Good day, ladies and gentlemen, and welcome to the Southwest Gas Holdings 2018 Year-End 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 may be 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, Demetrias. Welcome to the Southwest Gas Holdings, Inc. 2018 Earnings Conference Call. As Demetrias stated, my name is Ken Kenny, and I am the Vice President, 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 the 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; Mr. Justin L. Brown, Senior Vice President, General Counsel; and other management – other members of senior management to provide a brief overview of 2018 earnings and provide earnings per share guidance for 2019. Also the Company will address 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. You should refer to the language in the press release, our SEC filings, and also Slide number 3 presented today 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 4, we present a variety of highlights for our Company over the past year. We’re pleased to report diluted earnings per share of $3.68, which compare favorably to our 2017 results after considering the impacts of tax reform and company-owned life insurance. Adverse broader stock market results in 2018 resulted in a per share loss from company-owned life insurance of $0.06. Considering this past year’s financial performance, our Board of Directors has increased our annual dividend to $2.18 per share. In our regulated utility operations this past year, we saw new customer growth of 1.6% to 32,000 customers, completion of our Nevada rate case proceeding, which was filed in May, approval of a $6 million increase in our gas infrastructure replacement surcharge for 2019 and initiation of a gas distribution service to Mesquite just this past month, pursuant to a decision issued by the Public Utilities Commission of Nevada this past May. In our unregulated utility infrastructure service segment this past year, we saw record revenues of $1.5 billion, record annual net income of $45 million, superb performance from our Neuco non-union gas subsidiary and completion of our Linetec non-union electric acquisition in November of last year. On Slide 5, we detail an outline for today’s call. Greg Peterson will present our 2018 consolidated earnings results with business segment detail for both the natural gas and utility infrastructure services segment, Justin Brown will follow with an overview of our various regulatory proceedings and I then will close with an overview of customer growth, regional economic conditions, planned capital expenditures, dividend growth and our expectations and focus for 2019. I’ll now turn the call to Greg.

Thanks, John. We announced our 2018 earnings yesterday afternoon and filed our Annual Report on Form 10-K with the SEC this morning. Please refer to those documents for a comprehensive analysis of our operations for 2018. I will provide a brief overview of operating results beginning with Slide 6, which shows a comparative summary of net income. For 2018, consolidated net income was $182.3 million or $3.68 per diluted share, compared to $193.8 million or $4.04 per share for 2017. It should be noted that consolidated net income for 2017 includes a onetime tax reform benefit of approximately $20 million or about $0.42 per share recorded in December 2017, while 2018 results reflect some net benefits of lower income tax rates. The relative contributions during 2018 for each operating segment are shown on the next slide. As shown on Slide 7, the natural gas operations segment provided approximately 76% of Southwest Gas Holdings consolidated net income in 2018. In Centuri, our utility infrastructure services segment contributed 24%. Slide 8 depicts the composition of the $11.5 million net decrease in consolidated results between 2018 and 2017. Net income for the natural gas operations segment declined $18 million, while net income for the utility infrastructure services segment was up $6.6 million between years. I’ll provide some additional details surrounding the changes in each segment in the following slides. The waterfall chart on Slide 9 shows the components of the $18 million decrease in natural gas operation results between 2017 and 2018. Operating margin includes an $11 million increase from 32,000 net new customers added during the past 12 months a 1.6% growth rate as John alluded to earlier. Three months of residual rate relief from the April 2017 General Rate Case decision in Arizona and attrition rate relief in California collectively provided…

