Otter Tail Corporation Stock

Good morning, and welcome to Otter Tail Corporation's Second Quarter 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I will now turn the call over to the company for their opening comments.

Good morning, and welcome to our second quarter 2026 earnings conference call. My name is Beth Eiken, and I'm Otter Tail Corporation's Manager of Investor Relations. Last night, we announced our Q2 financial results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording of this call will be available on our website later today. With me on the call today are Chuck MacFarlane, Otter Tail Corporation's CEO; Tim Rogelstad, Otter Tail Corporation's President; and Tyler Nelson, Otter Tail Corporation's Vice President and CFO.

Before we begin, I want to remind you that we will be making forward-looking statements during the course of this call. As noted on Slide 2, these statements represent our current views and expectations of future events. They are subject to risks and uncertainties, which may cause actual results to differ from those presented here. So please be advised against 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.

We will be referencing certain adjusted financial measures or non-GAAP measures throughout this call, including adjusted net income, adjusted earnings per share and adjusted return on equity. For more information, please refer to our quarterly earnings release and the non-GAAP reconciliations included in the appendix of our earnings presentation. Otter Tail Corporation disclaims any duty to update or revise our forward-looking statements due to new information, future events, developments or otherwise. I will now turn the call over to Otter Tail Corporation's CEO, Mr. Chuck MacFarlane.

Thanks, Beth. Good morning, and welcome to our second quarter earnings call. Please refer to Slide 4 as I begin my remarks with a summary of quarterly highlights. Our team advanced our strategic initiatives during the second quarter, delivering on near-term priorities for the benefit of our customers and shareholders. Otter Tail Power continues to execute on our regulatory agenda. We secured route permits for two of our large regional transmission projects, marking an important milestone in the development of these reliability-driven investments.

We also filed our 15-year Integrated Resource Plan with the Minnesota Public Utilities Commission. The IRP outlines our preferred plan for meeting our Minnesota customers' future capacity and energy needs. We believe the requested resources will position us well to continue delivering low-cost, reliable electric service. Our Manufacturing and Plastics segment team members successfully capitalized on opportunities for higher sales volumes from the additional capacity recently added at our Georgia and Arizona facilities.

Slide 5 provides a summary of our financial results. We produced adjusted diluted earnings per share of $1.66 compared to $1.85 last year. The expected decrease in earnings was primarily driven by Plastics segment performance as the average sales price of our PVC pipe continued to recede. We are initiating an adjusted diluted earnings per share guidance range of $5.68 to $6.08, which excludes the after-tax impact of the PVC pipe legal settlement.

This reflects an increase from our original 2026 earnings guidance range of $5.22 to $5.62. Following my operational update, Tyler will provide a detailed discussion of our adjusted quarterly financial results and the outlook for the remainder of the year. Transitioning now to my operational update for Otter Tail Power beginning on Slide 7. During the second quarter, we, along with other parties to the Minnesota rate case, requested to extend the procedural schedule to provide more time to respond and review discovery requests. The Minnesota Commission approved the request and the revised procedural schedule is presented on the slide.

We submitted our rebuttal testimony late last month. In the filing, we amended our requested net revenue increase to $42.3 million from $44.8 million due to an updated test year information. Our team continues to work towards reaching a constructive outcome. Separately, we are finalizing our annual cost of service analysis and we'll evaluate if a rate case filing is warranted in any of our other jurisdictions.

Turning to Slide 8. We filed our 15-year Integrated Resource Plan with the Minnesota Commission in May. Our preferred plan recommends adding a 50-megawatt natural gas facility in 2031 or 2032, a 50-megawatt wind facility in 2035 and another 50-megawatt wind facility in 2040. Our preferred plan also reflects the completion of the projects currently under development or construction from our previously approved resource plan. We expect a hearing and a final order on the IRP in Q2 of 2027.

Turning to Slide 9. We are reaffirming our 5-year rate base compounded annual growth rate of 10% and continue to expect Otter Tail Power's earnings to grow at a similar rate over the planning period. We remain confident in our ability to deliver on our growth plan. We are focused on project execution in an effort to minimize development risk and manage construction time lines and costs. As a reminder, our plan is not dependent on securing a large load, and this remains an incremental opportunity to what is already a robust plan.

Slides 10 and 11 provide an overview of ongoing and future capital projects. Our 2 solar projects are under construction and are progressing well. We anticipate Solway Solar becoming operational in the first half of 2027 and Abercrombie Solar in 2028. Our battery storage project remains under development, and we continue to target bringing this storage facility online in 2028. Development work also continues on our large regional transmission projects. We secured route permits for both of our MISO Tranche 1 345 kV projects during the second quarter with the 2 transmission lines spanning nearly 200 miles in total.

Turning to Slide 12. Otter Tail Power remains well positioned to attract and support large loads. We continue to engage with a diverse set of companies interested in adding new loads to our system. Phase 1 of our pipeline increases by approximately 350 megawatts and now totals 1,400 megawatts. Approximately 35% of the total load opportunity relates to a data center with the remaining megawatts relating to clean fuel and thermal storage.

The diversity of our pipeline is a strength as each load has different needs. For example, the clean fuel and thermal storage opportunities are interruptible, giving us flexibility while still providing an opportunity for significant growth. Additionally, our team filed large load tariffs with the Minnesota, North Dakota and South Dakota commissions during the second quarter. The tariff structure are structured with our existing customers and shareholders in mind, including long-term contract periods and required financial guarantees to avoid stranded costs.

Any costs associated with the new large loads would be directly assigned to the new customer and a portion of our fixed costs would be allocated to the new load. This allocation would produce a rate credit for existing customers as we are able to distribute our fixed costs across a larger customer base. Providing low-cost electric service to our customers has been and always will be a priority of ours.

As Slide 13 illustrates, Otter Tail Power's electric rates have remained well below the national and regional average for many years, and we remain committed to managing customer bill increases. Looking ahead, we project bills to increase between 3% and 4% on a compounded annual growth rate over the current 5-year planning period. This is made possible by MISO system-wide recovery for our transmission investments, the availability of renewable energy tax credits, reduced energy purchases and other factors as well as thoughtful planning and effective project execution.

Transitioning to our manufacturing platform. Slide 15 provides an overview of the industry conditions impacting Manufacturing segment volumes. Industry conditions are improving in many of the end markets we serve. Our team is well positioned to respond to the increase in demand and effectively leverage the added capacity in Georgia. The recreational vehicle and lawn and garden end markets have largely stabilized and our horticulture end market remains stable.

The construction end market continues to improve as our OEM customers are seeing an increase in demand for their products. The industrial end market remains strong as the products we manufacture are used to support the growing energy demand. In contrast, agriculture industry conditions remain challenging due to the weak farm economy with elevated costs, lower relative commodity prices and ongoing trade disruption.

Slide 16 provides an overview of our Plastics segment pricing and volume trends. The average sales price of our PVC pipe continued to decline during the second quarter from the same time last year, but at a slower rate, decreasing by 14%. Sales volumes increased 15% from the same time last year, surpassing our expectations for the quarter. As we shared during our Q1 earnings call, we believe our customers sought to secure additional PVC pipe in advance of announced resin price increases. Our team did an excellent job responding to the pull forward in demand, effectively leveraging the expanded capacity at our Phoenix facility and selling more pipe during Q2 than any quarter before.

Separately, we entered into settlement agreements with the 3 classes in the U.S. PVC pipe antitrust litigation during the second quarter, and the court has preliminarily approved these agreements. If final approval is granted by the court in Q4, the settlement agreements will resolve all claims arising from these classes. While not admitting any wrongdoing, fault or liability, we agreed to pay $103.5 million to resolve the litigation and concluded settling was in the best interest of the company and our shareholders. The settlements meaningfully reduced the uncertainty, distraction and significant costs and exposure associated with complex antitrust litigation and most importantly, allows our team members to remain focused on what we do best, serving our customers. With that, I will now turn it over to Tyler to provide his financial update.

Thanks, Chuck, and good morning, everyone. Turning to Slide 18. We generated adjusted diluted earnings per share of $1.66 during the second quarter, a 10% decrease from the same time last year. The expected decline in earnings was primarily from our Plastics segment as we continue on the glide path to earnings levels more in line with our long-term expectations. In addition, corporate costs were higher in the period. As a reminder, our adjusted results exclude the after-tax impact of the legal settlement charges recognized in the second quarter, which amounted to $1.84 per share.

