Thank you for standing by and welcome to the Q4 2023 Evergy, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today’s call is being recorded. I would now like to turn the conference over to your host, Mr. Peter Flynn, Director of Investor Relations. Please go ahead.

Thank you, Valerie and good morning everyone. Welcome to Evergy’s fourth 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 2 and the disclosures 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 2023 highlights, discuss the economic development outlook and provide an update on our regulatory and legislative agendas. Kirk will cover fourth quarter and full year results, retail sales trends and our financial outlook for 2024. Other members of management are with us and will be available during the Q&A portion of the call. I’ll now turn the call over to David.

Thanks, Pete and good morning everyone. Before we begin, we’d like to extend our deepest sympathies to the family of Lisa Lopez-Galvan and all those who were impacted by the tragic events during the Chief Super Bowl parade, Kansas City and Chiefs Kingdom are grieving, but if there is one thing that I’ve learned during my time here, it’s that both are very strong and very resilient. Moving to Slide 5, I’ll open by describing the drivers for our fourth quarter earnings falling below our guidance. While we plan for normal weather, we know the importance of consistent financial execution we are disappointed by these results. As you know, on the third quarter call, we narrowed our guidance range to $3.55 per share to $3.65 per share from our initial range of $3.55 to $3.75, due primarily to the timing of the Persimmon Creek wind farm shifting back a year. As shown on Slide 5, results for the year were $3.54 per share. Weather at the end of the year was the driver of the shortfall. For both November and December and December in particular, with a 23% decrease in heating degree days relative to last year, weather was warmer than normal, resulting in a variance of $0.06 in these 2 months alone. As Kirk will describe, weather-adjusted demand was also soft in the fourth quarter relative to expectations, but we were able to offset those impacts leaving milder-than-normal weather as a driver. Our full year results reflect strong cost management with savings well beyond what was in our financial plan, which enabled us to offset the negative drag created by higher interest rates and lower than expected industrial load. In 2023, we reduced our O&M expenses by $129 million, equal to a year-over-year reduction of 12%. These efficiency gains…

Thanks David and good morning, everyone. Turning to Slide 14, I’ll start with a review of our results for the fourth quarter. For the fourth quarter of 2023, Evergy delivered adjusted earnings of $61.1 million or $0.27 per share, and that’s compared to $68.6 million or $0.30 per share in the fourth quarter of 2022. As shown on the slide from left to right, the year-over-year decrease in fourth quarter earnings was driven by the following: first, a 14% decrease in heating degree days led to a $0.05 decrease in EPS for the quarter. This impact was driven by warmer-than-normal weather over the final 2 months of 2023, which drove a $0.06 variance to our plan. December weather was particularly mild, which led to a 23% reduction in heating degree days in that month alone. Weather-normalized demand declined by 2.4%, primarily driven by lower residential and industrial demand, contributing to a $0.06 decrease in EPS. A $29.5 million decrease in adjusted O&M reflecting continued execution on driving cost efficiencies, drove a $0.10 increase. The net impact of higher depreciation and amortization was $0.07 for the quarter, which includes the partially offsetting impact of new retail rates. Higher interest expense drove a $0.07 decrease. The fourth quarter 2022 charge associated with the Kansas earnings review and sharing program, or ERSP, which is no longer in effect, drove a $0.06 positive variance. And finally, the net impact of tax items drove a $0.06 increased. I’ll turn next to full year results, which you’ll find on Slide 15. For the full year 2023, adjusted earnings were $815.6 million or $3.54 per share that’s compared to $853.8 million or $3.71 per share for the same period last year. Again, moving from left to right, our full year EPS drivers compared to 2022 include the…

Thank you. [Operator Instructions] Our first question comes from the line of Nicholas Campanella from Barclays. Your line is open.

Hey, good morning, everyone. Thanks for all the details today.

Hi, Nick.

Good morning. Hey, so, I appreciate the update on Kansas. I guess you noted discussions are ongoing. Could you help just give us any kind of color on what that includes versus, I guess, the initial proposals? I’m just kind of thinking depreciation deferrals, equity layer ROE, just how to think about the components if you have any color? Thank you.

So thanks, Nick, for the question. We won’t get ahead of the process in terms of describing the details that emphasize that we’re working hard with parties toward achieving a constructive compromise. And I really can’t thank the parties enough. This is hard work. It’s hard work on through the legislation we had several weeks. So that’s legislators, KCC staff, curb, industrial stakeholders, Governor’s office, others. So we’re working with those parties. And what I’ll describe is the – this is a very transparent process, as you know, so continue to watch developments in the legislative process that we’re able to reach a constructive compromise because there is a lot of shared alignment on the goals of economic development growth. Then you’ll see the next steps would involve going to the House Committee and from that to the full house and hopefully on to the Senate. So keep an eye on what’s going on in the legislative process. That’s the best way to get a sense for where the discussions are going and what they include. But again, we want to really thank the parties as we continue to work with.