Thanks Greg. As highlighted on Slide 12, my comments today will focus on upcoming rate case activity, progress on our infrastructure tracker programs and an update on several expansion projects. Let’s start on Page 13 with an update on our recently completed Nevada general rate case. In December the commission approved a $7.5 million revenue increase and an $800,000 reduction in depreciation expense. This increase was based on an approved rate base of $1.24 billion, an ROE of 9.25% relative to a capital structure with an equity ratio of 49.66%. Other aspects of the case included continuation of our fully decoupled rate design, denial of our request to implement a pension tracker, approval of our projects that have been replaced as part of our gas infrastructure tracker program including updating the surcharge revenue, as well as approval of a renewable natural gas and compression tariff to help facilitate development opportunities in both markets. In January both the Company and the commission staff filed petitions for reconsideration. Earlier this month, the commission granted both petitions but did not make any substantive changes in response to the Company’s proposals that impact revenue. The commission did provide clarification response to several of staffs’ requests with respect to certain items, primarily the clarification regarding the decision’s results and how to calculate them. This resulted in a final increased operating income of $7.9 million comprised of a revenue increase of $7.1 million and a reduction in depreciation expense of $800,000. In light of the commission’s final decision following our petition for reconsideration, we are currently evaluating our options in light of the decision not necessarily being in line with our expectations based upon prior rate case results in both Nevada and in our other state jurisdictions. Some potential next steps include requesting judicial review or…

Thanks, Justin. On Slide 19, we show some indicative metrics on regional economic conditions in our service territories. Over the coming five-year period we expect population growth in each of our states to exceed national population growth rates. Similarly, unemployment rates in each of our service territories remain low and job growth continues to be strong. With major economic development projects in Las Vegas alone, including construction of the Raiders football stadium, a new minor league baseball park in Summerlin, expansion of the convention center, continued progress on Resorts World, Las Vegas, and the Las Vegas Sands, MSG Sphere, Southwest Gas anticipates robust new customer growth for years to come. Turning to Slide 20. We show our projections of utility customer growth for the coming three-year period, reaching 37,000 annual customer additions by 2021. Turning to Slide 21. We provide estimates of our annual capital expenditures for the coming three-year period. Total capital investment for the coming three-year period is expected to total $2.1 billion. We expect to fund between 45% and 50% of these investments through internal cash flows with the balance being funded through a mix of future debt and equity issuances. On Slide 22, we illustrate how our prospective capital expenditures translate into rate base. We expect that rate base will increase from $3.5 billion at the end of 2018 to $4.8 billion by the end of 2021. This growth and rate base represents an 11% compounded annual growth rate over the coming three years. On Slide 23 we show the significant growth we’ve experienced in our dividend over the past six years. Growth in our dividend over this period has progressed at an 8.35% annualized rate. As I indicated earlier in our call, at our Board of Directors meeting just earlier this week, the Board authorized…

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

Thank you. [Operator Instructions] And our first question comes from Aga Zmigrodzka. You may proceed.

Good morning. Could you please discuss the revisions to CapEx and in which jurisdictions do you expect to spend more?

Yes. This is Greg, Aga. How are you doing today?

Great. How are you?

Good. Aga, our revisions you can see they are just up slightly from the high $600 million – the $690 million areas that we were at before. You can see that we’ve added about $20 million or so to each of the years. I don’t think there’s a specific jurisdiction that we’re really adding these CapEx items into. You can see that in comparison some of our general plant and staff items are a little higher than they were in the past. We’re undertaking some initiatives on some of the computer systems that we have to better serve our customers. So that’s part of the growth that you see there.

Perfect. Thank you for clarification. And then on Slide 20, you expect an acceleration of customer growth in 2019. What are the drivers?

Aga, this is John. Just fundamentally solid economic conditions throughout our service territories. We do have in addition to those fundamentals some of the additional plans that we’ve talked about before including the Mesquite project that we talked about earlier on this call and then a plan to do a similar project up in Northern Nevada. But primarily it’s related to a continued interest by residents and businesses to do business and live in the desert Southwest.

Great. And thank you for providing EPS guidance for this year. I have one question on the discussion around the guidance. So how we should think about O&M and depreciation in 2019? You talked about only modest growth in operating income at the utility level. What kind of like growth in O&M you expect in 2019?

