Q1 2025 MDU Resources Group Inc Earnings Call
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Ina: Hello, my name is Ina, and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group 2025 First Quarter Earnings Conference Online sub-inplace and mute to prevent any back-on-ones.
Ina: After the speakers remarks, there will be a question-in-answer period. If you would like to ask a question during this time, simply press start and the number one on your telephone keyboard. If you would like to withdraw your question, press start to on your telephone keyboard.
Ina: The webcast can be accessed at www.mdu.com, under the investor's setting, select events and presentations, and speak Q1 2025 earnings conference call.
Ina: After the conclusion of the webcast, a replay will be available at the same location.
Speaker Change: I would not like to turn a conference over to Jason Vollmer, Chief Financial Officer of MDU Resources Group. Thank you Mr. Vollmer, you may begin your conference.
Jason Vollmer: Thank you operator, and I'd like to welcome everyone to our first quarter, 2025 Renews Conference call.
Jason Vollmer: You can find our earnings release and supplemental materials for this call on our website at www.mdu.com under the investors tab.
Jason Vollmer: Meeting today's discussion along with me is Nicole Kivisto, President and CEO of MDU Resources
Jason Vollmer: During our call, it will make certain forward-looking statements within the meaning of the securities laws, federal securities laws. 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.
Jason Vollmer: I'll provide consolidated financial results later during the call, but first we'll turn the call over to Nicole for her remarks.
Nicole Kivisto: Thank you, Jason, and thank you everyone for joining us today and for your continued interest in MDU Resources.
Nicole Kivisto: We are off to a strong start in 2025. This morning we reported income from continuing operations of 82.5 million or 40 cents per share for the first quarter a 10.4% increase compared to this time last year.
Nicole Kivisto: Our pipeline and natural gas distribution segments grew earnings by 13.9% in 11.5% respectively year over a year, driving our solid first quarter performance.
Nicole Kivisto: I am extremely proud of our employees whose dedication to our core strategy continues to deliver exceptional performance in positions in MD Resources with compelling long-term growth prospects.
Nicole Kivisto: Our utility experienced 1.4% combined retail customer growth compared to a year ago, which is in line with our 1-2% annual projected growth rate. This growth reinforces our need to invest in our utility infrastructure to meet the demands of our growing customer base.
Nicole Kivisto: At our electric segment, we signed a purchase agreement to acquire a 49% ownership interest in the Badger Wind Farm during the quarter, which equates to 122.5 megawatts of the project's total 258 megawatts of generation capacity.
Nicole Kivisto: The purchase is contingent on certain regulatory approvals and we have filed an advanced determination of prudence with the North Dakota Public Service Commission for this project.
Nicole Kivisto: We also anticipate filing general rate cases in Montana and Wyoming at our electric segment yet this year.
Nicole Kivisto: From a legislative perspective, wildfire prevention and liability limitation bills have passed in three of our four electric states.
Nicole Kivisto: Wyoming, North Dakota, and Montana. While we remained focused on designing processes to prevent wildfires in our service territory, this legislation provides greater certainty going forward and limits liability.
Nicole Kivisto: We continue to see data center opportunities, including the 580 megawatts of data center load we have undersigned electric service agreements.
Nicole Kivisto: of that total 180 megawatts is currently online with an additional 100 megawatts expected to come online late this year. And the balance expected to continue through the next few years.
Nicole Kivisto: 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 other retail customers. Thank you very much.
Nicole Kivisto: Adorn Natural Gas Distribution Segment, rate relief was a strong contributor to the quarterly results.
Nicole Kivisto: In Washington, we received a final order approving our multi-year rate case with year-one rates of effective March 5th, 2025, and your two rates of effective March 1st, 2026.
Nicole Kivisto: Subsequently, we did file a revision to decrease revenue slightly due to forecast the plant that was not placed in service by December 31st, 2024.
Nicole Kivisto: In Montana, we received approval of interim rates effective February 1st, and also filed a settlement agreement on April 3rd, 2025.
Nicole Kivisto: In Wyoming, we have reached a settlement in principle in our rate case there and anticipate filing that settlement in the near term.
