Welcome to Southwest Gas Holdings fourth quarter and full year 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 twelve months on the Southwest Gas Holdings website. At this time, all participants are in a listen-only mode. A question and answer session will follow the prepared remarks. If you would like to ask a question at that time, please press star one on your phone. I will now turn the call over to Justin Forsberg, Vice President of Investor Relations and Treasurer of Southwest Gas Holdings.

Thanks, Constantine, and hello, everyone. Thanks for joining the call today. This morning, we issued and posted to the Southwest Gas Holdings website our fourth quarter and full year 2024 earnings release and the associated Form 10-Ks. 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 2025 earnings and discuss 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 and 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 two and three of this presentation, today's press release, and in 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 four, 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, as well as Justin Brown, President of Southwest Gas Corporation, and other members of the management team available to answer your questions during the Q&A portion of the call today. I'll now turn the call over to Karen.

Thank you for joining us today to discuss the Southwest Gas Holdings results and outlook. Starting with slide five, Southwest Gas Holdings continues to press forward on our transformational strategy of becoming a premier fully regulated natural gas utility. Following the successful Centuri IPO last April, and the recent onboarding of Chris Brown as the new Centuri CEO, we continue to monitor market conditions with respect to our separation strategy options. We remain very focused as we made significant progress positioning the utility for long-term success and growth. We advanced our regulatory strategy and are seeing positive impacts as we recover investments in enhancing safety, reliability, and our ability to meet the needs of our growing customer base. We have also begun to see tangible benefits of our utility optimization strategy. The utility finished the year with record annual operating margin performance and the second straight year of a return on equity over 8%. Customer growth and demand remained strong, and the entire Southwest Gas team is 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 our customers' demand for safe, reliable, and affordable energy solutions. Southwest Gas has strong momentum heading into 2025, and we expect utility net income to land within the range of $265 million to $275 million for the full year. We expect net income growth will be driven by margin improvements related to our regulatory strategy as well as our continued cost management efforts. Looking further out, we are planning for robust capital spending driven by economic activity in our service territories, which we expect to drive strong rate base growth. You can see our refreshed guidance metrics on the slide and I'll discuss our short and long-term guidance expectations in more detail later on the call. I also want to reiterate our commitment to further improving our earned utility return on equity, maintaining an investment-grade balance sheet, and paying competitive dividends to our shareholders. As you can see on slide six, we achieved all our 2024 strategic priorities. We strengthened our balance sheets across the enterprise, increasing liquidity and preserving financial flexibility while meaningfully advancing our regulatory strategy. As it relates to plans for Centuri's full separation, we onboarded a CEO at Centuri and continue to gauge market conditions for executing disposition transactions. As a reminder of the remaining separation options, we may ultimately separate the business through a series of taxable sell-downs or share exchanges, which exit paths could include some combination thereof. The successful execution of a sell-down or share exchange is contingent on favorable market conditions, so we have currently preserved the alternative of a tax-free spin. We expect our significant $1.5 billion net operating loss balance could serve as an offset to any taxable transactions. As a reminder, if we do execute a taxable transaction, the ability to execute a tax-free spin will no longer be possible. However, regardless of the form of an initial taxable transaction, whether it be a sell-down or share exchange, both of those options would remain on the table for further separation as we further downsize our ownership beyond the initial transaction. We remain committed to separating Centuri, and we will provide further updates on timing and structure when available. On the right-hand side of the slide, you can see another priority in 2025 is our financing plan, which potentially includes the need to extend either all or a portion of the existing $550 million term loan facility at the HoldCo and expected issuances of less than $100 million of new equity under our existing at-the-market program. Both of these items are contingent on successful execution of Centuri separation plans, and some or all of these capital markets needs could be avoided pending the form of the Centuri separation.

As noted on slide seven,

Our strong balance sheet provides us with flexibility to be thoughtful in our approach to capital investments and our efforts to deliver shareholder value. I'll highlight a few of our team's achievements on slide seven. At the utility, we continue to see strong growth as a result of strong economic activity that continues to drive significant in-migration with about 41,000 new meter sets added during the last twelve months. At the end of 2024, we had more than $360 million of cash on hand across the enterprise, enabling us to honor our commitments and execute our 2025 strategy. We remain excited about the future of the company. Now to Justin.

