Hello. My name is Jamaria, and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group 2022 First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] This call will be available for replay beginning at 5 pm Eastern Time today through 11:59 pm Eastern Time on May 19th. The conference ID number for the replay is 2188415. Again, the conference ID number for the replay is 2188415. The numbers 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, and welcome, everyone, to our first 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 Goodin, 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 Thiede, President and CEO of MDU Construction Services Group; Nicole Kivisto, 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 21 E 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 more information about the risks and uncertainties that could cause our actual results to vary from any forward-looking statements, please refer to our most recent SEC filings. We may also make reference to certain non-GAAP information. For a reconciliation of any non-GAAP information to appropriate GAAP metrics, please refer to our earnings release. I will start by providing consolidated financial results for the first quarter before handing the call over to Dave Goodin for his comments and his forward look. Yesterday, we announced first quarter earnings of $31.7 million or $0.16 per share compared to first quarter 2021 earnings of $52.1 million or $0.26 per share. Our combined utility business reported net income of $47.6 million for the quarter compared to $46.9 million for the first quarter of 2021. The electric utility segment reported strong first quarter earnings of $11.3 million compared to $10.7 million…

Thank you, Jason, and thank you, everyone, for spending time with us today and for your continued interest in MDU Resources. We’ve had a solid start to the year, reporting top line revenue growth across all segments, with both of our construction businesses reporting record first quarter revenues. As expected, we did experience and continue to experience inflationary pressures. However, we are encouraged by record construction backlog and the various growth opportunities at our regulated businesses. We are proud of our team’s ability to continue to execute on its business plans to provide strong results while navigating through inflationary and supply chain challenges. To summarize activity by business segment, I’ll start off with the regulated energy delivery businesses. Utility reported higher earnings on a combined basis for the quarter as it continues to experience strong customer growth across the service territory. Our customer base grew 1.7% on a year-over-year basis, and we expect this growth to continue at a pace between 1% and 2% compounded annually over the next five years. We also expect rate base growth at 5% compounded annually over the next five years as well. And this is driven primarily by investments in system infrastructure upgrades and replacements to safely meet customer demand. This business continues to seek regulatory recovery for the investments associated with providing safe and reliable electric and natural gas service to our growing customer base. In March, our natural gas utility filed a multiparty natural gas rate settlement in the state of Washington that would increase revenue by approximately $10.7 million annually, which is approximately 4% higher than current rates. A hearing on the settlement is set for June 1st. You can read more about this and our other regulatory filings in our Form 10-Q filed this morning. At our electric utility, construction…

[Operator Instructions] Your first question will come from the line of Dariusz Lozny with Bank of America.

Just wanted to start out on the materials segment and the ‘22 guidance where you guys moved up the revenue guidance and took down the margin expectations a little bit. So, in the context of the comments about expecting greater benefits from price increases and obviously, you guys reaffirmed your full year EPS guidance, how should we think about those moving pieces as far as the earnings expectations for the materials business for the remainder of the year?

Yes. I’ll ask Dave Barney to weigh in here. I’ll maybe steal his headline, though, is that clearly, $150 million raise on the top line is -- we’re seeing some inflationary pressures, but that’s also reflecting some pricing adjustments as we think about the remainder of the year, Dariusz. And then as we think about the pricing increases that I noted, we would expect because the first quarter is pretty light volumes in our business, and we really start to see, again, on a volumetric basis, if we raise, whether it’s aggregates, asphalt, ready-mix, that will be -- come into play more as we sell volumes, which are more second quarter and growing, certainly strongest in the third quarter and then we start tapering off somewhere around Thanksgiving time. So, that’s how we’re literally viewing it. Those price increases will be reflected as our sales volumes ramp up through the remainder of the year, offsetting some of those inflationary pressures. Now, Dave Barney, did I leave anything else to say on that? But I think they might be interested in just kind of a general sense, if you will, of kind of what you’re seeing out there, maybe from a bidding opportunity perspective.

