Otter Tail Corporation

Good morning and welcome to Otter Tail Corporation's third quarter 2025 earnings conference call. Today's call is being recorded. We will hold a question and answer session after the prepared remarks. I will now turn this call over to the company for their opening comments.

Good morning and welcome to our third quarter 2025 earnings conference call. My name is Beth Eichen and I'm Otter Tail Corporation's Manager of Investor Relations. Last night, we announced our third quarter financial results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. Our recording of this call will be available on our website later today. With me on the call are Chuck McFarland, Otter Tail Corporation's President and CEO, and Todd Walland, Otter Tail Corporation's Vice President and CFO. Before we begin, I want to remind you that we will be making forward-looking statements during the course of 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 against 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. I will now turn the call over to Ottertail Corporation's President and CEO, Mr. Chuck McFarland.

Thank you, Beth. Good morning and welcome to our third quarter earnings call. Please refer to slide four as I begin my remarks with a summary of quarterly highlights. We are pleased with our Q3 financial results as they outpaced our expectations. Our team members continue to execute well on our growth plan despite dynamic market conditions. Otter Tail Power continues to deliver on its regulatory priorities. Our South Dakota rate case, previously filed in June of this year, continues to progress, and in late October, we filed a rate case with the Minnesota Public Utilities Commission. The second phase of Vinyl Tax Expansion Project is progressing well. We continue to target early next year for adding another 26 million pounds of capacity. Once complete, we will have increased our plastic segment total production capacity by 15% through our multi-year investment plan. We are also introducing our updated five-year capital spending plan today. Otter Tail Power's new capital investment plan totals $1.9 billion and is expected to produce a rate-based compounded annual growth rate of 10%. With our updated capital investment plan, we are increasing our targeted long-term earnings per share growth rate to 9% to 7% from 6% to 8% of the 2028 base year. This results in a targeted total shareholder return of 10% to 12%. Slide 5 provides a summary of our quarter-to-date and year-to-date earnings. We generated $1.86 of diluted earnings per share in the third quarter, a decrease of 8% from the same time last year. This expected decline in earnings was driven by the continued decline in plastic segment sales prices and earnings. Despite the year-over-year decrease, our results outpaced our expectations. We are increasing the midpoint of our 2025 earnings guidance to $6.47 from $6.26 per share. The increase in guidance is primarily due to better than expected plastic segment financial results in Q3 and our revised expectations for the remainder of the year. In a moment, Todd will provide a more detailed discussion of our quarterly financial results and our updated 2025 outlook. Transitioning now to an operational update for Otter Tail Power. As noted on slide seven, we filed a request with the Minnesota Public Utilities Commission for a net revenue increase of $44.8 million. This is based on a requested ROE of 10.65% and an equity layer of 53.5%. The increase is driven by investments in infrastructure and grid resilience. the impact of inflation since our last rate case filed five years ago, and accelerated recovery of the Minnesota portion of Coyote Station. We requested accelerated recovery of Coyote Station as the Minnesota Public Utilities Commission directed us to no longer serve our Minnesota customers with power from Coyote beyond 2031 as part of our integrated resource plan. Even with the proposed increase, Autotel Power is expected to continue to have some of the lowest electric rates in the region and country. Affordability remains a priority for us, and we are committed to selecting cost-effective investments to serve our customers with reliable energy while prudently managing our operating costs. Our updated five-year capital spending plan is expected to have limited impact on our customer rates due to lower fuel costs associated with renewable generation, as well as the favorable impact of renewable tax credits. Additionally, a significant portion of our capital spending plan relates to regional transmission projects. The cost of these projects will be allocated to either new generation interconnection customers or across the entire MISO footprint, of which our customers comprise only a small portion. We continue to partner with our customers to identify ways to save, whether through energy efficiency programs or innovative pricing solutions. Turning to slide eight, our South Dakota rate case is progressing. The procedural schedule has been established and we expect a decision in the first half of 2026 unless a settlement is reached in advance of that date. Interim rates, which amount to $5.7 million on an annual basis, will commence on December 1st of 2025. Turning to slide 9, Otter Tail Power updated its five-year rate-based CAGR to 10%. We continue to expect Otter Tail Power to convert its rate-based growth into earnings per share growth near a one-to-one ratio over the long term. This is made possible by identifying