Hello. My name is Mike, and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group 2020 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 2:00 P.M. Eastern today through 11:59 P.M. Eastern on May 22. The conference ID number for the replay is 4981249. Again, the conference ID number for the replay is 4981249. 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, Mike. Good morning everyone, and welcome to our first quarter 2020 earnings conference call. I hope you and your families are safe and I thank you for joining us this morning. This conference call is being broadcast live to the public over the Internet and slides will accompany our remarks. If you would like to view the slides, you can find them on Events and Presentations page under the Investors Tab of our website at www.mdu.com. Our earnings release is also available on our Web site. 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, refer to Item 1A Risk Factors in our most recent Form 10-K and our Form 10-Q which was filed this morning. Given the current economic environment, our call this quarter will be slightly different from our previous discussions. In addition to covering our quarterly results, we will also plan to address our response to the COVID-19 global pandemic, how our businesses are performing in the current environment, and potential impacts that we are monitoring at each of our business lines. I will start by briefly covering this quarter's earnings results and then turn the presentation over to Dave Goodin, President and CEO of MDU Resources for an update on our revised guidance and future outlook. 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 and dialing in from multiple locations are Dave Barney, President and CEO of…

Thank you, Jason. Good morning, everyone. Let me start by expressing my sincere hope that everyone who joined us on this call is safe and healthy. And I want to thank you for your interest in MDU Resources. I’d also like to acknowledge, the unprecedented time that we're in and say that we have great respect and appreciation for those on the front lines, fighting this pandemic and providing care for those who are sick. I would also recognize those in the workforce, like our own employees who are providing essential services each and every day, so just keeping the lights on the gas flowing and helping to construct America's infrastructure. I am honored to be part of an organization that has shown incredible spirit and strength in the face of this adversity. I cannot be more proud of our employees and how well our team members have stepped up to help provide essential services to the nation in these challenging circumstances. COVID-19 is impacting all of us, both professionally and personally. For those MDU Resources employees personally affected by the virus, we've implemented supportive policies to protect their pay and benefits and allow them to take care of themselves, along with their families. To-date, we have nine known cases of COVID-19 affecting our workforce and our thoughts with these employees and their families as they work to recover. We continue to assess the safety of our employees and facilities to ensure their well-being. We are fortunate that our products and services are considered essential to these country and our communities, so operation generally have permitted to proceed. Albeit, with increased social distancing measures and recognition of other guidelines from the CDC and state and local governments for various workplace settings. As of March 31, our employee count was slightly…

[Operator Instructions] Your first question comes from the line of Ryan Levine from Citi.

Hi. Good morning. How are you?

Good morning, Ryan. We're doing fine. How are you doing Ryan?

Good. Can you talk about the North Bakken expansion project? And what are the underlying assumptions for your customer contracts there? And in light of the lower production outlook for the basin, is there any potential to scale back the scope of that project?

Sure. Ryan, Trevor Hastings, he's with us. Actually in the small group we have assembled here in Bismarck. I'll turn that over to Trevor.

Thanks Ryan. We continue to move forward on North Bakken, as we filed it with FERC, I think it was middle of February this year. At this point, we continue to move forward. We are actively monitoring, evaluating the impacts out of the Bakken. As you mentioned, as we've seen some oil wells shut-ins and gas decreasing, but at this point in time we've got an obligation and to move forward and get that project in service by late 2021.

Okay. And then in the presentation material, it was highlighted that you're looking at Agento [ph] or adjacent midstream acquisitions or expansions. Can you comment around the appetite or the opportunity set that we may be pursuing there?

Sure. So, those are non-acquisitions. They are actually just -- we're seeing a number of different industrial customers and look for gas service in an adjacent to our existing service territory. So, this would be essentially organic growth opportunities off of our existing system, which is what we've been doing for the last five to ten years. And that's really related to just kind of low price check on natural gas, that we've seen over the last few years, as well as just that continued outlook for low gas prices is one of the main drivers.

Okay. And maybe switching gears to your construction service business. What percentage your backlog is Las Vegas or related to the airports? And what's the outlook for those markets within the construction service?

Jeff, would you take that one?