Yes, I think you pretty much covered it, Dave. But, Dariusz, we have raised prices in all product lines to offset that inflationary price increases we’re seeing. As Dave said, the first quarter is light due to weather. I’m still optimistic about 2022. If you look back to our record year of 2020, we had a first quarter loss of 38.2, which was only $1.8 million less than this year. Back comparing our first quarter to first quarter of 2020, we had a higher margin than 2020, and our backlog is higher and the backlog through March is higher. So, the other thing that -- I’m not sure, Dave, hit on, we have carryover work that’s protected, and so we are raising prices, but we do have carryover work that we don’t have price increases yet. So, that will start happening in the second quarter. So, we expect margins to continue to go up through the year. So, I hope that answers your question.

Dariusz, did that answer your question?

Yes. Absolutely. Yes. Yes. Thank you to both, Dave and Dave for that one. If I could just maybe ask now on the construction services side, just looking through the additional detail that you guys are now providing that’s very much appreciated. The renewables segment, it seems like there was quite a jump year-over-year from last year’s Q1, still a relatively small portion, but growing fast. However, the gross margin -- the increase in that is comparably with less. Are you guys actively looking to perhaps sacrifice a little bit on the margins there in order to capture market share, or just how are you thinking about that renewables piece in particular?

So, Dariusz, I’ll ask Jeff to weigh in. But just as a reminder, actually, the renewable space is something we’ve been doing for well over a dozen years. It can tend to be lumpy at times. But obviously, as we broke that out now among the various segments, it becomes more visible with -- I think it’s important for you and investors to get a sense for -- Jeff, you want to touch more on the specifics in that renewable space to help out the question that Dariusz had?

Yes, absolutely. You can see that our solar work has increased, as you mentioned, and there were some start-up costs involved with the change in those numbers and those percentages. We expect to build upon our success in solar. There’s quite a few opportunities out there available in the marketplace. And mostly, people think about Southern Nevada, where we are very well equipped with experience and teams to be able to build projects, and we are seeing an increased growth and opportunities there. We also have three utility scale solar projects in the Pacific Northwest, and we just picked up another utility scale project in Illinois. And that last project I mentioned is not reflected yet in our numbers that we released or in our backlog, but we see it as a growing market, and we have the experience and we’re well positioned.

Got it. Okay. Thank you very much. If I can squeeze one more in here and just more on your overall ‘22 guidance. I assume that the impact of the Cascade settlement is not included in your EPS guidance given it has not been approved yet, but if you could just confirm that?

Dariusz, I think that’s a fair assumption. But obviously, we have a multiparty signatory to that as well. So, we have to kind of put that into context as well. Anything else to add to that, Nicole?

Yes. I think as you look at the overall guidance for the corporation for the year, the utility would have provided their share of that to corporate, and we do include some assumptions on our recoverability on that rate case. But essentially, to your point, we do not have final approval yet. And right now, we’ve got a settlement in front of the commission, two-party settlement. So, we’re waiting to hear on that. And once we know, we will certainly let the market know.

Your next question will come from the line of Ryan Levine with Citi.

In terms of the free cash flow outlook, looks like you took down your organic free cash flow and increased some of your CapEx numbers, about 6%. How are you thinking about financing needs and equity needs heading into the balance of the year?

Yes. Thanks, Ryan. This is Jason. I can say, yes, you’re spot on. We did bring back the operating cash flow number a bit and also increased a little bit on the capital expenditure side of things. On the cash flow side, a lot of that’s going to be due to just what we’ve seen even from working capital needs or a lot of it probably related to higher gas prices that we’ve seen with our utility company and the fact that we’ll get recovery of that through purchased gas cost adjustments here in the future, but the timing of that might not match up with what we had originally expected with those higher costs. On the CapEx side of things, we did see some changes there, some increases as well. That’s really just kind of the addition of a few projects or really some pull forward of projects that maybe we’re going to be in future parts of our five-year forecast that we’re actually pulling those forward a bit due to timing of request or just needing to get those projects done a little bit sooner. On the financing side of things, back to that question, on the increased gas cost portion of it, again, we’ll recover those through our normal PGA adjustments as we go forward. So, not looking to do any external financing on that. We’ve got plenty of liquidity and working capital to be able to manage through that process. And really, the increases that we’ve seen on the CapEx side of the equation are pretty small at this point in time. So, I’m not changing any of our forecasted look. We’ve stated before, we don’t have any plans to issue equity in 2022, absent some larger acquisitions we may do later in the year. That has not changed. We’re still in that same position.