Nicole Kivisto: We also anticipate filing a general rate case in Idaho yet in the second quarter.
Nicole Kivisto: Moving on to our pipeline statement, we achieved record first quarter earnings up 13.9% from the first quarter of 2024.
Nicole Kivisto: The segment is executing well on our core strategy and delivering strong results driven by strategic expansion in increased demand for transportation and storage services.
Nicole Kivisto: 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 Kivisto: In January 2025, we completed a non-binding open season for our proposed Buccanease Pipeline project that could run approximately 375 miles from the Buccane region to Eastern North Dakota.
Nicole Kivisto: This project would provide much needed takeaway capacity to meet the forecasted natural gas production growth in the region and provide natural gas transportation service to industrial power generation and local distribution companies.
Nicole Kivisto: Currently we are engaged in planning and discussions with potential customers and landowners along the proposed route and we are targeting an in service date of late 2029 for the first phase of this project and late 2030 for the second phase.
Nicole Kivisto: As a reminder, this project is not currently in our five-year capital forecast and would be incremental should we determine to proceed.
Nicole Kivisto: Additionally, in April , we announced a binding open season for the Baker storage field enhancement and transportation expansion project.
Nicole Kivisto: The proposed project could add 72 million cubic feet per day of new firm natural gas storage deliverability and transportation service.
The Open Season runs through May 20th, 2025 The Open Season runs through May 20th, 2025.
Operational Excellence Conference.
Nicole Kivisto: Returns Focus, and Employee Driven. We believe we are a well-positioned for growth into the future with anticipated capital investment of 3.1 billion over the next five years.
Nicole Kivisto: 7-8% compound annual utility rate-based growth in customer growth expected in the 1-2% range annually.
Nicole Kivisto: We also anticipate a long-term EPS growth rate of 66-8% while targeting a 60-70% annual dividend payout ratio.
Nicole Kivisto: As always, MDU Resources is committed to operating with integrity and with a focus on safety. We remain dedicated to delivering value as a leading energy provider and employer of choice.
Nicole Kivisto: I will now turn the call back over to Jason for the financial update Jason. Thank you Nicole and I'm pleased to share the details of our first quarter results
Nicole Kivisto: This morning we announced first quarter earnings of 82 million or 40 cents per diluted share compared to first quarter 2024 earnings of 100.9 million or 49 cents per diluted share.
Nicole Kivisto: First quarter, income from continuing operations was 82.5 million or 40 cents per share compared to 74.7 million or 37 cents per share in the prior year.
Nicole Kivisto: As we look at our individual businesses, our electric utility reported first quarter earnings of 15 million compared to 17.9 million for the same period in 2024
Nicole Kivisto: Retail Sales Revenue increased due to higher volumes for residential customers due to colder weather and from higher data center volumes.
Nicole Kivisto: This increase is more than offset by higher operation and maintenance expense, largely from higher contract services for outage related costs at two electric generating stations. Increase software and insurance expenses and higher payroll related costs. [inaudible]
Lower returns on non-qualified benefit plan investments also impacted the results.
Nicole Kivisto: Our natural gas utility segment report earnings of 44.7 million in the first quarter and 11.5% increase over the first quarter of 2024.
which was $40.1 million.
Nicole Kivisto: The improvement was larger, the result of higher retail sales revenue due to rate relief in Washington, Montana and South Dakota as well as increased volumes due to colder weather
Nicole Kivisto: These increases were partially offset by higher operation maintenance expense and lower investment returns on non-qualified benefit plans.
Nicole Kivisto: The pipeline segment posted a record first quarter earnings of 17.2 million compared to 15.1 million in the first quarter last year.
Nicole Kivisto: Deering's increase was driven by growth projects placed in service throughout 2024 and customer demand for short-term firm capacity contracts.
High Restorant Related Revenue Further Drilled the Increase
Nicole Kivisto: Partially offsetting the increase was higher operation of maintenance expense, primarily higher payroll-related costs.
Nicole Kivisto: The business also incurred higher depreciation expense due to the growth projects we previously discussed, and lower investment returns on non-qualified benefit plans.
