Q1 2024 Earnings Summary
- MDU's electric utility business is experiencing significant growth due to data center customers, increasing profitability without requiring additional capital investment in generation, thereby enhancing return on equity (ROE).
- Everus, MDU's Construction Services business, has a record backlog significantly driven by data center construction projects for major clients, which is one of the strongest growth drivers for future revenues and profitability.
- Everus's diversified project mix, including healthcare, institutional work, renewables, and transmission and distribution projects, along with its presence in high-growth geographic areas like Ohio, Southwest, and Pacific Northwest, supports a robust and growing backlog, indicating strong future performance.
- Overreliance on Data Centers for Growth: MDU Resources' growth is heavily dependent on data center customers, particularly in 2024. Executives mentioned that "we continue to get calls as they come in related to data centers" ( , ). This concentration could pose a risk if the data center industry faces a downturn.
- Limited Capital Investment in Data Centers: The company serves data center customers without investing in new generation capacity, stating "we've got 0 investment right now in these data centers" ( , ). While this benefits margins in the short term, it may limit long-term earnings growth since there is no expansion of the rate base to earn regulated returns.
- Uncertain Growth Beyond Data Centers: Aside from data center growth, the company reported an average increase of "1% range in total customers" annually ( , ). This suggests limited organic growth in other customer segments, potentially impacting future revenue if data center demand slows.
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Data Centers as Growth Driver
Q: What drives your backlog growth?
A: Management explained that their backlog growth is primarily driven by data center projects in the commercial area. They are working with major clients, adding significantly to their backlog through negotiated and semi-negotiated contracts, and expect data centers to be one of the strongest growth drivers going forward. -
No Capital Investment for Data Centers
Q: Do data centers require capital investment in generation?
A: Management clarified that serving data center customers does not require them to build generation, as they are not serving these customers from their own generation. They have zero investment in these data centers but benefit from the margins, which enhances their ROE, and customers benefit from shared transmission expenses across the MISO market. -
Geographic Expansion in Data Centers
Q: Where are your data center projects located?
A: Management stated that data center growth is concentrated in Ohio, the Southwest, and the Pacific Northwest. These regions are primary areas of their data center work, contributing to their record backlog along with healthcare, institutional work, renewables, and T&D projects. -
Electricity Demand Growth
Q: Any changes to long-term electricity demand outlook?
A: They have seen an average annual increase in customers of around 1%, primarily due to data center growth and normal residential growth. There is also interest from industrial and commercial loads that may expand operations in a couple of years.