MDU Resources (MDU) 4 Nov 212021 Q3 Earnings call transcript

Hello. My name is Erica, and I'll be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group 2021 Third Quarter 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. will today for on through call X:XX beginning November This Eastern PM XX:XX Instructions] be replay available at XX. [Operator PM Eastern ID conference for replay XXXXXXX. The the is XXXXXXX. ID the number Again, the replay conference is for XXX-XXX-XXXX. The number to for the X-XXX-XXX-XXXX replay is dial or now conference to I Vice like Jason MDU of turn Financial Chief and Officer to Resources Vollmer, the would over President Group. Thank you, Mr. Vollmer.

your You conference. may begin

call. everyone Erica, our third conference and earnings welcome to you, Thank XXXX quarter

website at You and our our this release call President supplemental tab. and I leading today's Goodin for under can discussion. materials www.mdu.com and find earnings be Dave Investors the on CEO, will

forward-looking On Group; the Jeff Barth, and to questions President, Kivisto, of may Resources. discussion CEO Nicole CEO Corporation; of Group; XXXX. including Thiede, Vice and President remarks responses following of Exchange of Act our the Chief CEO of line Securities Accounting President David certain within and Hastings, WBI and questions Barney, are, MDU Energy; and Controller River Section XXE Utility Today's statements of President answer of our to President Services Knife of Trevor the Construction CEO meaning Stephanie and prepared Officer MDU contain

its assumptions, beliefs materially. expectations believes based on are reasonable company the Although, actual that differ could results and

year's earned or On share, million, per per per to $XXX.X year-to-date announced In third quarter most today in or we million, quarter addition, SEC earnings XXXX have prior any million, measure are non-GAAP of $X.XX measures to the compared comparable third per $X.XX of earnings directly and or Yesterday, discussed share $XXX.X million, the filings. share. compared GAAP a $X.XX reconciled to our release $XXX.X earnings $XXX.X basis, we or share. $X.XX

on from third quarterly this third period million. million. million by also Results were prior earnings a of labor. costs million segment, available impacted negatively same the record quarter a year's by contract the decreased tax Construction from decreased had some comparison of XXXX quarter. employee business the quarter higher reported in services the during business the to estimates of $XX.X $XX.X EBITDA earnings at shortage look our construction after of million to attributed $XX.X skilled $X.X to construction Let's compared in operations. margins of $XX.X changes for with This starting details of

this While we recovery has utility saw work our the year, very less for strong. storm the than work demand prior quarter remained general

third $XXX.X period million. the $XX.X construction year's Our business and and $XX.X million. quarter, product to reported sales lower were prior decreased materials as million lower revenues. well the margins, as last primary from year EBITDA drivers contracting The earnings related same asphalt the from $XXX.X the earnings of behind for down million decreased

margins as less and and highway incentive expense, certain third lower the impacted and work and as general were benefit-related quarter strong we were selling, in when regions, asphalt contracting paving Asphalt fuel well by in increase accruals primarily products in offsetting these administrative oil costs, lower XXXX. compare Partially from diesel impacts an you lower available to costs. experienced that

delivery energy business. regulated our to Turning

$XX.X quarter, segment period utility a business businesses a in same of also reported impact the XXXX. income Increased retail transmission to million of XXXX. Our the MISO had when electric pandemic-related with drive volumes, open, quarter due to Warmer for earnings net combined compared million, upgrades, to helped in increase revenues being of interconnect utility earnings of positive million last business. The strong more on sales weather along this impacts. and reported the for in quarter net third year $X.X an XX.X% electric $XXX,XXX $XX.X loss compared of third to compared

gross retail improvement primarily from annualized from margin segment had expense. million million business the from over to like of the turn estimated summarizes quarter The now of his a from partially the offset remarks. Higher the adjusted timing I'd for $XX.X compared loss, Dave? in of pipeline $XX.X the gas financial XXXX, higher higher during O&M Also key natural $X.X quarter, for the increase North and recognition million on Resources $X.X tax our MDU rate. Dave previous Bakken to consolidated of decreased Expansion which related loss was XXXX, AFUDC gas compared quarter earnings project. relief approximately the to tax reported million experienced benefits in by an of quarter. natural of volumes third That the rate a when $X million the X% call Our the year. the And in lower expected seasonal income sales drove the highlights to third company's to quarter, of formal third quarter

