Otter Tail Corporation

Good morning and welcome to Otter Tail Corporation's first quarter 2026 earnings conference call. Today's call is being recorded. We will hold the question and answer session after the prepared remarks. I will now turn the call over to the company for their opening remarks.

Good morning and welcome to our first quarter 2026 earnings conference call. My name is Beth Eichen and I'm Otter Tail Corporation's Manager of Investor Relations. Last night we announced our Q1 financial results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording of this call will be available on our website later today. With me on the call today are Chuck McFarland, Otter Tail Corporation's CEO, Tim Rogelson, Otter Tail Corporation's President, and Tyler Nelson, 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 2, these statements represent our current views and expectations of future events. They are subject to risk 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 Otter Tail Corporation CEO, Mr. Chuck McFarland.

Thanks, Beth. Good morning, and welcome to our first quarter earnings call. Before I turn to my prepared remarks on the quarter, I want to briefly touch on our leadership transition we announced last month. These changes are a result of longstanding thoughtful succession planning by the board and management team. Effective April 13th, Tim Rogelsted was elected president of Otter Tail Corporation. Tim will oversee our electric and manufacturing platforms and report directly to me. With over 35 years of experience at Otter Tail, he brings a deep understanding of the organization, our culture and strategy, and has a proven track record of strong leadership and execution. At the same time, Todd Wallen was elected senior vice president of the corporation and president of Otter Tail Power Company, providing continuity and seasoned operational and financial leadership to the utility as it continues to deliver on its rate-based growth plan. Todd brings years of operational utility experience to the role, having previously served in resource planning, and renewable energy development prior to becoming Otter Tail Power's CFO and later Otter Tail Corporation's CFO. We also announced that Tyler Nelson has been elected Vice President and Chief Financial Officer of the corporation. Tyler has played a key role in our financial leadership for the last six years and brings a deep understanding of our financial operations and strategy to the role. These changes do not alter our strategy or priorities. They serve to strengthen our leadership bench as we remain committed to delivering long-term shareholder value. Now let's turn to slide four as I provide an overview of recent operational and financial highlights. We are pleased with our first quarter financial results and are well positioned to achieve our financial objectives for the year. Across our businesses, our team members executed on our near-term priorities for the benefit of our customers and shareholders. Otter Tail Power delivered on our regulatory priorities while making significant progress on our customer-focused rate-based growth plan. We achieved a constructive outcome in our South Dakota rate case and implemented new base rates on April 1st. We also implemented interim rates for our Minnesota rate case at the start of the year. We completed our $230 million wind repowering project earlier this year, upgrading the wind towers at four of our owned wind energy centers. These upgrades are expected to result in a 20% increase in output and are economical for our customers due to the renewed renewable energy tax credits. Phase two of our vinyl tech expansion is complete. This marks the end of a multi-year expansion project that added 15% of additional production capacity for our plastic segment, increased our manufacturing footprint, and expanded our raw material storage capabilities. This multi-year expansion project was completed on budget, and we look forward to leveraging this investment to better serve our customers, pursue growth opportunities, and enhance our employee experience. Slide five provides a summary of our first quarter financial results, as well as our expectations for the remainder of the year. We produced diluted earnings per share of $1.73 in the first quarter, compared to $1.62 last year. The increase in earnings was driven by strong performance in our electric and manufacturing segments. Plastic segment earnings continued to recede within our expectations. We are maintaining our 2026 diluted earnings per share guidance range of $5.22 to $5.62. Following my operational update, Tyler will provide a detailed discussion of our quarterly financial results and our 2026 outlook. Transitioning now to my operational update for Otter Tail Power, beginning on slide seven, We obtained approval from the South Dakota Commission on the settlement agreement reached between Otter Tail Power and Commission staff during the first quarter, resulting in a constructive outcome and concluding the rate proceeding. The final outcome of the rate case achieved approximately 75% of our request when considering adjustments for rider treatment. Turning to slide eight, our Minnesota rate case continues