Yes, this is Greg. We didn’t provide the details of that. I think that you could look at our past history and know that both O&M and depreciation are expected to go up. O&M from more an inflationary and customer growth aspect as we’ve had in the past. Certainly depreciation will increase as we continue at this capital spend level of around $700 million a year. So both of those line items will grow and that’s why we get to the modest growth in operating income.

Okay, great. Thank you for additional color.

And our next question comes from Paul Ridzon with KeyBanc. You may proceed.

Good afternoon.

Good afternoon.

Good morning, I guess in your world. What is your expectation for pension expense at the utility? I know you had an $8 million headwind last year. What’s that going to do this year?

Yes. This is Greg. We have with the revised discount rate which is a discount rate similar to what we had two years ago. Pension expense will be about in the $37 million neighborhood for 2019. So about a $9 million reduction from where it was in 2018 and again much more similar to what we had in the previous year 2016.

And what’s embedded for COLI in guidance?

I think our normal COLI levels as we’ve talked about for several years we’ve kind of talked about this $3 million to $5 million level. As you know because of a big piece of our company-owned life insurance is tied to movements in the broader stock and debt markets that it can’t fluctuate quite a bit. But I think that $3 million to $5 million range is something that we’re comfortable on a long-term basis with expecting.

And can you give any detail around what your expected effective tax rate target at the utility and in Centuri?

I don’t expect anything major to change, this is Greg again, on the tax rate side. We haven’t provided the details but with a 21% federal rate and the state taxes I think you’ll see that our effective tax rates are similar to the guidance that we provided last year.

And then – thank you very much. And lastly, you’ve kind of done an acquisition a year, kind of what’s on your radar at this point?

Paul, this is John. We still continue to look for the potential for acquisitions. We don’t have anything that is imminent that we’re going to close on. We continue to look for ways to grow the businesses both on the utility and the construction services side. From our perspective potential acquisitions on the utility side are relatively pricey compared to our opportunity to reinvest in our system with our pretty robust capital expenditure plan. And then on the construction side, we will look for opportunities to continue to grow and diversify that business. I think for the last couple of years when we’ve talked to our investors we’ve talked to them about wanting to see a little more increased diversification in the line of businesses that we do in the construction and we’ve talked about the fact that we don’t do much work in the Southeast. So when we started talking to the folks at Linetec, we thought that that was a perfect opportunity to address both of those desires on our part. So we’ll look for additional possibility bolt-on enterprises that might be a good fit for our Company. But nothing that is imminent immediately.

Thank you very much.

And our next question comes from Dennis Coleman with Bank of America. You may proceed.

Thank you, and hello everyone. I guess I’m hoping to get just a little bit more color about that the Nevada outcome and sort of the refusal to rehear the appeal. And anything you can add in terms of, I mean does it change the view? Would you sort of go back with another rate case pretty quickly as a way to further contest it I guess with – for lack of a better way to say?

Yes, Dennis, this is Justin Brown. No, it’s a good question and it’s something we continue to evaluate as I mentioned. So they did entertain the petition for reconsideration. It’s a process that we’ve utilized in the past back in 2012. As part of that rate case we had made a filing. They granted the petition. They just, based on their review and based on our arguments of what we wanted them to reconsider, they ultimately decided that they weren’t going to change their initial filing – findings, I should say. And so as a result we’ll look at continue administrative remedies whether that’s making a filing with the district court for judicial review, which I mentioned we would need to do within 30 days as a decision which is about mid-March. The other option is as you mentioned or doing both quite frankly would be to file another rate case because there is no restriction on the timing. So that’s something we could definitely avail ourselves of. And so we will continue to kind of evaluate the outcome, how it fits in with our plans for this year as well as kind of judicial review route as well.

So those would that – if I understand it, those would take a parallel path and you could challenge it in the courts and also initiate another rate case? They wouldn’t…

Yes, that is a possibility.

It doesn’t prevent you from – one doesn’t prevent the other?

Correct.

