Good morning, and welcome to Otter Tail Corporation's 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 2020 earnings results and our 2021 earnings per share guidance range. 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 certain 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 2020 year-end earnings call. Looking back on 2020, it was a year of both unprecedented challenges and unique opportunities. Our core values of integrity, safety, people, performance and community continue to guide the way we do business and allow us to remain focused on executing our growth strategies, despite the economic turmoil of the global pandemic. Otter Tail Corporation continues to support all the locations we serve with collective efforts to mitigate the spread of COVID-19. Our business continuity plans put 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. We remain diligent in our precautionary health and safety efforts based on the recommendations from the CDC, regional health organizations and state and local government orders. Currently 16% of our employees continue to work remotely. We continue to monitor this dynamic event and how it is impacting the economy and our electric and manufacturing platforms. Please refer to Slide 6, as I begin my comment on last year's results. Through combined efforts, we achieved earnings per share of $2.34, which is an increase of 7.8% over 2019. These results were primarily driven by increasing investments in energy generation and regional transmission projects in our Electric segment. And a record year in our Plastics segment driven by strong construction markets coupled with favorable market conditions due to supply constraints and rising prices. Our Manufacturing segment earnings decreased primarily due to negative impact on sales from COVID-19, especially at BTD in Q2. However, BTD experienced a rebound in sales of the recreational vehicle and lawn and garden end markets in the second half of 2020, as major OEMs rebuilt depleted inventories created by…

Thanks, Chuck, and good morning, everyone. 2020 was an outstanding year for us. In light of the challenges we experienced due to the pandemic, our earnings per share of $2.34 was a 7.8% increase over 2019. This increase was driven by our Electric segment supported in large part by our continued investments in our growing rate base. This is impressive when considering that 2020 was impacted by unfavorable weather and the significant negative impact of COVID on commercial and industrial sales and increased bad debt expense. Our Plastics segment had an exceptional year with net earnings increasing 34%. And our Manufacturing segment earnings were down year-over-year, primarily due to the impacts from COVID-19, especially at BTD. Customers implemented temporary plant shutdowns during the second quarter, while attempting [ph] to understand how COVID-19 is going to impact their respective businesses. And our 2020 return on equity was 11.6% on an equity ratio of 51%. Our two platform strategy continues to deliver strong returns on equity. Please refer to Slides 27 and 28, as I provide an overview of 2020 earnings by segment. Electric segment net earnings increased $7.7 million. Key drivers include increased Minnesota and North Dakota renewable resource rider revenues related to the Merricourt Wind Energy Center project while it was under construction and from the generation cost recovery rider in North Dakota in conjunction with the construction of the Astoria Station. Increased revenues due to a positive price variance from sales under very tariffs. Increased Minnesota CIP revenues and an increase in transmission cost recovery revenues. 3These increased revenues were offset in part by unfavorable weather of $0.08 a share in 2020 compared to 2019. Lower kilowatt-hour sales to commercial and industrial customers mainly due to COVID-19 related impacts that affected the last nine months of 2020. Other items…

Thank you, sir. [Operator Instructions] Your first question will come from the line of Sophie Karp from KeyBanc Capital Markets. Your line is now live. Go ahead, please.

Hi. Good morning, guys and congrats on the solid results, despite the pandemic disruptions. Just -- yes, couple of questions, if I may. I wanted to hear you maybe comment on the weather impacts that we're seeing across the country right now? And how your territories are positioned in this regard? And what do you think is the -- maybe the need that of the greed specifically in your territory that you might be looking into addressing in the future, if this impact gets out of control?

All right. I'll take that, this is Chuck, Sophie. Thanks for the question. Otter Tail Power is a member of the MISO market. You've heard a lot about ERCOT in Texas and there are issues with capacity, icing, natural gas supply. And then we do border the SPP market, but we are a MISO market participant, we are on the western edge of that. Through the recent cold weather, we have approximately 800 megawatts to 850 megawatts of load in the similar amount of generation that is bid and cleared into the day ahead market. And while the MISO market prices have been escalated during this cold weather, where we have generation resources that are approximately equal to our load. So our exposure to market prices is very limited, it's -- it arises if we have load forecasting issues between the day and the real-time pricing, or if we have generation issues in that timeframe. So from our generation and I don't -- can't speak for all the regional resources, but all of our resources, coal plants are running. We have had at times 10% of our wind resources that are offline due to temperature over the last three days, but those do come back in the -- depending on the model and the age or manufacturer, these wind facilities do go offline somewhere between 20 and 30 below and we have reached that at some times during the last three days. So -- and would be -- any follow-up questions would be welcome also.

