Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 Evergy, Inc. Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Ms. Lori Wright. Thank you. Please go ahead, ma'am.

Thank you, Amanda. Good morning, everyone, and welcome to Evergy's First Quarter Call. Thank you for joining us this morning. Today's discussion will include forward-looking information. Slide 2 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 and include additional information on non-GAAP financial measures. We issued our first quarter earnings release last night. The release is 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 give an overview of the quarter and provide a business update, including a discussion of COVID-19. Terry -- Tony will update you on the details of our latest financial results and 2020 drivers. With that, I'll hand the call to Terry.

Thanks, Lori. Good morning, everybody. Before I get started, I want to extend my deepest sympathies to those that have been directly impacted by the pandemic. I'd also like to extend my sincere appreciation to those professionals and critical functions who continue to work, especially first responders and frontline medical professionals who have been the real heroes through all of this. As I'm sure it's been for everyone, the last couple of months have been unique and challenging. I'm proud to work in the industry as a whole, and I'm proud of Evergy, specifically, what we've done to meet the needs of our customers, employees and shareholders. We remain laser-focused on doing our job to deliver safe and uninterrupted power, especially during a time when we all are relying on electricity more than ever to power our increasingly virtual lives. I want to thank our entire team for their continued focus on safety, customer service and execution during these trying times. This effort has been a reflection of Evergy's "people first" culture. Now turning to results. As you can imagine, we have a lot to cover this morning, so I'll cover the emerging issues and our response to those and turn it over to Tony. Tony to get into the details of our financial results, where despite the warmer-than-normal winter weather, we delivered GAAP earnings per share of $0.31 and non-GAAP adjusted earnings per share of $0.41. Also note, the Board displayed confidence and the flexibility and stability of our current plan by declaring a dividend in line with previous quarter. Now on Slide 5, I'll update you on the latest on our COVID-19 response plans. Being in the Midwest has been an advantage as we face this global pandemic. Not only does our service territory include rural areas that…

Thank you, Terry, and good morning, everyone. I'll start with results on Slide 10 of the presentation. We reported first quarter 2020 GAAP earnings of $0.31 per share compared to $0.39 per share in the first quarter of 2019. The decrease in EPS is primarily due to warmer winter weather and lower COLI benefits, partially offset by lower operation and maintenance expense. We turned in a solid quarter, notwithstanding extremely warm winter weather that obviously hurt sales, and no COLI income compared to over $6 million in the same period last year. Adjusted non-GAAP earnings were $0.41 per share compared to $0.44 per share in the same period a year ago. As shown in the chart on Slide 10, adjusted EPS was driven lower primarily by unfavorable weather and lower other income and was partially offset by lower O&M and fewer shares outstanding. Importantly, our efforts towards cost management yielded a $37 million decline in O&M, 13% lower than the first quarter last year. This reduction is highlighted by a decrease in T&D expenses due to cost reduction initiatives and the impacts from the January 2019 winter storm, overall reduced headcount and associated benefit expense, and lower plant expense from fewer outages at our generating units. As far as merger savings go, we continue to execute well. We exceeded our 2019 targets, remained ahead of schedule through the first quarter this year, and expect to beat the 2020 mark established by the original merger targets. When we first began discussing the accretion of Evergy, there are nearly 6,400 positions among our legacy companies and Wolf Creek, our shared nuclear facility. Today, we're down to about 5,400. We've created a more efficient company without sacrificing operating capabilities, and all of this has been accomplished while staying true to our commitment of…

All right. I appreciate everybody joining. Now we'll take questions.

[Operator Instructions]. Your first question comes from Paul Patterson.

Can you hear me? Hello.

We can now.

Sorry about that. Okay. So I was just wondering, could you give us a little bit of a flavor for when -- I noticed that you guys said that the CapEx has been changed, though there's been some deferral with respect to projects into the second half of 2020 and then 2021. But when I look at the annual CapEx numbers, it doesn't seem like anything has materially changed year-from-year. So should I assume that just -- it isn't that material in the course of 2020 versus 2021?

Yes. We were trying to stress that we're being flexible in our projects over the size and type as we can. And given continued social distancing, we might move some projects back and around. But I wouldn't say we have definitive plans around moving year-to-year that are material.

Okay. And then in terms of just how we see CapEx and sort of where -- let me ask, if we do see deep recession, and I know it's hard to tell being the unprecedented nature of what we're seeing right now, but if there was a deep or significant recession, how should we think about the long-term CapEx numbers that you have? How flexible are you on those, I guess, if you follow me?

Well, we're flexible in the sense that the same description of the projects, their size and their type, would give us that kind of flexibility. So we don't have a large single project that we might start and have to finish. Having said that, we also don't currently see any need for deferral, given our liquidity position and our plans for both execution on those projects and our balance sheet as a whole.

So there isn't a lot of economic sensitivity, I guess, to the CapEx is how we should think about it even if we were to see a significant fall off in economic activity? Is that safe to say?

Well, again, I hate to make a generalization around something that's so unprecedented at this time. But again, I would stress the flexibility we have around each of the projects so that we have the ability to move things around, and that from what we can see to date, we don't see a need to make any changes to either near-term or long-term plans.

Okay. Fair enough. And then on the -- just in terms of arrears or in terms of bill payment, could you give us a little bit more flavor as to -- if you're seeing any significant change, either in residential or commercial or what have you, in terms of people being late with their bills or paying on time, that kind of thing?

Well, we've certainly seen the effect in bills that you would see, which is a little early to see a big uptick in what would have been disconnections or collections around bills as it's really a month old. That's why we're working so hard both with our own project, our own communications and with our commissions around opportunities to work with customers to avoid those bills from building up. So part of that Kansas recommendation from the staff that we talked about provided a recommendation that customers would be allowed to spread any delinquencies over a 12-month period. That was one of the things we were talking about, and then obviously suggested also that utilities to be able to recover those costs. So it's a little early in that process, but we haven't seen any real spikes in either the accounts or arrear just yet, but it's still a little early, that's for sure.