Yes. Absolutely. Thank you. We're very busy in Las Vegas. And our backlog is about 25% of our total there. So, as a reminder, we've got four companies electrical, mechanical, fire protection, underground utilities, and they performed very well. We've got one project that's been put on hold, but we're expecting it's going to ramp back up in this quarter. And we've got another project that’s been postponed. The three airport projects we have, three are different regions. So, not quite at 25% of our backlog but the largest one is in Portland, Oregon, the other one is in Kansas City. And we also have one in CBG doing a little bit of work at SFO. If you take a look at just the Pacific Northwest region where we have four of our companies operating have a similar level of backlog as we do in Las Vegas. In addition to that our outside line backlog is very strong in the Midwest, in Rocky Mountain regions and up and down in the West Coast. So, that really shows our diversification. If you look at our record backlog that also demonstrates that we have a strong demand from our services, and that's due to our proven ability to perform. And our team has adjusted to COVID-19, just admirably. And we are making sure that we're putting people safe work environments and adjusting working with our customers in these changing conditions.

And then just to follow-up on that. So, in light of the COVID-19 environment with reduced airport activity, are you seeing -- did that create increased opportunity to enhance margins on those projects in the near-term? Or are you seeing any of that backlog starting to slip in light of the current environment?

Good question. I have not seen any of those projects in our airport work slip at all. There is less activity there, so you would think with less congestion and less access challenges and issues that could only help margins. But then again, we're also seeing additional PPE. Our people are going through temperature checks on many of our jobs. And they're also having to wear face coverings, sometimes even face shields to protect them protect their safety. So, we have not seen those airport projects slow down at all.

Okay. And then last question from me on the utility. Can you speak to what you're assuming in terms your bad debt expense for this year in your guidance? And any regulatory mechanisms that you could potentially get recovery on some of that cuts for non-payment?

Nicole, you'll take that one, please.

Yes, certainly. Thanks for the question. Yes, although it's early, we did take a look at our bad debt in the first quarter here, and did make a slight adjustment to our assumption in terms of increasing our bad debt expense in the first quarter again, only slightly. As we look to April here, we are seeing some increases in our accounts in arrears. I would comment though, that our customer experience team is proactively reaching out and assisting customers with payment plans, providing the assistance they need, as well as helping them access available funds. So, as we look through the year, we do have that baked into the guidance that we provided. And then the other thing that I would comment on is us along with pretty much most of the industry did provide relief with the institution of a moratorium on disconnect, and the waving off of late payment fees. In terms of filing regulatory mechanisms, we have proceeded with COVID-related filings in four of our states. And we'll be doing a fifth state today here yet with a filing, and then continuing to look at the remaining three states. So, as you bring up, certainly we did include in those filings the ability to have the potential to recover some of the increased exposure on bad debt.

Thank you. That’s helpful.

Thank you, Ryan.

[Operator instructions] Your next question comes from the line of Chris Ellinghaus from Siebert.

Hey everybody, how are you?

Hi, Chris. We're doing fine. How are you doing?

Not, too bad. I hope everybody across the company is doing well. Jeff, the project that's across the street from the wind, is that the one that's on hold at the moment?

No, Resorts World is moving very well. And we've got the electrical and mechanical contracts there. So, that is not what it's the MSG project that has been put on hold, but we think it's going to start back up.

Okay, great. The change in the CapEx, Jason, can you talk about where is that coming from and why?

Certainly, Chris, I think, if you take a look at our earnings release we have a little more detail on there. And there, you'll see it really comes out into two of our business lines. It's primarily at the utility and then at Knife River. So at the utility, you're looking at just some delays, probably given the current environment that we're in, some of the shelter-in-place orders, maybe some changes in growth expectations, as we -- little uncertainty here. I think, as we look at where the year will play out as the primary driver for timing there, those are really projects that are being pushed into future years. So, not changing our forward look on CapEx here, but really changing some timing. And then the other piece would be at Knife River on the construction materials side, where it's really the timing of fleet replacements and making some decisions in certain cases to lease versus buy equipment and those types of items. That's the primary drivers that we see in the CapEx reduction for 2020.

