Good day and thank you for standing by. Welcome to the Third Quarter 2023 Evergy Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Peter Flynn. Please go ahead.

Thank you, Michelle, and good morning, everyone. Welcome to Evergy's third quarter 2023 earnings conference call. Our webcast slides and supplemental financial information are available on our Investor Relations website. at investors.evergy.com. Today's discussion will include forward-looking information. Slide two and the disclosure in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations. They also include additional information on our non-GAAP financial measures. Joining us on today's call are David Campbell, President and Chief Executive Officer; and Kirk Andrews, Executive Vice President and Chief Financial Officer. David will cover our third quarter highlights, provide an update on our regulatory and legislative agenda and discuss updates to our financial outlook. Kirk will cover in more detail the third quarter and year-to-date results, retail sales trends and our long-term guidance. Other members of management are with us and will be available during the question-and-answer portion of the call. I will now turn the call over to David.

Thanks, Pete, and good morning, everyone. I'll begin on Slide 5. I'm pleased to report that Evergy had a solid quarter as we delivered adjusted earnings of $1.88 per share compared to $2 per share a year ago. The decrease was driven by milder weather and higher depreciation and amortization and interest expense, partially offset by lower O&M expenses, higher corporate-owned life insurance proceeds or COLI and tax items. Results for the quarter were also impacted by over $9 million in excess O&M storm costs in July, driven by a mid-month storm, which brought straight-line wins of over 80 miles per hour over much of our service territory. Overall, I'm pleased to report that our reliability metrics held strong for the quarter. Relative to last year, average outage duration and frequency, measured by SAIDI and SAIFI, have improved greater than 5% through September and remained favorable relative to our targets. This is a strong testament to the work of our distribution and transmission teams to restore power and keep the lights on, as well as the investments that we have made in our system. With these results year-to-date, we are narrowing our 2023 adjusted EPS guidance range to $3.55 per share to $3.65 per share. While we've offset the excess storm costs and delivered O&M savings well beyond our initial guidance for the year, we have not been able to offset the full magnitude of headwinds elsewhere, most notably from higher interest expense and the shift of Persimmon Creek from Missouri to Kansas. Kirk will discuss these drivers and net onetime effects in more detail. Looking beyond 2023, we are establishing a new long-term adjusted EPS growth target of 4% to 6%, off of the midpoint of our original 2023 adjusted EPS guidance range of $3.65 per share. Since the…

Thanks, David, and good morning, everyone. Turning to Slide 12, I'll start with a review of our results for the quarter. For the third quarter of 2023, Evergy delivered adjusted earnings of $432.3 million or $1.88 per share compared to $460.8 million or $2 per share in the third quarter of 2022. As shown on the slide from left to right, the year-over-year decrease in third quarter earnings was driven by the following: first, a 5% decrease in cooling degree days as compared to last year, drove a $0.07 decrease in EPS. Compared to normal, weather for the third quarter was favorable by approximately $0.08 per share;weather-normalized demand declined by 0.8% and driven by lower industrial demand, contributing to a $0.01 per share negative variance. The $11 million increase in adjusted O&M -- or decrease, rather, excuse me, in adjusted O&M reflecting continued execution on driving cost efficiencies, drove a positive $0.02 variance year-over-year. The net impact of higher depreciation and amortization was $0.07 for the quarter, which includes the offsetting impact of new retail rates. The combination of higher interest expense and lower AFUDC drove a $0.14 decrease with higher interest expense representing $0.12 of the variance. Higher COLI proceeds drove a positive $0.07 variance year-over-year. And finally, other items, both positive and negative, drove a net increase of $0.08, primarily driven by tax items. I'll turn next to year-to-date results, which you'll find on Slide 13. Through the nine months ended September 30, adjusted earnings were $754.5 million or $3.27 per share. compared to $785.2 million or $3.41 per share for the same period last year. Again, moving from left to right, our year-over-year EPS drivers include versus 2022 include the following: when combined with mild weather in the first half of this year, our year-to-date results reflect…

Thank you. [Operator Instructions] Our first question is going to come from the line of Shar Pourreza with Guggenheim Partners. Your line is open. Please go ahead.