Please follow along on Slides 19 and 20 as I provide an overview of our second quarter results by segment. Electric segment earnings decreased slightly from the same time last year. We benefited from higher electric rates from recent rate case activity, including interim rates in Minnesota and final rates in South Dakota. In addition, the timely recovery of our rate base investments, net of the incremental depreciation and financing costs positively impacted our quarterly results. Finally, we also benefited from increased commercial and industrial sales volumes during the period.

As expected, operating and maintenance costs were higher in the second quarter compared to last year, largely from the planned outage at one of our coal facilities and the timing of vegetation management expenses. Higher labor costs in 2026 also contributed to higher O&M expense in the period. Manufacturing segment earnings increased $0.03 per share or 38%. This increase was primarily driven by higher margins due to a favorable product mix. Our strategy of providing value-added service to our customers through our full suite of fabrication capabilities provides margin expansion opportunities.

Beyond product mix, increased sales volumes within the construction, recreational vehicle and horticulture end markets also contributed to our quarterly results. Partially offsetting these items were higher operating costs in the business, including from performance-based compensation. Turning to Slide 20. Adjusted Plastics segment earnings decreased $0.14 per share or 11%, primarily due to lower pipe sales prices, partially offset by higher sales volumes. These adjusted financial results outpaced our expectations. While the average sales price of our PVC pipe continues to recede, the rate of decline moderated during the second quarter due to the strong demand for our products. Corporate costs increased $0.07 per share, primarily due to the internal allocation of interim tax expense and an increase in employee compensation costs.

Turning to Slide 21. We continue to be in a position of financial strength. Our equity layer as a percentage of total capital was 60% at the end of June, and we had over $600 million of available liquidity, including $278 million of cash and cash equivalents. It is the strength of our balance sheet that allows us to fund our current rate base growth plan without any external equity needs.

On Slide 22, we are initiating an adjusted diluted earnings per share guidance range of $5.68 to $6.08. This range excludes the after-tax impact of the legal settlement expense recognized in the second quarter. We are maintaining our electric segment guidance, which assumes a 14% increase in earnings from the prior year, driven by robust rate base growth and increased electric rates. We are increasing our Manufacturing segment guidance as end market demand continues to improve. We anticipate sales volumes to be higher in the second half of the year than originally anticipated.

Additionally, we expect margins to be higher than originally forecasted due to improved price realization and a greater leveraging of our fixed costs. We are also increasing our Plastics segment guidance as we delivered better-than-forecasted financial results on an adjusted basis during the second quarter and revised our PVC pipe pricing expectations for the remainder of the year. Due to the strong demand for our products, the average sales price of our PVC pipe increased sequentially from the first quarter of the year to the second. While we do not expect this trend to continue through the remainder of the year, we are adjusting the rate of decline assumed in our guidance. We now expect our 2026 average sales price to decrease approximately 15% from last year's average.

Our annual sales volume assumption remains largely unchanged. We continue to believe that our customers pulled forward their orders in Q2 to secure pipe before the announced PVC resin price increases. As a result, we now expect sales volumes to be softer in the second half of the year, but annual volumes remain largely the same.

Finally, we expect our corporate costs to increase from what we had originally assumed for the year. This is largely driven by lower investment income and a reduced tax benefit. Both of these items are driven by the litigation settlements from a lower expected investment balance and a change in our anticipated state tax rate.

On Slide 23, we are reaffirming our 5-year capital investment plan. Otter Tail Power's $1.9 billion customer-focused investment plan will be the primary driver of growth over this planning period. We are focused on project execution to deliver quality investments for the benefit of our customers and shareholders. Slide 24 summarizes our financing plan, which remains unchanged. We continue to expect to fund our customer-focused growth plan without needing to access the equity capital markets. At Otter Tail Power, we expect to issue debt periodically to maintain our authorized capital structure and support our rate base growth plan. At the parent level, we have $80 million of debt maturing in the fourth quarter, which we continue to plan to retire and not replace. Upon retirement, the only outstanding debt will be at Otter Tail Power.

On Slide 25, we are reaffirming our expected long-term Plastics earnings profile. We believe segment earnings will continue to decline through the end of 2027 and expect earnings in 2028 to be within a range of $45 million to $50 million. Due to seasonality and other factors, the rate of pricing decline can vary from period to period. Additionally, it continues to be difficult to predict with certainty long-term Plastics segment earnings. The timing or level of earnings could vary materially from our projection.

However, our Plastics segment continues to be an important component to our overall strategy. Even as earnings recede, we expect the segment to produce an accretive return and incremental cash that we can use to reinvest into our utility-first model.

Slide 26 summarizes our investment targets. Our long-term earnings per share growth rate target is 7% to 9%, resulting in a total shareholder return of 10% to 12%. We anticipate delivering on these targets once Plastics segment earnings normalize in 2028. As we continue to execute on our customer-focused growth plan, we are well positioned to deliver on our investment targets over the long term.

Otter Tail Power continues to be a best-in-class utility, producing attractive returns for our shareholders while providing some of the lowest cost electric service to our customers. Our manufacturing and plastic pipe businesses consistently produce accretive returns and incremental cash, enabling us to fund our rate base growth plan without any external equity needs. It is this intentional strategic diversification that has and will continue to provide benefits to our customers and investors over the long term. We are now ready to take your questions.

[Operator Instructions] Our first question comes from the line of Tate Sullivan of Maxim Group.

Just to start and I'll get to the PVC settlement as well as a Manufacturing business. I think historically, you've pointed to a net profit margin of 5% to 7% range in that business. Is that -- I mean, are you -- can you comment on that going forward given the strength in the U.S. PMI recently and other considerations, please?

Yes. That's where we're tracking currently. If you look, say, at our first 6 months of the year, it would be at about a 5% net income return. We do think there's opportunity to improve on that with increased volumes, providing increased leveraging of our fixed costs along with operating efficiencies, production and productivity gains in the business. But yes, generally, that's where we're reading out currently.

And in terms of the manufacturing capacity footprint of BTD currently, I mean, are you operating close to that capacity level? Or do you still have room to grow as well?

We would still have room to grow. We recently expanded our facility in Georgia. So there is definitely room in that facility for additional growth, and that's -- that was a targeted investment and that's where we see growth from our existing customers in that part of the U.S.

Okay. And shifting to the PVC business too, and you've previously announced to meet most of these settlements and then adjusted the guidance today. Does it change the pricing dynamic with the distributors going forward? Was the relationship with customers part of the consideration of settling? If you can comment on those questions, please?

Tate, this is Chuck. It does not change any pricing or relationship with the customers. We don't view that, that will change in any way based on the settlement.

Okay. And then I mean, as one way to look at the settlements is looking at taking out the $100-odd million from the historical net income in the PVC business, and that's sort of the adjusted pricing where pricing would have been? Or is that an incorrect way to look at the settlements?

Yes. We don't know. We can't make that determination.

Okay. And then last, did you say during the comments, too, that the payment potentially, depending on the court approval, potentially made all 3 payments in the fourth -- by the end of the year? Is that the right way to look at timing for the cash?

Tate, this is Tyler again. So we -- by the end of July, we had actually made the full payment of $103.5 million into an escrow account that will reside in that escrow account until final court approval is provided. The amounts that were paid in escrow remain on our balance sheet. So you'll see when we file our 10-Q, we'll show a restricted cash amount of -- it's $73 million because that's what we had paid by the end of June. We then paid the remaining $30 million at the end of July. So those funds as of today are sitting in an escrow account that we don't have access to until the final court approval is received.

Our next question comes from the line of Michael Pelletier of KeyBanc.

Just on the large load pipeline, included meaningful additions this quarter. Just curious on what's driving the step-up. And then to what extent are customers increasingly looking to your service territory as alternative regions face interconnection constraints and moratoriums?

Sure. Michael, this is Tim. And so we continue to see a lot of activity on the large load front. I think as Chuck indicated, one of the things we really like is the diversity that we're seeing both from data centers as well as clean fuel and also similar to our new customer down at our Big Stone plant that is a thermal storage facility. And so we continue to see a lot of activity there. When you think about big facilities like this, we certainly see feedback from -- in our region, both negatively and positively. I think it really depends upon where you're at in our system. We've got a large geography. So we've got a lot of places to put some of these loads. But we continue to work with the different -- whether at a state level or at a local township level with different entities to try to help facilitate some of these large load additions.

