Full Year 2023 MDU Resources Group Inc Earnings Call
Lisa: Ladies and gentlemen, my name is Lisa, and I'll be your conference facilitator. At this time, I would like to welcome you, everyone, to the MDU Resources Group Year-End 2023 Earnings Conference Call. All lines will be placed on mute to prevent any background noise.
Ladies and gentlemen, Hello, My name is Lisa and I'll be your conference facilitator at this time I would like to welcome you everyone to the MDU resources group here in 2020 three earnings conference call all lines will be placed on mute to prevent any background noise.
Lisa: After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star two on your telephone keypad. The webcast can be accessed through www.mdu.com under the investor relations heading. Select the events and presentation and click the year-end 2023 earnings conference call. After the conclusion of the webcast, a replay will be available at the same location. I would now like to turn the conference over to Jason Vollmer, Vice President, Chief Financial Officer, and Treasurer of MDU Resource Group. Thank you, Mr. Vollmer.
After the remarks speaker's remarks, there will be a question and answer period. If you would like to ask a question. During this time simply press Star then the number one on the telephone keypad.
If you'd like to withdraw your question Press Star two on your telephone keypad.
The webcast can be accessed through www dot M D U dot com under the Investor relations heading select the events and presentation and click you're in 2020 three earnings conference call. After the conclusion of the webcast a replay will be available at the same location.
I would now like to turn the conference over to Jason Vollmer, Vice President Chief Financial Officer, and Treasurer of MDU Resources group. Thank you. Mr. Vollmer you may begin your conference.
Jason L. Vollmer: You may begin your conference. Thank you, Lisa, and welcome everyone to our year-end 2023 earnings conference call. You can find our earnings release and supplemental materials for this call on our website at www.mdu.com under the investor relations tab. Leading today's discussion with me, for the first time in her new role as President and CEO of MDU Resources, is Nicole Capisto. Also with us today to answer questions following our prepared remarks are Stephanie Sievert, Vice President, Chief Accounting Officer, and Controller of MDU Resources; and Jeff Thied, President and CEO of MDU Construction Services Group. Rob Johnson, president of WBI Energy, and Garrett Singer, chief utilities officer of our utility.
Jason L. Vollmer: Thank you Lisa and welcome everyone to our year end 2023 earnings Conference call you can find our earnings release and supplemental materials for this call on our website at Www Dot dot com under the Investor Relations tab.
Jason L. Vollmer: During today's discussion with me for the first time in her new role as President and CEO of MDU resources is in the cold Crystal.
Speaker Change: With us today to answer questions. Following our prepared remarks are.
Speaker Change: Definitely sievert, Vice President Chief Accounting Officer, and controller of MDU resources, Jeff Thiede, President and CEO of MDU construction services group.
Speaker Change: Rob Johnson President of W. Excuse me of WBI energy and.
Speaker Change: Garen singer Chief Utilities officer of our utility group.
Jason L. Vollmer: During the call, we will make certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although the company believes that our expectations and beliefs are based on reasonable assumptions, actual results may differ materially. For more information about the risks and uncertainties that could cause our actual results to vary from any forward-looking statement, please refer to our most recent SEC filing. We may also refer to certain non-GAAP information.
Speaker Change: During the call we will make certain forward looking statements within the meaning of section 21 E of the Securities Exchange Act of 1934.
Speaker Change: Though the company believes that.
Speaker Change: But our expectations and beliefs are based on reasonable assumptions actual results may differ materially for more information about the risks and uncertainties that could cause our actual results to vary from any forward looking statements. Please refer to our most recent SEC filings.
We may also refer to certain non-GAAP information.
Jason L. Vollmer: For reconciliation of any non-GAAP information through the appropriate GAAP metric, please reference our earnings release. I will provide consolidated financial results later during the call, but first, we'll turn the call over to Nicole for her formal remarks.
Speaker Change: Reconciliation of any non-GAAP information to the appropriate GAAP metric. Please reference our earnings release.
Speaker Change: I will provide consolidated financial results later during the call, but first I'll turn the call over to Nicole for her formal remarks Nicole.
Nicole Capisto: Thank you, Jason. And thank you everyone for spending time with us today and for your continued interest in MDU Resources. 2023 was truly an outstanding year for our company. I'm both excited for our future and appreciative of the strong foundation we are building from. And on that note, I would like to take the opportunity to thank our former President and CEO, Dave Goodin, for his leadership and mentorship as I've transitioned into this new role. Under Dave's leadership, our company started on a transformative path toward becoming a pure play regulated energy delivery business. We have made significant progress during this past year, and I am excited to pick up where he left off and continue leading this exceptional team as we work to finish our transformation.
Nicole: Thank you Jason and thank you everyone for spending time with us today and for your continued interest in MDU resources 2023 was truly an outstanding year for our company I'm, both excited for our future and appreciative of the strong Foundation, we are building from and.
Nicole: On that note I would like to take the opportunity to thank our former president and CEO, Dave Goodin for his leadership and Mentorship as I've transitioned into this new role.
Nicole: Under Dan's leadership, our company started on a transformative path towards becoming a pure play regulated energy delivery business. We have made significant progress during this past year and I am excited to pick up where he left off and continue leading this exceptional team as we work to finish our transformation.
Nicole Capisto: During the past year, we completed the spinoff of Knife River Corporation, the first major step to becoming a pure play regulated energy delivery company. We also completed the strategic review of our construction services business and subsequently announced the planned spin-off of that business for late 2024. We have continued to make meaningful progress and are on track to meet that target timeline. Our past and current employees have built these businesses to be standalone capable, and we are only able to execute on these projects as a result of their hard work and disciplined approach to growth. While working on both these initiatives, we also achieved record results across all businesses. I'm extremely proud of our hard-working and talented employees, whose dedication and effort led to these fantastic results.
Nicole: During the past year, we completed the spinoff of Knife River Corporation. The first major step to becoming a pure play regulated energy delivery company.
Nicole: We also completed the strategic review of our construction services business and subsequently announced the planned spinoff of that business for late 2024.
Nicole: We have continued to make meaningful progress and are on track to meet that target timeline.
Nicole: Our past and current employees have built these businesses to be standalone capable and we are only able to execute on these projects as a result of their hard work and disciplined approach to growth.
