Good morning, and welcome to the Otter Tail Corporation's Third Quarter 2024 Earnings Conference Call. Please be advised that today's conference call is being recorded. I will now turn the call over to the company for their opening comments.

Good morning, everyone, and welcome to our third quarter 2024 earnings conference call. My name is Beth Eiken, and I'm Otter Tail Corporation's Manager of Investor Relations. Last night, we announced our second quarter 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 MacFarlane, Otter Tail Corporation's President and CEO; and Todd Wahlund, 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 risks 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's President and CEO, Mr. Chuck MacFarlane.

Thank you, Beth. Good morning, and welcome to our second quarter 2024 earnings call. Please refer to Slide 4 as I begin my comments on our quarterly performance. Our team members continue to perform well as they navigate changing market conditions. We are generally pleased with our consolidated financial results, despite diluted earnings per share decreasing 7% to $2.03 per share compared to the third quarter of 2023; the results exceeded expectations, and year-to-date earnings are ahead of last year by 4%. Additionally, we are guiding to what could potentially be our best year yet in terms of annual earnings. Electric segment earnings increased 16% or $4 million primarily due to the impact of interim rates in North Dakota as well as the financial impact of a recent FERC ruling on transmission return on equity. The Plastics segment earnings decreased 8% or approximately $5 million as the sales price of PVC pipe continues to decline. The Manufacturing segment is experiencing demand-related headwinds across several of its end markets, resulting in a decrease in earnings of 71% or approximately $5 million due to lower sales volumes. While plastic segment earnings were lower than the same time last year, its financial results exceeded what we had anticipated for the third quarter. Due to the strong financial performance within our plastics segment, we are increasing and narrowing our 2024 earnings guidance to a range of $6.97 to $7.17 from our previous range of $6.77 to $7.07. In a moment, Todd will provide more detailed discussion of our third quarter financial results and our updated earnings expectations for 2024. Slide 5 shows our expected five-year compounded annual growth rate and earnings per share with and without the impact of our plastics segment through the end of 2024 based on the midpoint of our updated earnings guidance. Even without the impact of the extraordinary results generated by our plastics segment over the last few years, we expect to produce a compounded annual growth rate above our long-term earnings per share growth target of 5% to 7%. Turning to our Electric segment. Slide 7 provides an overview of our electric operations. Earlier this year, our regulated electric utility announced a sizable five-year capital spending plan with significant amounts being allocated to renewable generation, transmission investment, and technology. In addition to Otter Tail Power's rate base growth, we continue to explore opportunities to bring new large loads online, which is summarized in more detail on Slide 8. Otter Tail Power is well positioned to address the needs of new large loads. We have approved tariffs already in place and have several sites available that could support these loads with minimal delivery infrastructure investment needed, increasing the speed to market as well as reducing the cost to do so. We will continue to evaluate and pursue these opportunities while balancing the needs of our current customers. Slide 9 summarizes Otter Tail Power's five-year capital spending plan, which is expected to produce rate-based growth of 7.7%. As discussed in our last earnings call, with the approval of our integrated resource plan in Minnesota earlier this year, we anticipate upside to our five-year capital spending plan and will provide an update during our year-end earnings call in February of 2025. I will now provide a few details on several projects within the existing five-year planning period and beyond. Otter Tail Power's Advanced Metering Infrastructure or AMI project is progressing well. As summarized on Slide 10, approximately 90% of the 173,000 meters have been upgraded, and we look forward to leveraging the additional data these meters will provide to better serve our customers and enhance their experience. We expect this project will reduce operating expenses through lower meter reading costs and technology-enabled savings. Turning to Slide 11, our wind repowering project with an investment of approximately $230 million remains on budget and on schedule. We expect to finish the equipment upgrades at the first of our four owned wind energy centers later this year with the other three by the end of next year. This project continues to be an excellent example of capital investment that serves both customers and investors. Even with this significant amount of capital investment, we expect the project to lower customer bills through the use of available tax credits and the incremental energy output produced from these upgrades. Slide 12 summarizes Otter Tail Power's investments under Tranche 1 of MISO's long-range plan, which we expect to total approximately $420 million. We continue to be in the development phase of these projects and are working to secure the various required regulatory approvals. Separately in June of 2024, MISO revised their proposal for Tranche 2 of their long-range plan and released their near-final Tranche 2 portfolio projects. We currently anticipate Otter Tail Power will co-own three projects included in the