And then, I guess, switching gears to the materials segment. You disclosed a lot of the ASP dynamics in overall segment contribution. But curious what really drove the decline in margin on a dollar per ton basis? Is it more the ready-mix side or asphalt or other components of your business?

Ryan, this is Dave. I’ll ask Dave Barney to weigh into that one, Dave?

When you look at the aggregate, it’s mostly fuel and repair and maintenance on the aggregate side, and it’s basically the same on asphalt fuel, maintenance drove the margins down.

But, is the decline in margin on a per TAM basis, is it more driven by one product over another product, or is it fairly uniform in terms of the net decline on a per ton basis?

Pricing is up on all of our product lines. It’s just the maintenance costs and fuel costs have gone up.

And Ryan, I would just add to that, really because the volumes are so very low in here in the first quarter, the pricing increases that Dave Barney has noted, really will become more visible into the second and third quarters as we start to ramp up volumes there. And so, I think it’s a very small sample set that you’re seeing here in the first quarter with price increases not having a material effect, given the low volumes.

Okay. And I guess, that leads to my follow-up question. In terms of timing of when price increases typically occur, is there a certain period of the year where you try and push most of the price increases across, or have they largely been impacted to reflect the recent inflationary pressures?

Dave, can you touch on just kind of in general, what the timing has been on the price adjustments and get a sense for that for Ryan?

Yes. And all new jobs we are quoting. We’re putting the increases into those jobs, Ryan, whether it’s construction, whether it’s aggregates, ready-mix, asphalt. But like I said, we have carryover work from last year that’s protected. Probably a large majority of our first quarter work is protected with the carryover work. So, you’re going to see the full impact of those increases in the second quarter.

Your next question will come from the line of Brent Thielman with D.A. Davidson.

I guess, first on the services side. Some of your peers in the electrical mechanical business combated some major disruption, sort of other supply chain challenges this last quarter, arguably over the last few quarters. I suspect some of that’s going to be transitory, but just wondering if that was a factor here for you this quarter. And so, how you’re addressing those challenges going forward to protect margins?

Yes. I heard the question, Brent, primarily around labor and supply chain. I’ll ask Jeff Thiede to kind of touch on both. Because particularly, we’ve actually ramped up employment here as of late to an all-time level at CSG, and that’s in response to the all-time backlog that we’ve got, too. But Jeff, a little more detail for Brent as to labor and supply chain.

Yes. We certainly received the impacts of the supply chain issues. If you look at our backlog, and we are price protected or at least we’ve got market-level clarification language in our proposals. Our management teams, our estimators and our project managers are working very closely with our customers to identify the risks and try to offer solutions and updates from our vendors is changing every day. And with this material availability and the procurement part of our business, we’re responsible for delivering on time and so our vendors, we rely upon them. But we’ll also have some impacts when materials are late from other contractors because it does affect the labor, which is our biggest risk out there in the field. So, we’re working through this. Our teams are communicating better than they ever have in identifying and updating pricing with our customers, and that’s how we’re handling it. But, we have -- certainly have been impacted by delays in supply chain and puts pressure on our labor.

Okay. I appreciate that, Jeff. Maybe one more on that side. One of your peers this morning, Jeff, talked about a very small but sort of growing element or made a point to talk about a small but growing element of the electrical business related to EV charging for EV charging stations. Is that something you’re involved in and could potentially represent a bigger opportunity for you here?

