Welcome to Southwest Gas Holdings First Quarter 2024 Earnings Conference Call. Today's call is being recorded and our webcast is live. A replay will be available later today and for the next 12 months on the Southwest Gas Holdings' website. I will now turn the call over to Justin Forsberg, Vice President of Investor Relations and Treasurer of Southwest Gas Holdings. Please go ahead.

Thank you, John, and hello, everyone. We appreciate you joining our call. This morning, we issued and posted on the Southwest Gas Holdings' website our first quarter 2024 earnings release and the associated Form 10-Q. The slides accompanying today's call are also available on Southwest Gas Holdings' website. We'll refer to those slides by number throughout the call today. Please note that on today's call, we will address certain factors that may impact this year's earnings and provide some longer-term guidance. Some of the information that will be discussed today contains forward-looking statements. These statements are based on management's assumptions on what the future holds, but are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions and regulatory approvals. This cautionary note, as well as a note regarding non-GAAP measures, is included on Slides 2 and 3 of this presentation, today's press release, and our filings with the Securities and Exchange Commission, which we encourage you to review. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements, and we assume no obligation to update any such statement. As shown on Slide 4, on today's call, we have Karen Haller, President and CEO of Southwest Gas Holdings; and Rob Stefani, Chief Financial Officer of Southwest Gas Holdings; along with Justin Brown, President of Southwest Gas Corporation; and other members of the management team, who are available to answer your questions during the Q&A portion of the call today. I'll now turn the call over to Karen.