was the energy a thank to unit, as positioned construction activity everyone end you regulated Thank two-platform remains by to your from for our I'll evident third interest the off energy start Jason, XXXX continued with Resources. and business for and with some delivery of for The spending strong MDU time today, strong well model helped beyond. us you strength listening, quarter of during the and delivery our Resources our MDU business businesses. faced. here results headwinds the offset business summarize regulated in businesses To

regulatory our the a with year-over-year utility basis. On is that X.X% basis, natural refiled combined on service a our the to in million growing growth Washington to $XX.X currently increase And utility period saw include in quarter, a utility base. and the for natural our operations gas for safe for and we annual providing customer electric highlights in third seek of high reliable XXXX. continues pending. costs quarter rate earnings since customer recovery Third a The significantly associated state same gas the

filings You just filed about in can morning. and regulatory our that read XX-Q other more this these we

XXXX. kick-off X, early XXXX in our which on early preparing is Station in continue to be We to construction service Heskett expected in Unit

X a retirements of of Station Clark IV pending coal-fired the Heskett that loss peaking coal-fired aid the the Unit is Heskett reminder, natural will generation partially was that Units X X a with retired the and this quarter in unit replacing Lewis first year. our and Unit gas As & in

performed pipeline on and its North throughout just also the Construction underway well record. reported Our is earnings third well quarter of Expansion project. third shy business Bakken very the quarter XXXX

We early expect customers. that fully to subscribed will project in XXXX, feet XXX capacity cubic for per service with day natural be million gas in our transport of

expanded tell one the of growth. in well natural year year the forecasted volumes $XXX the customer had the to for future North portion firsthand, at team. positioned are time we see other this and members I project construction a efficiently Dakota the readily While gas of to and opportunity recently can the are as -- is delayed visit at site an management I year Northwestern Bakken can last this our And working impressive to together over was discussed it production time, employees complete the million you safely first XXX and committed last in in project. with be contractors

early day move begin the North Dakota. It facilities expected will North total and and is expected capacity to approximately Expansion that Wahpeton construction be cost to help per which also of of our approvals, cubic billion is of Project. gas feet complete, projects approximately X.X system Depending $XX WBI's the region completion regulatory on will natural add year. involves will same with more pipeline for markets. Our natural This the received during in flaring in day, producers approval Bakken pipeline to miles third When cubic later natural Mapleton FERC than feet Expansion use to at business to constructing from to project Wahpeton the allow existing XXXX extending gas per quarter North Wahpeton million. date are capacity process pre-filing XX million gas natural gas the its XX review XX-inch to more reduce and Dakota

to move on platform. our construction like Now to I'd

footprint specialty high remains contracting group by across the to with focus the backlog our will ended increased work. Construction a especially leasing for have strong demand and the for have year, commercial Demand with just utility-related to that equipment results outside us of inside combined retention do continue high of also coupled remain service in profitable this third changes shortages down to project we billion billion. where In year's services costs prior to impacted positive. line construction with quality specialized we in markets XXXX, and labor Our repair Bidding competitive that costs but remains work labor turn down across of Storm-related company's budgets our employee-related $X.XX for higher construction continue continue services the our well high, the strong record a Opportunities existing we from quarter securing the was estimates that contract, $X.XX specialty and were of the the experienced the effective utility the in the caused transmission outlook on overall projects. as business very contracting and manufactures for quarter. skilled as, in expect year services see as, for customers, that cost operates management slightly with CapEx of on see utility sector. the sales aid attraction relationships we compared labor. industry, last construction remains

now reflect earnings. closer billion impact appear down the this and we year, to our this first had adjusted higher services from costs in levels have $X.X River, to impacts although third were finally range commodity XXXX revenues to to with construction as quarter expect to construction earnings Knife comparable for We billion materials fuel to our third a oil guidance very strong primary revenue quarter asphalt While margins for record a And what The at in half last we be saw of return costs the diesel year's business. XXXX. margin of the to in business third quarter. had and segment levels. the $X.X solid