Yes, thank you. Very helpful. So you don't see any generation shortages at this time on your system that's basically at the bottom line?

Yes. The MISO market is different than SPP, which is getting a lot of the attention. We are bordering that. And there is no question that the MISO market prices are elevated over normal. But as long as you have generation resources that are bit in equal to or above your load, you are effectively covered for those prices and it drops back to essentially your marginal cost or your fuel cost on those resources. So to date we are in a good position there.

Got it. Thank you. And then my second question was about the CapEx. It looks like you may be shifted some CapEx from 2021 to 2022, if you could comment a little bit on that? Maybe is that driven by just the timing of projects, or COVID situation kind of what drives that?

Sure. I think there's been a slight change in our timing with the Hoot Lake Solar project. And so that, in total the project is not changed, but there is some movement between 2021 and 2022, start anticipating a little later construction start on that project.

Got it. Thank you. That's all I had. I will jump back into the queue.

Thank you.

Thank you, ma'am. Your next question will come from the line of Brian Russo from Sidoti. Your line is now live. Go ahead, please.

Hi, good morning.

Hi, Brian.

Are there any other assumptions you could provide us for BTD like sales growth in 2021 versus 2020?

Hang on, Brian.

Kevin is looking through his papers here.

And then along those lines, several of the larger companies in BTDs end markets, in recreational vehicle and agriculture, actually have been forecasting fairly bullish outlooks for 2021. And I'm just curious is the guidance that you laid out today, it could approve conservative, if the trends that we've been seeing in this fourth quarter continue through all of 2021?

Hey, Brian, this is Kevin. I think that's a fair statement. I mean there is -- we're seeing some pretty robust activity as you referred to in the fourth quarter. And as we head into the first part of 2021, there is certainly some headwinds here. Like I mentioned in my script notes about the steel prices, we are seeing some concerns over that, but we think that, that will subside back. I think right now as we look at our guidance there is some concerns that we could start to see a pullback in the last half of 2021, that's reflected here. And to the extent that this activity refer to continuously [ph] robust through the rest of the year. I think there is upside.

Okay, great. And then any sales growth assumption?

Yes. I think, you know our sales growth assumption is -- now it was -- based on steel prices at the time, but we're probably in that 5% to 7% sales growth assumption for the year.

Okay, great. And then just to clarify on the steel price headwinds that might be alleviated. That steel is a -- there is a raw material cost pass-through for BTD. So just how the rising steel prices could impact the end markets?

Great.

Yes.

Yes. I mean there is certainly risk for example with these high steel prices that some customers in the end markets it could cause them to perhaps not build certain types of inventory because the price points to the end consumer could be too high. So…

Okay. Got it.

Depending on how this will -- how long it will to go would certainly cause some of that to be a risk as we head into the year.

Okay. And you mentioned depleted inventories in some of your end markets that's driving some of the growth in 2021. Have you experienced any supply chain issues or bottlenecks on your side of the business?

No, Brian, we're really haven't. We -- obviously there is some concerns right now with the steel limited supply and the steel market, but we have not seen -- we didn't have any road supply constraints in 2020 and we've been able to successfully get our steel supply here as we head into 2021, but we're certainly paying attention to what's going on in the steel market.

Okay. And then just to Plastics outlook that you've for 2021, get that if could as a normalized type of operating environment for Plastics or -- are there are still several variables at play, which could make it higher than normal or less than normalized I guess from a margin perspective?

Yes, Brian, as we look at that $0.52 to $0.56 per share that we've guided for 2021. As we look back over the last say five years or so, that would be kind of in that normal range of earnings we would expect. And obviously there will be as we go through the year there's always -- risk and upside to margins depending on what's happening with the dynamics in -- the resin and the PVC sales prices. But we would look to say this is -- from your question, yes, this is in a more normal range of earnings we would expect.

Okay, great. And just…

As we go through the year based on market conditions and as they're changing, we would love to potentially update the guidance based on any new changes that have occurred in the markets.