Nicole Kivisto: Finally, MDU Resources continues to manage a strong balance sheet and maintain ample access to working capital to finance its operations through other peak seasons.
Nicole Kivisto: While we have no equity needs in 2025 based on our current capital plan, our $3.1 billion capital investment program over the next five years will likely require some access to the equity capital markets. As such, we plan to reestablish an ATM program in the near term to meet those future needs.
Nicole Kivisto: Business momentum is strong as we close out the first quarter of 2025, and we will continue to provide updates regarding our 2025 guidance and outlook as we progress throughout the year.
Nicole Kivisto: That summarizes financial highlights for the quarter. We appreciate your interest in in commitment to MDU Resources and ask that we now open the line for questions. Operator?
Speaker Change: Thank you. And if some, I would like to remind everyone, if you would like to ask your question, please best start in the number one on your telephone, keep at it. If you would like to withdraw your question, please best start in the number two.
Speaker Change: If you are on a speaker fault, please be hinted before pressing any keys. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Chris Ellinghaus. From Seaburg, William Shanks, please go ahead.
Nicole, um...
The large customer load strategy that you guys are deploying
Speaker Change: Are the rates that you're seeing demanded from the large customers? Not a creative for new resources and what you're seeing?
Speaker Change: 530 of that is in our Elendale location, and there was really a unique opportunity there to serve that load in a capitalite manner because we had a situation where there was basically constrained, constrained area or pocket within our system where there was generation that was not getting to market. [inaudible]
Speaker Change: was shared with this large customer, and that benefit then went back to our retail customer base.
Speaker Change: So that strategy and that particular pocket was the right strategy for that time. What I will say is we continue to evaluate in conversations with other customers if it would make sense to look at incremental generation. Of course, that is going to have to make sense for us financially. It will have to make sense for our regulators and also certainly not have impact to our overall retail customer base. So we continue to look for opportunities to think differently going forward but currently today we like the model that we have.
Speaker Change: There's an awful lot of potential disruption to the economy.
Speaker Change: Have you got any thoughts that certainly there's some potential disruption to the work and certainly with the oil prices where there are in the type of...
Speaker Change: We'll resource that the Bachan is. Have you got any thoughts on how it might affect, particularly, you know, North Dakota?
Speaker Change: Gast Oil Ratio, increasing over time. It certainly is an oil play. It's very important to the state of North Dakota. And so as you can imagine, the state is very interested in the Bakken region and totality but as it relates specifically to the MDU resources, one of the things that we see is...
Speaker Change: that there is more need for takeaway capacity and we've talked to investors about that in the past and that one of the drivers is because the gas to oil ratio has been increasing over time.
Speaker Change: So, yes, the pricing environment does ebb and flow, but we do believe long-term in what's happening in the back end and believe that there are long-term benefits, not only produce a push benefits from but customer pull, you know, industrial demand has increased, you know, we've talked about natural gas fire generation being a driver for growth in the future, all of those fundamentals we still sink hold.
Speaker Change: Okay, so your thought is the gas side is at least in the long term more of an offset to whatever kind of pressures there might be on the oil in the near term.
Speaker Change: Yeah, for the most part, I would say you summarized that right. I mean, yeah, go ahead, Jason, were you gonna add to that? Yeah, I was gonna say I'm certainly, you know, even if...
Speaker Change: The protections that we see from whether it's north to go to pipeline authority or other places would show that
Jason Vollmer: even if oil stays relatively flat. So again, not a lot of drilling, but you're going to see the gas oil ratio continue to climb where gas continues to be a benefit here. Again, gas is not the target in the box and oil is the target. So that does have some impact on the capital dollars flowing into into drilling opportunities, but
There is also some concern about...
Jason Vollmer: sort of housing starts. And I guess that's really more of a residential type of concern. So just thinking about your service areas and what might be impacted, I was kind of curious your thoughts on this.
Jason Vollmer: One of your higher growth areas is Boise and just given the type of economic development in Boise.
Jason Vollmer: Would you be thinking that that area is somewhat insulated from economic sensitivity given the types of large customer growth?
Jason Vollmer: that is taking place there and therefore the residential growth that you benefit from might be more or less economically sensitive.
