Good day, ladies and gentlemen, and welcome to the Southwest Gas Holdings 2019 First Quarter Earnings Conference Call. [Operator Instructions] 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. Mr. Kenny, you may begin.

Thank you, Josh. Welcome to Southwest Gas Holdings, Inc.'s 2019 first quarter earnings conference call. As Josh stated, my name is Ken Kenny, and I'm 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 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, 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 of Southwest Gas Corporation; and other members of senior management to provide a brief overview of the company's operation and earnings ended March 31, 2019 and reaffirm earnings per share guidance for 2019. Also, the company will address certain 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 and may or may not come true. You should refer to the language on Slide 3, in the press release 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 statements. With that said, I would like to turn the time over to John.

Thanks, Ken. Turning to Slide 4, we review some of our 2019 highlights of Southwest Gas Holdings. From a consolidated entity perspective, we had first quarter diluted earnings per share of $1.77 per share. We were able to increase our annual dividend for the 13th straight year to $2.18 per share, and we are reaffirming the 2019 earnings per share guidance we provided earlier this year. At the natural gas segment, we continued to experience robust regional economic conditions, having adding 32,000 customers over the past year and annualized customer growth rate of 1.6%. We also recently announced the filing of a new Arizona general rate case just last week. Also, please note that our financial results were favorably impacted by company-owned life insurance returns in the first quarter. And then, at our Centuri utility infrastructure services segment, we saw revenues increased, largely from our acquisition of Linetec Services and saw Centuri's seasonal quarterly net loss improve by $3 million. Moving on to Slide 5, we present our outline for today's call. First, Greg will review our first quarter consolidated earnings with segment details of both our utility and infrastructure services businesses. Justin will overview our various regulatory activities, including detail on the Arizona rate case filing I just referenced, and then I'll close with a review on customer growth and regional economic conditions, our planned capital expenditures and our 2019 earnings per share guidance. I will now turn the call over to Greg.

Thanks, John. Let's begin with a summary of total company operating results on Slide 6. For the first quarter of 2019, consolidated net income was $94.8 million or $1.77 per diluted share, an increase of $15.7 million or $0.14 per share compared to the first quarter of 2018. For the 12 months ended March 31, 2019, net income was $198 million or $3.91 a share compared to net income in the prior year period of nearly $204 million or $4.23 per share, which included a onetime tax reform benefit of approximately $20 million or $0.42 per share. Slide 7 depicts the relative contributions by our 2 business segments during the 12 months ended March 31, 2019. As you can see, Natural Gas Operations provided about 3/4 of consolidated net income, while Centuri's utility infrastructure services group provided about 1/4. Let's move to Slide 8, and look at each segment's impact to the consolidated change between 12-month period. Slide 8 depicts the components of this $5.6 million decline in earnings between 12-month period. Contribution from the Natural Gas segment declined $18.3 million, while contribution from utility infrastructure services increased $13.2 million. Slide 9 shows the relative improvement between the quarters of our 2 segments. Natural Gas Operations provided a $13 million increase to quarterly earnings, and utility infrastructure services results improved by $3 million between quarters. Next, we'll take a deeper dive into each segment, starting with the quarterly comparison of Natural Gas Operations on Slide 10. Overall, Natural Gas Operations net income increased $13 million between the quarters. The $19.5 million increase in operating margin includes $4 million from customer growth, as John mentioned, 32,000 net new customers were added over the past 12 months, a combined $4 million from California attrition and Nevada rate relief and $4 million from…

Thanks, Greg. As highlighted on Slide 14, my comments today will focus on upcoming rate case activity, namely our Arizona rate case that was filed last week as well as an update on our infrastructure tracker program and our expansion projects. Let's start on Page 15 with the expiration of a rate case moratorium that we agreed to as part of our last Arizona general rate case, we were able to file a new rate case last week. Our application requests an increase in revenue of $57 million or 8% over existing revenues. One of the primary drivers of this case is to fully reflect the impact of tax reform in base rates, and the proposed $57 million increase in revenues is net of any offset from tax reform, including our proposed amortization of approximately $21 million associated with excess deferred income taxes. In addition to tax reform, another driver for the case is to update rates to reflect the significant capital investments that have been made in Arizona to serve our customers. As a result, we are requesting an increased rate base by approximately $670 million. Lastly, we simply need to update rate to reflect changes in customer volumes, margin and other changes to our cost of service since 2015. Our proposed revenue increase is based upon a proposal to increase our authorized return on common equity to 10.3% at relative to an equity ratio of 51%. We're also requesting approval of a new infrastructure recovery mechanism to help monitor and assess and potentially replace certain plastic pipes. We've also requested approval of a renewable natural gas program, whereby we would target specific percentages of RNG to include in our gas supply portfolio. We hope to receive a procedural schedule sometime next month, but presently, we would anticipate a…

