Otter Tail Corporation

Good morning and welcome to Otter Tail Corporation's 2021 earnings conference call. Today's call is being recorded and we will hold a question and answer session after the prepared remarks. I will now turn the call over to the company for the opening comments.

Good morning everyone and welcome to our call. My name is Tyler Aikerman and I manage Otter Tail's investor relations area. Last night we announced our Q4 and full year 2021 earnings results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording of the call will be available on our website later today. With me on the call today are Chuck McFarlane, Otter Tail Corporation's President and CEO, and Kevin Moog, Otter Tail Corporation's Senior Vice President and Chief Financial Officer. Before we begin, I want to remind you that we will be making forward-looking statements during this call. As noted on slide two, these statements represent our current views and expectations of future events. They are subject to risks and uncertainties which may cause actual results to differ from those presented today. So please be advised about placing undue reliance on any of these statements. Our forward-looking statements are described in more detail in our filings with the Securities and Exchange Commission. We encourage you to review. Otter Tail Corporation disclaims any duty to update or revise our forward-looking statements due to new information, future events, developments, or otherwise. For opening remarks, I will now turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck McFarland.

Thank you, Tyler. Good morning, everyone, and welcome to our 2021 year-end earnings call. Thanks to the efforts of our employees, Otter Tail Corporation achieved record financial results in 2021. Please refer to slide four as I begin my comments on our results. We achieved earnings per share of $4.23, which is an increase of 80% over 2020. The increase was led by our plastic segment, which had an outstanding year, driven by continued strong PVC pipe demand and PVC resin supply constraints. Kevin will provide more detailed discussion of our financial performance in his comments, but a brief overview of 2021 is as follows. Our electric segment increased earnings by $5.7 million or 8.5% over 2020. This was primarily driven by a rate-based growth from our Maricourt Wind and Astoria Station projects. Our manufacturing segment increased earnings by $6.1 million or 56% over 2020, with BTD's earnings up 4.4 million and Teo Plastics up 1.7. This was mostly due to strong end markets for both BTD and Teo Plastics, as well as favorable scrap metal pricing at BTD. Our plastic segment had a record-breaking year with earnings of 97.8 million, which is approximately 250% higher than 2020. This was driven by higher pipe prices and improved operating results resulting from unique market conditions. These increased margins started with the unusual and infrequent impact resulting from the extreme cold weather in February that caused resin suppliers to temporarily close petrochemical plants in the Gulf Coast region. And it was exacerbated in the third quarter from disruptions caused by Hurricane Ida. The first quarter of 2022 is expected to be strong, as market conditions from the fourth quarter of 2021 continue into 2022. Now I'll share some of the highlights from last year. Otter Tail Power filed its integrated resource plan in September. The plan identifies key projects in the energy transition, which is underway at Otter Tail Power. The main request in the five-year action plan include the addition of fuel-oil backup capability at our Astoria Station natural gas plant, the addition of 150 megawatts of solar generation in the 2025 timeframe, and the commencement of the process to withdraw from our 35% ownership in Coyote Station by year-end 2028. After incorporating the request from the integrated resource plan, we now anticipate capital expenditures in our electric segment of nearly $1 billion over the next five years, which will result in a compounded annual growth rate in rate base of 5.9% from the end of 2020 to the end of 2026, as shown on slide 17. Ottertail Power's Hoot Lake Solar project continues to move forward and is on schedule to be completed in 2023. The 49-megawatt solar project will be constructed on and near the retired Hoot Lake coal plant property. The location of Hoot Lake Solar offers us a unique opportunity to utilize our existing Hoot Lake transmission rights, substation, and land. Minnesota customers will be allocated 100% of the costs and benefits of the project, The project has received renewable rider eligibility approval in Minnesota. We continue to experience supply chain challenges and some inflationary costs associated with the project. We have contracts in place for thin film panels, which will avoid the heightened supply chain risk related to alleged human rights abuses in China and the U.S. ban on goods from that region. Our investment in Hoot Lake Solar and those identified in our integrated resource plan and other capital expenditures will allow us to improve our customers' experience, reduce operating and maintenance expenses, reduce emissions, and improve reliability. As shown on slide 7, we are targeting a carbon reduction emissions from our own generation resources approximately 50% lower than 2005 levels by 2025 and 97% by 2050. Otter Tail Power announced in the third quarter of 2021 the addition of a new load with a business focused on the delivery of high performance crypto mining and related infrastructure solutions. This load started coming online during the first quarter of 2022 and plans to be fully operational in the second quarter of 2022. Demand for from the customer's facility could approach 100 megawatts with a high load factor and the ability to be curtailed. Otter Tail Power received a written order on its rate case in February. Important takeaways from the written order are the approved return on equity of 9.48% on a 52.5% equity layer and a revenue decoupling mechanism as shown on slide 14. Recognizing the economic impact to customers of the ongoing pandemic and with input from the Commission staff, we agreed to reduce our interim rate request by approximately half to $6.9 million, or 3.2%. This was done in conjunction with approval of our annual depreciation filing, which extended our wind asset lives from 25 to 35 years. We expect final rates to be implemented by mid-year 2022, with interim rates remaining in effect until then. Now turning to our manufacturing segment, BTD, our contract metal fabricator, was challenged by labor and recruitment costs as we focused on hiring to meet customer demand. During the year, we have made progress on hiring new employees after increasing starting wages, off-shift premiums, and hiring incentives. BTD's year-end employee count was at its highest level of all time. We are focusing on training and increasing productivity of these new employees. Steel prices peaked in the fourth quarter at historically high levels, and prices have begun to moderate and lead times have improved. Although steel prices have been high, BTD experienced increased customer demand driven by OEMs, improved sales, and the desire to rebuild depleted inventories. Teoplastics had solid performance driven by strong horticulture and market sales, offset by lower sales to contract market customers. Horticulture sales backlog is at an all-time high. Our plastic segment continues to deliver extraordinary results while managing through raw material supply challenges. Demand for PVC pipe remains strong, causing sales prices to continue to rise above raw material price increases. led to the record fourth quarter earnings. I would like to thank all of the Otter Tail team members for their resiliency and continued commitment while navigating the economic swings and safety concerns presented with COVID. Now I'll turn it over to Kevin to provide additional detail on our financial performance in 2021.