Good day ladies and gentlemen and welcome to Southwest Gas Holdings 2019 Mid-Year 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 follow at that time. [Operator Instructions] As a reminder, this call maybe recorded. I would now like to turn the conference over to your host, Mr. Ken Kenny, Vice President of Finance and Treasury. Sir you may begin.

Thank you, Valerie. Welcome to the Southwest Gas Holdings Inc. 2019 mid-year conference call. As Valerie 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 P. Hester, Southwest President and Chief Executive Officer; Mr. Gregory J. Peterson, Senior Vice President and Chief Financial Officer; and Mr. Justin Brown, Senior Vice President General Counsel; and other members of senior management to provide a brief overview of the company's operation and earnings ended June 30th, 2019 and reaffirm earnings per share guidance for 2019. Also 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 today, 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'd like to turn the time over to John.

Thanks Ken. Turning to Slide 4, we provide some highlights for today's call. From a consolidated results perspective, diluted earnings per share for the second quarter was $0.41. We experienced record annual revenue of $3 billion and we are reaffirming our 2019 diluted earnings per share guidance range from $3.75 to $4. In the natural gas segment, we added 34,000 net new customers. We submitted $57 million rate request to the Arizona Corporation Commission in May and we are also submitting the request to the Public Utilities Commission of Nevada to expand our service territories to include the town of Spring Creek, Nevada. At our Centuri utility infrastructure services segment, we saw quarterly revenues increased by $59.1 million, $55.7 million of which was attributed to our Linetec Services acquisition. We received a $3.1 million contribution to quarterly earnings from Linetec and our net income for the past year for the Centuri segment totaled $47.6 million. Moving to Slide 5, we provide an outline for today's call. Greg Peterson will provide an overview of consolidated earnings for the periods ending June 30, 2019 including segments breakdown for the natural gas and utility infrastructure services operations. Justin Brown will provide an update on our various regulatory proceedings and I will close with an overview of regional economic conditions and customer growth, our planned capital expenditures, a reaffirmation of our 2019 earnings guidance, and long-term value drivers for our shareholders. With that I'll now turn the call over to Greg.

Thanks John. Let's begin with the summary of total company operating results on Slide 6. For the second quarter of 2019, consolidated net income was $22.1 million versus $21.6 million for the prior year's quarter. However, EPS decline from $0.44 to $0.41 due to differences in average shares outstanding between the quarters. For the 12 months ended June 30th, 2019, net income was $198.5 million or $3.86 per share compared to the net income in the prior year period of $207.3 million or $4.28 per diluted share. That period included a one-time cash reform benefit of approximately $20 million or $0.41 per share. I will provide some highlights of results by segment beginning with quarterly Natural Gas Operations on Slide 7. This waterfalls chart shows the components of the Natural Gas Operations net income increase between quarters of about $750,000. The net $1.3 million increase in operating margin includes $2 million from customer growth as 34,000 net new customers were added over the past 12 months and a combined $2 million from California attrition and Nevada rate relief. These were partially offset by lower regulatory surcharges and tax reform benefits recorded in the second quarter of 2018. O&M expenses declined slightly as employee pension and medical cost decreases more than offset general cost increases. The $2.1 million or 3% increase in depreciation, amortization, and general taxes reflects the impact of $579 million or 9% increase in gas plant in service, partially offset by lower regulatory surcharge amortization. The $3.7 million increase in other income reflects favorable market fluctuations on cash surrender values of company-owned life insurance or COLI policies. About half of the approximate $125 million in accumulated cash surrender COLI values on the balance sheet are influenced by stock market changes. COLI values climbed $3.4 million this quarter including…

Thanks Greg. As shown on slide 13 I'll be providing an update on several key regulatory matters from this past quarter, namely rate case activity and an update on several other regulatory initiatives. I'll start on page 14 with our Arizona general rate case filing. As John mentioned our application requests an increase in revenues to $57 million. There are two primary drivers for this case. First, to fully reflect the impacted tax reform in base rates. And two to update rate base to reflect the nearly $700 million that's been invested in Arizona since our last rate case. With respect to tax reform 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, part of the proposed revenue increase is also attributed to a proposal to increase our authorized return on common equity from 9.5% to 10.3%. We're also requesting approval of a new infrastructure recovery mechanism to help monitor 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 renewal natural gas to include in our gas supply portfolio. The commission issued procedural schedule in June and we expect to see intervener testimony around the 1st of December with hearings in February and hopefully a decision in the early part of the second quarter of 2020. Moving to page 15. In addition to our Arizona rate case, our FERC regulated pipeline company also filed a rate case in May, requesting to increase their revenues by $7.1 million, which includes a proposal to increase depreciation rate by $1.8 million. Similar to Arizona case, the increase is net of any adjustment for changes in tax reform including…

