Southwest Gas Holdings, Inc. (SWX) Q2 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Southwest Gas 2016 Mid-Year Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call maybe recorded. I would now like to turn the conference over to Ken Kenny, Vice President of Finance and Treasurer. You may begin.

Thank you, Nicole. Welcome to the Southwest Gas Corporation’s 2016 mid-year conference call. As Nicole stated, my name is Ken Kenny, and I’m Vice President of Finance and Treasurer. Our conference call is being broadcast live over the Internet. For those of you who would like to access the webcast, please visit our website at www.swgas.com, and click on the conference call link. We have slides on the Internet, which can be accessed to follow our presentation. Today, we have Mr. John P. Hester, Southwest President and Chief Executive Officer; Mr. Roy R. Centrella, Senior Vice President and Chief Financial Officer; Mr. Justin L. Brown, Vice President Regulation and Public Affairs; and other members of senior management to provide a brief overview of the Company’s operation and earnings ended June 30, 2016 and an outlook for the remainder of 2016. Our general practice is that not to provide earnings projections. Therefore, no attempt will be made to project earnings for 2016. Rather, the Company will address those factors that may impact this coming year’s earnings. Further, our lawyers have asked me to remind you that some of the information that will be discussed contains forward-looking statements. These statements are based on management’s assumptions, which may or may not come true, and you should refer to the language in the press release, Page 2 of our presentation, and also our SEC filings for a description of factors that may cause actual results to differ from our forward-looking statements. All forward-looking statements are made as of today, and we assume no obligation to update any such statement. With that said, I’d like to turn the time over to John.

Thanks, Ken. Turning to Slide number 3. While the second quarter is not generally a big one for either our utility or our construction business, our overall expectations for year-end results remain on track. As many of you maybe aware, Southwest Gas was recently elevated to the S&P MidCap 400 rather than the S&P SmallCap 600 where we previously resided. Our holding company reorganization has received all requisite approvals from our regulators and we’re on target to implement the reorganization by year-end. In the Natural Gas segment, we had a 24,000 net new customers over the last 12 months. In May, we filed a general rate case application with the Arizona Corporation Commission requesting $74 million increase in operating income. Recall that our last general rate case decision in Arizona was issued in December 2011. We also filed a gas infrastructure replacement advance application for the Public Utilities Commission of Nevada in June requesting authority to replace $60.7 million of steel and early vintage plastic pipe in Nevada. On the construction site of the business, we acquired Enterprise Trenchless Technologies Incorporated in May of this year, and we continued to experience strong revenue growth, both organically and from our acquired companies. Moving to Slide number 4. For today’s call, Roy Centrella will provide an overview of consolidated earnings for the period ending June 30 as well as some additional detail on both the natural gas utility and construction segments. Justin Brown will follow with the regulatory update, and I will close the call with a report on customer growth and capital expenditures and our updated outlook for 2016. With that, I will now turn the call over to Roy.

