MDU Resources Group, Inc. (MDU) Earnings Call Transcript & Summary

Good morning. My name is Dave Goodin. I'm President and Chief Executive Officer of MDU Resources Group. Before officially opening this annual stockholder meeting of MDU Resources Group, I would like to extend a warm welcome to each and every one of you. Because of concern for health and all of our shareholders, particularly our faithful retirees as well as our directors, officers and other attendees that typically attend this meeting, we are having this meeting done via webcast this year to provide additional access for anyone and everyone that can possibly attend. I am so pleased that so many of you have decided to attend this method this year. Now I'd like to introduce the company representatives that will be joining me here today. They are Dennis Johnson, Karl Liepitz and Jason Vollmer. Dennis is the Chair of our Board. Karl is our General Counsel and Corporate Secretary. And Jason is our Vice President and Chief Financial Officer. In addition to our Chair, Dennis Johnson, who will conduct the meeting, we are pleased to have other members of our Board participating via the same webcast. They are Thomas Everist, Karen B. Fagg, Mark A. Hellerstein, Patricia L. Moss, Edward A. Ryan, David M. Sparby, Chenxi Wang and John K. Wilson. Director Nominee, Dale S. Rosenthal, is also participating via the webcast. Biographies and other information on our directors and director nominee currently up for election were included in this year's proxy statement. Mr. Hellerstein and Mr. Wilson are not standing for reelection this year, and we sincerely thank both of these directors for their service over these past years. We also have the presidents from each of our business units participating through the same webcast. I would like to recognize them, particularly the leadership they provide to each of our operating business units. Representing Knife River Corporation is Dave Barney, President and CEO at Knife River Materials. Representing our utility group, which includes Montana-Dakota Utilities, Great Plains Natural Gas, Cascade Natural Gas and Intermountain Natural Gas Company (sic) [ Intermountain Gas Company ], is President and CEO, Nicole Kivisto. Representing Construction Services Group is President and CEO, Jeff Thiede. And finally, representing WBI Energy is President and CEO, Trevor Hastings. We also have Jason Flynn and Patrick Larson, who are representatives of our independent registered public accounting firm, Deloitte & Touche LLP. They are participating through this webcast. Both Mr. Flynn and Mr. Larson may make prepared statement during the meeting if they choose to do so and will also be available to respond to any appropriate questions. Now I'd like to turn this over to our Chair, Dennis Johnson. Dennis?

Thank you, Dave, and good morning. I now call the meeting to order and request that Karl will act as the secretary of the meeting. MDU Resources bylaws provide that the annual meeting of stockholders is to be held on the fourth Tuesday of April each year at 11:00 a.m. or at such other date and time as shall be designated from time to time by the Board of Directors. At its meeting on May 13, 2020, the Board of Directors designated today, May 11 as the date for the 2021 annual meeting. Under the bylaws, the holders of a majority of the stock issued, outstanding and entitled to vote constitute a quorum for the annual meeting. Each stockholder is entitled to 1 vote for each share of common stock owned. You may vote each common share you own on each matter presented at the meeting. I am advised the number of shares of common stock outstanding at the close of business on the record day, March 12, 2021, is 201,194,537. The number of common shares represented by proxy is 177,046,192, and the percentage of all shares outstanding, which is represented at this meeting by proxy is 87.99%. As the holders of more than a majority of the shares of stock outstanding and entitled to vote at the meeting of present in person or by proxy, I declare that a quorum is present. In accordance with Delaware law and the bylaws of MDU Resources, a list of stockholders entitled to vote at this meeting has been prepared. That list has been available for 10 days before this meeting. It will be kept in this meeting room during our entire meeting and any stockholder may examine the list. We have also received an affidavit of distribution from Broadridge Financial Solutions that the notice of the annual meeting was sent by mail or by notice of Internet availability of proxy materials to each stockholder of record between March 26 and April 9, 2021. This year, we have 3 matters before the stockholders requiring a vote. First, you decide to whom you will entrust the governance of your company by electing directors. All directors elected at this 2021 annual meeting of stockholders will serve 1-year terms. This year, there are 9 nominees. At this meeting, you will also vote on an advisory vote to approve the compensation paid to the company's named executive officers and to ratify the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2021. An explanation of each item to be voted upon was included in the proxy statement. The company's bylaws provide that for a stockholder to bring nominations or business before the annual meeting of stockholders, written notice must have been delivered to the secretary not less than 90 days prior to the first anniversary of the