Thanks, Justin. Turning to slide 18, we illustrate the robust economic condition throughout our service territory. Population growth rate in the states in which we operate, are expected to significantly exceed the national average over the coming five-year period. In addition, unemployment rates continue to stay low, but continued strong job growth in each of our operating divisions. Moving to slide 19, we depict a strong growth in customers that is expected to continue in the years to come. We expect to add 35,000 net new customers this year and then 37,000 customers in each of the following two years for an average customer growth rate of 1.7%. On slide 20, we show our expectations for our capital expenditures through 2021, as we continue to serve regional growth and reinvest in the safety and reliability of our gas delivery systems. For the three-year period ending 2021, we expect to invest $2.1 billion across our system. A significant portion of that investment is associated with growth and supportive cost recovery mechanisms that Justin referenced earlier in his comments. Approximately 45% to 50% of the investment funds will be provided by internal cash flows, but the remaining funds provided through balance of debt and equity issuances. Turning to slide 21, continued investment in our gas delivery systems is expected to fuel significant growth in our rate base. As a result, we anticipate rate base growing from $3.5 billion at the end of last year to $4.8 billion at the end of 2021. This growth represents an 11% compounded annual growth rate over the three-year period. Moving to slide 22, we are reaffirming the earnings guidance we provided earlier this year. We are on track to earn between $3.75 and $4 for diluted share by the end of this year. Next on slide…

Thanks, John. That concludes our prepared presentation. For 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 subsidiaries. It can be reviewed at your convenience. Our operator, Valerie, 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.

Thank you. Good morning.

Good morning.

Delaware Gas announced a trial for an expansion of its service into Spring Creek, Nevada. How many more opportunities do you see around your systems for similar expansion?

Hi Aga. This is Justin. I think there are probably a couple there. When we originally had the legislation passed, I think there were kind of probably four, maybe five areas that were on our radar. And so, we have Mesquite and we have Spring Creek. I'd say, there's probably a couple left that we would look at and we'll just kind of look at them on a case-by-case basis and we'll always keep our eye open to whether there is more beyond that as well.

Thank you for this color. And you affirm to those 2019 EPS guidance, but lowered expected revenue growth from Utility Infrastructure Services. Could you please provide more color on the drivers of that change? And at the same time could you please maybe discuss the offsetting factors that allow you to maintain the EPS range intact?

Sure Aga, this is Greg. As we look out to the future for Centuri operation, there's probably two or three main factors that have kind of changed our outlook for the year. One, as we mentioned earlier, we had a weather impact in first and second quarters actually that kind of slowed our progress in the work that we could get done. And early in the year, we were more hopeful that could catch up in that. But again, that will have a short-term impact, but nothing in the medium to long term. But it has slowed down, what we'll be able to get done in calendar 2019. And we've also had a few of our larger customers who've had some changes either some regulatory constraints or otherwise and how much work that they can put out. There's some areas where due to regulatory constraints the professional engineer stamp is required on drawing. And that's just slowing the amount of work that we can get in-house to get done. Again the same sort of thing, it's more of a short-term 2019 item versus anything medium or long term. As we mentioned in the call and in our quarterly report, we did have water contract. Last year, we had a settlement of $9 million. That contract completed this year in June and we opted not to extend or seek an extension of that contract renewal. And so that's having little bit of impact on what the future may hold for us. We are certainly optimistic that other things [Audio Gap] have a beneficial impact or it should for our companies on both segments with lower interest expense. And then as you can see in the second quarter this year versus last year on the utility side, O&M expenses were relatively flat and while we don't expect O&M to be flat year-over-year, we are as a management team focused on cost containment issues to keep that O&M growth down. So those are some of the positive factors that have allowed us to keep that guidance in the $3.75 to $4 neighborhood.

Thank you for that additional information. Last question from me. In the past few years you announced acquisitions in the second half of the year. Should we expect similar M&A activity in this half of 2019?

This is John. We don't have anything planned immediately that we think would be completed in 2019. That said, we are always looking at a variety of potential acquisitions that help continue to grow and diversify both geographically and from a service offering perspective for Centuri. So it is possible, but we don't have anything in mind at the current time. But we'll continue to look for opportunities to grow that business where we think it will increase earnings and ultimately valuation for the shareholder.