Jason Vollmer: Over time, as we think about the customer growth rate, and again, I would say we look at this from an overall perspective, we have been writing in that range of 1-2% within that 1-2% and that is carried through periods of slow down and acceleration and so economic conditions obviously do matter, but I would say fundamentally we have been able to kind of stay within that range. Now as it relates to Idaho specific, you are correct. We have, as we...
Jason Vollmer: We thought about that market. We have certainly seen that as being one of the faster growing areas within our service territory. And again, that has ebbed and flowed a little bit but continues to rise to the top in terms of one of our higher customer addition areas. Thank you very much.
Jason Vollmer: That all being said, as you know, rate base is also certainly a consideration as we think about earnings potential within the utility and so I would take you back to as we think about our ability to grow rate base within our utility. We're still very focused on achieving that 78% rate base growth, which ultimately drives earnings growth as we think about the forward look. [inaudible]
Speaker Change: Okay, that's helpful. Jason, can I ask you sort of an accounting question here? In your pre-stated number versus last year's?
versus what you were on a reported basis last year.
Speaker Change: Yeah, so if we look back to last year, there's a couple of things when you look at the restay of numbers, who would be?
Speaker Change: Accounting for, as you mentioned, Everest being pulled out as a discontinued operation. We would also have probably some cost still continuing as we went through the process of separating knife or every other year before that some of that would flow through us.
Speaker Change: Continuing or discontinued operations in the prior year and even going back as far as when we separated previous businesses before like fidelity if you remember that part of the business in the past there are a few things that end up in discontinued operations that flow through those numbers. The bulk of what's there is going to be Everest related. I think if you look at just the regulated energy delivery earnings we posted last year and [inaudible]
Speaker Change: You know, to buy that out by our number of shares, it would have gotten you in that probably 35, 36 cents range per share. Our number that we're showing now is 37 cents for the prior year, so there's not a lot of impacts on their outside of the Everest transaction, be the biggest piece of it. [inaudible]
Speaker Change: Is any portion of that your assessment of the disenergies of the separation?
Speaker Change: No, the disenergy is actually those are costs that would be end up flowing through O&M on the remaining businesses here so that actually is in continuing operations and is reflected in the 40 cents that we that we showed for the quarter here this point 25 [inaudible]
Chris: All right, that's what I wanted to figure out. Okay, thanks so much for the details. Guys, appreciate it. Thanks, Chris. Thank you for your time.
Chris: Thank you, and your next question comes from the line of Julian Dumlin Smith from Jeff
Hi, it's Brian Rousseau, I'm for Julien.
All brand
Speaker Change: Hello. Hey, just we could just focus on the electric segment first.
Speaker Change: The earnings were down year-over-year. It did report retail electric volumes up 25%.
Speaker Change: I was just wondering if maybe we could unpack kind of the…
Speaker Change: The positive drivers like sales versus some of the negative drivers like the outages and maybe quantify what the lower returns on the non-qualified plants look like they just seem like.
Speaker Change: Victor Barnes, we're so strong that I'm surprised it was, you know.
Down as much as it was here over here. [inaudible]
Speaker Change: Yeah, thanks, Brian . I can jump in and field some of those and we'll quantify some as we can along the way here But for the most part, if you look at the electric on a year over your basis, if you think back to our previous few years, we've been through a lot of great case activity and the electric side of the business.
Speaker Change: And we really didn't have much of that that would have been incremental in Q1 of this year, right? So that was those rates were primarily put in in fact in prior years we did not have a significant amount of
Speaker Change: I would all call regulatory rate relief in Q1 versus prior year on that one.
Speaker Change: What we did have is, of course, some higher on am, which you would expect as we've seen, payroll increases and just general cost increases along the way.
and some of that I want to show you to the...
Speaker Change: Generation Outages, as you mentioned as well, and I can cover off on that in a minute. I think generally speaking, if you look at the increase in volume, you may remember last year in the first part of the...
Speaker Change: Online at that point in time, they had some outages on their end.