Hey, guys. Good morning. Can we just maybe unpack the components of the growth rate guide? Obviously, interest expense is a component of that. What are you now assuming there as we think about the 23%, 26% CAGR and that 5% midpoint? And overall, I guess, what are you assuming for lag or any of the remaining levers like O&M? Just trying to get a sense on how much contingencies you've built in there at this point?

Shar, thanks for the question. So as we set the revised growth rate target, we did factor in -- our view of where the current macro conditions are. So certainly, the interest rate environment reflects the current forward curve, and it reflects the current regulatory mechanisms that are in place in our states. It reflects our current rate base outlook. And it reflects the O&M reduction plan that we previously described to investors. We're -- I'm very pleased with the work of all of our employees in accelerating some of those cost savings to offset some of the headwinds in 2023. But you'll recall that we've announced an ongoing O&M savings trajectory through 2025. I would characterize our actions this year is really an acceleration. And and where we're tracking, if not all the way to where we expect to be, we've gotten a long way towards it. So we basically holding to the prior O&M targets that we outlined separately. You'll see in our -- going back to our Investor Day, I think we teed up $960 million run rate O&M in 2025. Last year, it was more like $1.70 billion. Obviously, we reduced that significantly already year-to-date. So I would describe our go-forward plan is reflecting the disappointing results of the Kansas rate case the macro environment that we see and the headwinds on interest rates, but then the ongoing execution of our plants. So we're obviously disappointed in not having execution path that matched our prior targets but we feel good about the new plan that we've outlined. And obviously, as we emphasize, we do see opportunities to work with our regulators for ongoing changes to regulatory mechanisms that we think will be in support of the objectives of of our policymakers and stakeholders in our states.

Got it. And still no equity through '26, correct?

Yes. I would describe it, Shar, that the -- in our current capital plan, we don't anticipate a need for equity through 2026. As Kirk described, we'll update our capital plan on the year-end call. While we see significant additional opportunities for beneficial investments, investments that will benefit our customers and our grid, we'll shape the capital plan based on to reflect the objectives of our policymakers. And if we stick with the current capital plan, we don't anticipate that we'd see equity into 2026. So if we change it, then obviously, we'll update the financing claim at the same time.

Got it. And then just last, I know you mentioned in your prepared in the slides that you are working with Kansas regulators and policymakers on mechanisms. Can you just unpack that a little more? What does that mean as it relates to capital flows, for instance, between the two jurisdictions in spend? Thanks, guys.

Sure. So I described it at two levels, Shar. First on what it means in terms of what we're pursuing. So I do think that the -- there are several items coming out of the rate case that we've identified as priorities, and we think align with the opportunities that are in front of us in both Kansas and Missouri to support economic development. On that list include a clear and stable framework for capital structure. It is common for our peer utilities for utility holding companies to have responsible levels of holdco debt. We think that the dialogue through testimony and the Kansas rate case will give us the opportunity to advance that discussion, going forward. So capital structure is an important piece. The second piece is the opportunity to earn returns that are competitive with and commensurate with market conditions and competitive peers. And the third is around the time and recovery of capital. So those will be areas that we'll be focused on. Specific things we'll likely look at include -- we have plans to build natural gas generation for reliable hydrogen capable dispatchable generation in both states. So mechanisms to support that build-out will be an area of focus. And then on your question about allocation of capital, obviously, we will shape our capital plan always to meet the requirements of our jurisdictions for reliability and to meet our customer needs, but the incremental opportunities to invest, we think we'll benefit customers that will position us to capitalize on economic development opportunities. We'll shape that capital plan based on the mechanisms and policies that we see in the respective states.

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Nicholas Campanella with Barclays. Your line is open. Please go ahead.

Hey, good morning. Thanks for taking my questions. I guess just to follow up on some of Shar's questions. Like I think as you kind of look at the glide path through 2026, it implies something linear. But just how should we think about 2024? Can you kind of grow within this 4% to 6% range into 2024 as we kind of handicap what your earnings would be there? And is this CAGR linear? Or is it more lumpy? Thank you.