On slide nine, you'll see an overview of the progress we made on our regulatory strategy. In early 2024, we completed our general rate case in Nevada with a positive outcome, receiving approval to start recovering on the nearly $300 million of investments we have made to ensure safe and reliable service to our customers, which resulted in a revenue increase of approximately $59 million, which represents 98% of our request after consideration to proposals on depreciation rates and cost of capital. At Great Basin, refresh rates went into effect in September subject to refund and were later adjusted in November to reflect settlement rates. We anticipate a final decision being issued by April. Our $50 million California case is progressing on schedule and as expected. We are scheduled to receive intervener testimony in April with a hearing this summer and new rates effective in January of 2026. I'll discuss Arizona in more detail on the next slide, but I'm pleased with the progress we've made on refreshing rates and minimizing regulatory lag in each of our jurisdictions as we remain steadfast in our commitment to working collaboratively with our regulators on constructive outcomes. Turning to slide ten, our Arizona rate case continues to progress on schedule with the administrative law judge issuing a recommended opinion and order last week. We intend to continue to work with the commission staff and file comments reiterating the fair and balanced nature of the stipulated issues that were agreed upon at the time of hearing, including a $96 million revenue increase and an ROE of 9.65% with a fair value increment of 0.73%. The commission is scheduled to vote on our case March 27th. You may recall our application included a proposal to implement a capital tracker program referred to as our system integrity mechanism, or SIEM. The proposal, if accepted, will allow us to implement a surcharge each year to recover the non-revenue producing investments we made in the reliability of our system, which represents approximately 40% of the company's annual capital investments in Arizona each year. Given the circumstances of the inability of a staff witness to testify last November, we are appreciative of the parties and the administrative law judge's decision to hold a separate hearing on the SIEM rather than to further postpone our entire case. You'll see on the slide that the commission staff has been supportive of our proposal on this mechanism, and a final separate hearing on the SIEM is scheduled for May. Given the intent of the mechanism and mechanically how it is designed to work, we do not believe a May hearing will impact our desire to utilize the mechanism to reduce regulatory lag beginning in 2026, ultimately approved by the commission. Consistent with the Arizona Corporation Commission's expressed desires to reduce regulatory lag, the commission released a constructive policy statement that would allow utilities to file formula rate plans in future rate cases as an option to reduce regulatory lag. I refer you to the commission statement that was issued last December for full details, but we believe this is another constructive positive step that the commission has taken to address timelier cost recovery, reduce regulatory burden, and enhance administrative efficiency in Arizona. Turning to slide eleven, as Karen noted, economic activity and demand for natural gas service remains strong throughout our service territory, and we continue to invest in the communities in which we operate. I've highlighted for you on previous calls the activity in Arizona in the advanced manufacturing space as well as the potential throughout our service territories for additional data center growth. The growth in Arizona in these sectors has driven the Arizona Commission earlier this month to open a docket to address resource adequacy of natural gas infrastructure and storage in the state. These, as well as continued growth in the entertainment, warehouse, logistics, and mining sectors, continue to drive significant in-migration throughout our service territories. The economic activity and development associated with these projects is expected to drive further upside to our already strong customer growth that Karen noted during her opening remarks today. You'll see on slide eleven the population growth projections for Arizona and Nevada from S&P Global are expected to continue to outpace the national average over the next five years. For Southwest Gas, we believe this economic development activity and resulting population growth will translate to more meter sets for residential and small commercial customers, which currently represents 85% of our existing customer mix. We continue to see greater than 90% of all new construction built in our service territories becoming Southwest Gas customers. With that growth comes the need for increased infrastructure investment in order to support both new and existing customers as we respond to requests for new gas service and work to ensure the safety and reliability of our entire system. Based on our recently refreshed capital expenditures and rate-based growth models, we now expect to invest about $4.3 billion over the next five years to support safety, reliability, and economic development across our service territory. We currently expect these investments to translate to a compound annual growth rate in rate base of 6% to 8% from 2025 to 2029. About 50% of this planned spending is needed for safety and reliability, and approximately 30% of the projected plan relates to economic development and new business growth.

