Good morning, and welcome to the Otter Tail Corporation's Third Quarter 2024 Earnings Conference Call. [Operator Instructions]. 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. 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…

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 and 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…

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

Hey, Ed, 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 and then 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 that. 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, and 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's a lot of supply and dynamics in PVC pipe and pipe pricing. There are a number of issues that go into how that's set. I can't really ascertain what speak for the distributors and beyond that, we just we're not really going into any of the stuff that's going into the litigation since it's an ongoing litigation, I'm not in a position to comment particularly on that.

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 is resin prices done since September since you have more visibility than many?

There's 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 well a majority of BTD or is T.O. Plastics, I mean, 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. So it's a little higher this year than normal.

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.

$45 million to $50 million. 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. [Operator Closing Remarks].