Nicole: While working on both of these initiatives. We also achieved record results across all businesses I'm extremely proud of our hardworking and talented employees, whose dedication and effort led to these fantastic results.
Nicole Capisto: Starting at our utility business, electric retail sales volumes increased over 25% compared to 2022, to an all-time record high for the company. This increase was primarily from sales to a data center customer that began operating in our service territory in mid-2023. In October of 2023, we filed an electric service agreement request with the North Dakota Public Service Commission to serve an additional data center that is expected to be online in mid-2024. That request is currently pending a decision by the commission.
Nicole: Starting at our utility business electric retail sales volumes increased over 25% compared to 2022 to an all time record high for the company.
This increase was primarily from sales to a data center customer that began operating on our service territory in mid 2023.
Nicole: In October of 2023, we filed an electric service agreement request with the North Dakota Public Service Commission to serve an additional data center that is expected to be online in mid 2024.
Nicole: That request is currently pending a decision by the commission.
Nicole Capisto: On January 1, we implemented interim natural gas rates in North Dakota that will increase revenues by $10.1 million, or 6.5 percent. These interim rates are subject to refund based on the Commission's decision in the natural gas rate case that was filed November 1, 2023. Also on January 26th, we requested interim rates on our South Dakota electric and natural gas rate cases to be effective on March 1st. Looking ahead, we expect to file a multi-year rate case in Washington and rate cases in Montana, Oregon, and Wyoming during 2024. ESCOT Unit 4, the 88-megawatt natural gas-fired electric generating facility that we are expected to have online in 2023, did experience some unforeseen operational setbacks when start-up testing was performed. A root cause analysis is ongoing, and modifications are being made to ensure these performance concerns are remedied.
Nicole: On January 1st we implemented interim natural gas rates in North Dakota that will increase revenue was $10 1 million or six 5%.
Nicole: These interim rates are subject to refund based on commissions decision and the natural gas rate case that was filed November <unk> of 2023.
Nicole: Also on January 26, the request of interim rates in our South Dakota electric and natural gas rate cases to be effective on March 1st.
Nicole: Looking ahead, we expect to file a multiyear rate case in Washington and rate cases in Montana, Oregon in Wyoming during 2024.
Nicole: That's good unit for the 88 megawatt natural gas fired electric generating facility that we expect it to have online in 2023 did experience some unforeseen operational setbacks when startup tests testing was performed.
Nicole: Our root cause analysis is ongoing and modifications are being made to ensure these performance concerns are remedied.
Nicole Capisto: The facility is now expected to be fully operational by the second quarter of 2024, barring any setbacks. Our utility business, which serves 1.2 million customers, saw robust rate-based growth of 8.5% in the current year and customer growth of 1.3%. Looking forward, we expect to grow rate-based by approximately 7% annually over the next five years, and we expect customer growth of 1-2% annually. We plan to invest $2.3 billion in these businesses over the next five years to safely meet customer demand by upgrading and expanding infrastructure and facilities. Moving to our pipeline business, we experienced record annual transportation volumes in 2023. With the addition of expansion projects placed in service in 2023, our pipeline business now has the capacity to transport approximately 2.6 billion cubic feet of natural gas per day. This reflects a growth rate of 6.6 percent when compounded annually over the previous five years.
Nicole: The facility is now expected to be fully operational by second quarter of 2024 barring any setbacks.
Nicole: Our utility business, which serves one 2 million customers saw robust rate base growth of eight 5% in the current year and customer growth of one 3% looking.
Nicole: Our utility business, which serves one 2 million customers saw robust rate base growth of eight 5% in the current year and customer growth of one 3% looking.
Nicole: Looking forward, we expect to grow rate base by approximately 7% compounded annually over the next five years, and we expect customer growth of 1% to 2% annually.
Nicole: We plan to invest $2 3 billion in these businesses over the next five years to safely meet customer demand by upgrading and expanding infrastructure and facilities.
Nicole: Moving to our pipeline business, we experienced record annual transportation volumes in 2023.
With the addition of expansion projects placed in service in 2023, our pipeline business now has the capacity to transport approximately two 6 billion cubic feet of natural gas per day. This reflects a growth rate of six 6% when compounded annually over the previous five years.
Nicole Capisto: This business also has a number of growth projects underway that are expected to be in service during 2024, pending regulatory approvals. These projects would add over 300 million cubic feet of transportation capacity to our system. Including these projects, we plan to invest $405 million in this business over the next five years, focusing on system growth to continue to expand natural gas transportation capacity. Based on the performance of our regulated energy delivery businesses in 2023 and the growth we have planned for 2024, we are initiating 2024 earnings guidance for these businesses in the range of $170 million to $180 million. Moving on to our construction services business, phenomenal performance from this team of employees helped the business continue its trend of record results in 2023, as we saw margin improvement and strong ongoing demand for our services. While the team was able to successfully complete some large projects in 2023, Backlog includes additional large projects that will ramp up as we head into 2024. Backlog remains strong at this business at $2.01 billion as of December 31, 2023, down just slightly from the prior year record of $2.13 billion.
Nicole: This business also has a number of growth projects underway that are expected to be in service during 2024 pending regulatory approvals.
Nicole: These projects would add over 300 million cubic feet per day of transportation capacity to our system.
Nicole: Including these projects, we plan to invest $405 million in this business over the next five years focusing on system growth to continue to expand natural gas transportation capacity.
Nicole: With the performance of our regulated energy delivery businesses in 2023, and the growth. We have planned for 2024, we are initiating 2020 for earnings guidance for these businesses in the range of 170 million to $180 million.
Nicole: Moving on to our construction services business phenomenal performance from this team of employees helped the business continue its trend of record results in 2023, as we saw margin improvement and strong ongoing demand for our services.
Nicole: While the team was able to successfully complete some large projects in 2023 backlog includes additional large projects that will ramp up as we head into 2024 back.
Nicole: Backlog remains strong at this business at 2.01 billion as of December 31, 2023 down just slightly from the prior year record of $2 3 billion.