you energy-related truck COVID-XX year. a largely pushed product line impacted near last margins pandemic our by labor constraints, amplified drivers, costs the remember, prior asphalt-related a as Knife to As asphalt has for labor shortage. and may River been also existing high all-time and decreased

well both skills, XX,XXX foot holding classroom The center heated trucks on center education facility. as, for to helping experience. training employees impact attracting labor the current those is the on Knife next in the its engaged Pacific property is XXX-acre Northwest. and generation The industry. track attached industry. arena lab an of company with already is a and hands-on to equipment While students XX,XXX heavy the organizations, That build building challenges training marketable center of foot and a training in construction Knife office The through River and indoor features training partner skills as companies, classroom provide classes, enhance many to designed newcomers and River actively nearly square to is of construction an to the continue finishing square

developing the even addition of talents, facilities showcase true career are as River. to open construction In Knife individual the choice. is to companies a classes goal of all to The center beyond and construction

quarter third business. $X.X range we this the margin of are guidance for the billion. still have be adjusted our in results, expected Given billion to to $X.X Revenues

Knife are September $XXX.X now to year's seen million. XX% be in $XXX.X projected was the a from than those lower slightly million, However, prior as XX backlog margins of XXXX. increase River

strong are from conditions. seeing regions We more certain bidding in opportunities economic

from We careers employees navigate our have in we employees continue the that a will our level, the confident entry level with I spending seeing. to labor challenges industry. to management entire number teams management through are exceptional am their of

to COVID-XX teams performance we X.X adjusted not third while have results quarter, pandemic challenges continue reach managed Resources the third through the solid effectively. our guidance safely $X.XX Based by and last results. companies the and the to produce operate our a anticipated, per have our the operations Overall on had share. our years range through continue earnings solid of Over to through share our $X.XX per and we MDU quarter we results to numerous and did level presented now

both along infrastructure forward our from American construction construction federal the businesses funds with plan. Rescue Looking positioned, Act benefit services well allocation materials are and a the Plan to of

in broadband and Bipartisan will bridges, including years. on infrastructure roads significant the vehicle our the construction and coming also projects focus customers companies will build-out upside bill infrastructure electric provide and progresses the upgraded certainty for power As construction provide the traditional funding for of our and

operations. We to share acquisition opportunities construction will market that our seek also enhance for continue

questions. we and Operator? with superior committed to as As delivering creating while and essential with to always customers line focus MDU commitment strong of I in operating is ask a on we to our Resources that providing America. the tagline safety shareholder building continue services to now value a open appreciate interest MDU your and on Resources our and integrity

Your first comes of Bank Instructions] [Operator of question from Lozny Dariusz with America. line the

visibility taking start American to Act question. in noticed I'd afternoon the like for Q, it language just than itself now. like have the you seems Can in around manifest little in as segment. might Hey result? you're prospective to a quarters. seems on my beginning previous see states I are perhaps It saying Rescue like like the at it do segment's materials better when comment a disbursements Plan allocations we you that the you good basis that guys. from maybe Thank seems sounds to

Dariusz, then We're their wants to state he headed those starting of various I'll if deal legislators are see add with have way. ask legislators some -- that. – start actually funds and Dave Barney to to to look that

And some fuse those a those. with funds actually of have associated

point time. certain a by up used be to need in they So

of, think ways of funds start the color would making you add marketplace other as And the so to that? to in -- year. process to But next Dave just see expect I have but some would you'd their to early any as say Barney to I want we that's would those

think covered next it of year We would in Dave, see more -- you to No definitely more it. expect XXXX. I

get Dariusz question? did your we

No regions those certain regions delta perhaps economic you on in those there or to opportunities margins stay seeing can color. conditions. you're in language what You also the are? seeing materials in also on bidding of increase I very was If there that's there Could segment, sort you're And I certainly elaborate the an kind did. in helpful some about opportunities? think of additional related which

Dave, could question you please? take that

our commercial out. they're Sure. We're of Oregon, of bidding especially Montana in in now. regions our work an right increased a few Even in quite strong Idaho, a seeing really coming lot California

share are now. this right They're on margins our work, There's the of we'll So, get but a it. people really tight. bidding of tight lot

one the on adjustment guys revenue. you or related just could services by is one called out, driven ask Great. principally if contract down I guide to Okay. that And on on Is -- the the to related perhaps it that demand?

