00:05 Good morning and welcome to the Otter Tail Corporation's 2021 Earnings Conference Call. Today's call is being recorded and we will hold a question-and-answer session after the prepared remarks. 00:16 I will now turn the call over to the company for their opening comments.

00:22 Good morning, everyone, and welcome to our call. My name is Tyler Akerman, and I manage Otter Tail's Investor Relations area. Last night, we announced our Q4 and full-year 2021 earnings 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. 00:46 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. 00:58 Before I 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 today. 01:19 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. We encourage you to review. 01:33 Otter Tail Corporation disclaims any duty to update or revise our forward-looking statements, due to new information, future events, developments, or otherwise. 01:45 For opening remarks, I will now turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck MacFarlane.

01:53 Thank you, Tyler. Good morning, everyone, and welcome to our 2021 year-end earnings call. Thanks to the efforts of our employees, Otter Tail Corporation achieved record financial results in 2021. Please refer to Slide 4 as I begin my comments on our results. 02:11 We achieved earnings per share of $4.23, which is an increase of 80% over 2020. The increase was led by our plastic segment, which had an outstanding year driven by continued strong PVC pipe demand and PVC resin supply constraints. 02:29 Kevin will provide more detailed discussion of our financial performance in his comments, but a brief overview of 2021 is as follows. Our electric segment increased earnings by 5.7 million or 8.5% over 2020. This was primarily driven by a rate based growth from our Merricourt Wind and Astoria station projects. 02:51 Our manufacturing segment increased earnings by 6.1 million or 56% over 2020 with BTD’s earnings up 4.4 million and T.O. Plastics of 1.7. This was mostly due to strong end markets for both BTD and T.O. Plastics, as well as favorable scrap metal pricing at BTD. 03:14 Our plastics segment had a record breaking year with earnings of 97.8 million, which is approximately 250% higher than 2020. This was driven by higher pipe prices and improved operating results resulting from unique market conditions. These increased margins started with the unusual and frequent impact resulting from the extreme cold weather in February that caused resin suppliers to temporarily close petrochemical plants in the Gulf Coast region, and it was exacerbated in the third quarter from disruptions caused by Hurricane Ida. 03:55 The first quarter of 2022 is expected to be strong as market conditions from the fourth quarter of 2021 continue into 2022. 04:05 Now, I'll share some of the highlights from last…

09:47 Thanks Chuck and good morning, everyone. Our 2021 operating revenues were 1.196 billion compared with 890 million in 2020. This revenue growth occurred across all of our reporting segments. 10:03 Our 2021 earnings per share of $4.23 increased from our 2020 earnings per share of $2.34. These results were primarily driven by the unique market conditions we experienced in our plastics segment during 2021. 10:22 However, it is important to note, all of our operating segments contributed to our year-over-year earnings increase. And our 2021 return on equity was 19.2% on an equity ratio of 53.7%. Slide 27 provides an overview of our three-year financial performance. These results are reflective of our strategy of having the electric, manufacturing, and plastic segments. 10:50 Our electric segment is a well-run fully integrated electric utility with a growing rate base, this is expected to provide continued earnings growth, with support of regulatory environments and a demonstrated ability to successfully execute on large scale capital projects. 11:09 Our manufacturing and plastics segments provide additional earnings growth and are well-positioned for the future. The additional earnings and cash flows generated by the plastics segment in 2021 provide additional strength to our already strong credit metrics, liquidity, and capital structure. 11:30 2021 resulted in a record year of cash flows generated from operating activities. The 231 million of operating cash flows was generated in large part by increases in year-over-year net income and depreciation expense. 11:46 As a part of this, our accounts receivable increased $61 million and our inventories increased $54 million, and we fully expect these working capital items will be converted to cash in 2022 contributing to another strong year of operating cash flows. 12:07 These operating cash flows and liquidity available under our credit facilities allow us to look at additional…

26:04 [Operator Instructions] Our first question comes from Brian Russo with Sidoti. Your line is open.

26:30 Yes, hi good morning.

26:33 Hey Brian.

26:34 Hey, just to start with utility fee, the 100-megawatt cryptocurrency customer, I believe it's under a specific tariff or rate, any detail you can provide for us on that? How does that compare versus some of your other, maybe your average C&I type rate?

26:59 Hey Brian. This is Chuck. We filed a rate approximately five years ago in North Dakota. We have a large general service rate and we came up with a new rate for customers that are over 25 megawatts called super large general service rate. I don't know, we spend a lot of time on the naming, but that rate is, each individual customer has to have the rate approved by the commission, which we have done in this case and it tends to be because this customer is interruptible or curtailment and is really only an energy using customer, its rates are fairly attractive from that standpoint. 27:51 So, it's a [filed rate] [ph] with our commission but they need to approve each customer that goes on it.

27:58 Okay. So, the rate is fairly attractive to the customer?

28:03 Yes. It's not a large margin rate for us because there's no – very little demand component on it.

28:13 Understood, but I guess you know, you have quite a bit of CapEx. So, you were just able to spread costs over a larger megawatt customer base?

28:26 It does – it reduces fixed costs across all customers because it's load is covering the fixed costs on those energy, the energy component.