Speaker Change: so they were not taking as much power. So a lot of that retail electric volume increase was really that data center now being online for the full first quarter where it had not been for the first quarter and actually a little bit in the second quarter last year as well. [inaudible]
Speaker Change: As far as the outages that we saw, we did have a planned outage in our estimates this year, as we thought about setting guidance, that was for our Kyle Stations, so that was an outage that we knew was...
Speaker Change: going to have some sort of an impact for us here as we went through the air.
Speaker Change: and really probably largely gets completed by the end of Q2. The other one was my plant outage, actually, at a core facility that we have with Wai-Jen.
and that was ...
Speaker Change: Again, I'm planning out a little bit of an impact from there. So all of those things, though, I think as we set our guidance earlier in the year and as we've reaffirmed our guidance range here today, those are all included in those numbers. So I didn't expect to see a big impact. The other item that you had to ask was the
Speaker Change: The non-qualified benefit plan. So, again, I remember the equity markets in the first part of last year had an equity end-ed markets. I guess probably had a pretty strong return profile and there are some assets.
Speaker Change: Set aside here to cover live abilities for these non-qualify plans that we do end up seeing some income statement impact to but we did really saw we just a different performance in the investments in the first quarter here than we saw in the first quarter of last year so not a significant impact if you would see it as a driver in each of the segments it was. That's it.
Speaker Change: I'll quantify it probably in total somewhere in the neighborhood of a penny per share for the entire organization not just for electric but across all of our segments. But overall I guess not significantly different than what we would have seen previously so hope that answers your question.
Speaker Change: Yes, that's helpful. And then just maybe to follow on now that you have the 180 megawatts from applied digital online.
Speaker Change: Yeah, so our ESA does have some band around sharing and I would hesitate to give you an answer on that right now because it really will depend on how our performance is throughout the year, not just on a quarter by quarter basis. So we do an annual.
Speaker Change: filing on that with the state as we look through that piece. So, depending on performance and electric throughout the year, we can probably update you with that later in the year, but we haven't been in a situation in prior years where we have had to share some with the state in
Speaker Change: which again is a good measure for those that may not be familiar if we get above a 10-ROE. We end up having to share some of that back with our customers and we get to keep a portion of it as well. So that's a good position to be in and we have been in that in the past, whether we're going to be in there in 2025 or not yet to be determined. So that's a good measure for those that may not be familiar if we get above a 10-ROE.
Speaker Change: Okay, great. And then on the book and I'm sorry, the pipeline second, the book and East project, are you more confident in that unsuccessful development, following the conclusion of the open season? And then, you know, what are the next?
Speaker Change: Milestones, Assuming Elite 2029 and 2030 Phase I Phase II start.
Speaker Change: Yeah, I would characterize it as conversations continue. So you heard us on last quarter a call talk about that we continue conversations with customers and that is...
Speaker Change: certainly what we are doing. And so those conversations will really inform us in terms of overall route timing, et cetera. And so I would characterize it probably as we did really last quarter. We're encouraged by the feedback that we're getting from customers.
Speaker Change: More to follow as we know more and as I mentioned previously this is not currently in our five year capital forecast and to the extent that we get new information and get more clarity here we will certainly be providing that to investors as we move forward.
Okay, great. Thank you very much.
Speaker Change: Thank you. As a reminder, if you would like to ask a question, please press start and the number one on your telephone keyboard. To withdraw your question, please press start and the number two. If you're using a speaker phone, please click the handset before pressing any keys. Your next question comes from the line of friend Levine from CD. Please go ahead.
Fran Levin: Hi, everybody. A couple of questions. I have to unbox, unbox and ease, you know, recognizing.
Fran Levin: Production Outlooks continue to evolve and you did the open season in January . Would there be a more comprehensive or an updated open season anticipated? Or do you think these more bespoke one off conversations?
are enough to inform your commercial project.
Nicole Kivisto: Yeah, right. I can jump in here a little bit and Nicole can certainly add it along the way too. I think this is the next step, right? So we are really working with the individuals that respond to the, the
Nicole Kivisto: Original Open Season to really understand what's the timing, what's the need, what's the amount that they may be looking at for deliverability. Then it would proceed to more of a formal agreement after that, whether we actually go forward with a...
