Good morning, and welcome to Otter Tail Corporation's Q3 2021 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 comments.

Good morning, everyone, and welcome to our call. My name is Tyler Akerman, and I manage Otter Tail's Investor Relations area. Last night we announced our third quarter 2021 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 MacFarlane, Otter Tail Corporation's President and CEO; and Kevin Moug, Otter Tail Corporation's Senior Vice President and Chief Financial Officer. Before I 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 judgment or opinion of what the future holds. They are subject to risks and uncertainties that may cause actual results to differ materially. So please be advised about 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, and we encourage you to review them. 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 turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck MacFarlane.

Thank you, Tyler. Good morning, everyone. Welcome to our third quarter 2021 earnings call. Otter Tail Corporation continues to support all the locations we serve with collective efforts to mitigate the spread of COVID-19. Most of our employees have returned to the office from working remotely. As of today, 5% of our employees continue to work remotely. We continue to monitor case activity along with vaccination rates in the communities we operate. We also continue to monitor and follow guidance and recommendations from the CDC, our state's local public health officials, and OSHA. Additionally, we are making plans to meet the executive order guidance for federal contractors or OSHA ETS requirements for all of our operating companies related to COVID vaccination or testing requirements. Throughout the course of the past year and a half, our companies have done an excellent job managing COVID-related impacts, including creating safe work environments, adjustments to staffing levels, navigating supply chain constraints, managing commodity pricing, and supporting increased customer demand. Please refer to slide four, as I begin my comments on Q3 results. Otter Tail Corporation achieved outstanding financial results during the third quarter of 2021. We earned $1.26 per share for the quarter, which was a 145% increase over the $0.87 per share earned in Q3 of 2020. The increase was led by our Plastics segment, which had another record quarter driven by continued strong PVC pipe demand and PVC resin supply constraints, which were exacerbated in the third quarter due to impacts from Hurricane Ida. Kevin will provide a more detailed discussion of our financial performance in his comments, but a brief overview of Q3 is as follows. Electric segment quarter-over-quarter earnings were down, with earnings per share decreasing $0.06. This was primarily driven by increased costs arising from this year's planned major maintenance at Big Stone plant and a Q3 2020 positive earnings impact from a MISO MVP order. Our manufacturing segment earnings per share increased $0.02 due to increased sales volumes at BTD and T.O. Plastics and scrap metal revenues at BTD. Our Plastics segment had a record-breaking quarter with earnings per share increasing $0.43. This was driven by higher PVC pipe prices and improved operating margins, resulting from positive unique market conditions. These increased results started with the unusual and infrequent impact resulting from the extreme cold weather in February that caused resin suppliers to temporarily close petrochemical plants in the Gulf Coast region. We expect these supply and demand conditions to persist for the remainder of 2021 and continuing in the first half of 2022. Based on our strong year-to-date performance, especially in our Plastics segment, and our updated view for the remainder of the year, we are increasing our 2021 diluted earnings per share guidance to be in the range of $4.05 to $4.20, from our previously announced guidance of $3.50 to $3.65. This is a 73% to 79% increase over last year's $2.34 per share. Turning to some highlights for the quarter. Otter Tail Power filed its integrated resource plan in September. The request in the five-year action plan includes the addition of dual fuel capability at our Astoria Station natural gas plant, the addition of 150 megawatts of solar generation in the 2025 timeframe, and the commencement of the process to withdraw from our 35% ownership in Coyote Station by year-end 2028. After incorporating requests from the integrated resource plan, we now anticipate capital expenditures in our electric segment of nearly $1 billion over the next five years, which will result in a compound annual growth rate and rate base of 7.2% from the end of 2020 to the end of 2026. We continue to make progress on the development of Otter Tail Power's 49-megawatt Hoot Lake solar project, which will be constructed on and near the retired Hoot Lake plant property. The project is expected to be completed in 2023 and has received renewable rider eligibility approval in Minnesota, allocating 100% of the costs and benefits of the project to Minnesota customers. The location of Hoot Lake solar offers us a unique opportunity to utilize our existing Hoot Lake transmission rights, substation, and land. We continue to work through supply chain challenges including inflationary costs and potential increased solar tariff issues associated with the project. Our