Thank you, John. I’m going to review second quarter and 12 months financial results of both the Natural Gas and Construction Services segment. I’ll also highlight some of the key factors impacting the changes between the related periods and potentially influencing our full-year 2016 results. So starting with Slide 5. Net income for the three months ended June 2016 was $8.9 million or $0.19 per basic share, up from $4.9 million or $0.11 per share earned during last year’s second quarter. The contribution to net income from both operating segments improved between periods. For the 12-month periods ending June, we earned a $146 million or $3.08 per basic share, an improvement from prior period net income of $138 million or $2.95 per basic share. Results for the construction services segment were markedly better, while the gas operations segment experienced a moderate decline. Now let’s turn to second quarter results of the Gas segment on Slide 6. Net income of $2.4 million was realized this quarter versus a small loss of $657,000 previously. Operating income improved due to growth in operating margin, partially offset by higher operating costs. Other income increased by $2.1 million between periods due mainly to positive returns on our company-owned life insurance, or COLI policies. Slide 7, provides a breakdown of the $7 million operating margin increase. We added 24,000 net new customers over the last 12 months, a little below our expectations for about 1.5% growth rate. Overall operating margin remains on track to reach our estimated growth forecast of about 3% for all of 2016, plus approximately $11 million of Nevada conservation and energy efficiency recoveries. Moving to Slide 8. You’ll see that operating expenses increased $4.3 million or 2.6% between quarterly periods. This increase was mainly attributed to higher depreciation and property taxes resulting from capital expenditures. Financing costs were up about $800,000 between periods, mainly due to interest expense recognized on our purchased gas adjustment balances. For the full-year, we are lowering slightly our gas segment operating income growth projection, but now expect that change to be offset with a smaller increase in financing cost. Next, we’ll move to Slide 9, 12-month gas segment results. Net income of $113 million was down $7.4 million from the nearly $121 million earned in the previous 12-month period. We experienced strong growth in operating margins, but this was offset by higher operating cost and a reduction in other income. The next couple of slides further breakdown these components, starting with the Slide 10 in operating margin. Operating margin grew by $24 million between 12-month periods, driven by a number of factors. Customer growth contributed $8 million towards the increase, while combined rate relief in California and our Paiute operations kicked in $7 million. Margin associated with Nevada Energy efficiency surcharges added $6 million, however, this margin was directly offset with higher amortization expense. And then lastly, we received $3 million of incremental margin from our infrastructure tracker mechanisms and our larger customers. Slide 11, total operating expenses increased $36 million or 5.7% between periods. O&M expenses increased 5% due to higher employee-related cost and pipeline integrity management and damage prevention programs. Depreciation and amortization expense increased $16.1 million between periods, with $6.4 million of that representing the regulatory energy efficiency program amortizations noted in the margin variance discussion. Slide 12, covers our other income deductions, which declined from $5.6 million to $3.6 million. The variances was mainly attributed to COLI income, which totaled $1.3 million in the current period and $3.4 million previously. Next, we’ll discuss Centuri’s operating results beginning on Slide 13. During the most recent quarter, the construction services segment contribution to net income was $6.6 million, up $1 million from last year’s $5.6 million. This was driven by strong growth in revenue, particularly in our Canadian operations. During the 12-month periods, contribution in net income improved significantly from $16.9 million to $32.5 million. There were several factors which influenced results for both periods which I’ll touch on in a minute. Now moving to Slide 14. You can see that revenue increased $40 million or 16% between the second quarter of 2015 and 2016. This reflected additional pipe replacement work from a wide cross-section of our customer base, along with expansion into new areas, such as Western Canada, Northern California and Maine. Construction expenses increased $38 million or 17% between periods, and depreciation expense was up $1.3 million. The net result of these changes was a $760,000 improvement in operating income. Now the relatively low-grade of growth compared to the revenue growth includes newer contracts in expansion areas in which start-up costs were incurred. Considering that activity, profit margins are generally in line with our expectations. And Slide 15 summarizes 12-month construction services results. On the topline, term period revenue totaled $1.07 billion, and were up $205 million between periods. Growth in pipe replacement work and favorable weather conditions last winter were key factors. A portion of the increase came from having 12 months of activity from our Canadian operations versus nine months in the prior period. Construction expenses totaled $955 million, up $178 million. Depreciation expense increased $5 million primarily reflecting equipment purchases growth and volume of work being performed. For the net result of this activity was an increase in operating income of $22.4 million, moving from $37.7 million in the prior period to $60.1 million in the current 12-month period. Additionally, prior period operating income included a $7.6 million pretax loss reserve on an industrial construction project in Canada, while the current period results included a $4 million pretax favorable settlement related to that project. As we look ahead to the second half of the year, the Construction Services segment is well-positioned to finish strongly. We are heading into the third quarter construction season peak and there are significant ongoing replacement work in both our U.S. and Canadian service territories. We now expect revenue growth to exceed earlier projections, but operating income as a percent of revenues to be somewhat lower, leaving this segment’s bottom line results will change from our prior quarter’s expectations. I will now turn the time over to Justin Brown for a regulatory update.