Okay. The investment returns, I assume that's a COLI product. And you gave us sort of the year-over-year changes, but what was the aggregate? I assume it was a loss for the quarter. But what was that aggregate number for the company for Q1?

Yes. So that is a COLI product, you're correct. So, for others on the phone, it's a Company-Owned Life Insurance product. So, it really is an investment returns difference year-over-year. So, we talked about $10.1 million in the release. I'm just going to ballpark it. It was about a $4 million loss this year and compared to about a $6 million gain that we would have seen in the prior year. We talked about that in last year's release as well, seeing some above average gains there. So, that's the net difference. So, about $4 million for the quarter is this year's impact.

Okay, great. Thanks. And Jeff, in Vegas, what are you hearing about the opening-up the town? And how do you anticipate what happens in Vegas affecting future projects or future developments? Have you heard much in that regard?

We're at the edge of our seats waiting for the governor to open the state back up, so we can get customers back into those facilities. So, we are daily listening, reading. And our Presidents have real strong connections within the community. So, obviously, with no work in many of our customers facilities, mostly our small projects have been postponed, not a huge impact. But last week on our call with our Presidents, we heard that we're going to be entering back into some of those facilities, do some of the preparatory work. And we've also been involved in some adjustments to be made for the customers when they do come back, to make sure that their facilities are safe. So, we're starting to see some activity in anticipation of the state order being lifted and bring customers back into those facilities. As far as larger projects, future projects, we do have a number of them on our radar. And we are providing estimates in preconstruction cost analysis for those projects. And we have not heard that they're going to be postponed. And we haven't heard that they're going to start next week. So, we do think there's certainly a concern over getting people back into Las Vegas and generating that revenue for our customers. But at this time, we're busy and our outlook is strong for this market.

Okay. Thank you very much for the color. I appreciate it. Everybody take care.

Thank you, Chris. I appreciate you getting on the call.

Your next question comes from the line of Bill [Indiscernible] from ExodusPoint.

Hi, good morning.

Good morning, Bill.

Just following-up on an earlier question on the North Bakken pipe. Is that fully subscribed or fully contracted at the moment?

This is Trevor with WBI. At this point in time, we have signed contracts for 243,000 MCF a day, not fully subscribed to the design as filed with FERC. And as we roll forward, as we do with every project, we look for ways to de-risk it, whether that's on the material side and purchase strategy to the contract strategy to just overall scope and schedule. And we continued to do that on this project as well.

Okay. And then if it stays contracts at that level, is that enough to go FID and move forward with construction?

Yes.

Okay. And then I guess is just the FERC application as your next steps beyond that before you would start construction in early 2021?

Well, there is a number of permits that we're required to get, whether they're state, local or federal that we just normally work through. The FERC application, our expectation is we should -- our schedule shows early of 2021 to receive the FERC certificate to proceed with the project. Construction wouldn't commence prior to receipt of the FERC application or the FERC certificate, sorry.

And then, if you move forward at the current level of contracted, then you would just sort of have lock up volumes on the open piece until you're able to contract that in the future. Is that how that would work?

Correct. Yes.

Okay. Alright. And then just switching gears on the utility side, can you speak to what you're seeing on the sales side in terms of the impact from the COVID as it relates to residential sales versus C&I?

Yes, Nicole.

Yes, sure. Thanks for the question. Maybe I'll start with just the quarter. As we look through the quarter you heard Dave comment in the script and the call here this morning, as well as covered in the news release, that really when we look at volume impact for the quarter, that was largely driven by weather consideration. We didn't see much of a COVID impact through March 31. Looking at our April volumes, as we look at those year-over-year, really on the electric side of the business our volumes were really quite comparable to last year. And however, as you noted, we did see some differences in the split. And so as we looked at our electric residential volumes, we saw them pick up compared to last year to the tune of around 19%, and really saw an offset there on electric commercial and industrial load, which was down around 8%. Again, these are on a preliminary basis here. As we look to the gas side of the business, we’ve really saw a bit of an increase on the gas side in April, year-over-year. And again, did see some differences in the load with a 13% pick up on residential load, around a 2% on commercial, and that was offset by a 7% decrease on industrial. So, as we look to the remainder of the year, we are uncertain exactly what will happen here, but do anticipate that some of this trend may continue in terms of higher levels of residential being somewhat offset by commercial industrial.

