Hello. My name is Regina, and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group 2019 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 5:00 PM Eastern Time today through 11:59 PM Eastern Time on May 15. The conference ID number for the replay is 5568769. Again, the conference ID number for the replay is 5568769. The number 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, Chief Financial Officer and Treasurer of MDU Resources Group. Thank you, Mr. Vollmer. You may begin your conference.

Thank you, and welcome to our first quarter 2019 earnings conference call. This conference call is being broadcast live to the public over the Internet and slides will accompany our remarks. If you’d like to view the slides, you can find them on the Events & Presentations page under the Investors tab of our website at www.mdu.com. Our earnings release is also available on our website. During the course of this presentation, we will make certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although, the company believes its expectations and beliefs are based on reasonable assumptions, actual results may differ materially. For a discussion of factors that may cause actual results to differ, please refer to Item 1A Risk Factors in our most recent Form 10-K. For our call today, I will discuss some key financial highlights from the quarter and then turn the presentation over to Dave Goodin, President and CEO of MDU Resources for his formal remarks. After Dave’s remarks, we will open the line for questions. In addition to Dave and myself, members of our management team who will be available to answer questions today 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 Cascade Natural Gas, Intermountain Gas and Montana-Dakota Utilities; Trevor Hastings, President and CEO of WBI Energy; and Stephanie Barth, Vice President, Chief Accounting Officer and Controller for MDU Resources. Yesterday, after market close, we announced our first quarter earnings of $40.9 million or $0.21 per share, compared to first quarter 2018 earnings of $42.4 million or $0.22 per share. For the first quarter, our combined utility business reported earnings of $52 million, up from $45.7 million in the…

Well, thank you, Jason, and good afternoon, everyone. Thank you for your interest in MDU Resources and for taking time to join us today to discuss our first quarter results. We released our first quarter earnings after the market closed yesterday. Our business has performed well in the first quarter of 2019 and reported earnings of $40.9 million or $0.21 per share. Our combined utility companies reported record first quarter earnings, largely driven by a 12% increase in natural gas sales volumes along with a 0.6% increase in electric retail sales volumes. These increased volumes were driven by colder than normal weather, which was partially offset by weather normalization or decoupling in certain jurisdictions. The company also benefited from the Thunder Spirit Wind Farm expansion project acquired late last year, along with the Big Stone South to Ellendale line that was put into service earlier here in 2019. The utility recently reached a tentative electric rate case settlement in the state of Montana. While subject to final regulatory approval, the settlement would increase annual revenues by a total of $9.3 million, with $9 million effective beginning this year and $300,000 deferred for one year. We also filed in the state of Washington a general rate case request for a 5.5% increase in rates or $12.7 million annually. Earlier this year, we announced the planned retirement of our wholly-owned coal-fired electric generation units. The utility continues to work through that process, while ensuring that we are providing safe and affordable electricity to our customers. The targeted dates for retirement are at the end of 2020 for the Lewis and Clark Station, and the end of 2021 for the Heskett Station. Looking forward, our utility business plans on investing $308 million of capital expenditures this year and approximately $1.5 billion over the…

Thank you, Dave, and good afternoon, everyone. The CSG team and I are excited for the opportunity to showcase our diverse operations in the Las Vegas market. Las Vegas has been a core contributor to our success for many years, and a lot has changed since we last invited our analysts to the city. We look forward to showing everyone the expertise and leadership of our teams and what they’re bringing to the strong growth in Las Vegas. Dave?

Well, thank you, Jeff. As always, MDU Resources is committed to operating with integrity and a focus on safety, while creating superior shareholder value, as we continue to act on our tagline of building a strong America. I appreciate your interest in and commitment to MDU Resources, and ask that we now open the line to questions. Operator?

[Operator Instructions] Our first question will come from the line of Chris Ellinghaus with Williams Capital.

Hey, everybody, how are you?

Hi, Chris, we’re doing good. How are you doing?

I’m doing well. Jason, you have a little sort of footnote in the press release about some tax adjustments in the other segment for the quarter. Can you elaborate on that?

Yes, certainly, Chris. I’ll actually have Stephanie Barth, our Controller talk about that particular adjustment.

Chris, GAAP requires us to record our interim income tax at our annual effective tax rate, and we really needed to make an adjustment to get that tax rate up to where we think it’s going to be for the year. It’ll work its way out through our segments as the quarter continues. But with our mix of businesses and the different tax rates that each of them record at, we needed to push this adjustment through from a GAAP perspective.

Can you run it or what’s the impact in the quarter?

It was just over $3 million.

Okay, great. And, Dave, in terms of the backlog being strong, pretty flat from year-end, which is a pretty good thing, does that give you any better insight into your margins for the year?

Yes. Chris, you were asking Dave Barney in materials, particularly with that question?

Yes, exactly.

Yes. Okay, perfect. Dave?

