Good day, ladies and gentlemen, and welcome to the Evergy, Inc. Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, You may begin.

Thank you, Ashley. Good morning, everyone, and welcome to Evergy’s Third Quarter Call. Thank you for joining us this morning. Today’s discussion will include forward-looking information on Slide 2 and the disclosure in our SEC filings containing list of some of the factors that could cause future results to differ materially from our expectations. We issued our third quarter 2018 earnings release and 10-Q after market close yesterday. These items are available, along with today’s webcast slides and supplemental financial information for the quarter on the main page of our website at evergyinc.com. On the call today, we have Terry Bassham, President and Chief Executive Officer; and Tony Somma, Executive Vice President and Chief Financial Officer. Other members of the management team are with us and will be available during the question-and-answer portion of the call. As summarized on Slide 3, Terry will provide a business update, including the latest information on our regulatory and merger priorities. Tony will then offer details on our financial results and provide an update on our share repurchases. With that, I’ll hand the call to Terry.

Thanks, Lori, and good morning, everybody. I’ll start on Page 5. Last night, we reported third quarter GAAP EPS of $1.32 and pro forma EPS of $1.34, which excludes nonrecurring merger-related expenses. Tony will provide you more details in a bit, but I will say the team continues to perform well and deliver solid financial and operational results, while also executing on our integration plans. We continue to focus on the execution of the merger plan, which includes capturing merger savings, delivering on a busy regulatory calendar and rebalancing our capital structure. Last and certainly, not least, is the continued integration of our workforce and cultures. Our team is working well together as we make progress on the successful execution of our plan. We’re still targeting net merger savings of $30 million in 2018 and $110 million in 2019. Our achieved merger savings remain on track for the year. We realized savings in several categories, including reduced labor cost and more efficient procurement as we now have a scale of a larger company. We have begun back office IT system consolidation efforts, which includes a series of enterprise large projects, savings associated with combining systems will contribute toward reaching merger savings targets as they wrap up over the next couple of years. Moving on to Slide 6, I’ll give you the latest on our regulatory proceedings. At the beginning of the year, we were looking at an active regulatory calendar that included a merger docket and rate reviews in each of our 4 jurisdictions. While a formidable task our teams focus nevertheless, was to reach constructive settlements in each docket. The successful settlement in our merger docket jumpstarted many diligent and constructive conversations with stakeholders and the rate reviews. We used the merger settlement momentum to achieve rate review settlements…

Thanks, Terry, and good morning, everyone. Turning to Slide 9 of the presentation, I’ll start with the results. Similar to last quarter, I’ll focus primarily on pro forma results, which exclude nonrecurring merger-related items and paired results as if Evergy reformed on January 1, 2017. The good news is, as we move further away from the transaction close, we should have less merger-related items and eventually more apples-to-apples comparison for GAAP results. Third quarter pro forma EPS were $1.34 compared to $1.19 for the third quarter last year. Drivers included increased sales, due primarily to warmer weather, which we estimate helped about $0.11; $0.09 related to tax reform, which represents the difference in our refund obligation rates and actual results of operations; $0.03 of increased O&M due to about $16 million of voluntary severance expenses, which costed us about $0.04; and $0.02 of other costs, including increased depreciation expense and ongoing annual bill credits in Kansas, partially offset by lower number of shares outstanding. GAAP earnings were $1.32 a share or $0.02 lower than pro forma due to merger-related expenses. Combined company retail sales were up about 1.5%, primarily due to the favorable weather, which we estimate helped by $0.06 compared to normal. Residential and commercial sales were both up 2% and 1.5%, respectively. Industrial sales were down about 1%, due primarily to a large low-margin chemical manufacturing customer returning to normal production levels after having a banner on 2017. Absent this one customer, the balance of industrial sales were up over 1%. Moving onto year-to-date results on Slide 10. Year-to-date, pro forma EPS were $2.55 compared to $2 last year. Some of the drivers include $0.36 from higher sales due primarily to the favorable weather, $0.19 for Westar’s deferred income tax reevaluation based on the new composite tax rate,…

Okay, Tony. Thank you. And we’ll take questions now from callers.

[Operator Instructions] And your first question comes from the line of Ali Agha with SunTrust. Your line is now open.

Thank you, good morning. First question, I just wanted to be clear on the buyback that has happened. So as you mentioned that once you close the final piece of the ASR, you would have purchased 9.5 million shares. Acquainted to that, have you spent $486 million to repurchase 9.5 million shares, is that the math?

Roughly. There are some ongoing open market purchases, but the ASR that we disclosed in the Q is around $450 million and those shares were done via 2 separate ASRs and there’s one remaining yet to be closed.

Right. But the 9.5 million shares, just to be clear, Tony, is the completion of the ASR and the open markets that you disclosed so far or are there other open markets that get you to the 9.5 as well?