Thanks, Justin. Thank you for joining us today to discuss the Southwest Gas Holdings first quarter results. Turning to Slide 5. The successful closing of the Centuri IPO in April marked a significant milestone in our transformational strategy of returning Southwest Gas to its core foundation as a premier fully regulated natural gas utility. We were pleased with the market's reception of the offering, and we look forward to completing the separation of Centuri in a timely manner. During the quarter, we continued to make progress, positioning the utility for long-term success and growth. We started the year by executing on our regulatory strategy at Southwest with filings in Arizona and Great Basin, and we received approval of our Nevada case, which was a constructive regulatory outcome. Additionally, we finished the first quarter with another record operating margin over the last 12 months. Customer growth and demand remain strong, and the entire Southwest Gas team is acutely focused on safely addressing the needs of our customers, investing in the communities we serve, and delivering value for our shareholders. We are strategically deploying capital and investing in our operations so that we can meet the demand for safe, reliable, and affordable energy solutions while also working constructively with our regulators and legislators to complement our strong organic rate base growth. We are encouraged by the strong momentum underway. We are affirming our 2024 to 2026 guidance estimates and expect 2024 utility net income towards the upper half of our range. The expected revenue increases from rate cases will provide net income growth, which, as a result of rate case timing, will continue to be nonlinear over the forecast period. We expect our refreshed rate structures to benefit us in catching up with the historic inflationary environment we have experienced and the significant system investments we've made for the benefit of our customers over the past few years. Our confidence in our future is further demonstrated by an affirmed expected rate base compounded annual growth rate over the same period in the range of 6.5% to 7.5%, and our commitment to maintain a strong investment-grade balance sheet and competitive dividend. An overview of the closing of the Centuri IPO is included on Slide 6. We are pleased that the IPO priced at the top end of the announced price range with an initial price of $21 per share of Centuri common stock. The IPO netted approximately $329 million of net cash proceeds, which went directly to Centuri and were used to reduce its debt by $316 million. This result strengthens credit metrics and the balance sheets at both Centuri and Southwest Gas Holdings. Inclusive of the base offering, the overallotment that was exercised in full by the underwriters and the private placement, Southwest Gas now holds an 81% interest in Centuri as its majority stockholder. The overall success of the transaction reinforces our team's commitment to the separation strategy. I want to thank the team for their focus and hard work and to congratulate Bill Fehrman and the entire team at Centuri on their successful launch into the public markets. On this slide, you will find links to Centuri's investor materials for the first quarter of 2024, which are also available on Centuri's investor website. Centuri is not scheduling an investor call this quarter, but expects to begin investor calls following the release of their second quarter 2024 financial results later this summer. As you can see on Slide 7, we have already made excellent progress on our 2024 strategic priorities, and we are on track to achieve them all. With regard to the Centuri separation path, following the successful execution of the IPO, Southwest Gas Holdings may ultimately separate the business through a series of sell-downs, share exchanges, or, depending on market conditions, we retain the ability to distribute the balance of Centuri shares to Southwest Gas Holdings stockholders through a spin. Any of these strategies need to follow the 6-month lockup period that was required in the IPO. Because the successful execution of an IPO with sell-downs or share exchange is contingent on market and other conditions, we continue to preserve the potential for a tax-free spin, but we expect our significant net operating loss balance could serve as a partial offset to a taxable transaction. We remain committed to separating Centuri and we believe we have taken the appropriate steps and actions to benefit all stockholders. Our 2024 financing plan includes issuing a modest amount of equity under an ATM program and extending the existing $550 million term loan at Southwest Gas Holdings to allow us the flexibility to pay down or refinance that facility. These plans are dependent upon the Centuri separation process and timing in 2024. In terms of our utility and regulatory strategy for 2024, we've already made notable strides. I'll discuss the Nevada rate case outcome in a minute, but we filed a $126 million revenue increase request in Arizona in February, which includes a capital tracker, followed by a rate case at Great Basin in March, and we are on track to file a case in California in the third quarter of this year. You can see details of some of this regulatory activity on Slides 25 and 26 in the appendix to this presentation. Rate case progress and our cost discipline efforts reinforce our confidence in our net income guidance for 2024. We anticipate the outcomes of all of these regulatory proceedings will result in an increase in our authorized rate base by 20% to 25%. We are very pleased with the progress we are making on our strategic priorities and are confident in our ability to deliver on our objectives in 2024. Turning to Slide 8. You can see on the slide we provide an update for our Nevada rate case filing, which was approved last month by the Nevada Commission. The Commission authorized an overall $59.1 million annualized revenue increase across our Nevada service areas that became effective in early April of this year. We see the results of the case as a positive outcome and represents settlement of several issues with interveners and staff that were ultimately stipulated in the revenue increase. The cost of capital difference between the stipulated revenue increase on the slide and the authorized revenue increase represents the difference in our requested return on equity and the 9.5% that was authorized. This updated ROE is 10 basis points higher than what had been authorized previously. We're appreciative of the strong relationship we have with key stakeholders in Nevada and are pleased that we were able to work with them in a constructive way to finalize the Nevada rate case. We are now recovering nearly $300 million of the over $1 billion in rate base that we are requesting in this rate case cycle which includes Nevada, Arizona, Great Basin, and forthcoming California rate cases. The Nevada outcome represents 80% of the original request, which is a significant improvement over prior cases. On Slide 9, we highlight our strong first quarter 2024 performance at Southwest and at Centuri. The utility is off to a good start for the year with a $1 million increase in net income over the first quarter of last year. We continue to experience strong customer growth, adding more than 40,000 new meter sets over the past 12 months, while continuing to make additional investments to ensure our system remains safe and reliable for the benefit of our customers. And as I noted, we also achieved a positive regulatory outcome in Nevada and advanced our strategy in other jurisdictions. Our operations and maintenance expenses were flat compared to the first quarter of 2023. Our balance sheet is strong, having now collected the majority of the deferred purchase gas cost balance. The balance has been reduced by more than $770 million since Q1 2023 and is reflected in the more than $400 million cash balance as of the end of March 2024. And you can see Centuri's key highlights on the slide as well, which includes deleveraging through the IPO. Again, we're pleased with Centuri's progress and would refer you to its 10-Q and earnings press release that was issued earlier today for more detail on its first quarter performance. With that, I'll turn the call over to Rob, who will review our financial performance for the year.