Exact. So obviously, we'll give our 2024 guidance on the year-end call. So we're not giving annual guidance at this time. But with the -- what we've described previously and with the mechanisms we have now, we don't we'll have the impact of the Kansas rate case, of course, impacting 2024. We mentioned that we're planning to file a rate case next year in Missouri West. That will be the rate case that we pursue that will impact rates in 2025. So you can expect in the cadence that I described roughly over two years more active regulatory calendar in calendar year 2025 and in fact 2026. So if the lumpier outcomes are often related to rate case outcomes in our -- we only have one of our jurisdictions going through a rate case next year. So we obviously know the importance of stable execution within the growth rate range, and we'll give more details on the 2024 guide in the year-end call.

Okay. Great. And then I acknowledge that you're kind of taking down the growth rate today and you have had some headwinds in Kansas. The mechanisms obviously aren't as constructive to deploy capital. But on this new plan, can you still do 6% rate base growth like prior plans? Or is that subject to change as well? I'm just acknowledging the comments I think Kirk said there's been a little bit of an acceleration even in '23, and you continue to highlight a lot of economic development. Thank you.

It's a good question. I do think that we -- our target growth rate range we described for rate base, we expect it will be in the 6% annual range. That is reflected in the capital plan that we published last year, and we always update that on the year-end call. It's part of a process we actually established in our jurisdictions following the merger. So we'll stick to that time line. We see significant incremental potential investment opportunities that we'll evaluate, but we will evaluate those in the context of what makes the most sense in terms of the policies and mechanisms that are in place in our states, and we'll allocate capital accordingly. So our -- we anticipate and we've shaped our plan to reflect that estimated rate base growth range. But whether we see -- I know a lot of our peer utilities have announcing incremental investment in capital. While we see a similar opportunity set, we're going to shape our capital plan based on the returns that we see. As of now, the mechanisms are a little more constructive in Missouri in terms of reducing regulatory lag, so helping you earn your realized return, but we're going to be working on in Kansas to see if their policy that reflect the objectives of our stakeholders as well as ours that we can move forward on that I think can help to inform the capital plan. So net, we'll evaluate the capital plan by year-end. We feel good about that 6% annual rate base growth with incremental opportunity is possible, but we'll be looking pretty hard at capital allocation in light of what we have heard and what we've seen in our jurisdictions around what they want to have and what they'd like for us to deliver for them.

One more follow-up for me, just to triple check, this outlook basically assumed the settlement? And just if anything gets tweaked on December 20, how should we think about that?

Well, we'll have to update you on the year-end call was the unanimous settlement. So you can never predict certainly, it's dependent on approval by the commission, but we're confident in the process, given the -- and the hearing around the settlement was involved in constructor dialogue. We're with the united settlements this plan does reflect an anticipation that it will be approved if it changes, and we'll obviously have to adjust accordingly if it does. But we think that the fact it was a unanimous settlement and is really delivering on the improvements of regional rate competitiveness that has been such a focus in Kansas, we think that it's on a good trajectory for approval.

Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of Julien Dumoulin-Smith with Bank of America. Your line is open. Please go ahead.

Hey, guys. Good morning. This is Dariusz on for Julian. Thank you for taking the question. Maybe just starting with the updated EPS growth target. Can you comment a little bit about when you roll forward your capital plan in February, that will be out through '28 and then the EPS target is through '26. So there seems there's a little bit of a mismatch there. Can you comment on -- maybe do you have somewhat limited visibility into what it looks like beyond 2026 or perhaps why that to your gap there?

You know, Darius. It's been our historical practice as well. We typically have a three-year forward outlook. I don't know if there's any magic to it. I think you can, you know, based on where we are today, our long-term growth rate target is 4% to 6%, but we've extended it through 26. But we certainly -- that's really just a matter of practice. We typically have that three-year outlook.