Okay. I guess for me a follow-up would be, as you continue to grow Centuri, S&P obviously has taken a little more aggressive view on the rating, any color you can talk about there, conversations with S&P?

Dennis, this is John. Certainly we’re very mindful of our credit ratings and how the rating agencies look at our business. I think that we are going to, like I mentioned before, continue to want to grow both sides of the business. I think that one of the things that we look at when we look at the possibility of getting additional growth on the construction side is how we finance that. So we may see a little bit higher equity percentage in funding of that growth vis-a-vis what we see on the utility side. We are going to continue to work with the rating agencies. We think that the construction business is a really solid business. We think that it’s not a typical construction company, it’s not subject to the kind of variations in macroeconomic variables that might impact, say, a homebuilder or such. We think a lot of times that Southwest Gas on the utility side is a little bit of a microcosm of the utility markets that we see across the country. So we, like utilities across the country, have long lived construction investment programs for not only growth but for pipe replacement, electric line replacement and we’re going to continue to work with rating agencies to communicate how we think that’s a solid business.

Okay. That’s all I have for today. See you all or some of you next week. Thank you.

Thank you.

Thank you very much.

And our next question comes from Sarah Akers with Wells Fargo. You may proceed.

Hey. Good morning.

Good morning.

Good morning.

I know you’re not giving EPS guidance by segment, but is it reasonable to assume that the contribution from construction is going to be materially up from the 24% contribution in 2018?

This is Greg, Sarah. I think what we’re going to see is that, we expect growth on both sides of the business. I think you can see from top line growth that we’ve set out that Centuri, we expect the revenues to grow 15% to 20%. So there might be some uptick on that side, but again we expect positive results from both segments of the business.

Okay, got it. And then on the utility guidance, the assumptions from a modest increase in EBIT, is it safe to assume the message there that that’s a decently – that decline, I am sorry, that increase is decently below the 4% to 5% growth in operating margin?

I don’t know that we want to handicap it, but certainly the increase in operating margin includes some recoveries from these various mechanisms, which will have corresponding or substantially corresponding amounts in depreciation or amortization expenses. So it might be reasonable to assume that the growth might not quite be at that level of the operating income line item.

Okay, perfect. And then what is the earned ROE at the regulated utility that’s implied in the guidance for 2019?

Sarah, this is John. We don’t provide that on a prospective basis as part of our guidance. We have provided information on a historical basis. We have a number of filings that we’re going to be making this year. So we don’t provide that level of detail on a prospective basis.

Okay. And then last question, on the construction front I know there’d been that water contract that has been a drag on margins. Does that project continue into 2019? Or will that pressure go away, is that contract over now?

I think probably both of those statements are correct. It will go on into 2019 for part of the year, but it’s going to be coming to a conclusion in a relatively near future.

Great, thanks a lot.

Thank you.

And our next question comes from Chris Sighino with Jefferies. You may proceed.

Hey, guys. How are you?

Good morning, Chris.

I just want to follow-up on Dennis’ questions, I think Justin this is for you, with regard to Nevada. I know there were multiple components of the filing when you made it. The headline ask I think included legacy GIR approvals. You also had, I think, rolled into that efforts for 2019 so you wouldn’t have to make a separate GIR filing. And can you just correct me if I’m wrong when I look at Slide 13 and the outcomes, that I think John made reference to it, but you’ve got another $6 million for 2019 in terms of GIR. But how does the legacy amount compare to what was authorized here relative to what you asked? Or does that make sense?

I am not sure – yeah, I am not sure I am following you.

Your headline filing, I thought when you made the request, included amounts that had already been authorized and that would just be rolled into base rates now?

Correct. Not the revenue but the projects themselves. So the remaining flat balances were being rolled over. Correct.

Okay. And then I guess is my understanding correct that those were then not going to be an incremental step up, they were just going to be sort of formally recognized now in base rates and out of those programs separately?

Correct.

