Good morning and welcome to the Otter Tail Corporation's Second Quarter, 2020 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 second quarter 2020 earnings results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording 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 current 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 and good morning everyone. Welcome to our second quarter 2020 earnings call. Otter Tail Corporation continues to support all the locations we serve with collective efforts to mitigate the spread of COVID-19. Our business continuity plan puts the health and safety of our employees and our communities at the forefront and are, designed to help ensure continued electric reliability and operational excellence across our companies. Currently, 15% of our employees are working remotely. We have had 24 confirmed cases of COVID-19 across the corporation, of which only two remain active. We remain diligent in our precautionary health and safety efforts. We continue to monitor this dynamic event and how it is impacting the economy in our electric and manufacturing platforms. Please refer to Slide 6 as I begin my comments on Q2. We earned $0.42 per share this quarter compared with $0.39 per share in the second quarter of 2019, primarily driven by increased earnings in our Electric segment. Kevin will provide a more detailed discussion of our financial performance in his comments, but a brief overview of the Q2 results are as follows. The Electric segment earnings per share increased $0.14 primarily due to the increasing investments in our Merricourt Wind Energy Center and Astoria Station, along with lower O&M expenses. The decrease in O&M expense was driven in part by lower quarter-over-quarter plant maintenance expense related to a planned outage at Coyote Station in 2019. Our Manufacturing segment earnings per share decreased $0.09 as their end markets were significantly impacted by COVID-19. Our Plastics segment earnings decreased $0.03 primarily due to slightly lower sales volumes and lower pipe prices. And our corporate cost decreased by $0.01, primarily due to gains on our investments related to corporate-owned life insurance and investments held at our captive insurance…

Well, thanks, Chuck, and good morning, everyone. We are extremely pleased with our second quarter results in light of the challenging business and economic climate. Our earnings per share increased 7.7% over the second quarter last year driven by strong performance in our Electric business. And let's refer to Slide 25 as I discuss the quarter. Electric segment net earnings increased $5.8 million. This increase was driven by increased Minnesota and North Dakota Renewable Resource rider revenues related to the Merricourt Wind Energy Center Project and from the generation cost recovery rider in North Dakota in conjunction with the construction of the Astoria Station. Net earnings were also favorably impacted by additional AFUDC on the Astoria Station project related to the Minnesota share of construction work in progress. Weather favorably impacted earnings by $0.02 a share compared to the second quarter of 2019. And we did have an increase in residential revenues during the quarter, but this was more than offset by a decrease in kilowatt-hour sales to commercial and industrial customers primarily due to COVID-19 related impacts. Other items favorably impacting Electric segment earnings during the quarter were decreased O&M expenses due to lower maintenance expenses both at Coyote and Hoot Lake Plants that we incurred in Q2 of 2019, lower labor and employee benefit expenses and decreased transmission tariff expenses. Offsetting these decreased O&M expenses were higher depreciation associated with rate base additions in 2019 and interest costs related to higher long-term debt levels associated with financing our rate base growth. Net earnings for the Manufacturing segment decreased $3.7 million quarter-over-quarter, largely driven by the impacts of COVID-19. Key items impacting this segment's net earnings during the quarter were - at BTD, revenues were down mainly due to a decline in parts sales as customers across our end…

[Operator Instructions] Our first question comes from Chris Ellinghaus with Siebert Williams.

Can you give us a little bit of color on what you've seen in the recreational vehicle market?

Sure. I mean we've - from Polaris' perspective, there's been strengthening in that market. They've seen a fair amount of increased demand as consumers have looked to do more social distancing activities outside. I know that their inventories at the end of their second quarter are low. They're looking to start to rebuild their inventories. We're starting to see increased levels of forecast coming from them here in the third and fourth quarters. And so, I think in general, given consumers' efforts to be outside and do activities, the RV market has certainly benefited from that. And you've seen that in other RV markets as well. While we don't do anything with boats, I know that there's been an uptick in that market as well and campers and those things.

The improved outlook pipe business, is that principally housing and construction, is that your thought process there?

Yes. We saw - I mean, in the second quarter, we were - as we built our forecast for plastics. We certainly expected to see a drop-off in volumes of pipes sold, Chris. And as we went through the second quarter, while volumes were less than last year and during the quarter, they ended up being much stronger than what we had forecasted. And so, that's certainly a strong second quarter compared to our forecast and then these current conditions. As we head into the third quarter that we're seeing, the housing markets are certainly - were favorable in June. And as we look at our - the demand we're seeing from customers for product, we feel real good about the last half of the year for plastics.

Do you think that sales were better than you thought because states continued to allow construction to take place during the lockdown?

Yes, I think that's certainly a key part of it, absolutely. Because those projects are outside, it was able to keep those running with social distancing efforts certainly in place. But just the fact that they are outside certainly helped the plastics business. So certainly, it's helped our utility with our Merricourt and Astoria Station projects as well.

The Minnesota program, the economic stimulus concept, can you give us a little more color on that? What is the process action for your proposals? And is there an open docket at this point?

