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

It's great to see everybody, and good morning. We are pleased to have our 2022 Annual Shareholder Meeting actually in person this year assembling here at the Bismarck Service Center. My name is Dave Goodin, I'm President and CEO of MDU Resources, and it's my pleasure to extend a warm welcome to each and every one of you. We are webcasting this meeting today to provide additional access for anyone that is interested as well. I'm pleased that we have the group that we have here today, and I hope we can grow up on that group in years to come. Certainly, safety is always a high priority at MDU Resources, and it is today as well. In the unlikely event that we have a tornado, our activity -- during the meeting, our activity would be over at the -- where the restrooms are. We would quietly, safely, use the handrails. We would exit and actually -- we'd use the bathrooms as a measure for the tornado as well. If you need the bathrooms, it's down that same hallway as well. Here today, I'd like to introduce other company representatives that are here today. Joining me up here on the loading platform or the stage as we're using it today is Dennis Johnson and Karl Liepitz. Dennis is the Chair of our Board of Directors, and Karl is our General Counsel and Corporate Secretary. Also here at the table below us is Jason Vollmer. Jason is our Chief Financial Officer and Vice President. I'd also like to introduce some other special guests that are in attendance here today in addition to Chair, Dennis Johnson, other members of our Board of Directors that are here, and I'd ask that if you would stand as I call your name, I would sure appreciate that and recognized by the audience. Start with Tom Everist, Tom? One of our Board of Directors, been with us actually about 27 years; Karen B. Fagg, Karen, out of Billings, Montana. Thank you, Karen. Patty Moss, Patty, out of Bend, Oregon; Mr. Ed Ryan, Ed? Thank you, Ed. Ed's out of the D.C. area. Mr. Dave Sparby, David? Dave's out of the Twin Cities area; and also Chenxi Wang out of California, particularly in Silicon Valley. Biographies and other information about our directors that are up for election are included in this year's proxy statement. Also joining us at this meeting are the presidents of each of our business units. I would like to recognize them, if stand or wave if you're not already standing. Representing Knife River Corporation at the back of the room is Mr. David Barney. Dave? Good to have you here today. Also joining us is Jeff Thiede, President and CEO of Construction Services Group. Also joining us, the head of our utility group is Nicole Kivisto. Nicole heads up, President and CEO of Montana-Dakota Utilities, Great Plains Natural Gas, Cascade Natural Gas and Intermountain Natural Gas, and her business card is about that wide. Also joining us is Trevor Hastings. Trevor is President and CEO of WBI Energy. In addition to management, we also have Deloitte & Touche here, Patrick Larson and [ Christine Kiethly ], our representatives of our independent registered public accounting firm. So thanks for standing and being recognized. They'll be here also following the meeting and available to respond to any appropriate questions that you might have. Now I'd like to turn the lectern over to our Chairman, Mr. Dennis Johnson. Dennis?

Thank you, Dave, and good morning. I now call the meeting to order and request that Karl act as secretary of the 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 one 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 that more than 87% of the total shares of common stock entitled to vote at this meeting are represented at this meeting. As the holders of more than a majority of the shares of stock outstanding and entitled to vote at the meeting are 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 as of March 11, 2022, beginning on March 25, 2022. 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 2022 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 2022. 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 must have been submitted by February 10, 2022. 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 statements 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, 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. 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 #2 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 2022. The Audit Committee, at its February 2022 meeting, appointed Deloitte & Touche LLP as the company's independent auditors for the fiscal year 2022. Deloitte & Touche LLP has served as the company's independent auditor 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 item #3 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 the records of our transfer agent 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 the 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 own 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 the 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. Is there anyone that wishes a ballot? In accordance with Delaware Law, the Board of Directors, at its meeting on February 17, 2022, appointed Jason L. Vollmer of the company; and Kristine Sundberg of The Carideo Group, as the inspectors of elections. Briefly, their duties include ascertaining 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 and the count of all votes and ballots and certain record-keeping duties. [Voting]

The polls are now closed. While we're waiting for the election results, Dave Goodin will comment on our operations. Mr. Goodin?

