Good morning and welcome to Otter Tail Corporation's Second Quarter 2017 Earnings Conference Call. Today's calls is being recorded and there will be a question-and-answer session after the prepared remarks. I would now turn the call over to the company for the opening remarks.

Good morning, everyone, and welcome to our call. My name is Loren Hanson, and I manage the Investor Relations area at Otter Tail. Last night, we announced our second quarter 2017 results. Our complete earnings release and slides accompanying this earnings call are available on our website at www.ottertail.com. A replay of the call will be available on our website later today. With me on the call today is 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 today's call, I'd like to remind you that during the call, we will be making forward-looking statements. 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 from forward-looking statements made today. 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 as a result of new information, future events, developments or otherwise. For opening remarks I would now like to turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck MacFarlane. Chuck?

Thank you Loren and good morning everyone. For the quarter, net income was 16.7 million or $0.42 a share. This is $0.01 better than last year and follows a quarter that was $0.11 better than the first quarter last year. Consequently, we are raising our earnings guidance by $0.05 on both ends of the range, $1.65 to $1.80. Operations improved across all operating segments. The second quarter numbers almost masked the story. As we pointed out in the press release, BTD had a favorable product mix in 2016 that we did not expect nor did it repeat in 2017. And we recognized a gain from life insurance proceeds in 2016 that we couldn't expect again this year. Yet we improved net income by $0.01 a share. The utility at higher transmission service revenues reflecting our investment and regional transmission projects, and lower generating plant operating and maintenance costs reflecting a major scheduled outage at Coyote Station last year that was not necessary this year. Improvement in the manufacturing platform was largely due to strong results in our plastic segment. The plastic segment companies are effectively retaining sales volumes at improved margins. BTD is showing strength in its Minnesota operations, with improved plant flow and added paint capabilities and T.O. Plastics increased sales in all of its major end markets. I credit our employees. Operational excellence is one of our strategic objectives. Our employees know that other companies who are leaders in their field standardize and automate processes, train employees and communicate regularly and openly. They are dedicated to cost management and customer service. We remain confident in our business model that combines a stable regulated electric utility with a portfolio of manufacturing businesses to enhance long-term returns. My remarks today will focus on the continuing execution of our strategy to…

Good Morning, everyone. Please refer to Slides 12 and 13 as I discuss our second quarter results. Utility net earnings increased nearly $1 million quarter-over-quarter. Key drivers contributing to this were the $3.3 million increase in MISO transmission tariff revenue related to increased investment in Big Stone area transmission projects, increased kilowatt hour sales mainly to industrial and commercial customers, lower operations and maintenance expenses primarily from the reduction in external service costs related to our Coyote plant's maintenance shutdown in the second quarter of 2016. These items were offset in part by $1.5 million net decrease in retail revenues, primarily due to an increase in the interim rate refund accrual in the second quarter of 2017, lower environmental rider revenues from declining rate base to depreciation on these investments, increased sales to customers with lower tariffs rate, lower transmission rider revenues due to a reduction in services and costs from another regional transmission provider, and decreased revenues related to milder weather in the second quarter of 2017. Weather negatively impacted earnings per share by approximately $0.01 quarter-over-quarter as well as compared to normal. Our net earnings for the manufacturing segment were basically flat quarter-over-quarter, which was in line with our second quarter 2017 expectations for this segment. BTD had improved revenues primarily driven by an increase in scrap metal sales based on better scrap metal pricing. These items are offset by lower operating margins due to a different product mix in the second quarter of 2017 compared to the second quarter of 2016 as well as increased costs for scrap parts and obsolete inventory. Second quarter results are also positively impacted by lower interest costs. The effect of these items resulted in $400,000 decrease in net earnings between the quarters for BTD. At T.O. Plastics, revenues and earnings increase…

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

Just a quick question on the improved outlook at plastics. So you have higher margins on similar volumes. Is there any customer behavior or people pre-buying in the face of anticipated higher pricing or what's the dynamic there? Are you just burning off lower cost inventory and selling at higher prices?

I mean, there's no particular customer dynamic or anything going on, Paul. We did see an uplift in sales prices in the second quarter and somewhat I suppose an expectation that maybe resin prices will be increasing and so there's some buying that's occurring, but nothing significant. In terms of customer dynamics, we were able to deliver certain types of PVC pipe to customers in the second quarter that some of our competitors didn't have available. And so we were able to take advantage of those opportunities, but we are just in general now in the last half of the year, seeing a strengthening in pipe prices as we look to the last six months.

And what are the primary end markets you're seeing the strength in?

Well, I just remember, we sell - our pipe is sold to distributors like Ferguson and HD Supply and so forth and then they in turn are delivering and selling the pipe to the end, and the end users, the construction market and I mean we've seen just kind of general good sales across all, both of the regions that Northern Pipe and Vinyltech serve.

Thank you. Our next question comes from Tate Sullivan of Sidoti.

Just a follow-up to questions about the plastics and PVC pipe. When you deliver the pipe to your distributors, is it construction companies building residential developments buying them or who is the ultimate buyer of the PVC, the diameter pipe that you make.