preceding year's annual meeting. To be considered, any nomination or proposal should have been submitted by February 11, 2021. In addition, for a stockholder proposal to be included in our proxy statement under the SEC's proxy rules, it must have been received not less than 120 days prior to the first anniversary of the mailing date of the proxy statement for the preceding year's annual meeting. No stockholder nominations or proposals were received. Therefore, no additional nominations or proposals will be considered at this meeting. The first order of business is the election of candidates for the Board of Directors. The Board of Directors has nominated 9 candidates for election to the Board of Directors for a 1-year term as listed in the proxy statement. They are Thomas Everist, Karen B. Fagg, David L. Goodin, Dennis W. Johnson, Patricia L. Moss, Dale S. Rosenthal, Edward A. Ryan and David M. Sparby and Chenxi Wang. I hereby declare that the nominations are closed and item #1 as set forth in the proxy statement is properly before the stockholders for a vote. The second order of business is an advisory vote to approve the compensation paid to the company's named executive officers as disclosed in the proxy statement. The Compensation Committee and Board of Directors believe that the company's current executive compensation program directly links compensation of our named executive officers to the company's financial performance and aligns the interests of the named executive officers with those of our stockholders. The Compensation Committee and Board of Directors also believe the executive compensation program provides the named executive officers with a balanced compensation package that includes an appropriate base salary along with competitive annual and long-term incentive compensation targets. These incentive programs are designed to reward the named executive officers on both an annual and long-term basis if they attain specified goals. As this is an advisory vote, the results will not be binding on the company, the Board of Directors or the Compensation Committee and will not require any action. The final decision on the compensation of the named executive officers remains with the Compensation Committee and the Board of Directors, although the Board and Compensation Committee will consider the outcome of this vote when making future compensation decisions. The Board of Directors recommends a vote for the approval, on a nonbinding advisory basis, of the compensation of the company's named executive officers as disclosed in the proxy statement. I declare that item number two, as set forth in the proxy statement, is properly before the stockholders for a vote. The third order of business is to ratify the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2021, our independent auditors. The Audit Committee, at its February 2021 meeting, appointed Deloitte & Touche LLP as the company's independent auditors for fiscal year 2021. Deloitte & Touche LLP has served as the company's independent auditors since 2002. Although the stockholders' ratification vote will not affect the current year's appointment or retention, the Audit Committee will consider the stockholders' vote in determining its appointment of the company's independent auditors for the next fiscal year. As discussed in the proxy statement, the Board of Directors recommends a vote for this proposal. I declare that item number three, as set forth in the proxy statement, is properly before the stockholders for a vote. The polls are now open. If you are a stockholder of record, meaning the stock appears in your name on our records and you submitted a proxy, there is no need for you to vote by ballot here today. Any person present who has previously submitted a proxy for use at this meeting may revoke it by submitting a written instrument of revocation to Karl or by advising Karl now that stockholder wishes to revoke the proxy. After revocation of the proxy, the stockholder may then vote the shares in person. Any person present who has not previously submitted a letter, telephone or Internet proxy also may vote by ballot at this time. If you hold your stock in the name of your bank or broker, commonly called street name, you must have a legal proxy from your bank or broker, which identifies you, states the number of shares you owned as of the record date and gives you the right to vote those shares at this time. This legal proxy is necessary because without it, we cannot identify you as a beneficial owner of the shares or know how many shares you have to vote. Ballots have been prepared for those stockholders wishing to vote in person, and we will distribute them upon request. If you desire a ballot, please raise your hand, and Karl will see that you're provided one. In accordance with Delaware law, the Board of Directors at its meeting on February 11, 2021, appointed Jason L. Vollmer of the company and Kristine Sundberg of the Carideo Group Inc as the inspectors of elections. Briefly, their duties include asserting the number of shares outstanding and the voting power of each, determining the shares represented at the meeting and the validity of proxies and ballots, counting all votes and ballots, certifying the number of shares represented in the count of all votes and ballots and certain record-keeping duties. The polls are now closed. And while we are waiting for election results, Dave will comment on our operations. Mr. Goodin?