investments in Hoot Lake Solar, those identified in our integrated resource plan, and other capital expenditures will allow us to improve our customers' experience, reduce operating and maintenance expenses, reduce emissions, and improve reliability and safety. As shown on slide 8, we are targeting to reduce carbon emissions from our own generation resources approximately 50% from 2005 levels by 2025 and 97% by 2050. Otter Tail Power announced in the third quarter the addition of a new load with a business focused on the delivery of high-performance crypto mining and infrastructure solutions to customers who engage in direct mining of Ethereum, Bitcoin, and other crypto assets. Demand from the customer's facilities could approach 100 megawatts with a high load factor and the ability to be curtailed. The North Dakota PSC has approved our electric service agreement with this customer, and we expect this load to be fully online by the end of the first quarter of 2022. Given the increases we've seen in natural gas prices, we are planning to update our 2022 Minnesota fuel clause adjustment forecast. We submitted our original forecast for 2022 in April of this year. The Minnesota PUC has yet to approve the forecast that will go into effect on January 1st, 2022. As a result, we have an opportunity to provide an updated forecast and will seek to have the revised forecast approved. Fuel cost recovery in North Dakota and South Dakota are based on actual costs incurred. The favorable regulatory environments we operate in provide opportunities to mitigate risks from fuel price changes. We filed our Minnesota General Rate case on November 2nd, 2020. Our last Minnesota rate review was filed in 2016. The primary driver for this request is to place Astoria station into our base rates in Minnesota. In September of 2021, the administrative law judge provided recommendations on our Minnesota rate case. The recommendations include a revenue decoupling mechanism for residential and commercial customers, a return on equity of 9.48% on a 52.5% equity layer, and full recovery of the recently completed Merricourt Wind and Astoria natural gas generation projects in base rates. Based on the ALJ recommendations, we are anticipating final rates to reflect only a moderate increase over our current rates. This is due to operating expense reductions achieved during the rate case period and other regulatory proceedings approved following our original filing in November of 2020. Recognizing the economic impact to customers of the ongoing pandemic and with input from commission staff, we agreed to reduce our interim rate request by approximately half to $6.9 million or 3.2%. This was done in conjunction with the approval of our annual depreciation filing, which extended our wind asset lives from 25 years to 35 years. This change in depreciation expense and a reduction in pension expense drove the decrease in the interim rate request. In December, the commission approved our interim rate request beginning in January of 2021. In late April, we filed a substantial reduction to our original request. Incorporating the lower depreciation rates approved by the commission, lower borrowing rates, lower pension and benefit costs, and other refinements identified during the discovery phase of the case, the new request was for $8.2 million or a 3.8% increase versus the original request of $14.5 million or 6.8%. As reflected on slide 15, ALJ is recommending an approximate $0.5 million overall increase. The Minnesota Public Utilities Commission will have deliberations in early November with a written order projected to be issued by the end of January 2022. We expect final rates to be implemented by mid-2022. At the conclusion of this case, Otter Tail Power residential customers will continue to have some of the lowest rates in the country. Turning to our manufacturing segment. BTD, our contract metal fabricator, continues to be challenged by labor and recruitment costs as we focus on hiring to meet customer demand. We have made progress on hiring new employees during the quarter, after increasing starting wages, offering shift premiums, and providing signing bonuses. BTD is at its highest employee count level of all time. We are focusing on getting these new employees to full productivity. Steel prices remain at historically high levels, but lead times have started to improve. We remain focused on managing our steel suppliers to ensure we continue to receive material on time. Also, BTD continues to experience increased customer demand driven by OEMs, improved sales, and the desire to rebuild depleted inventories. T.O. Plastics had a solid performance driven by strong horticulture end-market sales. Our Plastics segment continues to deliver extraordinary results in a tight pipe market, which experienced further resin supply constraints in the third quarter due to disruptions caused by Hurricane Ida. Resin shortages and low PVC pipe inventories negatively impacted our volume of pipes sold in the quarter. However, demand for PVC pipe remains strong, and sales prices continue to increase because of these conditions, resulting in record third quarter earnings. Again, I would like to thank employees within Otter Tail for their commitment and dedication and for navigating the economic swings and safety concerns presented with COVID. Now I'll turn it over to Kevin for the financial perspective.