Okay. And then just on the timing and cadence of the capital investments contemplated in the IRP, I guess, specifically with the natural gas gen. Would this be incremental to the $750 million opportunity? And then when could you see those opportunities begin to materialize?

Yes. So it is incremental to what we've identified already as our $750 million of incremental as well. So we'll work through the IRP process, and we would anticipate by the end of the second quarter next year, we'll have clarity whether or not we get approval. With respect to execution, that is certainly a bigger challenge these days with respect to supply chain, in particular, natural gas generators. So as we target a 2031, 2032 in service, we would anticipate we get approval next year, we would begin activities in the development of that. And potentially late in the 5-year look, we would see investment opportunities starting to show up.

As there are no remaining questions in the queue, I will turn the call back over to Chuck for his closing remarks.

Thank you for joining our call and your interest in Otter Tail Corporation. If you have any questions, please reach out to our Investor Relations team, and we look forward to speaking with you next quarter.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good morning, and welcome to Otter Tail Corporation's First Quarter 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions].

I will now turn the call over to the company for their opening remarks.

Good morning, and welcome to our first quarter 2026 earnings conference call. My name is Beth Eiken and I'm Otter Tail Corporation's Manager of Investor Relations.

Last night, we announced our Q1 financial results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording of this call will be available on our website later today.

With me on the call today are Chuck MacFarlane, Otter Tail Corporation's CEO; Tim Rogelstad, Otter Tail Corporation's President; and Tyler Nelson, Otter Tail Corporation's Vice President and CFO.

Before we begin, I want to remind you that we will be making forward-looking statements during the course of this call. As noted on Slide 2, these statements represent our current views and expectations of future events. They are subject to risks and uncertainties, which may cause actual results to differ from those presented here, so please be advised against 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.

I will now turn the call over to Otter Tail Corporation's CEO, Mr. Chuck MacFarlane.

Thanks, Beth. Good morning, and welcome to our first quarter earnings call. Before I turn to my prepared remarks on the quarter, I want to briefly touch on our leadership transition we announced last month. These changes are a result of long-standing, thoughtful succession planning by the Board and management team.

Effective April 13, Tim Rogelstad was elected President of Otter Tail Corporation. Tim will oversee our Electric and Manufacturing platforms and report directly to me. With over 35 years of experience at Otter Tail, he brings a deep understanding of the organization, our culture and strategy and has a proven track record of strong leadership and execution.

At the same time, Todd Wahlund was elected Senior Vice President of the Corporation and President of Otter Tail Power Company, providing continuity and seasoned operational and financial leadership to the utility as it continues to deliver on its rate base growth plan. Todd brings years of operational utility experience to the role, having previously served in resource planning and renewable energy development prior to becoming Otter Tail Power's CFO and later Otter Tail Corporation's CFO.

We also announced that Tyler Nelson has been elected Vice President and Chief Financial Officer of the corporation. Tyler has played a key role in our financial leadership for the last 6 years and brings a deep understanding of our financial operations and strategy to the role. These changes do not alter our strategy or priorities. They serve to strengthen our leadership bench as we remain committed to delivering long-term shareholder value.

Now let's turn to Slide 4 as I provide an overview of recent operational and financial highlights. We are pleased with our first quarter financial results and are well positioned to achieve our financial objectives for the year. Across our businesses, our team members executed on our near-term priorities for the benefit of our customers and shareholders.

Otter Tail Power delivered on our regulatory priorities while making significant progress on our customer-focused rate base growth plan. We achieved a constructive outcome in our South Dakota rate case and implemented new base rates on April 1. We also implemented interim rates for our Minnesota rate case at the start of the year.

We completed our $230 million wind repowering project earlier this year, upgrading the wind towers at 4 of our owned wind energy centers. These upgrades are expected to result in a 20% increase in output and are economical for our customers due to the renewed renewable energy tax credits.

Phase 2 of our Vinyltech expansion is complete. This marks the end of a multiyear expansion project that added 15% of additional production capacity for our Plastics segment, increased our manufacturing footprint and expanded our raw material storage capabilities. This multiyear expansion project was completed on budget, and we look forward to leveraging this investment to better serve our customers, pursue growth opportunities and enhance our employee experience.

Slide 5 provides a summary of our first quarter financial results as well as our expectations for the remainder of the year. We produced diluted earnings per share of $1.73 in the first quarter compared to $1.62 last year. The increase in earnings was driven by strong performance in our Electric and Manufacturing segments. Plastics segment earnings continue to recede within our expectations.

We are maintaining our 2026 diluted earnings per share guidance range of $5.22 to $5.62. Following my operational update, Tyler will provide a detailed discussion of our quarterly financial results and our 2026 outlook.

Transitioning now to my operational update for Otter Tail Power beginning on Slide 7. We obtained approval from the South Dakota Commission on the settlement agreement reached between Otter Tail Power and commission staff during the first quarter, resulting in a constructive outcome and concluding the rate proceeding. The final outcome of the rate case achieved approximately 75% of our request when considering adjustments for rider treatment.

Turning to Slide 8. Our Minnesota rate case continues to progress. Interim rate revenues of $28.6 million went into effect on January 1, subject to refund. Separately, Otter Tail Power is in the process of finalizing its next integrated resource plan. We have held stakeholder meetings to discuss our plan at a high level, and we are on track to file the IRP in Minnesota later this month.

Turning to Slide 9. We are reaffirming our 5-year rate base compounded annual growth rate of 10%. Otter Tail Power is expected to continue to convert this rate base growth into earnings per share growth near a 1:1 ratio over the 5-year planning period.

Slides 10 and 11 provide an overview of ongoing and future capital projects. Our 2 solar development projects are in the early stages of construction. During the first quarter, our team members secured the solar panels needed for these projects. This strategy eliminates tariff-related risk and helps to avoid any potential cost increases for the benefit of our customers. Our battery storage project remains under development. We are targeting to bring this 75-megawatt storage facility online in 2028.

Development work also continues on our large regional transmission projects. We continue to work through areas of landowner and local government opposition associated with siting and certain permits for the Jamestown to Ellendale Tranche 1 project. We received a Minnesota route permit last week for the Big Stone to Alexandria Tranche 1 project, a nearly 100-mile transmission line.

We're also monitoring the complaint filed by several states at FERC against MISO's Tranche 2.1 projects. We continue to expect these projects to move forward due to their reliability-related benefits, but believe there could be delays.

Turning to Slide 12, which provides an update on our large load pipeline. We removed the 430-megawatt load previously under a term sheet from our pipeline. We no longer expect this project to move forward due to permitting-related challenges as well as failed tax incentive legislation in the South Dakota state legislature.

Phase 1 of our pipeline increased by approximately 500 megawatts. We continue to engage with companies interested in adding a new large load to our system. We have and will continue to be prudent in our approach to ensure appropriate guardrails are in place to protect our customers and our shareholders.

As a reminder, these changes to our pipeline have no impact on our current load growth forecast or capital spending as we will only adjust our internal forecast for loads that have a signed electric service agreement. We remain committed to providing low-cost electric service to our customers and have demonstrated our ability to do so.

As Slide 13 illustrates, Otter Tail Power's electric rates have remained well below the national and regional averages for many years. Looking ahead, we are deeply focused on managing customer bills. We currently project bills to increase between 3% and 4% on a compounded annual growth rate over the current 5-year planning period. This is made possible by MISO's system-wide recovery for our transmission investments, the availability of renewable energy tax credits, reduced energy costs and other factors.

Transitioning to our manufacturing platform. Slide 15 provides an overview of the industry conditions impacting our Manufacturing segment. We are optimistic that conditions are improving in several of our end markets. Manufacturing dealer inventory levels have largely normalized, and we experienced increased sales volumes in our construction and recreational vehicle markets. The industrial end market remains strong as our products are used to support the growing energy demand. However, agriculture industry conditions remain challenging due to the weak farm economy with elevated costs, lower relative commodity prices and ongoing trade disruption.

T.O. Plastics horticultural end market remains stable with sales volumes improving during the first quarter compared to the same time last year. We continue to face formidable competition from low-cost importers. We are emphasizing our high-quality products and quick delivery capabilities to our customers and appear to be making headway.

Slide 16 provides an overview of our Plastics segment pricing and volume trends. Average sales prices of our PVC pipe continued to decline, decreasing 19% from the Q1 2025 average. Sales volumes increased 7% from the same time last year. We benefited from an opportunistic sale of a specialty pipe during this quarter as well as increased distributor and contractor demand late in the quarter.

