Q4 2024 MDU Resources Group Inc Earnings Call
Hello, My name is Constantine and I will be your conference facilitator.
At this time I would like to welcome everyone to the MDU resources group year end 'twenty 'twenty four earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' 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 would like to withdraw your question Press Star two on your telephone keypad.
Webcast can be accessed at www dot <unk> dot com under the investors heading select events and presentations and click gear and the 'twenty 'twenty four events earnings conference call.
After the conclusion of the webcast a replay will be available at the same location.
Speaker Change: I would now like to turn the conference over to Jason Vollmer, Chief Financial Officer of MDU Resources Group. Thank you. Mr. Vollmer you May now begin your conference.
Speaker Change: Thank you operator, and welcome everyone to our year end 2024 earnings conference call.
Speaker Change: Can find our earnings release and supplemental materials for this call on our website at Www Dot MDU dot com under the investors tab.
Nicole: Leading the discussion today with me is Nicole <unk>, President and CEO of MDU resources also with US today to answer questions. Following our prepared remarks are Rob Johnson President of WBI energy and Garrett singer, our Chief Utilities Officer.
Nicole: During the call we will make certain forward looking statements within the meaning of the federal Securities laws.
Nicole: For more information about the risks and uncertainties that could cause our actual results to vary from any forward looking statements.
Nicole: Please refer to our most recent SEC filings.
Nicole: We may also refer to certain non-GAAP information for the definition and a reconciliation of any non-GAAP information to the appropriate GAAP metric. Please reference our earnings release.
Nicole: With the completion of the Everest construction groups spinoff occurring October 31, we reported results of that rest of the discontinued operations in our prior period results have been restated to reflect the completion of both the Everest and knife River spin offs.
Nicole: I will provide consolidated financial results later during the call, which will reflect this change, but first one I'll turn the call over to Nicole for her remarks Nicole.
Nicole: Thank you Jason and thank you everyone for spending time with us today and for your continued interest in MDU resources.
Nicole: 2024 was truly a transformational year for our company during which we celebrated our 100th anniversary.
Nicole: Completed the spinoff of Everest construction group and also provided tremendous value to our stockholders I am extremely proud of our team.
Nicole: We have reached our stated goal of becoming a pure play regulated energy delivery business and believe we are positioned India resources for continued growth and future success.
Nicole: Underpinning all of this as a continued strong performance of our business. Our adjusted earnings per share from continuing operations increased 22% year over year to <unk> 90 per share.
Nicole: Pipeline segment again achieved a record earnings in 2020 for a 45% increase year over year, driven by record transportation volumes and increased storage revenue.
Nicole: Our electric segment also experienced earnings growth in 2024, driven largely by rate relief. These.
Nicole: These achievements underscore our unwavering commitment to delivering safe and reliable service and sustainable growth with our dedicated employees playing a pivotal overall and our continued success.
Nicole: We believe our business remains poised for a compelling long term growth prospects.
Nicole: At our utility our combined retail customer base grew by one 4%.
Nicole: Which reinforces our companies need to proactively manage our utility infrastructure to meet the demands of our growing customer base.
Nicole: We also saw six 8% rate base growth in 2024.
Nicole: We continue to see data center opportunities, including the four 500, excuse me and 80 megawatts of data center load, we have under signed electric service agreements.
Nicole: Of that total 180 megawatts is currently online with the balance starting to come online in 2025 and expect it to continue through the next few years.
Nicole: Our current approach is to serve these large customer opportunities with a capital light business model, which not only benefits our earnings and returns, but also provides cost savings to our retail customers.
Nicole: On the regulatory front, we remained very active with several ongoing actions, including a natural gas rate case filed in Wyoming on October 31.
Nicole: Well, we are requesting an annual increase of $2 6 million or 14%.
Nicole: On November 7th the North Dakota Public Service Commission approved our natural gas rate case settlement with final rates effective December one.
Nicole: On December 11th a multiparty settlement agreement was filed in our Washington, multi year natural gas case case with rates proposed to be effective March one 2025 and March one 2026.
Nicole: On January 14th the Montana Public Service Commission approved our interim rate increase request after reconsideration with interim rates effective February one.
Nicole: And subject to refund as we finalized the general rate case outcome.
