Good morning, and welcome to Otter Tail Corporation’s Q3 2022 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. I’m the Manager of Investor Relations at Otter Tail. Last night, we announced our third quarter 2022 financial 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 we begin, I want to remind you that we will be making forward-looking statements during this call. As noted on Slide 2, 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. 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, 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. For opening remarks, I will now turn the call over to Otter Tail Corporation’s President and CEO, Mr. Chuck MacFarlane.

Thank you, Tyler. Good morning, and welcome to our third quarter 2022 earnings call. Otter Tail Corporation achieved financial results, record financial results for the third quarter, led primarily by another outstanding quarter in our Plastics segment. Please refer to Slide 4 as I begin my comments on our third quarter results. We achieved diluted earnings per share of $2.01, which is an increase of 60% over the third quarter of 2021. All segments produced double-digit year-over-year earnings increases for the quarter. Kevin will provide a more detailed discussion of our third quarter financial performance. Slide 5 reflects the earnings profile of our businesses with and without the impact of the Plastics segment. Through dependable earnings and steady growth at OTP, BTD, and T.O. Plastics, plus changes in the corporate cost center, we have experienced a historic 9.8% earnings per share CAGR, excluding the plastics companies Northern Pipe and Vinyltech. The additional earnings and cash flow generated by the Plastics segment in 2021 and 2022 provide additional strength to our already strong credit metrics, liquidity, and capital structure, allowing for capital investment in our operating companies. Otter Tail Power continues to work toward a cleaner energy future. As shown on Slide 7, assuming forecasted dispatch occurs, we are targeting to reduce carbon emissions from our owned generation resources approximately 50% from 2005 levels by 2025 and 97% by 2050. Additionally, our owned and contracted energy generation will be more than 50% renewable by 2025. Progress continues on Otter Tail Power’s 49-megawatt Hoot Lake Solar project. Project construction began in May of 2022 and is expected to be completed in 2023. All costs and benefits of the project are assigned to Minnesota customers. Recovery for the $60 million investment has been approved through the renewable rider. As we have shared on previous calls, we have contracts in place for thin film panels, which reduce supply chain risks related to the United States' restriction on goods from the Shenyang region of China and the U.S. Department of Commerce circumvention investigation. The passage of the Inflation Reduction Act has increased the ITC on this project from 26% to 40%. Otter Tail Power exercised its option to purchase the Ashtabula III wind farm. We anticipate closing on the transaction in January of 2023. Since 2013, we’ve had a purchase power agreement in place to purchase the off-take of this facility, and the agreement granted us the option to purchase the wind farm after 10 years. Most regulatory approvals have been received for the transaction. Slide 13 provides information on MISO’s long-range transmission planning projects, which Otter Tail Power will be a participant in. The tranche 1 portfolio includes 18 projects and represents approximately $10.3 billion of new transmission development in the MISO Midwest sub-region. This is based on MISO estimates. The Jamestown-Ellendale and Big Stone South Alexandria transmission projects are located in Otter Tail Power Service territory, and Otter Tail owns two of the endpoint substations. Otter Tail’s total capital investments for the projects are estimated at $330 million, with 40% of the capital investment expected to occur in the next five years. On October 14, 2022, a supplemental filing was made to the Minnesota PUC, which included a request to amend the procedural schedule for Otter Tail Power’s integrated resource plan, which was filed in September of 2021. We determined it was appropriate to request an extended procedural schedule based on the changes to the MISO seasonal capacity construct, increased reserve margin requirements, recent load additions, and the passage of the Inflation Reduction Act. These items could have an impact on the initial preferred five-year plan, which requested authority to add dual fuel capability to Astoria Station, to add 150 megawatts of solar at a yet-to-be-determined site, and to commence the process of withdrawing from our 35% ownership interest in the coal-fired Coyote generating station by 2028. If granted permission, we plan to file an updated resource plan in March of 2023, and our supplemental filing requested maintaining the original procedural schedule for adding dual fuel capability at Astoria Station. We are now projecting a 6.4% compound annual rate base growth with our updated five-year capital spending plan of $1.1 billion with 2022 as the base year. This compares with the 5.9% compound annual rate base growth provided last quarter. Our Manufacturing segment continued to experience volatile steel markets. Steel prices rapidly decreased during the third quarter. The lower steel prices have impacted our cost of material and scrap revenues. We continue to monitor the impact that unpredictable customer supply chains may have on our shipping volumes. T.O. Plastics has increased sales prices and decreased freight costs, which led to increased gross profit margins despite higher material costs in the third quarter. Our Plastics segment again delivered extraordinary results as sales prices remained strong while resin prices decreased. Demand for PVC pipe began to soften during the third quarter as distributors and contractors started to use up high-priced inventory instead of buying additional PVC pipe. Sales volume for the quarter decreased 15% due to softening demand. PVC price and volume reductions in the third quarter are the main factor for the revised 2022 earnings guidance that Kevin will expand on. I’ll now turn it over to Kevin to provide an overview of our third quarter results and our updated business outlook for 2022.

