Good day, ladies and gentleman. This is your conference operator. At this time, I would like to welcome everyone to the Q1 2019 Evergy Inc. Earnings Conference Call. [Operator Instructions]. Thank you. I would now like to turn the call over to Lori Wright. You may begin your conference.

Thank you, Lori. Good morning, everyone, and welcome to Evergy's first quarter call. Thank you for joining this morning. Today's discussion will include forward-looking information. Slide 2 and the disclosure in our SEC filings containing a list of some of the factors that could cause future results to differ materially from our expectations and includes additional information on non-GAAP financial measures. We issued our first quarter 2019 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 management are with us and will be available during the question-and-answer portion of the call. As summarized on Slide 3, Terry will recap the quarter and provide a business update. Tony will update you on the details of our latest financial results. With that, I'll hand the call to Terry.

Thanks, Lori, and good morning, everybody. I'll begin on Slide 5. 2019 is an important year for our company. We're targeting strong year-over-year earnings growth as we capture the benefits of the merger. Last night we reported first quarter GAAP earnings of $0.39 per share compared to $0.42 per share earned in the first quarter of 2018. Adjusted earnings were $0.44 per share in first quarter 2019 compared to $0.34 in the same period a year ago. The year-over-year increase in earnings was primarily driven by cost-reduction efforts and higher retail sales due to colder weather. I'm pleased with the execution of our team and we saw the first quarter delivered, which keeps us on pace to achieve our 2019 targets. As we focused on our plan, cost reductions and share repurchases, mother nature presented us with a few challenges during the quarter. As we previously stated, our team banded together to restore power during a major storm that hit Kansas City in January, which was a once in a couple of decades kind of storm. At its peak, we had about 200,000 customers out of service. But through the dedicated work ethic of our team, we fully restored customers within 5 days of the event. Separate from the January storm, we also had flooding that impacted our service territory in March. The out-of-town generation station near Western Missouri was our most at risk piece of infrastructure. If you recall, in 2011 we experienced flooding in the same region. One silver lining of dealing with the 2011 event, we've been more prepared for conditions as they developed this year. Emergency plans and infrastructure builds 8 years ago allowed us to withstand the floodwaters without a significant impact. We did alter our day-to-day operations for about a 1.5 weeks, but we're…

Thanks, Terry. Good morning, everyone. I'll start with results on Slide 10 of the presentation. Last night, we reported first quarter GAAP earnings of $100 million or $0.39 per share compared to $61 million or $0.42 per share in the first quarter of '18. The increase in earnings is primarily due to the inclusion of KCPL's and GMO's results in the first quarter of 2019, which aren't included in Evergy's first quarter 2018 results. GAAP EPS was $0.03 lower, primarily due to the dilution of shares issued to Great Plains Energy shareholders upon closing of the merger. Adjusted non-GAAP earnings were $111 million or $0.44 per share compared to $92 million or $0.34 per share in the same period a year ago. As detailed on the slide, adjusted EPS was up $0.10, primarily driven by cost reduction efforts, peer shares outstanding and colder than normal weather. Some additional drivers for the quarter include gross margin being up $22 million, primarily due to new retail rates, net of the 2018 provision for rate refund for the lower corporate tax rate, and favorable weather, which we estimate contributed about $0.05 compared to first quarter 2018. O&M was down $30 million primarily driven by cost reduction efforts associated with merger-enabled efficiencies and plant retirements in Missouri. Depreciation and amortization was $30 million higher, primarily from new depreciation rates that are reflected in our retail prices. And lastly, accretion resulting from our share repurchase activity which added about $0.03 a share. For the quarter, pro forma residential sales were up 4.5% and commercial sales were up 1.7%, primarily due to the colder weather, which we estimate helped about $0.06 when compared to normal. Pro forma industrial sales were about 3.5% lower in the same period last year. Most of this decrease comes from a…

All right. Thank you for joining us. We'll take questions now.

[Operator Instructions]. Your first question comes from the line of Greg Gordon from Evercore ISI.

A couple questions. First, am I right that when you called out that the storm costs, all things equal, had a $13 million impact in the quarter? So despite that, it's like almost $0.05 headwind, you still were able to get to the $0.44 number?

That's correct.

Okay. And that -- when you look at what average annual storm costs look like in a normal year, would you expect that, that would be something that might recur normally year-over-year, but just happened over the course of time? Or do you see that as an exceptional event?

No, that was an exceptional event, that's why I mentioned it's a -- I guess, we say it a lot now, couple in the decades event, but, no, we normally don't have that many customers out 5 days. And so not only do you have extra expense, but you got lost revenue. So that is not normal and haven't -- in fact, I've been here almost 15 years and it's the worst storm we've seen since I've been here.