Nicole Kivisto: Those are things that would happen down the road so right now I think this is really setting the stage but you know eventually we want to get to a point where we have a route we have a design we have a size we have a you know kind of a final cost estimate that we look at
Nicole Kivisto: which gets us to being able to really enter and affirm agreements here and then being able to subsequently, you know, file for for comparable at some point in the future as well.
Nicole Kivisto: And what role does the recent tariffs play in terms of the commercial attractiveness of Black and East? How material are the current tariff proposals or current tariffs that are in place to the cost structure for that project?
Nicole Kivisto: Yeah, if we look at the current tariffs today and again it's early in the trade discussions process right now and certainly tariffs I mean I think there was announcements today having a chance to catch up yet but as far as potential deals getting done in certain areas but it's early in that process I would say this when you look at a large project like this there's a lot of components to it right there is
Nicole Kivisto: Securing right away, there is engineering and design, some of those things we can do in the house. Some will have to hire third parties. The material piece of that is certainly an important part of that.
but even with some tariffs on up.
Nicole Kivisto: You know, a piece of the materials, pipe as an example, or whatever the measurement ends would be to go along with that. That will have some impact, but it's probably not, it's probably something we can plan for and design around as we look at that and be able to get final numbers in place to put in front of someone for an approval. So, don't see that as something that would derail the projects we're looking at today.
Speaker Change: Okay, and then unrelated in terms of wildfire legislation and some of the states that you operate, how do you see that impacting or potential legislation impacting future wildfire mitigation plans or any type of derisking effort that the company may be pursuing?
Speaker Change: Yeah, good question, Ryan. So essentially, as I mentioned on the call, we did get legislation passed in three of our states.
Speaker Change: I would say is it relates to our mitigation plans that the company certainly was already proactive and had plans in place to do what we could to prevent on an overall basis. So what I see in terms of, you know, the benefits of this legislation really is going to be that we can formalize those plans more officially with folks and obviously that.
Speaker Change: That formalization of the plan is dependent on the state. So, you know, state by state, I could talk to you about that. There's a little bit of variations between the states.
Speaker Change: But once we've done that, then that kind of proves then to that regulatory body that we have done our part and then ultimately the benefit gets to limiting liability if something were indeed to happen. But obviously, our first and, you know, most biggest priority, I guess I should say, would be prevention in the first place and the company is active in doing what we can there.
Speaker Change: Great, and then just two quick clarifying questions. You think it was mentioned the potential ATM filing, is there a size?
Speaker Change: anticipated and then in terms of your 60% EPS growth, but what's your starting point that you're growing off of that? Is that actual 24 or could you just clarify the starting point for the long-term growth rate?
Speaker Change: Yeah, no, it's a great question. So I'll start with the ATM question first. So we have not determined the size and not yet. Again, we are working through that process. We're looking forward to
Speaker Change: Future needs. Again, right now our current capital would plan which will we do not have any equities in 2025. We would see some potential starting in 2026 as we've talked about before.
Speaker Change: So as we look through, you know, typically an ATM program has probably got about a three year time horizon to what so we try to size it to an appropriate amount to maybe offset our needs during that time period. That's yet to be determined. We'll follow up with public filings on that later this year.
Speaker Change: And the second question on the 68% long-term growth rate maybe helped me with the last part of that question again, right? Just to clarify this starting point, was that also the original 24 at the minute or the actual estimate?
Speaker Change: You know, it's part of our last few years of kind of made the historical look back kind of noisy on that front from a public standpoint. So I would tell you that it's...
Speaker Change: Probably the same range if you use the adjusted 2024 number. You can use either one again up in the same spot. So I think from that perspective we would, I'd be comfortable saying it's based on that adjusted 2024 number or on the 2025 range we put out this year.
Great. Thanks for taking my questions.
Thank you. Thank you.
Thank you. At this time, there are no further questions. I would no like to turn a conference back over to management for closing remarks.
Speaker Change: Alright, thank you again for joining us today. We appreciate your interest in and support of India Resources and look forward to connecting with you throughout the year. And with that, I'll turn the call back over to you operator.
Speaker Change: Thank you, and this concludes today's MDU Resources Group Conference call. Thank you for your participation. You may now disconnect.