Distributors and contractors sought to secure additional pipe in advance of potential PVC resin cost increases that have been announced by U.S. PVC resin manufacturers. Material input costs, including PVC resin, decreased 12% from the same time last year as the domestic supply of resin was elevated. We are now seeing an increase in PVC resin costs stemming from the conflict in the Middle East.

Global PVC resin manufacturers are more heavily impacted by the rising cost of oil, leading to an increase in exports from U.S. resin manufacturers who utilize natural gas as a feedstock.

I will now turn it over to Tyler to provide his financial update.

Thanks, Chuck, and good morning, everyone. Turning to Slide 18. We are pleased with our first quarter financial results. We generated diluted earnings per share of $1.73, a 7% increase compared to the same time last year. Please follow along on Slides 19 and 20 as I provide an overview of our first quarter results by segment.

Electric segment earnings increased $0.25 per share or 43% in the first quarter, driven by increased electric rates and the recovery of our rate base investments. Interim rates in Minnesota and South Dakota went into effect in January 2026 and December 2025. In addition, new base rates in North Dakota were effective for all of Q1 2026, but only a small portion of the same period last year. Our quarterly results also benefited from higher commercial sales volumes across our service territory. These items were partially offset by the impact of unfavorable weather, higher operating and maintenance costs and increased depreciation expense stemming from our rate base investments.

Manufacturing segment earnings increased $0.06 per share, driven by higher margins, primarily from a favorable product mix. Increased sales volumes and improved production efficiency also contributed to our quarterly results. Partially offsetting these items were higher general and administrative costs.

Turning to Slide 20. Plastics segment earnings decreased $0.24 per share or 24%, primarily due to lower sales prices of our PVC pipe. As Chuck shared earlier, our average sales price decreased 19% from the same time last year. This pricing decline was generally in line with our expectation and continued the trend of receding pricing dating back to the middle of 2022. Partially offsetting the reduction in sales prices are higher sales volumes and lower input material costs.

Our volumes benefited from an opportunistic sale of a specialty pipe product and near the end of the quarter, a broader increase in demand spurred by an announced increase in PVC resin costs. Corporate costs decreased $0.04 per share, primarily driven by a timing-based tax benefit compared to the same period last year.

Turning to Slide 21. We continue to be in a position of financial strength with a balance sheet capable of funding our rate base growth plan without any external equity needs through at least 2030. Our available liquidity at the end of March was over $650 million, including almost $350 million of cash and equivalents.

Our capital allocation strategy remains unchanged. We are focused on using our available cash to fund our utility rate base investments and return capital to our shareholders through our dividend.

On Slide 22, we are affirming our annual diluted earnings per share guidance range of $5.22 to $5.62, which is expected to produce a return on equity of approximately 12%. We started the year with momentum and are well positioned to achieve our financial targets. I would like to highlight a few key items we are focused on for the remainder of the year.

In our Electric segment, we have a planned major outage at a coal facility beginning in the second quarter and expect higher O&M spend midyear related to asset health and resiliency initiatives. In our Manufacturing segment, we are optimistic about increased sales volumes in the first quarter, but demand visibility becomes less certain in the second half of the year.

In our Plastics segment, we expect second quarter sales volumes to be strong and our product pricing to temporarily stabilize as distributors and contractors accelerate pipe purchasing before potential PVC cost increases take effect. However, our annual sales volume forecast remains largely unchanged as we expect the second half of the year to be negatively impacted by the accelerated buying we are seeing now as well as broader macroeconomic conditions.

Overall, we are pleased with the start to the year, and our team is focused on delivering upon our strategic priorities over the remainder of 2026.

On Slide 23, we summarize and affirm our 5-year capital spending plan. Our planned investment in our Electric segment totals $1.9 billion and is expected to produce a rate base compounded annual growth rate of 10%. Our customer-focused investment plan will be a key driver of earnings growth for this segment over the 5-year period. We continue to project up to $750 million in incremental capital investment opportunity within our Electric segment over the planning period. This incremental opportunity stems from a potential wind generation resource, the acceleration of regional transmission investment and the potential delivery investment to serve a new large load in our service territory.

Slide 24 summarizes our financing plan. We continue to expect to fund our 5-year growth plan without any equity issuances. Our robust utility capital program will be primarily financed through existing cash and cash generated from operations over the planning period. At Otter Tail Power, we expect to issue debt periodically to support our rate base growth plan and maintain our authorized capital structure.

During the first quarter, we completed a $170 million private placement with $100 million funded in March, with the remaining $70 million scheduled to fund in June. We do not anticipate any further debt issuances in 2026. At the parent level, we have $80 million of debt maturing in the fourth quarter, which we plan to retire using available cash and do not expect to refinance. The value of our diversified portfolio is reflected in our financing strategy. By reinvesting incremental cash flow from our Manufacturing platform into utility rate base growth, we expect to eliminate the need for external equity for at least the next 5 years.

On Slide 25, we are reaffirming our expected long-term Plastics earnings profile. We believe segment earnings will continue to decline through the end of 2027 and expect earnings in 2028 to be within a range of $45 million to $50 million. This assumption is based on a continuing decline in the average sales price of our PVC pipe products, higher sales volumes from our recently expanded production capacity and input cost increases generally in line with the rate of inflation. Due to seasonality and other factors, the rate of pricing decline can vary from period to period. Additionally, it continues to be difficult to predict with certainty long-term Plastics segment earnings. The timing or level of earnings could vary materially from our projection.

Our Plastics segment continues to be an important component to our overall strategy with the enhanced returns, cash flow and earnings it generates. Even as earnings continue to recede, we expect the segment to produce an accretive return and incremental cash to help fund our electric utilities rate base growth plan.

Slide 26 summarizes our investment targets. Underpinned by the significant growth in our Electric segment, we continue to target a long-term earnings per share growth rate of 7% to 9%, resulting in a total targeted shareholder return of 10% to 12%. We anticipate delivering on these targets once Plastics segment earnings normalize in 2028.

As we continue to execute on our customer-focused growth plan, we are well positioned to deliver on our investment targets over the long term. Otter Tail Power continues to be a high-performing electric utility, converting its rate base growth into earnings per share growth near a 1:1 ratio.

Our manufacturing and plastic pipe businesses consistently produce accretive returns and incremental cash, enabling us to fund our rate base growth plan without any external equity needs through at least 2030. It is this intentional strategic diversification that has and will continue to provide benefits to our customers and investors over the long term. We look forward to what the future holds and are grateful for your interest and investment in Otter Tail Corporation.

We are now ready to take your questions.

[Operator Instructions]Our first question comes from the line of Chris Ellinghaus of Siebert Williams Shank.

Chuck, given the Iranian situation, does that alter your expectations for what sort of the global resin dynamics will be? Or are you sort of thinking that, that gets resolved before the second half of the year?

Thanks for the question, Chris. Yes, I think we believe that it long term will be resolved, whether it's completely resolved by the second half of this year, we don't know on that, but we just know that it is impacting the U.S. domestic export price of resin, which drives up the domestic price at this time.

Sure. That makes sense. What is driving in manufacturing sort of the recovery in recreational vehicle market dynamics given sort of the negative consumer sentiment this year.

Chris, this is Tyler. So I think a couple of things. First, inventory levels in the channel, both at the dealer and the manufacturer have normalized. I think they're at a good level where we will see more throughput on any demand at the end customer level. We will feel that now that inventories have normalized. In addition to that, some of the higher-end models, we continue to see strength in product demand, whereas the lower-end models more subject to macroeconomic conditions, that's where we have seen some ongoing softness. But at the mid and higher levels, we have seen a bit of a pickup in demand.

Okay. And in the pipeline side did that letter of intent customer slide back into the broader pipeline? Or they just give up altogether?

Chris, this is Tim Rogelstad. No, we continue to work with that customer. I would say they're not currently in the pipeline of projects, but I think we'll continue to explore options, and it's possible we could see them come back in.

Okay. Are they -- was it more the permitting site issue or the tax issue that was particularly important to them?

From our understanding, I think both of them were definitely barriers for them to want to move forward in South Dakota. I'm not sure if one was more important over the other, but that's where the situation sits.

Okay. And can you give us any update on the Minnesota rate case process? What's the next big hurdle for you?

Okay. Well, we are in the middle of discovery right now. And probably one of the unique things that's happened in this particular case is the pace of discovery started a little bit later than what we were used to. So the last 2 months have been -- we've seen what I'd characterize as heavy discovery. The next step will be the expectation of getting the intervenor testimony, which we expect sometime here in the second quarter.