Nicole: Our focus remains on delivering safe and reliable electric and natural gas services to our expanding customer base with active efforts to seek regulatory recovery for our investments.
Nicole: As mentioned at our pipeline segment, we achieved record earnings and record transportation volumes for the third consecutive year.
Nicole: This segment is executing well on our core strategy and delivering solid results driven by strategic expansion increased demand for transportation and storage services and continued benefit from new transportation and storage services rates that were effective August one of 2023.
Nicole: We remain committed to investing in future expansion projects to meet increasing customer demand for services, including strong interest from industrial customers and power generation projects.
Nicole: The recently signed agreement to serve a new electric generation facility being developed in northwest North Dakota.
Nicole: We are targeting an in service date of late 2028 to begin serving gas to that facility.
Nicole: On November 1st we closed on the purchase of a 28 mile natural gas pipeline lateral in northwestern North Dakota.
Nicole: Lateral extends our pipeline system to our natural gas processing plant in the Bakken.
Nicole: Our Washington expansion project in Eastern Eastern North Dakota, which provides approximately 20 million cubic feet of natural gas transportation capacity per day was placed in service on December one.
Nicole: We also held a non binding open season for a potential Bakken East pipeline project, which could consist of 375 miles of pipeline construction from Western North Dakota to Eastern North Dakota.
Nicole: This open season concluded on January 31, and we are currently evaluating those results.
Nicole: We are initiating 2025 earnings per share guidance in the range of 88 to <unk> 98 per share.
Nicole: This range reflects continued strong performance across our segments coming off a very strong performance in 2024 as previously stated while also accounting for the absence of nonrecurring items, we experienced in 2024 and the synergies from the <unk> spinoff, which together total approximately.
Nicole: <unk> <unk> per share impact when comparing 2024 to 2025 guidance.
Nicole: As we look ahead, we are focused on our core strategy with a commitment to customers and communities operational excellence returns focused initiatives and an employee driven culture.
Nicole: We believe we are also well positioned for growth into the future with an anticipated capital investment of $3 1 billion over the next five years.
Nicole: 7% to 8% utility rate base growth and customer growth in the 1% to 2% annually.
Nicole: We also anticipate long term EPS growth of 6% to 8% re basing that number off of 2025 to reflect our new pure play regulated structure, while targeting a 60% to 70% annual dividend payout ratio.
Nicole: We are looking forward with great optimism the prospects for continued customer and system or <unk> system growth in our electric and natural gas utilities and the strong performance of our pipeline with consistent demand for pipeline services are all promising as we move into 2025.
Nicole: As always MDU resources is committed to operating with integrity and with a focus on safety.
Nicole: We remain dedicated to creating superior shareholder value as we continue providing essential products and services to our customers.
Nicole: While being a great and safe place to work.
Nicole: I will now turn the call back over to Jason for the financial update Jason. Thank.
Jason Vollmer: Thank you Nicole.
Jason Vollmer: I had to share our results for 2020 for.
Speaker Change: This morning, we announced full year earnings of $281 1 million $1 37 per share on a GAAP basis.
Speaker Change: <unk> 2023, GAAP earnings of $414 7 million or $2 <unk> per share.
Speaker Change: It's important to note that certain costs associated with the spin off the ball at knife River in May of 2023, and Everest in October of 2024 are reported as discontinued operations in our GAAP based results.
Speaker Change: 124 income from continuing operations was $181 1 million.
Speaker Change: <unk> 88 per share compared to $331 million or $1 62 per share in 2023.
Speaker Change: As a reminder, we experienced a gain on the retained shares a knife river in 2023 of $186 6 million net of tax which was reported in continuing operations in 2023.
Speaker Change: To provide financial results of the more closely correlate with and better outline the strength of our ongoing business operations. We're also reporting adjusted income from continuing operations for more information on the adjustments. Please see the first table in our earnings release.
Speaker Change: Adjusted income from continuing operations for 2024 was $184 4 million or <unk> 90 per share a 22% increase when compared to the 2023 adjusted income from continuing operations of $158 million or <unk> 74 per share.
Speaker Change: As we turn to our individual segments of our electric utility reported earnings of $74 8 million compared to $71 6 million in 2023.
