Evergy, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Evergy is a regulated electric utility holding company serving approximately 1.6 million customers in Kansas and Missouri. This combined filing also reports Westar Energy and Kansas City Power & Light Company (KCP&L).
Financial performance
- Revenue: Evergy reported operating revenue of $1.217 billion, versus $600.2 million in Q1 2018. The comparison is not like-for-like: 2018 Evergy results reflect Westar Energy alone, while 2019 includes KCP&L and GMO following the June 2018 merger. 2018 pro forma revenue was $1.184 billion.
- Profit and EPS: Net income attributable to Evergy was $99.5 million, compared with $60.5 million reported in Q1 2018; diluted EPS was $0.39 versus $0.42. On a pro forma basis, 2018 net income was $91.9 million and diluted EPS was $0.34. Evergy’s non-GAAP adjusted earnings were $111.1 million, or $0.44 per share, versus $91.9 million, or $0.34 per share, pro forma in 2018; adjustments primarily excluded 2019 voluntary severance and rebranding costs.
- Margins and sales: Evergy’s non-GAAP utility gross margin was $823.4 million, including the acquired utilities; the filing attributes $412.8 million of the year-over-year increase to their inclusion. Westar’s utility gross margin rose $13.5 million to $410.6 million, and KCP&L’s rose $10.9 million to $290.5 million. Colder weather supported sales: heating degree days were up 10% at Westar and 9% at KCP&L.
- Cash flow: Operating cash flow was $362.1 million; investing cash outflow was $271.4 million, including $309.0 million of property, plant and equipment additions; financing cash flow was $296.9 million. Cash, cash equivalents and restricted cash ended at $547.9 million, of which $414.3 million was restricted for redemption of KCP&L bonds.
- Debt and liquidity: At quarter-end, Evergy reported $1.311 billion of notes payable and commercial paper, $359.0 million of collateralized borrowings and $500.0 million borrowed under a six-month term loan. Long-term debt, net, was $7.126 billion, with an additional $701.1 million of current maturities. The companies had $1.665 billion of availability under their $2.5 billion master credit facility and were in compliance with debt covenants.
- Dividends and buybacks: Evergy paid $119.8 million in dividends and repurchased $578.3 million of common stock during the quarter. Since the program began, it had repurchased approximately 26.9 million shares for $1.6 billion.
Material changes and management commentary
- Reported year-over-year increases in revenue, income and cash flow largely reflect the merger’s addition of KCP&L and GMO to Evergy’s consolidated results. Evergy said higher Westar retail sales and lower Westar operating and maintenance expense also supported earnings; increased depreciation and the larger share count affected EPS.
- The board’s authorization covers repurchases of up to 60 million shares; Evergy expected to reach that level by mid-2020, subject to market conditions. Management expected to repay the $500 million term-loan borrowing with a long-term debt issuance in the second half of 2019.
- No explicit earnings or revenue guidance is provided in the filing. Management reported that its current estimate showed no 2019 refund obligation under the Kansas earnings review and sharing plan; the final determination rests with regulators.
Outlook, risks and unusual items
- Updated transmission rates were expected to reduce annual retail revenues by $7.7 million for Westar and $8.3 million for KCP&L. The utilities’ transmission formula rates were also expected to reduce annual transmission revenue versus 2018.
- Regulatory matters include a pending Missouri proceeding over costs collected after GMO’s Sibley Station retirement and the Kansas earnings review and sharing plan. The filing notes that outcomes could affect customer refunds or revenues.
- Environmental exposures include evolving coal-combustion-residuals and wastewater rules, and an unresolved EPA objection to KCP&L’s Hawthorn water-discharge permit. Management said certain outcomes could materially affect operations or financial results, but could not quantify the impacts.
- Wolf Creek’s next refueling outage was planned for the third quarter of 2019. Evergy expected additional 2019 pension contributions of $103.2 million.
- Evergy adopted the new lease standard on January 1, 2019, recording approximately $110 million of additional assets and liabilities; management said the adoption did not materially affect income. Restricted cash of $414.3 million related to KCP&L’s April 2019 bond maturity. KCP&L issued $400 million of 4.125% mortgage bonds in March and repaid $400 million of 7.15% bonds at maturity in April.
Important facts for investors to verify
- Use merger-adjusted comparisons when assessing growth; 2019 consolidated results and 2018 reported results have different entity scope.
- Review the funding and timing of the remaining share repurchase authorization, and the expected long-term debt issuance to refinance the term loan.
- Track rate changes, possible earnings-sharing refunds and the outcome of the Sibley proceeding for effects on regulated revenue.
- Monitor environmental and water-permit developments, particularly potential compliance costs and any impact on Hawthorn operations.
- Distinguish unrestricted cash from restricted cash and review near-term debt maturities and credit-facility availability.