Thanks, Karen. On Slide 11, we outline our earnings per share performance for the year. The company's consolidated GAAP and adjusted EPS are shown by each consolidated entity. As Karen mentioned earlier, the utility has performed on plan during the first quarter and we saw results at Centuri that were consistent with what was outlined in the Centuri S-1. The utility generated its highest quarterly net income on record, and we saw significantly lower losses at the holdings company on a comparative basis as strategic costs were lower this year following the sale of MountainWest in early 2023. On an adjusted basis, Southwest Gas Holdings finished the first quarter of 2024 with EPS of $1.37 a share, a decrease of $0.40 per share when compared to Q1 of 2023. In the appendix, we provide a reconciliation of adjustments by operating company. The vast majority of the first quarter 2024 adjustments relate to the Centuri separation costs and amortization of intangible assets at Centuri, while Q1 2023 adjustments also include impacts from the sale of MountainWest that was completed in February of 2023. Note that the amortization of intangible assets at Centuri is a new adjustment this quarter and is consistent with treatment by other Centuri peers in the utility infrastructure services sector. We have provided that adjustment to help investors better compare Centuri's performance with other companies in the sector following the Centuri IPO. This adjustment has been shown for the same period in the first quarter of 2023 for consistency and comparative purposes. Now I'll provide a walk-through on the performance of Southwest Gas Holdings and the utility. Turning to Slide 12, we depict the consolidated earnings walk on an adjusted basis. It should be noted that post-IPO, so long as Southwest Gas meets the consolidation requirements, we expect to continue to fully consolidate Centuri's financial results. During the first quarter, the utility benefited from higher margin, which was partially offset by increased depreciation and amortization, as well as reductions in interest income resulting from lower deferred purchased gas cost balances associated with the PGA recovery. Centuri's EPS was lower due to lack of storm restoration services work compared to 2023 and reduced volumes of contract work. The first quarter of 2023 also included a month and a half of MountainWest earnings. And the HoldCo benefited from lower expenses compared to Q1 2023 primarily related to the MountainWest loss in the prior period, which was not present in the same period in 2024. The remaining change quarter-over-quarter relates to the impact of share dilution from the equity issuances in 2023. Moving on to Slide 13, you'll see the quarter-over-quarter performance drivers for our utility Southwest Gas Corporation. In the first quarter of 2024, utility operating margin increased by just over $9 million compared to the same period last year. This improvement was driven primarily by $10 million of increased recovery on prior investments in Arizona as well as a modest increase in recoveries in California and $7 million of additional recovery associated with regulatory account balances. We also saw $5 million of improved margin as a result of continued customer growth throughout our service areas. You might recall that during last year's first quarter, an $8 million out-of-period adjustment was made related to the net cost of gas sold that benefited 2023 first quarter earnings that did not recur this year. The remaining difference largely relates to impacts of miscellaneous revenue changes and impacts to margin from decoupled customers. O&M was flat quarter-over-quarter, reflecting our disciplined cost management strategy, and we remain confident that we will be able to achieve our stated goal of continuing to keep O&M costs flat on a per customer basis through 2026. The approximate $10 million increase in depreciation and amortization and general taxes was primarily due to the $7 million of increased amortization of regulatory account balances that is offset by a corresponding amount in improved margin, along with the higher depreciation expense associated with a 7% increase in average gas plant in service compared to Q1 2023. Other income was flat compared with last year, the net result of a few drivers. We saw a nearly $3 million decline in interest income related to carrying charges associated with lower regulatory account balances, notably the deferred purchase gas cost balances. COLI results were $1 million higher than Q1 2023 as we saw an increase in values underlying corresponding life insurance policies, and we saw a nearly $2 million increase in the equity portion of allowance for funds used during construction, or AFUDC, this quarter. Interest expense at the utility decreased by approximately $2 million from the prior year's first quarter primarily due to the net impact of additional interest associated with the $300 million of senior notes issued in March 2023, offset by the impacts of an earlier $450 million Southwest Gas Corporation PGA related term loan issued in January of 2023 to support gas purchases, which was repaid in April of 2023. Overall, the performance of the utility was in line with what we had expected for the first quarter. Karen will discuss our 2024 net income guidance in a moment. On Slide 14, we have provided our 2024 financing plan for both Southwest Gas Holdings and Southwest Gas Corporation that has been updated to reflect the IPO outcome and which will still assume consolidation of Centuri. To the extent Centuri ceases to be consolidated in 2024, we will adjust our guidance accordingly. In addition, we would highlight that the HoldCo balance sheet could improve further depending on the post-IPO market conditions and the form of separation Southwest Gas Holdings takes with respect to its remaining ownership position in Centuri. We continue to expect cash flow from operations to more than fund the entire capital expenditure program forecast in 2024 at the utility. In addition, based on the strength of our balance sheet and successful refinancing efforts in 2023, we continue to anticipate very modest additional near-term equity needs of approximately $75 million during 2024, again, depending on post-IPO separation execution form. We do not foresee any debt refinancing or financing needs at the utility in 2024. It's important to note that in addition to our limited equity of approximately $150 million in the next 2 fiscal years, inclusive of the $75 million this year expected through the ATM, we have very limited debt refinancing needs through the end of 2026 outside of our $550 million Southwest Holdings' term loan. We do plan to amend and extend that term loan in either the second or third quarter of 2024 as well as the $400 million revolver at the utility. At Holdings, we reiterate our plan to target a solid investment-grade balance sheet. As we have said previously, Southwest Gas Holdings remains committed to paying a competitive dividend to our stockholders. We plan to hold the dividend flat again in 2024, which we would expect would result in a competitive payout ratio. We will continue to balance factors such as projected capital requirements, impacts to credit ratings, the competitiveness of the dividend yield, rate case outcomes, economic conditions, and other factors, and plan to revisit the dividend policy for any changes that materialize as we work to fully separate Centuri. We should have better clarity regarding the planned separation in coming quarters. Moving to Slide 15, we take a look at our balance sheet strength and our commitment to maintaining an investment-grade profile. On the left-hand side, we walk through net debt by operating company. When we look at the utility debt levels, we continue to highlight the PGA balance, which represents working capital that Southwest has spent for prior commodity purchases and is owed to Southwest by customers. As expected, we have seen a timely recovery of this PGA balance, and we continue to earn a carrying amount on these balances as reflected in the chart in the appendix on Slide 23, which provides additional detail. While I noted earlier that interest income is expected to decline this year due to the lower PGA balances, you will see the large utility cash balance on Slide 15 that significantly obviates the need for us to pursue additional financing in the near term. On the right-hand side of Slide 15, we note that we had no changes to our credit ratings or outlook from 3 agencies since our fourth quarter 2023 earnings call. In addition, Moody's recently affirmed the ratings at both the Holdings company and at the utility. I'll now turn the call over to Karen and Slide 17 to discuss our guidance.

