higher margins in the near term.

Ultimately, however, in a competitive market experiencing sustained wholesale price declines, you will eventually see retail competition put downward pressure on market retail prices as well. This will result in long-term margins and EBITDA in the retail business that are relatively stable. While retail providers can attempt to hold revenues constant and increase margins during periods of sustained year-over-year wholesale price declines, this is a risky approach as customers will naturally look for more competitively priced retail electricity plans.

As a result, even integrated companies are exposed to long-term commodity price volatility as relatively stable retail margins are not an automatic offset for the impact of sustained or multiyear wholesale price declines on wholesale margins. Typically, retail pricing action to expand margin in any price environment must be driven by competitive dynamics.

A more balanced or short retail wholesale portfolio player will also have more difficulty in expanding margin through longer-term hedging as the trigger to lock in margin is driven in the first instance by the retail side of the transaction with the desire to tandem hedge, not to optimize the generation position through forward curve volatility. A more balanced or short player can always take a position by only hedging one side of the transaction, but that is a very risky proposition.

On the other hand, a net long generator has the opportunity to capture significant wholesale margin on the net long position by taking advantage of wholesale volatility. A more balanced or short retailer is more exposed to the wholesale piece and corresponding volume risk.

Which brings us to Slide 8. Our retail and wholesale businesses are supported by a sophisticated commercial team that has and we expect will continue to create value for the enterprise by taking advantage of volatility in the market. Vistra takes an opportunistic approach to hedging our net link. We developed a fundamental point of view of where we believe prices will settle in the future, and we hedge our link only when the forward curves are at or above this fundamental point of view. In periods of trough pricing, where we believe the forwards are disconnected from fundamentals, we can remain patient or even procure power at these low prices to further optimize our future earnings opportunity. To reiterate, we see this volatility not as a risk, but rather an opportunity. And we have a demonstrated track record of creating value through this approach.

It is important to recognize that this commercial approach to hedging our net link is only possible due to the in-the-money nature of Vistra's generation fleet. Our assets are largely newer, highly efficient generation assets that are well-positioned on the supply stacks in the markets where we operate. As a result, these assets are in the money more frequently than older, higher heat rate generation assets that would require more meaningful price spikes before a forward hedge would become economic. In very low wholesale price environments, these higher heat rate assets sit on the sidelines with no opportunity to earn an energy margin. Importantly, following the merger with Dynegy, Vistra generation assets increased to approximately 60% gas-fueled, comprised primarily of highly efficient CCGTs and earning diversified revenues from both capacity and energy.

Nearly half of Vistra's gross margin is derived from 3-year forward capacity revenues and the contribution from a relatively stable retail portfolio. We believe this revenue diversification and our integrated business model reduced Vistra's earnings exposure to single-year impacts from mild weather in any one region, capacity auction outcomes or regulatory and political changes. It is our view that our portfolio enables Vistra to generate more stable earnings and cash flows over time and in varying commodity price environments.

And as you know, there are hundreds of trading days between now and 2021, giving Vistra plenty of time to capitalize on future volatility in the forward curves. A lot can change between now and then. We continue to believe the forward curve backwardation is not reflective of longer-term fundamentals, and our analysis suggests forward curves should move higher than where they currently trade. The key for our commercial model is volatility, and we fully expect there will be volatility in power and gas curves on a sustained basis.

Turning to Slide 9. Let's start our fundamentals discussion with ERCOT. While recent months have resulted in a decline in summer 2019 forward curves, we believe these price declines are an overreaction to a wet spring and a relatively mild start to the summer. ERCOT remains a very tight market on a supply/demand dynamics.

In fact, on a Sunday in June, the ERCOT market saw several 15-minute intervals where real-time prices settled in the hundreds of dollars per megawatt hour and a couple of 15-minute intervals where real-time prices settled in the low thousands per megawatt hour. This was on a day where the high temperature was only 93 degrees in DFW and in Houston, reflecting the tight market conditions. Similarly, in both June and July, we saw days where peak pricing averaged anywhere from approximately $70 per megawatt hour to approximately $135 per megawatt hour, even though temperatures were relatively mild, in the mid-90s, and peak load was negatively normal.

On Tuesday this week, DFW hit 100 degrees for the first time this summer. Real-time prices were approximately $156 per megawatt hour, which included on ORDC at or approximately $106 per megawatt hour. These outcomes support the thesis that if we do see a string of hot weather days in August with low wind and normal outages, the real-time prices could be meaningfully higher.

Notably, we have gone into a relatively dry period in Texas, and temperatures are beginning to rise. As a reminder, it only takes a week in ERCOT in the summer to have a significant impact.

In our view, the risk of high peak pricing could persist for several years as we believe ERCOT will continue to have a relatively tight supply/demand dynamic for the next 3 to 5 years. At a high level, this view is based on 3 key factors: First, the CDR does not evaluate economics when including new supply in the report. It merely reports development projects that have met certain milestones. And the CDR does not take into account competitive dynamics, such as retirements in response to new supply. As a result, the CDR consistently overestimates new build in the market, and many ERCOT experts have been reserved, if not skeptical, regarding the level of planned capacity in the CDR. ERCOT itself regularly clarifies that historically, only some of the new capacity represented in the CDR actually gets built.

