Executive Summary

Q3 2016 EPS was $0.62 ($0.63 ex-merger costs), up from $0.58 ($0.58 ex-merger) in Q3 2015 on stronger electric gross margin, lower O&M, and favorable summer weather; net income rose to $27.5M from $25.3M. Guidance for FY2016 remained $1.26–$1.44 despite a one-time D&A adjustment and higher depreciation tied to the Riverton combined cycle facility .
Missouri PSC approved a ~$20.4M (4.46%) electric base revenue increase effective Sep 14, 2016; management said lower fuel costs offset the revenue level vs request, implying little gross margin impact. Arkansas also approved the merger; a settlement was filed in Kansas with an order due no later than Jan 10, 2017—positioning merger close for Q1 2017 .
Operationally, electric segment gross margin increased $6.7M YoY; O&M fell ~$2.4M, while depreciation and amortization rose ~$3.7M including a one-time ~$2.6M rate-case adjustment; AFUDC and interest modestly pressured earnings. Gas margin was flat YoY .
Dividend maintained at $0.26 per share (payable Dec 15, 2016); no change to 2016 guidance assumptions (average weather, <1% energy growth, ~50% of $15–$17M merger costs in 2016) .

What Went Well and What Went Wrong

What Went Well
- Electric gross margin rose $6.7M (+5.7%) YoY on rate increases, favorable weather, and customer growth; residential and total on-system kWh grew 5.1% and 2.8% YoY, respectively .
- O&M decreased ~$2.4M YoY; management emphasized results “adjusted for weather and the merger-related costs … continue to meet our expectations,” and reiterated unchanged guidance post rate case outcome .
- Regulatory momentum: Missouri electric rate case approved (+$20.4M), Arkansas approved merger, and Kansas settlement filed; management “awaiting only approval from the Kansas Corporation Commission” with expected Q1 2017 close .
What Went Wrong
- Depreciation and amortization increased ~$3.7M YoY, including a one-time ~$2.6M adjustment related to the Missouri rate case, and higher D&A from the Riverton combined cycle completion—diluting the O&M benefit .
- AFUDC declined (–$1.6M earnings impact) and interest expense ticked higher (~+$0.3M), modestly pressuring net income .
- Gas margin was relatively flat YoY in the quarter, and TTM gas margin remained pressured by mild winter weather (–10.1% YoY for the twelve months ended Sep 30) .

Financial Results

Quarterly financials (oldest → newest)

Metric	Q3 2015	Q2 2016	Q3 2016
Gross Margin ($MM)	$122.6	$100.3	$128.7
Operating Income ($MM)	$35.8	$19.4	$39.0
Net Income ($MM)	$25.3	$9.2	$27.5
EPS (Basic) ($)	$0.58	$0.21	$0.62
O&M Expenses ($MM)	$40.8	$41.0	$38.4
Depreciation & Amortization ($MM)	$20.1	$20.8	$23.8

Segment breakdown (gross margin components)

Segment Metric ($MM)	Q3 2015	Q3 2016
Electric Margin	$116.6	$123.3
Gas Margin	$3.8	$3.7
Other Revenues	$2.2	$1.7
Total Gross Margin	$122.6	$128.7

KPIs (volume)

KPI	Q3 2015	Q3 2016
Residential kWh (MM)	514	541
Commercial kWh (MM)	437	444
Industrial kWh (MM)	287	289
Total On-System kWh (MM)	1,366	1,404
Retail Gas Sales – Residential (Bcf)	0.11	0.08
Retail Gas Sales – C&I (Bcf)	0.10	0.11
Total Retail Gas Sales (Bcf)	0.21	0.19

Notes: Company highlights adjusted EPS ex-merger costs at $0.63 in Q3 2016 vs $0.58 in Q3 2015; see reconciliation table in the press release .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
EPS (GAAP)	FY2016	$1.26–$1.44 (Feb 26, 2016 update)	$1.26–$1.44 (unchanged)	Maintained
Merger-related costs assumed	FY2016	~50% of $15–$17M payable in 2016	Unchanged	Maintained
Weather assumption	FY2016	30-year average	Unchanged	Maintained
System energy growth	FY2016	<1%	Unchanged	Maintained
Missouri electric rates	FY2016	Assumed Oct 1, 2016 effective date; $33.4M request	Approved +$20.4M base revenue; effective Sep 14, 2016; little margin impact (lower fuel costs)	Updated, guidance unchanged
Quarterly dividend	Q3 2016	$0.26 (Q2 declaration payable Sep 15)	$0.26 (payable Dec 15)	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2016)	Current Period (Q3 2016)	Trend
Merger approvals & timeline	Q1: Merger announced; shareholder meeting set for Jun 16; guidance unchanged . Q2: FERC & OK approvals; APSC settlement pending; close expected Q1 2017 .	MPSC & APSC approvals received; KCC settlement filed; awaiting KCC decision; close still expected Q1 2017 .	Positive regulatory momentum sustained.
Missouri rate case	Q1: Assumed Oct 1 effective date; $33.4M request in guidance . Q2: Unanimous stipulation at +$20.4M base revenues; little impact to margin .	Approved +$20.4M, effective Sep 14, 2016; margin-neutral vs lower fuel .	Implemented; supports earnings trajectory.
Weather impacts	Q1: Mild winter depressed volumes; electric –7.5% kWh YoY; gas sales –12.9% YoY . Q2: More favorable weather aided volumes .	Favorable summer weather lifted volumes (+2.8% total on-system kWh YoY) .	Improving through summer; TTM still reflects mild winter.
Riverton combined cycle & depreciation	Q1: AFUDC up $1.2M; project cost impacts noted . Q2: D&A +$0.7M YoY .	One-time $2.6M D&A adjustment; higher ongoing D&A from Riverton completion .	D&A step-up a headwind near term.
O&M efficiency	Q1: Lower operating costs (–$0.6M) . Q2: Maintenance reduced (–$2.9M) .	O&M down (–$2.4M) YoY, notably lower transmission expense .	Continued cost discipline.
AFUDC & interest	Q1: AFUDC up $1.2M; interest +$0.6M . Q2: AFUDC –$0.2M; interest +$0.4M .	AFUDC –$1.6M; interest +$0.3M .	Financing headwinds modestly weigh on EPS.

