Good morning, and welcome to the Otter Tail Corporation's 2018 Year-End 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 Loren Hanson and I manage Otter Tail Investor Relations Area. Last night, we announced our 2018 year-end results and our 2019 earnings per share guidance range. Our complete earnings release and slides accompanying this call are available on our website at 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, 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 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, 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, Loren, and good morning, everyone. Last night, we released our 2018 results. Please refer to Slide 5 as I begin my comments. Earnings per share were $2.06, which is above the midpoint of our updated 2018 earnings guidance of $2 to $2.10. Our stock performed well. For the three years ending 2018, Otter Tail Corporation ranked number one in total shareholder return in the EEI index of investor-owned electric utilities. Total shareholder return has grown at a compound annual rate of 15.3% over the past five years. The dividend yield at year-end was 2.7%. Some of our Otter Tail Power's 2018 accomplishments include; The North Dakota Public Service Commission granularity of power and overall revenue increase of $4.6 million or 3.1% with a return on equity of 9.77%. Final rates went into effect February 1, 2019. We implemented interim rates in South Dakota. Interim rates, which are subject to refund, remain in place until the Public Utilities Commission makes a decision on our request to increase non-fuel rates by approximately $3.3 million or 10.1%. The Commission will also decide on the second step in our request, which is an additional 1.7% to recover costs for the proposed Merricourt wind generation facility when it goes into service. We completed straining the Big Stone South-Ellendale 345 kV regional transmission project in 2018 and energized the line in early February of 2019. Our share of the cost for this project was $115 million, because this is a MISO multi-value project, which allows cost recovery from all customers who benefit from the line. Our customers will pay less than 1% of the project costs. In 2019, Otter Tail Power will also enhance transmission infrastructure in our Southeastern/South Dakota service territory, providing an approximate $39 million investment that will improve reliability and provide…

Well, thank you, Chuck, and good morning, everyone. I will cover the following items, our 2018 financial results; our liquidity position; the strength balance sheet and corporate credit ratings; the increase in our 2019 indicated annual dividend; our five-year capital expenditure plan and our 2019 business outlook. We are pleased with our strong 2018 financial performance. Revenues grew approximately 8% and earnings grew approximately 14% with all our reporting segments showing year-over-year increases in revenues and earnings. We earned $2.06 per share, which compared with $1.82 per share last year. Our 2018 return on equity was 11.5% on an equity ratio of 54.5%. Our two platform strategy continues to deliver higher returns on equity on a higher equity layer when compared to holding company peers. Let me now provide an overview of 2018 earnings by segment, as shown on Slides 20 and 21. Electric segment net earnings increased $5 million year-over-year. Key drivers include increased revenues due to more favorable weather, year-over-year earnings improved by $0.11 a share due to the weather and compared to normal weather was favorable by $0.07 a share, increased revenues due to interim rates associated with our North Dakota general rate case, net of estimated refunds, which was implemented in January of 2018. Interim rates associated with our South Dakota rate case went into effect in October of 2018, increased renewable resource, rider revenues in Minnesota and North Dakota, and increased Minnesota SIP revenues. These items were partially offset by a $9.6 million reduction in revenues related to a provision for refunds to recognize that current retail rates in our service area and FERC approved transmission tariffs, our recovering federal income taxes in excess of lower rates under tax reform, lower North Dakota environmental cost recovery rider revenue due to the impact from lower tax…

[Operator Instructions] Our first question comes from Paul Ridzon with KeyBanc.

Could you give just some background on this charitable contribution and what we should look for going forward?

Sure, Paul. I appreciate the question. We have, for a number of year, been considering establishing the foundation for, well, both Otter Tail Corporation and then we also have established one for the Otter Tail Power Company as well. And we wanted to, in 2018, certainly help get the foundations off on the right foot with the good commitment to fund those organizations going forward, and so you see a probably a much healthier contribution made for the Otter Tail Power - I'm sorry the Otter Tail Corporation foundation in that $2 million amount, the Power Company is a $0.5 million. And as we kind of look forward, I would tell you that future contributions are ultimately subject to the success, the financial success that we're having at both of the entities, but in the utility we're looking for the future kind of range, I would say, in that $2 million to $500,000 range on a go-forward basis and at the parent company depending on results you could see, I suppose, in a range of $300,000 to $600,000 a year.

So '18 was just kind of getting this - the critical mass.

Yes.

And then relative to your EEI data, it looks like some CapEx moved from '19 to '20, can you give a little more detail there?

The movement, Paul, relates to the Astoria - Merricourt. The movement is the Merricourt project when you - in terms of what you - we saw at EEI and then what we see now, we've seen a bit of a push back in the timing of the Merricourt project. And so basically the project isn't going away. It's just a movement of dollars from '19 into '20.

So everything fundamentally still the same, just the timing shift?

Yes.

And then I know I ask this every call, but pressures you're seeing maybe from the benefit of tax reform being competitively reduced in the manufacturing segments?