Thanks, Justin.

On slide thirteen, we provide a consolidated earnings walk on an adjusted basis. Through 2024, the utility benefited from rate relief and continued improvement. This improvement was partially offset by higher interest expense and lower other income, both of which are primarily related to changes in regulatory balances, depreciation, and amortization, all of which are discussed in detail on the next slide. Centuri's consolidated results were lower for 2024.

As 2023 had benefited.

Centuri's 2023 results benefitted from higher offshore wind work and above-average natural gas bid work that did not recur in 2024. 2024 also saw an unforeseen reduction in the volume of work under MSAs in Centuri's natural gas business lines. Partially offsetting these decreases, Centuri saw lower interest expense over the period due to IPO-related debt as well as the benefits from a securitization transaction during the second half of 2024. In addition to the impacts from the removal of Mountain West in 2023, the holding company had lower overall operating expenses, partially offset by higher interest expense compared to 2023, primarily associated with higher variable interest rate impacts associated with the term loan and the amounts outstanding on the holding company revolving credit facility. In the appendix, we provide a reconciliation of adjustments by operating company. The vast majority of the 2024 adjustments relate to the amortization of intangible assets and receivable securitization-related costs at Centuri and separation-related transaction adjustments, while in 2023 adjustments also include the impacts from the loss on the sale and previous integration of Mountain West, as well as consulting fees related to utility optimization. Moving on to slide fourteen, you will see the year-over-year performance driver for our utility, Southwest Gas Corporation. In 2024, utility operating margin increased by $72.5 million compared to 2023. This improvement was driven primarily by $66 million of increased rate relief resulting from prior investments in Nevada and California. In addition, we saw $12 million of improved margin as a result of customer growth throughout our service areas. The remaining increase largely relates to the combined impacts of certain infrastructure and similar tracking mechanism surcharge components, which combined with the variable interest expense adjustment mechanism in Nevada resulted in $9 million higher operating margin this quarter. These increases were partially offset by about $7 million of lower regulatory amortization, of which a comparable decrease is reflected in amortization expense. We also were impacted by about $11 million of out-of-period adjusting entries that relate to net cost of gas sold in prior years, the largest of which relates to a previously disclosed in 2023 $8 million benefit that did not recur in 2024. O&M was relatively flat on a per-customer basis year over year. The modest net increase of $9.2 million or roughly 2% is less than inflation observed in the broader macroeconomic measures over the same period. The overall increase in O&M primarily related to compensation components and LEAP survey line locating activities. These modest increases were partially offset by a reduction in external contractor and professional services costs, which primarily related to cost optimization consulting fees that occurred in 2023 and were adjusted out of net income in our presentation. We remain confident that we will be able to achieve our goal of keeping O&M costs nearly flat on a per-customer basis through the forecast period, though we expect these results could be nonlinear. The $9.3 million increase in depreciation and amortization and general taxes was largely associated with the 8% increase in average gas plant service compared to 2023, partially offset by the decreased amortization related to regulatory account balances noted earlier in the discussion of margin changes. Other income decreased approximately $16 million, primarily driven by a $17.2 million impact associated with lower regulatory account balances, notably the deferred purchase gas cost balances, which flipped from a receivable balance from customers of nearly $550 million in December of 2023 to a net liability balance of about $130 million at this year's end. Interest expense at the utility increased by $12.4 million from 2023, primarily due to interest incurred on the over-collected balance of the PGA as well as regulatory treatment timing related to the utility's industrial development revenue bond and a lower level of debt related to AFUDC. Partially offsetting these impacts was a decrease in interest related to the payoff of a $450 million term loan in April of 2023. Moving on to slide fifteen, we provide our 2025 finance plan for both Southwest Gas Holdings and Southwest Gas Corporation, which for simplicity, assumes consolidation of Centuri for the entirety of the year. To the extent Centuri ceases to be consolidated in 2025, we plan to adjust this as needed depending on the timing and successful execution of further separation market events. Southwest Gas Holdings finished 2024. The holding company balance sheet could improve further if divestiture of Centuri shares resulted in increased cash at Southwest Gas Holdings, which will depend on the form of separation and market conditions. We expect cash flow from operations to more than fund the entire capital expenditure program forecasted in 2025. In addition, based on the strength of our balance sheet and successful recent refinancing efforts, only capital markets needs over the next twelve months, depending on remaining Centuri separation execution form, relate to less than $100 million of equity needs in 2025, which we would expect to be covered through the ATM. We also expect a potential extension of a portion or all of the term loan facility at the holding company to beyond the July 31st maturity date. We also plan to amend and extend the holding company revolving credit facility sometime during 2025 ahead of its December 2026 maturity. Of note, we do not currently foresee the need for any significant debt capital market new issuance activity at the utility until the spring of 2026. As Karen noted earlier, Southwest Gas Holdings remains committed to paying a competitive dividend to our stockholders. We plan to pay the same dividend in 2025, which we 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, economic conditions, and other factors. We'll review the dividend policy for any changes post further separation execution and deconsolidation of Centuri. At Holdings, we reiterate our plan to target a solid investment-grade balance sheet. Moving to slide sixteen, 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. We finished 2024 with more than $360 million of cash largely due to the full collection of the previous deferred purchase gas costs from the winter of 2022 to 2023. As a result, at the utility, the PGA balance is now flipped to a liability balance of about $230 million as of December 31st, 2024. This is compared to the asset balance of nearly $550 million that I mentioned a moment ago in 2023. In the appendix on slide twenty-four, additional details are provided on the PGA balance. We continue to expect the large utility cash balance to significantly obviate the need to pursue additional financing in the near term.