Absolutely. I appreciate that. And then I guess, just quickly on, I guess, the credit side, you’re at 15% of [indiscernible] debt. I think you’re targeting greater than 15%. So can you just help us understand where you are in this new plan, how you’re trending? And then I know you’ve reaffirmed no equity needs, I think, through ‘26. How do we think about any potential equity needs to be on that? Thanks.

Sure. Nick, it’s Kirk. So building on top of that roughly 15% pro forma, which includes adjusting for the impact of the successful securitization and obviously, the impact of new rates, which we know, moving into Kansas. If you look at some of the components as we move into 2024, for example, there are other items that are additive to numerator, for example, most notably, the ongoing impact with minimal – basically no lag from our transmission investment, so that increases numerator. So we expect a surplus over that threshold as we move into 2024. We expect to utilize that surplus as we move forward into 2025 and ‘26, augmented by continued robust generation of operating cash flow because as you know, we’re not a current taxpayer. So those two components continue to give us confidence that we can use that surplus that we’re plugging into ‘24 on those ratios to fund that capital investment program without that need for new equity. Beyond 2026, we haven’t actually said – at some point, we will pivot to equity needs. We want to do that prudently, and we want to do that on a measured pace, both from a standpoint of keeping a reasonable trajectory on EPS but also with equal importance maintaining those credit ratios, which obviously allow us to maintain those ratings, which is important from an affordability standpoint for our customers.

Alright. Appreciate it, thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Michael Sullivan of Wolfe. Your line is open.

Hey, good morning. Thanks for the update.

Good morning.

Hi, David. I wanted to ask just on the CapEx update and we kind of break it out by jurisdiction and how much thought you gave to potentially shifting amongst your jurisdictions based on some of the outcomes that we got? It looks like Kansas Central was still up, I think plan-over-plan. Yes. Just how do you think about that in light of the outcome you got last year? I know a bunch of your peers have maybe taken more aggressive approaches in terms of shifting between jurisdictions based on outcomes.

Yes. Mike, I think it’s a good question. I think that we – and as you have seen, a lot of our peer utilities, there are pace of rate base investment was already higher than ours in terms of their annual rate base growth, and many of them have increased them significantly recently. So, the gap has widened. So, if you look at our – break it down by jurisdiction, you look at Kansas Central and Kansas Metro, the biggest source of increases in generation, particularly in the out years, and that relates to a need for new dispatchable generation resources. If you look at the earlier years in the categories of kind of traditional T&D grid and other categories, there is a modest decline. I mean that’s in the context of an inflationary environment for equipment and otherwise. So, we are making the investments we need to, to ensure reliability and serve the new customers that are identified, but we do believe, and this is a discussion we have had with stakeholders that to really take advantage of the opportunities in Kansas. There is an intersection with the regulatory mechanisms that are in place. So, when you drill down to it, you will see that, that the modest upticks in Kansas are really driven by the need for the new generation in the out years, particularly new dispatchable generation.

Okay. And kind of just along that, how influence can these plants be to the outcomes you get in the legislative session this year? Could we see further shifting to the extent that you do or don’t have success?

Mike, I think that’s a great question. If we – part of the dialogue with our stakeholders in Kansas is around the need for incremental investment, if we are able to reach a constructive comprise that reflects shared belief in the infrastructure investment needed, that’s really what’s underlying the push here. I do think you will see us evaluate our capital plan for incremental opportunities and pursue those. Now, we will do that in a systematic process, of course, and make sure that, that’s a process where there is full transparency to both our – of course, our stakeholders in Kansas and the market. But I think you will see that these factors do go hand in hand underlying reflection of support for that kind of infrastructure investment will be matched by an increase in that kind of investment, which we think will be really beneficial as Kansas pursues the growth and development opportunities.

Okay. Great. And then my last one, just on the Missouri West case, it looks like you got a settlement on the Dogwood plan. Beyond that, any particular areas where you are expecting the most pushback?

No, it’s – Mike, it’s a pretty straightforward rate case. It’s largely we had a rate case 2 years ago. So, our ‘22 and ‘23 rate cases were after long stay outs, first since the merger. So, this one is a little more straightforward in that regard. So, the biggest elements I think you would see it reflected in the charts we have been posted on there are incorporating capital additions and incorporating the impacts of higher cost of capital environment. There is some transmission expense related to a generation plant that’s part of it, that’s relatively modest. But for the most part, it’s a pretty straightforward rate case. A lot of the complicated issues that I know we discussed at length with you going in the last one, thankfully resolved in that one. So, it’s generally a pretty straightforward rate case centered on the investments we have made since then and the authorized returns related to it.