Second, reserve margins are still projected to be very tight. These results fundamental point of view would estimate a range of reserve margins in the high single digits to low double digits with levels remaining below the 13.75% ERCOT target through at least 2023. Yet forward prices in 2021 and 2022 would be more consistent with reserve margins in the range of 13% to 15%, respectively. Our analytics suggest achieving reserve margins this high will be quite a tall order, especially given the likely competitive response.

To this end and thirdly, we believe there are more than 15,000 megawatts at risk of retirement in ERCOT over the next 10 years as renewables enter the market. This generation capacity is likely to act as a long-term supply and demand calibration feature in the market with the market reaction and calibration quicker and less volatile given the new build is forecast to come in lower megawatt increments via renewable development.

That being said, we also believe incremental renewables are necessary in the ERCOT market to merely compensate for projected annual load growth of approximately 2% or in the range of 1,500 megawatts per year. In fact, ERCOT is estimating more than 2.25% load growth per year. As the market begins to rely more and more on incremental renewable generation to meet demand, we expect volatility in the market will increase. Any such volatility should benefit our efficient, flexible CCGT fleet. If you follow the California market, you can see this playing out in real time.

We continue to believe the backwardation in the current ERCOT forward curves is, to some extent, driven by the lack of liquidity in the out-years. In 2021 and beyond, for example, a few long data power purchase agreements are currently setting the price of power. This is a relatively small slice of transaction activity and does not represent the fundamentals of the market.

It is typical in ERCOT for power prices to rise as there is more liquidity in the market. We saw a similar phenomenon for 2019, as the graph on the right side of Slide 9 depicts. As we entered the summer and fall of 2018, many market participants locked in volumes and prices for the upcoming year, and we saw 2019 forward prices steadily rise to reflect the tight supply dynamics in the market. Given that the fundamentals are forecast to remain relatively tight over the next 3 to 5 years, we would expect this backwardation to once again reverse over time.

Ironically, it is the backwardated nature of the forward curves that could keep new thermal generation on the sidelines in ERCOT and, to some extent, renewables. Unfortunately, the development model remains broken with developers earning some large fees on the front end while taking no risks on the underlying project economics.

However, the recent financial losses from revenue puts in PJM, which I will discuss shortly, and the absence of a capacity market in ERCOT with prospects for significant congestion in the West should bring caution to the forefront for capital markets players looking to invest in renewables in ERCOT. Our analysis continues to suggest that renewables, even with the tax credits, are borderline economic while CCGTs and peakers are uneconomic in ERCOT especially with the steep forward curve backwardation.

In recent months, we have seen new asset owners enter the game, mainly large corporations who have decided they want to invest in green technologies to, in many instances, fulfill their ESG targets and for marketing purposes. In our view, many of these ill-equipped new entrants are wading into treacherous waters as not all have a proper understanding of the risk they're assuming. Over time, as the economics of these investments play out, we might see more reluctance on the part of large corporations to step into the merchant power space in this manner. Or at a minimum, we should start to see future pricing terms better aligned with actual project economics. Over time, we believe our expertise will bode well for us to partner with many of these large corporations to help them achieve their objectives without exposure to a complicated business where they have no expertise.

In the near term, we have not yet given up on the ERCOT summer. Market conditions are very tight, and the recent shift in the ORDC has been effective at providing incremental revenues in the market. We remain steadfast in our view that long-term forward power curves do not reflect the underlying fundamentals in the ERCOT market, and we will be ready when favorable market conditions do materialize.

Moving on to Slide 10. Let's turn our focus to PJM. As you can see on the graph on the left side of the slide, beginning in about mid-May, PJM forward curves started to decline as certain generators began to sell less, driven by an overall bearish view of the market and their own desire to take risk off the table. This decline in forward prices triggered additional selling by various market participants, who as I mentioned earlier had previously sold revenue puts to help finance new CCGT development in the region. As forward prices fell, these market participants effectively became longer and longer generation, forcing them to sell into the bearish curves to mitigate their risk in a period when they would normally be buying on a dislocation. As a result, what would've otherwise been a relatively minor move in the forward curves was exacerbated. Only recently have the forwards started to recover as the market sentiment has settled and the parties to the revenue put transactions have seemingly covered their positions.

Despite this recent near-term volatility, I think it is important to remember that from 2010 to 2018, the average PJM CCGT earned approximately $9 to $12 per KW a month from the combination of capacity and energy, representing a relatively stable earnings profile. The market itself is competitive and generally efficient, meaning that energy prices will respond to both high and low capacity clears and vice versa.

In a market with over 180,000 megawatts of installed capacity, it takes a meaningful amount of incremental new supply or retirements to move the market in one direction or the other, as we show in the chart on the right side of the slide. From 2014 to 2019, PJM has seen cumulative net additions of nearly 5,000 megawatts capacity while the average CCGT has still earned between approximately $9 to $13 per KW a month from energy and capacity revenues, a very stable revenue profile year-over-year on a relative basis. It is also important to note that new development of CCGT requires approximately $15 per KW a month for what most would consider a compensatory return.

Speaking of new development. I know there has been a lot of discussion on this matter as we move towards the next PJM capacity auction. We believe it is likely new build will clear, but we also expect there will be incremental retirements in the coming auctions as has been the case in PJM. There are approximately 55,000 gigawatts of coal and approximately 10 gigs of other less-efficient, vulnerable generation in the supply stack in PJM.