Thanks, Roy. Slide 16 highlights four areas that will guide my comments today starting with an update on our Arizona general rate case filing, progress on our infrastructure replacement program, specifically our Arizona COYL program and our Nevada GIR mechanisms. And lastly, the progress we’ve made on our holding company application in each of our three states. Turning to Slide 17. We’ve filed an application May 2 in Arizona requesting rate relief following our five-year stay out that was agreed to as part of our last general rate case. Our rate application consists of several key components: First, a request update rates to reflect our current level of revenues and operating expenses; and to capture the various capital investments that have been made since our last general rate case. This request results in a proposed increase in annual revenues of $32 million. The increase in revenues is net of a corresponding proposed decrease in depreciation expense of $42 million, which will have a favorable impact to operating income. The $32 million proposed increase in annual revenues is based upon a proposed rate base of $1.3 billion, which is a 25% increase over our currently authorized rate base of $1.07 billion. We are also proposed increase to our authorized cost of common equity capital to 10.25% relative to a capital structure consisting of approximately 52% equity. Based upon the proposed increase in our application, the average residential customer will experience an increase of approximately $1.14 per month or 2.8% resulting in a proposed average bill of approximately $42.47. In addition to requesting to update rates to reflect our current cost of service, we are also proposing several key regulatory initiatives. First we are proposing to continue our decoupled rate design with the continuation of our margin per customer to coupling mechanism referred to as the EEP or the Energy Efficiency Enabling Provision. Second, we are proposing to rebrand our infrastructure recovery mechanism as the Gas Infrastructure Modernization Mechanism, or GIM mechanism. The idea to rebrand our cost recovery mechanism was driven in large part by our proposals to both continue and expand our existing customer in the Yard Line Program to accelerate the replacement of the COYLs in our system, but also to implement a new replacement program, targeting the replacement of nearly 6,000 miles or pre 1970s vintage steel pipe. Third, we are proposing to implement a property tax tracker, whereby we will track any changes to our property tax expense, back to the amount that is embedded in base rates following this rate case and then implement a surcharge that will adjust annually to reflect any differences in that expense level. Turning to Slide 18. During the quarter, we received a procedural order from the ALJ assigned to our case. As you can see on this slide, staff and intervener testimonies due November 30 for all issues, except rate design, and then the rate design testimony will be due December 14. At which time we are scheduled to meet with all parties to determine whether settlement is an option in the case. If not, we will prepare and file our Rebuttal testimony December 30 with Surrebuttal and rejoinder testimony being exchanged in January 2017. And then hearings are currently slated to begin February 6, 2017. We believe the procedural schedule winds up nicely to help us remain on track for an anticipated rate effective date of May 2017. You may recall, based upon the terms and conditions of our last settlement agreement, new rates from this filing are not expected to be in place prior to May 2017. Turning to Slide 19. One of our key regulatory initiatives has been to establish infrastructure recovery mechanisms in each of our jurisdictions. In order to timely recover capital expenditures associated with commission approved projects that enhance safety, service and reliability for our customers. In Arizona, we recently received approval from the Arizona Corporation Commission to increase our surcharge revenue associated with the customer-owned Yard Line or COYL program for $2.5 million to $3.7 million. The program was approved as part of our last Arizona rate case and began in 2012. In 2014, the commission granted us authority to expand the program to include a Phase 2 for the replacement of certain non-leaking customer lines. The recently approved $3.7 million currently being collected in rates is based upon cumulative capital expenditures of $23.1 million, of which approximately $7.1 million was incurred during 2015 for both Phase 1 and Phase 2. Turning to Slide 20. In Nevada, we filed our 2016 advance application June 1 requesting approval to replace $60.7 million in projects that we will propose to replace during calendar year 2017. These qualifying projects consist of the continuation of our early vintage plastic pipe replacement activity, pre-1970s vintage steel pipe replacement, and we also introduced the COYL program in Nevada, which is largely modeled after our Arizona COYL program. We originally proposed the development infrastructure recovery mechanism as part of our 2012 general rate case and in turn, the commission opened a rule-making to develop regulations for gas infrastructure replacement recovery. These regulation were finalized in January of 2014, and since that time, we’ve received approval to replace approximately $58 million of qualifying replacement projects. $14.4 million was approved in 2014 for replacement of early vintage plastic pipe during calendar year 2015. And in October 2015, we received approval to replace up to $43.5 million of replacement work during calendar year 2016, consisting of both the ongoing replacement of early vintage plastic pipe as well as beginning the replacement of vintage steel pipe. We anticipate a final commission decision on this year’s $60.7 million application sometime in October. The Nevada, GIR regulation has also permit us to make a separate annual filing to implement a surcharge to recover the deferred revenue requirement associated with previously approved projects. We have made filings in both 2014 and 2015, and we are currently collecting annualized operating margin of $3.8 million as a result of the rate application that was approved late last year. These rates became effective in January 2016. Lastly, Slide 21 highlights the progress we’ve made on our regulatory application seeking approval to reorganize into a holding company structure. We made filings in October 2015 with each of our three state regulatory commissions requesting approval of a plan to reorganize into a holding company structure. The proposed reorganization is designed to provide further legal and financial separation between the regulated and unregulated businesses, and as John mentioned earlier, we have received approval from all three of our state regulatory commissions. We originally anticipated that the regulatory approvals could take up to 12 months to complete, and we were able to successfully receive all three approvals in about half that time. We are currently working internally on making sure we have identified considered each of the appropriate business processes changes that need to be considered as part of this type of reorganization, working through the necessary third-party consents as well as working towards final board approval. We anticipate the reorganization to become effective as early as fourth quarter of this year. And with that, I’ll turn it back to John.