Okay. There's been a decent run-up in interest rates lately. Do you expect to make any adjustments to the case for what we're seeing today?

Chris, this is Tyler. No, we don't expect any adjustments for the interest rate environment that we're experiencing today. They do take into account the debt issuance, the debt offering that we completed that gets factored into the case. But outside of that, no other adjustments planned.

As there are no remaining questions in the queue, I will turn the call back over to Chuck for his closing remarks.

Thank you for joining our call and your interest in Otter Tail Corporation. If you have any questions, please reach out to our Investor Relations team, and we look forward to speaking with you next quarter.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good morning, and welcome to the Otter Tail Corporation's Fourth Quarter 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions].

I will now turn the call over to the company for their opening comments.

Good morning, and welcome to our fourth quarter 2025 earnings conference call. My name is Beth Eiken and I'm Otter Tail Corporation's Manager of Investor Relations. Last night, we announced our fourth quarter and annual financial results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording of this call will be available on our website later today.

With me on the call are Chuck MacFarlane Otter Tail Corporation's President and CEO; and Todd Wahlund, Otter Tail Corporation's Vice President and CFO.

Before we begin, I want to remind you that we will be making forward-looking statements during the course of this call. As noted on Slide 2, these statements represent our current views and expectations of future events. They are subject to risks and uncertainties, which may cause actual results to differ from those presented here. So please be advised against 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.

I will now turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck MacFarlane.

Thank you, Beth. Good morning, and welcome to our fourth quarter earnings call. Please refer to Slide 4 as I begin my remarks with an overview of recent highlights. We are pleased with our 2025 financial results as they exceeded our original expectations for the year. Our team members continue to deliver for our customers and shareholders amidst dynamic market conditions. I am grateful for their efforts throughout the year. Otter Tail Power continued to deliver on our significant rate base growth plan while executing on our regulatory priorities. Inter rates went into effect December 1 in South Dakota, and we obtained approval from the Minnesota Public Utilities Commission to implement interim rates beginning on January 1.

Phase 2 of vinyl Tech expansion project continued to progress as well. And we expect the new line to be fully operational in early 2026, and we look forward to bringing this incremental capacity online. Earlier this year, we increased our dividend by 10%, producing an annual indicated dividend of $2.31 per share. This was the second year in a row we announced a double-digit increase to our dividend, reflecting our financial health and commitment to delivering value and returning capital to our shareholders. 2026 will mark the 88th consecutive year we have paid dividends to our shareholders without interruption or reduction.

Slide 5 provides a summary of our quarter to date and annual earnings. For the year, we produced diluted earnings per share of $6.55 and a decrease of 9% from last year. The decrease in earnings was expected as our earnings from our Plastics segment receded from record levels achieved last year. We ended 2025 in a position of financial strength with a strong balance sheet and ample liquidity to fund our customer-focused growth plan. We are initiating our 2026 diluted earnings per share guidance range with a midpoint of $5.42. Following my operational update, Todd will provide a more detailed discussion of our 2025 financial results and our outlook for 2026.

Transitioning now to our operational update for Otter Tail Power. As noted on Slide 7, we received approval from the Minnesota Public Utilities Commission to implement interim rate revenues of $28.6 million effective January 1, 2026. Interim rates are subject to refund at the conclusion of the proceeding. The procedural schedule has been set and we continue to anticipate final rates being implemented in mid-2027.

Turning to Slide 8. Our South Dakota rate case continues to progress. Interim rate revenues of $5.7 million went into effect on December 1, subject to refund. There were no intervenors in our South Dakota rate case. And earlier this year, we reached settlement in principle with the South Dakota Public Utilities Commission staff. We continue to work towards finalizing the settlement and appreciate the collaboration with the commission staff to date.

Turning to Slide 9. Our customer-focused rate base growth continues to be robust. We refreshed Otter Tail Power's 5-year capital spending plan with the total remaining unchanged. Key changes to the plan include the addition of a battery storage project, the acceleration of solar investment and the shifting of a portion of our transmission investment outside the planning period due to updated project timing. Todd will provide more details as it relates to our 5-year capital spending plan in a moment. We are reaffirming our 5-year rate base compounded annual growth rate of 10% and continue to expect Otter Tail Power to convert its rate base growth into earnings per share growth near a 1:1 ratio.

Slides 10 and 11 provide an overview of ongoing and future capital projects. We recently completed our wind repowering project upgrading the wind towers at 4 of our owned wind energy centers. These upgrades are expected to result in a 20% increase in output and due to the benefit of an additional 10 years of renewable energy tax credits are very economical for our customers. Our 2 solar development projects are underway. [ Solway solar ] is in the early stages of construction. And in January of 26, we completed the acquisition of development assets for [ Abercrombie Solar ]. We continue to expect Solway to be operational towards the end of 2026 or early 2027 in Abercrombie in 2028.

Throughout 2025, our team members evaluated options for a battery storage project that would meet the requirements of our approved Minnesota integrated resource plan, which authorized us to add up to 75 megawatts of battery storage by 2029. Near the end of 2025, we identified an opportunity to add this battery near our Hoot Lake solar facility. We advanced this project so it would make operation -- would be operational in the approved time line and qualify for available tax credits making an economical for our Minnesota customers. Our team's preparedness, experience and agility enabled us to capitalize on this opportunity allowing us to accelerate the timing of the project for the benefit of our customers.

The battery project is under development and is expected to have a storage capacity of 75 megawatts and a storage duration of 4 hours. Our total capital investment associated with the project is approximately $120 million. And in November of 2025, we received Minnesota Commission approval for [ rider ] recovery. We currently expect the battery storage facility to be operational in 2028.

Turning to our transmission projects. Development work continues in our MISO tranche 1, MISO Tranche 2.1 and JTIQ portfolio projects. We continue to work through landowner and local government resistance associated with citing and certain permits for 1 of our MISO Tranche 1 projects. We continue to monitor a FERC complaint filed in mid-2025 against MISO's tranche 2.1 portfolio of projects, citing a concern with benefit calculations. We currently expect the projects to move forward due to their reliability-related benefits, but believe there could be delays.

Turning to Slide 12. We refreshed our large load pipeline, removing the 155-megawatt load that went into service in 2025. We continue to engage with companies looking to add large loads to our system. We believe we have attractive opportunities to add new customers to our system but we are being prudent in our approach to mitigate potential adverse implications to our existing customer base. We remain optimistic about the 430-megawatt data center opportunity currently sitting in Phase 2. We continue to engage with the customer in an effort to advance this load to a signed electric service agreement.

As a reminder, we have not made any adjustments to our load growth forecast for the opportunities sitting in Phase 1 and 2 of our pipeline. Further, our current 5-year capital spending plan does not include any investment capital related to large -- new large loads. We remain committed to providing low-cost electric service to our customers and have demonstrated our ability to do so for many years.

Slide 13 illustrates Otter Tail Power's electric rates have remained well below the national and regional average for many years. Our 2025 residential electric rates were 34% below the national average and 19% below the regional peers. Looking ahead, we remain committed to managing customer bills. We currently project bills to increase between 3% and 4% on a compounded annual growth rate over the current 5-year planning period. This is made possible by MISO system-wide recovery of regional transmission and the availability of renewable energy credits, reduced energy costs and other factors. There could be some variability in terms of annual bill increases with some years experiencing higher increases and others lower. This is due to the timing of rate case filings, capital spend and related recovery. We also expect that the 5-year CAGR may vary between jurisdictions.

Transitioning to our manufacturing platform. Slide 15 provides an overview of the industry conditions impacting our manufacturing segment. [ BTD ] continues to face end market demand-related headwinds as sales volumes remain below historic levels. End market demand continues to be negatively impacted by higher levels of new and used inventory at the dealer level as well as a challenging economic environment. The end markets most heavily impacted by these dynamics include lawn and garden and agriculture.

The construction and recreational vehicle end markets seem to be improving as inventory levels are normalizing at the retail level. The industrial end market remains strong, as our products are ultimately used to support the growing energy demand. We have seen some improvements in [ TO Plastics ] horticulture end market but continue to face competition from low-cost importers.