Good to hear. Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Paul Zimbardo of Bank of America. Your line is open.

Hi. Good morning team. Thanks a lot.

Good morning.

I promise I will not ask about the legislation. The first one I have…

Not even when I hear it.

Just in terms of the base demand, kind of the new incremental load customers, the 2% to 3% versus the base of 50 basis points to 1%. Is there a good way to think about like an earnings sensitivity or just what the contribution of that is through the plan?

In terms of earnings sensitivity, I wouldn’t call it linear from that perspective. These are obviously large industrial customers, which come with rate incentives there. It is certainly additive from a tailwind perspective, but difficult to give you specifics beyond that because it literally has to do with, obviously, the individualized contract that those customers negotiate going forward. And it is a ramp-up period, right. At that 2% to 3% on top of that 0.5% to 1% really builds over time. We will start to see a modest contribution in ‘24, but it really kind of reaches its pace as we move into 2026.

I would just echo Kirk’s comment, though, on – this is David, that these are industrial customers, which as you know, the profile of those are helpful, important for covering fixed costs, but generally less impact than equivalent load growth in commercial and residential.

Okay. Yes. Understood. And then the second I had and not to get too technical, but I noticed there is a pretty big increase in CapEx for 2028 on the generation side. And you give year-end rate base in your guidance for 2028. Is there a large CWIP balance or just anything we should think of like i.e., could there be faster growth in that period with CWIP on top of rate base growth versus the 6%, if that makes sense?

That is certainly a possibility. I mean certainly, that’s natural gas plants aren’t a – you write a check at the end right before the COD. So, we are going to be building that, that informs capital investment over time. And that obviously entails a building balance in CWIP. Certainly, getting timely recovery on CWIP is one of our objective is as we look for kind of reforming the type of regulatory mechanisms that are designed to incent that. So, as we move forward on some of the legislations, which we won’t comment on, I think that will inform largely the impact on some of those elements, which are helpful, especially for large capital projects like that – like the natural gas plant sort of the back end of the plant.

I think the 6% rate base growth is indicative of the overall capital plan and trajectory is what I described, and you can follow-up on some of the details. What I emphasize also is that we are pursuing a pretty balanced portfolio as you have seen. And actually, you have seen that from a number of our peer utilities as well with the growth that we are seeing. Adding new dispatchable resource is also an important part of the mix, and that generally has pretty wide support in our jurisdictions. And it’s an important part of the investment program. So, adding gas, while we are adding wind and adding solar, leading that responsible energy transition, but with the balanced portfolio is an important part of the mix. And I think we have got alignment with our stakeholders in our states around the importance of doing that.

Thank you very much.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Paul Fremont from Ladenburg Thalmann & Company. Your line is open.

Thanks. It looks like you have got a lot of legislative and regulatory initiatives. Can you maybe just prioritize for us in your mind, which are the ones that are most important from your perspective?

Sure. So, I think as probably reflected by the number of minutes devoted to the topic. Our legislative initiative in Kansas, really a broader effort to work with policymakers and stakeholders in Kansas to support electric infrastructure investment, to support economic development and growth. That I would list as our top priority. And there are other mechanisms. I mean we are talking with the same parties who we would work with in the regulatory front and other laws. So, I think the importance of having constructive dialogue, alignment around those shared objectives is key. But that’s our latest – I would characterize that as our number one legislated priority. We have some activities underway in Missouri as well, and those are important. They are also reflective of important priorities, but it’s fair to say that the prospects in the Missouri legislature this year in general for legislation are more challenged. And there – I think there is nearly the double-digit number of state legislators running for a statewide office, it’s an election year. So, the overall dynamics in Missouri are less likely to lead to legislation. But I would also say that there is maybe a lower priority there. Very constructive legislative actions taken in Missouri the last couple of years with the extension of pieces, some other changes to piece of the addition of the property tax rider. So, items [ph], our relative priorities on the Kansas side and the mechanisms that we have talked about there.

Sort of second question, would a slower level rate of dividend increase sort of improve your ability to deliver on sort of the EPS growth target that you have?