Thank you, Dennis, and it gives me great pleasure to talk about our company's operations, not only over the last year but also through the first quarter of the year in 2021. Very good. We'll start with our forward-looking statements. Certainly, the comments I'll make here today are intended to be with the best available information that we have today. Actual results may differ materially from these. But again, here's our kind of our standard Section 21E SEC statement in front of you. I'll start with our vision statement. At MDU Resources, our vision statement has been: With integrity -- that's how we do business each and every day -- create superior shareholder value by expanding upon our expertise to be the supplier of choice in all of our markets while being a safe and great place to work. And it really centers on our 3 key constituents: one is our shareholders, providing superior shareholder value; our customers, being that supplier of choice in all of our markets; and our employees, providing both a safe and great place to work for them as well. When I think of 2020, it's certainly a year that we've all experienced in many different shapes and fashions. And 2020 was actually a very successful year for MDU Resources Group. In fact, top line as we released earnings at the end of the year, said it was our second-best year earnings-wise in our 97-year corporate history. And really what drove last year, while much uncertainty at the onset of the year was underscoring, if you will, the essential services all of our businesses provide, the two platforms, both on the regulated energy along with construction materials and construction services. Our EPS grew from $1.69 to $1.95 last year. That split was really between regulated energy at $136.6 million. Again, we had a variety of things at the utility operations that I'll get into more detail in just a few minutes. WBI Energy certainly had higher transportation revenues along with storage activity that was very key, particular, as we saw the first quarter here in 2021 as well. At our construction platform, both the materials and services combined for a record $257 million in earnings. Again, just strong performance really from both platforms here in 2020. If we look on a year-over-year basis, the $1.69 to $1.95 is actually a 15% growth in earnings on an earnings per share basis. And you can see on a gross method, it was $335.5 million to $390 million in total earnings across the corporation. Certainly, last year, at the onset of COVID, there was a lot of uncertainty throughout America. And when we think of the COVID response that we saw, we actually started transitioning our employee work group from what were a handful of employees working from home to a 1-week period of time where roughly we went from few -- maybe a couple of hundred employees working from home to about 3,500 employees working from home, continuing to provide those services that our customers were wanting from us. I would say we had minimal interruptions or delays. That didn't happen by happenstance. That was a lot of leadership provided by our leadership team and all 16,000 of our employees pulling together. Certainly, top on our priority list was the health and safety of our employees. Following state, local and federal guidelines for health and safety during the pandemic was top of mind. And also many, many job sites were affected in differing ways. But ultimately, we continued providing those goods and services that our customers expected from us. At our utility group, we did go through a -- initially, a voluntary and then in some states, a mandatory moratorium so far as utility disconnects, of which we've now received -- resumed 7 of those 8 states actually in normal payment methods. Some of the other key events throughout last year, despite the pandemic and adjusting to many different variables, we continued our merger and acquisition activity at our Knife River Materials group. We acquired McMurry Ready-Mix. They're located in southeastern Wyoming. It complements very nicely existing Knife River operations we have in south-central and southeastern Wyoming. And it comes with about 100 million tons of aggregates spread throughout a number of quarries in that vicinity. We also acquired a prestressed construction business that we acquired in eastern Washington. This complements already prestressed businesses that we have in Oregon as well as Alaska as well. And then we continued our Honey Creek permit application, which ultimately we started greenfielding about 1.5 years ago, but we received the next-stage permits so far as us to be able to grow the production of aggregates from that greenfielded quarry. At Construction Services Group, certainly, we saw growth in high-tech, mission-critical and technology industries. We all became very adept at buying goods and services from our homes with the safety of COVID in mind. And overnight delivery became really a standard way of acquiring goods and services. So all that infrastructure, while we've been working with those same large Fortune 100 companies prior to this, the pandemic actually accelerated the needs and the demands, if you will, of those important customers of our growing that construction services business. We also acquired PerLectric, which is an electrical contracting business on the East Coast in Fairfax, Virginia. That business gives us a strong presence along the Eastern Seaboard. At WBI Energy, I mentioned earlier, we had strong use of our natural gas