We also believe the pace of new development in PJM should slow, as it is our view that the asset owners are unlikely to earn a compensatory return from new development in PJM of any asset type, whether it be a wind, solar or a thermal resource. It is important to note that PJM is the least favorable market for renewables, with largely low onshore wind intensity in ideal locations and sun irradiance and limited access to offshore wind.

Even with lower natural gas prices, CCGTs do not appear economic, especially with the backwardation in the forward curves. Moreover, market participants might now be less inclined to enter into forward transactions guaranteeing a floor on revenues for new development, which could make it more difficult for developers to obtain financing.

Before we move on from PJM, I do want to address the recent FERC action ordering PJM not to conduct the 2022, 2023 capacity auction in August. We view this action as a potential positive as FERC should be able to resolve its apparent deadlock now that it will have an odd number of commissioners following Commissioner Lafleur's retirement, for whom we have the utmost respect.

Consistent with past practice, we expect FERC will issue an order revising the capacity auction rules to ensure the market does not further erode given the aggressive and price-suppressive effects of out-of-market activity by state. Both FERC and PJM have been focused on maintaining the viability of the competitive market, and we believe that focus will continue with FERC's final order on this matter. We continue to believe that the outcome will be modestly positive or neutral at worst. In addition, we believe that FERC may issue an order in the near term on the PJM reserve pricing reforms. Let's not lose sight, however, on the more holistic view that the sheer size and balance sheet strength of our company and the diversified revenue streams should make the impact of any one external factor much less meaningful to our overall business as compared to the smaller, overlevered and less diversified IPPs of the past.

We spent a lot of time talking about forward curves and capacity auctions, all topics that have been front of mind for investors as the market considers Vistra's future earnings power. Before I hand the call off to David, I want to highlight once again existing opportunities that we expect will be additive to EBITDA in 2020 and beyond.

First as you know, we just closed the Crius acquisition on July 15 of this year. As a result, our 2019 financial results will only include a partial year of contribution from the Crius portfolio, with the full year benefit beginning in 2020.

In MISO, we are currently awaiting a decision from the Illinois Joint Commission on Administrative Rules on the proposed amendment to the Multi-Pollutant Standard, which we are optimistic will be issued by late summer. If the amendment is approved as drafted, Vistra would be required to file with MISO to retire 2 gigawatts of nameplate capacity in MISO Zone 4 within 30 days. Our preliminary analysis suggest that these retirements could be approximately $50 million to $100 million accretive to Vistra's long-term EBITDA profile as some of our existing MISO assets are EBITDA and free cash flow negative in the current market environment.

On the growth side. Our Moss Landing battery storage project should be completed by the fourth quarter of 2020 with the projected full year adjusted EBITDA contribution of approximately $50 million per year beginning to be realized in 2021. In addition, we are very close to completing a deal to build a 20-megawatt battery storage project at our Oakland site in California that should kick in, in 2022.

We will also continue to evaluate tuck-in growth opportunities given our attractive sites, substantial presence and scale in our core markets. To the extent we are successful in identifying attractive opportunities that meet or exceed our investment threshold of 500 to 600 basis points above cost of equity, we could see incremental upside from growth-related projects in 2021 and beyond. As you know, we expect to have significant cash flow to allocate to attractive growth projects or return to shareholders over the next several years. And last, we expect we'll be at our full run rate of $565 million of merger value lever targets by 2021, and this does not include any potential upsizing of our current OP target, which I expect could be addressed as soon as our third quarter call later this year.

Even without OP upside and new investments, we have line of sight to approximately $300 million to $350 million per year improvement to EBITDA, independent of commodity price impacts, which can move EBITDA in either direction. Importantly, however, all of the items listed on this slide are positive offsets that could help to absorb any headwinds that could come our way in the future.

We expect that through execution of these EBITDA-enhancement initiatives combined with a relentless focus on business execution and the advancement of our integrated business model, we will be able to continue to generate relatively stable EBITDA and free cash flow in the years ahead.

I will now turn the call over to David Campbell. As many of you know, David joined our company recently to be the CFO. This is his inaugural earnings call, and we wish David the best of luck. And with that, I'll turn it over to you.

Thank you, Curt. Turning now to Slide 13. Vistra delivered second quarter 2019 adjusted EBITDA from ongoing operations of $707 million, $44 million higher than second quarter 2018. The quarter-over-quarter improvement was driven by the 8 days of incremental ownership of Dynegy in 2019, with the merger closing on April 9, 2018, as well as higher retail gross margins from the seasonal shaping of power costs.

We saw a similar quarter-over-quarter phenomenon in the retail segment in Q1, with first quarter 2019 retail adjusted EBITDA $53 million higher than the first quarter 2018. As we explained on the first quarter call, the 2019 quarter-over-quarter variance was expected given the extreme peak in 2019 August heat rates we were observing at the time we procured power for the year. The peaky nature of August 2019 heat rates drove up our third quarter cost of goods sold and as a result, we expect a higher gross margin from retail in the first, second and fourth quarters of this year, all of which we expect will be normalized with the third quarter offset. In fact, our plan calls for negative adjusted EBITDA in our retail segment in isolation for the third quarter due to this phenomenon. Year-to-date, Vistra's adjusted EBITDA from ongoing operations is $1.522 billion, which is in line with management expectations for the first half of the year.