Well, thank you, Chuck, and good morning, everyone. The third quarter revenues were up 34%, and net earnings increased 47%. These results continue to be driven by the unique market conditions we've been experiencing in our Plastics segment during the second and third quarters of 2021. Let me provide a detailed review of the quarter results as shown on Slides 26 and 27. The electric segment net earnings decreased $2.2 million quarter-over-quarter, driven by a $3.2 million decrease in net retail revenues due primarily to a $2.6 million of Minnesota Transmission Rider revenue recognized in the third quarter of 2020. This resulted from a favorable judicial decision regarding the state jurisdictional treatment of federally approved transmission projects. In addition to the decreased retail revenues, there were increased operating expenses related to the Merricourt Windfarm and Astoria Station being commercially operational, and increased Big Stone plant planned outage maintenance expenses. Other items impacting earnings were higher depreciation and property tax expense due to recent capital additions, higher interest expense due to new long-term debt issuances in 2020, higher short-term borrowings in 2021, and a lower level of capitalized interest resulting from placing the Astoria Station in service in the first quarter. There was also a reduction in other income due to lower amounts of equity funds used during construction due to the completion of the Astoria Station. And income taxes were favorably impacted mainly due to production tax credits earned on Merricourt in 2021. Net earnings for the manufacturing segment increased $900,000. Segment revenues increased $30.1 million, primarily due to higher material costs at BTD, as steel prices have increased significantly from the previous year. Steel prices increased as steel mill production has not matched customer demand as mill capacity continues to recover from the shutdowns in 2020 that resulted from the COVID-19 pandemic. These material costs are passed through to customers. Higher scrap metal prices continued in the third quarter of 2021, which contributed to an increase in operating revenues. In addition to favorable scrap metal prices, a 4% increase in sales volumes also contributed to the increase in operating revenues. The increase in operating revenues at BTD was largely offset by lower gross profit margins. This was a result of increased labor related to the time required for new employees to be trained, which in turn caused lower productivity levels during the quarter. Operating expenses also increased in the third quarter of 2021 due to incentive-based compensation and other costs necessary to support higher business volumes. Manufacturing segment operating revenues and net income also benefited from increased product pricing and higher levels of horticultural sales at T.O. Plastics along with increased gross profit margins resulting from higher production volumes. The increase in net income for the Plastics segment was driven by the sales price per pound of PVC pipe sold continuing to increase. It increased 103.6% in the third quarter of 2021 compared to the same quarter last year and exceeded the 91.7% increase in the cost of PVC resin and other input materials. The increases in sales prices were largely due to the combination of PVC resin supply constraints that led to limited PVC pipe inventory and strong demand for PVC pipe products. Resin supply in the third quarter of 2021 was negatively impacted by disruptions caused by Hurricane Ida in the Gulf Coast region. This compounded supply constraints that began in the first quarter of 2021. Pounds of pipes sold in the third quarter of 2021 decreased 13% from the same period last year as resin supply constraints limited our production. Our corporate costs, net of tax, were basically unchanged between the quarters. On September 30, 2021, Otter Tail Corporation entered into a fourth amended and restated credit agreement, and Otter Tail Power Company entered into a third amended and restated credit agreement. Amending and restating the previously existing credit agreements to extend the maturity date of each agreement to September 30, 2026. The borrowing capacity and other significant terms of the agreements remained unchanged from our previous credit agreements. We continue to generate strong cash flows and have the appropriate levels of liquidity under our credit facilities to support our business operations. We expect operating cash flows in 2021 will be much stronger than originally anticipated, resulting from our Plastics segment performance. These strong cash flows allow us to look at investment opportunities such as additional contributions to our pension plan to improve funded status and opportunities for additional capital investments to continue to grow organically in all three of our segments. Moving