Good morning, and welcome to the Otter Tail Corporation’s Third Quarter 2017 Earnings Conference Call. [Operator Instructions] I will now turn the call over to the Company for the opening remarks.

Good morning, everyone, and welcome to our call. My name is Loren Hanson, and I manage Otter Tail’s Investor Relations area. Last night, we announced our third quarter 2017 results. A complete earnings release and slides accompanying this earnings call are available on our website at www.ottertail.com. A replay 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 today's call, I'd like to remind you that we will be making forward-looking statements during this call. As noted on Slide 2, 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 from forward-looking statements made today. 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, 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 like turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck MacFarlane.

Thank you, Loren, and good morning, everyone. As communicated in our news release, Otter Tail delivered improved quarter-over-quarter earnings for the third time this year. Net income was $17.8 million, or $0.45 a share. This is $0.08 better than the third quarter last year and follows a second quarter that was a penny better than the second quarter last year and a first quarter that was $0.11 better. As a result, we are raising and tightening our earnings guidance to a range of $0.75 to $0.85 a share. While we had a good quarter, we arrived here through a slightly different flight path than expected. Our Plastics segment sold more pounds and earned higher margins than expected due, in part, to hurricane-related market dynamics. Hurricane Harvey made landfall on August 25 in an area with significant PVC resin and other petrochemical production. The petrochemical industry executed significant plant shutdowns as the storm progressed. Our major resin suppliers declared force measure due to down production facilities, raw material shortages and lack of inbound and outbound rail transportation. But our two PVC pipe companies, Northern Pipe Products and Vinyltech, worked closely with resin producers to reallocate our orders to plants that were not impacted. Contractors and PVC pipe distributors began to be concerned about the availability of pipe for ongoing and future planned construction projects. This resulted in accelerated pipe demand and increasing prices. The backlog at both companies spiked, and production and shipping rates accelerated. With the experience of working through similar previous situations, our pipe companies managed the dynamics of the storm impact extremely well. We don't expect these type of devastating storms to occur very often. We're proud of our team and their ability to meet the increased demand during this timeframe. Our path was also not what we…

Good morning. All of our businesses and the corporate cost center experienced quarter-over-quarter improvement, except for our Electric segment. Clearly, the highlight of the quarter is our Plastics' performance. Please refer to Slides 12 through 14 as I discuss our third quarter results. The utility net earnings decreased approximately $1.6 million quarter-over-quarter. Key drivers contributing to this were a $1.4 million net decrease in the interim rate revenue as well as decrease in environmental and transmission rider revenues. This is due to a true-up in our estimate of an interim rate refund that is due customers as part of moving to final rates in November. Final true-ups for lower return on equity and other adjustments resulting from the rate case order were part of completing our compliance filing in the third quarter. We also experienced lower kilowatt hour sales mainly to industrial customers and decreased revenues related to milder weather in this current quarter. Weather negatively impacted earnings per share by approximately $0.01 both quarter-over-quarter and compared to normal. Net earnings for the Manufacturing segment increased $362,000. At BTD, revenues improved from increased product sales and scrap revenues, which contributed to improved operating margins. Third quarter results were also positively impacted by lower interest costs. This was offset, in part, by increased operating expenses and income taxes. The effect of these items resulted in approximately $200,000 increase in net earnings at BTD between the quarters. At T.O. Plastics, revenues and earnings increased as a result of improved sales of life science and industrial products and lower interest expense, resulting in improved earnings of approximately $100,000. Our Plastics segment's revenues and earnings increased between the quarters as a result of a 22.9% increase in pounds of pipes sold as well as 13% increase in PVC pipe sales prices. The $3.7 million…

[Operator Instructions] After the Q&A, Chuck will return with a few closing remarks. Your first question comes from the line of Tate Sullivan with Sidoti.

Hi, thank you, good morning. I just start on Plastics. And I think your higher guidance for Plastics for the full year implies some ongoing benefits from the hurricane in its fourth quarter. Is that correct? Have you already seen that so far this quarter?

