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

[Audio Gap] to all of you here today as well as those joining via webcast. I am pleased that so many of you have chosen to participate in our meeting today. I appreciate your investment in MDU Resources and your ongoing interest. Safety, of course, is always a top priority for our employees. And so before we kick the meeting off today, I do want to give a few safety announcements in the unlikely event that we would have a tornado, an employee would help you get to the basement of this building. In the event that there would be a fire, we have an exit door here as well as an exit door over there. And then the restrooms, of course, are out the door and to the left. I'd like to introduce a couple of members of the company and management team that are with me today sitting right here to my right is Dennis Johnson, Jason Vollmer, Paul Sanderson and then we have our Inspector of Elections, Brent Miller as well. In addition, we have some special guests in the form of our Board of Directors here today. And so in addition to Chairman, Dennis Johnson, I'd like to introduce our Board that's here today. So if you can each just wave when I mention your name, I would appreciate it. We have Darrel Anderson, James Gemmel, Dale Rosenthal, Ed Ryan, Dave Sparby, and Chenxi Wang. In addition to those directors, our Board nominee, Doug Jaeger, is with us in attendance today. Biographies and other information for our directors were -- that are up for election were included in the proxy statement. I would also like to take a moment to express my deepest gratitude to Dave Goodin, for his invaluable service to our organization, both as the past CEO as well as Director of our corporation. Dave spent 40 years with our organization -- over 40 years, and your leadership has left an impeccable mark on our organization. I want to thank you for your service, Dave. We have our management policy committee in attendance with us today as well. And so I'm going to start with our Chief Utility Officer, Garret Senger, if you can raise your hand. We have our President of WBI Energy, Rob Johnson with us. Our President and CEO of our newly branded Everus, Jeff Thiede. We have our Chief Human Resources Officer, Anne Jones. Our Chief Information Officer, Peggy Link. Our Chief Accounting Officer, Stephanie Sievert; and I already mentioned our Chief Financial Officer, Jason Vollmer. In addition to that, Patrick Larson and Megan McCready who are representatives of our independent registered public accounting firm, Deloitte & Touche, are here with us as well today. If you could please raise your hand. You already did understand, thank you. They'll be following -- they will be here following the meeting in the event that you have questions. So I'll now turn over the formal presentation and meeting to our Chair, Dennis Johnson. Dennis.

Thank you, Nicole, and good morning to everyone. I now call the meeting to order and request that Paul act as the Secretary of this 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 that more than 88% 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 15, 2024, beginning on March 29, 2024. This year, you 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 2024 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 as the company's independent registered public accounting firm for 2024. 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 9, 2024. 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 Darrel T. Anderson, James H. Gemmel, Douglas W. Jaeger, Dennis W. Johnson, Nicole A. Kivisto, 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 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 on 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 as the company's independent registered public accounting firm for 2024. The Audit Committee at its February 2024 meeting appointed Deloitte as the company's independent auditors for fiscal year 2024. Deloitte 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 #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 Paul or by advising Paul 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 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 Paul will see that you are given a ballot. There anyone that wishes a ballot? Seeing none, then we will proceed. In accordance with Delaware Law, the Board of Directors at its meeting on February 15, 2024, appointed Brett Miller of the company and a representative of the Carideo Group as the inspectors of elections. Jon Commers of the Carideo Group has been appointed to serve and is here today. Briefly, the inspector of election 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 of votes and ballots and certifying the number of shares represented and the countable votes and ballots and certain record-keeping duties. So the polls are now closed. And while we await the election results, Nicole will comment on our operations, so Nicole?

