MDU Resources Group, Inc.

Hello, my name is Erica and I will be your conference facilitator. At this time, I would like to welcome everyone to the NDU Resources Group 2021 first quarter conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key on your telephone keypad. This call will be available for replay beginning at 5 p.m. Eastern Time today through 1159 p.m. Eastern Time on May 20th. The conference ID number for the replay is 2374997. Again, the conference ID number for the replay is 2374997. The number to dial for the replay is 1-855-859-2056 or 404-537-3406. I would now like to turn the conference over to Jason Vollmer, Vice President and Chief Financial Officer of MDU Resources Group. Thank you Mr. Vollmer. You may begin your conference.

Thank you, Erica, and welcome everyone to our first quarter 2021 earnings conference call. This call is being broadcast live to the public over the Internet, and slides will accompany our remarks. If you would like to view the slides, please visit our website at www.mdu.com and go to the Events and Presentations page under the Investors tab. Our earnings news release is also available on our website. During this presentation, we will make certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although the company believes that its expectations and beliefs are based upon reasonable assumptions, actual results may differ materially. For a discussion of factors that may cause results to differ, refer to Item 1A, Risk Factors, in our most recent Form 10-K and other filings with the SEC. We may also reference EBITDA and adjusted gross margin throughout the conference call, which are considered non-GAAP financial measures. For reconciliation of EBITDA and adjusted gross margin to net income, please refer to the earnings release filed yesterday. For our call today, I will discuss the key financial highlights and then turn the presentation over to Dave Gooden, President and CEO of MDU Resources. After Dave's remarks, we'll open the line for questions. In addition to Dave and myself, members of our management team who are available to answer questions today are Dave Barney, President and CEO of Knife River Corporation, Jeff Thiede, President and CEO of MDU Construction Services Group, Nicole Kivisto, President and CEO of our Utility Group, Trevor Hastings, President and CEO of WVI Energy, and Stephanie Barth, Vice President, Chief Accounting Officer and Controller of MD Resources. Yesterday we announced first quarter earnings of $52.1 million or $0.26 per share, doubling our first quarter 2020 earnings of $25.1 million or $0.13 per share. Our combined utility business performed well throughout the first quarter and reported earnings of $46.9 million up from $43.7 million in the first quarter of 2020. Our natural gas utility segment reported net income of $36.2 million for the quarter, compared to $32.3 million in the prior year. Higher adjusted gross margin from approved rate relief, weather normalization and decoupling mechanisms, as well as a 1.8% increase in natural gas retail sales volumes contributed to the increase in earnings. Higher investment income on certain benefit plans also had a positive impact on earnings. Partially offsetting the increase were higher operation and maintenance expense and higher depreciation, depletion, and amortization expense. At our electric utility segment, earnings decreased slightly year over year at $10.7 million for the first quarter compared to $11.4 million in 2020. This decrease in earnings was largely the result of higher operating expenses, primarily payroll-related costs, and increased depreciation, depletion, and amortization expense from electric transmission projects placed into service. Partially offsetting the decrease in earnings were higher returns on certain benefit plan investments. Adjusted gross margin also increased during the quarter as a result of higher transmission revenues and increased revenues associated with transmission interconnect upgrades. Adjusted gross margin was offset by a 2.2% decrease in electric sales volumes primarily to our commercial and industrial customers. The pipeline business had a record first quarter for earnings of $8.9 million compared to $7.4 million in 2020. The primary contributors to the increase in earnings were strong customer demand for natural gas storage services, as well as higher other income from increased allowance for funds used during construction and higher investment returns on certain benefit plans. Turning to the construction platform, our construction services business reported record first quarter earnings of $29.8 million compared to $16.8 million in 2020. and First Quarter revenues of $518.5 million, up from prior year revenues of $514.7 million. Construction services saw an increase in outside specialty contracting workloads and margins due to strong demand from its customers in the utility industry. Inside specialty contracting workloads decreased during the quarter, primarily from lower customer demand for refinery projects. Customer demand for high-tech projects, however, remained very strong throughout the quarter. As a reminder, 2020 first quarter net income for the construction services business was impacted by a $6.7 million out-of-period adjustment after tax. Our construction materials business reported a seasonal loss of $30.8 million in the first quarter compared to a loss of $38.2 million for the same period in 2020 and had record first quarter revenues of $265.7 million this year, up from 2020 revenues of $262.2 million. Increased materials pricing and higher contracting margins decreased the seasonal loss. An early start to the construction season and material sales season resulted in higher materials revenues. Higher investment returns on certain benefit plans and lower selling general administrative expenses were partially offset by increased payroll-related costs. In addition to the strong earnings performance in the first quarter, our consolidated EBITDA also grew 29% year-over-year. to $162.2 million compared to $125.3 million for the same period in 2020. That summarizes the financial highlights from the quarter, and now I'd like to turn the call over to Dave for his formal remarks. Dave?