One final note on the quarter-over-quarter analysis relates to the information shown on Slide 23 of the appendix. You'll see that our estimated realized prices for 2019 and 2020 are down quarter-over-quarter in all markets relative to the data shown in our first quarter appendix slides. These changes reflect the recent decline in forward curves. While this decline is expected to result in lower generation revenues in 2019 and 2020, the impact to gross margin is projected to be much more muted as a result of a related reduction in expected fuel costs driven primarily by lower natural gas prices. The reduction in expected fuel costs is forecasted nearly $325 million in 2019 and over $300 million in 2020. The revenue side alone does not capture the full impact of lower fuel prices.

Turning now to the capital structure. Vistra executed a series of financing transactions in the second quarter, as we lay out on Slide 14. In June, Vistra issued $2 billion of senior secured notes comprised of $1.2 billion of 3.55% senior notes due 2024 and $800 million of 4.3% senior notes due 2029. We used the proceeds together with cash on hand to repay $2 billion of term loans under our credit facility. This transaction resulted in annual pretax interest savings of approximately $24 million.

The new senior secured notes contain provisions that will result in a release of collateral upon Vistra achieving investment-grade ratings from 2 rating agencies. We view this transaction as another positive step that should augment Vistra's ability to achieve investment-grade credit ratings in the future.

Also in June, Vistra issued $1.3 billion of 5% senior unsecured notes due 2027, using the proceeds to repurchase or redeem all of the outstanding 7.375% senior unsecured notes, due 2022, as well as to repurchase or redeem approximately $760 million of 7.625% senior unsecured notes due 2024. These transactions resulted in annual pretax interest savings of approximately $28 million.

In total, the secured and unsecured transactions will extend the average maturity of Vistra's outstanding senior notes while resulting in pretax interest savings of approximately $52 million per year. As always, we will continue to look for opportunities to further optimize the balance sheet in the future.

Turning to Slide 15. I want to briefly reiterate the capital allocation plan we've laid out, setting forth our priorities over the next 18 months. First, we expect we will continue to execute on our $1.75 billion share repurchase program, of which we have approximately $462 million of capital remaining for repurchases as of July 25, 2019.

Next, we expect to continue to pay quarterly dividend of $0.125 per share or $0.50 per share on an annualized basis. Management expects that dividend will grow at an annual rate of approximately 6% to 8%, which we believe can be supported by disciplined investments like the Crius acquisition. We also expect to pay down debt and continue tracking toward our long-term leverage target of 2.5x net debt-to-EBITDA. And last, we're on track for the development of the Moss Landing battery storage project in California with an expected completion date in the fourth quarter of 2020.

We've articulated these uses of capital, and we are committed to achieving them, advancing our priorities by meeting our leverage target, growing our business through disciplined financial investments such as the Crius acquisition and the Moss Landing battery storage project and continuing to repurchase our stock at these low valuations.

Our meaningful free cash flow generation is supporting this diverse capital allocation plan. At an estimated 60% to 70% free cash flow conversion rate, we expect we will consistently have consistent capital to allocate in the years ahead.

In summary, we remain highly confident around the sound fundamentals and prospects for our business. We believe the recent stock price performance of the integrated energy companies is an overreaction to onetime summer dynamics in ERCOT and PJM, and what were prior to the FERC order concerns about a single-capacity auction. These onetime dynamics are not fundamental drivers of our business. We will continue to focus on execution and long-term value creation while advancing our capital allocation plan, and we remain confident in the value of our company.

And with that, operator, we are now ready to open the line for questions.

(Operator Instructions) Your first question comes from the line of Greg Gordon from Evercore.

A couple of questions. Looking at the upside that you guys laid out on Page 11, Curt, there is actually, from my perspective, a couple of things that actually aren't in there. I know that there's a lot of debate over what's going to happen in Illinois this fall in the veto session with regard to Exelon's and renewable energy consortiums potentially passing a bill. But you also have a proposal in there that would allow you to replace some of your coal generation with renewables. That doesn't look like it's specifically in the build up here on your '21 potential upsides. Is that correct?

Yes. That's correct. I mean -- and you may remember this, Greg. There's 2 elements of that coal to solar and battery program if we were successful. One is that there would be some incremental payments, almost like a pseudo-capacity payment in the -- to the existing coal plants until 2025. And that is obviously to help them stay alive. And then there would be a transition to solar and batteries, and we would invest in those to come on roughly in that 2025. And then there would be economics from those investments as well.

But we have not included those just because of the uncertainty with what's going to happen. I think you're well aware. I'm not speaking out of turn here. This is public. But we're a little concerned with some of the lobbying issues that are going on that appears ComEd has gotten itself into. And although I do hear Exelon, I think Chris Crane said he was feeling pretty good about something actually happening in the fall. We'd obviously work with Exelon and others because I think if this is going to happen, it will probably be part of a broader energy legislation. But we just have been conservative on this, and we have not put it in there at this point in time.

