Good day, ladies and gentlemen, and welcome to the Southwest Gas Holdings 2017 Midyear 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 follow at that time. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Ken Kenny, Vice President of Finance and Treasurer. Sir, you may begin.

Thank you, Sandra. Welcome to Southwest Gas Holdings, Inc. 2017 midyear conference call. As Sandra stated, my name is Ken Kenny, and I am the 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.swgasholdings.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’s 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 operations and earnings ended June 30, 2017, and an outlook for the remainder of 2017. Our general practice is not to provide earnings projections, therefore, no attempt will be made to project earnings for 2017. Rather, 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 Slide 3 of our presentation and also our SEC filings for a description of the 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 4, I’d first like to start with a review of some of the highlights we experienced in the second quarter. First, from a consolidated results perspective, we experienced second quarter earnings of $0.38 per basic share, a notable increase over the prior year period. We also paid out a quarterly dividend of $0.495 per share or a $1.98 annually. This dividend represents a 10% increase over the March 2017 dividend of $0.45 per share. For our natural gas segment, we saw a resolution of our Arizona rate case with new rates effective April 1st. We added 32,000 customers for the 12 months ended June 30. We submitted a Nevada gas infrastructure replacement application proposing $66 million of pipe replacement activity for 2018 and California Public Utilities Commission approved in extension of our next California rate case until September 2019. As a result, we will continue to experience post-test-year attrition revenue increase of 2.75% through 2020. Finally for our Centuri construction services segment, we completed requalification of employee affected by temporary work stoppage at one of our customers. Centuri revenue and contributions to net income increased in the second quarter compared to the prior year period. We're also affirming our full year expectations. Moving to Slide 5, today's call Roy Centrella will cover an overview of our consolidated earnings for the period ended June 30, along the segment details for both utility and non-utility operations. Justin Brown will provide a summary of our various regulatory activities, and I will close with an overview of customer growth, regional economic, capital expenditures and rate base growth and our expectations for 2017. With that, I will now turn the call to Roy.

Thank you, John. I am going to jump right into things on Slide 6 with a look at consolidated operating results. For the three months ended June 2017, we earned $17.9 million or $0.38 per basic share, doubling the 8.9 million or $0.19 per share earned in the second quarter of last year. During the 12 month period, our earnings improved from 146 million or $3.08 per basic share to 155 million or $3.26 per share. Next, we'll look at the relative contributions of each segment to the change in earnings starting on Slide 7. Natural gas operations, earnings increased by $7.2 million between quarterly periods, principally as a result of impacts from our Arizona general rate case order effective this April. Construction services, experienced $2.1 million earnings improvement, driven by revenue growth and lower depreciation expense. This next slide breaks down the change in earnings between 12 month periods. Gas segment net income increased $12.5 million, while construction services experienced a net decrease of $2.9 million. We will now look at each segment, starting with natural gas operations on Slide 9. This waterfall chart provides a breakdown of the major components of the earnings increase. Operating margin increased $6.5 million as a result of customer growth and rate relief in Arizona in California. We added 32,000 net new customers over the last 12 months, a growth rate of 1.6%, now partially offsetting the margin growth where O&M cost increases totaling $3.8 million or 3.8%. A portion of the increase pertains to compensation programs, whose accounting expense is skewed toward the first half of the year for retirement-eligible employees. Depreciation and property tax expense declined $9.5 million between periods primarily due to lower depreciation rate in Arizona. Moving to Slide 10, we summarize the gas operation segment change between 12…

Thanks, Roy. The focus of my comments today will be on three key areas, an overview of our rate relief plans in each of our three states and update on the progress of our various infrastructure replacement programs and an update on two important expansion and reliability projects. Turning to Slide 14, the Arizona Corporation Commission approved our proposed rate case settlement and rate became effective April 1st, one month earlier than it was originally expected. Through the combination of a $16 million increase in revenue and a $45 million reduction in depreciation expense, we expect to see an overall increase to operating income of $61 million. We anticipate the incremental change to operating income to be split between 2017 and 2018 with approximately $45 million being realized in 2017 and $16 million in 2018. We are very pleased with the rate case outcome in terms of the impact operating income and as being the largest increase in the Company's history, but we are equally pleased with the constructive working relationships we have with our stakeholders in Arizona and with the progress that we are able to make on getting important regulatory tools in place. As part of this last rate case, mainly the continuation of our fully decoupled rate design, expansion of our existing customer-owned yard line program, implementation of a vintage steel pipe replacement program and the implementation of our property tax tracker. Turning to Nevada, we plan to file our next Nevada rate case in the first half of 2018 with new rates becoming effective 210 days after filing. Since we file three rate applications as part of our gas infrastructure replacement program, in order for us to continue the GIR program this year, we were obligated to either file a rate case to clear up the…

