Evergy, Inc. — Q1 2022 Form 10-Q Summary
Reporting period: Three months ended March 31, 2022. 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 generating capacity and renewable power purchase agreements. The combined filing also covers Evergy Kansas Central and Evergy Metro.
Key financial results
| Evergy consolidated | Q1 2022 | Q1 2021 |
|---|---|---|
| Operating revenues | $1,223.9 million | $1,611.9 million |
| Income from operations | $253.1 million | $317.7 million |
| Net income attributable to Evergy | $122.5 million | $191.6 million |
| Diluted EPS | $0.53 | $0.84 |
| Adjusted earnings / adjusted diluted EPS (non-GAAP) | $133.8 million / $0.58 | $125.4 million / $0.55 |
| Operating cash flow | $265.1 million | $(28.6) million |
| Capital expenditures | $524.7 million | $467.7 million |
- Operating margin was approximately 20.7%, compared with 19.7% in Q1 2021. Utility gross margin, a company-defined non-GAAP measure, was $836.2 million, down $71.2 million.
- Net cash used in investing was $531.3 million; financing provided $262.2 million. Operating cash flow less property additions was approximately negative $259.6 million.
- At March 31, cash was $22.2 million; current assets were $1.722 billion and current liabilities $3.391 billion. Long-term debt, including current maturities, had a $9.834 billion book value. Notes payable and commercial paper were $1.392 billion and collateralized borrowings were $338 million.
- Evergy had $1.607 billion of undrawn capacity under its $2.5 billion credit facility and had drawn a separate $500 million term loan due February 2023. The company reported compliance with applicable debt covenants.
Material changes and drivers
- GAAP net income attributable to Evergy fell $69.1 million year over year, while adjusted earnings increased $8.4 million. Comparisons were significantly affected by Q1 2021’s February winter-weather event, including unusual wholesale-market revenues and energy-marketing margins.
- Revenue declined $388.0 million, largely reflecting lower wholesale revenues and the absence of 2021 storm-related energy marketing margins. Retail revenue increased $130.5 million, supported by pricing, colder weather and higher weather-normalized commercial and industrial demand.
- Fuel and purchased-power expense fell $326.1 million. Management notes that fuel and transmission costs are largely passed through to customers, so changes generally have limited net-income impact.
- Other expense increased $18.2 million, principally due to a $14.2 million pre-tax loss on an early-stage energy investment and higher pension non-service costs. Operating and maintenance expense fell $23.3 million, while depreciation and property taxes increased.
- Q1 operating cash flow improved from an outflow in 2021, partly because 2021 included cash payments for winter-event fuel and purchased power. Capital spending increased, including spending on grid resiliency and infrastructure.
Outlook, regulation and risks
- The filing does not provide a company-wide earnings or EPS forecast. Management said existing cash and borrowing capacity were sufficient for current capital requirements. The board declared a quarterly dividend of $0.5725 per share in May 2022, payable June 20, 2022.
- Kansas transmission-price adjustments were expected to increase annual retail revenues by $20.4 million for Evergy Kansas Central and $7.9 million for Evergy Metro, compared with 2021. The respective rates took effect in April and May 2022.
- Evergy Metro requested a Missouri retail revenue increase of $43.9 million before fuel rebasing, plus $3.8 million related to fuel and purchased-power rebasing. Evergy Missouri West requested $27.7 million before fuel rebasing, plus $32.1 million for fuel rebasing and other items. Hearings were scheduled for August 2022, with new rates expected in December; outcomes are subject to regulatory approval.
- Winter-event costs and revenues remain subject to recovery or refund proceedings. Evergy Missouri West sought authority to securitize its extraordinary costs over approximately 15 years; an MPSC decision was expected by October 2022. A Kansas stipulation provided for recovery or refunds beginning in April 2023, pending a KCC order.
- Evergy Missouri West recorded a $32.0 million regulatory liability for estimated probable Sibley Station refunds. The filing also describes a possible additional loss of approximately $50 million, depending on the outcome of its rate case.
- Environmental regulatory developments involving emissions, greenhouse gases, water discharges and coal-combustion residuals could require material future compliance costs. Management said impacts could not yet be determined for several proposed or pending rules; no material changes to previously disclosed risk factors were reported.
- Other stated risks include weather and demand, fuel and power-market prices, regulatory decisions, inflation, interest rates, supply-chain and labor availability, generation outages, cybersecurity, and climate-related events.
Investor verification priorities
- Track the Missouri rate cases, Sibley refund exposure, and regulatory decisions on winter-event recovery and securitization.
- Reconcile GAAP earnings with adjusted earnings, especially the treatment of the 2021 storm-related marketing margins and 2022 investment loss.
- Review cash generation against capital spending, debt maturities, the drawn term loan and remaining credit availability.
- Monitor the eventual cost and timing of environmental compliance, including CCR remediation and potential emissions and wastewater requirements.
- Check whether transmission-rate changes, customer demand and cost recovery support future utility margins and cash flows.