Okay. So, I mean, is that a net positive then for you? Or, I mean, in terms of the residential being up that much and C&I being down. I'm not sure how the margins work, obviously it's probably higher margin on the residential.

Yes. So, again volume is pretty comparable year-over-year and April, but as you know, we do see higher margin per unit on our residential sales.

Okay. And then lastly, on the guidance reduction. I know you've got it down the revenue at the materials business. Is that the bulk of the guide down? Or is it sort of spread around the other businesses as well?

Yes. Bill, this is Dave. So we lowered guidance both on the top side and the bottom side by $0.15. Some of the drivers there, certainly the first quarter on a year-over-year basis, we're up $0.08. And we talked about those three items, whether it's the utility, the investment returns, and then the single contract that we talked about at construction services. So that plays into part of that. The other part is we did lower guidance from a revenue perspective at Knife River by $100 million. And we mentioned in the earlier comments that while we're at record revenues in that business for the first quarter, that would indicate our forecast is that we see our reloaded backlog will have some challenges with it. It's uncertain at this time, but we're anticipating that with lower consumption taxes, lower gasoline taxes, things like that may have an impact on municipalities and states thinking about their spend. But we're still guiding to $2.1 billion to $2.3 billion, so that would play into that. Also we're off to a record start at construction services, $520 million all time quarterly revenue record for the CSG. We're maintaining our guidance there for the rest of the year. So there may be some implication that while we're off to a great start, we may find that same pace may be hard to continue with the rest of the year. Again, $1.85 billion to $2.05 billion. So, some of it we're viewing as some revenue challenges on the construction side. We did pull our margin guidance because we're uncertain at this point, what margins will look like as we next steps here. I can tell you at the end of the first quarter, our margins in our backlog looked comparable on the services side. Actually, margins were up in backlog on the material side, but it's the uncertainty as we go through the rest of the year. And so those were the main factors, some in the first quarter, but primarily what we're thinking about for the COVID uncertainties the remainder of the year, particularly on the construction side.

Okay, And then just one last follow-up there. I mean, on the backlog for Knife River, how much of that is tied to some of these municipalities and things that may be during lower tax receipt period for a while here?

Yes. I'll start that answer but then I'll turn it over to Dave Barney. Again, what we have in backlog are actually signed contracts and commitments by the counterparty, whether it's a state or city or federal agency and ourselves. So those are signed contracts. But Dave Barney, would you want to touch on our split between public and private? I think that might go to Bill's question.

Yes. Our backlog about over 80% is public work. And we don't anticipate any of that to be pulled back. And so our backlog looks good. We continue to pick up work. We're busy out there. So we'll just see what happens in the coming months.

I mean, do they have discretion in terms of the timing? I mean, obviously, they're signed contracts. But can they push things out a bit and just say we need more time before we sort of commence the project?

They can do that. And we've seen a few private side contracts, say let's put it on hold and wait a month or two to see what shakes out. But that's been a real modest pullback. And most of our work is going forward. They haven't had anybody say, hey, we're going to cancel this job for sure, let's just put it on hold for now.

Okay, great. Well, thank you so much.

But that’s mostly on the private side, nothing on the public side.

Okay. All right. Great. Well, thank you so much.

Thank you, Bill.

Your next question comes from the line of Chris Ellinghaus from Siebert.

Hey guys. Jason just vis-à-vis the guidance, obviously, COLI returns can fluctuate period-to-period. When you revise the guidance, are you assuming just where you stood at the end of the quarter for COLI returns without looking into April and on the rebound so far?

Yes. Chris, great question. Thanks. I think as we look at that, even obviously we've seen markets performed a little bit more solidly here in April. So as we looked at, the total impact in the first quarter I will say that we are assuming a little bit of that probably coming back in our guidance, but certainly assuming a lower return profile than what we normally would see on those plans. We typically don't plan for a lot in that anyway, it's not an operating item that we focus on. But we certainly are planning on lower investment returns than last year, given the fact that we saw a very strong result last year.