Slide 16 provides an overview of our Plastics segment pricing and volume trends. Our sales prices of PVC pipe continue to steadily decline decreasing 15% from the 2024 average. The rate of decline accelerated during the fourth quarter of 2025 with the average sales price being 20% lower than the same time last year. The rate of price decline can be impacted by a variety of factors, including product mix and seasonal demand patterns. Sales volumes increased 8% from 2024 levels, the increase was largely driven by the incremental capacity added at [ Vinyltech ] in late 2024. Material input costs, including PVC resin, decreased 14% and from 2024 levels as domestic supply remains elevated.

Turning to Slide 17. Our manufacturing platform remains well positioned to support future growth opportunities. Our new BTD Georgia facility is ready to support our customers in the Southeast part of the United States, and Phase 2 of our VinylTech expansion project is nearly complete. Further, Northern Pipe Products is also pursuing a project to increase their nameplate production capacity by approximately 20 million pounds by enhancing the efficiency of an existing line. We expect this incremental capacity to be available beginning in 2028.

I'll now turn it over to Todd to provide his financial update.

Thank you, Chuck, and good morning, everyone. Turning to Slide 19. We are pleased with our consolidated 2025 financial results. We generated $6.55 of diluted earnings per share. which was towards the upper end of our 2025 earnings guidance range. Please follow along on Slides 20 and 21 as I provide an overview of annual financial results by segment. Electric segment earnings increased over 7% year-over-year with an increase of $0.16 per share. The increase in earnings was driven by a recovery of our increased rate base investments, higher residential and commercial sales volumes, the impact of favorable weather relative to 2024 and lower operating and maintenance expenses through prudent cost management related efforts.

While weather conditions were slightly negative in 2025 compared to normal levels, they were much closer to normal levels than the mild 2024. These drivers were partially offset by higher depreciation and interest expense related to our rate base investments and associated financing costs. Manufacturing segment earnings decreased $0.06 per share or 16% year-over-year, primarily driven by lower sales volumes, the impact of product mix on average pricing and higher SG&A expenses. Sales volumes were negatively impacted by soft end market demand and inventory management efforts by manufacturers and dealers throughout 2025. These drivers were partially offset by lower production costs as our team members did a great job aligning our cost structure with the current demand environment. We finished the year strong with higher year-over-year sales volumes in Q4, and this momentum is carrying into 2026.

Turning to Slide 21. Plastics segment earnings decreased $0.72 per share or 15% year-over-year as earnings receded from the historic high reached in 2024. The decrease in earnings was largely driven by lower average sales prices. Sales prices decreased 15% from the 2024 average. We continue to offset some of this decrease in average pricing with higher sales volumes and lower input material costs.

Turning to Slide 22. We ended the year in a position of financial strength with $386 million of cash on hand. We produced a utility sector-leading return on equity of 16% on an equity layer of 63%. Our balance sheet continues to be capable of funding our significant customer-focused growth plan without external equity through at least 2030.

On Slide 23, we are initiating our 2026 diluted earnings per share guidance range of $5.22 to $5.62. The midpoint of our 2026 earnings guidance is expected to continue producing an above-average return on equity of 12%. Our 2026 earnings guidance is premised on the following assumptions by segment. Electric segment earnings are expected to increase 14% in 2026 due to higher returns generated from an increase in average rate base of 14% as well as interim revenues from our Minnesota general rate case, the double-digit increase in average rate base is primarily driven by our wind repower and solar investments. We expect these drivers of increased earnings to be partially offset by higher operating and maintenance expenses as well as increased depreciation and interest expense.

We expect manufacturing segment earnings to increase 7%, primarily due to an improved sales outlook across the segment. The projected sales growth is being driven by a modest increase of sales volumes at BTD manufacturing and higher sales volumes of horticulture products. We also expect improved productivity to be a positive contributor to earnings in 2026.

For BTD, we anticipate a strong first half of sales relative to '25 but are being more cautious on our projection for the second half of the year due to continued challenges with certain end markets. Plastics segment earnings are expected to decrease 36% as average PVC pipe prices continue to recede from the peak reached in 2022. This is expected to be partially offset by the impact of higher sales volumes driven by the Phase 2 capacity coming online at Vinyltech in early 2026. Input material costs, including the cost of resin, are expected to be largely flat year-over-year.

Corporate costs are expected to increase in 2026 driven by lower investment income and higher labor costs. We updated Otter Tail Power's 5-year capital spending plan, which is included on Slide 24. Despite the updates made, Otter Tail Power's 5-year capital spending plan continues to total $1.9 billion and continues to be expected to produce a rate base compound annual growth rate of 10%. Our updates included increasing the investment amount for renewable generation and battery storage to include the Hoot Lake battery project. We shifted approximately $140 million of transmission-related investments outside the current 5-year planning period due to updated timing of capital spend.

Additionally, we continue to have potential incremental investment opportunities for Otter Tail Power. We have approval in Minnesota to add up to 200 megawatts of additional wind generation and continue to seek the least cost option for our customers, whether that be a power purchase agreement or a rate base investment. With our large transmission project, there is still some uncertainty on the precise timing of some of the spend. So there could be some shifting of spend back into this 5-year planning period. We also could have incremental investment opportunities if we successfully secure new large loads. We continue to project every additional $100 million of incremental capital investment opportunity increases Otter Tail Power's rate base compound annual growth rate by approximately 65 basis points.

Slide 25 summarizes our updated 5-year financing plan. Even with our significant utility capital spending plan, we don't have any external equity needs through at least 2030. We plan to issue debt at Otter to Power on an annual basis to help fund the investment plan and maintain its authorized capital structure. We have [ $1 million ] in parent level debt that matures later this year and expect to retire and not replace this debt. We will have no outstanding parent level debt upon retirement.

On Slide 26, we are reaffirming our expected long-term plastics earnings profile. We believe plastic segment earnings will continue to decline through the end of 2027, such that 2028 is our first full year of earnings within our $45 million to $50 million range. This assumption is based on the average sales price of our PVC pipe continuing to decline at a rate similar to what we experienced towards the end of 2025, higher sales volumes due to our expanded production capacity and cost changes generally in line with the rate of inflation.

For 2026, we expect our average sales price of PVC to be approximately 20% lower than the 2025 average. Due to seasonality and other factors, the rate of margin compression could vary from period to period. Additionally, it continues to be difficult to predict with certainty, long-term plastic segment earnings. The timing or level of earnings could vary materially from this projection. However, our Plastics segment is an important component to our overall strategy with the enhanced returns, cash flow and earnings it generates. Even as earnings continue to recede, we expect the segment to produce an accretive return and incremental cash to help fund our electric utilities rate base growth plan.

Slide 27 summarizes our investment targets. Underpinned by the significant growth in our Electric segment, we continue to target a long-term earnings per share growth rate of 7% to 9%, resulting in a targeted total shareholder return of 10% to 12%. We anticipate delivering on those targets once plastic segment earnings normalize in 2028. As we continue to execute on our customer-focused growth plan, we are well positioned to deliver on our investment targets over the long term. [indiscernible] Power continues to be a high-performing and electric utility converting its rate base growth and earnings per share growth at near a 1:1 ratio.

Our manufacturing and plastic pipe businesses consistently produce accretive returns and incremental cash. enabling us to fund our rate base growth plan without any external equity needs through at least 2030. It is this intentional strategic diversification that has and will continue to provide benefits to our customers and investors over the long term. We look forward to what the future holds and are grateful for your interest and investment in Otter Tail Corporation. We are now ready to take your questions.

[Operator Instructions] There are currently no questions in the queue, but we will wait a brief moment in case anyone is experiencing technical difficulties. As there are still no questions in the queue. I will turn the call back to Chuck for his closing remarks.

Thank you for joining our call and your interest in Otter Tail Corporation. If you have any questions, please reach out to our Investor Relations team. We look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good morning, and welcome to Otter Tail Corporation's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I will now turn this call over to the company for their opening comments.

Good morning, and welcome to our third quarter 2025 earnings conference call. My name is Beth Eiken, and I'm Otter Tail Corporation's Manager of Investor Relations.

Last night, we announced our third quarter financial results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording of this call will be available on our website later today.

With me on the call are Chuck MacFarlane, Otter Tail Corporation's President and CEO; and Todd Wahlund, Otter Tail Corporation's Vice President and CFO.

Before we begin, I want to remind you that we will be making forward-looking statements during the course of this call. As noted on Slide 2, these statements represent our current views and expectations of future events. They are subject to risks and uncertainties, which may cause actual results to differ from those presented here. So please be advised against 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.

I will now turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck MacFarlane.