Hey, Tate, good morning, this is Kevin. It does. I mean, I think I actually made that statement in my comments that we not only in September are we seeing an uplift from the hurricane, but there is – some benefit of that continuing on into the fourth quarter as well. And so that's – the impact of the hurricane on earnings in Q3 was $0.04. And basically, we're saying we expect another $0.04 in the fourth quarter because of the total impact for the year from the hurricane is that $0.08 a share that we're talking about in the guidance section.

Okay. In the fourth quarter, too. Okay, thank you. And then I mean, I think you made a comment, though, that you're not extending that strength into 2018, as, I mean, I guess, the resin prices will subside from current levels. Is that the consideration?

Well, we don’t expect these conditions to continue into 2018. I mean, we've seen this before back in 2015 when we had Hurricane Katrina and Rita come through the Gulf Coast probably within a three-week, four-week time frame. We saw the same kind of conditions and experienced back then very healthy earnings at the time, and it kind of ran its course in those last five months of the year. And then those people realized that resin is going to be available. By now the resin suppliers' plants are open and running. Concerns about rail delivery are now subsided. Product is being delivered to the PVC manufacturers. And the concern that contractors and distributors have about not getting pipe eventually subsides within that kind of five-month time frame. And so those market dynamics just end basically at the end of this year, and we just don't – we're not going to see those continue into the next year. So there will certainly be probably some type of pullback in where pipe prices are, because that demand, that additional demand and concern doesn't exist. And so as we typically look at the business, we are – we expect a normal range of earnings based on the market conditions in time at the time we look at those earnings for a given year. And then we will adjust those as we go throughout the year based on market conditions that are changing as we go through the year.

Okay, thank you. And then in the manufacturing business, too, to clarify, you mentioned $53 million backlog number. Is that just T.O. Plastics or is that all of manufacturing?

That's all of manufacturing, the predominant of which would be BTD.

Okay. Yes, I mean, $53 million in 3Q 2017, and you said, up from $42 million. Is that the prior year?

Yes.

Okay.

That's the backlog from September – basically, October 1 through the end of this year.

Okay, thanks. And then can we talk – can you just talk about Merricourt wind farm a little bit in terms of – I mean, I think you're currently working on the site and installing. Can you – what are you doing there for the rest of the year?

Tate, this is Chuck. For the rest of the year, I mean, we're just focused on completing the permitting and the MISO interconnection, the transmission interconnection. We have study results coming out of MISO. But the physical activity at the site is really outside of surveying and those types of things. We don't see any actual construction this year.

Okay. When in 2018 might the construction start or is it more in 2019?

Likely it won't start in earnest until 2019.

Okay. I’m just trying to figure out the time line for your cumulative CapEx through 2021 on that. Okay. So that helps. All right, well, thank you very much and great quarter. Have a great rest of the day.

Thanks, Tate.

[Operator Instructions] Your next question comes from the line of Paul Ridzon with KeyBanc. Your line is open.

Good morning.

Good morning, Paul.

Just back to Plastics. You indicated that part of the uplift is kind of split between $0.08 of just regular business improvement, regular business conditions and then, obviously, the Harvey impact. How do you see the former of those playing out into 2018? I guess, kind of what drove that? Is it housing starts? Is it – and – okay. I guess, only that.