Thank you, Jason, and good afternoon, everyone, and thank you for joining us here today. We're off to a very strong start in 2021, doubling our first quarter earnings compared to 2020. All our businesses performed well during the quarter with record earnings at construction services and our pipeline group. Record revenues from an early start to the year at construction materials and our utility continued to provide safe and reliable service to customers, even as other areas of the country were impacted by weather-related outages. With this strong first quarter performance, We are narrowing our 2021 earnings per share guidance to a range now of $2 to $2.15, raising the low end of the range from $1.95. I will now walk and talk through each of our business lines to give additional color on our results and update everyone on the opportunities that we see ahead of us for the remainder of 2021 and beyond. Our combined utility had a very successful first quarter. reporting a 7% increase in earnings, along with a busy regulatory activity as we continue to work on recovering investments made to strengthen the safety and reliability of both our natural gas and electric systems. Our outlook for utility businesses includes plans to invest $328 million this year and approximately $1.6 billion over the next five years with a projected rate-based growth of 5% compounded annually. Throughout the remainder of the year, the electric utility business will continue with plans to retire the Heskett coal-fired stations in early 2022 and is nearing the completion of its integrated resource planning process with an expected release date here in the summer of 2021. Turning to our pipeline business, they had an excellent first quarter and, as I mentioned earlier, reported record first quarter earnings. We own the largest natural gas storage field in North America, and demand for our natural gas storage-related services contributed strongly to the earnings growth. Our pipeline group is currently awaiting the final Federal Energy Regulatory Commission certificate for its North Bakken expansion project. As a reminder, this is a 250 million cubic feet per day expansion project with long-term customer commitments that will help decrease natural gas flaring within the Bakken. FERC approval for this expansion was expected during the first quarter, and since it has not yet been received, the company is adjusting its construction schedule to reflect this delay. The in-service date, which was previously expected to be in late 2021, will also be impacted by this delay. With natural gas production levels remaining strong in the Bakken and low natural gas prices, we are experiencing sustained demand for our transportation and storage services and continue to evaluate other organic growth projects across the pipeline operations. Now I'd like to turn to our construction platform of businesses. At Construction Services, here we reported strong first quarter revenues, record first quarter earnings, and record first quarter backlog of now at $1.273 billion. This record backlog really showcases, I'll say, the success of our diverse operations, as well as the bidding environments that we see across our footprint throughout the first quarter. We are confident that our high quality of service and skilled workforce will continue to be in demand for new jobs. At Construction Materials, we reported a lower seasonal loss. Here, favorable weather gave us an early start to the construction and materials sales season, allowing this business to complete projects ahead of schedule and also take advantage of new bidding opportunities for the remainder of the year. Even with this early start to the season, Backlog remained strong and was $819 million as of March 31st. As noted in prior news releases, Knife River completed its first acquisition of 2021 with an aggregates operation in the Portland, Oregon area. The Mount Hood Rock acquisition strengthens our position in the Portland metro area and will also provide an estimated 20 years of aggregate reserves. Knife River also received a very key permit to expand operations at our Honey Creek Aggregate Quarry in Texas, just outside of Austin. Combined, our construction businesses ended the quarter with nearly $2.1 billion in backlog, and we do anticipate construction revenues on a combined basis to be between $4.2 billion and $4.6 billion for 2021. We are excited about the opportunities in front of us both of our business platforms present. The discussion surrounding a new federally funded infrastructure package, while not built into any of our forecasts for this year, is a positive development that could provide substantial longer-term growth opportunities for both platforms of businesses. Our focus here at MD Resources has been to produce significant long-term value as we execute our business plans Organic Growth Projects, and Targeted Acquisitions, and that's exactly what we're doing. We continue to maintain a strong balance sheet, solid credit ratings, a good liquidity position, and for the last 83 consecutive years, we've provided a competitive dividend to our shareholders. As always, MDU Resources is committed to operating with integrity and a focus on safety while creating superior shareholder value as we continue along our tagline of building a strong America. I appreciate your interest in and commitment to MD resources and ask now that we open the line for questions. Turning it back to you, operator.