Thank you, Dennis. It's my pleasure to talk about our operations actually over this past year, so my plan is to talk briefly a little bit about 2021, some of the highlights associated with last year, pivot towards how the first quarter is shaping up this year and how, more importantly, we think the remainder of 2022 looks from an overall corporation perspective and to give you a sense of what our view of the future looks like. Some of my comments here will fall within the SEC guidelines of forward-looking statements. Just want to draw your attention to that statement that these are based on reasonable assumptions but there's certainly some judgment involved. Our business is really built upon our vision statement. In fact, we really recently refined our vision statement to what you see on the monitor there. It starts the way our prior vision statement said, with integrity. That's how all of our business starts at MDU Resources. But we've actually shortened it because we've been using this tagline of Building a Strong America for some time. And really, it's very appropriate for the various lines of business that we're in. So we incorporated with integrity, Building a Strong America, while being a great and safe place to work. Very brief but also I think very memorable. If I think about 2021, this would be the one slide that I would talk about to kind of talk about the overall corporate highlights of the year. 2021 was our third best year on record of 98 years actually, so far as from an earnings potential at $1.87 per share. We reiterated our 5% to 8% long-term compounded annual growth rate. And we actually reattained where we were off for about 10 years, a Fortune 500 listing last year, and so regaining the Fortune 500, which was really based solely on revenues and we came in at #486. We're one of only North Dakota's Fortune 500-listed companies. We actually have a $5-plus billion capital program underway. We announced this number back in November of 2021. That's the investment that we're looking at making in each of our lines of business over these next 5 years. Also last year, we increased our dividend for the 31st straight year. In fact, 84 consecutive years, never missing a dividend but also again, more importantly, increasing it for the last 31 years consecutively. And we ended the year in a strong financial position with our balance sheet, I'll say, strong and healthy, and credit ratings, both stable and investment grade at BBB+ at both S&P as well as Fitch. Diving a little bit into each business, I want to give some color there. Knife River Corporation led the corporation as it did the prior year in the amount of earnings they produced at $129.8 million. Some of the key operational activities at Knife River included, later in the year, our acquisition of Baker Rock Resources, which is in the -- just between Portland and Salem, Oregon, actually. We also acquired an aggregate operation just east of Portland at Mount Hood Rock. And along with the Baker Rock Resources, we acquired a contracting firm that does highway paving through Oregon mainline paving. Another one of the highlights. In fact, our Board will be visiting our training center here in August. In fact, the grand opening for this was just last week on the 28th of April, actually, is a training center in Corvallis, Oregon, that actually is an indoor domed facility, state-of-the-art, one-of-a-kind in the U.S. to help us address how do we grow our construction workforce? And we did a domed facility because it tends to rain in Oregon often so we can do work indoors and outdoors with all heavy equipment and various excavation and Bobcat skid-steers, dozers, you name it. It's kind of a big sandbox, if you will, but it's a way for our professionals to get better and attract more into our trades as well. We also further expanded our Honey Creek quarry. That's in the greater Austin, Texas area. That will supply aggregates to our east and southeastern Texas operations, along with other third-party sales. At Construction Services Group, this business, we really started as part of our utility 25 years ago. Actually, it exceeds our utility and earnings over the past couple of years, $109.4 million last year, virtually equaling the year before. Demand, I would say, remains at an all-time high in this business as the economy continues to kind of re-electrify itself and find more ways for uses of electricity, which fits very well, being the nation's #4 electrical contractor in 43 states of operation. Some of the areas that we think about are also grid hardening for other utilities and just the growing prefabrication services that we do in this business to construct off-site, bring prefabbed equipment on-site, reducing labor and also shortening construction