Okay. And then just finally, on the strategic review, you mentioned the July 30 date and what have you. And you also mentioned that, of course, the markets have been a little bit of turmoil in them. Just any sense as to if that's changed any -- if that's changed your perspective at all or emphasis or just sort of give more of a flavor maybe if you have one in terms of how that might have altered or not the strategic review, and what options you guys are -- might be exploring more or less as a result of it?

I don't think it's changed our perspective at all on either the chore of committee or the focus of the committee. Obviously, given what was happening in the market, it made sense to everybody that we should delay, if you will, the market -- strategic market activity. We continue to meet. We continue to work on the stand-alone plan analysis, which is obviously internal to us, and make progress there. So we're working. We're meeting. Focus stays the same. Just simply the market piece of that, obviously, we thought would benefit with addition of some additional time. That's really the only change at all, nothing from a focus perspective. .

Your next question comes from Julien Dumoulin-Smith.

I wanted to follow-up on the O&M reductions. I'm just trying to square that against the underlying sales trends here. And thank you for the detail, I appreciate it. Can you talk a little bit to the netting here of the updates? So you gave some sensitivities earlier. You gave some thoughts on the sales trends in April. What -- when you think about an EPS shift, and I know you don't have guidance out there for '20, but how much of a reduction are we talking about in sales expectations relative to what seems like a modest reduction from 5% to 8% to 6% to 9% reduction on the O&M? So tell me if I'm missing something there, one versus the other. And then the follow-up to that would be, how do you think about '21 and onwards? And I know it's very early, but I'm thinking more on the cost side, the sustainability of those reductions.

So let me take maybe the middle one first. The 6% to 9% decrease is really, I would say, a product of our work, lest a real offset related to maybe COVID, they fit together, obviously. So I wouldn't suggest to you the 6% to 9% is a limit there. But certainly, that's an uptick, and that's due to our work that we've already been working on in the last year and certainly recently. That's less directly connected, I guess, to what we're seeing from sales because, to your first question, it's really hard, again, as we're sad to say, April would necessarily be what we'd expect going forward. And so I think what we're seeing though is that even though we saw a downtick in April, as most folks would expect, we're happy to see that we -- it is manageable. And at least in the near term, we think we're able to offset a lot of that impact. Obviously, if those impacts lasted all year long, it get more difficult as the year went on. From a '21 perspective, yes, don't really have any way to gauge what effect it might have on '21 other than to say, again, we don't see any capital projects that need to be adjusted. And I would tell you that the 6% to 9% is reflective of OEM cuts that we believe are sustainable.

Maybe if I can ask for a little bit of a clarification. When you think about the ability to tap further in some of these cost reductions, what would it take for you to move forward on that? I mean, clearly, April has been probably the most acutely impacted here, and we'll see what the trend is in May and onwards. But how do you think about the need to tap into more to 6% to 9%. And I don't know if we're dancing around the subject of guidance here a little bit, but how do you think about tapping more into that over the course of the year and what the depth of that is?

I don't have a range for you, but I would say, obviously, if it continued to be an acute sales issue then you can consider start doing things that are not sustainable. You do things to be responsive to that event. We'd always watch to be sure we weren't doing anything that was damaging the long-term shareholder value. But you could do some things that you wouldn't expect to do on an ongoing basis. We have some room there, I guess, to say. But again, the 6% to 9% are things that we're planning to work on that are sustainable and in our plan. Other than that, obviously, from an ongoing analysis perspective, we're working on other things that could be included too, but we're not through with that work as we move forward over the course of the next couple of months.

And remind us quickly, your stay-out subject is strictly to Kansas, right? There is some latitude to the extent necessary to shift at least planning in Missouri, right?

There is. We could move a case up if we really needed to, but our plan continues to be to leave it in place for 2022.

And your next call comes from Steve Fleishman.

Just on the effective tax rate, the comment there on the continuing to monitor pandemic impacts. Can you discuss how that impacts your tax rate?

Steve, this is Tony. So I think the guidance drivers that we issued initially were 12% to 14% effective tax rate. That's something that we'll be monitoring going forward. Obviously, if our taxable income goes down, that rate could change over time.

Okay. It's just simply that. Okay.

Yes.

Okay. And then I know someone had already asked about kind of color on the review, strategic review. Just -- do you anticipate that there would be need for any further delay? Or you think at this point that this is kind of the time -- this is the likely time line?

Yes. I don't want to get out ahead of the committee, but I don't think so. I mean I think 60 days, I think, gave us an opportunity to continue on the stand-alone plan work and give us some time for things to settle out. But I wouldn't anticipate at this point, additional delay.

[Operator Instructions]. Your next question comes from Durgesh Chopra.

Just one question for me. Can you perhaps give us any color on your FFO-to-debt or other credit metrics? Were you tracking versus targets? And then with the new O&M reductions and then perhaps what you're seeing in the top line, some drag on sales, where do you expect to end the year versus your targets?

This is Tony. So on our FFO-to-debt targets, at the utilities, in general, we're targeting 18% or above; at the holding company, 15% or above. I believe Moody's just came out with some reports earlier and kind of affirmed our ratings. As far as targets towards the end of the year, that kind of depends on the duration of the sales decline and also kind of to the extent that the O&M offsets.

[Operator Instructions]. And there are no further questions at this time.

All right. Thank you, operator, and thank you, everybody, for calling in. Everybody, be safe. Have a good weekend. Thanks.

That does conclude today's call. You may now disconnect.