Well, congratulations on getting your customers back so quickly. My second question goes to your capital allocation commentary. And I know that customer affordability is a huge issue for you and you are rightfully primarily focused on it and it's one of the reasons for the merger. And so you've been very careful about not trying to send the wrong message to your customers about capital spending, but at the same time, I'm hearing you talk about an increased desire for renewable energy from your customers. One of the things that I'm also seeing industry-wide is the ability to deploy new technologies that while they do increase capital spend also improve the customer experience and potentially lower bills, so as you think about the back-end of that CapEx program in '22 and '23, not to put words in your mouth and disguise a question as a statement, but are those the type of things that are not yet in the plan that you're thinking about? And can you elaborate perhaps on that?

Yes, you're exactly right. Obviously, focused on, as you said, the near-term stability after each company spent 10 years on both reliability, generation and environmental spend. This period post-merger with the synergy savings provide an opportunity for growth is critical. But as you described also, we have ever-changing needs from what customers want and we are very fortunate to have the opportunity to be near one of the best wind resources in the country. We see that as not only an ability to serve our current customers, we see that as an ability to attract economic development from new customers. And we are part of our teams in each of our states and each of our cities. When we talk to folks considering moving to a region about that opportunity, what used to be a green opportunity is now also a green and a low cost opportunity given the technologies around that. In addition to that, you're exactly right, we also have both reliability and customer desire technologies that we're dealing with every single day like everybody is. And that's an area where PISA in particular provides us with a great opportunity to ramp up spend in a way that's structured and approved in Missouri and almost expected. So we're looking at the timing and the ability to do those as well. So each one of those gives us the ability not only to be stable in the short term, but provide for that additional growth in the long-term, and we look forward to updating shareholders along the way as we finalize some of those plans.

Congratulations on a good quarter.

Thank you very much.

Your next question comes from the line of Ali Agha from SunTrust.

First question, Terry. So the Kansas rate review that would finish up in early 2020, to the extent that they find the rates are too high for whatever reason, how would that actually impact you guys given that you have a rate freeze as part of your merger agreement? I'm just thinking about the logistics here, if there is some negative ruling that comes out there.

Yes, I mean, I don't know for sure. What I would tell you is that we are very confident that this is the legislature, which would look at opportunities maybe to send to the commission further work to be done, potentially. But we certainly see that the ultimate outcome of the study should reflect not only the current benchmarking, if you will, of our rates, but the historical development of our cost and rates and what we see in the future, which again, is consistent with what we just talked with Greg about in that, that's what our current merger opportunity provides us with, assurances to those legislators that we see the same issue and have addressed it and our merger does just that. Process-wise, we saw some legislation this time that we didn't think really was appropriate. And obviously, the legislature agreed that we ought to be talking about a study before we look into those kind of things. But certainly if they have particular concerns, we're confident that we'll be able to work with our legislators and our local customers about options that may help solve those problems in a way that makes sense both to them and to our shareholders.

And generally speaking, are you and the staff on the same page on this? Or is staff in their study thinking differently?

No, we actually presented our own study side-by-side. Our witness and their witness and answered the same questions and we are lock-step. I would say that our relationship through the [indiscernible] merger too, where we worked through the final merger settlement in the process for the structure of that stay-out and overview, put us in a position of absolutely being consistent in our voice to our legislators.

Okay. Second question, just clarifying your comments from earlier. So as you mentioned, you're fairly confident in the earnings growth that you've laid out for us through 2023, which by definition implies that the growth in that '21 through '23 period of roughly 5%-or-so is exceeding what your current rate base growth would be from the current CapEx plan, which is in the 2% to 3% range. So it appears that you run the math and you've identified potentially the levers already that would keep you in that growth trajectory. A, is that right in terms of potentially the CapEx that you could incrementally spend? And b, when would you convey that to us and the investment community in terms of what kind of opportunities you see for potential increase in CapEx in those outer years?

This is Tony. So there is near -- various obviously levers that come up with our guidance range, especially, particularly, when you're going out that far to 2023. Some of them we mentioned in the script which is we could potentially delever the holding company. We can look at increasing our spend if it's right for our customers and for our shareholders where we don't have a lot of regulatory lag. And so as we look at things going out and we'll gain more certainty throughout the planning year this year and we would hope to maybe to the extent the stuff changes, we would let folks know, either foreshadow that at EEI and adding more clarity with some of the numbers when we do our year-end 2019 call.