Well, there may be some ongoing open market activity as well and additionally to what was disclosed in the Q.

Okay. Okay. And then second question, was there any COLI income that was booked in the third quarter, and just, in general, can you remind us what kind of COLI earnings have you booked as part of your longer term 6% to 8% growth guidance?

So there were no COLI proceeds received in the quarter. And typically what – this is our legacy Westar COLI plan, we will take studies from our actuaries and we’ll include those in the projections that we put out, and we’ll have more clarity on that when we give earnings guidance in 2019.

Okay. Okay. And then lastly, GXP used to provide us weather-normalized electric sales data, which we all found very helpful. Is that something that Evergy plans to provide as well going forward?

I’m sorry, what was the question?

Weather-normalized electric sales, you give us electric sales with weather in there, but like GXP used to do, will Evergy provide us weather normalized electric sales data?

We can revisit that and look at it. Once we get we’ll be more germane to give the kind of the impact on the EPS, but...

That’s a number we can track with other companies as well. So it’s a useful data point if it can be provided.

Okay.

And our next question comes from the line of Nicholas Campanella with Bank of America Merrill Lynch. Your line is now open.

Good morning, congrats on the quarter. So I was curious on the CapEx update that I think you said will be getting towards the year-end call here. I mean, just any color on how to think about what’s been changing in your service territories premerger to now where you stand today, anything around the grid-mod runway, I know there’s a renewable tariff in Kansas and whether that could translate to rate-based opportunities. Could you just talk a little bit about on those items?

Yes, this is Terry. I wouldn’t expect a lot of dramatic changes. The renewable tariff, in particular, relates to specific customer desires, needs, but in terms of grid modernization, those kind of things, we’ve been along that pathway. PISA provides us with the ability to work through PISA to make sure that we’re earning our allowed returns. But I think we’ve been pretty clear, leading up to the legislation and since that we don’t expect to then increase necessarily overall CapEx as a result, but instead utilize it to be able to earn our full return. So all that’s going well, going as expected. And I don’t think other than having some customer growth and having some folks, we’re doing things for when they come to town. We don’t expect any dramatic change in what you’ve seen up to this point.

Got it. And then just back to the buyback quick. It seems like the ASRs are related to preferred method and how you’re approaching things, can you just talk about your preference to do that rather than other forms?

Well, certainly in the quarter it was. And what the ASR allows us to do is lock in a discount to the VWAP over whatever period of time the ASRs outstanding. So that’s what’s attracted to us. The other forms we like the open market purchase, both of those we talked about in our last call and don’t see us deviating away from those two avenues here.

That’s helpful. Thanks a lot.

And our next question comes from the line of Paul Ridzon with KeyBanc. Your line is now open.

Good morning. I have a question on the mechanics of the ASRs. This 6.5 million shares in August, have those actually pulled out of the market or is that just an obligation for the agent to purchase those?

We’re allowed to retire those shares. So the way ASR works, is we’ll shake hand with the bank or banks and they will go out and borrow those shares and deliver them to us, and we will retire those shares. Normally, it will be approximately 80% of the notational value of the contract that you get delivered upfront.

So we can assume that 80% of those shares are no longer in the market, at least 80%?

So what we disclosed in the Q, what was delivered up front and then also what was delivered on the closure of the one contract by the end of August, those shares have been retired.

Just – sorry, understand – that means the agent is actually purchased the share on the open market?

So upfront, no, but over time, yes.

Okay. So you have no – really have no idea how many of those shares could still be out there?

Well, on the one contract those shares have been closed – have been purchased.

Okay. And then does the agent in an ASR have any blackout periods?

No.

Your purchase is due when you make them on the open market?

If we enter into a open market purchase plan in an open window, that transcends future blackout period.

Okay. Thank you very much.

You’re welcome

And our next question comes from the line of Steve Fleishman with Wolfe Research. Your line is now open.

Hi, good morning. So first of all, just on the merger settlement agreements and your synergy plan, et cetera, just – were those all kind of in line with executing on your 6% to 8% growth plan?

Yes. Yes, I’d say we’re very happy with our settlements. Obviously, the plan was through the merger of the settlement of the merger agreement to be able to continue kind of that pace of working with parties as we head into a period of no rate cases, and we’re very pleased where those came out, being able to settle with almost everybody and address lots of folks different needs within the plan that we had out there. So for sure, from a regulatory perspective, we’re very pleased with the work that team is able to do and the relationships we have with our jurisdictions. On the synergy side, yes, we continue to work on those plans, and we obviously have a lot of plans already in place and everything is in line with our expectations.

Okay. Just secondly, on the dividend increase and growth rate. So it looks like this dividend increase was 3%, which is like a rebasing from which then to grow this 6% to 8% in line with earnings. How should I think about that aspect?