high-quality, customer-focused projects, effective project execution, efficient financing, and reducing regulatory lag. We currently expect approximately 90% of our updated five-year capital spending plan to be recovered through existing rates or riders, allowing for timely recovery of our capital investments. Flight 10 and 11 provide an overview of ongoing future capital projects. Our wind repowering project is nearly complete. We finished upgrading the wind towers at our La Verne Wind Energy Center in Q3 and expect to complete the remaining two repower sites later this year. Once finished, we expect the increased energy production from these facilities to total approximately 40 megawatts of new generation. which equates to over a 20% output increase. Our two solar development projects also continue to progress. During the quarter, we transitioned Solway Solar from a project development to start of construction and look forward to adding additional cost-effective solar generation to our portfolio. Development work continues on our MISO Tranche 1 and 2.1 portfolio projects as well as our JTIQ project. We are working through landowner and local government resistance associated with siting and certain permits for one of the Tranche 1 projects. Additionally, in July, a complaint was filed at FERC against MISO's Tranche 2.1 projects, siting a concern with benefit calculations. North Dakota, one of the jurisdictions in which we operate, joined the complaint. We are closely monitoring developments around the FERC complaint docket, and at this time, continue to expect these projects to move forward due to their reliability-related benefits, but some delays are possible. Turning to slide 12, Ottertail Power remains well-positioned to attract and support large load. Our team continues to engage with companies looking to add new large loads to our system. In the coming weeks, we look forward to bringing online the 155 megawatt load secured earlier this year. The 155 megawatt load is comprised of 3 megawatts of firm load and approximately 152 megawatts of non-firm load. We expect this load to positively contribute to earnings starting next year. We have and will continue to be thoughtful in our negotiations to ensure we are appropriately mitigating potential adverse implications of adding new large loads to our existing customer base. Adding new loads, if appropriately managed, would not only benefit us but also our current customers as it enables us to spread out existing fixed costs. In what is a challenging economic environment for many, affordability has become increasingly important. As shown on slide 13, Otter Tail Power's electric rates have remained well below the national and regional average for many years, and we expect Otter Tail Power rates to remain among the lowest in the nation. However, we know that our customers still feel the impact of rate increases. We are deeply focused on identifying cost-effective investment projects and are committed to prudently managing costs. We aim to partner with our customers to continue to identify ways for them to save. Transitioning to our manufacturing platform, slide 15 provides an overview of industry conditions impacting our manufacturing segment. BTD continues to face end market demand related headwinds. Sales volumes remain below historic levels after sharply declining in the third quarter of last year. The lawn and garden and agricultural end markets continue to be most heavily impacted Recreational vehicle and construction have shown signs of improvement, and the industrial end market remains strong as our products are ultimately used to support the growing data center energy demand. While the down cycle impacting BTD's volume continues, we saw some month-over-month stabilization in volumes during the third quarter. This could indicate reaching the bottom of the business cycle. At this time, we expect our current low-demand environment to continue through most of 2026, and we'll give a fulsome update regarding 2026 expectations during our Q4 call. We have seen some improvement at TO Plastics Horticulture and Market, but low-cost import competition remains a challenge for our team. We continue to monitor the tariff environment to determine what impact, if any, it will have. However, in the meantime, we remain focused on aligning costs with current demand across our manufacturing segment. I want to take a moment to recognize and thank our manufacturing team members for their commitment and efforts during challenging market conditions. Slide 16 provides an overview of our plastic segment's pricing and volume trends. Our sales prices of PVC pipe continue to steadily decline, decreasing 17% from the same time last year. Sales volumes increased 4%, due in part to capacity added to vinyl tech late last year. We also continue to benefit from lower material input costs, including resin. The cost of PVC resin has decreased from the same time last year due to global supply and demand dynamics, resulting in elevated domestic supply. Turning to slide 17, our manufacturing platform remains well positioned for future growth opportunities. Our BTD Georgia facility is ready to support our customers in the southeast once market conditions improve. Phase two of our vinyl tech expansion is progressing well. Once complete, we will have increased our total production capacity for the plastic segment by approximately 50 million pounds over the past two years. I'll now turn it over to Todd to provide his financial update.