Thank you, Chuck, and good morning, everyone. Another outstanding quarter with consolidated revenues up 21% and net earnings up 60% over the third quarter of 2021. All reporting segments showed quarter-over-quarter earnings growth, with the biggest increase driven by the Plastics segment. Please refer to Slide 28, as I provide an overview of our third quarter 2022 segment earnings. The Electric segment net earnings increased $2.3 million or approximately 10.3% over the third quarter of 2021. The increase in earnings was primarily driven by retail megawatt hour sales that were up 18.4% quarter-over-quarter, driven by increased volumes from commercial and industrial customers, primarily due to a new commercial customer in North Dakota. There was also an increase in fuel recovery revenues resulting from higher purchase power and production fuel costs related to increased natural gas and market energy costs. These items were partially offset by higher O&M costs related to increases in maintenance costs, including those from the planned outage at Coyote Station. There wasn’t a planned outage in the third quarter of 2021. Maintenance at our wind farm facilities, vegetation management, and higher MISO transmission tariff expenses. Net earnings for the Manufacturing segment increased $2 million from the same quarter a year ago, driven by a 17% increase in sales volumes at BTD as end market demand remains strong and our customers’ supply chains have begun to improve. BTD revenues were also impacted by a decline in scrap revenues due to lower scrap metal prices. T.O. Plastics also experienced higher sales prices and volumes. Segment gross profit margins were positively impacted by increased sales volumes, increased sales pricing, and favorable cost absorption. Both BTD and T.O. Plastics continue to do an excellent job of managing through the challenges associated with the current inflationary environment, managing challenging and volatile steel markets, implementing product price increases, and passing through cost surcharges to customers. Net earnings from the Plastics segment increased $27.6 million compared to the third quarter of 2021. Increases in the price per pound of PVC pipes sold were partially offset by lower volumes, resulting in higher operating revenues and net income. The lower sales volumes were due to customers using up more of their finished goods inventory instead of buying additional PVC pipe. This was driven by multiple announcements during the third quarter that the price of PVC resin was going to decline during the last half of the year. Our corporate costs were impacted by increased employee healthcare costs, increased professional service expenses, and losses on our corporate-owned life insurance policies. These higher costs were partially offset by lower interest expense due to smaller amounts outstanding on the corporate credit facility and favorable effective income tax rates. Our business outlook on Slide 31 reflects a 2022 diluted earnings per share range of $6.42 to $6.72 compared to the $6.83 to $7.13 range we previously issued. The midpoint of the revised EPS guidance represents a 55% increase over 2021 earnings per share. The revised guidance also reflects a 67% increase from the midpoint of our initial guidance in February. The change in our initial 2022 guidance to the current guidance is mainly driven by the Plastics segment, which increased approximately 139% for the year. It is also important to note that both our Electric and Manufacturing segments have experienced an uplift from the initial February guidance. Changes in our segment and corporate cost center guidance are as follows: 2022 Electric segment earnings guidance is increasing due to favorable sales volumes from commercial and industrial customers and improved margins from favorable pricing. Another driver of the increased guidance is lower than anticipated labor and non-labor