Thanks, Rob. Our first quarter results are evidence of the progress we continue to make executing our strategy, and we are enthusiastic about the rest of 2024. On Slide 17, we are affirming our 2024 Southwest net income guidance to be in the range of $228 million to $238 million. We are confident that the strong regional economic outlook in our territories, the completion of our Nevada Rate Case outcome, as well as expected results of our cost management efforts will drive 2024 results towards the upper half of the net income guidance range. Our team remains focused on optimizing utility operations. We affirm our 2024 utility CapEx at approximately $830 million, partly due to expected customer growth in utility. As a reminder, this would be an increase over 2023 of about $70 million, while nearly 50% of our forecasted capital spending relates to maintaining a safe and reliable system for the benefit of all of our customers. Some of this increased 2024 CapEx is a result of the responsibility we have to invest in our infrastructure to meet the better-than-expected customer growth and favorable new business trends across our service territories, combined with the required investments we make to enhance the safety and integrity of the system. And part of the increase is driven by our continuous improvement initiatives, which we expect to lead to future expense savings at the utility. Looking further out, we still expect the compounded annual growth rate for net income at the utility to fall within the range of 10% to 12% from 2024 through 2026. While the impact of the regulatory cycle is expected to result in somewhat lumpy net income growth over the forecasted period, our regulatory strategy and our plan to achieve a flat O&M per customer trend over that same period are expected to be important components of our growth story. Additionally, you can find the 2024 to 2026 drivers in the appendix of our presentation on Slide 24. We also affirm our rate base compound annual growth rate to be in the range of 6.5% to 7.5% over the same 2024 to 2026 period, and we continue to expect to invest about $2.4 billion in total CapEx over the next 3 years. Before we open the call up to Q&A, I want to point to Slide 18 and emphasize that our teams are focused on executing our strategic priorities. Delivering strong financial results and providing exceptional service to our customers. At Southwest Gas Holdings, we are confident in our path forward as a premier pure-play natural gas utility. We plan to continue delivering steady organic rate base growth through strong regional demand dynamics and earnings growth through financial discipline, operational excellence, and constructive regulatory relationships. We'll continue to execute toward the planned full separation of Centuri to create an attractive value proposition for stockholders and to deliver the business organically with healthy cash flow generation. With that, I'd like to open the call for questions. While Centuri remains in a post-IPO quiet period, we plan to refer you to Centuri's public materials and going forward to their management team for any Centuri specific operations and financial questions.

Thank you. We will now begin the question-and-answer session. The first question comes from Chris Ellinghaus from Siebert Williams Shank & Co.

Rob, is there any color that you can provide in terms of the way you envision the cadence of reducing the Centuri stake over time?

Yes, I think at this time, we continue to evaluate the options with respect to the balance of the Centuri stake. Obviously, as Karen highlighted, we have the net operating loss position, which provides us flexibility to potentially pursue a taxable transaction, which could take the form of sell-down or exchanges or some combination thereof. Just again, we'll continue to evaluate that along with Centuri performance while continuing to preserve the tax-free option of a spin or a split. So at this time, we continue to evaluate the post-IPO options, and we'll put more information out as that evaluation unfolds.

Okay. Karen, you didn't talk too much about the economy this time. Have you got anything that you want to add regarding what's going on in Vegas or in the Phoenix area with your, I guess, the right words vibrant economies?