All right. It is a privilege to be before you today to talk about the exciting things we've got going on here at MDU Resources. As you were entering the building, you probably saw a couple of signs. We are celebrating our 100th year anniversary as a corporation. So 2024 brings a lot of exciting things for this company, but 1 of them certainly is a celebration of those that have come before us. And I see many retirees in the audience here, and I want to thank you for your contributions getting this company to where we are today. We take seriously the footprint and fingerprints that now we, as a management team, are going to leave on this organization for the next 100 years. So I'm going to dive right into a couple areas that I want to highlight in terms of key points for our organization. Before I do that, of course, I am going to get into some forward-looking statements, so I would draw your attention to our forward-looking statement disclosure. As I mentioned, 100 years of service to our customers and communities is quite a feat. And as we went to -- went about going, how are we going to celebrate this as an organization we put together a video that I want to share with you today. [Presentation]

So a big shout out to our Corporate Communications team, and I see Mark Hanson in the back that kind of led the effort on this video. It was so well done. I couldn't have said it better myself. In fact, I feel like I should maybe just do a mic drop right here. Great summary of our history and still proud to be standing alongside of all of our employees as we embark on the transformation of our organization. A 100-year-old company has certainly been through a lot of change, and we are embarking on change yet again and transforming the organization. So you heard the video talk about this time line. Knife River spinoff was successfully completed last year, and we are embarking on the spin of Everus to be scheduled for late 2024 this year. And then you can see at the end of the time line, the ultimate focus being on our core pure-play regulated entity. So today, I want to spend some time talking with all of you shareholders around what are those 2 compelling investment opportunities within MDU today. We've got our regulated energy delivery business. I'll spend some time talking about that. And then we have Everus and that spin scheduled for late 2024, as I mentioned. So as we go back to our roots and focus on our core, what do we mean when we talk about core. Customers and communities you heard when communities thrive, we thrive. We certainly have always been focused on that, and we're bringing that focus back as we move to our core strategy. Operational excellence is represented by the old returns focused and employee-driven. Diving a little bit deeper. Maybe just want to highlight a couple of the examples here. We are keenly focused on best-in-class customer service as we think about our regulated energy delivery business on a go-forward basis. Responsible approach to operating costs and capital allocation is certainly in our operational excellence category. How do we continue to maintain safe, reliable service for our customers while environmentally being responsible. Returns focused is certainly a focus on our shareholders. We -- one thing that hasn't changed throughout our 100-year history is 100% focus on shareholder value as we make these decisions and move forward, and we will continue with that under our regulated energy delivery platform. And then, of course, who gets this done, we know is our employees. And so how do we focus and continue to develop those as we advance the organization forward. So as a backdrop, the video really described our business quite well, but maybe just to put a finer point on that, our regulated energy delivery business will consist of our utility, which is serving 1.2 million customers today under 4 unique brands through 1,520 employees. Our pipeline business has 2.6 Bcf of capacity per day. That capacity has grown substantially over the last 5 years, 14 interconnection points. And you heard, as was mentioned in the video, the large access to the largest storage field in North America certainly has benefits for the pipe, but also our utility business through access to lower cost of gas. We have a history of performance in both of these businesses. So as we think about ourselves on a go-forward basis, the conviction we have and the forward look of the organization is certainly helped by what we've been able to deliver in the past for our shareholders. These businesses on a combined basis have grown at an 8% compound annual growth rate annually over the last 5 years. We've done that through system enhancements, i.e., rate based growth. We've also done it through customer growth, and customer-driven projects at our pipeline business. We recently also got into the data center business. I'm certain that most of you are aware of the AI revolution taking place around us, we are playing in that as well. And then finally, as we think about our commitment to ESG, we do believe sustainability is strategy for an organization to survive 100 years. It has to balance sustainability on a go-forward basis, and we believe that is looking at financial, social and environmental impacts together and making sure we're making decisions to balance all of those, not sacrificing 1 or the other. So as we kind of think about our regulated entity on a go-forward basis, we believe we have strong long-term regulated guidance that we provided to the [ Street ] here recently in our investment community, $2.7 billion of capital invested back into these businesses over the next 5 years. We expect to grow our utility rate base. Again, that is back putting system replacements, enhancements, capacity additions at a 7% compound annual growth rate going forward. We