Okay. Thank you.

Thank you, Chris.

This marks the last call for questions. `Operator Instructions] This call will be available for replay beginning at 2:00 P.M. Eastern time today, through 11:59 P.M. Eastern on May 22. The conference ID number for the replay is 4981249. Again, the conference ID number for the replay is 4981249. Your next question comes from the line of Carl Seligson from Utility Financial.

Hi, Dave. How are you guys?

Hi, Carl. We're doing well. Hope you're doing well.

Well, personally very well, but I've got a little bit of cabin fever. I've been locked up probably with my wife for, I don't know a month or so. So it's very hard to keep up plus the fact my equipment has broken down so.

It's understandable, Carl, but I'm glad you're staying safe and staying well.

Thank you very much. I appreciated it. Of course, I wish I reset the stock exchange with you guys because that's always a good meeting. And I wanted to tell you that I appreciate it. And my big part of question relates to the -- I guess you'd called it the morale of the people who work for you. What are people saying and thinking about [indiscernible] and some of them on a work at home type things and others just giving up for a while or retiring? What's going on personnel wise?

Carl, I mean, I appreciate that question. And hopefully you gathered from the comments within my earlier comments about our focus on employees, employees’ wellbeing and obviously the communities that we're in and that wellbeing, it's probably a good reflection on us. I'll share with you, Carl, that we ramped up, if you will, of our 14,000 employee, plus or minus at any given point over about a two week period. We went from having a few hundred folks that were routinely dialing in, whatever technology happened to be accessing the cloud from their mobile workforce to actually 3,500. And we ramped that up over about a two-week period and really proud and pleased of the infrastructure that our IT folks have put together, the ability of the workforce. Again, if you could work from home, we asked you to go home and just de-risk, if you will, the work environment and social distancing and all those kinds of things. So, we're able to accommodate it. I think the other part of your question or what I heard on general kind of demeanor and more, what's our people thinking about. I think, in general, I wouldn't say we're surprised, but we're pleased with our ability to continue to move the enterprise forward, whether it's engineering or accounts payable or treasury services or legal services or project manager, is not gone without some challenges i.e., but we're really using technology, Microsoft Teams for team meetings. I mean, you name the kind of software. And so there's a concern in the workforce and locations about health and wellbeing. And depending if one has underlying health considerations, we're commentating those. And so many different situations to address, but I couldn't be prouder of how we've been able to move the enterprise forward on a situation. We've been in 24-hour a day business, i.e., utilities for 90 -- 99, 96 years, I guess. I think we're used to responding. But this is across every business in every state. And so we're very pleased with that. And I have no doubt there's locations like you'd noted about, maybe a little cabin fever or stir crazy this or maybe -- but mind you, we've got employees that are home-schooling their children, and daycares have been effected, and still trying to do their work while one parents doing this and the other. And so that's probably a longer answer than you expected, but it gives you a flavor, if you will, that we held daily meetings with our senior team for about a three week period just to keep a pulse on the organization. I mean, Jason and his team went out and increased some liquidity within the businesses on some term loans. And we've been able to continue, again, I’m repeating myself, but moved the organization forward.

That’s great, Dave. It all sounds good. And I hope it works well for you guys, because you've got a great team now, and I assume that will continue.

Thank you for calling in, Carl. And I appreciate the comments, and hope you stay well.

Thank you.

At this time there are no further questions. I would now like to turn the conference back over to Dave Goodin for final comments. End of Q&A:

Thank you, operator. As I noted earlier, while there is a great deal of uncertainty surrounding economic impacts from the COVID-19 pandemic, our construction companies are at record levels of combined backlog and our workforce remains in-tact as we anticipate our pipeline and utility businesses will continue with what I’ll say is a near-normal operations. We are committed to building a strong America, while ensuring the safety of our nearly 14,000 employees, who are providing the essential services, our customers need during this challenging time and beyond. We appreciate your participation in our call today. And we do thank you for your continued interest in MDU Resources. And with that, I'll turn it back to the operator.

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