on to our business outlook, we are increasing our 2021 diluted earnings per share guidance range to $4.05 to $4.20 considering the third quarter results and forecast for the remainder of 2021. The uplift in the guidance is again driven by the continued strong performance in our Plastics segment. The midpoint of our revised 2021 earnings per share guidance of $4.13 reflects a 76% growth rate from the 2020 diluted earnings per share of $2.34. We are increasing our previous 2021 guidance for our Plastics segment as operating income margins during the first nine months have been higher than expected, driven by the unique market conditions resulting from PVC resin supply constraints that began in the first quarter. These unexpected conditions arose from the extreme cold weather in February, which caused resin suppliers to temporarily close various petrochemical plants. The market conditions created by this event continued into the second quarter. Supply constraints were further exacerbated in the third quarter due to the impacts from Hurricane Ida, which caused resin suppliers to again declare force majeure contract provisions. This further contributed to continuing increases in PVC pipe prices and operating income margins at levels not previously experienced. Pounds of pipes sold in 2021 are now expected to be slightly higher than 2020 driven by strong construction and municipal markets. Resin suppliers continue to enforce resin allocations to customers and increase prices for raw materials due to market conditions such as availability constraints related to feedstock supplies for resin and a strong export market that has higher resin prices than the domestic market. We currently expect the supply constraints to continue for the remainder of 2021 and into 2022. We expect these conditions could moderate during the last half of 2022. We continue to maintain our manufacturing guidance from our August 2, 2021 earnings release. Steel lead times have improved somewhat during the third quarter and supply has become less of an issue. Despite these positive indicators, we remain focused on managing our steel supply to ensure we continue to receive material on time. Steel prices remain elevated above historic levels and are expected to continue into 2022. We continue to work on improving staffing levels to keep up with strong demand and to mitigate the impact of increasing expedited freight costs while maintaining or improving labor efficiencies. The backlog for the manufacturing companies is approximately $90 million for 2021 compared with $59 million one year ago. We continue to maintain our electric segment guidance from our May 3, 2021 earnings release and continue to maintain our corporate cost center guidance from our August 2, 2021 earnings release. The management teams of our operating companies have done an excellent job managing the business through challenging times, delivering impressive financial results. These results have positively positioned us from several perspectives, including increased earnings and cash flows over our original 2021 financial plan, resulting in stronger financial metrics such as equity to total capitalization ratio, returns on equity, and FFO to debt metrics. The increased cash flows will offer additional investment in organic growth opportunities across all of our segments and allow for improved funding of our pension plan. Our expected 2021 financial results show 42% of our consolidated earnings per share come from the electric segment. This is a departure from our 70% expected earnings from this segment. The 2021 results are clearly driven by the economic recovery in our non-electric businesses, and most significantly, by the unique market conditions in our Plastics segment, which are not expected to continue over the long term. Our Electric segment is expected to contribute 70% of our overall earnings over the long term. It will continue to deliver reliable performance along with rate base investment opportunities over the next five years to allow for growing revenues, earnings, and cash flows. The manufacturing and plastics segments will also provide organic growth over the long term, and these two segments are expected to provide around 30% of our earnings over time. We expect to deliver total shareholder return of 8% to 10% over the long term, consisting of our expected 5% to 7% compounded annual growth rate in earnings per share, using 2020 as the base year along with our current dividend yield. Looking forward, we would expect to grow the dividend consistent with our long-term earnings per share growth rate of 5% to 7%. Our business model continues to serve us well. We remain positioned to fund our rate base growth opportunities at the utility with our strong balance sheet, ample liquidity to support our businesses, and our strong investment-grade corporate credit ratings.