Nicole Capisto: With Construction Services' continued strong performance, we are initiating revenue guidance in the range of $2.9 billion to $3.1 billion with margins comparable to 2023, and EBITDA guidance in the range of $220 million to $240 million. Looking forward, our construction services business is well-positioned to benefit from increased bidding opportunities. With the funding from the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, as well as continued reshoring of manufacturing, our construction services business expects to see increased demand in 2024 and beyond. As previously mentioned, work on the spinoff of the construction services business is ongoing with an expected completion date of late 2024.
Nicole: With construction services continued strong performance, we are initiating revenue guidance in the range of $2 9 billion to $3 1 billion with margins comparable to 2023.
Nicole: And EBITDA guidance in the range of $220 million to $240 million.
Nicole: Looking forward, our construction services business is well positioned to benefit from increased bidding opportunities with the funding from the infrastructure investment and jobs Act and the inflation reduction Act as well as continued re shoring of manufacturing our construction services business expects to see increased demand in 2024 and <unk>.
Nicole: Beyond.
Nicole: As previously mentioned work on the spin off of the construction services business is ongoing with an expected completion date of late 2024.
Jason L. Vollmer: We will continue to keep you updated as we progress throughout the year. Our next opportunity to provide an update will be at our Investor Day, which is scheduled for March 13th at the New York Stock Exchange. Invitations will be forthcoming, and more information about the Investor Day will be available on our website. Overall, as we look ahead, we are encouraged by our opportunities for ongoing customer and system growth in our electric and natural gas utilities, our robust slate of pipeline expansion projects, and steady demand for our pipeline services, as well as high demand for our construction services. As always, MDU Resources is committed to operating with integrity and with a focus on safety while creating superior shareholder value as we continue providing essential services to our customers while being a great and safe place to work. I would now like to turn the call back over to Jason for a financial update. Jason?
Nicole: We will continue to keep you updated as we progress throughout the year.
Nicole: Our next opportunity to provide an update will be at our Investor day, which is scheduled for March 13th at the New York Stock exchange invitations will be forthcoming and more information about the investor day will be available on our website.
Nicole: Overall as we look ahead, we are encouraged by our opportunities for ongoing customer and system growth in our electric and natural gas utilities.
Our robust slate of pipeline expansion projects and steady demand for our pipeline services as well as high demand for our construction services.
Nicole: As always MDU resources is committed to operating with integrity and with a focus on safety, while creating superior shareholder value as we continue providing essential services to our customers, while being a great and safe place to work I would now like to turn the call back over to Jason for a financial update Jason.
Jason L. Vollmer: Thank you, Nicole, and I'm pleased to share our outstanding results for the year. This morning, we announced full year 2023 earnings of $414.7 million, or $2.03 per share on a generally accepted accounting principle, or GAP, compared to 2022 gap earnings of $367.5 million, or $1.81 per share. In 2023, income from continuing operations was $480.4 million, or $2.36 per share, compared to $250.8 million, or $1.23 per share, in 2022. It's important to note that with the spinoff of Knife River being completed, its results and other related impacts are reported as discontinued operations in our GAP-based results for the current and prior years.
Jason L. Vollmer: Thank you Nichole and I am pleased to share our outstanding results for the year.
Jason L. Vollmer: This morning, we announced full year 2023 earnings of $414 7 million or $2 <unk> per share on a generally accepted accounting principles or GAAP basis.
Jason L. Vollmer: Third to 2020 to GAAP earnings of $367 5 million or $1 81 per share.
Jason L. Vollmer: 2023 income from continuing operations was $484 million or $2 36 per share compared to $250 8 million or $1 23 per share in 2022.
Jason L. Vollmer: It is important to note that with the spin off a knife river being completed my first results in other related impacts are reported as discontinued operations in our GAAP based results for the current and prior years.
Jason L. Vollmer: As such, with the completion of the KnifeRiver spin-off... And we're continuing on the construction services spin-off, we're also reporting adjusted income from continuing operations to provide financial results that more closely correlate to and better outline the strength of our ongoing business operations. These adjustments reflect the $186.6 million gain on the tax-free exchange of the retained shares of Knife River, as well as other items related to our strategic initiative. For more information on these adjustments, please see the table provided on page 1 of our Earnings Newsletter. Adjusted income from continuing operations for 2023 was $305.1 million, or $1.50 per share.
Jason L. Vollmer: As such with the completion of an IPO or spinoff.
Jason L. Vollmer: And we're continuing on the construction services spin off we are also reporting adjusted income from continuing operations to provide financial results with more closely correlate to better outline the strength of our ongoing business operations.
Jason L. Vollmer: These adjustments reflect the $186 $6 million gain on the tax free exchange of the retained shares a knife river as well as other items related to our strategic initiatives for.
Jason L. Vollmer: For more information on these adjustments. Please see the table provided on page one of our earnings news release.
Jason L. Vollmer: Adjusted income from continuing operations for 2023 was $305 1 million or $1 50 per share.
Jason L. Vollmer: Compared to adjusted income from continuing operations of $254 5 million or $1 $25 25 per share in 2022.
Jason L. Vollmer: Compared to adjusted income from continuing operations of $254.5 million, or $1.25 per share in 2022, with all of our businesses contributing to the meaning of meaningfully growing this business during the last year. Our combined utility business reported record earnings of $120.1 million for 2023 compared to earnings of $102.3 million in 2022. Electric Utility reported earnings of $71.6 million compared to $57.1 million in 2022.
Jason L. Vollmer: With all of our businesses contributing to the muni contributing to meaningfully growing this business during the last year.
Jason L. Vollmer: Our combined utility business reported record earnings of $120 1 million for 2023 compared to earnings of $102 3 million in 2022.
Jason L. Vollmer: The electric utility reported earnings of $71 6 million compared to $57 1 million in 2022.
Jason L. Vollmer: The increase was primarily the result of higher retail sales revenue.
Jason L. Vollmer: Due to rate relief in North Dakota, Montana.
The electric service agreement to serve a data center customer that Nicole mentioned earlier and higher transmission interconnect upgrades.
Also favorably impacting the results were higher investment returns of $4 $7 million on nonqualified benefit plans.
Jason L. Vollmer: The increase was primarily the result of higher retail sales revenue due to rate relief in North Dakota and Montana, the electric service agreement to serve a data center customer that Nicole mentioned earlier, and higher transmission interconnect upgrades. Also favorably impacting the results were higher investment returns of $4.7 million on non-qualified benefit plans. Lower residential volumes, primarily from cooler weather in the third quarter, partially offset the increase.
