Good morning, and welcome to Otter Tail Corporation's 2018 First Quarter Earnings Conference Call. Today's call is being recorded and we will hold a question-and-answer session after the prepared remarks. I will now turn the call over to the company for their opening comments.

Good morning, everyone, and welcome to our call. My name is Loren Hanson, and I manage Otter Tail's Investor Relations area. Last night, we announced our 2018 first quarter results, and increased our 2018 earnings per share guidance range. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A replay of the 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 Kevin Moug, Otter Tail Corporation's Senior Vice President and Chief Financial Officer. Before we 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 future judgment or opinion of what the future holds. They are subject to risks and uncertainties that may cause actual results to differ materially. 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 due to new information, future events, developments or otherwise. For opening remarks, I will now turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck MacFarlane.

Thank you, Loren. Good morning, everyone. Last night we released our first quarter results. For the quarter, net income was $26 million or $0.66 a share compared with $0.49 a share last year. As pointed out in the press release, although all five operating companies improved net income, the PVC pipe companies drove most of the improvement. Customers continue to order more PVC pipe to get ahead of forecast raw material price increases. Continued strong prices, combined with sales volume and the benefits of tax reform, resulted in a $4.4 million increase in the Plastics segment's net income quarter-over-quarter. In addition, the Manufacturing segment showed nearly $2 million in net income improvement, and the Electric segment improved net income by more than $1 million. Allow me to briefly discuss each. The Electric segment earnings per share were up $0.03 compared with the first quarter last year. We had $0.05 of colder weather and $0.03 of North Dakota interim rate impact. This was offset by $0.05 of 2017 Minnesota interim rates that being higher than 2018 final rates. We mentioned during our last call that we anticipate an adjustment to our North Dakota general rate case related to tax reform. We filed that adjustment in February and received authority to reduce interim rates effective March 1 to accommodate the lower federal tax rates. Our overall request to North Dakota decreased from $13.1 million to $7.1 million. The North Dakota commission has scheduled hearings for mid-July and we expect a decision on our overall request in the third quarter. We are working with Minnesota regulators to bring the benefits of tax reform to our utility customers in that state. And we were able to reduce our April 20 South Dakota rate request by more than $1 million because of tax reform. The…

Well, thanks, Chuck. Good morning, everyone. We are extremely pleased with our first quarter results. Each of our three reporting segments delivered increased earnings, mostly from improved business conditions in the markets they serve, and as expected from tax reform. Please refer to Slide 16 through 17 as I discuss our first quarter results. The Electric segment net earnings increased $1.1 million quarter-over-quarter. Key drivers contributing to these increases were a $2.7 million increase in kilowatt-hour sales due to colder weather in the first quarter of 2018 compared to the first quarter last year. Weather positively impacted earnings per share by approximately $0.05 quarter-over-quarter. And compared to normal weather impacted earnings by approximately $0.02 a share. A $1.6 million increase in retail revenues, net of an estimated refund related to interim rates that went into effect in January of 2018 in conjunction with our North Dakota general rate increase request. Also positively impacting earnings were increased renewable resource adjustment rider revenues in Minnesota and North Dakota, along with increased Conservation Improvement Program incentives in Minnesota. These items were offset in part by a $2.4 million reduction in revenues due to implementation of final retail rates in Minnesota that were lower than the interim rates that were in effect in the first quarter of 2017. A $2.4 million reduction in revenues for a provision of refunds related to recovery of federal income taxes in current retail rates in Minnesota and South Dakota that are in excess of lower federal income taxes under the new tax law. Lower North Dakota and South Dakota environmental cost recovery rider revenues due to the impact from the lower tax rate and an adjustment of the return on equity component of the rider to the level requested in the North Dakota general rate case. Lower transmission…

[Operator Instructions] And our first question comes from Paul Ridzon of KeyBanc. Your line is now open.

Good morning. Can you hear me?

We sure can, Paul.

Thanks. Just on the Plastics, how much of this is - this quarter is business-related construction starts versus customers accelerating, trying to build up inventory ahead of resin price increases?

Yeah, Paul, this is Kevin. I mean, think the first quarter results are a reflection of all of those that you mentioned. We clearly saw sales prices continue to be strong as we headed into the first quarter. The tailwinds from the fourth quarter after the hurricane, sales prices were strong and they've continued to be strong. And we saw increased volumes based on both business conditions, and then there was some announced resin price increases here that was expected to occur in the March, April timeframe, which certainly drove orders as well. As we look to the rest of the year, we certainly believe that sales prices will continue to be strong, but we would expect volumes to taper off because of some of that early or, I should say, advanced ordering that occurred in the first quarter.