Thanks, Justin. Turning to Slide 22, in the most recent 12-month period Southwest Gas, added 24,000 net new customers, to bring our total customer account to 1,962,000 customers. On Slide 23, we show a variety of economic statistics across all three states service territories. Unemployment rates are generally flat year-on-year, while we continue to experience positive job growth in most jurisdictions. Moving to Slide 24. This slide provides the breakdown of our anticipated capital expenditures, which remain largely on track with our prior indications. We still expect to invest approximately $460 million across our systems this year. Furthermore, we continue to expect our prospective three-year capital budget to range from between $1.4 billion and $1.6 billion. Next, wrapping up with our outlook for the remainder of 2016, beginning on Slide 25. On the utility side of the business, operating margin is expected to increase by approximately 3%. As Roy mentioned, this figure does not include projected $11 million recovery of Nevada conservation program costs for which there will be an offsetting amortization expense increase. O&M expense is expected to increase modestly as higher general and incremental costs which are partially offset by pension cost decreases. Depreciation and general taxes are expected to increase consistent with 5% to 6% gas plant growth, plus the impact of the previously referenced Nevada conservation programs. Operating income is projected to increase by 3% to 4% compared to prior projections of 4% to 5% growth. Normalized company-owned life insurance returns should range from between $3 million and $5 million, and net interest deductions for 2016 are expected to increase by only $2 million to $4 million compared to our prior growth estimate of $5 million to $7 million due to our ongoing capital expenditure programs. And finally, on Slide 26. The outlook for the construction business includes the following expectations 2016 revenue growth of 7% to 10% compared to our prior projections of 3% to 7%; operating income approximating 5% to 5.5% of revenues compared to prior expectations of 5.5% to 6%; net interest deductions between $6.5 million to $7.5 million based on current interest rate levels. Also, please keep in mind that our expectations exclude consideration of earnings attributable to non-controlling interest and the changes in foreign currency rates can influence results. With that, I will return the call to Ken.

Thanks, John. That concludes our prepared presentation. For those who have access to our slides, we have also provided an appendix to slides which includes other pertinent information about Southwest Gas and can be reviewed at your convenience. Our operator in the call will now explain the process for asking questions.

Thank you. [Operator Instructions] Our first question comes from the line of Tim Winter of Gabelli. Your line is now open.

Good afternoon, and congrats on the quarter. I was wondering if you guys can talk a little bit more about the pipeline construction business and what you are seeing as far as a longer-term outlook and maybe competition there.

Hi, Tim, this is Roy. I think we’ve talked a little bit before that from an outlook perspective, things look very good at the industry. Replacement work continues to be growing across the country. We’ve expanded into some new areas, including Western Canada that we haven’t been in before. Bought a little company up in Maine to increase the opportunity we have in northeastern part of the country. So I think that 7% to 10% number that we’re seeing for the full-year is probably pretty representative of what we think the opportunities are going forward. Competition wise, we are still – it’s still a fairly fragmented industry. There are a lot of big players out there besides the ones we compare ourselves with today, like Quanta and MasTec, Miller pipeline. Otherwise, the competitors tend to be more local and regional. So we’re not seeing new big entrants into that side of the business.

Okay. And can you just update us on what your thinking is as this business represents roughly 20% of earnings, might you consider spending a portion of this off or something else creative?

Tim, this is John. I think for the near-term, we see that there’s going to be a significant amount of growth at the utility and the non-utility construction business. So while those are options that we will continue to consider for the future, I think that with the current business mix being 80-20, and while the construction business may grow at a higher rate than the utility, I think that we’ve got some time over which we can evaluate those options. I think also one of the things that we’ve talked about previously, including on today’s call, is getting everything’s set up in the holding company reorganization. So we want to continue to monitor the business mix going forward. I think the hypothetical that you mentioned is certainly something that we’ll consider in the future. But we want to make sure we thoughtfully plan a course of action that will maximize the value for our shareholders.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of the Matt Tucker of KeyBanc Capital Market. Your line is now open.