Yes. From a national basis, and we have experienced in about three of our local markets. So, we’re keeping a close eye on that. And that will, of course, be a positive impact to our electrical businesses, but also on the distribution side and development of substation, expansions, and it will affect us all the way upstream from that. So, we are well positioned, and we’re going to continue to look for those opportunities, and we do see this as a growing market.

Okay. I appreciate that. And last one was just on the construction materials side. Just wondering if there’s been any disruption related to rebidded projects as costs have gone up here sort of over engineer estimate. I’m just wondering if -- I suspect that’s all transitory as well. But had that not happened, would the backlog be even better? Just curious if you’re seeing any of that.

Dave, would you take that?

Sure, Brent. We have seen in quite a few areas where our bid prices have been over the engineers estimate in most cases, not all cases, they’re awarding mills because they’re only seeing 1 to 2 bidders on these jobs. So, most cases we’re seeing them award. But there have been some jobs they have not awarded because they’re way over the engineers’ estimate.

[Operator Instructions] Your next question will come from the line of Brian Russo with Sidoti.

I just wanted to follow up on the construction services side, just on the margins. It looks like a little over 5% operating margins in this first quarter ‘22 versus the high 7% margin in the first quarter of 2021. Very similar kind of trend that we’ve seen with some of your other segment services peers. But I’m just curious what like the profile of the margins should look like through the remainder of the year in order for you to achieve your margin guidance there?

Sure. I noted in the release, we did note that some of the difference on a year-over-year basis was the mix of work in which we had in the first quarter, in particular, I’ll say, maybe stronger than typical storm-related activity first quarter of last year. That has something to do with just the first quarter. I’m going to ask Jeff Thiede to kind of talk about how he’s seeing the balance of this year, which I think was the second part of your question, Brian, and just how are we feeling about margins on an overall basis. Jeff?

Yes. Our first part of Q1 was a lot slower than our second part of Q1. And with our record backlog, we’ve built quite a bit of momentum. We’ve also had project timing. We are building backup in Las Vegas. We came off of the Resorts World project last year and a number of other large projects with our electrical and mechanical fire protection and underground utility companies. And we’re starting to see those hours and the backlog increase in Las Vegas in addition to Columbus, Ohio. So, a lot of this was timing of when the mega projects were finishing and when the new projects that we have in our record backlog were starting.

Okay. Got it. So, is it fair to say that you’re going to be burning off lower-margin projects, maybe this quarter or next? And then, as the backlog grows as it has, you’ll start generating revenues and margins from higher-margin projects more reflective of the current market and industry environments?

Could be. Absolutely, could be. We’re looking forward to execution and offsetting some of these challenges and headwinds through these projects. And, we have increased our prices on labor and materials, and it will be about planning, and it will be about supply chain. And we do see our margins improving on a go-forward basis.

Okay, great. And then, just a follow-up on the IIJA and your positioning there. I’m just curious how you see that money being appropriated to the state levels. And what your positioning and exposure to the DOTs are? And are you involved in maintenance projects, which I would imagine is going to be funded first, at least quicker than the larger, more complicated expansion type projects that would have to go through quite a bit of more permitting and engineering? So, just want to get a sense of how quickly we could see that type of business grow?