Jason L. Vollmer: Lower residential volumes, primarily from cooler weather in the third quarter, partially offset the increases.
Jason L. Vollmer: Our natural gas utility business reported earnings of $48 5 million for 2023 compared to $45 2 million in 2022.
Jason L. Vollmer: This increase was primarily the result of higher retail sales revenues due to rate relief in Idaho and Washington.
Jason L. Vollmer: Higher investment returns of $6 9 million on Nonqualified benefit plans also provided a benefit in 2023.
Jason L. Vollmer: These increases were largely offset by higher operation and maintenance expense, primarily higher payroll related costs.
Jason L. Vollmer: Our natural gas utility business reported earnings of $48.5 million for 2023, compared to $45.2 million in 2022. This increase was primarily the result of higher retail sales revenues due to rate relief in Idaho and Washington. Higher investment returns of $6.9 million on non-qualified benefit plans also provided a benefit in 2023. However, these increases were largely offset by higher operation and maintenance expenses, primarily higher payroll-related costs. Also impacting the results was a decrease in natural gas retail sales volumes to all customer classes due to warmer weather, which was partially offset by weather normalization and decoupling mechanisms.
Jason L. Vollmer: Also impacting the result was a decrease in natural gas retail sales volumes to all customer classes due to warmer weather, which was partially offset by weather normalization and decoupling mechanisms.
Jason L. Vollmer: The pipeline business posted record earnings of $46 9 million in 2023 compared to $35 3 million in 2022 for an increase of 33% year over year.
The increase was driven by record transportation volumes as well as increased revenues from new transportation and storage service rates, which were effective August one.
Jason L. Vollmer: And higher storage related activity.
Jason L. Vollmer: This business also benefited from higher investment returns of $2 $4 million on nonqualified benefit plans.
Jason L. Vollmer: Actually offsetting the increase was higher operation and maintenance expense, primarily payroll related costs and contract services.
Jason L. Vollmer: The pipeline business posted record earnings of $46.9 million in 2023 compared to $35.3 million in 2022, for an increase of 33% year-over-year. The increase was driven by record transportation volumes, as well as increased revenues from new transportation and storage service rates, which were effective August 1st, and higher storage-related activity. This business also benefited from higher investment returns of $2.4 million on non-qualified benefits. Partially offsetting the increase was higher operation and maintenance expenses, primarily payroll-related costs and contract services. Interest expense was also higher due to higher interest rates and a higher debt balance.
Jason L. Vollmer: Interest expense was also higher due to higher interest rates and higher debt balances.
Jason L. Vollmer: Our construction services business reported record revenues of $2 85 billion and record earnings of $137 2 million.
Appeared to revenues of $2 7 billion and earnings of $124 8 million in 2022.
Jason L. Vollmer: EBITDA increased 15% year over year to $222 7 million in 2023.
Jason L. Vollmer: This business has experienced consistent earnings growth over the past five years growing 16, 4% when compounded annually over that time period, reflecting the increasing demand for these services and the strong business execution from this team.
Jason L. Vollmer: The construction services business reported record revenues of $2.85 billion and record earnings of $137.2 million, compared to revenues of $2.7 billion and earnings of $124.8 million in 2022. EBITDA increased 15% year-over-year to $222.7 million in 2023. This business has experienced consistent earnings growth over the past five years, growing 16.4% when compounded annually over that time period, reflecting the increasing demand for these services and the strong business execution from this team. Within the construction services business, Commercial workloads were favorably impacted by progress on large hospitality and data center projects. The institutional business line had higher margins due to efficiency in labor and material costs.
Jason L. Vollmer: Within the construction services business and twenty-three.
Jason L. Vollmer: Commercial workloads were favorably impacted by progress on large hospitality and data center projects.
Jason L. Vollmer: Institutional business line at higher margins due to efficiency in labor and material costs.
Jason L. Vollmer: Transmission and distribution revenues also increased with higher distribution transmission gas underground utility projects, partially offset by lower transportation workloads.
Jason L. Vollmer: Higher selling general and administrative expense largely due to increased payroll costs and higher reserve for uncollectible accounts on certain projects, partially offset the income increases.
Jason L. Vollmer: Also decreasing net income was higher interest expense due to higher working capital needs and interest rates.
As outlined within the segment discussions our businesses were impacted on a noncash basis by higher returns on nonqualified benefit plan investments.
Jason L. Vollmer: In total the impact was approximately $17 7 million or <unk> <unk> per share when compared to 2022.
Jason L. Vollmer: Transmission and distribution revenues also increased with higher distribution, transmission, gas, and underground utility projects, partially offset by lower transportation work. Higher selling, general, and administrative expenses, largely due to increased payroll costs and higher reserves for uncollectible accounts on certain projects, partially offset the income increase. Also decreasing net income with higher interest expense due to higher working capital needs and interest.
Jason L. Vollmer: We attribute the change in the investment returns to fluctuations in the financial markets.
Jason L. Vollmer: And finally, the company continues to maintain a strong balance sheet and ample access to working capital to finance operations through our peak seasons.
Jason L. Vollmer: Business momentum is strong as we head into 2024, and we will continue to provide updates regarding our 2020 for guidance and outlook as we progress through the year.
That summarizes the financial highlights for the year. We appreciate your interest in and commitment to MDU resources and ask that we now open the line to questions operator.
Jason L. Vollmer: As outlined within the segment discussions, our businesses were impacted on a non-cash basis by higher returns on non-qualified benefit plan investments. In total, the impact was approximately $17.7 million, or $0.09 per share, when compared to 2022. We attribute the change in investment returns to fluctuations in the financial markets. And finally, the company continues to maintain a strong balance sheet and ample access to working capital to finance operations through our peak season. Business momentum is strong as we head into 2024, and we will continue to provide updates regarding our 2024 guidance and outlook as we progress through the year. That summarizes the financial highlights for the year. We appreciate your interest in and commitment to MDU Resources and ask that we now open the line to questions. Operator.
