Good day, ladies and gentlemen, and welcome to the Southwest Gas Holdings 2018 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. It is now my pleasure to introduce Vice President, Finance and Treasurer, Mr. Ken Kenny. Please go ahead, sir.

Thank you, Andrew. Welcome to the Southwest Gas Holdings, Inc. 2018 third quarter earnings conference call. As Andrew 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. Gregory J. Peterson, Senior Vice President, Chief Financial Officer; and Mr. Justin L. Brown, Senior Vice President, General Counsel; and other management -- members of senior management to provide a brief overview of the company's operations and earnings ended September 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 SEC filings for description of the factors that may cause actual results to differ from the 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, looking to some of our 2018 highlights, first, from a consolidated results perspective. We had earnings per share for the 12 months ended September of $4.30. We experienced a return on equity of 11.3% over that same period, and our financial results for the historic 12-month period were generally favorably impacted by tax reform. For the natural gas segment, we added 33,000 new customers over the past 12 months; we are nearing the end of our Nevada rate case regulatory process; we received approval from the Public Utilities Commission of Nevada to replace over $35 million of older pipe in 2019; and we are working to expand service to Mesquite, Nevada, pursuant to the regulatory approval we previously received. Then, for the Infrastructure Services segment, we experienced record quarterly earnings of $26.8 million; we had net income for the 12 months ended September of $57.7 million; the New England Utility Constructors Group we acquired late last year continues to perform extremely well; and we are quite enthusiastic about the segment's anticipated 2018 full year performance. Moving to Slide 5. Our outline for today's call is as follows: our CFO, Greg Peterson, will provide an overview of our financial performance from a consolidated entity perspective, with detail for both the natural gas operations and Infrastructure Services segments; Justin Brown will provide an overview of our regulatory activities; and I'll finish with a report on customer growth, regional economic conditions, our planned capital expenditures and our end of year expectations and focus for the future. With that, I will now turn the call over to Greg.

Thank you, John. I'll begin with total company operating results on Slide 6. For the third quarter of 2018, consolidated net income was $12.3 million or $0.25 per share, an increase of $2.1 million or $0.04 per share compared to the third quarter of 2017. For the 12 months ended September 2018, net income was $209 million or $4.30 per share, a sizable increase from net income of $163 million or $3.42 per basic share recorded in the prior year 12-month period. It should be noted that the current 12-month period includes a onetime tax reform benefit of approximately 21 -- $20 million or about $0.41 per share recorded in December 2017. Moving to the Slide 7. This depicts the composition of the $2.1 million net improvement between the quarters. Quarterly results for the natural gas operations segment declined nearly $9.7 million, while results for the Infrastructure Services segment were up about $12.5 million between quarters. I'll provide some additional details surrounding the changes in each segment in the following slides. Slide 8 depicts the composition of the $46.9 million increase in earnings between 12-month periods. Contribution from the natural gas operations segment increased $19.4 million and contribution from Infrastructure Services increased $28.7 million. Now we'll get a little more granular into the driver for each segment's results, starting with a quarterly comparison of natural gas operations on Slide 9. This waterfall chart depicts the components of the $9.7 million decrease in natural gas operations results between the third quarters of 2018 and 2017. Due to the seasonality of our business, utility losses during the third quarter were not unusual. Operating margin includes $2 million from 33,000 net new customers added during the past 12 months, a 1.6% growth rate. And another $1 million in attrition rate relief in California…

Thanks, Greg. As highlighted on Slide 13, my comments today will focus on pending and upcoming rate case activity, progress on our various infrastructure tracker programs and an update on several expansion projects. Starting with our Nevada rate case on Slide 14, we recently completed hearings on our $29.7 million rate case. The proposed rate adjustment is premised on an increase to rate base of $311 million and a return on common equity capital of 10.3% relative to an equity ratio of 49.3%. In addition to the almost $30 million rate increase, we're also requesting to increase the GIR surcharge revenue by $6 million, which is something I'll discuss in more detail later in my comments when I'm talking about our tracker programs. We are still anticipating a decision before the end of the year with new rates to become effective by January 1, 2019. Turning to Slide 15 in California, we are still targeting a September 2019 filing date for our next California general rate case. We are also preparing our annual attrition filing that was approved as part of our most recent rate case. You may recall, we're currently collecting an incremental $2.7 million for 2018. We'll make our 2019 filing the end of this month, which, following approval, will allow us to adjust margin by 2.75% beginning in January of 2019. Turning to Arizona. The first quarter of 2018 saw the tail end of our rate relief from our most recent rate case decision that became effective in April of 2017. We are now focusing on our next Arizona rate case, which we're currently anticipating filing by May of 2019. Lastly, most of this year has been focused on working collaboratively with our regulators to flow back the benefits from tax reform to our customers. We recently…