I agree. Vibrant economies are evident as we discussed last quarter, where we highlighted various ongoing projects. Some details are included in our materials. You are right; we continue to experience strong growth across our different regions. The Arizona area is seeing ongoing growth in manufacturing and technology, and we have opened several new casinos and resort areas. Entertainment and sports continue to thrive here in Las Vegas and throughout Nevada. We have identified numerous areas for growth, and we expect this momentum to persist.

Okay. You obviously lost one casino recently, but is the influx of sports volume affecting your business in any, I assume positive way in terms of sort of visitor throughput? But can you sort of just describe how sports is affecting your business in Vegas?

I believe that while we have lost one casino, it will soon be replaced by a baseball facility on the Las Vegas Strip. Typically, when something closes, we see it replaced by something larger that generates greater demand. We expect to see new facilities built in that area. Sports have contributed to the development of several venues, such as Allegiant Stadium and the T-Mobile Arena, and we support these locations. As a result, there has been a significant increase in visitors, which benefits the economy and fosters growth in the residential market. Our strong residential growth supports the ongoing commercial expansion.

In terms of new casinos, there seems to be a property that might lead to another one. Has there been any announcement regarding a location in the Fountain Blue area? What is the vision for that property?

I don't have any specifics at this time on that.

Okay. And lastly, have you got any more updated thoughts on the Arizona tracker process?

I don't think we have anything new to discuss at this point. We have filed for the tracker in our Arizona rate case and feel positive about our position regarding that request. However, due to the timing and process in Arizona, we won't receive intervener testimony until later this year, and a hearing is not expected until November. We will have more information as the case develops, but right now, I don't have any additional updates.

The next question comes from the line of Ryan Levine from Citi.

How does Southwest or does Southwest Gas have a preference for formula rates versus future test years in Arizona? And how could these potential lag-related hearings this summer impact the SIB tracker process for proceedings?

Ryan, Justin is here with me. I'm going to let him respond to that.

Ryan, I don't know if there's a preference. I mean, I think we're just very encouraged that the commission continues to be focused on making structural improvements. I know I think probably in June, they're going to be having further discussions around kind of next steps on how this rulemaking or investigatory docket is going to proceed. I know we've presented on kind of the future test year kind of ratemaking model that we experience in California. They've asked for some additional information on that. So I think that's encouraging. And we're just excited to participate and excited that they continue to be focused on making incremental improvement there.

I heard during the last hearing a request for additional comparisons between California and other states. How is that information communicated? Is there a lot of back and forth as they compare different jurisdictions for test use?

I believe it's like an investigatory process. There was a workshop in March, and I think they plan to schedule another one. Much of this is about determining whether they want a single model or if they prefer different options for various utilities. It's something they're working to clarify, and I expect it will evolve as they continue through the workshop and learn more about the different models available.

Got you. Unrelated topic, what’s the outlook for the NOL balances into next year? And is there any impact of the timing on a Centuri sell down with the timing of a potential tax-free spin in the future?

Ryan, as to the timing with respect to what we do with Centuri, I think we mentioned we're in a 6-month lockup following the IPO. And so that will impact the timing. And following that, as I indicated, we're committed to continuing with the separation. I'll go ahead and let Rob answer your question with respect to the NOL.

Ryan, yes, so we don't provide the forward guidance on the NOL position, but would just refer you. We had just about $1 billion of NOLs as of the end of the year. And so that's obviously a substantive position that could be used to offset a taxable form of a transaction. We think that provides us a lot of optionality with what we do with that 81% stake.

Okay. And then last question. Now that the IPO is complete, should we look for more comprehensive financial guidance from Southwest Gas given that restriction is lifted?

Ryan, we wouldn't expect to change the longer-term guidance of us, which you're referring to until we really understand what the full separation of Centuri looks like. So once we've completed that, we'll be in a better position to provide longer-term guidance.

There are no further questions at this time. This concludes our Q&A session. I will now turn the call back over to Justin for closing remarks.

Thanks, John, and thank you all for joining us today and for your questions. This concludes our conference call, and we look forward to seeing many of you soon as we participate in conference activities next week at the Citi Global Utilities Conference in Boston, followed by the AGA Financial Conference in Palm Desert, California as well as other events a little further out. I wanted to highlight that we recently launched a new investor website, which is intended to help you to find information about the company more easily. Please let us know your thoughts as you navigate the updated site. Slide 19 of today's presentation also includes my contact information. And as always, feel free to reach out at any time. Thank you for your interest in Southwest Gas. Have a great day.

This concludes today's Southwest Gas Holdings First Quarter 2024 Earnings Call and Webcast. You may disconnect your line at this time. Have a wonderful day.