Sure. I’ll take that one. And then, if either Dave or Jeff have anything to add, they certainly could. But, our view would be we’re pleased and excited that Congress passed the IIJA back in November. Our view is that if we see any of those dollars here in 2022, there will be late ‘22 at best. So really, it’s really not been factored into our guidance for this year. Now, hopefully, that come sooner rather than later, but that’s kind of our expectation. It would be more of a 2023 and beyond. You did mention the DOT or road-related activity. There’s really $550 billion of new monies included in the IIJA. I know it’s billed as $1.2 trillion, but it’s really $550 billion of new monies. I think important for DOTs across the U.S. is that it provides a fair way of funding for the next several years. And there’s some assurance, if you will, of funding. And so, there isn’t a 30, 60, 90-day extension of continuum of funding, which we’ve seen 6, 7 years ago that just really didn’t give planners in those departments much roadway, if you will, to look ahead and kind of plan projects for the same year upcoming years, those kind of things. So, combined with new monies that $550 billion in the big buckets of things, roughly two-thirds of that -- those monies are things we do, whether it’s in the traditional infrastructure, whether it’s in the, I’ll call, electrification of the economy, EV stations, grid hardening, renewables, substation upgrades, those kinds of things. And then, again, the traditional roads, bridges, highways that we do on materials. So, how that gets down? I mean, we understand where dollars are headed, the timing of those. But in summary, kind of ‘23 is when we’d expect to start to see that and beyond. But it’s a lot of what is in there are a lot of the things in which we do, which gives us some confidence, if you will, as a continued funding mechanism. So, I don’t know if you want to redirect on that, Brian, or drill down deeper for either Dave or Jeff, for materials or service-specific questions?

No, no. That’s helpful. And then, just switching gears to the utility side. The settlement in Washington clearly much improved from the prior outcome. Just curious, are there any rate cases planned in any of your other jurisdictions over the next 12 months that we should be aware of?

Sure. Thanks for that, Brian. I’ll ask Nicole to weigh in on that. She’s front and center on all of those.

All right. Thanks for the question. And maybe just quickly, before I get into forecasted rate cases, a follow-up on the Washington cases. As you probably will see in our 10-Q, the hearing on that settlement is set for June 1st. And so, following back to when we may have rates implemented, if anything is approved on that settlement or if we get approval, that would be on or before September 1st. So, just giving you a perspective on the timing there. And then, as we look ahead over the next several months or the remainder of this year, maybe I’ll comment on upcoming cases. In the near term, we do plan to file a North Dakota electric case. The hope there would be that we could potentially get interim rates in place later this summer. And then, looking beyond that, we’ve got an Idaho case that we will file and most likely a Montana electric. Now, in both of those cases, any approved revenue would be realized or implemented in 2023. So, it would not have an impact on 2022. So hopefully, that gives you some perspective.

Yes, it does. And then, just lastly, the undergrounding of transmission and distribution out lesson in California. Any update there that you could provide us? And I may have missed this earlier.

No. I’ll ask Jeff to weigh in on that. He’s clearly very familiar with that important customer that we have out there.

Yes. That grid hardening work is really not new to us, and we’ve been performing these types of services in the Midwest, Rocky Mountain, Pacific Northwest and Western regions in the country. We are very well positioned in these high-fire treat districts in the Contra Costa, [ph] Nevada and Sonoma Counties, where a lot of this work will take place. We’ve got a very long history and track record of success with this customer. And our field and management professionals are very, very capable. I’m confident we’re going to participate as one of the contracting partners when the work is released, but we’re tracking this closely. They are currently engaged in the engineering and the right-of-way access, scheduling and procurement. We don’t have any of this work for this customer in our backlog yet, but we’re very well positioned.

This marks the last call for questions. [Operator Instructions] This call will be available for replay beginning at 5 pm Eastern Time today through 11:59 pm Eastern Time on May 19th. The conference ID number for the replay is 2188415. Again, the conference ID number for the replay is 2188415. At this time, there are no further questions. I would now like to turn the conference back over to management for closing remarks.

Thank you, operator. And thank you all for taking the time to join us here on this first quarter earnings call. We are optimistic about our growth opportunities with record combined construction backlog and our ongoing and future regulated energy delivery projects. We certainly look forward to connecting with you again as we progress through 2022. And as a final reminder, I know we’ve had the save the date out there before, but we are hosting an analyst tour at the new Knife River training facility in Corvallis, Oregon on June 7th and 8th. We’d love to have you there if you’re able to make that in your schedule. Again, thank you. We appreciate your continued interest and support of MDU Resources. With that, I’ll turn it back to the operator.

This concludes today’s MDU Resources Group conference call. Thank you for your participation. You may now disconnect.