Hey, gentlemen. Good morning I guess over there.

Good morning, Matt.

Wanted to follow-up on the construction side first. I was surprised by the margins in the quarter, although I understood the explanation there. But I guess, you said it was in line with our expectations, yet lower the expectations for the full-year. So could you just talk a little bit about why the full-year expectation on margins are going down? Is it because you’ll still see some of these increased cost late into the expansions in the second half?

Yes. I think what I referred to meeting expectations in all of our existing contracts, I guess, really referring to there, that those are doing well, meeting our – the projections that we laid out previously. But we’re in a new couple of areas, and then when that happens, you’ve got a number of upfront costs that go into that. Renting space and a yard for the equipment, moving, carrying your equipment, hiring and training staff. And then you kind of have to get into a cadence with the customer to understand how those release work and thinking condition that kind of thing. So those things –there are some upfront costs that we’re seeing that they will probably impact our overall profitability margin for the full-year even though as you get more experienced with the customers, those profit margins should move right into line with existing customers. But we have enough new work this year that’s sort of pushing down that overall expectation a little bit. Thankfully, we’ve got more work than we had expected earlier on in the year and so full-year earnings are still going to be in line with last quarter’s forecast.

Got it. Thanks Roy. That makes sense. That’s helpful. And then follow-up to that. Maybe you could talk a little bit about the expansions into new states kind of opportunities you saw there? I believe, you made an acquisition as well, and should we assume that you’re kind of done in terms of entering new states or acquiring new businesses at least for this year? Or do you see other opportunities in the near term?

This is John. I would not assume that we’re done entering into new states. I think like Roy alluded to a little bit earlier, there’s really a lot of opportunities out there. The ETTI acquisition helps get us a better foothold in the Northeast, also non-union business, we got a couple of other smaller non-union businesses. That’s another area that we want to get more involved in. There are some areas in the country that do business more on a non-union basis. So I think that we definitely are going to continue to look to expand, not only our business with existing customers, but also look for those markets do safe, perhaps that makes sense for the business and where we can continue to grow and be profitable.

Thanks, John. And understanding that you don’t necessarily feel sense of urgency to pursue strategic options with the business and you like growth outlook, but I guess, is there kind of a new target you have in terms of the scale that you feel like you want to get to if independent of that the earnings mix overall, but just the scale of the construction business that you feel like you need to really pursue options?

No, Matt I don’t think that we have a specific number in terms of, let’s say, total revenues that we would need to reach and then we would definitely consider that kind of option. I think it’s going to be more a function of what the business mix is and I think, as Roy alluded to and answered to the prior question, there really is a lot of opportunity out there it seems with utility infrastructure, expansions and programs. So we want to make sure that we capture as much of that opportunity and maximize the value of the business. And as long as we continue down that path where we have what we think is an appropriate business mix and something that our shareholders continue to be receptive to, we think that’s going to continue to drive value for our shareholders.

Thanks. And last one for me, just shifting to the natural gas side. Understand that the lower interest expense expectation offsets that the lower operating margin growth expectation. But just curious on the latter. What’s changed relative to your prior expectations for the operating margin growth?

Yes, hi, Matt. It wasn’t the margin growth that we are saying is going to be down, but rather our operating expenses are going to be up modestly. I think when we first went into the year, we expected O&M to be up modestly. We thought O&M would be pretty flat, but we’re experiencing some cost pressures on more on the safety-related type expenditures, leak survey were patrolling our lines, so as we thought that would be flat, now we’re seeing maybe a modest uptick. So when you think about 1% change in operating income line, that really amounts to about $2 million to $2.5 million. So it’s not a big number, but enough that have changed our percentage from 4% to 5% to 3% to 4%.

Got it. Thanks, Roy. That’s clear to me now. I’ll leave it there.

Thank you. [Operator Instructions] Our next question is from the line of Chris Sighinolfi of Jefferies. Your line is now open.

Hey, John. How are you?

Good morning, Chris. Good. Yourself?

I’m well. Thanks. Just want to follow-up on a couple of items here. I guess, with regard to the debt cost, if I could start there, seeing that come down on the utility side, and then, I guess, company-wide, with Centuri’s cost being held flat. Just curious, what’s driving that in terms of the CapEx guide affirmed. Do you have an acquisition here? Is it just the rates that you are anticipating to pay or the cash flow to the business is stronger? Could you just give a little more color on what’s shaping that?