Steve, this is Tony. So as we thought about the dividend, yes, I think the way you characterize it was correct. It’s kind of rebasing. Five months after merger close, the Board raised the dividend. And we haven’t issued guidance yet for 2019, which is something that we had to consider. And also, as you know, we’re buying back a lot of shares at this time and don’t know that it makes sense to have a higher dividend today as opposed to seeing how things progress next year.

Okay. But in terms of then, the expectation should be office level, it should be growing 6% to 8% in line with the earnings growth rate?

Yes, so we’re going to target a 60% to 70% payout ratio, commensurate with the EPS growth rate. It might not be exact every year or match it perfectly. But, yes, the long way to look at that is earnings growth 6% to 8% in the long run, the dividends should grow along with that.

Okay. Is there any kind of lumpiness you expect in your earnings growth?

Well, we haven’t really issued any forecast period, Steve. So we’d be subject to – the lumpiness that we’d be subject to is really somewhat ameliorated by the rate case settlements that we reached in the stay-out period over the next 3 to 4, 5 years.

Okay. So you have pretty good visibility?

Yes. But it’s not perfectly linear obviously as we’re going through the process of buying back shares.

Right. Okay. And then, just at a high level, anything – you did have a change in the Kansas governor, anything to think about in terms of energy policy in the state that could come out of that?

No. We have a long history of working with our governor office and legislators in both states. Don’t see that changing with the governor in Kansas. We did have legislation in Kansas last year that was driven in large part by some of the rate case stuff that was going on. It wouldn’t surprise me if we have to continue to deal with some of those, in particular, individual customer issues. But in general, I don’t think anything that’s occurred concerns us in terms of our ability to work with our legislators and the governor in both states.

Okay. Thank you.

And our next question comes from the line of Ashar Khan with Viridian. Your line is now open.

Hi, how are you doing? I was just trying to get a better sense for next year, can you give some kind of guidance as to what kind of average share count should be used for next year, ballpark?

Well, we haven’t obviously published our EPS guidance next year or drivers, but Ashar, I’d say, although it won’t be exact with it, we’ve done here recently, what we’ve disclosed and what we said. We basically will have 9.5 million shares in over roughly 100 calendar days, so that translates to about 34 million, 35 million shares in a year’s period of time. So I think you can kind of follow that math.

Yes, Ashar, I would say, I know there’s a lot of questions about the buyback, but we’re doing exactly what we said we’d do. We’ll being measured, we’re being patient and we’re being opportunistic if it presents itself. So as Tony said, I mean, I think you see can see from our first report out, that’s exactly what we did and would anticipate continuing to do that.

No, that’s fine. I was just – because the guidance is going to be your first thing out of the box, so I thought if we have good expectation of what the average count could be, at least we are – our expectations on the guidance are – match what we come, and we are not surprised next year, that’s what I was trying to get at?

Got you.

So we can put that as one of our drivers when we come out with our guidance.

Okay. Thank you so much.

[Operator Instructions] And our next question comes from the line of Paul Patterson with Glenrock. Your line is now open.

So just – I’ve got a really simple question and I apologize if I missed this. But what’s weather-adjusted sales growth, what’s the outlook that you guys have now going forward?

So it’s been pretty consistent, 0 to 50 basis points.

Okay. That hasn’t changed?

Correct.

Okay. Thought it would be easy. Thanks so much.

And our next question comes from the line of Shar Pourreza with Guggenheim Partners. Your line is now open.

Hey, good morning guys. There’s couple of things going on. Just real quick, you plan on issuing guidance at the year-end call, correct?

Correct.

So we should just assume EEIs more – is a little bit more coming out with the strategy and how we’re doing from the integration, but don’t expect anything come out of the EEI directly?

That’s correct.

Okay. Got it. And then just on the buyback, just want to make sure, I’m confirming this. We should assume that you’re going to just dollar cost average between now and sort of the latter part of 2020, just given your viewpoints around growing at a larger base and potentially – so basically, the buybacks shouldn’t be assumed to be done at a more rapid pace, right, just assume dollar cost average to your outlook?

Yes. I think that’s kind of what we said and – if there are opportunities to do something different, we’ll look at it. But nobody at least that I’m aware of knows what the future is going to bring for evaluations on utilities. And we feel that the best strategy going forward is to kind of dollar cost average of share repurchases through the avenues that we mentioned.

Okay. Got it. Thanks for the clarification. Thanks.

You’re welcome

Thank you. And I’m not showing any further questions at this time. I would now like to turn the call back over to Terry Bassham for closing remarks.

Thank you, everybody. I know it’s a busy time. And we certainly look forward to talking to a lot of you next week in San Francisco. So thank you, much, and have a good weekend.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone, have a wonderful day.