Speaker Change: At this time I would like to remind everyone. If you'd like to ask a question. Please press star and then the number one on your telephone keypad, if you'd like to withdraw your question Press Star two on your telephone keypad.
Speaker Change: If you're on a speakerphone please pick up your handset before entering your question we.
Speaker Change: We will pause for just a moment to compile the Q&A roster.
Speaker Change: And our first question comes from Julien Dumoulin Smith with Bank of America.
Speaker Change: Hi, This is <unk> on for Julian good afternoon.
Speaker Change: Okay.
Speaker Change: Good afternoon.
Speaker Change: Alright.
Speaker Change: First just a question on the regulated guide.
Speaker Change: What is the underlying assumption for serving interruptible large customer load embedded within the guide and then also could you delineate the timing of when certain pipeline expansion projects could come online and how that's incorporated.
Operator: At this time, I'd like to remind everyone, if you would like to ask a question, please press star and then the number one on your telephone keypad. If you'd like to withdraw your question, press star two on your telephone keypad. If you're on a speakerphone, please pick up your handset before entering your question. We will pause for just a moment to compile the Q&A roster. And our first question comes from Julian Demulin-Smith with Bank of America. Hi, this is Tanner on behalf of Julian.
Speaker Change: Yeah. So I'll start and then ask if scared has any color commentary to add so in terms of the guidance that we're providing on the regulated side. It would include some revenue related to the additional expansion of the data center that was discussed in the script.
Speaker Change: Is that what your question related to.
Scared: Yes, and then also on the.
Speaker Change: Okay timing pipeline, yes, yes, and then I'll turn it over to Rob for a pipeline expansion projects and the timing thereof.
Speaker Change: Okay.
Jason L. Vollmer: Good afternoon. Good afternoon. Hi, first, just a question on the regulated guide. What is the underlying assumption for serving an interruptible large customer load embedded within the guide? And then also, could you delineate the timing of when certain pipeline expansion projects could come online and how that's incorporated? Yeah, so I'll start and then ask if Garrett has any color commentary to add. So in terms of the guidance that we're providing on the regulated side, it would include some revenue related to the additional expansion of the data center that was discussed in the script. Is that what your question related to? Yes, and then also on the timing of pipeline experience. Yep, and then I'll turn it over to Rob for pipeline expansion projects and the timing thereof.
Rob Johnson: So currently we have one pipeline expansion that we expect to come on in the <unk>.
Rob Johnson: First quarter of 2024.
Rob Johnson: That's our line section 27 expansion the other major project, we have in 'twenty four is our whopper to an expansion and we currently expect in service date for that to be in November of 2024.
Speaker Change: Great. Thanks, and then as it pertains to Heska gets delayed entry into service should we expect there could be elevated power costs here in the first quarter, especially in reference to the January winter weather event that occurred.
Speaker Change: I'll, let garry take that question.
Speaker Change: Good afternoon. This is Garrett and we wouldn't expect elevated costs without heskett, though there were some MISO did have some higher costs as a result of that long weekend event of whether that would flow through our fuel clause adjustment, but it would be unrelated to heska.
Jason L. Vollmer: So currently, we have one pipeline expansion that we expect to come online in the first quarter of 2024. That's our line section 27 expansion. The other major project we have in 24 is our Wahpeton expansion, and we currently expect the in service state for that to be in November of 2024. Great, thanks. And then, as it pertains to HESKET's delayed entry into service, should we expect there could be elevated power costs here in the first quarter, especially in reference to the January winter weather event that occurred? I'll let Garrett take that question. Good afternoon. This is Garrett.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: So the punchline is that.
Speaker Change: <unk>.
Speaker Change: Yeah. Okay. Thank you just going to say the punch line is those elevated costs are going to flow through our FCA tracking mechanisms.
Speaker Change: Great. Thank you very much alright, thanks Tanner.
Speaker Change: Your next question comes from the line of Ryan Levine with Citi. Please go ahead, Sir your line is open.
Ryan Levine: Hi, Thanks, Thanks for taking my questions I guess to start off in terms of the construction growth guidance for 2024, it seems like.
Ryan Levine: That step change lower then.
Ryan Levine: Prior year of over 15% can you unpack what the drivers are.
Garrett: We wouldn't expect elevated costs without HESKET, though there were some. MISO did have some higher costs as a result of that long-weekend event of weather that would flow through our fuel cost adjustments, but it would be unrelated to HESKET, www.mercierfilms.ca. So the punchline is that the... Yep. Okay. Thank you, Senator. I was just going to say the punchline is that those elevated costs are going to flow through our FCA tracking mechanisms. Great, thank you very much.
Ryan Levine: Or maybe the lower EBITDA guidance are there was a margin composition or if theres any other components that explain the.
Ryan Levine: Yeah.
Ryan Levine: Yeah I'll go ahead and ask Jeff to take that question, Jeff Yes. Thanks, Brian for the question. We've just completed another record year for <unk> and given the consistency of our backlog and our great talent.
Jeff Thiede: With the guidance going forward or there is some.
Operator: All right. Your next question comes from the line of Ryan Levine with Citi. Please go ahead, sir.
Speaker Change: Competition always in our field, but we've.
Operator: Your line is open. Thanks, thanks for taking my questions. I guess to start off in terms of the construction growth guidance, or it seems like a step change lower than the prior year of over 15%. Can you unpack what the drivers of maybe the lower guidance are? www.mdu.edu.au. Yeah, I'll go ahead and ask Jeff to take that question. Jeff?
Jeff Thiede: Being able to become a preferred provider for our services. We've got new project starts that are happening and coming off of some of the Mega projects. We've had most notably in Las Vegas, we see momentum carrying forward key is timing and of course once our projects gets started it'll all be about <unk>.
Jeff Thiede: Houston going forward and gave them confidence in our guidance ranges and I think we will continue to.
Jeff: Yeah, thanks, Brian, for the question. We've just completed another record year for CSG, and given the consistency of our backlog and our great talent, we're confident with the guides going forward. There is some competition, always, in our field, but we've been able to become a preferred provider for our services. We've got new project starts that are happening, and coming off of some of the megaprojects we've had, most notably in Las Vegas, we see momentum carrying forward. The key is timing, and of course, once our projects get started, it'll all be about execution going forward. Again, confidence in our guidance ranges, and I think we'll continue to perform at record levels. We view the current guidance as more conservative than maybe prior years. Highlighting or, I'm still enthusiastic about our level of guidance going forward, and as far as prior years, with our backlog and the consistency in our team, there's still demand for our services, so I don't really see that as conservative. I see it as enthusiastic, especially headed towards our spin.