Thank you. After the question-and-answer session, Chuck will return with a few closing remarks. Your first question comes from Brian Russo from Sidoti. Please proceed with your question.

Hi. Good morning.

Good morning, Brian.

So first on the utility, what are the major regulatory milestones in regards to the IRP that supports your increase in updated CapEx? Will you issue RFPs, or just file for CPCNs?

Hi, Brian, this is Chuck. Well, first we'll go through a discovery process and answer questions. It's generally a contested case in Minnesota. From that point, the plan will generally indicate a resource requirement with a cost. It doesn't generally specify the requirement to use a PPA or whatnot. We'll go out and get price estimates both self-build and PPA. Then we'll go from there, selecting the least-cost resource.

Okay. Got it. And then, it seems like a lot of these investments are at existing sites. I suppose just like the Hoot solar project. You have some access to transmission and other related infrastructure?

We consider interconnection costs and types in our integrated resource plan. We distinguish between a new standard MISO interconnection and a replacement, like what we're doing at Hoot Lake. Additionally, at times, we can combine different resources, such as pairing an existing gas resource with solar or wind.

And given the strength in cash flows from the plastics outperformance, I know you had no plans to issue equity given the prior capital budget, but are you still able to finance it with debt and cash flow and no significant amount of equity through the 2026 period?

Yeah Brian, this is Kevin. We'll be updating our financing plans as part of our guidance for 2022 in February, but we still expect that only minimal equity will need to be issued.

Okay. Got it. And then just to switch topics to the Plastics segment. The supply constraints, and high prices, and attractive margins are now forecast to continue into the first half of next year. Is it all because of Hurricane Ida and the temporary shutdowns of the petrochemical plants that have pushed this out, or are there other market trends that maybe these margins may not be as high as they currently are like you recorded in the third quarter. But is there a sustainable higher level of margins in the Plastics segment?

Brian, Kevin again, I would agree with your comment that it is certainly, if you will compounded exacerbated the supply constraint issue that wasn't expected. The resin suppliers are continuing to struggle to get back to higher levels of production of the PVC resin. And that, as we said in our prepared remarks, is expected to continue into that first half of 2022. We currently expect that those conditions could start to change in the last half of 2022, certainly fluid and subject to updates as we continue to go through the year, but I think basically that's the conditions we're seeing today. And we're expecting those based on today's conditions to continue into the first part of 2022.

And you mentioned resin supplier adjusting allocations due to the dynamics you just discussed. Are you facing allocation supply shortages as well, or given that you're only like 2% of the market, you're able to get what you need to hit your targets?

Brian, we're getting what we need to meet current demands, but we're not getting anything in addition to build existing inventory levels.

We are on allocation.

The allocations are continuing. Essentially, the resin that arrives at the plant is turned into pipe and promptly shipped out for sale. Therefore, we are not receiving any surplus resin to replenish our inventory to our usual levels.

Got it. Understood. And then just real quickly on the manufacturing side, some of your large end-market customers, obviously, are facing their own supply issues in raw material inflation. But are you sensing that this is temporary? And, I mean, are you meeting their demand, or is there demand exceeding what's actually available in the marketplace right now?

Well, from our perspective, Brian, we're meeting what our customers need. Steel supply has certainly improved here over the last handful of months, and so we're able to meet their needs. But I think Polaris and others are still having other supply constraints in their supply chain that is causing them still difficulties in getting their inventory levels built back up to where they would like them to be. But we continue to monitor the steel supply to make sure we're getting what we need to meet customer demand, certainly impacted by all the new hires that we've had into the business and having some productivity challenges there as we bring those people up to full speed.

Okay. So is it fair to say that there's pent-up demand from your end-market customers going forward and into 2022 as they look to replenish dealer inventory?

Yes.

Okay. Got it. Thank you very much.