Thiede respond one. ask to to Dariusz, I'll Jeff that Yeah.

for Thanks by primarily the timing. question. It's driven

of Some have projects. with replaced away mega or finishing finished, not that projects we other been right our have are

start record our at $X.XX into ago. If our timing that $X.XX very have some of look you a backlog on projects projects backlog has a we year. take just at billion these It's the in year close of next a backlog billion issue out to when that slipped

the a I of timing bit more backlog given that little strong Did that it's Jeff billion there. know primarily catch backlog timing Dariusz, again broke that, up current our have. a about you maybe we a more talking $X.XX and that – of see given issue

Thank just briefly. I more I that detail. did catch if that. could one in for And you squeeze

that XXXX sort – X% range? on we of as potentially your now to of or lower guidance at off Regarding perhaps of of end the we you're long-term that that should being XXXX X% think should high the run think above rate of

Jason. be to based over year-over-year one term. And confident that. we'll of to really things run would but long hit as here. how with number X% up that going here forward. able the very that on mean, with to again XXXX, is see We the how that long-term year, that I to X% and rate exactly here. much wraps feel X% the I That's on a reiterated last expect we $X.XX in for be able see range saw we term I we for won't confident this Dariusz, standpoint comment long out XXXX night. release we're where rest need we'll we had here off that, quickly based that confident can that X% see to We the on our you weigh

I’ll Okay. Thank turn now. it you very back much.

Thank Yeah. you, Dariusz.

from comes question next of Your Citi. the with line Ryan Levine

Hi. Good afternoon.

Hi, Ryan.

Dave. Hi,

on In million what the construction the with estimate construction service of terms business, contract? the elaborate you can $X.X drove change

largest really difference, a just year-over-year bit think I'll can estimate – basis single a Jeff will little start on again the an a it jump was But in. then project. and if of on you certainly

difference really at a the particular XXXX, Jeff, to that the versus If project. can color run quarter maybe you quarter two. little third largest XXXX the you it's more between look add third rate And

question, baseline cost Sure. quarters and Dave in extended in also, This Ryan. that period than year original are a This significantly is materials one its estimate. Thank date you, referenced three past Dave. schedule. And labor And we in original in completion higher is project had almost way. a good later now the we have purchased impacting negative that

us. is behind So are biggest this put And complete those project through team the to that project. it within drivers one our and working

or to in and follow-up understood these in your this previously deterioration costs Okay. inflation correctly have some And why work some if in to not cost Services, guess further contracts that the on expect pressures? the we anything I given of higher light there Is should business provision. inflationary that, I mechanisms those of that happened the prevented quarter Construction margin some of of reason pass-throughs of service

Yeah.

contracts you but the others provide supply seen pass-through do also to And we've those impact we have or were Some a supply more given whether light have year thought, issues, year. we and high but it's we'd productivity ago, pandemic, to are provisions need materials seeing mentioned, piping, levels as We're availability. drop chain chain not. A piping really seeing fixtures, inventory PVC impacts. underground we this with those electronic components, relatively still and

methane on any the Bakken in light federal then of the opportunities And conversations interest Okay. of policy In expansion North around pipeline? seeing emission Expansion. that added shifting gears some to are

This Trevor. Ryan. is Thanks,

in months particular. continue last in to itself the activity see increased Bakken the XX to six We in

just this relates it rules to As week. methane the out that came new

and pressures face, add that. would market. that gas One to its additional people to on it should for We capture are move evaluating think

should. it So

the anything seen overall, just basin. of in, week in opportunities terms the get Bakken gas projects of natural out in we but last seen haven't increased the have and in We interest to

project take does to blend it capability into pipe? the to as have that well And any hydrogen

evaluated into world. moving Not designed. being ability gas of portion the going of natural to as hydrogen certain parts blend There I a terms in is stream. different of currently the steel different carbon hydrogen pipe through mean, in studies are a on