Jeff Thiede: Pro forma at record levels.
Speaker Change: Do you view the current guidance is more conservative than maybe prior years, given given the competitive landscape that you're highlighting.
Speaker Change: Or is it comparable.
Previous expectations that were set.
Speaker Change: Still <unk> about our level of guidance going forward as far as prior years with our backlog and the consistency in our team there's still demand for our services. So.
Speaker Change: I don't really see that as conservative I see it as a <unk>, especially headed towards our spin.
Speaker Change: Okay.
Speaker Change: Just to reiterate that coming up.
Speaker Change: Ed.
Ed: Yes go for it.
Ed: Yes, I was just going to reiterate that coming off of multiple record years in a row, even if you look to the midpoint of the guidance that would yield yet another record for CST. So I think performance has been extremely strong for this team and they continue to execute itself.
Speaker Change: Okay, and then shifting gears to the utility in terms of the two upcoming outcomes.
Jason L. Vollmer: Okay. Yeah, I would just reiterate that coming up—oh, go ahead. No go part?
Garrett: Yeah, I was just going to reiterate that coming off of, you know, multiple record years in a row, even if you look to the midpoint of the guidance, that would yield yet another record for CSG. So I think performance has been extremely strong for this team, and they continue to execute. Okay, and then shifting gears to the utility of the two upcoming... outcomes. Okay. Help, www.verbalink.com EDITED-VMM-MGN-DQ, Are there any... www.verbalink.com, I'll ask Garrett to talk about the regulatory activity currently outstanding and the kind of timing thereof. So go ahead, Garrett.
Speaker Change: How it comes in the Dakotas.
Speaker Change: And what's the timeline that you would expect some type of resolution to those proceedings.
Speaker Change: And are there any key.
Speaker Change: The issues that you wanted to flag as they get closer to those outcomes.
Speaker Change: Yeah, I'll ask Eric to talk about the regulatory activity currently outstanding and kind of timing thereof. So go ahead Darren. Thank you for the question as you mentioned, we do have these cases pending in the Dakotas and we filed back in August of last year in South Dakota, both electric and gas.
Garrett: Thank you for the question. You know, as you mentioned, we do have these cases pending in North Dakota, and we filed them back in August of last year in South Dakota, both electric and gas. And we'll have interim rates coming into play March 1st in both of those jurisdictions, 2.7 on the electric side million, and then 7.4 million on the gas side for South Dakota. So again, new revenues on March 1st. And then in North Dakota, gas, we filed last November, and we've had interim revenue in place since January 1st. And we'd expect, you know, those cases to probably be finalized in the third quarter. Probably for this year, www.mdu.edu.au Okay, and then in terms of this panelist's day next month... or you could share around, www.verbalink.com Yeah, thanks for the follow-up on that.
Speaker Change: And.
Darren: We will have interim rates coming into play March 1st in both of those jurisdictions to seven on the electric side.
Darren: And then $7 4 million on the gas side for South Dakota. So again, new revenues in March 1st and then in North Dakota gas. We had filed last November and we've had interim revenue in place since January 1st and we would expect those cases to probably be finalize third quarter.
Darren: Probably of this year.
Speaker Change: Okay and then in terms of this analyst day next month.
Speaker Change: Any color you could share around expectations or what we should be looking for to come out of that event and this can be both on the utility side in construction or or focus more on the go forward utility businesses.
Speaker Change: Yeah. Thanks for the follow up on that we are excited about our Investor day that was rescheduled to March 13th 2024th in New York Stock Exchange. So just as you mentioned given some of the strategic changes underway at EM do you over the last couple of years, we thought that they would be a great way to provide some updates on our operational strategy and finance.
Jason L. Vollmer: We are excited about our investor day that was rescheduled for March 13, 2024, at the New York Stock Exchange. So, just as you mentioned, given some of the strategic changes underway at MDU over the last couple of years, we thought the day would be a great way to provide some updates on our operational strategy and financial plans as we progress and move forward on our strategy to become a pure play regulated business. But in addition to that, as you mentioned, we will look to provide some updates regarding CSG's business outlook and progress on the spinoff as well. So, in addition, we are celebrating our 100th anniversary in 2024, so we'd like to celebrate that. And it seems only fitting that as we celebrate the employees that came before us and created the company that we have today, that we are moving forward with another transformation that will pave the way for our future.
Speaker Change: Plans as we progress and move forward on our strategy to become a pure play regulated business, but in addition to that as you mentioned, we will look to provide some updates regarding <unk> business outlook and progress on the spin off as well. So in addition, we are celebrating our 100th anniversary in 2024, so we'd look to celebrate that in.
Speaker Change: It seems only fitting that as we celebrate the employees that came before us and created the company that we have today that we are moving forward with another transformation that will pave the way for our future. So excited to provide those updates on next month.
Jason L. Vollmer: So, I'm excited to provide those updates next month. Okay, great. Thanks for taking my question. Absolutely. At this time, I'd like to remind everyone that if you would like to ask a question, please press star 1 on your telephone keypad. If you'd like to withdraw your question, press star 2 on your telephone keypad. If you're on a speakerphone, please pick up the handset before entering your request. Your next question comes from Brian Russo on Citil. Go ahead, sir. Your line is open. Yahai, good afternoon.
Speaker Change: Okay, great. Thanks for taking my questions.
Speaker Change: Absolutely at this time I would like to remind everyone. If you would like to ask a question. Please press star one on your telephone keypad, if you'd like to withdraw your question Press Star two on your telephone keypad, if you're on a speakerphone. Please pick up the handset before entering your request.
Speaker Change: Your next question comes from Brian Russo with Sidoti. Please go ahead, Sir your line is open.
Brian J. Russo: Yes, hi, good afternoon.
Operator: Can you provide us with an update on the MISO-TRANS1 transmission project? You're working on, you know, where are you in the development stages and when might construction start, and how does that correlate, you know, to your multi-year CapEx profile? Yeah, absolutely.