Thanks, Justin. Turning to Slide 18. As I mentioned at the outset of the call, we added 32,000 net new customers in the most recent 12 months period across our three states service territory, a growth rate of just over 1.6%. We now serve just under 2 million customers. On Slide 19, we provide some data on the regional economic climate, year-over-year we saw unemployment rates decline across the board as well as continued job growth for the vast majority of our service territory. Moving to Slide 20, we show our expectations for capital expenditures to trend over the coming three years period. We expect to invest up to $1.8 billion over the next three years to serve growth and increase the safety and reliability of our natural gas delivery systems, also noteworthy as the current amounts of our capital expenditures that are covered under favorable regulatory cost recovery mechanisms as detailed earlier by Justin. Turning to Slide 21, we illustrate how our investments and growth safety and reliability for our customers translates into rate base. While our rate base totaled approximately $2.0 billion last year, our planned capital expenditures should cause at value to grow to up word to $3.8 billion at the end of 2019, a compounded annual growth rate of 9%. Closing our prepared comments with Slide 22, we're affirming our 2017 overall expectations in this call. For our natural gas operations, we're updating our expected year end operating income increase to 11% to 13% while also projecting that interest expense will increase by $2 million over 2016 levels. Similarly, all expectations for our construction services business remain as we have previously stated. With that, I'll return the call to Ken.

Thanks, John. That concludes our prepared presentation. For those who have accessed our slides, we also have provided an appendix with slides that include other pertinent information about Southwest Gas Holdings, Inc. and its subsidiaries. And can be reviewed at your convenience. Our operator, Sandra, will now explain the process for asking questions.

[Operator Instructions] Our first question comes from line of Barry Klein with Macquarie. Your line is now open.

You provided rate base guidance through 2019, so I was hoping you could provide a little more color on how you think about -- how we should think about earnings in 2019 that is, should we look at the 9% rate base growth as a main driver? And also should we anticipate that your regulated ROE will improve from the 7.7% achieved in 2016?

This is Roy. I think when you look at the rate base growth that will ultimately translate into rate relief and earnings growth. As you can imagine that there is not a certainty to the timing as to when that will happen, now we've led out that we have a Nevada rate case in 2018, so we will pick up some of that growth there. And then Arizona, we agree to stay out until '19. So I think what you would see is a trend that should overtime equate the 9%, but it's hard for us to put the timing out there.

I guess the question is you earned 7.7% in 2016 according to your yearend slides. Is there a reason to think that that achieved ROE would decline or I would think with all the rate relief that it would increase? Like why would that achieved ROE not increased I guess overtime with all this rate action?

Good question. If you -- in our appendix, we have a Slide 38 and we are seeing now as the Arizona -- resulted Arizona rate case started flowing through our earnings, even today an uptick to 8.1% over the most recent 12 months for our return on equity and that only has one quarter of results there. So I think you are spot on that we would expect to see that earnings return grow more closely to our authorized particularly with the infrastructure track or mechanisms. Now between infrastructure tracker and our growth component of our CapEx, about half of our CapEx is directly generating new margin or differed cost and so while it's -- you still might be challenged to reach the overall authorized return in a short period of time in the longer run that’s certainly our goal is to shrink that gap between authorized and earnings rate of return and these kind of mechanisms have a direct impact on that.

And then regarding the construction business I know there has been a lot of activity in some sort of one-time type of activity with the contractor recertification. I was just wondering, is there a way to sort of split out what the impacts for the half of the year would have -- was as a result of this versus what it would have been, had you been in normal type of operations?

We do provide in our Q and might have been in the earnings release, what the impact of that particular contract was. I believe I got a couple of guys [indiscernible] was 3.7 million operating loss for the first six months of the year on the temporary work stoppage. As mentioned, we are now re-qualified all our worker and we should see not the -- normal profits, profit levels from that particular contract going forward.

