Good day, ladies and gentlemen, and welcome to the Southwest Gas Holdings 2018 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 began at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Mr. Ken Kenny, Vice President of Finance and Treasury. Sir, you may begin.

Thank you, Norma. Welcome to Southwest Gas Holdings, Inc. 2018 mid-year conference call. As Norma stated, my name is Ken Kenny and I’m 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 Hester, Southwest President and Chief Executive Officer; Mr. Gregory J. Peterson, Senior Vice President and Chief Financial Officer; and Mr. Justin L. Brown, Senior Vice President, General Counsel, and other members of senior management to provide a brief overview of the company’s operations and earnings ended June 30, 2018 and an outlook for the remainder of 2018. Our general practice is not to provide earnings projections, therefore, no attempt will be made to project earnings for 2018. 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 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 would like to turn the time over to John.

Thanks, Ken. Turning to Slide 4 and our 2018 highlights. From a consolidated results perspective, we realized earnings of $4.29 per share for the 12 months ended June 30. In addition, earlier this year, our Board voted to increase our annual dividend to $2.08 per share. In the natural gas segment, we added 33,000 net new customers over the past year. We filed a Nevada general rate case requesting an adjustment to base rates of $32.5 million. We filed a gas infrastructure replacement application with an ultimate anticipated annual revenue requirement of $22 million, and we received a decision from the Public Utilities Commission of Nevada authorizing us to expand natural gas distribution service to Mesquite, Nevada. And finally, from a construction services perspective, we saw our quarterly revenues increased by almost $95 million, reached a settlement of $9 million for increased costs associated with a water pipe replacement project, generated annual net income of $45.2 million, our experiencing better than expected results with our New England Utility Constructors acquisition, and continued to be very enthusiastic about the year-end prospects for the construction business. Moving to Slide 5. We have an outline for the content for today’s call. Greg Peterson will review our consolidated results for the past year, including details for both the utility and construction services segments. Justin Brown will provide a recap of our varied regulatory pursuits, and I will close with an overview of customer growth and regional economic conditions, our planned capital expenditures and our expectations for the rest of this year. With that, I will turn the call over to Greg.

Thank you, John, and welcome to all of you who are joining us on today’s call. Let’s start with a look at total company operating results on Slide 6. For the second quarter of 2018, consolidated net income was $21.6 million, or $0.44 per share, an increase of $3.7 million, or $0.06 per share compared to the second quarter of 2017. For the 12 months ended June 20, 2018, net income was $207 million, or $4.29 per share, a significant increase from net income of $155 million, or $3.26 per share recorded in the prior year 12-month period. The current period includes a one-time tax reform benefit of $20 million, or about $0.41 per share recorded in December 2017. Let’s move to Slide 7 and look at each segment’s impact to the consolidated change in quarterly results. Quarterly earnings for the natural gas operations declined $6.9 million, while construction services results were up $10.5 million between quarters. I’ll provide some details surrounding the changes in each segment in the following slides. Slide 8 depicts the change in earnings between 12-month periods. Contribution from natural gas operations increased $37.4 million, while the contribution for construction services increased $15.7 million. Next we’ll take a deeper dive into each segment, starting with the quarterly comparison of natural gas operations on Slide 9. This waterfall chart depicts the components of the $6.9 million decrease in gas segment income between the second quarters of 2018 and 2017. Operating margin growth of $1.5 million included $2 million from 32,000 net new customers added during the past 12 months, a 1.6% growth rate, and 500,000 in attrition rate relief in California. A reduction in surcharge recoveries primarily related to conservation and energy efficiency programs in Nevada muted the overall margin increase. The $7.6 million increase in operations…