Yes. And then the other thing I know you probably have to be cautious about addressing is, one of the other things that's impacted your shares in addition to the -- your competitors is concern over the Just Energy process, still a large retailer, and they put themselves up for sale. You guys have obviously been opportunistic, successfully opportunistic and continuing to leg out into retail when you see it as good value. You are a net long generator in some of the regions where they have customers. So to the extent you can comment on that, how much more retail do you think you guys need sort of to be a structurally sustainable countercyclical business model?

Yes, that's a very good question. I mean look, here's how I see it. We don't comment on anything specifically, as you might understand. I would say though that we're not focused on any particular transaction that involves retail that would have a significant non-U.S. presence. So that probably gives you some indication of where our focus would be or would not be. Are we interested in other potential opportunities? We are. But we would remain extremely disciplined, especially given where our stock price is. It would have to be something very compelling.

I will say that there are a few opportunities that may be out there that are attractive. And we'll see what happens about that. But we got to be really careful about something like that in today's environment. So I think I wanted to make sure that you guys, rest assured, that if we were to come forward with something, it would have to be very compelling to us.

Now in getting to where we would like to be, I think I've been very clear about this. Over the next 2 to 4 years, we'd like to have a mass that's somewhere around 70%. Now some of that is going to happen naturally because I expect us to shrink our generation size because some of our coal, I believe we're going to have 2,000 megawatts, for example, that comes out with MPS. There may be others. So we're going to naturally going to shrink back. And we're pushing 50% as it is now and some of that is actually going to push us closer to 60%. But I wouldn't be surprised in the next few years that we do something.

There is -- the good portfolios are getting more scarce. And so I will say that if an opportunity came around, you have to take a look just because of that. But we're going to be disciplined about it. And as I said, we'd like to be 70 plus or so percent mass. We still like to be somewhat long. And I think in particular in ERCOT, we think it's good from a risk management standpoint. But we also think it's good just from an opportunistic standpoint given the fact that there are going to be -- with an all energy market, there is going to be -- and I know it's hard to contemplate this right now given where the forwards are, but there are going to be opportunities where this market is tight and where it's maybe not as tight. And those opportunities, those options that -- in the form of assets in ERCOT can be quite lucrative in the periods where things can get tight.

Your next question comes from the line of Praful Mehta from Citigroup.

Really appreciate the detailed discussion on the call today, so it was very clear. I guess just following up a little bit on the retail. I know, Curt, when you've talked about acquisitions in the past, you've talked about it as comparing the opportunity to buy back stock. So now when you've highlighted the evaluation that you see your current stock price at, I'm assuming that's the bar you're talking about when you're talking about retail acquisitions and the value that you see in a potential acquisition.

Absolutely. We -- you know this, Praful. I mean the real -- when you're doing that analysis, the assumptions that you make as to the timing and the level of your stock price, appreciation for buying back your shares, is fundamental. So we look at it under a variety of scenarios as to how quickly and how high our stock price would move because obviously if we buy back our shares, that's an investment. But we look at it -- just like we look at when we do an investment in something like a retail business, we look at it under a number of scenarios. And so that is exactly how we will look at anything if we decide to do something, is how does it compare on a return basis relative to buying back our shares. And so it has to be.

I will mention, because I'm sure it's going to come up and if you don't mind, I'd just going to pile on, on this one. But we have, as you guys know, we have obviously a number of constituents, but very key to us obviously are our shareholders. But also key to us are those who have loaned money to us, our creditors. And we still have more wood to chop as it relates to reducing the cost of our debt. We just were recently out in the debt markets. They've been pretty favorable to us. And so we are going to take a balanced approach, including continuing down the path of reducing our leverage to the 2.5x. And I want to make sure to be clear about that. Even though I think if you pencil it out math-wise, paying down debt even at 7% relative to free cash flow yields at 20%, you can talk yourself into maybe pushing out, reducing your leverage. We understand that math, but we also have to balance out the different constituencies. And also, we want to have a very strong balance sheet to go forward on. So we still have a lot of dry powder left in our current buyback program. We can -- we are anxious to continue to buy back our shares at this price. But we're also mindful of the fact that we want to get our balance sheet where we would like it to be. And so we're committed to those balancing effects, and we are going to continue to stay that way.

Got you. That's super helpful. And that's where I was going, which is, there's so much significant free cash flow that you will generate between now and, let's say, 2021. If you are getting to your leverage target, let's say 2.5 is still the number you want to hit, you will still have significant dry powder like you said. Should we think about dividend being an opportunity in terms of an increase in that? Or do you kind of look at the current targets as where you want to go in terms of growth of the dividend? And otherwise, is it more growth potentially on the storage side? Where else are the avenues you think that capital allocation can go?

Well, so I want to be clear though that a lot of our cash is spoken for until we get to 2021 in order to get to the leverage targets we want to be at. We obviously have some incremental room in all that. But that also assumes a dividend that we -- a current dividend. And management will more than likely recommend to the Board that we grow that at somewhere between 6% and 8%, as we've said. And we feel comfortable that we've got growth projects already in the pipeline that will more than -- well more than cover 6% to 8%. I don't think that you'll see us change though the dividend in and of itself other than some growth between 6% and 8%.

But we also will look at -- we have some opportunities in California to continue to develop our 2 sites, which are very good sites. Those feel to me like they're going to be more 2021 and beyond-type investment. So they're not going to really affect our 2020 investment. So I'm -- we're not really concerned. Of course, I think we all know that we're somewhat interested in growing our retail book. But that is going to be opportunistic in nature, and I can't sit here and tell you that there is something out there that would affect '19 or '20.