Okay. So the 3.7 million that’s just a pre-tax number and that’s the difference between sort of getting rid of all the costs associated with recertifying and then also adding in the additional margins that you would have seen how they actually been doing work. Is that how we should think about it?

It’s not adding the additional margin because work load would have been greater degree.

Well, I guess that I am saying so how much of that -- how much more would it had been if they had their normal workload also rather than having to pause the work I guess?

Yes, year-over-year revenues in that nearly were down about $26 million.

26 million and what about margins, what would be -- because there would be processes added with that, right? Or should I just think about it as an incremental 26 million?

Yes, I mean if you…

It’s like that 5% margin I should think about.

Yes, exactly.

Okay, 26 millions.

Thank you. And our next question comes from the line of Chris Sighinolfi with Jefferies. Your line is now open.

Thanks for all the color on the regulatory front, the growth initiatives and the Centuri operations. I guess I was curious, you’ve mentioned in quarters passed a potential appetite maybe to do something jointly underground storage in the West and I was just wondering, I didn't see any -- language on that. I know you have a lot of underplay, but I was just curious where that type of initiative stands at the movement?

Hey, Chris, that’s a good question. It still is something that we are very interested in. We have been in talks with a number of other parties in Arizona, working on a potential project. It doesn’t look at the moment like that particular project is going to go forward, but I think the fundamentals of our company is while as a number of other utility operators in Arizona still are very interested in that. So I think that’s a matter of getting the right project with some right customer support. We certainly would be one of those customers. And if we can get that together, that’s something we would really like to move forward with. And we still are in formal discussions with some of the other interested parties in Arizona. So that idea has not gone away.

Okay. And John I guess now that it's in flight on the LNG storage, regionally. Can you just remind us -- I’ve seen a number of those at the moment can't look back and find it. When you were conceiving that project, can you just remind us if there is expansion opportunities on it longer term? And then I seem to remember there was maybe a bifurcation of storage versus liquefaction?

Yes.

Anything of that would be helpful just as we understand maybe the eventual scope of what you guys are doing with that or pick to with that?

Yes, Chris, and your memory is correct. When we were initially involved in conversations with the commission, we looked at this project as potentially going two different ways. One could be a project which is ultimately the form and which we undertook it where we would truck L&G into the tank and then we would vaporize it during peak conditions or grow some upstream supply disruptions, and we've also at the outside talk to the commission about potentially putting liquefaction facilities and that storage property. And the conclusion of those discussions was to proceed with project without the liquefaction facilities, get that up in running, see how it's used and normal operations and then reserve that additional opportunity for liquefaction facilities to something that could be considered down the road.

Okay and I guess with the construction underway now. I think Justin had said completion by the end of '19. Is there any sort of commissioning process on something like this? Or should we expect that to be sort of in-service beginning of 2020?

I think that you would expect to be in the service by the beginning of 2020.

Okay, great. And I guess switching gears just had one question and obviously appreciate all the developments on the Centuri front and getting things back in order on the work stoppage. I was just curious with regard to the capital plans there. I guess I have two questions, John. You have mentioned I think on our prior call, may be one or two quarters ago about opportunities to do things other than gas pipe. I think you had started a multiyear water pipe initiative. So you've given us pre-year CapEx profile for the natural gas operation. I was wondering if there was any sort of any step change expectations we should be factoring in and on Centuri. Given some of those new initiatives, I think it's been running around $60 million to $70 million of CapEx? And then a related question is just as it pertains to Centuri depth needs, I think right now you have a term loan facility and revolving credit facility. Just wondering what point does it get large enough that you start thinking about pricings out there?

Hi, Chris. This is Roy. We don’t see any material change to the CapEx needs. They are running I could say 60 million to 70 million. This year, they generate sufficient cash to cover their CapEx and on run rate basis to do perhaps if they are looking to do an acquisition, and you might see that need to use expand their facilities. But right now, they generated enough cash to cover their CapEx.

Okay. And the gain on asset sales you guys mentioned and I know you said it previously, I mean that’s just I guess typical course of business where you're upgrading the equipment, selling the older stuff, may be modestly changing whether it is you haven’t in terms of the capabilities that unless familiar with it. So I just wanted to understand what okay…

I would say there is sort of a 50 million to 60 million run rate on replacement of equipment or you have -- they typically hold their equipment for six to seven years and so you have sort of almost a natural 50 million to 60 million increment or that goes with that, and then any -- as they build up new customers new lines of business then that’s where that extra 10 to 20 comes from.