Thank you, Beth. Good morning, and welcome to our third quarter earnings call. Please refer to Slide 4 as I begin my remarks with a summary of quarterly highlights. We are pleased with our Q3 financial results as they outpaced our expectations. Our team members continue to execute well on our growth plan despite dynamic market conditions. Otter Tail Power continues to deliver on its regulatory priorities. Our South Dakota rate case previously filed in June of this year, continues to progress; and in late October, we filed a rate case with the Minnesota Public Utilities Commission.

The second phase of Vinyltech's expansion project is progressing well. We continue to target early next year for adding another 26 million pounds of capacity. Once complete, we will have increased our Plastics segment total production capacity by 15% through our multiyear investment plan.

We are also introducing our updated 5-year capital spending plan today. Otter Tail Power's new capital investment plan totals $1.9 billion and is expected to produce a rate base compounded annual growth rate of 10%. With our updated capital investment plan, we are increasing our targeted long-term earnings per share growth rate to 9% to 7% from 6% to 8% of a 2028 base year. This results in a targeted total shareholder return of 10% to 12%.

Slide 5 provides a summary of our quarter-to-date and year-to-date earnings. We generated $1.86 of diluted earnings per share in the third quarter, a decrease of 8% from the same time last year. This expected decline in earnings was driven by the continued decline in Plastics segment sales prices and earnings. Despite the year-over-year decrease, our results outpaced our expectations.

We are increasing the midpoint of our 2025 earnings guidance to $6.47 from $6.26 per share. The increase in guidance is primarily due to better-than-expected Plastics segment financial results in Q3 and our revised expectations for the remainder of the year. In a moment, Todd will provide a more detailed discussion of our quarterly financial results and our updated 2025 outlook.

Transitioning now to an operational update for Otter Tail Power. As noted on Slide 7, we filed a request with the Minnesota Public Utilities Commission for a net revenue increase of $44.8 million. This is based on a requested ROE of 10.65% and an equity layer of 53.5%. The increase is driven by investments in infrastructure and grid resilience, the impact of inflation since our last rate case filed 5 years ago and accelerated recovery of the Minnesota portion of Coyote Station.

We requested accelerated recovery of Coyote Station as the Minnesota Public Utilities Commission directed us to no longer serve our Minnesota customers with power from Coyote beyond 2031, as part of our integrated resource plan. Even with the proposed increase, Otter Tail Power is expected to continue to have some of the lowest electric rates in the region and country.

Affordability remains a priority for us, and we are committed to selecting cost-effective investments to serve our customers with reliable energy while prudently managing our operating costs. Our updated 5-year capital spending plan is expected to have limited impact on our customer rates due to lower fuel costs associated with renewable generation as well as the favorable impact of renewable tax credits.

Additionally, a significant portion of our capital spending plan relates to regional transmission projects. The cost of these projects will be allocated to either new generation interconnection customers or across the entire MISO footprint, of which our customers comprise only a small portion. We continue to partner with our customers to identify ways to save, whether through energy efficiency programs or innovative pricing solutions.

Turning to Slide 8. Our South Dakota rate case is progressing. The procedural schedule has been established, and we expect a decision in the first half of 2026 unless a settlement is reached in advance of that date. Interim rates, which amount to $5.7 million on an annual basis, will commence on December 1, 2025.

Turning to Slide 9, Otter Tail Power updated its 5-year rate base CAGR to 10%. We continue to expect Otter Tail Power to convert its rate base growth into earnings per share growth near a 1:1 ratio over the long term. This is made possible by identifying high-quality customer-focused projects, effective project execution, efficient financing and reducing regulatory lag.

We currently expect approximately 90% of our updated 5-year capital spending plan to be recovered through existing rates or riders allowing for timely recovery of our capital investments.

Slide 10 and 11 provide an overview of ongoing future capital projects. Our Wind Repowering project is nearly complete. We finished upgrading the wind towers at our La Laverne Wind Energy Center in Q3 and expect to complete the remaining 2 repower sites later this year. Once finished, we expect the increased energy production from these facilities to total approximately 40 megawatts of new generation, which equates to over a 20% output increase.

Our 2 solar development projects also continue to progress. During the quarter, we transitioned Solway Solar from a project development to start of construction and look forward to adding additional cost-effective solar generation to our portfolio.

Development work continues on our MISO Tranche 1 and 2.1 portfolio projects as well as our JT IQ project. We are working through landowner and local government resistance associated with citing and certain permits for 1 of the Tranche 1 projects. Additionally, in July, a complaint was filed at FERC against MISO's Tranche 2.1 projects, citing a concern with benefit calculations. North Dakota and one of the jurisdictions in which we operate joined the complaint. We are closely monitoring developments around the FERC complaint docket and at this time, continue to expect these projects to move forward due to their reliability-related benefits, but some delays are possible.

Turning to Slide 12. Otter Tail Power remains well positioned to attract and support large load. Our team continues to engage with companies looking to add new large loads to our system. In the coming weeks, we look forward to bringing online the 155-megawatt load secured earlier this year. The 155-megawatt load is comprised of 3 megawatts of firm load and approximately 152 megawatts of nonfirm loan. We expect this load to positively contribute to earnings starting next year.

We have and will continue to be thoughtful in our negotiations to ensure we are appropriately mitigating potential adverse implications of adding new large loads to our existing customer base. Adding new loads, if appropriately managed, would not only benefit us, but also our current customers as it enables us to spread out existing fixed costs.

In what is a challenging economic environment for many, affordability has become increasingly important. As shown on Slide 13, Otter Tail Power's electric rates have remained well below the national and regional average for many years, and we expect Otter Tail power rates to remain among the lowest in the nation. However, we know that our customers still feel the impact of rate increases.

We're deeply focused on identifying cost-effective investment projects and are committed to prudently managing costs. We aim to partner with our customers to continue to identify ways for them to save.

Transitioning to our manufacturing platform. Slide 15 provides an overview of industry conditions impacting our Manufacturing segment. BTD continues to face end market demand related headwinds. Sales volumes remain below historic levels after sharply declining in the third quarter of last year.

The lawn and garden and agricultural end markets continue to be most heavily impacted. Recreational vehicle and construction have shown signs of improvement and the industrial end market remains strong as our products are ultimately used to support the growing data center energy demand.

While the down cycle impacting BTD's volume continues, we saw some month-over-month stabilization in volumes during the third quarter. This could indicate reaching the bottom of the business cycle. At this time, we expect our current low demand environment to continue through most of 2026 and we'll give a fulsome update regarding 2026 expectations during our Q4 call.

We have seen some improvement at T.O. Plastics horticulture end market, but low-cost import competition remains a challenge for our team. We continue to monitor the tariff environment to determine what impact, if any, it will have. However, in the meantime, we remain focused on aligning costs with current demand across our Manufacturing segment.

I want to take a moment to recognize and thank our Manufacturing team members for their commitment and efforts during challenging market conditions.

Slide 16 provides an overview of our Plastics segment's pricing and volume trends. Our sales prices of PVC pipe continue to steadily decline, decreasing 17% from the same time last year. Sales volumes increased 4% due in part to capacity added to Vinyltech late last year. We also continue to benefit from lower material input costs, including resin.

The cost of PVC resin has decreased from the same time last year due to global supply and demand dynamics resulting in elevated domestic supply.

Turning to Slide 17. Our manufacturing platform remains well positioned for future growth opportunities. Our BTD Georgia facility is ready to support our customers in the Southeast once market conditions improve. Phase 2 of our Vinyltech expansion is progressing well. Once complete, we will have increased our total production capacity for the Plastics segment by approximately 50 million pounds over the past 2 years.

I'll now turn it over to Todd to provide his financial update.

Thank you, Chuck, and good morning, everyone. Turning to Slide 19. Our quarterly financial results exceeded expectations. We generated $1.86 of diluted earnings per share compared to $2.03 during the same time last year.

Please follow along on Slides 20 and 21 as I provide an overview of quarterly financial segment results by segment.

Electric segment earnings decreased $0.03 per share in the third quarter. The decrease in earnings was primarily driven by unfavorable weather and the impact of seasonal rate differences between interim and final rates in North Dakota. This timing effect does not impact our revenue on an annual basis. These drivers were partially offset by higher quarterly sales volumes, excluding the impact of weather, as well as lower operating and maintenance expenses.