28:38 Okay. And then just on the plastics, it looks like your operating margins in the fourth quarter of 2021 were approximately 44%, that compares to 35% for the full-year of 2021. I'm wondering just based on your comments earlier, are other margins that you captured in the fourth quarter, can we extrapolate that into the first quarter of 2022 to kind of figure out what a, kind of quarterly dispersion? And then do you think by the fourth quarter of 2022 you'll be back to historical margins?

29:18 Hey, Brian, this is Kevin. Thanks for the question. That's – your comment is what we are seeing happen is that the results in the fourth quarter were stronger than what we expected when we were with you at the third quarter earnings call. And so what happened is as demand continued to outpace supply, we continue to see upward movement in sales prices that then caused higher operating margins in the fourth quarter that what occurred throughout the year as you noted. And what we're seeing as those conditions have continued into the first quarter. 30:02 And so to say, can we extrapolate that? I think that's a fair assumption based on what we're currently seeing as these conditions, like you said, transitioned into the first quarter of 2022. And then as we go throughout the year, of course, things can change, but as we sit here today based on the reasons I talked about in my comments and are included in the press release, we are expecting through the rest in the year than are returned back to these more normal like conditions and what are those more normal like conditions. If we look on Slide 25 of the earnings call presentation, we have that graphic that shows what's happened to the relationship of spreads and pricing. 30:52 And so we expect here over time that we're going to return back to those, call it those conditions in the 2018 to early 2021 timeframe.

31:05 Okay. So, have you seen PVC prices already moderating for the back half of the year or companies like yourself still raising prices?

31:18 In the first quarter, we're still seeing our first quarter in the first month and half of the first quarter. We have seen a rise in sales prices. We've seen competitors take sales prices up and we are seeing expected – there's a little bit of conflicting information, we've seen some announcements that says resin prices are going to come down. And we've also seen some announcements where resin prices could stay where they're at or potentially increased. So, we continue to monitor that. 31:54 I think the general view based on the – as PVC resin supply has improved that prices will certainly remained flat to start to decline through the rest of the year, which would then we expect to see sales prices decline and ultimately those return to more normal like margins. One of the things that happened in the late fourth quarter was there was a supply constraint with [indiscernible] that's used in the making of PVC pipe, that caused a number of competitors or pipe converters, I should say, to not take as much PVC resin because they were constrained with [indiscernible] stabilizer issues. 32:41 So that helped increase PVC resin supply towards the end of the year. A lot of the [indiscernible] stabilizer issues looks to have corrected themselves here as there was an alternate products that converters were able to go back to help with, kind of ramping back up their production, but we start the year with low inventory levels and expect PVC resin production to improve as we go through the year and that will be a key driver on where spreads will shake out as we go through the rest of the year.

33:19 Okay. Thank you. That's helpful. And then just real quickly on BTD, it looked like you saw some margin compression to the low-single-digits versus a full-year of mid-to-high single-digits on an operating margin perspective, is the driver of that the reasons you cited supply chain issues from the OEMs and where do we see normalized operating margins as we move through 2022 as these OEMs look to replenish their dealer inventories?

33:57 Yes. As we move forward in into 2022, Brian, I mean, the answer to the margin compression is certainly the supply chain challenges that we're talking about. The fact that our productivity wasn't where we wanted to be because of the ramp up in new employees that we brought on and needed to continue to get them trained. We've continued to see some of them – through the fourth quarter those productivity challenges we continue to work improve those into Q4. I'm sorry into the 2022. 34:32 And as we look forward, we certainly are expecting to see some strengthening and margins that will be somewhat offset by the fact that we'll see lower scrap metal revenues in 2022, 2021 and high scrap metal prices, we're assuming a pullback in scrap metal revenues, which based on current scrap metal prices as they're currently declining. 35:05 And we’re looking to offset some of that with improved productivity, but I think the other challenge that's there is, while we are certainly able to meet our delivery requirements to our customers were being pushed off by them because of their other supply chain challenges. And so, we're building to their forecast in terms of what they're telling us, but then they are taking the product as quickly as planned, and so that has potentially of pressure on us in 2022 as well.

35:42 Okay, got it. And then just real quickly, the backlog that you cited in manufacturing, I understand sometimes it's not an apples-to-apples comparison because you got a lot of steel prices that might be higher versus a year ago that is basically margin neutral for you, right, because you pass it through. So, I was just curious, what's embedded in that like 300 million plus of backlog, you know that's really not incremental order related margins, but it's just inflationary pressure on the steel side?

36:17 Yes. I mean, I think our backlog in BTD is mostly around that. It has steel prices around that $1,800 a ton [unit] [ph].

36:29 Okay. Got it. Thank you.

36:31 Okay.

36:57 [Operator Instructions] I'm not showing any additional questions at this time. I’d like to turn the call back over to Chuck for any closing remarks.

37:31 Thank you for your questions and your interest in Otter Tail Corporation. Our outstanding 2020 results reflect the resiliency and hard work from the employees of Otter Tail Corporation and unique market conditions. 37:44 With our utility growth strategy and predictable earnings stream complemented by our strategic manufacturing platform companies, we are well-positioned to deliver 2022 earnings per share in the range of $3.78 to $4.08. Thank you for joining our call. We appreciate your interest in Otter Tail Corporation and we look forward to speaking with you next quarter.

38:09 This concludes the program. You may now disconnect. Everyone, have a great day.