Thanks, Justin. Turning to Slide 20. As I mentioned at the outset of the call, we added 33,000 new customers over the past year. We expect that trend to continue for the foreseeable future, representing a 1.6% customer growth rate for our regulated utility operations. Moving to Slide 21. Regional economic conditions across our 3 state utility service territory continued to be strong. We expect higher than the national average population growth in Arizona, California and Nevada over the next 5 years. Furthermore, regional unemployment rates continue to be quite low, and we continue to experience positive job growth year-on-year. On Slide 21, we provide detail on our planned capital expenditures. We plan to invest approximately $2 billion in capital over the three-year period ending 2020. As Justin referenced previously, a significant portion of these investments are accompanied by infrastructure tracking mechanisms. We expect to fund 50% to 60% of those investments through internal cash flows and fund the remaining amounts through the balance of debt and equity. Turning to Slide 23. Our continued investments in our gas utility distribution systems translate into growing rate base. Over the three-year period ending December 2020, we anticipate a 12% compounded annual growth rate in rate base moving from $3.2 billion to $4.5 billion. On Slide 24, we provide 2018 line item guidance for our natural gas operations. Operating margin should increase by 2% less approximately $20 million due to tax reform; operations and maintenance expense should increase by 3% plus an $8 million pension expense; depreciation and general taxes are expected to decline slightly due to last year's Arizona rate case rate adjustments; operating income should be flat to up, again impacted by the effects of tax reform; net interest deductions are expected to increase by $10 million to $12 million; we…

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

[Operator Instructions] And our first question comes from the line of Aga Zmigrodzka with UBS.

My first question is on customer growth. It has been trending above your prior guidance of 32,000 customers year-over-year growth. Do you see a potential upside to your customer growth forecast for '19 and 2020?

I think the growth numbers that we have in their should pretty accurately reflect our expectations, Aga. I think that economic conditions, again, when you look at Las Vegas, Central Arizona, et cetera, a lot of exciting new projects going on, and a lot of that work on the projects as well as the workers that are having to complete that work are creating new customer opportunities for us. So I think, we think the economy is pretty robust as it is now. And that the expectations that we have on that Slide 20 should pretty much accurately reflect that at this time.

And you reported strong revenues from the Infrastructure segment. Could you please provide more color on the regional trends and your confidence in 2019 growth?

In terms of regional trends, I think what we're seeing basically across the business is the same kind of activity that we see here at Southwest Gas, the utility. You see a lot of utilities continuing to invest in aging infrastructure. As we've talked before, Aga, we've got, on our utility side, one of the probably newer distribution systems in the country, but yet we've got a pretty robust capital expenditure plan. And I think when you go to the Midwest, to the Northeast and some of the much older infrastructure that you see there, I think that you're going to see those utilities continue to ramp up those capital replacement projects for years to come. So I think we're pretty bullish on the prospects of the business.

[Operator Instructions] And our next question comes from the line of Paul Ridzon with KeyBanc.

Just turning to Slide 12, income tax benefit was about $12 million, which was kind of the onetime benefit you saw in the fourth quarter of last year. Is that actually bigger, but just being masked by the fact that pretax income is higher?

Yes, that's certainly the case, Paul. This is Greg. It's -- we had higher pretax net income, but that tax benefit is the main driver of the income tax decline.

And then just on your drivers at the construction business between the mid-year deck and this deck, the revenue expectation for Centuri has gone up pretty markedly. What -- is that a timing issue or is that fundamental?

There are certainly two -- both of those components are there. We've had some opportunities with some of our customers some onetime work, specialty work that we've had. And so that's provided some incremental increase that we recognized in Q3. But as John mentioned earlier, we are certainly seeing a continued ramp-up from our customers as well as the rest of the utility industry in doing infrastructure replacement. So there's a component to each of those in this increase in guidance.

Do you do any work in Massachusetts?

Yes. We do, do work in Massachusetts, Paul.

So I would assume some of this might be the Lawrence incident?

We do have some of our crews that are doing work for NiSource. We also, as an aside, did have some of our Southwest Gas utility crews go out to assist in that effort pursuant to the mutual assistance agreements that we have through the American Gas Association.

And then on your gas business drivers, I think, you're pointing to a 23% to 24% tax rate. That should go higher in '19, correct, as you don't share -- get to retain the benefit of lower taxes?

That tax benefit just reflects -- Paul, this is Greg, just reflects the 21% federal rates plus some state rates. So we don't anticipate that, that rate will go up in 2019. And in fact, to the extent that we start, as in Nevada, amortization of the deferred amount, the ARM amount that we have on our books, that actually will have the impact of pushing rates even lower. But they will be, to your point, they will correspond to a reduction in revenues pretty much on a one-for-one basis.

Okay. So we'll see that on the revenue line.

Thank you. And I am showing no further questions at this time. So with that, I'd like to turn the call back over to Ken Kenny for closing remarks.

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

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.