Speaker Change: The increase was largely the result of higher retail sales revenue from rate relief of North Dakota, South Dakota and Montana.
Lower volumes from the majority of customers largely due to cooler weather in the second quarter of 2024, and higher operation and maintenance expense, partially offset the increase.
Speaker Change: Total earnings impact from data center loads in 2024 was approximately $3 million.
Speaker Change: Our natural gas reported earnings.
Speaker Change: Gas business reported earnings of $46 9 million compared to $48 $5 million in 2023.
Speaker Change: The decrease was largely due to higher operation and maintenance expense and higher depreciation and amortization expense, primarily due to increased asset additions.
Speaker Change: These decreases were partially offset by higher retail sales revenue due to rate relief in North Dakota, and South Dakota.
Speaker Change: The pipeline segment posted a third consecutive year of record earnings totaling $68 million in 2024, which compares to $46 9 million last year.
Speaker Change: The earnings increase was driven by record transportation volumes, primarily from growth projects placed in service in November of 2023 and throughout 2024.
Speaker Change: Higher storage related revenue and a full year of new transportation and storage rates, which were effective in August of 2023 further drove that increase.
Speaker Change: The business also benefited from proceeds received in their customer settlement that was recorded in other income as well as a decrease in the Companys effective state income tax rate.
Speaker Change: The increase was offset impart by higher operation and maintenance expense and higher depreciation and amortization expense due to growth projects placed in service as I previously mentioned.
Speaker Change: And finally MDA resources continues to maintain a strong balance sheet and ample access to working capital to finance our operations throughout our peak seasons.
Speaker Change: Business momentum is strong as we start 2025, and we will continue to provide updates regarding our 2025 guidance and outlook as we progress throughout the year.
Speaker Change: That summarizes the financial highlights for 2024, we appreciate your interest in and commitment to MDU resources and ask that we now open the line for questions operator.
Speaker Change: At this time I would like to remind everyone. If you would like to ask a question. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star two on your telephone keypad.
Speaker Change: Using a speaker phone please pickup your handset before entering your request.
Speaker Change: We'll now pause for a moment to comply the Q&A roster.
Speaker Change: Your first question comes from the line of Ryan Levine from Citi. Please go ahead.
Speaker Change: Hi, everybody.
Speaker Change: Maybe just start off how.
Speaker Change: How should we interpret the change in guidance around equity issuance from no planned equity.
Speaker Change: Till 2027.
Speaker Change: Current language of no near term equity issuance is there a change there.
Jason Vollmer: Yes, Brian This is Jason I'll take that one no real change from what we talked about in November. So we had originally.
Jason Vollmer: Talked about 2027 at our Investor Day last spring and then when we updated our capital forecast in November and increased.
Jason Vollmer: That amount of capital, especially when you see some additional capital in 2026, we did change that target there to say now we don't expect any.
Jason Vollmer: Equity issuance in 2025, and our current forecast, but we would look to see some to facilitate the growth projects. We're looking to put in place in 2026.
Jason Vollmer: Okay.
Jason Vollmer: And then in terms of the North Northwest North Dakota gas.
Jason Vollmer: Potential or pipeline expansion.
Jason Vollmer: A little more color around the <unk>.
Jason Vollmer: What the customer is there capital volumes any earnings contribution in 2028 or or any way to frame that opportunity.
Jason Vollmer: Yes, I can I can start with that and then turn it over to Rob to add a little bit color as well, but I think youre asking about the Bakken East open season that was recently completed or which projects you are talking about in 2020.
Jason Vollmer: All of the new customer new customer that we signed on.
Jason Vollmer: So that.
Jason Vollmer: That project is to serve a electric and natural gas fired electric generating station in northwest North Dakota, and we will see the capital increase in 2028 out of our pipeline segment. So the punch line. There is it is baked into our overall five year capital budget and would be anticipated.
Jason Vollmer: Our overall guidance on EPS EPS basis of 6% to 8%.
Jason Vollmer: Is there any color around the amount of capital for that expansion of our opportunity.
Jason Vollmer: Yes, we haven't quantified that specifically, but as you will note. There is a step change as you look at the outer years of the capital and so you can kind of get your arms around a range. If you look at the step change on the capital.
Jason Vollmer: Okay.