So bottom line is that we will continue to look at that balanced capital allocation plan. What's interesting about retail acquisitions is they have such a high conversion of EBITDA to free cash flow. And if you have operating retail businesses, the cash flow is immediate. And so while an acquisition would have obviously an outflow of cash to pay for it immediately from a retail position. Within a very short period of time though, you're generating cash and the effect on your leverage ratios is minimal. I mean I think Crius was 0.03. And so I don't know if I call it self-funding, but they don't really distract. So it's not really -- in a retail deal, it's really not a choice between getting to the leverage ratio and doing that deal, it's just a matter of timing in terms of getting to the leverage ratio. And that's something we'll have to balance, right, at the end of the day. And of course as I said to you a minute ago, we're always going to put that up against buying back our shares. I mean it has to be compelling for us to be able to do it.

Your next question comes from the line of Steve Fleishman from Wolfe Research.

Curt, so I can't help but listening to your soliloquy this morning, sounds a little bit like that hell a couple years ago with Calpine. So I guess my question is, I know this is a little premature, but just if the like public markets aren't going to give you credit for this model, how are you thinking about alternatives in the future? And do you think the private markets still value these businesses a lot higher than the public markets?

Yes. So that's a very good question. In fact, I just was with Thad a day or so ago, and he was smiling a lot. So I don't know what that meant. But look here's how I think about it, Steve. We talked about this and I think I've talked about it on the call before, we still have faith that the public markets will ultimately value this for what it is, as a strong value play. And that we can replicate this thing year in and year out, and on average we can generate really strong cash flows and that we're disciplined with our money and that will result in a stock price that we feel comfortable with.

I will say that this recent downturn, which, look, we get, right? I mean commodity prices are down. We're a commodity business. While I don't like the magnitude of it and I think that people were not recognizing what we are capable of doing in terms of managing it, I understand it. But this -- the management team of this company and the Board are going to constantly look at what's the best way to unlock value for this business. And I don't know with a sector of 2, it's difficult. I don't know whether the public markets are going to embrace it or not. And I know this, that I've spent a lot of time, and David's joining me now too, trying to go out and talk to people, new investors, long-term investors that buy the story because we believe in it and we believe strongly into it. I'm hoping that through execution this year and next year and people getting more and more comfortable that we're not the old IPPs of the past through our actions and execution, that we'll unlock that value.

If it doesn't happen, we have to -- we owe it to the company and the people who are shareholders of this company, have believed in us, we got to look for what's the best way to unlock value for the company. I don't know if that's taking it private or not, but that will certainly be on the list because it has to be. I guess -- I mean we don't think that's rocket science. I'm not telling anybody anything that's probably very surprising. But we are -- we do believe that we can give this a go as a public company, and I think we've had some really good success at doing that. I mean I look at where we came out, the stock price where we came out from bankruptcy, the things we've done, the value we've created. I still feel pretty good about where we are. I'm not happy about it, but I think I feel pretty good about it.

The question for us right now is, is there another tier to this, another level to the valuation of this company that we think is there and should be recognized that clearly is not being recognized yet. But we're committed to putting up the numbers and doing the things that we said that we would do, and I have faith that it can happen. If it doesn't, we'll have to look at a lot of alternatives.

Okay. One other question just on the Ohio law that just passed. Could you maybe give your view on how -- what actions you might take, both with your portfolio and with the law overall?

Yes. So it -- so Steve, I'll tell you what -- first of all, I mean this isn't going to be surprising to you or anybody on this call, I mean, we were obviously against that. We're against -- in a well-functioning market, which I believe PJM is, we just talked about the numbers. $9 to $12 KW a month in a market that has a 28% reserve margin is a pretty good margin for combined cycle plants given that kind of reserve margin. So it's hard to argue that PJM hasn't been functioning in a reasonable manner. I think what we're concerned about is what happens from here with all this state-by-state activity.

I think with the FERC, what's happening with FERC and Commissioner Lafleur leaving with a 2:1, I think there's probably going to be some action. And I think what happens really will be dependent on what they come up with. So we tried -- we were against the bailout. We -- I'll be clear about that. We continue to be against it. We think it's a fair thing that if those who are trying to get a referendum in place to let the citizens of Ohio decide on this one because the polling was quite clear that consistently through this that Ohio citizens did not like this bailout. And so if they get a chance to vote on it, we'll see what happens there.

But I've always felt in this whole thing when people went to Illinois and they tried to go through the court system that this is going to ultimately have to be settled by FERC, and it has to be begun by the ISO. And I think PJM has to put forth something that FERC can take a look at. And then ultimately though, FERC is going to have to do it. And FERC has done a pretty darn good job over the last roughly 10 years or so trying to hold the fort against state activities, and I expect them to do it here. So my point on that and the reason I raised it around the Ohio thing is that, that could mitigate any negative effect if we have something in place that actually provides good mitigation against out-of-market activity.