Okay, great. And then just lastly on the Electric segment. You mentioned various initiatives that would be enhancing to your rate base CAGR. I'm just curious you were previously growing at over 8%. Obviously, Merricourt was a big driver than some of the other generation resources. But if you're sure -- if you're still growing [ph] 5% to 7% EPS CAGR, and you're regulated rate base is growing at 5%; you know, how you get [ph] EPS to the upper part of that range? Do you need incremental CapEx that could be identified in this upcoming -- sort of IRP?

Yes, Brian, this is Chuck, and thanks for the question. If you look back at our last five years of CapEx, it's largely tied to sort of a first-round of MISO transmission and Otter Tail's 2017 IRP. We believe that there will be additional regional transmission projects that impact OTP, in that our IRP that is going to be filed in 2021 here in September. We'll have the potential to increase the rate base growth. We normally don't include projects in our capital -- five-year capital forecast until they're at a minimum identified in an IRP or identified by MISO. And so the IRP is under development. It's going to be impacted by the North Dakota Regional Haze plan, any potential change in renewable tax incentives or extensions, renewable energy or clean energy legislation, natural gas prices, market prices and then the timing of this MISO plan. So, we just -- we normally don't put the projects and until we've put them in an IRP, and that's going to occur in September.

Okay. So just to follow up on that. So when you look at the five-year CapEx, really the upside probably in 2024 and 2025, just given the timing of when projects are approved or when needed. So how to you look at it?

Yes, I would look, the later years on -- to get a project approval -- identification plans project approval is more weighted towards the out years.

Great. Thanks a lot.

Thank you, sir. Your next question will come from the line of Tate Sullivan from Maxim Group. Sir, your line is now live. Go ahead, please.

Hi sir, thank you. Hi Kevin, just starting with the balance sheet. Can you review it, so that your comments on, I mean you don't foresee additional equity needs? And then just related to the current maturities of long-term debt about $140 million, is that just timing related to the maturity of one of your credit facilities or can you talk a little about that, please?

Yes. I mean as it relates to the $140 million, Brian [ph], as you know that comes due in December. We expect that will start -- we've had some initial discussions with some of our investment banks on what the markets look like we would expect to as our past practice to do a private placement of debt to replace that refinance that amount and we would expect -- probably we'll be starting here sometime in the late first quarter or early second quarter.

Okay. Thank you. And then just a follow-up on beat -- on the Manufacturing segment too. I think historically you've mentioned a margin target of around 5%, is that still one of your internal targets for that business, because that change --?

Yes. You're referring to the return on sales margin that continue to look to drive the business collectively, the segment to that return.

To the -- around 5% until that still the case.

Yes. 5% remotely up.

Okay, great. Thanks.

And then -- hey, Tate, did you have a question on the equity piece to that, I didn't answer.

Oh, just clear -- you indicated earlier that you've done your -- you do not anticipate additional equity needs through 25. That clear.

Yes. Right, in this current five-year CapEx plan, I mean we feel good. We successfully completed our equity needs that we had come out a couple of three years ago and said we needed that $70 million to $75 million of equity. We wrap that up here in December. And as we look at this five-year -- current five-year plan, there's no need for any equity. Of course, to the extent that, the integrated resource plan that we referred to Chuck's comments, follow on Brian's question, if there were significant capital investments coming out of that towards the end of this five-year period that could potentially change, but as we stand today no plans.

Okay, thank you both. Have a good day.

Thanks, Tate.

Thank you, sir. [Operator Instructions] As I'm seeing no further questions from the phone line, I would like to turn the call over back to Mr. Chuck MacFarlane for closing remarks.

Thank you for your questions and your interest in Otter Tail Corporation. Our exceptionally strong 2020 financial results reflect the collective efforts of the people of Otter Tail Corporation. Despite the ongoing challenges presented by the pandemic, we remain focused on our strategic initiatives to grow our businesses, achieve operational and commercial excellence and develop our people to continue to provide value to shareholders and to position us for long-term success. In 2021, we will focus on executing and expanding our rate base growth opportunities at the utility, continue to improve profitability at BTD and further refine long-term growth strategies for Northern Pipe, Vinyltech, and T.O. Plastics. We believe this will allow us to deliver on our 2021 earnings per share guidance range of $2.39 to $2.54. Thank you for joining our call. We appreciate your interest in Otter Tail Corporation. And we look forward to speaking with you next quarter.

Thank you, sir. Thank you so much presenters. And again, I thank you everyone for participating. This concludes today's conference. You may now disconnect. Stay safe and have a lovely day.