Black Hills Corporation 2026 Q2 Earnings Call

Thank you, operator. Good morning. Welcome to Black Hills Corporation's second quarter 2026 earnings conference call. You can find our earnings release and materials for our call this morning on our website at blackhillscorp.com. Leading our earnings call are Linn Evans, President and Chief Executive Officer, Kimberly Nooney, Senior Vice President and Chief Financial Officer, and Marne Jones, Senior Vice President and Chief Utility Officer. During today's earnings discussion, comments we make may contain forward-looking statements as defined by the Securities and Exchange Commission. There are a number of uncertainties inherent in such comments. Although we believe that our expectations are based on reasonable assumptions, actual results may differ materially.

We direct you to our earnings release, slide two of the investor presentation on our website, and our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission for a list of some of the factors that could cause future results to differ materially from our expectations. With that, I will now turn the call over to Linn Evans.

Linn? Thank you, Sal. Good morning.

Thank you all for joining us today. I'll provide a summary of our strategic progress through the first half of the year, including an overview of our large load demand pipeline and our pending merger with NorthWestern Energy. Kimberly will provide our financial update. Marne will provide our business update, including our continued progress on large-scale opportunities and our ongoing strategic regulatory activities. I'm extremely proud of what our team has already accomplished in the first half of the year. I'm excited about the opportunities ahead as we deliver results for our stakeholders. Our key achievements for the second quarter are listed on slide three. I'll provide remarks on a few of them. We're focused on delivering on our financial commitments. I'm pleased to report that we continue to be on track to achieve our earnings guidance for the year.

We maintained our solid financial position and credit ratings while executing on our nearly $1 billion capital plan for the year to serve the energy needs of our customers. This includes our 99-megawatt Lange II generation project, which is on schedule to be placed in service later this year in South Dakota. Our team continues to execute on our regulatory agenda. We are advancing on our rate reviews for Arkansas Gas and South Dakota Electric, and we filed a new rate request for Colorado Electric. In South Dakota and Wyoming, we completed the regulatory requirements for new wildfire liability protections as we continue to execute on our wildfire mitigation plan to help ensure the safety of our customers and communities. We are pleased to serve growing customer demand through our unique and innovative solutions.

This is evident in our Wyoming Electric growth, where we have recorded and reliably served 20 consecutive years of increasing peak system loads, a remarkable 183% increase since we acquired the utility in 2005. Our peak of 439 megawatts in July reflects an increase of 16% over last year's peak. Large load demand is a key driver of this growth, having served Microsoft for more than a decade. Our interoperable blockchain demand also provides additional opportunities for margins as we serve those customers through efficient access to market energy. Looking to the future, we are excited about serving significant large load demand led by hyperscale data centers. This large load pipeline is outlined on slide four.

Of more than three gigawatts of data center opportunities, only 600 megawatts is included in our current plan, driven by both Microsoft's ongoing expansion and Meta's new AI data center, which is slated to begin ramping later this year. In addition, we are currently actively negotiating to serve a pipeline of more than two and a half gigawatts, all of which would be additive to our current plan. As a reminder, we take a cautious approach to what we include in our growth pipeline, restricting it solely to demand subject to non-disclosure agreements and ongoing and active negotiation. This additional growth pipeline includes a 1.8 gigawatt data center project. We are continuing to successfully move through advanced stages of negotiations to finalize multiple definitive agreements. We also see potential for further upside to our three gigawatt pipeline from both existing and new customers.

This potential upside includes Microsoft's recently announced purchase of more than 3,000 acres in Cheyenne for future expansion, among other exploratory customer projects that are in early stages of development. Marne will provide more detail about our large load progress in her business update. Moving to slide five for an update on our merger with our friends at NorthWestern Energy. During the second quarter, we received approval from FERC and unanimous approvals of settlements in Nebraska and South Dakota. We are awaiting a decision in Montana as a last approval required for a successful closing I note that we reached a settlement with many key interveners in Montana and completed a hearing before the Montana Commission in May.

Final briefs were submitted on July 13, which started a 90-day approval timeframe with a potential 30-day extension by the Commission. This puts us right on track with our initial expectations to close the transaction during the second half of this year. As I wrap up my prepared remarks, I'm very pleased with our team's delivery on our strategic objectives. Because of the diligent work of our team, we are truly living out our vision to be the energy partner of choice and our mission of improving life with energy for our 1.4 million electric and natural gas customers across eight states. We are also well-positioned in the next phase of growth as we advance our planned merger with NorthWestern Energy.

With that, I'll turn the call over to Kimberly for our financial update.

Thank you, Linn, and good morning, everyone. I'm pleased to report strong second quarter earnings, the result of our team's continued focus on execution of our strategic initiatives as we deliver on our financial commitments. On slide seven, we provide a bridge for EPS from Q2 2025 to Q2 2026. We delivered GAAP EPS of $0.50, which included $0.04 of merger-related transaction costs. Adjusting for these costs, we reported $0.54 of adjusted EPS for the quarter, compared to $0.38 in Q2 2025. We delivered $0.21 per share of new rates and rider recovery, which more than offset a combined $0.12 of higher financing and depreciation costs. Weather was $0.01 favorable over Q2 2025, despite being $0.03 unfavorable compared to normal. We held O&M flat for the quarter after excluding $0.04 of merger costs.

Expense management efforts by our team reduced employee costs by $0.04 per share compared to the same period last year. Financing costs were $0.06 higher, including $0.03 of impact from new shares issued and $0.03 of interest expense, including AFUDC. Depreciation expenses increased by $0.06 as a result of new assets placed in service, including our $350 million Ready Wyoming transmission project placed in service at the end of 2025. Slide eight provides the year-to-date bridge, which tells a similar story of new margins offsetting weather and higher financing and depreciation costs. GAAP EPS was $2.23 through the first half of 2026, which included $0.10 of merger-related transaction costs. Adjusting for these costs, we reported $2.33 of adjusted EPS compared to $2.24 during the first half of 2025.

We delivered $0.45 per share of new rates and rider recovery and $0.11 of lower O&M adjusted for merger costs. These positive drivers of $0.56 more than offset $0.29 of combined higher financing and depreciation costs and $0.18 of weather impact compared to last year. As a result, we are on track to achieve our earnings guidance for the year. Further details on year-over-year changes can be found in our earnings release and our 10-Q to be filed with the SEC later today. Slide nine presents our solid financial position through the lens of credit quality, capital structure, and liquidity. We remain focused on maintaining a healthy balance sheet and our stated credit metric targets of 14%-15% FFO to debt, which is 100 basis points above our downgrade threshold of 13%, and at a better-than-55% net debt to total capitalization.