Absent that, we're going to have to continue to slug away at it. I don't think the subsidies in PJM are justified. I think I felt all along that FirstEnergy Solutions and those plants were making money. We've done the math. We own Comanche Peak. We know what it takes to run those plants, and we think they were making money. At the end of the day, in my view, Steve, this was simply about FirstEnergy, the regulated utility, needed some assurance that FDS was not going to boomerang back to them and bring risk to them. And this was more about getting out of bankruptcy and getting the creditors to be willing to get out of bankruptcy than it was about anybody caring too much about 0 emissions and things like that in Ohio, in Ohio I'm speaking specifically on Ohio. This was an inside deal, in my opinion, that was rammed through to try to help FirstEnergy and FirstEnergy Solution get out of their bankruptcy. And we're just casual -- I mean we're just collateral damage in that whole thing. And I hope FERC will do the right thing and mitigate them out of the market, which I think is the right thing for them to do.

Your next question comes from the line of Shar Pourreza from Guggenheim and Partners.

It's actually James for Shar. I just have a little bit of a narrow question I guess versus some of the other ones. But following on your combined cycle comments, has the addition of the Crius book versus kind of the dynamics that we've seen in MISO changed your thoughts around the independent combined cycle?

I'm sorry, I...

Independence.

Oh, Independence. In terms of whether we keep it or not or hold it?

Yes. Exactly, exactly.

Yes, I'll tell you, frankly, it's a great asset and I think we're trying to do some things around it to improve it. I mean I've said this before: one asset in a market is not strategy. But I also will say that we're not going to do something -- we don't have to do anything because it either has decent cash flows, it's a nice asset. The team there is very good. And so we're not going to sell something that's dilutive, and that's not a particularly good market right now to sell something in. So our math says we're betting running it, getting the cash flow from it and keeping the asset right now than it is to sell it.

Now if there's somebody that wants to build a business or has a business in New York that wants to pay what we think fair value is for it or more, we're happy to talk about that. But that's true probably pretty much of any asset we have, if somebody wants to pay us more than what it's worth. But we don't have any activity going on around Independence right now that -- in terms of selling that asset.

Understood. And then just one more regarding the MPS amendment in Illinois. JCAR is running a little behind, I guess. If we don't get an answer until like late September, could that impact your plans to update with 3Q? Or is it kind of pretty immediate thereafter, you'll know?

So depending on the timing, that could affect things, although I will tell you that the indications we're getting from MISO and Ameren, who are the 2 -- in terms of whether these would be needed for reliability purposes and whether -- because we've already done some prework on this. Already had both Ameren and MISO assess these plants. There could be a fairly quick action in terms of being able to retire the plant. So my sense is, is that under any scenario as it relates to JCAR that we will be able to retire these plants by the end of this year, and that's what we're counting on.

I will also say, and I'm not sure that it's out yet. But I think we believe that we're going to be on the August 13 -- I can't remember if it's definite or not, but we're going to be on the -- what's that?

It's not definite.

Okay. So it's not definite yet, but we think we're going to be on the August 13 JCAR agenda. And the reason we also know that is we're getting questions from JCAR staffers. So that's usually a sign you're going to be on the agenda.

If we're on the agenda in August either -- I think they may have 2, maybe one on the 13 and one on the 28, if I remember correctly, there's going to be no issues of going through the process and then ultimately retiring plants by the end of the year, which is something that we would like to do. And clearly, we would like to be able to announce which plants and deal with the fallout of that in terms of severing employees and working with them and all that. So we're hopeful that JCAR will adopt the rule as coming out of the Illinois Pollution Control Board, and then we can move on with the retirements.

Your next question comes from the line of Mike Weinstein from Cr?dit Suisse.

Two quick questions. One is if the stock price is persistently down at these levels through, let's say, between now and the third quarter call, is that enough to push you to maybe delay delevering and increase the stock buyback at that point? Or are we at that level now? Is it just that you're waiting for it to see if it persists a little bit longer before you increase the size of the buyback? Or is the increased buyback completely off the table?

So look, I think I tried to describe that earlier. I'll try to do it again. I think we have multiple constituents we have to balance here and, balance sheet strength is one of them. I think we have a constituency of creditors that we are mindful of that we need to continue a good relationship with, a lot of activity go forward. But importantly, I think we want a strong balance sheet, and we're sort of the ones that came out and put the target, 2.5x. We believe that moving down that path and also moving our company down to increasing levels of debt ratings is important to us and maybe someday, investment grade. So it is always in a situation like this when you're paying down debt and then your stock has just come off where you get tested in terms of what is your resilience about following through on your priorities.

Where I sit here today, and I have to work with the Board, and I think David and I have talked about this, that we're committed to the 2.5x, and we're going to move toward that. And we'll see when we get to the end of this current buyback program, which is still about $0.5 billion, which is a lot of money to spend, we'll take another step back. I think people should expect us to do that.

But the way I see it right now is we're committed very strongly to get to 2.5x. I don't just see it at least as I see us right now even the stock price where it is that we would significantly delay any kind of delevering of the company. I just think we have some priorities that may look conflicting to some. But for us, we think when they're all said and done, will put us in a really good place as a company. So we'll likely follow through on that, but we'll see.

Got you. And my second question is just -- has to do with Illinois and the veto session that's coming up as a staple during those discussions. Is there any -- what -- are you seeing any impact from some of the headlines that have come out recently about the investigation into House Speaker Madigan and the -- there's some speculation that maybe that might be affecting the outcome of the legislation or outcome of the veto session. I'm just wondering if you're seeing any of that.