expect our customers to continue to grow up 1% to 2%. All of that really put together will result in an EPS growth rate of 6% to 8%. And we do believe this is a compelling target when we compare that to other utility peer companies and sets us apart. From a dividend perspective, I know you're all keenly focused on dividends as shareholders. We have announced that we expect to have a dividend payout ratio at 60% to 70% and that is our target on a go-forward basis. So we'll look at that as we grow earnings on a go-forward basis. And then we're going to do all of this with really no near-term equity needs. Moving on to the Everus story. Again, back to 2024 being an exciting year, celebrating 100 years as an organization, transforming the organization as part of our 100-year celebration on the New York Stock Exchange, we also announced the rebranding of our construction services company. As you heard in the video that has grown through acquisitions, strong history of performance, they are ready to spend. We rebranded them recently to Everus. So an overview of this business. Certainly, you heard in the video, 9,000 employees at peak operating across the United States, one of the top electrical or E&M contractors in the nation, and it certainly has a history of strong performance. What kind of work does Everus do. They're in the E&M or electrical and mechanical business. And you're shown on this slide is a picture of some of the work they've done on the Las Vegas trip with the Sphere project, but they do more than just hospitality work. This business is well diversified. When I talked about data centers on the regulated side of our business, they also do and build data centers. And so they have a lot of macroeconomic tailwinds when we think about their ability to grow on a go-forward basis. So not only do they do inside electrical and mechanical work, but they do transmission and distribution work as well. The video, I think, described how we got into this business in the first place, and we knew that our expertise was we can build electric transmission and distribution lines for ourselves. Why wouldn't we build it for others. They got their start as a T&D business, and they've grown to E&M as well. So when I talk about strong history of performance, this slide pretty eloquently shows that 17% CAGR on EBITDA over the last 5 years, a strong history of performance and currently projecting EBITDA for the current year 2024 at $220 million to $240 million. Strong backlog at $2.18 billion, so record levels compared to historic and certainly, as I mentioned, a lot of macroeconomic tailwinds for this business as they look to spin off on their own, whether that be IIJA, IRA, grid hardening, data center demand, as I referenced. Exciting opportunities for this business ahead and so not to be outdone with our core strategy, Jeff and team have developed the [ forever ] strategy in terms of their key pillars to success as they look at their -- themselves as a stand-alone business. This is an employee-based business. And so you can see that Jeff has put employees right at the top of the house, our employees value execution and relationship. It's an employee-based business. It's a relationship-based business. They've got their priorities aligned as they move forward to create value for shareholders. So as we think about 2023, a quick snapshot, 2023 was pretty final report on record levels of performance really across our organizations. MDU Resources achieved record results in multiple categories. Our utility group had a very strong year, 25% electric retail sales increase largely driven by that data center load that I talked about, single largest electric customer we put on our system to date. 8.5% rate base growth, 1.3% customer growth. At the pipeline, record levels of earnings, record levels of transportation. I feel like I keep saying record, but I'm going to move on to Everus and talk about some more records, record EBITDA, record earnings and record revenue at our Construction Services, Everus business. So a phenomenal year for 2023. As we think about our first quarter results, a good start to the year, ahead of prior year. The Everus spend remains on track for 2024. We'll continue to update as we move throughout the year here. Utility Group hit $58 million, all-time record earnings for the first quarter. Just highlighting a few things here, WBI, same thing, record first quarter earnings. And then Everus, I previously mentioned, the area that I would highlight here is record levels of backlog as they closed out the first quarter. So strong momentum as we head into 2024 as well. So in summary here, we'll kind of wrap it up with our guidance for the year. So a strong start to the year, how do we think we might finish the year we're guiding. The Street to $170 million to $180 million in our regulated energy delivery business. So that is growth off of what we said was a record year in 2023. Same thing at Everus, guiding to EBITDA of $220 million to $240 million. Again, achieving those types of results would be yet another record year for Everus. So as a first time shareholder meeting presentation, I have to say it was a great time to have your first time to present to shareholders, what an exciting time it is for our organization. We're performing well. We're transforming the business. I look forward to the future. We've got a great team to get it done. And I want to make sure I close by thanking all of you for your interest in MDU Resources. We've got compelling investment opportunities on both sides, whether it's MDU Resources or Everus, good guidance as we think about our ability to grow over the long term in both of these businesses and set up well. So thank you again for your attendance. I'm going to turn the mic back over to Dennis to give us our official results. So Dennis?