Paul, we just haven't seen that. With couple of our - as we talk about in the press release and in my comments, we were actually - we saw price uplift from some of our customers in 2019 both in kind of across the board at BTD and T.O. Plastics. We were able to get price increases in place with customers where we thought it was appropriate and needed. We haven't had any push back from customers looking for kind of a reduction in pricing, because of the tax savings were picking up in the manufacturing businesses. It doesn't mean that it couldn't happen, but we certainly are seeing any of that and of course we actually have - we could be looking for the same things on our supply side as well when we negotiate our prices with our supply base and given the PVC commodity nature of that business prices were up in 2018 in the PVC pipe business and that was really a reflective of market conditions. We're seeing some softening of prices we saw that in the fourth quarter and as we head into '19, but it's really more market driven that it is having anything to do with tax reform.

What's driving that softening in the market?

I think that there - we as we went through '18, we saw much stronger prices than we expected. Now, as we head into the - we completed the fourth quarter, we saw some uplift in our resin costs. We think saw some pullback in market pricing as it relates to just demand and competition. And as we move into '19, we're seeing similar - there's some announced resin price increases here in the first quarter, we'll see if they stick fully, but we expected some of it's going to stick and we've seen some softening in sales prices that started in the fourth quarter and it's really kind of market related and it's what's driving it.

Our next question comes from Chris Ellinghaus with Williams Capital.

Can talk about the Georgia, you'd mentioned that it was profitable in the second half of the year. Are you expecting that trend to continue?

Yes, we are. We more - like a 30% increase in volume year-over-year in Georgia. So we've got some leverage there and we continue to see a good backlog at that site. We've continued to improve operationally, then improve dramatically around our on-time delivery and work with a number of customers on pricing, so we anticipate that similar or better results as we had in the last six months of '18 going forward into '19.

Does that mean BTD had some pretty strong revenue growth? Are you expecting particularly with the way the backlog look, you're expecting another really good revenue year there?

We are definitely expecting an increase, I would say, in the backlog 35% of the part price or 35% to 40% is metal and a lot of these prices that are in the backlog assume metal prices that were probably based on 2018 final quarter and we've seen that drop a little. So the metal impact in the '19 backlog is likely overstated a little bit, but we do anticipate good growth in all the segments where - there are some of those segments that you're not going to see that kind of growth. We have been awarded programs in the Ag sector that are new to us, meaning it's just not higher volume of the same part we were making, we are going to be making parts of it that we weren't in previous year. So it's a market share growth there.

Kevin, is the foundation donations that you were talking about, would you anticipate that those would likely stay sort of fourth quarter kind of events?

Yes.

And lastly, you talked about the competition increasing in plastics a little bit, is there - was there a lot of slack in capacity that some of your competitors may have been trying to utilize or get your utilization higher or what - where is that competition coming from?

Yes. I mean, I think that there is a lot of the - some of the larger competition certainly has capacity out there in the - in their plants. Some of that competition is also vertically integrated and that there are resin manufacturers and there's always some potential or were there want to have their profits occur and whether it's at their resin plants or their PVC businesses. And so we did see some of that happened and there's been - it's - at least, looks to be continuing into the first quarter here. I mean, we're only a month and a half into the year so far, but we have seen sales prices kind of continue with those little bit reduced levels from that were in the fourth quarter.

Our next question is a follow-up question from Paul Ridzon with KeyBanc.

Just back to the last question, the - at BTD, the decrease in metal prices will impact revenues, but shouldn't impact net income?

Correct. The metal prices are passed through to the customer, but they do show up in the backlog as far as total part prices.

Kevin, when you talked about and talks about the '19 electric utility outlook, you said something about O&M and pension, like, I kind of missed that, could you quickly review what you said?

Sure. I mean, we're - we expect, in large part, lower O&M at the utility in part, because we're - our discount rate went up on the pension plan and our other benefit programs and we had a discount rate of 3.9%, Paul, in 2000 - that we use for 2018 and then now in 2019, given where interest rates move kind of that last half of the year, our discount rate went up to 4.5%.

And should we also look for decrease in O&M, because of the plant outage loss?

Yes.

So the O&M line in total should be down? Correct? Is that fair to say?

Yes.

And I'm not showing any further questions on the phone lines.

Well, thank you for your questions and support Otter Tail Corporation. With continued execution on the utility growth projects and strong operational performance in our manufacturing segment, we remain confident in our ability to deliver shareholder value. In 2019, we will focus on continuing to improve BTD profitability and we will further refine the long-term growth strategy for Northern Pipe and Vinyltech and T.O. Plastics, and we will continue to execute on Otter Tail Power's major generation and technology projects. We believe this will allow us to the deliver on our 2019 guidance of $2.10 to $2.25 a share. Thank you for joining our call. We appreciate your interest in Otter Tail Corporation, and we look forward to a successful 2019.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect. And have a wonderful day.