Thanks, Justin. On Slide 22, we detailed some metrics on our regulated utility service territory growth and economic conditions. As shown, we anticipate continuing population growth in each of our 3 states as expected to significantly outpace national growth rates over the coming 5 years. Similarly, we continue to see low unemployment rates and positive job growth. Turning to Slide 23. We illustrate the strong trend in customer growth that we expect to observe in the coming years. We expect to add over 100,000 new customers to the Southwest Gas family over the coming 3-year period. Moving to Slide 24. Continued strong growth, service territory expansions and aggressive safety-oriented pipe replacement activity requires significant commitment to investment in our gas distribution systems. Over the coming 3-year period, Southwest expects to invest over $2 billion in capital to serve our customers' needs. The bar chart on this slide shows how those capital expenditures match up nicely with strong local growth and partnerships with the regulators to recover our cost of service through a variety of infrastructure tracking mechanisms. Approximately 45% to 50% of our capital expenditure financing needs will be met by internal cash flows, with the balance satisfied by a combination of debt and equity issuances. On Slide 25, we show how our planned expenditures for capital translate into significant rate base growth. We anticipate regulated rate base to grow from $3.5 billion at year-end 2018 to $4.8 billion by the end of 2021. This rate base growth represents a compounded annual growth rate of 11% over the coming 3-year period. Turning to Slide 26. We show and reaffirm our 2019 earnings guidance. We expect year-end earnings to be between $3.75 and $4.00 per share. Moving to Slide 27. We detailed some of the underlying factors supporting our year-end earnings…

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

Thank you. [Operator Instructions] Our first question comes from Dennis Coleman of Bank of America.

This is Jocelyn for Dennis. Thanks for taking my question. To start off, can you provide some additional background on CDMI? How did the program come about and how will Southwest recover the costs?

Jocelyn, it's Justin Brown. They're both kind of legacy systems, so the CSS system is a 30-year-old system. So just one of those things that you upgrade over time in terms of your different information system, same with the gas transaction system. It's a system that was developed and housed nearly 20 years ago. So it's just something that as we go through and we look at our different information systems and we look at serving our customers and the capability of those systems and the need to either continue to adjust to them or just replace them, that's how it really came about as ultimately a decision to replace the systems. In terms of the cost recoveries, I mentioned in California, we actually have a process where we can file for approvals of projects and then implement a balancing account to recover and track the costs associated with that project. In Arizona and Nevada, we filed a request to establish regulatory assets, so that, that way we can track the cost and then once the projects are completed and when we file a future rate case in either jurisdiction, we would request to include those costs as part of a rate case at that time.

Got it. And on guidance for 2019 was a strong first quarter and then the COLI contribution, is it right to think that now we're looking at the higher end of the guidance for the year?

This is John. I still think it's early in the year and we really aren't ready to point to a certain area of that range. I think at this point, we're very comfortable continuing with the guidance that we issued earlier this year.

Okay. Thanks. That's it for me.

Thank you. And our next question comes from Phil Covello of ExodusPoint. You may proceed with your question.

Good morning, guys.

Good morning.

Thank for taking my question. My first one is just on the financing. The ATM program announced for roughly up to $300 million or so, is that your expectation that it will cover the totality of the equity you expect to need towards the, I guess, the $2.1 billion over the next 3 years?

So this is Greg. Certainly, we launched that $300 million ATM filing yesterday, and it's designed to be a multiyear process that we will use. As we mentioned, about 45% to 50% of that CapEx need will come from internal cash flows and we'll do a balance of debt and equity over the course of that 3-year period with a desire to maintain our cap structure at the 50-50 area that it's out right now. So that is a multiyear usage of that $300 million ATM.

Got it. And the rest of that, absent the cash from ops, as you said, you'd be looking at like $700 million or so of utility-level debt, in that ballpark?

Well, I won't say anything about the amount. Certainly, we will be issuing debt over the course of time as well to maintain the equilibrium in our cap structure.

Got you. And just one more thing on this piece, assuming you execute on the full CapEx plan, do you see an opportunity to perhaps not utilize the full authorization there? Like could you just talk about maybe puts and takes as to how much of that $300 million is utilized?

This is Greg again. I don't think we'll get into any details. Again, the ATM shelf that we just registered is to give us flexibility over multiple years to issue common stock as it's needed for our CapEx programs and other needs. So again, I think the reason for authorizing that amount is it is a multiyear amount and we will be using it over the course of the next 2 to 3 years.

Fair enough. Okay. My last question. It's really more of an observation, I guess. It looks like through Q1, you added about 11,000 customers, your full year expectation is for 35,000. So it seems like you're tracking ahead. Is that right? And do you expect to continue to track ahead or is this just seasonality?

Yes. To your point, Phil, this is Greg again, seasonality is a big portion of that. I think that's why when we talk about customer growth, we do a year-over-year comparison. So the year-over-year is 32,000. As you mentioned, the first quarter is good and we remain on track to meet our expectation of 35,000 customers for calendar 2019.

Okay. That's all I had. Thank you guys.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Ken Kenny for any further remarks.

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

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