I would say marginally from that standpoint. Obviously, we had a little a little of a lower increase, obviously, commensurate with our change in the growth rate, but it’s very important for us to have a good blend of obviously capital appreciation and current returns. So, we want to be mindful of that delivering the right mix for our investors. As we pivot to maybe potentially a little bit lower or commensurate with our growth rate, the reduction in the dividend, really, I would say, sort of contributes to our ability relative to higher levels of dividend growth to fund that capital expenditures, right. It helps us maintain those all-important credit ratios that I talked about before.

And just to clarify, Kirk was referring to a reduction in the rate of dividend growth, not a reduction in there. So, we had a 5%, we raised our dividend growth 5% last quarter, consistent with the midpoint of our earnings growth rate range. I think you raised a good question, just stepping back around the mix of what’s your dividend payout ratio as you think about the overall funding for your capital plan. We have described that we don’t see a need to issue equity through 2026. So, I think that in particular, becomes a factor that our peer companies are issuing equity seek to balance and what’s the right payout ratio or otherwise. We described the target payout ratio of 60% to 70%. That remains our payout ratio, but being thoughtful about our – the growth rate in our dividend as our earnings grow and keeping those in tandem and thinking about that payout range is probably how we are considering.

And then last question for me. It sounds like you could still raise capital spending levels without issuing equity. Is there sort of a limit to that increase where – or what would be the threshold where you would have to issue to issue equity?

So, we won’t give the exact number on. Obviously, those things go in tandem. You can’t – if we raised our capital plan, a very significant amount you have to think about the funding approach to that. And the governor is really what Kirk described earlier. We look at our credit ratios and maintaining the ratios we look at in the Moody’s threshold. So, as we consider changes to our capital plan, there is always room in that capital plan and just a matter of how significant the changes would be. But in general, we described with the capital plan we have, even with the changes we have implemented that were reaffirmed that we don’t expect the issue equity through 2026. We made major changes in the capital plan. We would be looking at the funding approach at the same time.

Okay. And then I guess if you were to sort of go to incremental levels what percent of would you see as being funded with equity?

Well, again, I would describe, we don’t see in our capital plan and need to issue equity through 2026. So, I think you are probably getting ahead of the aim a little bit with that question. I think what we would – it relates to the question of it’s not formulaic, but the discussions we are having in Kansas particular about how do we fund electric infrastructure investment to support economic development and growth. A lot of that comes down to T&D investment and having that in place and where you put that and how you put that in place. So, it will be much more tackle around the timing and the positioning of where we make some of those investments to support the growth. So, it’s not equivalent to adding a huge new solar farm or big new gas plant where you got orders of magnitude that drive the kind of changes you may be discussing. So, we will look at that on an integrated basis, but we are pretty thoughtful about how we approach our financing plan and how we think about the timetable for when we issue equity. So, I think your question is signaling some kind of major change. I wouldn’t think about it that way. I would really think about how we are going to be funding and where we are getting the opportunities to fund this, particularly T&D and some good work to support economic development and growth in Kansas. That’s what we are working towards with our stakeholders.

Great. Thank you very much.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Paul Patterson of Glenrock Associates. Your line is open.

Good morning. How are you?

Good morning Paul.

Very – just one sort of quick sort of follow-up question from dollars [ph] on the Slide 9, just as opposed to the earnings impact associated with these industrial customers, you have mentioned that there is an impact from spending more fixed cost over greater megawatt hours I guess. Could you give us a flavor as to what that is? I mean if you don’t have it, that’s cool. But I am just wondering where is kind of the rate impact of these industrial development initiatives I guess?

I will say on what rates negotiated of course, very large loads get special contracts. I think the best way to describe it, we actually have a waterfall that goes through 2023 to 2024, so we show what the overall impact of weather and demand is in that. So, it’s part of the improvement that we see in the trajectory from ‘23 to ‘24. But in general, the industrial load, while it does help and drives incremental cost savings and opportunities, it doesn’t have the same level of impact as residential and commercial because of the rate structure. But to get a good flavor of how that translates because we give the growth rate estimate and the impact on EPS and that, I think it’s a waterfall slide in the back half of the document. So, we can walk through that with you offline just to see how that translates. But it’s a – any savings that are generated, of course, through rate cases are going to be shared. So, if you – one of the best thing as I described in my note, the best way to keep rates affordable through growth. And that affordability gain in the near-term, it can have some EPS impact. But we are going to have a regular cadence of rate cases now. That’s the great benefit of it is that’s what’s going to keep rates affordable for our customers, of course, that gets shared.

Okay. Thanks so much.

Thank you.

Thank you. And that’s our time for the Q&A today. I would like to turn the call back over to David Campbell for any closing remarks.

Thank you, Valerie and thanks everyone for your interest and time this morning. That concludes the call today. Thank you.

Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.