Yes, Paul, I mean, in terms of how we looked at the just the normal business kinds of operations, I mean, we went back and looked at the volume of pounds that we were selling in the individual months of the three quarters in 2016 and compared that with the same time frame in 2017, and we were seeing and we'd been seeing it in the first six months of the year as well where our volumes of pounds being sold were up in terms of just overall better market conditions. In terms of housing starts, we have continued lower interest rates. And so the market conditions for – whether it's commercial or residential construction seemed to be more favorable here in 2017 as they had been in 2016. And as we look at – as we – we're not going to be giving guidance for 2018 until February. I think maybe one way to try and help you as if you go back and look at the last four years of our profitability in Plastics. So I just would take you back to 2013. We made $13.8 million in 2013 under some pretty good market conditions that year, and that was $0.38 a share. In 2014 we made $12.1 million, which is $0.33 a share. In 2015 we made the same amount, $12.1 million and that was $0.32 a share. And then in 2016 we saw some more challenging conditions in terms of resin prices, in sales prices, and we made $10.6 million, or $0.27 a share. And so we based on history, and you can go back to – we tend to go back to the recession of 2009 and look at what kind of profitability does this business generate over the cycle, and we would expect that these businesses, they've been able to deliver pretty consistently at $0.045 of net income per pound over the cycle. Certainly, some years are higher, some are lower. But that's kind of how we view it, and then we look at kind of the current conditions as we head into 2018, and we'll look at where we think the year is going to be. And as I mentioned to Tate's question, we'll update that guidance as we go through the year based on what we're seeing. There is pressure on resin prices going up. If the demand is softened because of housing starts starting to come down or interest rates are moving the wrong way, we would certainly look to update it. But that's – hopefully, that helps you in terms of how we're thinking about the business.

How would – through the course of 2017, has that business environment just steadily been ticking up?

Yes.

Okay. And then just any risk that you cannibalized from '2018 sales due to this Harvey phenomenon?

We have not seen that happen in terms of – we've certainly been looking at that here internally, as has there been some acceleration of demand from 2018 into the 2017, and we haven't seen that. There certainly was probably some acceleration of demand because of the concern of the availability of resin. But there isn't anything that we've seen in talking with our folks on the business side as we see a big pull forward from 2018 into 2017.

So any acceleration is probably confined to within 2017 itself?

Yes.

Okay. Thank you very much.

You’re welcome.

Your next question comes from the line of Tate Sullivan with Sidoti. Your line is open.

Hi. Thank you. Couple of follow-up on, first, manufacturing. Did I hear Kevin mention something about Georgia improvement? I thought has the plant you bought in Georgia already improved? But are you just indicating further improvement? Or maybe I misunderstood.

This is Chuck. It has improved, but it is not where we want to be or where we believe it can be. So it has made year-over-year improvement, both in sales volume and in margin and in net income. But we continue to be focused on improving that facility.

It is to clarify and if you can't mention it. Is most of that facility related to the Polaris factor? Is it working with other clients as well?

We have a number of clients. The Polaris facility is really just starting to open. They're running a little behind on that. So we have not seen a large transfer of work, but we do expect more of that to be occurring in 2018 and beyond.

Okay. And then on – I think when you were discussing – you were discussing some corporate costs, including higher pension earlier, maybe some higher property expenses. But I wasn't sure if that's within your utility or is that within the corporate line item? I'm just looking at your EPS guidance for – I mean, EPS guidance for 2017 between $0.10 and $0.14 for the corporate expenses of a per share loss.

Tate, it’s Kevin. The pension costs and those things, that's all related to predominantly effects of the electric utility, because the electric utility provides to the pension – the most of the pension benefit is provided in the electric utility.

Okay.

So in terms of the property tax expenses and the pension costs, that's all in the guidance related to our electric utility business. The corporate costs of the $0.10 to $0.14, that's the remaining unallocated corporate costs that are not, if you will, sent out to our either the electric utility or to our Manufacturing businesses. And those costs were down – on a quarter-over-quarter basis, they were lower by about $700,000, and collectively for the year, we're maintaining that range of that $0.10 to $0.14 a share for the corporate costs for 2017.

Okay. Thanks for taking my follow-up.

There are no further questions over the phone at this time.

Well, to summarize, net earnings increased $0.08 quarter-over-quarter following two earlier quarters of year-over-year improvement. Our Plastics segment drove the improvement, selling more pounds of pipe and earning higher margins than expected, partially due to hurricane-related market dynamics. Manufacturing segment earnings were up slightly. Corporate costs were below last year's third quarter. And utility earnings were down primarily due to a final true-up in the estimated interim rate refund provision for the Minnesota rate case. Given our strong first three quarters, we are raising and tightening our 2017 earnings guidance to a range of $1.75 to $1.85 per share. Thank you for joining our call, and we look forward to speaking with you next quarter.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.