And then in terms of the <unk>.
Jason Vollmer: Current guidance for 2005, you mentioned this <unk>.
Jason Vollmer: The impact from dis synergies.
Jason Vollmer: Any other.
Jason Vollmer: Numbers, you could speak to.
To quantify the step change in year over year.
Jason Vollmer: Earnings outlook.
Speaker Change: Yes, I can start stepping in there on the <unk> that Niccolo mentioned in her remarks, that's actually a combination of not just the synergies, but also while we saw some one time impact. So you may have noted in my comments I talked about a customer settlement that we had in 2024, which was a nonrecurring type of item we had some changes too.
Jason Vollmer: What we see as a tax rate.
Jason Vollmer: On a state basis that resulted in some repricing of deferred is just kind of based on where we invested capital last several years. So part of that relates to 2024 as far as an impact to non.
Jason Vollmer: Nonrecurring items that we saw during the year and then part of that would be related to.
Jason Vollmer: As we look forward into some dis synergies in that and again. Neither one of these are very significant in total we're talking about a <unk> <unk> kind of change you can kind of break that out seeing a couple of cents in 2024 related to the impact from the nonrecurring items and probably a couple of cents in 2025, as we look at that related to the <unk>.
Jason Vollmer: Energy items.
Jason Vollmer: There are there any other drivers that you wanted to highlight in terms of year over year comparison.
Jason Vollmer: Yes, overall, I think where we start is we can't we're coming off of a 22% increase on a year over year basis. So we feel like that's a yes.
Jason Vollmer: Certainly setting the bar pretty high for them from a growth perspective. So we did see some tremendous results pipeline that we've mentioned here a little bit already the growth that we saw their storage was a huge impact on that business. The utility to continue to perform very very well as well within that but certainly some outsized growth I think in 2024, given the 22% increase.
Jason Vollmer: On a comparable adjusted numbers. So as we look forward, we still see if you look at the.
Jason Vollmer: Probably towards the midpoint of our range some growth on a year over year basis, we do think our long term, 6% to 8% growth rate is.
Jason Vollmer: The right number for us and we look over the long term.
Jason Vollmer: But we've just had a tremendous amount of success for the last couple of years and excited about where we're headed into the next few years.
Speaker Change: Yeah, and the only thing I would add to that Ryan would be as we look at our historic ability to execute on what we've what we've told investors I think we've got a good track record there and then when we look at these businesses in total we have delivered about an 8% compound annual growth rate over the last five years, So again, Jason alluded to our.
Speaker Change: One year year over year increase of 22%. If you look at that over the long term now that we've delivered about 8% in these businesses over the last five years. So that also gives us some confidence as we look ahead on that 6% to 8% EPS growth.
Speaker Change: Thank you.
Speaker Change: Thank you at this time I would like to remind everyone. If you would like to ask a question. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star two on your telephone keypad.
Speaker Change: If you are on speaker phone please pickup your handset before entering your request.
Speaker Change: Your next question comes from the line of Julien Dumoulin Smith from Jefferies. Your line is now open.
Speaker Change: Yes, it's Brian Russo on for Julien.
Hi, Brian.
Speaker Change: Hello could you maybe if we could break down.
Speaker Change: The 2025 guidance, maybe more detailed in the 10% range.
Speaker Change: Directionally, what could get you to the high end versus the low end I assume you get the full year of <unk>.
Speaker Change: Sensors in North Dakota.
Speaker Change: Yeah.
Speaker Change: I would think that the MRP.
Speaker Change: Cascade side, we'd hope to gas.
Speaker Change: But maybe there's other rate relief timing, there and then could you quantify what normal storage margins are or what they like the year over year.
Speaker Change: Step down versus the solid 2024.
Speaker Change: The pipeline segment.
Speaker Change: Yeah, So maybe I'll start and then Jason can weigh in with some commentary as well, but as we look at that guidance range. What I'm hearing you ask is how do we range bound there. So how could we maybe get to the higher end of that range and what would be some of the key drivers as we think about this you heard me talk on that.
Speaker Change: Presentation about storage.
Speaker Change: We did have a very strong storage here here and 2024.