Yes. Hi, Chris, this is Roy. A couple of things that have happened over the course of the year. One is cash flow definitely have been stronger. Our PGA balance, we were expecting to be relatively flat to maybe even declining. And actually, we’ve had – with low gas prices, we’ve actually recovered more in purchase gas cost than what we’ve been paying. And so we’ve built up a pretty sizable liability there, it’s over $120 million now from year end. I think $50 million range I guess the number roughly, but number roughly. So we’ve had a lot of cash flow there. And then bonus depreciation was approved very late in the year. It might have been from early this year, so we haven’t anticipated that our taxes would be as low as they are. And essentially, we’re paying no income tax this year. So those two things have allowed us to push off a financing that we were going to need to cover our capital expenditures, which obviously have been growing. And so though we’ve been able to delay doing that borrowing by a few months, and interest rates have remained quite low, again, even from year end, they’ve moved down, up even though a lot of prognosticating expecting to [go up]. And we were able to – we also were able to call some industrial development bonds about $100 million worth. We just took those out in July, and we think when we refinance those later in the year, we’ll be at a lower interest rate. So I guess there’s a lot of explanation in there. There’s a number of factors, but they’ve all been favorable towards interest expense.

Sure. And then I guess, Roy, as we think about the PGA balance that you show on Slide 38, that $126 million, how should we think about sort of cadence of how that gets refunded to the customer? Is it really a seasonal with the winter load that it would go back in terms of – an under collection relative to the cost, is that how to think about the return of that?

Yes. You are looking at it correctly. We filed quarterly to change the balance in our biggest dates. And because this time a year, even if we have a credit in the bills, the volumes on the bills are so low that it doesn’t make much of a dent in net balance. So over the – starting around November – October, November, through maybe March or April, you will see that balance come down quite significantly.

Okay.

That’s what we’re going to try to do – also then dependent on the gas prices that we experienced at that time of the year as well.

Right, sure. Okay. And then I guess, away from cash and more on the earnings side, you had an update, I think, in here on the LNG facility, I think it’s on Slide 35. So it sounds like the construction contracts, hopefully, put into place to the back half of this year and then construction starts to commence, I’m assuming in the early 2017 maybe. How do we think about I guess, two part question. Will you be recording AFUDC on the capital spent on that project? And then is there a rough guideposts on how to think about that? Do we think about the cadence spent, and then sort of capitalize that according to the Arizona – the last Arizona rate case and think about the equity returns associated or is there a better way to think about that?

Chris, this is John. I think that what you’re talking about is a pretty good expectation. Like you said, right now, we’re going through a process where we’re getting actually an RFP for business to come in, probably going to be getting a lot of that information next month. And then after that, sometime mostly into the following year and thereafter that we actually building the facility. And those costs largely will be capitalized with AFUDC. So I think that’s a good summary of how you would expect that project to play out.

Okay, great. Final question for me, John. With regard to the acquisitions on the Centuri side of it or just I guess the offering that Centuri can make to its customers. You’ve talked about entering some new markets geographically from where you’ve been before. But just wondering if there’s an eye towards picking up any sort of skill set or functionality that you don’t have? I know in prior meetings, we’ve talked perhaps about the fact that natural gas runs through pipelines, but obviously, as do other products that utilities manage that you might be servicing. So I’m just wondering if there’s any effort towards that as you think about building out that business maybe do water utility replacement or something akin to that, that maybe not the bread-and-butter, core of the natural gas pipe business as it stands today.

Absolutely, Chris. I think that’s a good point. Centuri does get involved in some of those markets now, including doing water work, they do some electric work, and they have a barricade company. They do some work with renewables, with photovoltaic customers. So I think some of those areas that they currently do business in are relatively small in the grand scheme of things. We see some similarities. For example, you mentioned the water infrastructure. And certainly, the fact that generally speaking, the water infrastructure around the country is crumbling. And to the extent that municipalities and other governmental entities especially start to look to rebuild some of that infrastructure, I think that’s a good market for Centuri to be in. That’s a market where I think there’s a potential for a fair amount of growth.

Wonderful. Thanks for the time this morning guys.

Thanks, Chris. End of Q&A

Thank you. And I’m showing no further questions at this time. I’d like to hand the call over to Ken Kenny for any closing remarks.

Thank you, Nicole. This concludes our conference call, and we appreciate your participation and interest in Southwest Gas Corporation. Have a great day. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s program. You may all disconnect. Have a great day, everyone.