Brian J. Russo: Okay. Good afternoon providers suite.
Brian J. Russo: Could you just provide us.
Brian J. Russo: An update on the MISO tranche one.
Brian J. Russo: Transmission projects.
Brian J. Russo: Youre working on and where are you in the development stages and when my construction start and how does that correlate to your multi year capex profile.
Garrett: I'll have Garrett talk about a little update there. The punchline is progress is being made here, and it's within the capital budget that we presented in the news release. But Garrett, go ahead and provide some additional details there. Good afternoon.
Brian J. Russo: Yeah, absolutely I'll have Gary talk about a little update there. The punch line is in progress is being made here and it's within the capital budget that we presented to the in the news release, but Garik go ahead and provide some additional details there.
Gary: Good afternoon that is correct this including the five year capital budget that we provided there is that the project is about $220 million in terms of what MDU share would be of that project and easement work is underway the approval processes will start in terms of.
Garrett: That is correct. It includes the five-year capital budget that we provided. The project is about $220 million in terms of what MDU's share would be of that project, and easement work is underway. The approval processes will start in terms of those easements, and then the project will, with the majority of the expenditures in the 26 and 27-year time frame, and the project then to be in service in that 28-year time frame.
Garik: Those easements and then the project will with the majority of the expenditures in the 26% and 27 year time frame and the property then to be in service in that 2008 timeframe.
Jason L. Vollmer: Okay, great. And, and I think there's an expectation... One follow-up I have... Go ahead. I was just going to mention that we did receive a CWIP return on that, so we'll be earning a return on that project. FERC approved our request for earning construction work in progress on that project as we go throughout the five-year cycle. Okay, Grant, I think there's an expectation that MISO will release the TRANGE2 project sometime this year. Any thoughts on timing and or, you know, what MDU's participation might be? Yeah, we'll go ahead and take that.
Speaker Change: Okay great.
Speaker Change: I think there is an ex Pat I wanted to follow up I have.
Speaker Change: Mhm.
Go ahead I was just going to mention that we do did received.
Speaker Change: <unk> return on that so we'll be earning a return on that project for broke approved our request for earnings construction work in progress on that project as we go throughout the five year cycle.
Speaker Change: Okay, Great and I think there's an expectation that MISO will release the tranche two projects sometime this year any thoughts on timing and or what <unk> participation might be.
Speaker Change: Yes.
Jason L. Vollmer: We'll be monitoring that. There's been kind of some movement back and forth in that. And so there is more to follow there. We're currently monitoring it and looking for opportunities to the extent that they exist. We will make sure that we update you accordingly. And there is nothing to update today. Okay, great. Okay. Just to clarify, you're now forecasting a utility rate-based CAGR of seven percent, while I believe your prior disclosures were six to seven percent. So does that insinuate, you know, that the rate-based CAGR is accelerating, albeit by 100 basis points? But I just wanted clarification.
Speaker Change: I'll go ahead and take that we'll be monitoring that there's been some movement back and forth on that and so more to follow there. We're currently monitoring it and looking for opportunities to the extent they exist we will make sure that we update you accordingly.
Speaker Change: But nothing to update okay great.
Speaker Change: Okay and.
Speaker Change: Just to clarify you're now forecasting a utility rate base CAGR of 7%.
Speaker Change: I believe your prior disclosures were 6% to 7%.
Speaker Change: So as Ed insinuate that the rate base CAGR.
Speaker Change: Is accelerating, albeit a 100 basis points, but just wanted clarification there.
Speaker Change: Yes, yes, we did update our rate base CAGR guidance to be reflective of the all in Capex that we presented here in terms of our five year capital plan. So yes. We are we are stating that today at 7%, which is an increase from all areas historically.
Jason L. Vollmer: Yes, yep, we did update our rate-based CAGR guidance to be reflective of the all-in CapEx that we presented here in terms of our five-year capital plan. So yes, we are. We are stating that today at 7%, which is an increase from what we were historically. Indicating.
Speaker Change: Indicating.
Jeff: All right, great. And then, switching gears, Construction Services Group margins are comparable according to your guidance of 24 versus 23, and I think, just back of the envelope, it looks like the EBITDA margin was 7.8%. Is that considered kind of normalized and optimal, you know, given the mix by business line, where E&M is about three-quarters of the revenue and T&D is about one-quarter, whereas T&D has much higher margins? So I'm just curious, you know, will you look to grow the T&D line of the business? at a more rapid rate to increase margins above 7.8%, or is that, is this kind of the, you know, the mix we should be thinking about going forward?
Speaker Change: Alright, Great and then just switching gears to <unk>.
Speaker Change: Construction services group.
Speaker Change: Yeah.
Speaker Change: Margins are comparable according to your guidance and <unk> 24 versus 23 and I think.
Speaker Change: Just back of the envelope looks like the EBITDA margin was seven 8%.
Speaker Change: Is that considered kind of normalized in an optimal.
Speaker Change: Given.
Speaker Change: Uh huh.
Speaker Change: The mix by business line, where <unk> is about three quarters of the revenue in T&D is about one quarter, whereas T&D has much higher margins. So I'm. Just curious you know will you look to grow the T&D line of the business.
Speaker Change: At a more rapid rate to increase margins above seven 8% or is that there's this kind of the mix we should.
Speaker Change: Sure.
Speaker Change: B thinking about going forward.
Speaker Change: I think it's a good mix.
Jeff: I think it's a good mix for going forward, but we're always looking to improve margins, as we did this past year. We had a number of project increases in cost basis that we were able to reflect and pass on to our customers through pre-construction. So as we develop new projects, we're able to update our estimates accordingly. We also had several Master Service Agreements that we renewed.
Speaker Change: Going forward, we're always looking to improve margins as we did this past year, we've had a number of project.
Speaker Change: Increases in cost basis that we were able to reflect and pass onto our customers through preconstruction. So as we develop new projects, we're able to update our estimates accordingly, we also have several msas that we renewed.
Jeff: We were experiencing accelerated inflationary pressures over the last couple of years, and not only did we catch up, but we were able to recover on some of our work going forward on our E&M and T&D sides. We're looking to expand both businesses if and when we have available acquisitions in our future, and then also, of course, most of our work has been, and our growth has been organically through the talent of our people. Okay, and what's your outlook for your renewable-related customers? You know, I know there was some volatility in 2023.