Our 2024 results illustrate the progress we continue to make executing our strategy and we are committed to building on that momentum throughout 2025 and beyond. On slide eighteen, we show our utility guidance for 2025 along with our refreshed forward-looking guidance at the utility. We currently expect 2025 utility net income to be in the range of $265 million to $275 million. We believe that our regulatory efforts and strong regional economic outlook in our service territories will drive 2025 results above that, which we saw in 2024 with 2024 earnings normalized for the benefits we received from higher than anticipated interest income from the impacts of elevated cash and PGA balances, one-time costs, and COI. Our forecasted earnings reflect significantly higher margin growth through regulatory proceedings as a result of the investments we've made for the benefit of our customers to be partially offset by the impacts of cost from inflation, higher depreciation and amortization expenses, higher expected interest expense related to variable rate bonds, and forecasted year-over-year tax impacts. Partially due to anticipated economic activity, we are expecting 2025 utility CapEx to be approximately $880 million, which would be a modest increase above the regulatory cycle. We will result in nonlinear net income growth over the forecast period. Our regulatory strategy and our plan to achieve a flat O&M per customer trend over the same period are expected to be important components of our growth story going forward. You can find additional long-term drivers in the appendix of our presentation on slide twenty-six. We've also provided our forward-looking CapEx spending plans now showing a five-year forecast of about $4.3 billion from 2025 to 2029. We expect our rate base compound annual growth rate to be in the range of 6% to 8% over that five-year period. Each of our forward-looking forecasts' compound annual growth rates are calculated off of a 2025 base year. As Rob mentioned, we will continue to pay the same dividend while we work to effectuate the further separation of Centuri.

Before we open the call up to questions, I'm going to point to slide nineteen 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-based growth through strong regional demand dynamics as well as earnings growth through financial discipline, operational excellence, and constructive regulatory relationships. We'll continue to execute the next steps to fully separate Centuri to create a more attractive value proposition for stockholders. With that, I'd like to open the call for questions. At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Your first question comes from the line of Chris Sellinghouse from Saybrook Williams. Please go ahead.

Hey, everybody. How are you? Good morning. Karen, you talked about the nonlinear growth with the formula rates, respectively, in Arizona — do you see some convergence towards a more linear kind of relation over time?