times for our owners as well. At our legacy utility business where we're situated with our annual meeting here today, this is both Montana-Dakota, Great Plains, Cascade and Intermountain Gas. We actually had record earnings in this business, about $103.5 million, first time we've exceeded $100 million in this business. Our growth continues between 1% and 2% annually, a little stronger than that -- well, kind of in the upper range last year at 1.7%. A lot of that growth is actually centered in our gas properties in parts of Idaho, Washington and Oregon, some 3%, 3.5% growth in some of those areas like the greater Boise area, and obviously, around Bismarck, Rapid City, Billings tend to be just ongoing good markets for us as well. Sales were up in this business. You can see slightly higher 2.1% for electricity and also just less -- a little less than 1% so far as natural gas sales. Key to this business is continued reinvestment in our business for a safe and reliable system. And I'll get -- talk about some of our rebuilding that we did just last week or 2 with some storm damage towards the end of my comments. At WBI Energy, we continue to grow this business quite remarkably. In fact, it's doubled its earnings in the last 5 years. Earnings now exceeded almost $41 million last year. It's our fifth consecutive year of record transportation on the system. Again, that's what WBI does is it moves natural gas from producers and processors to markets and to city gates. Biggest project dollar-wise and pipeline-wise that we've ever done in the WBI Energy occurred last year, brought into service this February 1, was our North Bakken expansion, approximately a $260 million investment to take gas from Tioga to Watford City, collected throughout the Bakken and help get that gas to market. Included in this project, the engineer comes out every once in a while, sorry. We have a 3-mile bore under Lake Sakakawea because if you think Tioga to Watford City, think how do you get there? You've got a lake to get across. Well, our team worked with outside contractors and did a 3-mile bore with 24-inch pipe under the lake. It's quite an accomplishment. Our first quarter, talk about our first quarter a little bit, so that's last year. As I think about the first quarter, we're off to a slower start than we were last year. You can see from an earnings and an EPS perspective, we're actually down or off. We're seeing some inflationary pressures throughout our business. Yet price increases that we are instituting, in particular, our construction business, we expect a little more. We'll feel that and kick in as we sell more volume in each of our businesses. But you can see we compare $0.16 per share versus $0.26 just a year ago. If I think about the first quarter on the electric utility, earnings were $47.6 million, up slightly from a year-over-year basis. Sales were up nicely, 2.5% on electric, about 9% for natural gas. Key to Nicole and her team is getting rate and regulatory recovery for the continued investments we're making in that business through our rate base that will continue to grow as well. Certainly, we have had some higher interest costs as we see interest rates slightly going up. A little increase in O&M expenses as we're seeing some inflationary pressures there. And we also have some lower investment returns on some of our nonqualified benefit plans. One of the things that Nicole and her team have been talking about actually for about the last 3 years as we think about reducing our carbon footprint, but more importantly, as we think about fleet transition here from some of our legacy wholly-owned smaller coal plants, as we continue to add some renewables in our fleet and also some natural gas in our fleet, we just really finalized the operations of our Heskett Station Unit 1 and 2 earlier this year. A year ago, we finalized operations out at Lewis & Clark. Again, part of the energy transition, we still feel coal as a part of our fleet between our Coyote and Big Stone stations, but we're supplementing that with both wind in the form of renewables, some waste recovery and also some simple cycle natural gas, which is what we're doing, constructing this 88-megawatt unit out at the Heskett station. It's the twin to Heskett Unit 3, which will be the same 88-megawatt unit. I'd like to now play a video that our production team has put together commemorating the retirement of these units, so you get a better feel for kind of the legacy they made, the 60-plus years that they actually were in service, nearly doubling what they were originally intended for and to give you a sense of just kind of the retirement of these plants. So if we could play that video now, I'd turn your attention to the monitor, please. [Presentation]

