Otter Tail (OTTR) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents Otter Tail Corporation's unaudited consolidated financial statements for Q1 2025, including balance sheets, income, equity, and cash flow statements with detailed notes Consolidated Balance Sheets Total assets increased to $3.70 billion as of March 31, 2025, from $3.65 billion at year-end 2024, with shareholders' equity growing to $1.72 billion Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $651,274 | $630,041 | | Property, Plant and Equipment, net | $2,709,311 | $2,692,460 | | Total Assets | $3,696,794 | $3,652,082 | | Total Current Liabilities | $248,420 | $309,790 | | Long-Term Debt | $993,513 | $943,734 | | Total Shareholders' Equity | $1,717,361 | $1,668,499 | | Total Liabilities and Shareholders' Equity | $3,696,794 | $3,652,082 | Consolidated Statements of Income Net income for Q1 2025 decreased to $68.1 million from $74.3 million in Q1 2024, primarily due to lower operating income Q1 2025 vs Q1 2024 Income Statement (in thousands, except per-share amounts) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Operating Revenues | $337,353 | $347,068 | | Total Operating Expenses | $253,354 | $252,093 | | Operating Income | $83,999 | $94,975 | | Net Income | $68,099 | $74,338 | | Diluted Earnings Per Share | $1.62 | $1.77 | Consolidated Statements of Cash Flows Net cash from operating activities significantly decreased to $39.5 million in Q1 2025, resulting in a $9.8 million net decrease in cash Q1 2025 vs Q1 2024 Cash Flows (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $39,469 | $71,913 | | Net Cash Used in Investing Activities | ($60,911) | ($75,876) | | Net Cash Provided by Financing Activities | $11,605 | $11,748 | | Net Change in Cash and Cash Equivalents | ($9,837) | $7,785 | Condensed Notes to Consolidated Financial Statements Notes detail segment performance, debt, regulatory matters, and contingencies, highlighting Plastics strength and ongoing PVC pipe litigation - The company operates in three segments: Electric, Manufacturing, and Plastics[14] Segment Net Income (in thousands) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Electric | $24,708 | $22,470 | | Manufacturing | $1,532 | $5,261 | | Plastics | $43,439 | $46,740 | - In March 2025, Otter Tail Power Company (OTP) issued $50.0 million of 5.49% Series 2025A Senior Unsecured Notes due 2035 and has an agreement to issue an additional $50.0 million of 5.98% Series 2025B notes in June 2025[37] - The company faces class action lawsuits and a DOJ investigation regarding alleged PVC pipe antitrust violations, with potential material impact if found liable[48][49][50] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial performance, noting an 8.4% consolidated net income decrease, segment-specific results, and strong liquidity Results of Operations Consolidated net income decreased 8.4% to $68.1 million in Q1 2025, driven by lower operating revenues and higher interest expense Consolidated Results Summary (in thousands) | Metric | Q1 2025 | Q1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $337,353 | $347,068 | ($9,715) | (2.8)% | | Operating Income | $83,999 | $94,975 | ($10,976) | (11.6)% | | Net Income | $68,099 | $74,338 | ($6,239) | (8.4)% | - The effective tax rate decreased to 12.9% in Q1 2025 from 19.3% in Q1 2024, primarily due to an increase in Production Tax Credits (PTCs) from wind generation[83] Segment Results Electric segment net income rose 10.0%, while Manufacturing plummeted 70.9%, and Plastics declined 7.1% due to price and litigation impacts - Electric Segment: Net income increased by $2.2 million (10.0%) YoY, driven by a 7.1% increase in retail revenues due to colder weather (18.5% more heating degree days) compared to an unseasonably warm Q1 2024[84] - Manufacturing Segment: Net income decreased by $3.7 million (70.9%) YoY, caused by a 13% drop in sales volumes, particularly in the recreational vehicle, agriculture, and construction markets[91] - Plastics Segment: Net income decreased by $3.3 million (7.1%) YoY. A 13% increase in sales volumes was offset by an 11% decrease in sales prices and a $1.4 million increase in SG&A expenses, primarily due to ongoing litigation costs[95][97] Regulatory Matters North Dakota regulators approved a rate case settlement, increasing annual revenue by $13.1 million with a 10.10% allowed ROE, alongside other pending rate riders - The North Dakota Public Service Commission approved a settlement for new rates effective March 15, 2025, resulting in a net annual revenue increase of $13.1 million and an allowed ROE of 10.10%[100][101] Liquidity and Capital Resources The company maintains strong liquidity with $607.2 million available, despite a decrease in operating cash flow, and issued $50.0 million in new long-term debt - As of March 31, 2025, the company had total available liquidity of $607.2 million, consisting of $284.8 million in cash and $322.4 million available under its credit facilities[106] - Net cash provided by operating activities decreased by $32.4 million YoY, primarily due to the timing of fuel cost recoveries and operating cost payments in the Electric segment[107] - OTP issued $50.0 million of 5.49% senior unsecured notes due 2035 and expects to issue an additional $50.0 million of 5.98% notes due 2055 in June 2025[118] Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes in its market risk from the disclosures provided in its Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes in market risk were reported since the last Annual Report on Form 10-K[123] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025 - The company's disclosure controls and procedures were deemed effective as of March 31, 2025[124] - No material changes to internal control over financial reporting occurred during the quarter[125] PART II - OTHER INFORMATION Legal Proceedings The company is involved in multiple legal complaints alleging antitrust violations related to PVC pipe price fixing - The company is a defendant in legal proceedings alleging antitrust violations related to the pricing of PVC pipe[127] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes to risk factors were reported since the last Annual Report on Form 10-K[128] Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2025, the company purchased its common shares on the open market to satisfy obligations under its Employee Stock Purchase Plan and Employee Stock Ownership Plan Share Purchases in Q1 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2025 | 16,433 | $73.56 | | February 2025 | 3,370 | $78.70 | | March 2025 | — | — | | Total | 19,803 | $74.43 | - Share purchases were made on the open market to fulfill obligations for employee stock plans; the company does not have a publicly announced repurchase plan[129] Exhibits This section lists the exhibits filed with the report, including the Note Purchase Agreement from March 27, 2025, CEO and CFO certifications, and Inline XBRL data files - Key exhibits filed include a Note Purchase Agreement, CEO/CFO certifications (Sections 302 and 906), and XBRL data files[132]