So it's to watch pipeline those, move as we it's but basically designed not to originally quality gas. continue designed,

the color. Appreciate you. Thank

where from to little Ryan, follow off. left just I'm going bit a on Trevor

of, pipe. kind about, expand ability and asked that You the potentially activity to in Bakken the

actually amplified the the continues pipeline by we're ratio Dakota dynamic seeing it's as and climb being Another oil. producers North to that authorities, gas/oil produce the

where And current oil actually, I well will our for so bodes little ratio natural far even again so bode of for the at the oil likely just overall increase, there, gas gas potential But pipeline a that, as levels think and will think detail I more it's but trajectory where positioned. future is. given our well here production, it

And question. Great. then last one

terms In MDU West potential undergrounding conversations customer of Coast, had with the the on has California? large in opportunity face-to-face the

that Jeff, one? do take want you to

You bet.

procurement type we part once the to with approximately work, underground to wildfire to process multi-year for expect We're have. part be customer qualifications our performance, miles reduce us. the this XX,XXX whole we We've effort for and very to also a PG&E, be lead this engineering, lines, is which performed submitted work a a risk past. of well And opportunities. to our to positioned which given the of understand capture which the is bidding our our the We the commitment of in country. in experience, permits long-standing opportunity of team, talented largest We've PG&E power this

Thank you.

Ryan Thank you,

of with Your Williams. next Ellinghaus the line question Chris Siebert from comes

Hi, Chris.

Hey, guys, guys. Hi, are you? how

Good.

of side in of great as Is is something product sort expectations the for couple next cycle, will petroleum that not or a function is the for through below situation that, quarters? that pressures. of And being and product detail? the being you a these on the I mentioned quarter. reverse, contracting this was that special cost last assume hedged labor go contractually this petroleum You principally

Chris. question, fair Very Yes.

quarter of estimate a the answer let if and you after-tax I think a petroleum think part CSG year-over-year about for me the while very asphalt no. said say, then year And I diesel within one one quarter-over-quarter areas. after-tax major yes two. parts. for And delta will, quarter-over-quarter, the asphalt no, And so, others when -- a the commodity we for if business the petroleum the on about combined materials. million I'll low your there. project, oil part between about $XX and really is asphalt maybe us, and just And comment is hedges, part impact other and few a on ago. Again, of those And and we of a the the in down really that part a it's of prices didn't $X few or is asphalt good still a alone roughly between yes million on the large we oil-related you enjoy,, But had basis break was

a -- of so but we quarter-over-quarter on the your some of inflation some to become that also saw of hedge, basis. And it escalation does point that is

believe in So forward it. It's captured guidance. our we've captured

through look these just feel the of remainder about a of occurrence. we we It As one-quarter year businesses. good more was the

Okay.

as on, year able you're bid depending anticipate how be was prices really contracting? oil to this that contract in you next an unanticipated spike will your the So you

diesel I the for would that's true certainly diesel-related and say products.

in what's I becomes product it also think are what the marketplace from a asphalt-oil what's and asphalt others available providing. for out the and of

margins a a again this And we margins some year, some enjoyed that record high had high year so, but we solid ago record margins year very business, off in that ago.

maybe postponing also what you to decline Was that volumetric that in sort think? might volumes that a that on of down. function road and work, of mentioned work trying asphalt-oil led some customers or surge been to you cost have anticipate And Okay.

our work and restrictive couple had able the then being given we to more in add this on more area a workload lockdowns one instance will the our that it was Dave the of have you I And islands. an islands. So would if the Barney, Hawaii That effect certainly say on amount to And specific in to in then strong like to areas, were year-over-year a second more were more area It kind promising. forecast year's basis more down an will because some really it our a year and what -- some overlay seeing off Minnesota is but that see and you one-year down be I'd type if Minnesota for Northern looks would of of much of area happened asphalt on say of activity. we a to we we presence islands. asphalt-related highway of throughout again just typically for in next that

would key due those some of add areas be we have? to you so strong perspective. timing quite any that more saw. but details And might kind general we're the a that just again areas COVID more Barney Other Dave that and anything in to or to from again bid activities

work. timing just we of work -- but a in saw was we past. just it a asphalt see the We seen enough of see didn't pavement what Now lot didn't we've

their paving our might we they a off as few this to And turn knew asphalt were operations Minnesota expect paving. said, Dave bit that regions down other a be work on asphalt on around. little We And year.