Management Commentary

“Our third quarter results, adjusted for weather and the merger-related costs incurred during the period, continue to meet our expectations… our earnings guidance communicated on February 26, 2016 remains unchanged.” — Brad Beecher, President & CEO .
“We are awaiting only approval from the Kansas Corporation Commission to close our merger with Algonquin Power & Utilities Corp. We continue to expect closing in the first quarter of 2017.” — Brad Beecher .
Prior quarters reiterated similar tone: “results, adjusted for weather and the merger-related costs… meet our expectations,” with guidance unchanged as regulatory outcomes progressed .

Q&A Highlights

A Q3 2016 earnings call transcript was not available in our document set or external transcript repositories; the Q3 press release did not include call details. As a result, Q&A highlights and any in-call guidance clarifications are unavailable for this quarter .

Estimates Context

Wall Street consensus (S&P Global) for Q3 2016 EPS and revenue was unavailable via our S&P Global connector for EDE at this time (no CIQ mapping). Accordingly, we benchmark performance versus prior year and prior quarter and against company guidance ranges .

Key Takeaways for Investors

EPS improved YoY to $0.62 ($0.63 ex-merger costs) on stronger electric margin and cost control; depreciation step-up and AFUDC decline partially offset gains .
Missouri rate case now implemented (+$20.4M base revenues); with lower fuel costs embedded, gross margin impact is limited—supporting stability into year-end .
Regulatory path to merger close is largely de-risked; only Kansas approval pending (order due by Jan 10, 2017), keeping the Q1 2017 close timeline intact and serving as a near-term catalyst .
Ongoing D&A elevation (one-time $2.6M plus Riverton-related increases) is a headwind; watch for normalization into 2017 post-merger .
Gas volumes remain soft on a TTM basis due to mild winter; electric volumes show improvement with favorable summer weather—volume normalization remains a swing factor .
Guidance ($1.26–$1.44) maintained despite regulatory and cost puts/takes, underpinned by rate implementation and O&M discipline; dividend held at $0.26 per quarter .
Trading setup: merger approval timing in Kansas and any incremental regulatory updates are primary stock catalysts; absent consensus estimates, focus on execution vs guidance and regulatory milestones .

Supporting Detail and Additional Context

Non-GAAP/adjustments

Q3 2016 reported EPS $0.62; excluding merger-related costs (tax-adjusted ~$0.2M), EPS would have been $0.63 (vs $0.58 prior year). Company presents non-GAAP net income/EPS excluding merger costs and gross margin as analytical metrics; see reconciliation tables .

Quarterly volume drivers and costs (Q3 2016 vs Q3 2015)

Electric gross margin +$6.7M: +$3.9M from rates (net of $1.1M Missouri base fuel recovery decrease), +$3.0M weather/volume, +$1.2M customer growth; gas gross margin flat .
O&M –$2.4M (lower transmission expense); D&A +$3.7M (one-time $2.6M adjustment and Riverton completion); AFUDC –$1.6M; interest +$0.3M; merger costs ~$0.3M .

Dividend

Quarterly dividend of $0.26 per share declared, payable Dec 15, 2016 to holders of record Dec 1, 2016 .

Regulatory milestones

Missouri: Unanimous Stipulation and Agreement approved; +$20.4M base revenue (4.46%) effective Sep 14, 2016 .
Merger: Approvals received from MPSC and APSC; KCC settlement filed, decision due by Jan 10, 2017; close expected Q1 2017 .

Prior quarters (for trajectory)

Q2 2016 EPS $0.21 (ex-merger costs $0.27) on higher electric margin and lower maintenance, partially offset by D&A, interest, AFUDC; guidance unchanged pending rate case .
Q1 2016 EPS $0.32 (ex-merger costs $0.38) with mild winter headwinds to volumes; guidance of $1.26–$1.44 introduced/maintained with merger cost assumptions and rate case timing .

EMPIRE DISTRICT ELECTRIC CO (EDE)·Q3 2016 Earnings Summary