Evergy, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Evergy is a regulated electric utility holding company serving approximately 1.7 million customers in Kansas and Missouri. Figures below are for Evergy, Inc. unless noted; dollars are in millions except per-share data.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|
| Operating revenue | $1,354.2 | $1,446.5 | $2,651.0 | $2,670.4 |
| Operating income | $336.6 | $335.5 | $615.9 | $588.6 |
| Net income attributable to Evergy | $179.1 | $194.5 | $321.7 | $317.0 |
| Diluted EPS | $0.78 | $0.84 | $1.40 | $1.38 |
| Operating cash flow | Not reported quarterly | Not reported quarterly | $715.2 | $588.9 |
- Q2 operating margin, calculated as operating income divided by revenue, was approximately 24.9%, versus 23.2% a year earlier. YTD it was approximately 23.2%, versus 22.0%. The filing does not present these as reported margin measures.
- YTD investing cash outflow was $1,307.4, including $1,104.2 of property and equipment additions and $217.9 for the Persimmon Creek wind farm acquisition, net of cash acquired. Operating cash flow less property additions was negative $389.0.
- YTD financing cash inflow was $598.4; cash dividends paid were $281.3. Cash and cash equivalents were $31.4 at June 30, 2023.
- At June 30, total long-term debt, including current maturities, was approximately $10.19 billion. Notes payable and commercial paper were $2.37 billion, and collateralized short-term borrowings were $347.0 million. The $500 million term loan is included in notes payable and commercial paper. Available capacity under the $2.5 billion master credit facility was $627.2 million. Evergy reported compliance with applicable debt covenants.
- Total assets were $30.28 billion and total equity was $9.55 billion at June 30, 2023. The current ratio was approximately 0.46, calculated from reported current assets and liabilities.
Changes versus comparable periods
- Q2 revenue fell $92.3 million (6.4%) and net income attributable to Evergy fell $15.4 million (7.9%); diluted EPS declined from $0.84 to $0.78.
- YTD revenue decreased $19.4 million (0.7%), while attributable net income increased $4.7 million (1.5%) and diluted EPS rose from $1.38 to $1.40. Adjusted EPS, a non-GAAP measure, was $1.40 versus $1.41 YTD.
- Management attributed weaker Q2 earnings chiefly to unfavorable weather and lower retail sales, higher depreciation and interest expense; lower operating and maintenance costs and income tax expense partly offset these effects. YTD, lower operating and maintenance expense and new rates partly offset weather-related sales weakness and higher depreciation and interest expense.
- Q2 cooling degree days declined 13% year over year. YTD cooling and heating degree days each declined 13%.
- Interest expense increased $34.4 million in Q2 and $65.7 million YTD, primarily due to higher short-term borrowing balances and interest rates. YTD depreciation and amortization increased $71.7 million.
Outlook, regulation and risks
- The filing provides no company-wide EPS guidance. Management said existing cash and available credit capacity were sufficient for current capital requirements.
- Evergy Kansas Central and Evergy Metro requested Kansas retail revenue increases of approximately $204 million and $14 million, respectively. New rates were expected to take effect in December 2023. Kansas Central also requested recovery of the $220.9 million Persimmon Creek purchase; approval could add approximately $21.5 million in annual retail revenue beyond its $204 million request. The requests remain subject to regulatory review.
- Persimmon Creek is an operating 199 MW wind farm acquired by Kansas Central in May 2023. The purchase is consistent with the utility’s preferred resource plan, according to the filing.
- Evergy Kansas Central’s updated transmission delivery charge took effect in May and was expected to reduce annual retail revenue by $22.3 million versus 2022; Evergy Metro’s was expected to increase annual retail revenue by $4.0 million.
- Recovery of Evergy Missouri West’s 2021 winter-weather costs through securitized bonds remains subject to litigation. The appeal challenges aspects of the financing order; a decision was expected in the second half of 2023, but timing was uncertain.
- Environmental regulatory proposals and proceedings involving emissions, greenhouse gases, regional haze, wastewater and coal ash could require future compliance costs; some potential impacts could be material, and the company could not reliably quantify them. Management reported no material change in risk factors since the 2022 Form 10-K and no material change in market-risk exposure since year-end.
- Other notable items: the May 2023 goodwill impairment test found no impairment of $2.34 billion of goodwill; a $32.8 million regulatory liability had been recorded for estimated Kansas Central transmission-rate refunds. The company declared a $0.6125-per-share quarterly dividend in August 2023.
Important facts for investors to verify
- Progress and final outcomes of the Kansas rate cases, including treatment of Persimmon Creek costs and the timing of any approved rates.
- Availability and cost of refinancing short-term borrowings and the $500 million term loan, which matures in February 2024; also monitor facility capacity and covenant compliance.
- Outcome of the Missouri winter-weather securitization appeal and timing of bond issuance and customer recovery.
- Weather-normalized sales trends, cost-control sustainability, and the effect of higher depreciation and financing costs on earnings and cash generation.
- Final environmental rules, related compliance or remediation obligations, and any resulting changes to asset retirement obligations or capital plans.