Okay. Appreciate that. Next one is you made comments about advancing the discussion on some of the mechanisms in Kansas, including the capital structure. Just curious if you could maybe speak about that in a little bit more detail. what might be the venue perhaps for advancing that discussion prospectively? Would that be in a future rate case filing or perhaps another forum?

Yeah, there are several different paths that we can go down on that. So it will be -- and especially once the rate case is approved, we'll get more visibility into it, but there's -- you can work that directly with regulators. You can work that with other stakeholders. What I really emphasize is that I think the rate case and the testimony that was included on the capital structure topic and there was luminous testimony on it, sets the stage for a good discussion, particularly if you look at [indiscernible] direct testimony in our rebuttal testimony, we've communicated the importance of competitive equity returns. We've communicated and have good evidence to show how it was common and almost universal for utility holding companies to have responsible levels of holdco leverage. And it's also common at the same time, have you have utility-only capital structures used in regulated rate making. So that's the dialogue that we're going to advance and a couple of different mechanisms that we'll evaluate as we as we advance that discussion. As I mentioned, we've got a rate case in Missouri West next year. We have a little time before our next planned Kansas rate case. There'll be a little bit of a dynamic in the final decisions around that. But that will give us some time to advance the dollar.

Okay. Great. Thank you. And if I could sneak in one more just quickly. Your prior Missouri rate cycle, you filed both at metro and Missouri West. It seems like it's just Missouri West this time around. Any reason for changing that at this time?

It was timely for Missouri West to file a rate case. So we're planning to do it for next year. We'll certainly -- for all of our jurisdictions, we'll look at the right cadence to do it. We had the long stay outs coming out of the merger. I don't think you're going to see those in the four-to-five-year stats, but it's timely for Missouri West rate case. So we're filing on next year and not currently -- not planned for Missouri Metro at this time for next year.

Thank you. And one moment as we move on to our next question. And our next question will come from the line of Steve Fleishman with Wolfe Research. Your line is open. Please go ahead.

Yeah, good morning. Thanks. So just on the I guess, first on the kind of interest rate impacts. So you're basically in the new plan, assuming kind of the current forward curves as they are?

Yes, Steve, it's Kirk. That is correct. We have our expectations were ongoing entries expense to where the curves are today. That's right.

Okay. And you mentioned the Kansas rate case being kind of a $0.15 difference versus the prior plan? Is most of the other difference, just the interest rate move?

Yes. In terms of the impact to the adjusted outlook on EPS and formed by that growth rate, that's right, yes.

Okay. Could you just talk to kind of how your credit metrics look in the new plan with the Kansas settlement FFO to debt metrics range?

Sure, absolutely. I mean I think we came out of 2022, about 80 basis points above the threshold of Moody's, which FFO to debt, and we are managing that plan going forward to make sure that we are at or above those thresholds throughout the plan, and that means through 2026. And that objective obviously informed our comfort with extending our expectation as now based on the current capital plan of no new equity to release 2026. So we're focused on hiring to those thresholds and those targets.

Okay. And your threshold again is what is it again? Is it 14% or 15%?

15%.

Okay. And just one more, I guess, sorry, on the capital plan. So I think you're going to update the capital plan on the year-end call, and you seem to be talking about maybe making updates by them. But like that's -- I mean that's pretty soon. Some of these processes in the state you're talking about, you wouldn't necessarily think would be kind of really started or done by the year-end call. Are these things that might get added like later on?

Yes, Steve, that's a good question. I think it is -- we announced the updated long-term growth rate outlook, and that's informed by our current rate base growth trajectory. Obviously, we'll add 2028. We don't yet have that in the capital plan. So that will be new either way. But our anticipation is that there -- we will, in conjunction with the finance, when you look at the allocation of capital across jurisdictions will reflect the -- we had a revised integrated resource plan since we put out that capital plan at year-end. But the overall parameters and overall growth rate levels, I suspect you're right, that will be in line with what we're seeing here, but with some tweaks and without the evaluation of capital allocation. across different areas. When I was speaking to the additional incremental opportunities, you're on track. I think those opportunities will particularly be informed as we look at mechanisms and ability to realign with key policymakers and regulators on positioning the state to take advantage of some of the economic development opportunities, which will take some incremental investment and I think some real opportunities there. Now again, things differ a little bit and Missouri side the regulation is more constructive in terms of mitigating lag, and we're aligned with other utilities in that state. So a lot of this comes down to working on mechanisms of Kansas, and that will inform how we shape our capital plan, particularly over time.