portfolio and anticipate the MISO Board of Directors to approve the portfolio later this year. These long-range transmission investments, which help to support overall grid reliability, are expected to have a limited impact on our retail customer rates as they are allocated across the entire MISO North footprint of which our customer base only comprises a small percentage. In addition to the transmission investments available through MISO's long-range transmission plan, MISO and the Southwest Power Pool or SPP partnered to develop the Joint Targeted Interconnection queue or JTIQ portfolio projects focused on improving the interconnection queue backlog along the MISO SPP scene. MISO and SPP have filed their cost allocation tariff with FERC and have requested them to act on or before mid-November. If FERC approves the filing, we expect the MISO Board to approve the portfolio at its December meeting. We remain optimistic about the potential investment opportunity, which we estimate to range from approximately $350 million to $400 million. While Tranche 2 and JTIQ represent incremental transmission investment opportunities for us, most of the spend is likely to fall outside of our current five-year planning period. Turning to Slide 13, ensuring affordable electric service for our customer remains a top priority of ours, and we are proud of Otter Tail Power as having some of the lowest electric rates in the country compared to other investor-owned utilities. We continue to seek ways to keep customer bills low while making significant capital investments to support safe, reliable, and increasingly clean electric service. Slide 14 summarizes Otter Tail Power's key regulatory matters for the remainder of 2024. North Dakota staff and intervenor testimony relating to our rate case was received in October, and as expected, there are differences between our request and their position. Despite these differences, we continue to expect being able to work towards a constructive outcome, and an evidentiary hearing is scheduled before the North Dakota Commission in December, and we anticipate the final outcome of the rate case will occur in early 2025. For more information regarding the case, please refer to Slide 15. We do not expect to file a rate case this year in either Minnesota or South Dakota. Separately, we had an informal hearing before the North Dakota Commission in October to discuss our integrated resource plan. We are waiting on a decision from the Commission to obtain further clarity on what renewable resources additions, if any, would be jurisdictionally allocated to North Dakota. Turning to our manufacturing segment on Slide 18, BTD and T.O. Plastics continue to face end-market demand-related headwinds. We continue to take actions to tightly manage costs to mitigate the impact of lower sales volumes on earnings. Despite this near-term softness, we remain confident in the longer-term fundamentals of the segment. Our BTD expansion project in Georgia is progressing well, and we anticipate occupying the new space later this year. We look forward to bringing this additional capacity online in early 2025 to better serve our customers in the Southeast, which is a growing market for us. We anticipate the additional capacity at our Georgia location can support up to $35 million in additional annual revenue. Turning to our end-market outlook on Slide 20, many of the end markets BTD serves have softened, primarily within recreational vehicles, agriculture, construction, and lawn and garden. T.O. Plastics' primary end-market horticulture has softened as well. Distributor and grower inventory levels have largely normalized after working through elevated inventory levels during the latter part of 2023 and most of 2024, but we are facing increased competition from import markets. Additionally, end-user demand is expected to be flat to down as the market adjusts to consumers' post-pandemic behaviors and buying patterns. Slide 21 provides an overview of our Plastics segment. Despite Plastics segment earnings decreasing from the same time last year due to lower sales prices of PVC pipe, the segment continues to perform better than expected, capitalizing on customer sales volume growth and improved distributor and end market demand. Our ability to fill orders on an immediate basis is serving us well in the current environment. The first phase of our Vinyltech expansion project in Arizona continues to progress well and is nearly complete. We look forward to adding large diameter PVC pipe capability at this location later this year so that we can better serve our customers in the South and Southwest while simultaneously freeing up large diameter capacity at Northern Pipe Products in North Dakota. PVC pipe prices continue to decline but at a slower rate than we expected. Our prices reflect the dynamic nature of the business and the industry, including the supply and demand of PVC pipe and the cost of supply and material inputs including PVC resin. Improved demand has moderated the rate of pricing declines. However, we continue to expect the sale price of PVC pipe to decline over time. We continue to closely monitor new home construction, vacant lot development, and interest rates. As I conclude, I want to acknowledge the class action lawsuits against many of the pipe manufacturers in the industry. We believe there are factual and legal defenses to the allegations in the complaints, and we intend to defend ourselves. These are current and active cases. We will not be commenting further today on these allegations and claims against Otter Tail and the industry. I will now turn it over to Todd to provide additional commentary on our third quarter financial results and our expectations for the remainder of the year.