Okay. And so when I look at – I guess, when I look at the $7.1 million authorized versus your ask, I guess what I’m trying to get after is. Is that a real apples to apples comparison or not? My impression was that it was not a comparison number given there were amounts already included, but I’m not sure given all of the challenges with that case at the end the sort of rehearing request and what not, I don’t know how to interpret that. So I’m just asking for a clarification.

Yeah. So the – and that’s, I guess, where we had the GIR rate that was approved that picks up an additional $6 million. And that’s basically clearing out – because the way the mechanism works is that you basically defer the revenue requirement into like a regulatory asset, if you will, for lack of a better description. And then each year you clear that out. And so while the plan is moving over into rate base going forward you still have that deferral account that you’re clearing out which is where the $6 million comes from.

Okay. And that’s – but that is separate from what’s reflected on Slide 13? Or is that incorporated in this $7.1 million?

No, it’s separate, so that [indiscernible] incremental to the $7.1 million.

Yes, okay. And then I guess the elements – I guess what I’m trying to get after is when I walk up to an implied 4% to 5% growth in utility net margin year-on-year. I am thinking about customer growth being relatively similar to the contributions you guys saw last year. We see the California attrition, we see the Arizona rider, we see the GIR approval of the $6 million, and now we see this. And I just didn’t – I don’t quite get there if I do all of that. So I was just wondering if there’s something else I’m missing or if there are other things that are sort of small in scale but when added up sort of represent the balance?

Yes. Hey, Chris. This is Ken. The one item, it sounds like, you’d be missing in your calculation is the surcharge for Nevada CEE and of course that doesn’t have an income statement impact because you have offsetting depreciation and amortization to that.

Okay, that goes back to what Greg was talking about earlier…

Exactly.

In response. Okay. Have you provided that number, Ken?

We have not.

Okay. If I could just ask a couple of other quick questions, Justin, the Paiute pipeline. I’m just curious did you provide a breakdown a lot of gas pipes that are going through the 501-G process now are sort of talking about how much cost of service represents versus negotiated rate or other forms of contracting that might lessen any potential impact. Could you just remind us how Paiute stacks up today in terms of contract structure?

I’m sorry, could you say that again Chris? The last part.

Is just – how much of it is cost of services, is it all cost of service or are there portions in that that would be negotiated rates that might not be impacted by the FERC process?

No, if I am understanding your question correctly, it’s all cost to service.

Okay. And with regard to the LNG facility, when that comes into service later this year, could you just remind us how that’s treated in terms of rate base or regulatory treatment upon in service?

Yes, absolutely. So I mean it’s kind of coincidently, given the timing of our next Arizona rate case, I think it’s likely that depending on when that goes into plant and service, we’ll be able to make a post test year adjustment as part of the rate case filing and include that in rates. If for some reason that doesn’t happen as part of our last rate case, we had reached an agreement with the staff that once that goes into service, we’ll be able to defer the revenue requirement associated that facility and tell rates become effective in a subsequent rate case. So I think either way we’re in a good position to make sure to capture that revenue requirement. I think it’s most likely given the timing of things and the way the rate case timing is playing out that it will likely be included as part of the rate case we won’t need to necessarily avail ourselves of the regulatory accounting treatment that’s previously been approved.

Okay, thank you for that. And then a final question for me. I think John this is probably for you, but just with regard to the dividend policy, I think my – can you just correct me if my understanding is unchanged or is consistent with yours that your policy had been because of the construction business contributing to the net that that was a lower payout ratio? I think I remember somewhere around a 50% target for that. And then the utility was thought of as ex-COLI being sort of 55% – 60% payout ratio. Is that still – is that correct and if that’s correct is that your view going forward, just given that step-up in CapEx?

Yes, that’s roughly correct, Chris. I think we’ve talked about wanting to be in the range of our peer companies and looking at that as probably 55% to 65%, and because we have that segment with the construction company probably being on the lower end of that range. And in consideration as you mentioned about the significant amount of CapEx we have planned on the utility side. So I would say our policy would be to be in that range prospectively. As you know, we’ve made a lot of gains over the past several years to get into that range, because we used to be below, but probably on the lower end of that peer range.