Okay. And then maybe just one last thing on just that last point of Kansas because obviously, this would have been a relevant thing to be aware of kind of in the current rate case too in terms of perceived ability to -- for future kind of growth and all the stuff. Just like is there any olive branches or things that have been shared that should give us any hope that the other folks are going to engage in a -- along the lines of what you want as opposed to kind of what happened in this rate case?

Yes. I think people have to -- we'll have to demonstrate those results on the Kansas side, so it's not the show-me side of our two jurisdictions. But non element of seeing that happen. What I think is the groundwork that creates a positive context of that discussion is the sheer amount of economic development potential that we see in Kansas. We know that it's important for many stakeholders in the state to be positioned to take advantage of that because they see those opportunities and they know that for us to be in a position to meet -- for example, I've mentioned over 600 megawatts of potential incremental capacity needs. If we're in a wait if we always are waiting until it's already there to build things and it's harder to be in a position of attracted and meet it and the timeliness that's required. So I think that backdrop of economic development potential is a positive one to help advance the discussions. But there's no question that we've got work to do on the capital structure front and on the insurance that we have competitive -- the opportunity for competitive returns. So work in front of us. We do think that backdrop of a lot of economic potential and potential opportunity in Kansas is the right way to do it. We also think it's the right frame to pursue that discussion outside the context of the biggest -- such a big rate case, the first one in five years since we formed the company with unique global attention. So we think the time is now to work on and address that issue.

Okay. All right. But you're saying -- you think it is, are you getting a sense that other people kind of get that too?

I think we've got the opportunity for us to constructive discussions. We've obviously got work to do to get it done.

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Paul Patterson with Glenrock Associates. Your line is open. Please go ahead.

Hey, good morning. I just want to just I apologize for not completely following the capital structure issue. And that's been asked a couple of times. What are I guess, if I'm understanding it and tell me where I'm wrong, you guys are planning on having discussions with them about getting to the ability to sort of have a basically that the utility capital structure would be looked at and the holding company in the context of how it's treated in other jurisdictions like FERC and what have you. Is that the way to sort of think about it?

Yes. Paul, I think you've got it right.

Okay. And then I did notice, as I did, I think, on the first quarter that there was a benefit from capitalized interest. How should we think about that going forward? Was this -- I think it was a benefit this quarter. How should we think about the potential benefit or what have you going into 2023 or 2024, excuse me, I apologize.

Paul, it's Kirk, I think as you're thinking about capitalized interest, you may be referring to the fact that we're able to defer some of the interest cost on...

I apologize. Sorry, go ahead.

Capitalized O&M.

I apologize.

All I would tell you is that our capitalization of certain portions of O&M is informed by the activities that either directly or indirectly support our capital investment program and is consistent and well researched from a benchmarking standpoint, time studies and the like. So it's basically in line with industry policy and certainly reflects the initiatives that are underway in terms of improving our infrastructure and investing in things like new generation. So it's really important by that and expect it to be pretty consistent going forward.

Okay. So it's just a general, there wasn't anything -- because it looked like it was a benefit this quarter, there isn't any particular project or anything that's causing that. That's just sort of there isn't expected to be much of a deviation in that, I guess, is the way to think about it going forward. Is that correct?

No. Nothing of significant change going forward.

And the benefit in the quarter and year-to-date was an overall reduction in O&M cost, which obviously is a much broader reflection of our overall O&M cost reductions.

And I would now like to hand the conference back over to David Campbell for any closing remarks.

Thank you, everyone, for your participation in the call today. We look forward to seeing you at EEI. That wraps it up.

This concludes today's conference call. Thank you for participating. You may now disconnect.