Otter Tail Corporation · NASDAQ:OTTR
Otter Tail — Q1 2022 Earnings Presentation
34 slides from Otter Tail's earnings presentation, May 3, 2022
Slide 1: Q1 2022 Earnings Conference Call
Q1 2022 EARNINGS CONFERENCE CALL May 3, 2022
Slide 2: Forward-Looking Statement
FORWARD-LOOKING STATEMENT Except for historical information contained here, the statements in this presentation are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “could,” “estimate,” “expect
Slide 3: Company Overview
COMPANY OVERVIEW MANUFACTURING PLATFORM ELECTRIC PLATFORM MANUFACTURING SEGMENT PLASTICS SEGMENT Expected 2022 Earnings Mix 2022 earnings mix is driven by stronger than expected market conditions in Plastic Segment Electric Platform Manufacturing Platform • Competitive low-cost operations • Long-ter
Slide 4: Q1 2022 Financial Summary and Highlights
Q1 2022 FINANCIAL SUMMARY AND HIGHLIGHTS • 2022 diluted earnings per share of $1.72, up 136% from 2021 • Increased the 2022 diluted earnings per share guidance range to $5.15-$5.45 which reflects a 22%-29% increase from the Q1 2022 Q1 2021 2021 reported annual diluted earnings per share of $4.23. •
Slide 5: Cleaner Energy Future
CLEANER ENERGY FUTURE OTP Energy Resource Mix Otter Tail Power Company CO2 Trend (Owned Resources) 2005 - 2025 Coal Renewable Purchased Gas/Oil 6.0 CO2 Emissions (million 4.3 3.9 1% 4% 4% 4.0 3.7 short tons) 2.9 23% 2.6 37% 32% 30% 2.1 9% 2.0 28% 33% 45% 68% 34% 31% 0.0 21% 2005 2009 2013 2017 2021
Slide 6: ESG Highlights
ESG HIGHLIGHTS By 2025, We are Targeting: 50% 50% Our owned and contracted Our carbon emissions from energy generation will be owned generation more than 50% renewable resources will be 50% below (Does not include MISO 2005 levels. market purchases). Carbon emission reductions targeted to be 97% bel
Slide 7: ESG Highlights
ESG HIGHLIGHTS Safety - Safety is one of our core values. We focus on the safety of our employees and have implemented safety programs and management practices to promote a culture of safety. Safety is also a metric used and evaluated in determining annual incentive compensation. Human Capital We ar
Slide 8: Electric Platform
ELECTRIC PLATFORM OrEnian POWER COMPANY
Slide 9: Electric Operations
ELECTRIC OPERATIONS Operating Revenue (in millions) $600.0 $480.3 $487.0 $446.1 $400.0 Highlights • Rate base growth opportunities: $200.0 • Renewable generation - Hoot Lake Solar and Ashtabula Wind III purchase $— • Technology & infrastructure - Advanced Metering 2020 2021 03/31/22 LTM Infrastructu
Slide 10: Hoot Lake Solar
HOOT LAKE SOLAR Project Hoot Lake Solar Description 49-MW self-build solar Schedule 2020-2023 Otter Tail Power Cost ~ $60 million Project Summary • Qualifies for investment tax credit of 26%; safe harbor equipment secured. • Eligible to meet utility scale portion of MN Solar Energy Standard (1.5% of
Slide 11: Ashtabula Wind III Purchase
ASHTABULA WIND III PURCHASE Project Ashtabula Wind III Description 62.4-MW wind farm Schedule Expected closing in early 2023 Otter Tail Power Cost ~ $50 million Project Summary • Purchase power agreement (PPA) with NextEra Energy began in 2013 • Purchasing operational assets of AWIII LLC • Due dilig
Slide 12: MN Integrated Resource Plan/ND Regional Haze Plan