Thanks, Greg. As highlighted on Slide 13, I will be discussing several key regulatory initiatives, including an update on rate case activity and planning; the progress we’ve made on several tax reform proceedings, where we’ve been working collaboratively with the regulators to ensure timely rate changes for our customers; and an update on the progress of our infrastructure tracker programs; and several expansion projects. Turning to Slide 14 and starting with our Nevada rate case. It has been approximately six years since we filed the Nevada rate case. As part of our filing, the request includes a $32.5 million upward adjustment to rates, which is net of any downward adjustment associated with lower tax rates following tax reform. The rate adjustment proposal is premised upon a proposed increase to rate base of $309 million and a proposed return on common equity capital of 10.3% relative to an equity ratio of 49.3%. Of the $309 million of increased rate base growth, approximately $187 million is associated with previously approved GIR projects. The proposed increase also reflects a slight increase in depreciation rates approximately $3.8 million. In Nevada, we’re required to file an updated depreciation study, and that study concluded that there was a need to slightly increase depreciation rates at this time. So our impact to – our overall impact to operating income in this case is approximately $29 million after factoring in the changes to depreciation expense. In addition to these traditional components of our rate case, we’re also requesting to continue our fully decoupled rate design, reset our infrastructure trucker programs, and we’ve also requested a track pension expense. Due to the volatile nature of pension expense, we’ve requested approval of a tracking mechanism to ensure the amount of pension expense built into rates is recovered – is recovering…

Thanks. Justin. Turning to Slide 21, as I mentioned at the outset of the call, we added 33,000 net new customers over the past year and anticipate experiencing a similar annualized 1.6% rate of growth in customers over the next two years. Moving to Slide 22. Our continuing positive customer growth is largely due to robust economic conditions across our service territories. Continued population growth in the states we serve is expected to be significantly higher than the national average over the coming five-year period. In addition, we have seen unemployment rates decline in each of our service territories and also continue to experience significant job growth. On Slide 23, we illustrate our planned capital expenditures for 2018 through 2020. For the three-year period 2018 through 2020, we will invest approximately $2 billion in our gas delivery systems to serve growth and enhance safety and reliability. As shown, a significant portion of our investments are associated with infrastructure cost recovery mechanisms. Turning to Slide 24. We show our continuing investments in safety, reliability, and growth translate into rate base. Specifically, at the end of 2017, Southwest had $3.2 billion in rate base and with our anticipated capital expenditures over 2018 through 2020 with appropriate offsets for depreciation amortization and taxes, we expect to have $4.5 billion in rate base by the end of 2020. These ongoing investments in our gas distribution systems result in a 12% compounded annual growth rate in rate base over the reference three-year period. Moving to Slide 25 and some of the factors that will influence our financial performance prospectively. For our natural gas operations, we expect continued annualized customer growth of 1.6%. Our planned capital expenditures will be funded by an appropriate level and mix of internal cash flows, debt and equity, one-year of Arizona…

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

Thank you. [Operator Instructions] Our first question comes from Aga Zmigrodzka of UBS. Your line is open.

Good morning. I just wanted to clarify the impact of the Nevada rate case. Based on your prepared remarks, the rates in Nevada will remain unchanged in 2018 and will be updated with the new rate from the rate case in 2019. Does that $20 –the $32 million request include the impact from the changes in the tax rate and as such should be added to current rate?

Hey, Aga, this is Justin Brown. Yes, the – I’m not sure about the last part of your question, but correct. The $32.5 million request is net of, I think, it was calculated to be about a $20.4 million impact from tax reform. So that is a net number. There will not be any additional anticipated changes to reflect tax reform as part of that rate request that’s pending.

Okay, perfect. My second question is related to the construction segment. Could you please provide some more color on the updated construction segment operating income guidance? How do you think about the long-term growth from this segment?

Yes. Aga, this is Greg. Certainly, the color that we’ve provided for 2018 reflects higher than previously guided revenues and it’s somewhat lower operating income percentages as the percentage of revenues. Overall, I think, our overall guidance for 2018 for the construction segment is consistent with what we’ve had before, but we have had continued new projects and additional projects with customers that have boosted up our revenue growth for this year. On a going-forward basis, I think, we’re consistent with what we’ve said in the past. It is a growing business. We’ve got good customers and opportunities for growing the business both internally, and we will continue to look as we have in the past at appropriate acquisitions. So I think, we will see continued robust customer growth and revenue growth with the construction services segment.

That’s all for me. Thank you.

