Otter Tail Corporation

Good morning and welcome to the Otter Tail Corporation Quarter 1 2022 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 their opening remarks.

Good morning everyone and welcome to our call. My name is Tyler Aikerman. I'm the Manager of Investor Relations at Otter Tail. Last night we announced our first quarter 2022 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 McFarland, 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 here. So please be advised while 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, which 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 and welcome to our first quarter 2022 earnings call. Thanks to the efforts of our employees, Otter Tail Corporation had record financial results in the first quarter of 2022. Please refer to slide four as I begin my comments on the first quarter results. We achieved earnings per share of $1.72, which is an increase of 136% over the first quarter of 2021. The increase was led by our plastic segment, which had another outstanding quarter. Kevin will provide more detailed discussion of our Q1 financial performance in his comments, but here's an overview. Our electric segment increased earnings by 1.6 million or 9.4% over Q1 2021. This was primarily due to the favorable impact of weather as well as increased commercial and industrial sales. Our manufacturing segment earnings decreased by 1.3 million from Q1 2021. The decrease was due to lower productivity and increased costs. Additionally, BTD customers have been taking less product than they have forecasted as they are experiencing supply chain constraints from other suppliers, which is impacting the demand they have for products from BTD. The plastic segment quarterly earnings increased $41.7 million over Q1 2021. The expected decline in resin and pipe prices did not materialize in the first quarter. ABC resin production and supply did improve slightly during this period. Resin prices are now expected to increase through July, driven by increased natural gas prices and a strong resin export market. We continue to grow Otter Tail Power through capital investments in generation, transmission, distribution, and technology projects. We are closely monitoring and tracking supply chain issues and inflationary pressures, which may impact all of our capital projects. As shown on slide 10, Otter Tail Power's Hoot Lake solar project is still on schedule to be completed in 2023. Construction of the 49-megawatt solar project is expected to begin in May of 2022 near and on the retired Hoot Lake coal plant property. There's been some inflationary pressure on freight and steel costs. We have contracted thin-film panels which are not subject to the current Department of Commerce circumvent review or forced labor allegations in China. The project costs are approved and to be recovered through the Minnesota Renewable Rider. Our investments in Hoot Lake Solar and those identified in our Integrated Resource Plan and other capital expenditure plans provide the opportunity to meet the carbon emission reduction and renewable energy goals and targets we have set. As shown on slide six, assuming forecast dispatch occurs, we are targeting to reduce carbon emissions from our own generation resources approximately 50% from 2005 levels by 2025 and 97% by 2050. Additionally, our owned and contracted energy generation will be more than 50% renewable by 2025. The high-performance crypto mining and related infrastructure solutions load Otter Tail Power announced last fall started to come online in the first quarter of 2022, which helped to contribute to the favorable first quarter the utility had. Otter Tail Power has established large, super large general service rates in Minnesota and North Dakota. Having these rates in place provides the sales team with another tool to attract large new load customers to our service territory. The sales team continues to work on adding new load from potential customers similar to the one announced last fall, as well as other commercial and industrial customers. Autotel Power's integrated resource plan, filed in September 2021, continues to move forward. The Minnesota Public Utilities Commission hearing on the IRP is expected to be scheduled during Q3 of 2022. As shown on slide 12, the preferred five-year plan requests authority to add dual fuel capability at Astoria Station, add 150 megawatts of solar at a yet-to-be-determined site, and to commence the process of withdrawing from our 35% ownership interest in the coal-fired Coyote Station generating plant. As reflected on slide 15, we are projecting a 5.9% annual rate-based growth over the 2021 to 2026 timeframe. From 2022 to 2026, Ottertail Power is forecasting capital expenditures of $978 million. Rider recovery is expected for nearly half of the forecast capital spend. As shown on slide 18, Otter Tail Power has maintained lower rates than the national average. Otter Tail Power continues to monitor fuel costs and works to provide low-cost generation for its customers through its own generation fleet, as well as market purchases. Turning to our manufacturing segment, BTD, our contract metal fabricator, was challenged to adjust production to meet the changing OEM customers' delivery requirements caused by supply chain issues they are experiencing. These adjustments resulted in reductions in production efficiencies. Steel prices peaked in the fourth quarter of 2021, and they remain high. Even though there were some price declines early in the first quarter of 2022, prices increased in March. We remain focused on receiving material on time to meet customer demand and passing through these higher steel prices to customers. Teoplastics had increased sales prices and volumes due to strong horticulture sector sales, which led to increased operating revenues. Our plastic segment continues to deliver extraordinary results. The market conditions in Q4 2021 continued into the first quarter of 2022, with demand for PVC pipe remaining strong. Sales prices continued to increase related to strong demand for PVC pipe and limited PVC pipe inventories. We continue to monitor the current inflationary environment and its impact on our business. We are focused on improving the pricing of our products, the pass-through of pricing surcharges where appropriate, managing labor, operating, and maintenance expenses, and updating capital budgets in light of increasing construction and equipment costs. I'll now turn it over to Kevin to provide additional detail on our financial performance for the first quarter.