Manufacturing segment earnings increased $0.04 per share. The increase in earnings was primarily driven by a lower cost structure following our efforts over the last year to align the costs in our business with the current demand environment. We also benefited from enhanced production efficiencies with a smaller but more skilled workforce. The timing of pass-through steel cost fluctuations and the selling of lower cost inventory also contributed to improved profit margins. These drivers were partially offset by the impact of lower sales volumes and higher SG&A expense.

Turning to Slide 21. Plastics segment earnings decreased $0.26 per share compared to the same time last year. Plastics segment earnings exceeded our expectation for the third quarter, even as we continue to progress towards a more normalized earnings level. The decrease in earnings was driven by lower average sales prices, partially offset by lower input material costs and higher sales volumes.

The average sales price of PVC pipe declined 17% compared to the third quarter of 2024. This continues the downward trend experienced in the sales prices of our PVC pipe since it reached its peak in mid-2022.

Partially offsetting the decline in pricing are lower material input costs, which decreased 16% from the same time last year. Our Plastics segment earnings also benefited from a 4% increase in sales volumes, largely driven by the incremental volume from the capacity added at Vinyltech.

Finally, our corporate costs improved $0.08 per share in the third quarter from the same time last year. This improvement was driven by an increase in income tax benefits, lower workers' compensation expenses and lower employee health insurance claims.

Turning to Slide 22. Our balance sheet remains very strong, and we are positioned well to fund the utilities updated customer-focused growth plan without the need for external equity through at least 2030. We have $325 million of cash on hand and continue to produce a utility sector leading return on equity of 16% on an equity layer of nearly 64%.

On Slide 23, we are increasing and narrowing our 2025 diluted earnings per share guidance to a range of $6.32 to $6.62. We are increasing our 2025 earnings guidance primarily due to a better-than-expected Plastics segment financial results in the third quarter as well as our revised margin expectations for the remainder of the year.

We are increasing our margin expectations as we expect raw material costs to be lower than previously projected for the remainder of the year. We are also increasing the midpoint of our Electric segment earnings guidance and narrowed the range. Our updated guidance is primarily based on better-than-expected financial results in the third quarter of 2025, which was largely driven by higher-than-anticipated sales volumes.

We are maintaining the midpoint of our 2025 earnings guidance for our Manufacturing segment, but are narrowing the range. We are also narrowing the guidance range for our corporate cost center. With the increase to our 2025 earnings guidance, we are forecasting our consolidated 5-year compounded annual growth rate to be approximately 23%.

As shown on Slide 24, we have a proven track record of delivering outstanding earnings per share growth with and without the impact of Plastics segment earnings. Our updated capital investment plan for 2026 through 2023 is included on Slide 25. Our Electric segment's revised 5-year capital spending plan increased by approximately 35% and now totals $1.9 billion.

The increase is primarily driven by moving into the construction phase of our previously discussed regional transmission projects. It is important to highlight that our updated capital plan does not include any investment to serve new large loads. Additionally, we project approximately $350 million of potential incremental utility capital investments to our base plan.

The incremental opportunity includes the wind generation and battery storage projects previously approved in our Minnesota integrated resource plan as well as delivery-related investments for any new large loads added to our system. We estimate that for every $100 million of incremental capital investment, our rate base compound annual growth rate would increase by approximately 65 basis points.

Slide 26 summarizes our updated 5-year financing plan. Even with our updated utility capital spending plan, we expect to finance our growth without any equity issuances. We plan to issue debt at Otter Tail Power on an annual basis to help fund the investment plan and maintain the authorized capital structure. We have $80 million in parent level debt that matures in late 2026 and expect to retire this debt. We will have no outstanding parent level debt upon retirement.

As included on Slide 27, our long-term expectations of normalized Plastics segment earnings remains unchanged. We believe plastic segment earnings will continue to decline through the end of 2027 such that 2028 is our first full year of normalized earnings. This assumption is based on the average sales price of our PVC pipe falling at a rate similar to what we have experienced since late 2022, increased sales volumes due to our expansion projects at Vinyltech and cost changes generally in line with the rate of inflation.

Due to seasonality and other factors, the rate of margin compression could vary from period to period. Additionally, it continues to be difficult to predict with certainty long-term Plastics segment earnings and the timing or level of earnings could vary materially from this projection. However, the Plastics segment remains an important component to our overall strategy due to the enhanced returns and earnings it generates.

Even as earnings normalize over the coming years, we expect the segment to produce an accretive return and incremental cash to help fund our electric utilities rate base growth plan.

Slide 28 summarizes our uplifted investment targets. We increased our long-term earnings per share growth rate to 7% to 9% and also increased our targeted total shareholder return to 10% to 12%. We anticipate delivering on these targets once Plastics segment earnings normalize in 2028.

Our long-term earnings mix target has also been updated. We now expect 70% of our earnings to be driven by our Electric platform and 30% from our Manufacturing platform. We anticipate reaching this earnings mix in 2028, as Electric segment earnings continue to grow in line with its rate base growth rate of 10%.

Plastics segment earnings have normalized, and the Manufacturing segment has rebounded from the current down cycle. As we continue to execute on our customer-focused growth plan, we are well positioned to deliver on our revised investment targets over the long term.

Otter Tail Power continues to be a high-performing electric utility, converting its rate base growth and earnings per share growth at an approximate 1:1 ratio. Our manufacturing and plastic pipe businesses consistently produce accretive returns and incremental cash, which will be used to help fund our rate base growth plan without any equity needs.

It is this combination of companies and performance that has and we project continuing to provide excellent benefits for our customers and our investors. We look forward to what the future holds and are grateful for your interest and investment in Otter Tail Corporation. We are now ready to take your questions.

[Operator Instructions] Our first call comes from Michael Pelletier from KeyBanc Capital Markets.

Congrats on the updates this morning.

Thanks, Michael.

Good morning, Michael.

Just curious on the updated EPS long-term growth rate there, just on the shaping of it and kind of expect that to grow linearly or any movement on a year-to-year basis?

Yes. Over the long term, we do expect our utility earnings to grow in line with our rate base. There will be year-to-year fluctuations depending upon timing of recovery. But over the long term, we do expect our earnings for the utility to be in line with the rate base growth plan, and we do provide the rate base projections by year.

And certainly, as we're going through the manufacturing and on the plastic side, we're seeing that normalize and on then the Manufacturing segment, we're in a down cycle right now. So we will have some fluctuations year-to-year, but beyond 2028 when we reach that normal level of Plastics earnings and are through the Manufacturing down cycle, we expect to achieve the 7% to 9% long term.

And then just a quick modeling question, but what are you currently assuming for your 2025 tax rate? And how are you tracking towards that? And has there been any change in your assumption since your initial guidance this year?

Just to make sure I understood that, Michael, our tax rate, is that what you're asking about?

Yes.

I don't know that I have that specific information in front of me.

Okay. And then just on the antitrust case, and just curious if you could provide any update there? And then how does the Department of Justice is involvement the proceedings or time line?

Michael, this is Chuck. During the quarter, the -- there were amended complaints filed in the class action lawsuits in the U.S. in, as you mentioned, in October, the DOJ intervened to stay the discovery in the civil litigation, which is not uncommon when there's a parallel investigation going on.

There is also a class action complaint filed in British Columbia, Canada, with similar allegations to the civil complaint in the United States. And then finally, last week, defendants filed a motion to dismiss in the civil litigation case. We argue that the complaint should be dismissed in their entirety. There's no deadline for the court to make a decision, but we anticipate that in calendar year '26.

Got it. Look forward to seeing you in Florida in a few days.

Thank you.

Our next call comes from Tim Winter of Gabelli Funds.

Congrats on the quarter. I know you guys talked a little bit about the 64% equity ratio and the $8 of cash on the balance sheet with some near-term need to take out that $80 million in debt. But I was just wondering if you could talk a little more how you're thinking about using that cash long term? I know you have plenty to use utility over the long term, but

[Audio Gap]

[Audio Gap] limited interconnection costs, primarily distribution at that point. So it's a customer that will use low-cost energy in a storage function and we don't see a large capacity need or a large investment need right at this point, so it's not driving significant earnings in the 2026 time frame, but it is reducing fixed costs across a big amount with that type of role.

Okay. All right. And we'll see you in sunny Florida.

Thanks, Tim. Good to talk to you.

As there are no remaining questions in the queue, I will turn the call back over to Chuck for his closing remarks.

Thank you for joining our call and your interest in Otter Tail Corporation. If you have any questions, please reach out to our Investor Relations team, and we look forward to speaking with you next quarter.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.