Thank you, Chuck, and good morning, everyone. Diluted earnings per share for the third quarter totaled $2.03, a 7% decrease from the same time last year. Despite the lower quarterly earnings, our year-to-date earnings exceeded last year by 4%. Our Plastics segment continues to perform better than expected, capitalizing on customer sales volume growth, distributor and end market demand, and PVC sales prices that have remained stronger than what we had anticipated. Due to the continued strong financial performance within our Plastics segment, we increased the midpoint of our 2024 earnings per share guidance by $0.15 or 2%. Please follow along on Slide 25 as I provide an overview of our third quarter financial results by segment. Electric segment earnings increased 16% from the third quarter of 2023 due to the impact of the North Dakota rate case, interim rate increase, increased transmission and rider revenue, and the impact of favorable weather. This was partially offset by higher interest and depreciation expense. Transmission revenue for the quarter was higher compared to last year due to a recent decision issued by FERC which supported our lowering the estimated refund on the allowed return on equity dating back to 2013. This resulted in a non-recurring earnings per share increase of $0.04 in the third quarter. Manufacturing segment earnings decreased 71% compared to the third quarter of 2023 due to lower sales volumes and profit margins, product pricing, sales mix changes, and decreased scrap revenue. This was partially offset by lower SG&A expense. Sales volumes in the manufacturing segment decreased 13% in the third quarter of 2024 compared to the same time last year. The end markets that saw the greatest declines in the quarter included recreational vehicle, agriculture, construction, and lawn and garden. Sales volumes have softened due to lower end-market demand as well as manufacturers and dealers tightly managing their inventory levels amid uncertain market conditions. Lower profit margins were largely driven by the mix of products sold during the quarter as well as reduced leverage of our fixed manufacturing costs due to decreased production and sales volumes. Despite the near-term softness, the fundamentals of the segment remain strong, and we expect the manufacturing segment to produce earnings growth in line with our EPS growth target over the long term. Plastics segment earnings decreased 8% from the third quarter of 2023 primarily due to lower profit margins, which was partially offset by higher sales volumes. Gross profit margins decreased in the third quarter due to lower sales prices. Pipe sales prices have steadily declined throughout the year and decreased 11% compared to the same time last year. Sales volumes increased 13% from the third quarter of 2023 due to incremental customer sales volume growth and improved distributor and end market demand. With the increased earnings and cash generated by our diversified business model, our balance sheet and credit metrics continue to be very strong. Slide 27 shows our total available liquidity on our lines of credit as of September 30, 2024. This combined with our $280 million of cash results in total available liquidity of $544 million. Our consolidated equity layer of nearly 62% continues to be at a very healthy level, and our return on equity over the last 12 months exceeded 20%, outpacing our utility peers. Turning to Slide 28, due to the continued strength within our plastics segment, we are increasing and tightening our 2024 diluted earnings per share guidance to a range of $6.97 to $7.17 from our previous guidance range of $6.77 to $7.07. This increase is the midpoint of our guidance to $7.07, which is a $0.15 increase