Chris, this is Chuck. There is an open docket. We have submitted the projects I mentioned. You can see on the dock, there's - that are listed those 12, and there's been one informational hearing. And we need all the utilities in Minnesota involved in their own submission of items, and their intent is to look at those and we have to provide a filing over the next 90 days. And what's in it? So, if you look at the $153 million to $173 million, 70% of those dollars would be in our existing forecast. So there would be - approximately 30% new dollars are brought in from outside the five-year period. They tend to be renewable generation, advanced technology, which and - the majority of that, you're looking at Slide 18, tends to be an AMI project, reliability and infrastructure, outage management, loan management systems as well as some grid hardening. And then, electric vehicle, some conservation and building upgrades associated with energy efficiency around those out. So, our intent is to know at least on some of these projects here in the third quarter.

And what timeframe that they want to see these projects completed in?

Well, they're just indicating what can, you start now. They know they won't be an immediate ramp up necessarily in 2020, but I think they're looking at a 2020/2021 - what projects can you advance to increase labor and job activity in the next 18 months.

Sure yes. Chuck, you quoted us an impact you're expecting on lower electricity sales. Based on what Kevin was saying for the second quarter, it sounds like the vast majority or maybe half or more of that impact is the second quarter. So does that reflect sort of your view for gradual improvement for the rest of the year? And so we should be thinking that the impact is less sort of sequentially in the next two quarters? And does that also not - you're thinking that the fourth quarter is kind of getting close to normal?

I think that I would summarize it very similar to what you just did it. It's improving each quarter. And particularly, we envision our industrial load will be back to normal. That's the one that currently is the most often - it is heavily weighted toward oil pumping in ethanol. And we believe by the end of the year, they'll be back to near forecast levels in the fourth quarter.

That's just also that you're assuming residential goes back to normal or there remains a significant component of work-at-home for a lot of people still?

We view that there will be more work-at-home. It will not be as significant as it was in the second or third quarter. I think we're seeing a little uptick in the third quarter just because the work-at-home. We're experiencing probably more air conditioning load than we would have historically in those years, even with normal weather.

And your normal weather assumption for the rest of the year, does that also incorporate sort of what looks to be a good July so far?

No, no we have set the forecast before the July results would have been known.

Our next question comes from Sophie Karp with KeyBanc.

Just maybe if you could give us a little color on how do you see the margins in plastics developing over the second half given what I'm sure is some swings in the commodity pricing and your levels of inventory. That would be helpful if you could give us a little more color on that.

Yes Sophie, this is Kevin. I mean in the last half, we're - as we look at the business. We are expecting - in terms of the whole last six months, volumes for the last six months compared to the last six months a year ago are slightly down. But we are seeing a slight uptick in our sales prices over the last six months, and we're seeing stronger margins in general over the last six months as well. We do - there is, as I mentioned in my comments. Now resin prices are trending back up for the - in July here. And so, we expect that there will be some benefit in the sales prices that will help margin as well as we go through the rest of the year. And we're seeing a stronger uplift in our Q3 margins. Typically, we had a real strong fourth quarter last year. And we expect that, that will be - we do anticipate that, particularly at Northern Pipe. We're going to have weather-related kind of challenges given the country - part of the country we're in. And so, we do expect - sort of a little bit of a fall-off in margins in the fourth quarter, but those are offset by the stronger margins in the third quarter, we're expecting.

And so, we shouldn't expect that there would be any additional boost from maybe lower priced raw materials headwind into Q2?

Can you say it again, I'm sorry did you say lower-priced raw materials?

Yes, I was just wondering if you maybe build inventory at lower levels and you'd be working through that raw materials inventory heading into second half?

There will be some of that, Sophie. We get - under our resin contracts we have what we refer to as 30-day price protection. So, if resin prices are going up in July, we don't see that come through our pricing until August. So, there will be some buildup of inventory at the lower prices that would be helping the third quarter as well.

And then on Minnesota, just wanted to make sure I understand. So this incremental 30% - you said 30% of the projects are incremental to your existing capital plan? Is that going to fall largely in existing riders that you have there or would you need a separate sort of rate case recovery on that? Just wanted to make sure I heard that right?

It depends, Sophie - this is Chuck, on the - each individual project. I would think that the technology items may in Minnesota fall under a distribution rider. But if I had to guess, these projects a, have not been approved by Minnesota; and incremental amounts, the majority would require rate case recovery, not rider recovery in the future.

[Operator Instructions] And I'm not showing any further questions at this time. I'd like to turn the call back over to Chuck.

Thank you for your questions and interest in Otter Tail Corporation. While many challenges and uncertainties related to COVID-19 remain, we are encouraged by the ongoing efforts our employees across the organization are taking to help mitigate its impact as evidenced by our Q2 results. And despite these short-term challenges, we remain focused on executing our growth strategies that are designed to create long-term shareholder value. For the utility, our strategy is to continue to invest in rate base growth opportunities. The utility is complemented by well-run strategic manufacturing and plastic pipe businesses, which provide organic growth from new products and services, market expansion and increased efficiencies. Based on our first half performance and our updated view of potential impacts from COVID-19, we are increasing our 2020 diluted earnings per share guidance to be in the range of $2.10 to $2.30 from our previous guidance of $2 to $2.25. Thank you for joining our call. We appreciate your interest in Otter Tail Corporation, and we look forward to speaking with you next quarter.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.