operating and maintenance costs, which are partially offset by a higher planned contribution to our charitable foundation. We are increasing our previous guidance for our Manufacturing segment due to increased sales volumes resulting from improving end market demand at BTD, partially offset by lower scrap revenues. Additionally, we are anticipating increased earnings at T.O. Plastics driven by customer demand and improved gross profit margins. The driver for the reduction in earnings guidance comes from the Plastics segment. Reduced demand for PVC pipe in the fourth quarter of 2022 is expected as a result of multiple announced resin price reductions in both the third and fourth quarters. This has caused distributors and contractors to reduce the amount of PVC pipe purchased from converters as they consume their higher-priced inventories. Sales prices for PVC pipe are expected to remain elevated for the remainder of the year, but the potential for a further decline in resin prices and reduced sales volumes could create downward pressure on sales prices for the remainder of 2022 and into 2023. We are starting to see a slowdown in overall demand. Rising interest rates are impacting housing starts as developers look to pull back on the number of lots they’re developing. Contractors have started to see some projects being canceled or delayed into 2023, driven by long lead times for some project materials as well as speculation of the material costs that could be lowered by mid-2023. Distributors are starting to shed inventories. This is taking longer than expected to get back to the normal level of inventories they expect to carry. Our corporate costs are expected to increase in 2022, driven by investment losses compared to 2021, increased health insurance costs in our self-insured health plan, and increased professional service costs. We continue to monitor various economic indicators such as single and multifamily housing starts, mortgage rates, and consumer confidence levels to ensure we are well positioned when changes occur. Additionally, we are actively managing the impacts of inflation across all of our operating companies. We are acutely aware of the rising interest rate environment that our economy is experiencing. We assess our exposure to rising borrowing costs as low risk. Our variable rate debt consists of our two credit facilities. We don’t have any outstanding borrowings on the parent company facility and minimum amounts are drawn on the utility facility. Our holding company long-term debt is fixed rate and doesn’t mature until December 2026. Our utility long-term debt is also all fixed rate with maturities beginning in 2027 and extending to 2052. Our current financing plan doesn’t call for any equity over the next five-year planning horizon, and new debt issuances aren’t scheduled until 2024. The uplift in earnings driven by our Plastics segment provides many benefits to our collective businesses and strategies in the form of our already strong balance sheet and credit metrics continuing to get stronger. We are generating significant levels of free cash flow, providing the ability to continue to invest across our operating segments without having to access the equity capital markets. We currently expect to see elevated earnings from our manufacturing platform into 2023, with our earnings mix expected to move to approximately 65% from our Electric segment and 35% from our Manufacturing platform beginning in 2024. As part of the shift in the earnings mix, we expect the normalized earnings from the Plastics segment to be in the range of $36 million to $41 million. Our business model continues to serve us well, and we remain well positioned to fund our rate-based growth opportunities at the utility with our strong balance sheet and ample liquidity to support our businesses and strong investment grade corporate credit ratings. We are now ready to take your questions.