MN INTEGRATED RESOURCE PLAN/ND REGIONAL HAZE PLAN Project Summary • Filed September 2021, jointly in MN, ND, & SD • Required filing in Minnesota. North Dakota recently passed legislation requiring an IRP filing, but specific rulemaking is not complete. • Preferred 5-year plan, requested authority to
Slide 13: Minnesota Rate Case
Minnesota Rate Case • Previous Minnesota rate case filed in 2016. • Incorporating approved lower depreciation rates and pension expense, amended rate case request on April 30, 2021, to net increase of $8.2 million or 3.83% in rebuttal testimony. • Interim rates were implemented in January 2021. • Co
Slide 14: 2022 Key Regulatory Matters
2022 KEY REGULATORY MATTERS Estimated Regulatory Matter MN ND SD Date Minnesota Electric Utility Infrastructure Costs (EUIC) Approval for AMI Filing X Q2 2022 Minnesota Depreciation Order X Q2 2022 Q2 2022/ Rate Adjustment Filing to Address Large ND Customer Addition X Q3 2022 Q2 2022/ Minnesota Rat
Slide 15: Rate Base Growth
RATE BASE GROWTH Rate Base $978M of Capital Spending from 2022 to 2026 Renewables & Natural Gas, 46% in billions $2.10 $1.98 $1.86 $1.75 $1.63 2022-2026 $1.58 Other, 15% Total 5 .9% R of 26 CAG 1 - 20 Transformative 202 Technology & Infrastructure, 8% Transmission (incl. replacement), 13% Distributi
Slide 16: Regulatory Framework
REGULATORY FRAMEWORK Minnesota North Dakota South Dakota Renewable Riders Rider recovery / Rate case Rider recovery / Rate case Phase-in rider / Rate case Tranmission Riders Rider recovery / Rate case Rider recovery / Rate case Rider recovery / Rate case A constructive regulatory environment In stat
Slide 17: Rate Base Projects
RATE BASE PROJECTS Our Investment Project (millions) In Service % Complete Recovery Mechanisms Hoot Lake Solar ~ $60 2022 - 2023 ~ 15% Rider/General Rate Case - MN Advanced Metering Infrastructure and Grid Rider/General Rate Case - MN ~ $145 2019 - 2024 ~ 10% Modernization (Innovation 2030) General
Slide 18: Electric Rates
Electric Rates Average Summer Residential Rate per KWH Otter Tail Power has maintained rates 15.0 13.1 13.2 13.2 13.5 lower than the national average in 13.0 13.1 recent years while major projects 12.5 have been constructed and put in Cents per KWH service. 10.0 10.5 10.0 10.2 9.8 9.5 9.7 Continuous
Slide 19: Manufacturing Platform
MANUFACTURING PLATFORM BTD TO. PLASTICS p northern pipe products VINYLTECH Vil EV Gerlee 19
Slide 20: Manufacturing Operations
MANUFACTURING OPERATIONS Operating Revenue (in millions) • Contract metal fabrication – stamping, machining, tube bending, tool & die, laser cutting, welding, painting, assembly. A one stop shop for customer needs. $400 $365.4 • Growth opportunities with existing customer base and expansion with new
Slide 21: Manufacturing Sales by End Markets
MANUFACTURING SALES BY END MARKETS Agriculture, 13% Energy, 3% 2020 Agriculture, 15% Energy, 1% 2021 Rec. Vehicle, 34% Rec. Vehicle, 41% Lawn & Garden, 16% Lawn & Garden, 20% Construction, 14% Industrial, 12% Industrial, 13% Construction, 18% 2020 2021 Other, 1% Other, 1% Industrial, 4% Industrial,
Slide 22: Plastics Operations
PLASTICS OPERATIONS Operating Revenue (in millions) $600 • Manufactures and sells PVC (polyvinyl chloride) pipe to distributors. Pipe is used in municipal water, rural water, $457.6 wastewater, and storm drainage systems. $400 $380.2 • Plants located Fargo ND & Phoenix AZ. • Approximate production c
Slide 23: Historical Resin, Pipe Price and Spreads