I mean, it's going across a number of end markets, Tate. I mean it's residential, it's construction markets across our footprint. We certainly are delivering product to the rural water market in North Dakota. There's still some work being done in the Bakken in terms of water infrastructure, but it's a, I would say, a pretty good mix of - it's residential, it's construction, it's rural water, across the regions that we serve.

And did you say on plastics that the volumes were similar in the most recent quarter to a year ago levels?

From quarter-to-quarter, they're down not quite 2%. But sales prices were up a little over 9% quarter-over-quarter and so that really drove the increase in earnings quarter-over-quarter. We did say though as it relates to the outlook for the year that we expect our volumes for '17 to be similar to what they are for '16

For all of '17? Okay?

Yeah. So we're really again similar volumes to last year and really driven by the strong, the improvement in the earnings is driven by stronger sales prices.

Last on plastics, what's the lag between, is it the suppliers pricing based on a resin based index and is there a delay between a change in the oil price to the change in the resin price?

Tate, it's Kevin. Maybe you can repeat that again?

Yes. What's driving the higher prices? I mean is it mostly resin prices and doesn't that link mostly to what's happening in the oil price?

I mean oil is a component, but I mean the bigger driver for the components of the PVC resin is certainly natural gas prices, chlorine, ethylene. I mean there haven't been any significant increases in those ingredients in terms of the price of the PVC resin. Sales prices were just, we're starting to see, we've been through a period of time in the last 16 for sure where sales prices were soft, we're starting to see an increase in the sales price and we've been able to capture that with not as large of increase as coming on the resin side.

Can you talk a little bit on, moving on to the manufacturing, can you talk a little bit about and you have various customers at different end markets. Can you talk about the feedback you're getting from them on volumes and their outlook in general for your manufacturing business?

Yeah. I'll take a start at it. Certainly, we're seeing good opportunities in growth in our lawn and garden end markets. We continue to see challenges in ag and recreational vehicle. I mean, both, whether it's John Deere, Polaris and other customers in those end markets, those end markets are certainly soft right now and so we're not necessarily seeing increases in revenues from those, in those end markets. We are starting to be able to, as we've come through the kind of the softness in some of these end markets and there was certainly pressure by customers on pricing that suppliers were providing to them. We have seen work come back to us because of other competitors, smaller competitors not being able to effectively deliver on the product that they were engaged to make for our - some of our customers and so my comment about capturing new business with existing customers relates to our ability, one BTD's financial strength, we've been able to weather some difficult times here as customers have been putting pressure on suppliers for reduced prices and the customers are now starting to see some of these, while these smaller competitors were - said they could do it at lower prices, when push came to shove, they have had difficulties delivering product to the customer and now the customers have started to come back to BTD and ask us if we can do the work at the prices we originally quoted to them and so we have seen additional opportunities in revenue as a result of that.

And then, you mentioned I think more volumes for oil and gas related equipment out of your Illinois plant, did I catch that right and what are you making for oil and gas?

Hi, Tate. This is Chuck. We did mention that and we build frac pump components, whether it's transmission housings or machining, some of the pumps and I think effectively, we've not seen it return to previous levels of course, but I think some of the OEMs have worked through their inventory, we are now seeing sort of a steady increase in the amount of those components that we've built a lot of in the 2013-2014 timeframe.

And last for me is, dividend, or the drip, not the drip, but the stock, ATM plan, can you give an update on what your plans are for issuing shares to fund the wind farm in part?

Currently, Tate, we are not issuing any shares this year under the ATM. We did do some original issue shares here in the first half of 2017. You'll see us shut that down here now in the last half of 2017 and we'll just, any demands under the dividend reinvestment plan, we will just satisfy by doing open market purchases and so our equity ratios in, the balance sheet is strong, the equity ratio is healthy. As we look out over the, well, I'll call it, 2018 to 2021 timeframe, we're going to be looking to issue a balanced mix of debt and equity, most of the debt, well, all the debt will be issued at the power company for its respective projects and from an ATM perspective, we need to renew the ATM shelf and the dividend reinvestment plan shelf in May of '18 as they expire at that time. So we expect to renew them. And in terms of a range of equity needs, I would tell you right now over that timeframe, we're probably looking at a, call it, $70 million to kind of an $85 million range and we continue to fine tune those as we go through the timeframe, as we get closer to when those projects are going to be experiencing the big part of their cash flows, but that would be the current view.

Thank you. [Operator Instructions] I'm showing no further questions at this time. I'll turn the call back over to Chuck MacFarlane for any closing remarks.

Thank you. To summarize, net earnings increased $0.01 quarter-over-quarter from $0.11 [ph] first quarter year-over-year improvement. Operations across the organization have improved and we credit our employees for their attention to cost control and customer service. Given our strong first half, we're raising our 2017 earnings guidance to $1.65 to $1.80 per share. We thank all of our employees for their hard work and we thank you for joining our call and for your interest in Otter Tail Corporation. We look forward to speaking with you next quarter.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.