And our next question comes from the line of Tim Winter with Gabelli & Company. Your line is now open.

I was wondering if you could talk a little bit about just the outlook to market for a pipe replacement say over the next three years, what you are seeing in terms of competition in contracts? And do you expect Centuri to grow faster than the utility over the next few years?

Tim, I think that we continue to be pretty bullish on the pipe replacement market for Centuri. I think when you look at Southwest Gas and some of the things that we talk about on utility side, those are the types of dynamics that you are seeing playing out across the country. And as you are familiar Tim with our system, we got a relatively new system but there are a lot of utilities out there. Again as you know that have a lot of cast iron pipe, other types of order vintages of pipe that are in need of replacement, and we see that market continuing to be strong. In terms of the relative growth rates of the businesses, we are going to long to grow the utility business to pretty good growth rate. And I think that while it wouldn’t be surprising to see the construction services business grow at a little bit faster growth rate. As we have talked about before, Tim, we are also going to be mindful of that, that business mix that we have between the regulated and non-regulated operations because we certainly don’t want to lose our core identity as a natural gas distribution company.

So on Slide 24 you have I guess the current pie is 19% of the consolidated business with Centuri. Is there --- what's the parameter you are looking at in? What would be the thought process just to Centuri grow at a faster rate in the utility over next several years?

Tim, I think that you could see that continue to edge upwards. I think one of the thresholds that we keep in the back of our mind is a rating agency sensitivity if we get up to a 30% construction services business mix. So if we reach that -- when we reach that is ultimately going to be a question as you mentioned that the outcome and what those relative growth it's the two businesses are going be, but if we see we approach that then we will look at exploring some of the other things we talked about in the past to make sure that and we are able to continue modulating that business mix.

[Operator Instructions] Our next question comes from the line of Paul Ridzon with KeyBanc. Your line is now open.

When in the quarter did issues that with the work stoppages resolved themselves or get resolved?

That was pretty well concluded by early May.

And as we look forward in Arizona, I know you got a moratorium, you can stay out of the regulatory read beyond on that moratorium. Are their trackers going to keep hold or are there other spending that’s not tracked, that’s going to foresee end to re-file?

Well, I think Paul that generally speaking, we will continue to look at that as we go through the process. I think that while we certainly have had a pretty good step up in truing up our cost. We have done expansion of these cost tracking mechanisms et cetera. There are going to be normal traditional increase cost of service that we experienced overtime that are not going to be captured by those mechanisms. So I would expect that as we talked about in an earlier question with Barry, you probably would expect to see those earned rates of return increase compared to the past. But that doesn’t mean that we are not going to continue to want to go in periodically with the commission after that moratorium end to freshen our rates again. Now you might expect and time will tell that as we move forwards, those adjustments to rates might be smaller because of the mechanisms that we have in place and ultimately that’s you should see as we look at earned rate of return respectively.

Should we think about the earned ROEs kind of rising for the next three quarters, plateauing and then kind of start to work themselves down to a point where essentially you have to re-file, that's kind of trajectory you see?

Well, I think if you are isolating individual jurisdiction that’s probably, but I mean bear in mind that we’ll have -- in 2019, we’ll have a Nevada rate case. The overall earned returns of the Company may not trend downward just because one jurisdiction is, if that makes sense. So, we probably could see them trend up like you are talking about and then perhaps stay there or even improve a little more following the next rate case.

Yes a couple of other things you might want to keep in mind, Paul, that Justin mentioned earlier the fact that we continue to have that post-test-year adjustments in California that’s a future-test-year jurisdiction, it's got that Paiute expansion on the horizon. So, again, as Roy said, if you were managing yourself solely to the State of Arizona and we don’t break out those numbers, you might see a little bit of that, in fact that doesn’t necessarily mean that, that timeframe is going to apply to the entire regulated operations because of the lot of the other things we have going in the midst.

Understood. So, across the portfolio you have other mitigates to kind to sustain your ROE. Thank you very much.

Thank you.

Thank you. I am showing no further questions at this time. So, it does conclude today’s Q&A session. I would now like to turn the call back over to Mr. Ken Kenny for any closing remarks.

Thank you, Sandra. This concludes our conference call, and we appreciate your participation and interest in Southwest Gas Holdings, Inc. Hope everyone have a great day. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. And you may all disconnect. Everyone, have a great day.