storage services. We have the privilege and opportunity to own North America's largest storage field at 193 Bcf, and that certainly was very strategic for us, given its proximity to the Bakken and given it's the heart of the Montana-Dakota service territory, providing gas on the coldest of winter days. We did divest the last remaining assets at WBI Energy in our midstream operations. These were some legacy operations that we've had since the 1930s and '40s in Eastern Montana. At our electric and gas utilities, spanning from Western Minnesota to the Puget Sound area, we saw just under 2% customer growth, 1.8% to be specific. We saw strong housing starts throughout that service footprint, particularly the Boise, Idaho area; Bend, Oregon; the Tri-Cities of Washington; Billings, Montana; Rapid City; and also here in the Bismarck-Mandan area as well. We continue with transmission interconnections for third parties wanting to get other generation sources into the MISO footprint. We had a number of those projects and upgrades this past year. And we continue with our natural gas distribution pipeline and integrity projects and replacements as well. That is 2020 in a very much of a nutshell. It was a challenging year for everyone, no doubt, but obviously a very strong year financially and operationally across all of our business lines. Continuing that momentum in the first quarter of 2021, you can see on this next slide that we've actually doubled our first quarter earnings from 2020 to 2021 from $0.13 per share to now $0.26 per share here in the first quarter, and that went from about a little over $25 million to $52 million in earnings here in the first quarter, again, a very strong start to 2021. At our natural gas and electric utility, the first and fourth quarters tend to be the strongest quarters for this business given our heating season, if you will, and this year was really no different. We're actually up a little over $3 million on a year-over-year basis between 2020 and 2021. Some of this is because of rate relief and the regulatory activity due to the added investments we've made in our utility business. Also, we've had higher certain other income from some of our trust investments that we have from benefit plans and also O&M containment, if you will, as best we could through the pandemic as we had, again, a workforce at the job site and also working from home. We announced a little over 2 years ago, our intention to retire some of our smaller wholly owned coal plants. And so we followed through with that along our original time line and here at March 31, the Lewis & Clark Station, a 50-megawatt coal-fired station commissioned originally in 1957, actually, generated its last kilowatt hours on the night of March 31. So we're starting to decommission that plant. Part of our announcement 2 years ago also included Heskett I and Heskett II to be decommissioned and retired about a year from now. So we look for March 31, 2022, for the retirement of both Heskett I and Heskett II stations. To offset some of this retirement, we are in the midst of adding Heskett Unit IV to that same plant site, if you will, where we have Heskett I and II retiring. This will be a simple cycle natural gas turbine, twin, if you will, to Heskett III that was installed there in 2014. We've achieved advanced determination prudency here in North Dakota, and we expect Heskett IV to be operational in 2023. At our pipeline, we're off to a record start here in 2021. Record earnings at $8.9 million this year versus $7.4 million last year, particularly with this business, and we saw that nationwide vortex, polar vortex come through around President's Day weekend. That triggered a lot of need for natural gas storage across the U.S. and demand for natural gas services in the storage area was very strong for WBI Energy. We also have higher AFUDC allowance for funds used during construction based on certain benefit plans there that contributed to our record first quarter. Key for WBI Energy this year is a large pipeline expansion that we've announced about 1.5 years ago. We're in the midst of a permitting process as we speak. This will all take what gas is currently being flared. We will take it from natural gas processing plants from third parties and bring this pipeline-quality gas to markets. It will help again to reduce natural gas flaring, so it's very environmentally friendly. And this project is supported by precedent agreements by a half dozen third-party nonaffiliated customers signing up for 10-year-plus terms. And again, we currently have this application for our certificate in front of FERC, and we're waiting to get on the FERC agenda. At construction services, we had a very strong start to the year. We had very strong revenue growth on a year-over-year basis. And ultimately, our earnings growth is a record first quarter, as you can see on the slide here, growing from $16.8 to $29.8 million, again, built on strong demand for the services this group provides. The first quarter, in particular, was our inside group, again, that e-commerce, mission-critical and high-tech industries continue to have strong needs and demands for this business. Prior year results did add a $6.7 million out-of-period adjustment after tax, making the difference a little wider than it would have normally been but you get a sense that the growth that this business has experienced. And so we expect this business to continue this momentum as we continue throughout 2021. We have a record