Nice job, communications team. Well done and special thanks to all the employees for over the years that they spent long hours keeping the lights on at all 3 of these plants on a 7/24 basis. Switching gears to our pipeline group, that would be WBI Energy. First quarter reported $7.3 million in earnings, actually down from a year-over-year primarily because of less use of our storage assets that we have in Eastern Montana. Again, as a reminder, we actually have North America's largest storage field in the Cedar Creek anticline between Glendive and Baker. And it's quite a great asset for us to have but also it's a great asset for our customers to know that we have stored gas in all seasons, especially those cold winter nights. At WBI Energy, we continue to think about expansion projects. We had the North Bakken Expansion that I talked about earlier. As we think about natural gas in North Dakota, the Bakken being in our backyard, it continues to be a very prolific resource of natural gas. And WBI is -- well moves over half of the natural gas out of the Bakken to third-party producers and/or -- or from third-party producers to processing plants and/or to end markets. We're expecting, actually, over the next 2 years to add another 300,000 Mcf per day so far as through specific projects we see actually over the next 24 months. At Construction Services, we reported $21.3 million in earnings this year, again, off slightly from last year. The difference here was primarily the mix of work that we had on a year-over-year basis, whereas a year ago, we had some higher-margin storm activity associated with our first quarter. We didn't have that same this year. We don't count on storms and are responding to storms, whether it's East Coast or Gulf Coast-related. But that was some of the difference on a year-over-year basis. We did have record revenues in this business at over $552 million versus $518 million a year ago, I think another indication of the strong demand for our electrical services. That strong demand has led to really an all-time record backlog of work at $1.67 billion. We define backlog as contracts we have with owners in hand that have committed an owner, and we have committed to that owner to do a specific project. This is up, as you can see from the slide, actually $400 million on a year-over-year basis, 31% increase, in fact. And we've actually got revenue guidance this year at Construction Services between $2.2 billion and $2.4 billion. Construction Materials has a typical seasonal loss in the first quarter because of all of our northern tier exposure from the Minnesota, the Dakotas, Wyoming, Montana and Idaho. Things are pretty much frozen and not a lot of construction road work occurs during the first quarter. This year was a little more of a loss than some prior years. Some of that was we had some higher operating expenses certainly. And any price increases that we have been making in this business and continue to make really won't see themselves working through on an income statement until later in the year when we start selling more volumes in this business. Top line growth is at a record so far as record revenues at $310 million versus $265 million of last year. Knife River has also grown its backlog to now $940 million on a year-over-year basis compared to $819 million a year ago. And we continue to evaluate, through our business development team, acquisition opportunities. This business, though we've actually raised our revenue guidance for the year just as of last week, $150 million, both on the bottom and top end, to now $2.45 billion to $2.65 billion. Last week, as of May 4, we reaffirmed our annual guidance on an earnings per share basis that you can see on the screen. $2 to $2.15 per share, and we reinforced our 5% to 8% compounded annual growth rate target over the long term. We continue to pay that competitive dividend, as I noted earlier, 84 consecutive years, increasing it for the last 31 and, on an annualized basis, that's $0.87 per share. It continues to keep us within the S&P High Yield Dividend Aristocrats Index, and that's only those companies that have increased their dividends for 25 or more years. Talked a little bit about last year, talked a little bit about the first quarter and also looking forward. I wanted to put a few slides in here, let me back up. So this is more of a tip of the hat to our employees and also our customers that endured some unprecedented weather 2 weeks ago. Starting over the weekend of April 23 -- 22 and 23. Here, we kind of dodged the bullet in the Bismarck area, but in northwestern North Dakota, particularly the Crosby, Ambrose, Noonan, Larson, if you're from that part of the world, you know where I'm at. Rain came down and then it turned cooler and it was freezing rain. Stuck to the lines, here's an example of ice loading on lines. Doesn't look too bad as long as the wind doesn't blow. Unfortunately, we got 60-mile an hour winds associated with that. And that's what happened. That happens to be in the town of Crosby, toppled the pole over. Here's another spot out in the field. See how that pole is splintered. We actually lost at one point up to 18,000 customers were without power for parts of that 5- to 6-day period of time. Nicole and her team assembled a group of well over 100 internal linemen and contractors to respond to this unprecedented outage. We have employees that have been with us over 40 years that have never seen damage this severe. And I would say within -- so the outages started occurring in the weekend of the 23rd, early 24th. By the 30th, we had all customers back on. Here's an example of what some of those pole lines looked like. There's hardly a pole line left, just a few stubs up and down the prairie. In total, we lost actually 150 poles, plus or minus, 350 crossarms and braces, bring that amount of resources together and obviously, all the supply chain, wood products, getting all the logistics and, by the way, all that moisture, it goes into the fields and they need dozers to pull the line trucks through because they can't -- they'll be stuck as soon as they get off the pavement. So this is what a line looks like and this is the response. Within 6 days, we got everybody back on. So thank you, Nicole. I appreciate that. Tip of the hat to the employees that responded, worked 24 hours a day in differing shifts, and at the same time, everybody that circled around that. So Mr. Chairman, I'll turn it back to you but that's my update. Thank you for your attention.

Thank you, Dave. 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 within 4 business days.

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 85% of the votes cast in favor of election to the Board of Directors. I hereby announce that 96% 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 97% of the company's common stock present in person or represented by proxy and entitled to vote were cast in favor of the ratification of the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2022.

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 compensation paid to the company's named executive officers has been approved on an advisory basis. I declare that the proposal to ratify the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2022 has been approved. There being no other business to come before the meeting, the meeting is adjourned. Before we break, Dave has some closing comments.

Thank you, Dennis. This will be very brief. I see our lunch has arrived so I don't want to stand too long between yourselves and lunch. I've got 2 names I want to announce. We had some door prizes, if you will. I see Laura's in the back. Laura, the first winner is [ Larry Catcher ]. Larry, you're a winner. And our second and final winner is [ David Shaw ]. David? There you go. Congratulations. Again, thank you all for being here and those that are on the webcast for tuning in. We look forward to visiting with you and hosting you next year at the same venue. And with that, we are officially adjourned. I would ask that you exit through the aisle and out the back. I think we've got -- I know we have lunch prepared and there's a line to go through. Please enjoy yourselves. Company officials are available to visit with, Board of Directors, along with our D&T representatives. So thank you for your support and your continued interest of MDU Resources. Bye now.