I see. And last question just clarifying the 46% roughly of the share buyback, total buyback that you completed. Does that include the ASR that was announced but not completed? Or is that not that factored into this?

It includes the initial delivery of some shares, but ASR is not closed. And so the parties will give us the remaining shares when the contract terminates.

So putting all of that, how much is bought back?

Well, as of the end of the April, it's roughly 46%, almost 27 million shares.

And we have a question from the line of Michael Sullivan from Wolfe Research.

I first wanted to just touch on Kansas. Now that we've sort of gotten through this legislative session and seen the bill that ultimately got passed, but some of the other things that were discussed, could you guys just give us a sense or are you feeling better or worse about the whole political dynamic there? As we go into next year and we get the rate study results and you have a new legislative session. Just your thoughts there.

Yes, we are feeling better actually. Certainly, when initial bill got passed or filed, our initial bills got entered, we became a topic of conversation. And so other folks who had concerns, some of them related to, for example, demand on renew -- on a solar installation. So things that were kind of out there, but just we became part of the discussion. I would say that through that we've talked to folks and solved many problems that were kind of one-offs or specific issues, I'd say. And the study to be conducted now with everybody in the room together, it gives us the ability to have those conversations along the way and not necessarily have as much debate at the very end after we completed. So I think our ability to continue to talk to people over the next 12 months, our ability to work with an independent consultant and our customers that evaluate all the concerns and issues is actually a positive from an outcome starting in January next year.

And I'll add, we're continuing to give back merger credits to the tune of $11.5 million a year in Kansas.

Yes. it's a good point. Remember, we gave our first credit back in the first year after all that was going on. By the time we get to the end of the year, they'll not only have seen that, but know what's in front on them as well. So it will affect those acknowledgments of what the merger means to our customers.

Great. And then just, Terry, on your comments on Slide 8 on the whole capital plan and what that looks like further out in time. Could you just be a little more specific on reallocation versus incremental? And what is going to drive that? And when we will have a better sense of sort of how that plays out?

Yes. Tony kind of covered it, but what I would say is if you just looked at percentage allocations by state, remember that it's in part an allocation based on the number of customers in that state. So it may look like it's a little heavier one direction than other, but that's based on population. But more importantly, the commitment around the merger, in particular, in Kansas, provide stability, but also provides consistency, whereas the PISA bill in Missouri is specifically geared toward additional spending around infrastructure. We've seen Ameren go out with a plan and seeing what they're doing and have gotten very good responses from the commission. So we see an opportunity there to be able to potentially allocate more in that direction under the PISA structure, which doesn't exist in Kansas. And then, as you go along, you'll continue to see projects that are very specific. We've talked about the fact, we didn't put kind of general buckets out there, but as we develop projects, there may be more projects related to one need or another in a state that's very specific. So as we work through those allocations and budget plans, especially in that back-end period, you could see a focus on one jurisdiction versus another. I will remind you that Missouri is still in a position where we have some lag there. We overspend absent PISA, but they are also looking at shortening the time period for rate cases over there. So if that were to continue to develop, that might give us additional opportunity without creating lag before we got to the end of the period.

Okay. Great. And then just one last one, on 2019, I just wanted to clarify. I think when you gave guidance for the year on the last call that already baked in those storm costs, but then weather was actually $0.06 better than normal, I think, Tony said. Was that baked in as well? Or would that be favorable to what you guys were seeing at the time?

So this is Tony. We -- when we come out with our -- came out with our guidance and our drivers to get to the $2.80 to $3 a share, we were assuming normal weather.

Your next question comes from the line of Charles Fishman from MorningStar Research.

I just want to make sure I got this right. Okay, you are reaffirming the 5% to 7% with the base of $2.90 for this year. But did I hear that the EPS growth will be a little above, maybe the higher end of that range in the early years and lag in the later years unless some potential CapEx comes along? Or were you just referring to the merger savings being front-end loaded, which are obvious from the information you provided? If you can just clarify that for me, I'd appreciate it.

Yes, well, they are both correct. I mean obviously, on the front end, as we ramp up the savings, there is an early lumpiness, if you will, trending on the front-end that drives in part the EPS pathway as well. And again, as it does that, the back-end is a little softer, we are talking about what we're doing to look at opportunities and needs for additional spending on the back-end from that perspective.

And there are no further questions at this time. I'll turn the call back to Terry.

Thank you, Lori, and thank you everybody for calling in this morning. Off to a good start and look forward to talking to you throughout the year. Thank you very much. Have a good day.

This concludes today's conference call. Thank you everyone for your participation. You may now disconnect.