Our first question comes from Brian Russo with Sidoti. Brian, you can now ask your question.

Yes. Hi, good morning. So just quickly on the Plastics, your revised guidance based on what you earned year-to-date implies kind of a midpoint Plastics fourth quarter of $0.48, down from $0.90 in the fourth quarter of 2021. If I understood your commentary correctly, volumetric risk along with just due to the slowdown in housing, et cetera, distributors using their own inventory, right? And then combined with margin compression from resin price declines, that $0.48 for in the fourth quarter of 2022, that seems high for a run rate as we go through 2023 before normalizing into that 65-35 reg-on-reg mix in 2024. Is that a good way to look at it?

Yes. I think it is, Brian. We certainly – the fall-off here, obviously, the third quarter was still strong, but compared to where we expected the business to perform in the third quarter, it was off somewhat from where our forecasts were, driven by these multiple resin price reductions that were announced. I think when we sat with you here at the end of the second quarter, we shared that there was an expectation that there would be a $0.14 reduction in resin prices over the last half of 2022. By the middle part of the quarter, that had changed from $0.14 to $0.28 of reductions. We really started to see this fall-off in demand, so it was slightly impacted here in the third quarter compared to our expectations and really has impacted the fourth quarter as compared to where we were at the end of the second quarter on the earnings call. As we – certainly, interest rates, mortgage rates I should say, rising interest rates are starting to see overall demand, not just our demand, but overall demand across the industry and the other converters slow here. We continue to look at how we think these trends move into 2023. As we talked about, we certainly think that we’re still going to see an elevated level of earnings, not something as significant as what we’re experiencing here this year. And those – that would continue over the year to drop back, then ultimately in 2024 to that new normal of earnings that we’re talking about. I think it’s important to note that we continue to monitor the market conditions, watch the drivers, and stay on top of where we think this is going to shake out as we head into 2023, and we’ll certainly have more clarity and color for you at the year-end earnings call.

Okay. Got it. Understood. And then just on the regulated utility, you mentioned a step-up in the guidance. Is that kind of a new level based on – that we can work off of and grow the earnings power of the utility due to incremental ongoing commercial and industrial customer demand? And just to clarify, the margins you referred to, is that on the commercial and industrial customers that’s driving the uplift and should carry forward into subsequent years?

Well, the favorable pricing is one of our commercial customers. They elected to go to fixed rate energy pricing. I believe their contract is for a year. It is possible, Brian, after the year, they could move back to more of a system marginal energy pricing that would impact those margins. So we’ve got to be a little careful about thinking that that could continue when that contract is reviewed annually. Having said that, we incrementally added about $80 million of CapEx to the utility CapEx plan here as we updated it for the quarter. As we look at the range, we certainly think that we would expect to continue to be able to grow off of this range that we’re sharing with you in the updated guidance.

Okay. Got it. And the incremental $80 million of utility CapEx, is that related to kind of the initial development CapEx on the two MISO projects you referred to in the presentation?

Hey, Brian, it’s included in that, better estimates on that. We have removed a 150-megawatt solar project, but have added wind repowering now that the IRA legislation has passed and that the repowering wind credits are back and available. Those were the major items in there.

Okay. Great. And then just one more on the Manufacturing or specifically BTD, are – structurally, are you operating the BTD business better so what seems to be widening margins in 2022 kind of sustainable as we move forward, all else equal with the economics and sensitivity of some of your end markets in recreation, et cetera? But is that also rebasing BTD and the overall manufacturing higher based on higher productivity and efficiencies?

Hi Brian, this is Chuck. I think the bigger issue, if you go back to the second quarter and before that, the customer take rates – and the way we measure that is on a monthly basis, what they plan to order and what they took was negatively impacted by supply chain issues they had in other places. So what we thought we were going to build and what they were going to take in that month didn’t occur at the rate that it has historically because of other supply chain issues. That is beginning to be alleviated and getting back to more normal. Which you can imagine, within a production setting, if what you thought was going to be taken and needed to be built was changed during the month, that causes a lot of inefficiencies in the plant. As that take rate moves up, we get better efficiencies and productivity.

Okay. Got it. Well, thank you very much.

Thank you.

Thank you. At this time, I’m going to turn the call over to Chuck. Chuck, go ahead.

Thank you for joining our call and your interest in Otter Tail Corporation. Our strategic initiatives to grow our business and achieve operational, commercial, and talent excellence continue to strengthen our position in the markets we serve. We remain confident in our long-term ability to grow earnings per share in the range of 5% to 7% compounded annual growth rate using 2024 as a base after Plastics’ transitional year of 2023. With multiple resin price reductions and softening new home development during the third quarter, we have lowered our anticipated sales volume in the Plastics segment and are adjusting our 2022 diluted earnings per share guidance range to $6.42 to $6.72 from our previous guidance of $6.83 to $7.13. We look forward to talking with you next year when we review our 2022 results.

Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.