to progress Interim rate revenues of $28.6 million went into effect on January 1st, subject to refund. Separately, Otter Tail Power is in the process of finalizing its next integrated resource plan. We have held stakeholder meetings to discuss our plan at a high level, and we are on track to file the IRP in Minnesota later this month. Turning to slide nine, We are reaffirming our five-year rate-based compounded annual growth rate of 10%. Otter Tail Power is expected to continue to convert this rate-based growth into earnings per share growth near a one-to-one ratio over the five-year planning period. Slides 10 and 11 provide an overview of ongoing and future capital projects. Our two solar development projects are in the early stages of construction. During the first quarter, our team members secured the solar panels needed for these projects. This strategy eliminates tariff-related risk and helps to avoid any potential cost increases for the benefit of our customers. Our battery storage project remains under development. We are targeting to bring this 75 megawatt storage facility online in 2028. Development work also continues on our large regional transmission projects. We continue to work through areas of landowner and local government opposition associated with siting and certain permits for the Jamestown to Ellendale Tranche 1 project. We received a Minnesota route permit last week for the Big Stone to Alexandria Tranche 1 project, a nearly 100 mile transmission line. We're also monitoring the complaint filed by several states at FERC against MISO's tranche 2.1 projects. We continue to expect these projects to move forward due to their reliability-related benefits, but believe there could be delays. Turning to slide 12, which provides an update on our large load pipeline, we removed the 430 megawatt load previously under a term sheet from our pipeline. We no longer expect this project to move forward due to permitting related challenges as well as failed tax incentive legislation in the South Dakota State Legislature. Phase one of our pipeline increased by approximately 500 megawatts. We continue to engage with companies interested in adding a new large load to our system We have and will continue to be prudent in our approach to ensure appropriate guardrails are in place to protect our customers and our shareholders. As a reminder, these changes to our pipeline have no impact on our current load growth forecast or capital spending, as we will only adjust our internal forecast for loads that have a signed electric service agreement. We remain committed to providing low-cost electric service to our customers and have demonstrated our ability to do so. As slide 13 illustrates, Otter Tail Power's electric rates have remained well below the national and regional averages for many years. Looking ahead, we are deeply focused on managing customer bills. We currently project bills to increase between 3% and 4% on a compounded annual growth rate over the current five-year planning period. This is made possible by MISO system-wide recovery for our transmission investments, the availability of renewable energy tax credits, reduced energy costs, and other factors. Transitioning to our manufacturing platform, Slide 15 provides an overview of the industry conditions impacting our manufacturing segment. We are optimistic that conditions are improving in several of our end markets. Manufacturing dealer inventory levels have largely normalized and we experienced increased sales volumes in our construction and recreational vehicle markets. The industrial end market remains strong as our products are used to support the growing energy demand. However, agriculture industry conditions remain challenging due to the weak farm economy with elevated costs, lower relative commodity prices, and ongoing trade disruption. TO Plastics' horticulture end market remains stable with sales volumes improving during the first quarter compared to the same time last year. We continue to face formidable competition from low-cost importers. We are emphasizing our high-quality products and quick delivery capabilities to our customers and appear to be making headway. Slide 16 provides an overview of our plastic segment pricing and volume trends. average sales prices of our PVC pipe continued to decline, decreasing 19% from the Q1 2025 average. Sales volumes increased 7% from the same time last year. We benefited from an opportunistic sale of a specialty pipe during this quarter, as well as increased distributor and contractor demand late in the quarter. Distributors and contractors sought to secure additional pipe in advance of potential PVC resin cost increases that have been announced by US PVC resin manufacturers. Material input costs, including PVC resin, decreased 12% from the same time last year as the domestic supply of resin was elevated. We are now seeing an increase in PVC resin costs stemming from the conflict in the Middle East. Global PVC resin manufacturers are more heavily impacted by the rising cost of oil, leading to an increase in exports from U.S. resin manufacturers who utilize natural gas as a feedstock. I will now turn it over to Tyler to provide his financial update.