Okay. Thanks, Chris. Yes, we’re excited about that backlog, the record backlog. We expect to add to that over the next couple of months also. But if you’re asking about the margins of the backlog, they’re about flat from year-over-year, is that what you’re asking.

Yes, I wondered if you’ve gained any insights since you’ve gone through some of the backlog and added some to get to a little bit higher than year-end, whether that had given you any greater insights into this year’s margins?

Well, we’re expecting as our backlog fills up, our margins would continue to go up as some of the guys are – some of the regions are more picky about what they’re going to bid and how they’re going to bid it, so I would expect our margins to continue to go up this year.

Okay.

Chris, this is Jason. I’d just add to that. I mean, we’ve given guidance on the margins for Dave’s business to be really comparable to prior year or slightly increasing. That hasn’t changed from what we talked about with our year-end release earlier. So, we’re still seeing that consistent with what we talked about previously.

Okay. Jeff, in terms of your backlog, what types of things, projects have you added in that big increase in the backlogs? What industries are they coming from?

Well, we’ve got a real diversified business and they’re coming from multiple markets. All of our markets are strong, some stronger than others. We’ve most recently secured the electrical work at the Kansas City International Airport that is in our backlog. But we’re still looking to build capacity, and we’re adding projects like the Portland International Airport, which is not in our backlog. So we continue to look for opportunities. We’re a little more selective because we have the opportunity to do so. We are experiencing some strong demand for our services in the mission-critical opportunities or data center in multiple geographic areas throughout the country. Hospitality in Las Vegas and gaming is very strong. We have our mechanical and our electrical company building a very large gaming and hospitality project on Las Vegas Boulevard. In addition, our fire protection company is working on a stadium in Las Vegas. So it’s all of the above for us where we’re located, and we’re very excited about the backlog that will be mostly burned off in 2019, but most of our projects are multi-year.

Okay, thanks. One last thing, Dave or Jason. Can you just remind me how – what did the weather look like in the third and fourth quarters last year?

Yes, I think from a weather perspective – this is Jason, we can talk to each one of the construction companies here, but we certainly saw a colder winter. I think, as you can see at least in the first quarter here, last – third and fourth quarter last year, I mean, I would say probably relatively normal. We did have some rain that impacted some operations on the construction side, but maybe Dave Barney can talk a little bit about what he saw for specific impacts.

Chris, in Texas last year for, I think, it was September, October, I don’t think we did much construction work at all. Heavy rains, we got the same thing in Iowa and South Dakota, so it’s basically those three markets that we had the weather impact from.

Okay. Thank you, guys. I appreciate the details.

You bet. Thank you, Chris.

This marks the last call for question. [Operator Instructions] This call will be available for replay beginning at 5:00 PM Eastern Time today through 11:59 PM Eastern time on May 15. The conference ID number for the replay is 5568769. Again, the conference ID number for the replay is 5568769. Our next question comes from the line of Sarah Akers with Wells Fargo.

Hey, guys.

Hi, Sarah.

Can you walk through what drove the revisions to 2019 operating cash flow guidance? Looks like, it’s down about $75 million?

Hi, Sarah, this is Jason. I can certainly walk through that. The largest driver that we saw really relates to one of our utility companies that would be actually Cascade. We had a pipeline instance with one of our suppliers in the Pacific Northwest and we experienced a pretty significant increase in gas costs for that particular entity, especially for some of our Washington service territory. So we ended up accumulating a large purchased gas cost adjustment balance, which as you know, is a pass through to our customers, so we are able to recoup that. But given the magnitude of this particular adjustment, we’ve actually been working with the Washington commission on a portion of at least through January – from kind of November through January here to come up with a longer-term recovery of that. So we will recoup that. So it’s a temporary item in nature, but it is going to impact operating cash flows through this year. We did work with the Washington Commission on that and settled on a three-year amortization period for that piece of it and again, that’s just through January. We had some additional items for February, March as well, that we have not come to an agreement with the state on that yet or the commission, but we will be filing for that. So of that change, the vast majority of that is related to that PGA. We do expect to recoup that we have, at this point in time, financed that with some short-term debt as we wait for recoup of that.

Perfect. Thank you. And then on the Material segment, looks like CapEx went up some from the year-end release. Is that due to acquisitions, or have you layered in additional organic investment at materials?

Hi, Sarah, this is Dave. You hit it spot on. That’s really primarily due to the two announced acquisitions that we had indicated earlier this year.

All right. Thanks a lot.

Thank you, Sarah.

At this time, there are no further questions. I would now like to turn the conference back over to management for closing remarks.

As noted earlier, we have a strong start to 2019 and have a number of growth projects underway. We are committed at MDU Resources to building a strong America, as well as ensuring the safety of our more than 12,000 employees who are executing on many projects and opportunities ahead of us this year and beyond. We get appreciate your participation on the call here today and thank you for your continued interest in MDU Resources. Operator?

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