Thanks.

Thank you. The next question comes from the line of Sophie Karp from KeyBanc. Your line is open.

Hi, good morning. Congrats on a strong quarter and thank you for taking my question. So can I maybe ask you about that cryptocurrency mining customer that you added? And I guess, I'm just kind of curious if you plan to add more if you have any visibility if that's something that's going to grow in your territory? And is there any, kind of, impact on the margins that is different from a typical electric customer that you had?

Hi Sophie, this is Chuck. We do have interest, as I'm sure many utilities do with these types of loads. A couple of years ago, we established a large general rate in North Dakota, which is a tariff rate, but each installation has specific requirements regarding minimum megawatts and capacity factors. Each one must be individually approved by the commission. We continue to consider these, but there are only a limited number of sites and resources available, not just personnel but also in terms of generating facilities and market purchases to meet those needs. We are still interested, we have a filed rate, and we are actively working with these customers.

So is there any differentiated impact on your margin, or is it pretty much the same as any other customer?

They are a lower margin customer who consumes a lot of energy and can reduce their usage. Therefore, we don't have to account for a capacity requirement.

Understood. Thank you. And then my other question was about your IRP and sort of how you will be determining the low-cost resource right, during that process. Can you maybe get a little bit more granular, and walk us through how exactly that is determined? For example, when you compare PPA versus something you would build on your own, right? So is that based on the levelized cost of energy, or is that based on just total cost to build? Because clearly, it's a different financial structure, something that would be in rates versus just a straight-up PPA agreement? So any color on that would be helpful on how you generally approach or how your commissions rather require you to approach that cost comparison?

We use our capacity planning model, which incorporates both the initial capital costs and the PPA price along with escalation. To address your question, the decision is generally based on the levelized cost of energy, regardless of whether the resource is a PPA or a self-build. We utilize this model to create a least-cost overall plan. The commission typically approves these requirements as it follows a 15-year plan. Many of the costs, projects, or changes to resources may be five to ten years in the future. The overall plan is structured over 15 years, with a five-year action plan at the Minnesota Commission to facilitate approvals. Often, these approvals are more generic requests since they pertain to a timeline of four to five years out. After the plan receives approval, we then aim to identify the least-cost resource within that category.

Right. So that will be our peers discussed that they're having a difficult time owning those assets, renewable assets specifically due to the tax normalization issue with a regulatory construct. And they actually discussed in formulating a non-regulated affiliate to be able to build and own on those resources. Did you find that it is also a challenge for you, or are you able to work through those issues?

From a tax perspective, we have been able to have a good tax appetite somewhat beneficial from our non-utility companies having a tax creation. So, to date we have not needed to look for outside equity, tax equity sponsors, and we are watching the reconciliation bill and the ability to use that maintains a longer ITC or PTC window. Our IRP is filed, assuming that the ramp-down that's in the current law goes forward, and then the ability to have direct pay credits would change that dynamic also.

Thank you. Appreciate the comments. I’ll jump back in the queue.

There are no further questions in queue. I will now turn the call back to Chuck.

Thank you for your questions and interest in Otter Tail Corporation. Our outstanding year-to-date results reflect the collective efforts of the people of Otter Tail Corporation and unique market conditions. Our long-term focus remains on executing our growth strategies. For the utility, our strategy is to continue to invest in rate base growth opportunities over the long term and drive efficiency in our operating and maintenance expenses, which will lower our overall risk, create a more predictable earnings stream, and maintain our credit quality. The utility is complemented by well-run strategic manufacturing and plastic pipe businesses, which provide organic growth opportunities from new products and services, market expansion, and increased efficiencies. Based on our strong year-to-date results and our updated view of the remainder of the year, we are raising our 2021 diluted earnings per share to $4.05 to $4.20 from our previous guidance of $3.50 to $3.65. Thank you for joining our call. We appreciate your interest in Otter Tail Corporation, and we look forward to speaking with you next quarter.

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.