Thank you for taking my question.

Thank you.

Our next question comes from Chris Ellinghaus of Williams Capital. Your line is open.

Gentlemen how are you?

Good.

Greg, you were talking about weather impact for Centuri. You've had a pretty stellar year-over-year set of results. All right. I would kind of like it if you'd have these kind of weather impacts more often. But given the change in the guidance for revenues and sort of the results that I see for the year-to-date looks pretty good so far. Were there any timing impacts that weren't weather-related in terms of maybe getting some accelerated work done for other reasons in the second quarter? Or was this pretty much what you were kind of expecting?

I think the second quarter is -- Chris this is Greg was what we were expecting on a relative basis. There's all these changes within our customer base as to when they give us work. We're very dependent on the timing of when they provide us with the working opportunities. As I mentioned earlier in my comment that PE stamp requirement has just slowed the -- I'll use the term backlog, the backlog of work that we used to have for some of our larger clients. And so, I think again Q2 was kind of what we expected, but that's what's kind of slowing the growth for the second half of the year.

Okay. Can you give us any color on what you're seeing post Linetec acquisition in the cross-selling efforts?

Yes. This is Greg again. It's still pretty early in the process as we can show or as we depict in the slides later in the appendix. We have quite a long history with our customers and the cross-selling opportunities that we've talked about and expect to come to fruition in the future take a little bit of time to do. These utilities have often have long-term entrenched relationships with their contractors and so we're breaking into that opportunities. And so we expect to see something in the future, but probably not in the next few months.

Sure. Can you -- there is a lot going on in Las Vegas right now Convention Center, the stadium, Resorts World, Circa, Wynn there's a lot of projects right now. Have you got any thoughts on what you're seeing beyond this current batch of Vegas expansion?

Chris, this is John. We think that we're going to continue to see more of the same. I think as you just pointed out a number of really big projects that have driven economic growth there and Southern Nevada and it continues to be a favorable business climate. Both the city the county the state are very interested in continuing to facilitate that economic development. And so we expect that type of trend to continue at Las Vegas and the region continues to be a desirable place to do business.

Okay. Lastly, in the Arizona docket is the new pipe replacement program. Can you give us any kind of color on which you've been seeing Justin in terms of discovery or discussions with intervenors or what not about that program?

Yes. Chris, we really haven't seen a lot on that. I mean we have kind of our typical ongoing discussions with the parties, but still pretty early in the process with the procedural schedule and usually the intervenors take a little time to get consultants on board. That's still pretty early. I expect to see something along those lines over the next couple of months.

Okay, great. Thanks a lot guys. I appreciate it.

Thank you, Chris.

Thank you. Our next question comes from Ryan Levine of Citi. Your line is open.

Hi. What was the amount of the pension and medical cost reduction during the quarter? And is any of that likely to continue to benefit financials over the next several quarters?

One moment please. One moment. Ladies and gentleman, one moment the speakers will be with you momentarily. [Technical Difficulty]

Hello? Hello Valerie.

Yes sir, you are connected.

Yes. Sorry some sort of disconnection. So unfortunately, we've gone back to a little bit of a old-style speakerphone on my cellphone. So we'll finish it that way. So we're willing to take any other questions.

Thank you. Ryan is still connected.

Yes. I don't know if you're able to before. I was asking what the magnitude of the pension and medical cost reduction was in the utility segment during the quarter? And if any of that was likely to continue into the next several quarters?

Ryan, this is Greg. The medical benefits was probably just a little more than $1 million of reduction. We're self-insured for our employee medical and so there is some fluctuation there. We have experienced or had good experience thus far this year and would expect that to continue into the future, but I don't have any guarantees for the second half of 2019.

Beyond the pension and medical cost reductions, what are the other cost-reduction initiatives that they are working on or confidential keep O&M cost inflation under control?

Yes. I think it's -- this is Greg, again. I think it's just the general overall view of keeping costs from rising quickly. I always want a caveat, but we are not trying to do cost-reduction measures, but cost containment measures. But we've done a good job thus far this year and some of our leak survey and line breaks we're monitoring what's going on there. So, it's just an overall general whether it's employee headcount or some other administrative functions that we are trying to focus on and keep those costs down.

Okay. That’s all from me. Thank you.

Thank you.

Thank you. I'm showing no further questions at this time. I would like to turn the call back over to Mr. Ken Kenny for any closing comments.

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

Thank you. Ladies and gentlemen, this does conclude today's conference. You may all disconnect. Have a great day.