over our previous guidance midpoint. We are maintaining our Electric segment and corporate cost center guidance for 2024. Our electric segment earnings are expected to increase 7% over 2023 levels. We are decreasing our 2024 earnings guidance for our manufacturing segment primarily due to lower anticipated sales volumes in the fourth quarter. As mentioned previously, many of our markets are experiencing end-user demand-related headwinds, and we expect manufacturers to continue to tightly manage their production and inventory levels in response throughout the remainder of the year. Additionally, we anticipate product pricing-related pressures due to weakened demand. We will continue to take action to tightly manage our costs in this down cycle while ensuring our team and operations remain agile to respond quickly when demand improves. We are increasing our Plastics segment 2024 earnings guidance for a couple of reasons. First, our third quarter financial results were better than what we had expected. Second, while we anticipate the sales prices of PVC pipe to continue to decrease, we now expect this decrease to be at a slower rate of decline than what our previous earnings guidance assumed. Additionally, we expect sales volumes in the fourth quarter to be higher than what we had previously assumed. With the changes made to our earnings guidance for the year, we anticipate our earnings mix for 2024 to be 30% electric and 70% non-electric net of corporate costs. While this anticipated mix deviates from our long-term earnings mix target of approximately 65% electric and 35% non-electric, the incremental earnings and cash generation helps drive shareholder value as we remain in an enviable position to execute on our long-term growth plan with the support of a strong balance sheet and no equity needs in the current five-year planning period. We continue to expect to reach our targeted long-term earnings mix of 65% electric and 35% non-electric as plastics segment earnings decline to a range of $45 million to $50 million on an annual basis, while our electric segment earnings grow at a rate in line with our projected rate-based growth compound annual growth rate. Our five-year capital spending plan, which is a key driver of earnings growth for our electric segment, is included in more detail on Slide 29. No changes have been made to this plan since it was first announced earlier this year. However, as Chuck mentioned, we expect sharing an updated five-year capital spending plan during our year-end earnings call and anticipate incremental capital investment opportunity primarily within our electric segment over the next five-year spending period. Slide 30 provides a summary of our financing plan for 2025 through 2028. We continue to plan for retiring and not replacing our only outstanding parent-level debt when it matures in 2026 and continue to forecast no equity needs within the existing five-year planning period and potentially beyond, despite our significant rate-based growth plan. This helps differentiate us from many of our utility peers that will need to issue additional equity to fund their rate base growth plan, resulting in earnings per share dilution. We are positioned well to deliver upon our increased 2024 earnings guidance and meet our long-term investment targets, as summarized on Slide 33. Our diversified business model continues to produce above-average returns and long-term value for our shareholders. We have many growth opportunities across our segments and are positioned well to grow with our customers. We are in an excellent position to support this growth with our strong balance sheet, ample liquidity, and investment-grade credit ratings. We are now ready to take your questions.