Thank you. Our next question comes from Dennis Coleman of Bank of America. Your line is open. Dennis?

Thank you. Just – maybe just to follow-up on that last one. You’ve talked frequently about M&A in the Centuri business. Any updates there or anything to speak about there?

Hi, Dennis, this is John. Not really anything to update on our general position that Greg referenced. We like that business. We think that it’s poised to grow with the customer group that we have now. As I mentioned in some of my comments, a lot of those utility customers have pipe replacement projects that will last for quite a long time. But if we see that there are opportunistic tuck-in acquisitions that may help us get into a geographic area that we’re not operating in now or perhaps expand some of the business that we currently do, for example, with electrical we'll continue to look at that.

Okay. And on the Arizona rate case, you have to stay-out till May 2019, but you talked about looking into various options. Can you just expand on what the options might be?

Yes. Sure, Dennis, this is Justin. In addition to the stay-out provision in the settlement, there’s actually also a forced majeure provision in there that I think, is questionable that we want to work with staff on kind of the intent of the force majeure provision and whether that in light of tax reform if that’s something that would qualify then it would permit us to make a filing earlier. So that’s really kind of the one area that that we’re focused on. In addition, I think, when the Commission voted on the tax reform decision, there was some discussion from the bench about potentially filing a rate case and kind of discussion around that stay-out provision. And so it’s something, we want to pursue and discuss with them some more.

So is it possible you have a difference in opinion on the force majeure from the staff. I mean, is that…?

That could be a possibility.

Okay. I guess, more to come there. Switching gears a little bit on the pension costs, obviously, you’ve called it out quite clearly. And it does seem to be that its interest rate-sensitive or driven. So wonder if you can maybe just talk about as we are seeing interest rates rise, is that – should we sort of expect to start to get some relief on this in out years? Any color you can add there?

Yes, Dennis, this is Greg. Certainly, as you mentioned – as we previously disclosed in our SEC documents, interest rates have a notable effect on the discount amount then, of course, then on the corresponding pension cost and pension expense. We have seen as you have an uptick in interest rates and again, the $8 million is reflective of lower interest rates back in December 2017 that we applied to pension. We certainly see those going up and were they to go back up to the 2016 levels, then again, as you can see a corresponding decrease in pension expense. So I think that’s what we overall expect in the long-term as the pension expense will become more normal and this $8 million increase for 2017 is kind of a one-time item.

So is there a specific –is it the 10-year treasury, or is there a specific interest rate we can look at, Greg, that would guide us on that or that you can talk to 2017 versus 2016?

Yes. I was going to say, it’s a mix of longer-term bonds the kind of match the cash outflows associated with our pensions plan. You might look at for relative examples, 30-year AA-rated bond, the yields on those, and as you watch that basis point change year-over-year, that might be a fairly good indication of what would happen with the discount rate for us.

Got it. That’s it – that’s very helpful. That’s it for me. Thanks.

Thank you. Our next question comes from Paul Ridzon of KeyBanc. Your line is open.

Good afternoon.

Good afternoon.

Just one question. I noticed the operating margin guidance kind of ticked down. Are you seeing any attempts by customers to maybe reach in and grab your benefit of lower taxes? Is that’s what’s driving this, or have you seen any of that?

We have seen some requests for, I think, a limited number of customers asking – this is John Dennis – or Paul. We have seen some customers asking about that, but generally speaking, when we look at that, we also look at that in conjunction with the other types of costs that we’re experiencing. So we haven’t seen, for example, an across the board reduction in our rates with our utility customers to reflect that. There are – often times when we look at revising or updating the rates that we’re charging our customers for the work that we’re doing, that’s one component in the mix, there are a lot of other things going on. But there have been some of those discussions with some of our customers.

Is that a piece of the lower operating margin outlook?

No, I don’t believe so.

Thank you very much. I appreciate it.

Thanks.

Thank you. At this time, I’d like to turn the call back over to Mr. Ken Kenny for closing remarks.

Thank you, Norma. This concludes our conference call, and we appreciate your participation and interest in Southwest Gas Holdings, Inc. Please have a great day today. Thanks.