Evergy, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2021, compared with Q1 2020. Evergy is a regulated electric utility holding company serving approximately 1.6 million customers in Kansas and Missouri, with approximately 15,400 MW of owned generation capacity and renewable power purchase agreements. The filing also includes separate reports for Evergy Kansas Central and Evergy Metro; figures below are consolidated Evergy unless noted.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Operating revenue | $1,611.9 million | $1,116.7 million |
| Income from operations | $317.7 million | $197.5 million |
| Net income attributable to Evergy | $191.6 million | $69.4 million |
| Diluted EPS | $0.84 | $0.31 |
| Utility gross margin (non-GAAP) | $907.4 million | $796.5 million |
| Operating cash flow | $(28.6) million | $320.6 million |
| Capital expenditures | $467.7 million | $354.4 million |
Operating margin was approximately 19.7% of revenue, versus 17.7% in Q1 2020. Evergy reported non-GAAP adjusted earnings of $125.4 million, or $0.55 per diluted share, compared with $94.2 million, or $0.41, a year earlier. This adjustment excludes winter-weather-related non-regulated energy marketing margins and certain executive transition, severance and advisory costs.
Liquidity and debt. At March 31, Evergy held $482.0 million in cash. Its balance sheet included $9.091 billion of long-term debt, net, $533.5 million of current maturities, $1.295 billion of notes payable and commercial paper, and $365.0 million of collateralized notes payable. Approximately $1.204 billion of borrowing capacity remained under the $2.5 billion master credit facility. Evergy reported compliance with facility covenants, including the maximum 0.65-to-1.00 indebtedness-to-capitalization ratio.
Material changes and unusual items
- Revenue rose $495.2 million year over year, driven principally by wholesale revenue, which increased to $487.5 million from $63.5 million. Electric retail revenue declined $54.7 million.
- The February 2021 winter storm produced $341.3 million of net natural gas and purchased-power costs across the Evergy Companies, and $96.5 million of non-regulated energy marketing margins for Evergy and Evergy Kansas Central. The margins materially boosted reported earnings; the storm also contributed to negative operating cash flow.
- Evergy deferred substantially all storm-related net fuel and purchased-power costs under fuel-recovery mechanisms and a Kansas emergency accounting order. Recovery is expected, but regulators may extend the recovery period; SPP review or resettlement could increase final costs materially.
- Cash from operations fell by $349.2 million year over year, reflecting storm-related cash costs, payment timing and working-capital movements. Investing cash outflow increased, including higher capital spending on transmission, distribution and other infrastructure projects.
- At March 31, Evergy had recorded a $109.9 million storm-related regulatory asset for Evergy Kansas Central. Evergy Metro recorded substantially all of its $76.7 million increase in storm-related wholesale revenues as a regulatory liability, expected to be refunded through fuel mechanisms.
Outlook, management commentary and risks
- The filing provides no specific full-year earnings or EPS guidance. Management said existing cash and available credit capacity were sufficient for current capital requirements.
- Evergy reported a long-term goal of net-zero carbon emissions by 2045, with an interim goal of a 70% reduction from 2005 levels by 2030. Management noted that progress depends on technology development and supportive energy policies and regulations.
- Management expected $107.4 million of additional pension contributions and $4.0 million of post-retirement benefit contributions in 2021.
- After quarter-end, Evergy Kansas Central’s updated transmission delivery charge was expected to increase annual retail revenue by $37.9 million; Evergy Metro’s was expected to decrease annual retail revenue by $2.4 million. These adjustments took effect in April and May 2021, respectively.
- After quarter-end, Evergy completed a $113.2 million sale of 2,269,447 shares to a Bluescape affiliate and issued a warrant for up to 3.95 million additional shares at $64.70 per share. The filing identifies potential dilution; the warrant expires three years after issuance.
- After quarter-end, Evergy Missouri West issued $500 million of senior notes, and Evergy redeemed $350 million of its 4.85% notes due June 2021.
- Key risks include regulatory decisions on storm-cost recovery and refunds, wholesale power-market volatility, environmental and emissions rules, generation availability and outages, weather, fuel and supply costs, and the timing and cost of capital projects. Evergy identified no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- How much of Q1’s GAAP earnings growth came from the $96.5 million storm-related marketing margin, and how adjusted earnings reconcile to recurring performance.
- Final SPP settlement of storm costs, regulatory approval and timing of recovery or refunds, and possible customer bill impacts.
- Liquidity and short-term borrowing needs if storm-cost recovery is delayed, alongside capital spending and pension funding requirements.
- Potential dilution and settlement terms of the Bluescape warrant, and the effect of post-quarter debt issuance and redemption on financing costs.
- Progress toward carbon-reduction goals and the potential cost, regulatory treatment and timing of generation transitions and environmental compliance.