backlog, which gives us confidence in that look into 2021, now at $1.27 billion. Again, we define backlog as we have under contract with an owner, agreement to do particular services for that owner. So we're committing our services and the owners' committing to this contractual arrangement. Again, we are actually guiding the Street for this business to be between $2.1 billion and $2.3 billion in revenue over the course of 2021. At construction materials, we typically have a first quarter loss in this business because of our exposure, if you will, to our northern tier states, Minnesota, North and South Dakota, Iowa, Montana, Wyoming, Idaho states where we really do very little activity in this business until things start thawing out. Well, weather has been favorable this year to get an earlier start, which I think has helped us lessen the seasonal loss. A year ago, we were almost $38 million of a loss. Ultimately, last year, we made $147 million in this business. So certainly, we picked things up very strong in the second and third quarter. This year, we have a stronger start to the year than what we even saw last year, bettering our results by just under $8 million. We did have record first quarter revenues in this business, just slightly topping last year's record of $265 million versus $262 million. Here at our Knife River Materials, we have a strong backlog, giving us confidence as we look through the remainder of 2021 as well. Here, we have $819 million in backlog as of the end of the first quarter. When we released our first quarter earnings, we also updated our earnings guidance for the year. Originally, we had $1.95 to $2.15 per share for our guidance for 2021. Given our strong momentum for the first quarter, we lifted the lower end of that guidance by $0.05 to now $2 to $2.15. And again, we reinforce our 5% to 8% long-term compounded annual earnings growth rate. I would be remiss if I didn't remind all our shareholders of kind of the rich history of our dividend. We're 83 consecutive years without missing one quarterly dividend payment. That's -- there's only a handful of companies that can say that. And in particular, we've been increasing our dividend for the last 30 consecutive years. And this actually then qualifies us as the last 5 years, we've been a Dividend Aristocrat index, those companies exceeding 25 or more years of consistent dividend increases. This is an annualized rate of $0.85. And with that, Dennis, that's a little brief update through last year and the first quarter, again, feeling we have strong momentum starting 2021, and we'll keep you apprised at our quarterly updates. And so with that, I'll turn it back to you, Dennis.

Thank you, Dave. A great presentation. I will now call upon Kristine Sundberg, on behalf of the inspectors of elections, to announce the preliminary results of the voting. The final results will be filed with the minutes of this meeting and reported on Form 8-K filed with the SEC. Ms. Sundberg?

Mr. Chair, I hereby announce that Thomas Everist, Karen B. Fagg, David L. Goodin, Dennis W. Johnson, Patricia L. Moss, Dale S. Rosenthal, Edward A. Ryan, David M. Sparby and Chenxi Wang, the 9 directors nominated by the Board for election, each received no less than 130,463,587 votes in favor or 86.75% of the votes cast. I hereby announce that [ 144,534,051 ] shares of votes or 95.89% of the company's common stock present in person or represented by proxy and entitled to vote were cast in favor of approval on an advisory vote to approve the compensation paid to the company's named executive officers. I hereby announce that 175,262,583 votes or 98.99% of the company's common stock present in person or represented by proxy and entitled to vote were cast in favor of ratification of the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2021.

Thank you. After hearing the results of the voting, I declare that Thomas Everist, Karen B. Fagg, David L. Goodin, Dennis W. Johnson, Patricia L. Moss, Dale S. Rosenthal, Edward A. Ryan, David M. Sparby and Chenxi Wang are each elected to the Board of Directors for a term of 1 year. I declare that the compensation paid to the company's named executive officers has been approved on an advisory vote. I declare that the proposal to ratify the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2021 has been approved. I direct the secretary to insert a copy of the following documents in the corporate minute book: Notice of annual meeting and proof of mailing, form of proxy, oath of inspectors of elections, certificate and written report of inspectors of elections, and ballot of proxy committee. There being no other business to come before the meeting, the meeting is adjourned. Before we break, Dave has some additional comments.

Thank you, Dennis. And just as we close out our 2021 annual shareholder meeting, it would be my hope and desire that we can resume our typical-type annual meetings next year, where we have an in-person meeting, we have an ability to look everybody in the eye and the ability to maybe have lunch afterwards and have a bit of an event, if you will, so a chance to see some of our retirees and some of our local shareholders and those shareholders that elect to come to our meeting and being present. So that's certainly our intention for next year. Let's all hope we're able to do that. And so with that, we'll wrap up the 2021 shareholder meeting. I appreciate everybody's attendance here and your ownership in MDU Resources. Again, thank you.