Yes. So I mean I do -- I mean we, as we look at it, we think it could have an impact on whether something broader energy legislation gets done in Illinois in the veto session. I mean I think it's hard in my mind to see that legislators are going to embrace something that would include ComEd and Exelon significantly when they're sort of wrapped in this cloud of controversy. Just politically, it feels like it could be difficult.

Now there's still a lot of time before we get to the veto session in November, and some of this stuff could be put to the side. I did hear, again, I said this earlier. But Chris Crane, I think on their call, Exelon's call, felt pretty confident that they could move forward. I mean Chris has a pretty good hand on the pulse of what goes on in Illinois. So who am I to argue with him?

What all I know is, is that we'll be ready to move forward on our piece of legislation if there is a larger energy bill and hopefully be able to convince people that's a good thing for them to do. We think it is, and we have a lot of reasons why we do think that, but we'll see.

But it is, Mike, it does -- you got to believe it throws a little bit of a monkey wrench into all this because it just casts a cloud over whether somehow there's some shady dealings going on between legislators and lobbyists and ComEd. I mean -- and then you turn around and do legislation with that same parties, it does make it a little bit different. And I'm not saying that any of this is -- I mean I, don't have any reason to believe any of it. I don't know anything about it. I just know how things work in life, and it would seem to me that that's not going to make it any easier to do a broad energy bill.

I hope that we're able to do a broad energy bill. I hope that all of this passes and everything will be fine. So that's about as much as I can say about it.

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America.

This is Anya just filling in for Julien. So I guess my first question is just wanted to clarify on the 2.5x leverage target. So are you still expecting to reach that by 2020? Or could that be pushed into 2021 potentially with maybe more focus on buybacks?

Yes. I mean look, I think it will depend obviously on how things go over the next 1.5 year. But our intent is to get as close to the 2.5x as we can by the end of 2020. So there are variables in all that. But I -- we're still committed to the 2020 target. I think we've always said that we wanted to be in the range of 2.5x.

And so for example, if somehow -- and we get the Crius deal and that 0.03 adds to that, would that make us at 2.53 or something? I mean there's always a little bit of noise around the edges. But our view is to get as close to 2.5x as we can by the end of 2020. And as I said earlier, we're still committed to that.

Okay. All right. And second, could you talk about the hedging strategy for the remainder of 2019? Just given the declines in pricing there, are those full year realized prices? Or is that for just the second half? And then could you provide any other color there and your strategy maybe on timing during the quarter?

Well, here. Go ahead, David.

Sure. So I think you're referring to -- this is David Campbell. I think you were referring to the realized prices that are shown on Slide 23. Those are realized prices for the full year. And I -- we described on the page that follow our hedge position in terms of our overall percentage hedge position. So you'll see that we're very heavily hedged in 2019. We're pretty well hedged in 2020 as well, especially in ERCOT. And we did something, as Curt described, we manage that really on a daily basis. I think one of our core case really as a company is our insight into the markets and understanding how to manage through the volatility and hedge at opportune times. So it's a dynamic program that we manage. But as we just show, we're well hedged for 2019, and that's been the case and continues to be the case.

Okay. All right. And then on just -- I guess how are you looking at the hedging strategy for then -- for 2020 given your views on market fundamentals for both ERCOT and also PJM?

Yes. So look, I don't -- I really don't want to like tell people when we're going to be coming out to hedge. But we're not fully hedged. We typically try to be pretty significantly hedged as we go into any prompt year. But given our views, we're going to be pretty deliberate about it. And as we always do, given the size of our company, especially in Texas, we try to do this in a way that's as stealth as we can be because we can move the market.

But look, I think we're going to take it as it comes. I think we said in the script today that there are sometimes cycles in the market in terms of when people transact, and we'll be mindful of those and look for any other opportunities. Of course, what can always happen is if you get a week a real big heat, like we could here still left in August, the forwards will react to that. That might be an opportunity for us to hedge. Hell, we might even be out there buying back some hedges at some point in time if we thought the pricing was right. So I -- we're constantly trying to shield a little bit of what our strategy is around all that. But you can be rest assured that we're going to be -- as we go into any prompt year, we look to try to be pretty well hedged up. And then we also like to do a fair amount of hedging around our retail business. We're -- we don't take a lot of risk as we come into the summer as some do and leave a lot of open position there, especially in Texas. And so look, I think between those 2, we'll be pretty well hedged up by the end of the year. But that could depend on just exactly where we see prices.

What I also can tell you is that we look, we have a point of view. And we will measure any kind of hedging relative to where we think the market will ultimately settle, and we'll be disciplined about that.

This is all the time that we have for today's question. I will turn the call back over to the presenters for closing remarks.

Well, thank you for taking the time to join us this morning. As I stated at the beginning of the call, we do appreciate your interest in Vistra Energy. We hope that it's helpful. And we look forward to continuing the dialogue.

As I mentioned earlier, I will mention this again, that in the third quarter, David and I expect to have another sort of deep discussion around sort of long-term prospects for the company. We're doing a lot of work around that. And it's obvious that it's something that we should cover, and so we're going to do that on the third quarter call. I think it's instrumental to unlocking the long-term value of the company. So thank you for your time.

This concludes today's conference call. You may now disconnect.