we on We can turn forward expect XX% fixed around on in XXXX. do But about our of we only note fuel, contracts that to another but Chris, that. do

guys year sort helps, are projects, some maybe will of the some and seeing work constrained. the but that's on backlog construction your demand that some of And Are kind expecting there's not you legislation that project, maybe projects? port kinds those see renewable maybe for Okay. amount pent-up for of pent-up coming greater we presumably, transmission to gain momentum the the technically, side, obviously in some legislation as details fore. of next some really ports for And you're backlog of

seeing areas? those on So what you some in horizon are of the

thanks for on that of to touch Chris activity. question. that great even our Jeff, renewable start do with want you Yeah some maybe

in of the We're We're installing We're large in well. and another vehicle the many customers work work for We to more EV vehicles in in charging parts with stations. charging distribution market. as country working electric locations. facility a the demand also manufacturer. Absolutely. performing the our this we're for handle at some opportunities stations And see utility their one of conversations to on

awarded see to with projects We recently one one million mid-$XX range, continue expanded million. $XX We renewables. two opportunities in the about the also

country Northwest. One and the confidential and performance in our comes the other additional build to those upon sites Southwest in Pacific also client renewables. We're for with of is in a partnering experience across

up future. As markets course, in far on just to in our And transportation be now. airports picked an in part of airports of port, capitalize have Beach. the And, work work got to Port some expanded Long experience we we've we right infrastructure as able the two growing the

it. Okay. Thanks guys. Appreciate

Thank you Chris.

the November is This marks the the be for for on through at available Eastern beginning XXXXXXX. PM conference for the The XXth. today This replay Eastern last call number PM questions. Instructions] conference [Operator XXXXXXX. Again, ID X ID call replay Time XX:XX will Time number for replay is

comes of Sidoti. Russo next question Brian the line from Your with

afternoon. good Hi,

Brian. Hi

same side, peers shortages, I Just your material and experiencing and labor suppose the on that are peers aggregate talked oil also higher are issues. you about prices. asphalt the materials diesel experiencing

raising So may a -- MDU XXXX? you prices whole that have or margins industry and/or as prices to is the is in raising the sustain seen as industry

want would please? to Dave you one take that

bit our more margins on was we'll pricing aggregate Sure. were that. ready-mix do our up last able the continue It and this side margins down. the oil and to a year. on over year, Brian, ready-mix aggregates on were quite -- miss was asphalt We Yeah, on this our to big year were increase and

$XX of $XX they million fact million out were about miss. In the

on ready-mix and So oil the of miss business, on but asphalt biggest aggregate. the side increasing was side margins a our we our are

contracts can in that contracts average into having without with you when And it's a just cost the it. a inflationary types pressures lock the characterize then got your you enter if year project than of services And just then you need contract? plus? on Okay, raw cost, of duration of you any could a prices mix are capture material risk fixed a side, that longer or of project the might less you to

of with guaranteed XX% assist on our businesses our we and plus brought Approximately a to Sure. secure our backlog This is lot projects services. on a cost max, we inside provide design a of Jeff. is in early

and we're to owners general or pipe is So that our recommendations aluminum ever-going. copper process or And with we're or updating locking wire. contractors in or coming pricing whether on it's

our also we've this pricing as to procurement pressures is to where year. mitigate far and seen especially unitized the utility we that inflationary any that work commodity try customers of for As with

performance is to capturing in you to you're but revised that that third the well. year-to-date experiencing or quarter And say? quarter, it's the clarify weakening margins Okay. guidance not what saw only the just on Is as in the the accurate fourth of also

Brian accurate. XXXX would we our That expectation Yes that's here. as be finish

Thank great. you much. very Okay,

Thank you Brian.

further turn At this conference now time to remarks. questions. there back over are closing no to the for like management I'd

operator, you third for taking you all and Thank earnings this on join to us the here time thank quarter call.

opportunities interest about Group. you, out delivery in again near and here the Operator? XXXX. growth and we construction XXXX appreciate backlog support we that regulated and as And we again Resources connecting look future optimistic projects of to MDU are finish our forward thank your forward ongoing record energy and to with We We highlighted look today. continued

for Group call. This concludes today's you Resources MDU Thank your conference participation.

now You disconnect. may