Thank you. Our first question comes from Ida Wozniak of Siebert Williams Shank & Co. Ida, your line is open.

Hey, it's Chris. Chuck, you've talked about some potential new large loads for a while. Have you got any ability to elaborate or give us any sense of what kind of timeline that might be?

Chris, thanks for the question. We, as many in the industry, are working with a number of entities that are interested in this, both the end-use customer and people that would make the facilities in a data center mode, but also crypto mining. Particularly to our geographic area, we have a lot of interest in clean fuels, whether it's sustainable aviation fuel or low carbon ethanol type facilities. In each of those, I would indicate we're in discussions with a number of people. We have not moved to signing any electric service agreements, but we have several projects that are in discussions or letter of intent situations on that. So, from a timeframe, I would expect we will have to have something here within the next two quarters.

Okay. That helps. As far as the plastics segment goes, you now have rising volumes, which has its own pressures on price. And that's beginning to sort of offset the declining price. Have you got any new insights into what you think the glide path towards normal is? And has your thoughts on what the new normal will ultimately be changed at all?

Chris, I don't think that our idea where the new normal would be has changed. We have been fairly consistent in that $45 million to $50 million. We anticipate that in the 2026 timeframe and we anticipate the prices will continue to recede between where they are now and that level over that time period.

Okay, great. You alluded to some import pressures on manufacturing end markets. Can you elaborate on that? And how much of it do you think is some consumer pressures from interest rates and maybe postponing some purchases hoping for a better 2025?

Chris, our reference on this is primarily to T.O. Plastics. And I think there's a review of just what you mentioned, spending patterns of the end-use customer in the horticulture market. But also, the import market, we think, has changed just because of the price of overseas freight has declined significantly. And while it was there pre-pandemic during the high freight periods, a lot of that pressure from imports dropped off. We feel that that's now come back.

Okay. So lastly, with the new capacity in Arizona, can you just sort of talk about the dynamics between the large diameter pipe market in Arizona, the absence of having to ship the pipe? So what does that do to Arizona margins? And also, if North Dakota isn't selling into the Arizona market, do they have a void there that they can fill with their large capacity pipes? So are you expecting improved margins overall in volumes?

So I think on volumes, we would expect increased volumes. And by way of background, when we get an order for a development or whatnot, it may include some amount of large diameter pipe, which in the Southwest, we have been unable to provide from the Vinyltech facility because it didn't have equipment able to make that. So, you would only get a partial order or not get an order because you couldn't fulfill the whole thing or we had to ship it at a very high cost from North Dakota. We think that will be alleviated and should improve our sales volumes in the South and Southeast.

And what ends up happening to the volumes that North Dakota was providing? Will they be able to sell that locally?

We believe so. It was not a lot of volume. It is a long way to ship pipe.

Right. Okay. Thanks a lot. Appreciate the details.

Thanks, Chris.

Thank you very much. One moment for our next call, please. Our next call comes from the line of Tate Sullivan of Maxim Group. Tate, your line is open.

Great. Thank you. Hi, Chuck and Todd. And I mean, first going back to PVC, I mean, can you talk about why distributors that buy the PVC, such as Core & Main and Ferguson, are willing to pay prices above the historical spread to resin? Are your customers, the distributors waiting for extra supply? Do they still want extra inventory? Can you go into some background on that dynamic, please?

Thanks for the question. We believe that there are a lot of dynamics in PVC pipe and pipe pricing. There are a number of issues that go into how that's set. I can't ascertain what speaks for the distributors. Beyond that, we are not really going into any of the stuff that's going into the litigation since it's ongoing.

And then when you comment on, I mean, the margins going down, the pricing going down in the PVC eventually, are you really basing that on what you're seeing for the resin prices? And can you comment what resin prices have done since September since you have more visibility than many?

There are a lot of things that go into the pricing, not just resin. And I'm really not able to go into that anymore at this time due to the litigation.

Okay. I understand. And then, Todd, the manufacturing you mentioned on the weakness in BTD, you covered it in the comments and the questions. What is the relative manufacturing revenue mix between BTD and T.O. Plastics? Is it still a majority of BTD, or have you given the percent breakdown before?

No, you're absolutely right, Tate. BTD is the much larger entity of the two. So most of our financial results would be driven by BTD, and this year, T.O. Plastics has been very challenged all year long with sales volumes.

And then just sorry, just on the PVC as well, and Chuck you mentioned the $45 million to $50 million is it normal? What is that referring to? I mean, because you have 350 pounds of capacity growing that by about 7%. What were you referring to with that number?

I was referring to our forecast net income from that segment in 2026 or beyond.

Perfect. Okay. Thank you very much.

Thank you very much. As there are no remaining questions in the queue, I would now like to turn the call back over to Chuck for his closing remarks.

Thank you for joining our call and your interest in Otter Tail Corporation. If you have any questions, please reach out to our Investor Relations team. We look forward to speaking with you next quarter.

This does conclude the call.