MDU Resources Group, Inc.

Hello, my name is Sarah, and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group 2022 second 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 star then the number two on your telephone keypad. This call will be available for replay beginning at 10.30 a.m. Eastern Time today through 10.30 a.m. Eastern Time on August 18th. The conference passcode number for the replay is 3010359. Again, the conference passcode for the replay is 301-0359. The number to dial for the replay is 1-888-203-1112 or 719-457-0820. 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, Operator, and welcome everyone to our second quarter 2022 earnings conference call. You can find our earnings release and supplemental materials for this call on our website at www.mdu.com under the Investor Relations tab. Leading today's discussion, along with me, will be Dave Gooden, President and CEO of MDU Resources. Also with us today to answer questions following our prepared remarks are Dave Barney, President and CEO of Knife River Corporation, Jeff Feed, President and CEO of MDU Construction Services Group, Nicole Cavisto, President and CEO of our Utility Group, Trevor Hastings, President and CEO of WBI Energy, and Stephanie Barth, Vice President, Chief Accounting Officer and Controller of MDU Resources. During our call, 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 on reasonable assumptions, actual results may differ materially. For information about risks and uncertainties that could cause our actual results to vary from forward-looking statements, please refer to our most recent SEC filings. We may also refer to certain non-GAAP information. For reconciliation of any non-GAAP information to the appropriate GAAP metric, please reference our earnings release. Along with our earnings release, earlier this morning in a separate news release, we announced that our Board of Directors has unanimously approved a plan to separate our wholly owned construction materials business, Knife River Corporation, from MD Resources. The separation will result in two independent publicly traded companies that are each well positioned for growth and shareholder value creation. The separation is expected to be affected as a tax-free spinoff to MDU Resources shareholders and will be completed during 2023. You can also find this release on our website at www.mdu.com. Dave will provide additional information about this very important strategic announcement during his remarks later this morning. Prior to handing the call over to Dave for his comments and forward look, I will provide an overview of the consolidated financial results for the second quarter. This morning we announced second quarter earnings of 70.7 million or 35 cents per share compared to second quarter 2021 earnings of 100.2 million or 50 cents per share. Our combined utility business reported a loss of 2.9 million for the quarter compared to earnings of 9.6 million in the second quarter of 2021. The electric utility segment reported second quarter earnings of 4.6 million compared to 10.3 million for the same period in 2021. Results were negatively impacted by lower investment returns on non-qualified benefit plans, higher operation and maintenance expenses due to a planned outage at the Coyote Station, and lower electric retail sales volumes due to cooler weather causing less demand from commercial and residential customers. Our natural gas utility segment reported a second quarter seasonal loss of $7.5 million compared to a loss of $700,000 in the second quarter of 2021. Results were impacted by increased operation and maintenance expense, primarily due to increased contract services and subcontractor costs, software expenses, vehicle fuel costs, as well as higher depreciation expense. Also contributing to the higher loss was the lower investment returns related to our non-qualified benefit plans. This business benefited from approved rate recovery under pipeline replacement mechanisms in certain jurisdictions and also higher natural gas retail sales volumes of 27% across all customer classes due to colder weather. The increased volumes were largely offset by weather normalization and decoupling mechanisms in various states. The pipeline business earned $7.1 million in the second quarter compared to $9.2 million in the second quarter of 2021. Results were impacted by lower investment returns on non-qualified benefit plans, lower non-regulated project margins resulting from lower workloads, and higher interest expense. These impacts were partially offset by higher transportation revenues due largely from the North Bakken expansion project, partially offset by depreciation and lower allowance for funds used during construction. As we've noted previously, 2022 includes a delay in a portion of the North Bakken expansion project's committed volumes, and we expect to see increased benefits from this project in 2023 on the fully contracted volume commitments. Our construction services business reported all-time record quarterly revenue of $685.4 million and record second quarter earnings of $34.5 million, compared to revenue of $525.6 million and earnings of $28.9 million for the same period in 2021. This business has experienced consistent second quarter revenue growth over the past four years, growing 20.6% compounded annually over that time. Electrical and mechanical services revenues increased 45%, with commercial and renewable workloads largely driving the increase. The business saw slightly lower margins for the quarter, attributed mostly to the timing and mix of projects, as well as higher operating costs related to inflation, including fuel, material, and labor costs. Our construction materials business also reported record second quarter revenues of $711.8 million and earnings of $32.6 million, compared to the prior year second quarter of $633.8 million in revenue and earnings of $51.4 million. Higher contracting workloads and pricing increases across all product lines drove the top-line revenue growth up 12% from the prior year. However, inflationary pressures, including higher fuel, materials, labor, and production costs, more than offset the increase. Also impacting the quarter were unfavorable weather conditions in certain regions that delayed the start of the construction season. including higher precipitation in the Pacific Northwest and late-season blizzards in the Northern Plains. Lower investment returns on non-qualified benefit plans and higher interest expense also had a negative impact on the quarter. As I mentioned in each of our segment discussions, our companies were impacted by lower returns on non-qualified benefit plan investments. In total, the impact was $12.1 million, or $0.06 per share, for the quarter when compared to the same period in 2021. Year-to-date, the impact from these investments is approximately $18.3 million, or $0.09 per share, when compared to the same period one year ago. Setting aside the inflationary headwinds, weather impacts, and lower investment returns just mentioned, our businesses have continued to execute well in their business plans and navigate through the current environment. Finally, the company continues to maintain a strong balance sheet and ample access to working capital to finance operations through our peak seasons. That summarizes the financial highlights for the quarter, and now I'll turn the call over to Dave for his formal remarks.

Thank you, Jason, and thank you, everyone, for spending time with us this morning and for your continued interest in MDU Resources. Today is an exciting and important day for our company, as we earlier announced our plan to separate our construction material business from MDU Resources.