We were an accelerated inflationary pressures over the last couple of years and not only do we catch up where we were able to recover some of our work going forward on our E&S and TNT side, we're looking to expand both businesses.
Speaker Change: If and when we have available acquisitions in our future and then also of course most of our work has been our growth has been organically through the talent of our people.
Speaker Change: Okay, and what's your outlook for.
Speaker Change: You renewed your renewable related customers I know there was some volatility in 2023, just curious what the outlook is there or what you're hearing.
Jeff: Just curious, you know, what the outlook is there or what you're hearing from your, you know, renewable customers. Our outlook is strong. We picked up more renewable work in the Midwest through one of our E&M companies, in addition to the work that we had in the Southwest. So we have a number of projects that we're still targeting, and we look to get a couple of them in our backlog this quarter. And couple that with the work that's associated with the IIJA and IRA and also the CHIPS work funding, there's a lot of opportunity that's going to fuel our growth going forward. Okay, and then just lastly, you know, some extreme severe weather in the West, particularly in Southern California, maybe even spreading north now.
Speaker Change: From Europe renewable customers.
Speaker Change: Our outlook is strong we picked up more renewable work in the Midwest through one of our E&S companies. In addition to the work that we had in the southwest. So we have a number of projects that we're still targeting and we look to get a couple of them in our backlog.
Speaker Change: This quarter.
Speaker Change: And coupled out with the work that's associated with the Iga, a an IRR and also the chips.
Speaker Change: Work funding there is a lot of opportunity that's going to fuel our growth going forward.
Speaker Change: Okay, and then just lastly, some extreme severe weather.
Speaker Change: And out west, particularly in southern California, maybe even spreading north now.
Jeff: And I'm just curious, how are you managing that? Are you losing man hours or even days of work? And then is there any emergency response work that you might be able to capture? We had ice storms in the Pacific Northwest, and of course, we've got quite a bit of rain and floods in Southern California.
Speaker Change: Just curious how how are you managing that.
Speaker Change: Are you losing.
Speaker Change: Man hours or even days.
Speaker Change: <unk>.
Speaker Change: Work.
Speaker Change: And then is there any.
Speaker Change: Emergency Emergency response work that you might be it <unk>.
Speaker Change: To be able to capture.
Speaker Change: Yes, we had ice storms of the Pacific Northwest and of course, we've got quite a bit of rain and floods in southern California. So.
Jeff: So, we have had some labor hour impacts, nevertheless. We've also had some storm work opportunities out of our Midwest company. And then, of course, we were on standby earlier this week and deployed crews, as of yesterday, to help those in need by restoring and repairing those services and getting people back to work. With some of the devastation to the infrastructure and systems that you're seeing in the news, we expect to be there to be able to get people back online with their power, gas, and communications as soon as possible. We see opportunity there to help others and to be able to help our business. Okay, and just curious, you know, in comparison to last year's extreme weather in California. You know, how would you compare that to this year? Less impactful or comparable, less or more?
Speaker Change: We have had some labor hour impacts. Nevertheless, we've also had some storm work opportunities out of our Midwest Company and then of course, we've been on standby earlier this week and deployed crews as of yesterday to help those in need by restoring and repairing those services and getting people back to work.
Speaker Change: With some of the devastation to the infrastructure and systems at that Youre seeing in the news, we expect to be there to be able to get people back online with their power gas in their communications as soon as possible, we see opportunity there to help others and to be able to help our business.
Speaker Change: Okay, and just just curious in comparison to last year's extra.
Speaker Change: Extreme weather in California, how would you compare that to this year less in.
Speaker Change: Impactful.
Speaker Change: Our comparable or less or more.
Jeff: Not more in California, and a little bit less in other parts of the country where we've done storm work for 2023. So, again, we're on a first-call basis to be able to be deployed and help out in those areas where we have offices and crews that we can deploy to help. Okay, great. Thank you very much. This marks the last call for questions. If you'd like to ask a question, press star, then number one on your telephone keypad.
Speaker Change: More in California, a little bit less in other parts of the country, where we've done storm work for 2023 so.
Speaker Change: Again, we've we are on a first call basis to be able to be deployed in and help out in those areas, where we have.
Speaker Change: Offices and crews that we can deploy to help.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Okay.
Speaker Change: This marks the last call for questions if you'd like to ask a question Press Star then the number one on your telephone keypad. The webcast can be accessed at www dot MCU dot com under the Investor relations heading select events and presentations and click here and 2023 earnings conference call.
Operator: The webcast can be accessed at www.mdu.com under the Investor Relations heading. Select Events and Presentations and click Year End 2023 Earnings Conference Call. After the conclusion of the webcast, a replay will be available at the same location.
Speaker Change: After the conclusion of the webcast a replay will be available at the same location.
Speaker Change: Okay.
Jason L. Vollmer: At this time, there are no further questions. I would like now to turn the conference back over to the management for closing remarks. All right, I would like to thank all of you for taking the time to join us for our year-end 2023 earnings call. We are extremely proud of the team's performance in 2023, and we are optimistic about our growth opportunities in future regulated delivery projects. I am excited about the strong demand and performance of our construction services business as we look to expand it later this year.
Speaker Change: At this time there are no further questions I would like now to turn the conference back over to the management for closing remarks.
Speaker Change: Alright, I would like to thank all of you for taking the time to join US for our year end 2023 earnings call I'm extremely proud of the team's performance in 2023, and we are optimistic about our growth opportunities in future regulated delivery projects excited about the strong demand and performance of our construction services.
Speaker Change: As we look to spend them later this year. We thank you again and appreciate your continued interest in and support of MDU resources and with that I'll turn the call back to you operator.
Operator: We thank you again and appreciate your continued interest in and support of MDU Resources. And with that, I'll turn the call back to you. Operator? And this concludes today's MDU Resource Group conference call. Thank you for your participation. You may now disconnect.
Speaker Change: Okay.
Speaker Change: And this concludes today's MDU resources Group Conference call. Thank you for your participation you may now disconnect.
Speaker Change: Yes.