Evergy, Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Evergy is a regulated electric utility holding company serving approximately 1.6 million customers in Kansas and Missouri, with about 15,400 MW of owned generation capacity and renewable power purchase agreements. This combined, unaudited filing covers the quarter and six months ended June 30, 2021, and includes Evergy, Evergy Kansas Central and Evergy Metro.
Financial performance and position
| Evergy consolidated | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Operating revenue | $1,236.2 million | $1,184.7 million | $2,848.1 million | $2,301.4 million |
| Operating income | $295.3 million | $271.7 million | $613.0 million | $469.2 million |
| Net income attributable to Evergy | $185.3 million | $133.4 million | $376.9 million | $202.8 million |
| Diluted EPS | $0.81 | $0.59 | $1.65 | $0.89 |
| Utility gross margin (non-GAAP) | $878.3 million | $856.9 million | $1,785.7 million | $1,653.4 million |
For the first half, net cash from operating activities was $224.6 million, versus $522.5 million a year earlier. Capital expenditures were $891.1 million, up from $635.6 million; cash used in investing activities was $918.2 million. Financing provided $607.1 million. Cash and cash equivalents were $58.4 million at June 30, down from $144.9 million at year-end 2020.
At June 30, Evergy reported $9.30 billion of long-term debt, net, and $472.9 million of current maturities. Notes payable and commercial paper were $913.0 million, in addition to $326.0 million of collateralized borrowings. The companies had $1.59 billion of available capacity under their $2.5 billion master credit facility and were in compliance with its debt covenant. Total assets were $28.01 billion and total equity was $8.98 billion.
Evergy declared a quarterly common dividend of $0.535 per share in August 2021, payable September 20, 2021. First-half cash dividends paid were $244.0 million.
Material changes versus the prior comparable period
- Evergy’s first-half operating revenue rose $546.7 million and attributable net income rose $174.1 million. Management cited February winter-event energy marketing margins, higher retail demand and favorable weather, lower operating and maintenance expense, and higher equity AFUDC as contributors.
- The $95.0 million of winter-event energy marketing margins materially boosted first-half results; management’s adjusted, non-GAAP first-half earnings were $320.5 million, or $1.40 per share, compared with GAAP attributable earnings of $376.9 million, or $1.65 per share.
- First-half operating cash flow fell $297.9 million, largely reflecting cash payments for winter-event fuel and purchased power costs and payment timing for taxes and suppliers. Capital spending increased, particularly for transmission, distribution, grid resilience and infrastructure projects.
- Evergy Kansas Central’s first-half net income was $254.7 million versus $11.9 million, with the prior-year period affected by a large tax expense related to Kansas tax changes. Evergy Metro’s net income was $121.6 million versus $128.5 million.
Outlook, commentary, risks and unusual items
- February 2021 winter weather event: Evergy recorded $349.5 million of net natural-gas and purchased-power costs across its companies. Substantially all were deferred to regulatory assets or liabilities, and management expects substantially all increased costs to be recovered from customers. Recovery timing may be extended to moderate bill impacts. SPP resettlements could materially change final costs. Related $95.0 million marketing margins are also subject to resettlement and potential Texas legislative action.
- Evergy Kansas Central requested recovery of its deferred Kansas winter-event costs over two years beginning April 2022; Evergy Metro requested customer refunds over one year. Evergy Missouri West proposed seeking securitization for its deferred Missouri costs. Regulatory decisions on the Kansas and Missouri requests were expected by year-end 2021.
- Management’s emissions strategy targets net-zero carbon emissions by 2045, including a 70% reduction from 2005 levels by 2030. Evergy reported an approximately 50% reduction by 2020. Achievement depends on technology, supportive policy and regulatory developments, while maintaining reliability.
- Environmental compliance costs remain uncertain, including potential future greenhouse-gas, regional-haze and wastewater requirements. The filing says costs of future regulatory changes could be material; it does not quantify them.
- Evergy Missouri West recorded a $23.8 million estimated liability for potential Sibley Station-related customer refunds. The filing describes possible additional exposure of up to approximately $12 million per year beyond the amount accrued, pending its next rate case.
- Other notable financing and governance items: Evergy Missouri West issued $500 million of senior notes in April; Evergy redeemed $350 million of its 4.85% notes. Evergy also issued shares to a Bluescape affiliate for net proceeds of $112.5 million and issued a warrant for up to 3.95 million additional shares, exercisable at $64.70 per share and expiring after three years.
Important facts for investors to verify
- Progress and final regulatory treatment of winter-event cost recovery, customer refunds, SPP resettlements and potential Missouri securitization.
- How much reported earnings depended on non-recurring winter-event marketing margins and other non-GAAP adjustments.
- Liquidity and cash generation relative to the increased capital program, short-term borrowings and upcoming debt maturities.
- Potential customer refunds in the Evergy Missouri West Sibley Station case and outcomes of other rate proceedings.
- Whether emissions targets and environmental compliance plans can be achieved on the stated timeline and at manageable cost.