HISTORICAL RESIN, PIPE PRICE AND SPREADS Continued strong domestic demand and increased export market demand drive further margin expansion. Resin shortages, driven by Hurricane Ida, COVID and a polar vortex, drives margins to record levels. Hurricane Harvey, followed by a series of resin disruption
Slide 24: Financial Update
FINANCIAL UPDATE 24
Slide 25: Financial Overview
FINANCIAL OVERVIEW Operating Revenues Operating Income Net Income in millions in millions in millions $1,500 $350 $250 2021 and 2022 earnings mix are $1,310.0 $303.8 impacted by strong Plastic $218.4 $300 segment performance. $1,250 $1,196.8 $200 $249.7 $176.8 $250 $1,000 $890.1 $823.0 $195.6 $150 $
Slide 26: Diluted EPS: Q1 2021 vs Q1 2022
DILUTED EPS: Q1 2021 vs Q1 2022 Electric Manufacturing Plastics Corporate Total Q1 2021 DILUTED EARNINGS PER SHARE $ 0.42 $ 0.13 $ 0.22 $ (0.04) $ 0.73 Impact of favorable weather 0.08 — — — 0.08 Increased fuel recovery from reduced wholesale credits 0.03 — — — 0.03 Electric Increase in O&M expense
Slide 27: Liquidity, Cap Structure & Credit Ratings
LIQUIDITY, CAP STRUCTURE & CREDIT RATINGS ROE is TTM at 3/31/22 Liquidity: Line of Credit Availability Consolidated Capital Structure & ROE Otter Tail Corporation Otter Tail Power Company 120% 22.8% 24% Borrowing Capacity of $170M in millions 90% 19.2% 20% Equity / Debt Percentage 45.1% Return on Eq
Slide 28: 2022 Earnings Guidance
2022 EARNINGS GUIDANCE 2022 Guidance 2022 Guidance Actual February 14, 2022 May 2, 2022 Diluted EPS 2020 2021 Low High Low High Electric $ 1.63 $ 1.73 $ 1.81 $ 1.85 $ 1.81 $ 1.85 Manufacturing 0.27 0.41 0.42 0.46 0.42 0.46 Plastics 0.67 2.34 1.81 2.00 3.26 3.45 Corporate (0.23) (0.25) (0.26) (0.23)
Slide 29: Five Year Financing Plan
FIVE YEAR FINANCING PLAN Long-Term Financing 2021 2022-2026 in millions (Actual) (Planned) LONG-TERM DEBT Otter Tail Power Issuances $ 140.0 $ 380.0 Retirements — (30.0) Otter Tail Corporation (Parent) Issuances $ — $ 80.0 Retirements (0.2) (80.0) Net Debt Increase $ 139.8 $ 350.0 EQUITY - No materi
Slide 30: Bond Maturity Schedule
BOND MATURITY SCHEDULE $150 in millions Balanced and manageable maturity schedule 7.00% 6.47% Weighted average interest 6.37% 6.15% rate of 4.29% $125 6.00% 5.47% $100 5.00% Debt Maturity Interest Rate 4.45% $75 4.07% 3.92% 3.82% 3.77% 4.00% 3.62% 3.69% 3.55% 3.52% $50 3.22% 2.74% 3.00% $25 $0 // //
Slide 31: Capital Expenditures
CAPITAL EXPENDITURES Total in millions 2021 2022 2023 2024 2025 2026 2022-2026 Electric Segment Renewables & Natural Gas Generation $ 30 $ 80 $ 92 $ 92 $ 160 $ 454 Technology & Infrastructure 26 30 18 — — 74 Distribution Plant Replacements 37 35 35 35 33 175 Transmission (incl. replacements) 26 28 2
Slide 32: History of Dividend Growth
HISTORY OF DIVIDEND GROWTH Our Dividend Story Dividend Growth & Payout Ratio CAGR = 5.2% • Paid annual dividend without interruption $1.65 since 1938 $1.56 $1.48 $1.40 $1.34 $1.28 • 5.8% increase, or $0.09/share, indicated for $1.21 $1.23 $1.25 2022 • Strong balance sheet, ample liquidity, history 7
Slide 33: OTTR Investment Theme
OTTR INVESTMENT THEME Total Shareholder Return1 8-10% Long-Term EPS Growth Rate (2020 Base Year) 5-7% Dividend Yield ~ 3% Long-Term Targeted Dividend Payout Ratio 60-70% Dividend Growth Rate 5-7% 1 Defined as EPS growth rate plus dividend yield Balanced Growth & Income Strategy Stable & Growth Utili
Slide 34: www.ottertail.com
S OTIERTAIL W CORPORATION www.ottertail.com