Do you think - how far out do you think customers were buying? I mean, could this - did you possibly cannibalize any 2019 sales or do you think it's all contained in 2018?

No, there is no cannibalization that far out. I mean, certainly, our reflection of softer volumes in the last nine months of the year is due to some of that being accelerated into the first quarter, but there wouldn't be any impact on 2019.

Okay. Thank you very much. And congratulations on the quarter.

Thank you.

Thank you. And our next question comes from Chris Ellinghaus of Williams Capital. Your line is now open.

Hey, guys, how are you?

Good, Chris. You?

I'm good. Thanks. As far as the forward purchasing on PVC pipe, is there any chance that not only does it reflect sort of the announced resin price increases, but also some acceleration of the economy? So how do you strip out, when you're thinking about what the first quarter looked like, what might have been economic impact versus pricing?

Well, in terms of pricing, Chris, the first quarters had very strong sales prices that those conditions carried over from the fourth quarter of 2017, once the effect of the hurricane was pretty well done by early November. And we expected that sales prices would start to soften, but they did not. March sales prices continued to be strong through the remainder of 2017. And then they continued to stay strong here in 2018 as well. And that certainly had, in terms of our original expectations for the year and the guidance, that we expected softening in sales prices and that hasn't occurred. The other thing that did occur was there was some level of advanced orders purchased by distributors because of expected resin price increases that were to occur in February, March, April timeframe. A lot of it I would tell you is, I think a fair amount is driven by the overall business conditions that we're seeing in the markets that we serve. But we recognize that there will be some softening in volumes for the last nine months of the year, because of the advanced purchases that occurred until they work through that inventory.

Okay. Can you give us a little bit more color about what improved other than scrap prices and volumes at BTD in your different end market?

Well, in terms of end market improvements, I mean, I think we mentioned in the release that we saw certainly industrial and construction equipment, our lawn and garden, and ag markets were certainly stronger than first quarter last year, and we've continued - particularly lawn and garden has continued to perform well. Recreational vehicles were certainly performing well quarter-over-quarter. And then, I guess, a part too that we probably wasn't as significant that we didn't mention was we did see some improvement in the energy part of the business as well - not wind. But from the oil and gas part of the business, the heat pumps and those things that we make for customers in that end market, certainly, were good in the first quarter as well.

And energy revenue was neutral, oil and gas was up and wind was down.

That's interesting. Why would you expect wind to see some weakness?

Well, we make primarily fixtures to transport blades and they're reusable. I think, they are something that, while there is more facilities going to go in, in the next two years, those were built in preparation for those - that two years of probably pretty strong wind blade and wind power installation.

Got you. And what are you seeing at T.O. Plastics? I mean, there does seem to be some tailwinds in the economy from a little bit of a housing boom. It seems like maybe you're seeing that in the lawn and garden market. Wouldn't that seem to suggest a little bit more strength in T.O. Plastics, as there is some plant work to be done associated with new housing construction?

Yeah, Chris. This is Kevin. We are seeing certainly stronger horticultural market here as we started the year out with T.O., both in the quarter and then as we look out for the rest of the year. We certainly are expecting strong hort markets as well. So I think to the extent that there has something to do with housing that certainly is part of it. But we're - we did announce a price increase in the hort side of the business here on March 1, so that's certainly driving part of the expectations. But we are seeing some growth with two of our larger customers year-over-year, and then we're also seeing growth in kind of the Southeast and South Central regions that we serve for hort.

Yeah, I would tell you that probably in general, most of it is just due to the business conditions that are in place in the economy. And then, the growth with the carriage [ph] customers would be driven in large part by that as well.

Great. I appreciate the color, guys.

You're welcome.

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

Thank you. To summarize, net earnings increased $0.17 quarter-over-quarter. Vinyltech and Northern Pipe Products drove most of the improvement with exceptionally strong sales prices and volume. BTD also continued with volume and productivity improvements, and Otter Tail Power benefited from colder weather, began collecting interim rates in North Dakota, filed a rate case in South Dakota and is working with regulators in all three states we serve to bring the benefits of tax reform to all of our utility customers. I want to extend our appreciation to employees across our organization for their hard work and excellent first quarter results. Looking ahead, we have the right long-term strategy in place, supported by a solid capital growth plan. We remain on track to deliver shareholder value in 2018 and have increased our full-year guidance range. Thank you for joining our call. We appreciate your interest in Otter Tail Corporation and look forward to speaking with you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.