Okay, thanks a lot for the time, guys. Sorry, if I garbled some of those questions. I appreciate the color.

Absolutely. Thank you, Chris.

And our next question comes from Stephen D’Ambrisi with Castleton Investments. You may proceed. Stephen D’Ambrisi: Good morning, guys. Thanks very much for taking my questions.

Good morning. Stephen D’Ambrisi: I just wanted to follow-up on Chris’s question about the Nevada GRC and the guidance that that being an $8 million operating income increase year-over-year. It was my understanding that $29.7 million request on Slide 13 included like $18 million of an increase related to the previously approved GIR amounts. And so, when I think about – when I was thinking about that $29.7 million request originally, the $18 million wasn’t necessarily a driver of net income growth, because you guys have been recognizing that as a – that cost of capital deferral every year. Was I thinking about that right originally? Or is that am I misunderstanding what the ask was?

Yes. Stephen, this Justin. I believe so, that sounds correct. Stephen D’Ambrisi: Okay. And so then when I look at the $7.1 million, do I have to do the same math where basically I say of the $7.1 million you’re already recovering 2018. So it’s actually – or you’re recovering some part of that 2018, so it’s really the operating income growth is flat or negative or net income inside?

No, I think it basically resets with the rate case is how I would look at it. So now it just becomes part of rate base. Stephen D’Ambrisi: Right. So rate relief – so you are already recovering $18 million in whatever – you’re already recovering the cost of carry, which is something around that $18 million in your income statement that was getting reflected as you went along and filed these GIRs. And so then you’ve got a $7 million rate increase. So am I thinking about it right that rates are up 7 but that includes you moving $18 million into rates or is there like a shift in that?

Well, it’s not the – I wouldn’t look at it as that. I don’t think you look at it as the $18 million in revenue. I mean, the projects move over, so a little reset and they are just included in base rates. And then we’ll still be clearing out the deferral that I was describing earlier with Chris on a go-forward basis. Stephen D’Ambrisi: Okay. What I’m trying to do is get at it seems like there’s some amount of this rate relief that is already being recognized in – it wasn’t in rates, it was just in the writer and you’re just shifting the bucket. And I want to make sure that when I think about operating income year-over-year I’m getting to the right type of growth? Or should there be any growth since you already are recognizing a significant amount of this?

Yes, I think – again if I’m following kind of your question, I think it’s basically it’s getting moved over similar to like what we did on our Arizona trackers, where it moves over. And so you’re not – it would just be reflected as part of base rates and then you’ve got this clearing out of the residual amount as part of that deferral account. Stephen D’Ambrisi: Yes.

On a go forward, which will then kind of reduce over time as that balance clears out. And then as we continue to load new projects in there then that’ll be happening on a go-forward basis with the new projects. Stephen D’Ambrisi: Okay. But clearing out that deferral and that stuff is different. And, I guess, what I was thinking is while you move it into base rates for that existing part that doesn’t really drive operating income growth?

Correct. I think, that’s correct way to look at it. Stephen D’Ambrisi: Okay. And then just on the EBIT guidance of modest increase. Does that mean that net income is like a modest increase or are there impacts below the line that should change that one way or the other?

This is Greg again. I think, again we talk about the top line growth or responded a little earlier that operating income that modest growth might be a little less than the top line margin growth. And again, there’ll be some growth on the bottom line as well. So we’re just not providing the detailed guidance for those things other than to say that we expect growth in both segments of the business. Stephen D’Ambrisi: Okay. That’s all I had. I appreciate you guys taking the time. Thanks again.

You bet. Thanks.

Thanks, Stephen.

Thank you. Ladies and gentlemen this now concludes our Q&A portion of today’s conference. I would now like to turn the call back over to Mr. Ken Kenny for any closing remarks.

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

Ladies and gentlemen. Thank you for attending today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.