Speaker Change: Now could that continue and provide some upside or give us some benefit to be in the higher end of that range next year, certainly if we continue to see a strong storage here that could provide opportunity there as we noted in our news release, we do plan for normal weather So certainly.
Speaker Change: Outside of normal weather provide some volume opportunity within our utility business.
You mentioned the rate case activity and we have a settlement that is on file we expect to hear from.
Speaker Change: From the Washington, 10 commissioned this month on that we do have that factored in already into the range that we have provided but certainly there are some gives and takes on O&M would be another thing that I point to we'll continue to try to move forward and contain O&M, where we can in that that also provides some room within that overall range.
Speaker Change: Jason anything else that you would point to I think those are all good points. I mean, you mentioned again the rate filing just one thing to note there too we expect rates on the Washington case to take effect in March based on current assumption are we still working with the commission on the right timing within that so again not a full year of benefit for that in 2024 here, but our <unk> 125.
Speaker Change: But a partial year on that.
Speaker Change: But again excited about getting that case behind us here.
Speaker Change: You also mentioned I think DSA as Brian and what we see on that front from sort of an electric load.
Speaker Change: The data center side, we are serving 180 megawatts currently.
Speaker Change: We do expect to see more of that begin to ramp and during the year. So I guess changes in timing of when some of that ramps and could move that around a little bit but.
Speaker Change: Again, the 580 that we have under contract to serve now I just want to make clear that's going to take a couple of years to ramp all of that into our <unk> business here. So some of that will begin in 2025, so timing on that would have some impact on that range as well.
Speaker Change: Okay.
Speaker Change: Okay, great and any.
Speaker Change: Site into the Bakken East Nonbinding Mou I know you said you are evaluating the results, but what would be the next steps are.
Speaker Change: Are there any preliminary.
Speaker Change: Investment dollar amounts that you would like to convey I mean, we've heard some very large industry wide <unk>.
Speaker Change: Projections with nearly a $1 billion for the project just curious in is what you see in the pipeline last year and your outlook is it just increasing the dynamics you see it's increasing.
Speaker Change: The chance of the Bakken used to move forward.
Speaker Change: Yes, I will certainly start here and ask Rob to provide some commentary as well but.
Speaker Change: I'll start by saying you know one of the things that we talk about with investors is we really like the strategic position of our assets within the Bakken and not only our ability to connect to other pipe by our access to storage and that and so this is.
Speaker Change: Our bread and butter in terms of the location here, we did as we mentioned complete the non binding open season and are very pleased with the results and overall level of interest that we received on the project to date.
Speaker Change: You're asking about next steps next steps would be to evaluate these results and move forward and work with those that have submitted to get those indications to more of a binding. So we would move to a binding level of commitment and seek that from the customers before making a decision on the overall project.
Speaker Change: I think it goes without saying this project will be incremental to the five year forecast that we have in front of investors to date.
Speaker Change: You are asking about the sizing.
Speaker Change: Really this is going to depend on the length of the pipe how much customer interest we have and so at this point.
Speaker Change: They have not come out with any borders around the overall level of investment in some of that will be.
Speaker Change: Predicated on level of binding interest so.
Speaker Change: With that being said I'm looking to Robin Jason to see if they would have anything they want to add to that.
Speaker Change: Okay.
Speaker Change: <unk> I think you are.
Speaker Change: Summarized it well like I said very pleased with the results of the open season.
Speaker Change: And now it will be just too.
Speaker Change: Finalize the details around the project itself and determine overall size and length. Thank you mentioned.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: This marks the last call for questions. If you would like to ask a question. Please press Star then the number one on your telephone keypad the.
Speaker Change: The webcast can be accessed at www dot MDU dot com under the investors heading select events and presentations and click year ended 2024 earnings conference call.
Speaker Change: After the conclusion of the webcast a replay will be available at the same location.
Speaker Change: At this time there are no further questions I would now like to turn the conference back over to management for closing remarks.
Speaker Change: Yes.
Speaker Change: Alright. Thank you everyone for your interest in MDU resources, we are looking forward to 2025 and beyond we appreciate your continued interest in our company and we'll keep you posted as we move forward. Thank you for joining the call today.
Speaker Change: Operator back to you.
Speaker Change: This concludes today's MDU resources Group conference call. Thank you very much for your participation you may now disconnect.
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