I think when I speak to the nonlinear, certainly under our current regulatory structure, it's nonlinear. And I think if we're able to put more of a formula rate in place, absolutely, that would be more of a linear growth, I would expect.

Okay. And, Karen, you also mentioned — I can't remember the exact language you used — market conditions. I presume that means price per Centuri. Is that what you meant? The stock's somewhat depressed at the moment. Does that factor into your timing thinking right now? You want to see how the new CEO does, I guess, would be the way to put it.

Well, certainly positively, since we have onboarded Chris Brown and he has been with the company for just about three months now, and we think that is a real positive and one of the first steps that was important toward moving to our next steps on separation. But I would indicate that we're watching and looking at all of the market conditions that would impact and assessing our different options on a go-forward basis. So I would not limit it to just a price consideration.

Okay. Given that you're in an evaluation mode, does that suggest that the process could extend into next year?

What we'll continue to do is watch market conditions. As I've indicated before, we'll update you as soon as we have more that we can share with shareholders, but I will emphasize that we are very focused on moving forward with our separation.

Okay. Justin, you talked about gas adequacy. Do you have an opinion at this point? Given prospectively the load growth in your region, certainly we can expect a lot of new gas generation. Does that represent an upside in your view to what your longer-term CapEx looks like for the region?

Hey, Chris. Yeah. I think it can. A lot of times, some of the generation is sited closer to the interstate facilities, so less on us. But I think it's that continued migration across our service territory through that economic development that trickles down into our core business. And I think just the general sentiment of moving in a direction where natural gas is viewed positively for our economy — it's a clean-burning fuel — I think that general sentiment is also helpful.

Does your perspective on growth and how it will affect residential and small commercial factor into what the Arizona Corporation Commission is getting at, or are they more thinking about the large load customers?

I think it's an all of the above, Chris.

Okay. Thank you.

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Steven DeAmbrizi from Ladenburg. Please go ahead.

Hi. Thanks very much for taking my question. I just had two quick ones. The first one is: does the updated utility net income CAGR assume any impact from the pending SIEM mechanism or a future filing under the ACC formula rate policy statement?

This is Rob Stefani. The range does not include the formula, and we don't have the SIEM tracker in that range as well.

Okay. I guess the follow-up there would be: I understand the SIEM is obviously still outstanding, but on the formula rate, how do you see that moving forward? Are you looking for an electric utility to file under the plan or is that going to be tested somehow, or will there be a rule making? What's the next step to get you comfortable with that structure?

Hey, Steven. It's Justin. I think we're comfortable now — it's just a timing issue. We're in the last inning of our rate case, so it's something we would look to as part of our next case. UNS Gas, who filed at the end of last year, amended their rate case as a result of the policy statement. I know APS is looking to file a rate case later this year and would likely include a proposal. So I think it's just timing from our pending case and when that policy statement came out. Directionally, it's very positive. We'll be monitoring those dockets to see if there's anything we can learn for how this is actually implemented going forward. Our next case will have the benefit of seeing how this shakes out over time.

Okay. And then from a high level, the 6% to 8% utility net income CAGR is in line with the rate base CAGR. That would imply earned ROEs are flat across the projection period. You've talked about focusing on improving earned ROEs. Am I right to think that, to the extent some of these mechanisms move forward, or you see a future filing under a formula rate plan, that would be a driver of earned ROE improvement in the future?

Yes. If we get a tracker, and we take it step by step, for example, if we get a tracker in Arizona, in the near term it would start to take effect beginning in 2026 given the timing of the tracker mechanism. As we receive favorable regulatory outcomes, whether it be a tracker or formula, we'd expect ROE to improve and move toward a higher ROE and higher implied growth rate.

No further questions. Thank you. I appreciate it. Thanks very much for the time. That's all I had.

This concludes the question and answer portion of today's conference. I would now like to turn the call back over to Justin Forsberg for closing remarks.

Thank you everybody for joining the call today and for your interest in Southwest Gas. We look forward to seeing many of you soon.

This concludes today's Southwest Gas Holdings fourth quarter and full year 2024 earnings call and webcast. You may disconnect your line at this time. Have a wonderful day.