Ladies and gentlemen, thank you for standing by. And welcome to the Southwest Gas Holdings 2019 Third Quarter Earnings Conference Call. At this time all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Vice President of Finance and Treasurer Ken Kenny, please begin.

Thank you, Demetrius. Welcome to Southwest Gas Holdings Inc. 2019 Third Quarter Earnings Conference Call. As Demetrius 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 our website at www.swgasholdings.com otherwise www.southswgasholdings.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 and Chief Financial Officer; and Mr. Justin L. Brown, Senior Vice President General Counsel Southwest Gas Corporation, and other members of senior management to provide a brief overview of the company's operation, and earnings ended September 30, 2019, and to address earnings per share guidance for 2019. Also, the company will discuss 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 which may or may not come true and should refer to the language on Slide 3 and 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 statement. With that said I'd like to turn the time over to John.

Thanks, Ken. Turning to Slide 4; we show some of our 2019 highlights. From a consolidated perspective, we saw earnings per share of $0.10 for the quarter. We realized record 12-month revenues of $3.1 billion. We completed our reincorporation of Southwest Gas Holdings from California to Delaware and we are modifying our 2019 earnings per share guidance from the previously announced range of $3.75 to $4 to a new range of $3.60 to $3.80. For the natural gas segment, we continued to experience strong customer growth having added 34000 customers over the past year for an annualized growth rate of 1.7%. We also submitted a new California rate case application in August requesting a revenue increase of $12.8 million. And we recently saw Standard & Poor's upgraded our utility credit rating to A-minus. Then at our Centuri Utility Infrastructure Services segment, we saw record quarterly revenues of $515 million including a strong performance from our Linetec Services Group which contributed $70 million. Centuri's net income for the past year totaled $46.7 million. Moving to Slide 5; we show an outline for today's call. First Greg Peterson will provide an overview of our financial results with segment details of natural gas operations and utility infrastructure services group. Justin Brown will provide a regulatory update including detail on our three current rate case proceedings. And I will wrap up our presentation with an update on customer growth and regional economic conditions our planned capital expenditures and our expectations for the rest of 2019 and beyond. With that, I will now turn the call over to Greg.

Thank you, John. Our earnings press release and quarterly report on Form 10-Q were made available yesterday afternoon and I invite you to read those documents for additional details of our third quarter operating results and outlook for 2019. For today's call let me start with a summary of a total company operating results on Slide 6. For the 12 months ended September 30, 2019, net income was $191.5 million or $3.59 per diluted share compared to the net income in the prior year period of $209.4 million or $4.29 per diluted share. The 2018 period included a onetime tax reform benefit of approximately $20 million or $0.41 per share. For the third quarter of 2019 consolidated net income was $5.4 million versus $12.3 million for the prior year. Third quarter EPS declined from $0.25 in 2018 to $0.10 in 2019. Some of the major items impacting third quarter 2019 results are reflected on Slide 7. Natural gas operations currently reflect the cost of substantial investments we have made in our system to ensure safe and reliable service to our customers. These long-term investments also ultimately benefit shareholders as amounts are included in the calculation of customer rates and company revenues. In February 2019 Southwest requested an aggregate $12.7 million surcharge increase effective June 2019 as part of its annual filings for Vintage Steel Pipe or VSP and customer-owned yard line or COYL program. In October the Arizona Corporation Commission issued an order to consolidate consideration of the VSP and COYL requests into the Arizona general rate case. A decision in the general rate case is not expected until the first half of 2020. This adversely had impacted third quarter operating results and cash flows by delaying recovery of a portion of the aggregate $12.7 million requests. Centuri's quarterly performance…

Thanks, Greg. We have a significant number of meaningful regulatory initiatives currently going on. Namely, rate case related proceedings in each of our regulatory jurisdictions as well as several other initiatives that will continue to provide an opportunity for us to invest in our distribution system to serve the needs of our customers. Let's start on Slide 16 with our Arizona general rate case. Our application requested an increase in revenues of $57 million including a proposed return on equity of 10.3%. There were two primary drivers for this case. Two -- number one to fully reflect the impact of tax reform in base rate; and second to update rate base to reflect the nearly $700 million that has 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. We propose to amortize the excess deferred income tax balance consistent with the IRS prescribed methodology and at the time of filing, we anticipated this amount to be approximately $21 million. However, since the filing, we finalized our 2018 tax return and we were able to determine the actual amortization amount which ended up being about $15 million less than what we originally estimated. This difference will result in an increase in both margin and federal income tax expense and will thus have no impact on earnings. We also made a recent filing in the rate case to supplement the requested Post-Test Year plan increase by approximately $125 million which I will discuss in more detail later in my comments when I provide an update on the status of our Arizona tracker program. The commission issued an order in June establishing a schedule where intervener testimony will be due around the 1st…

Thanks, Justin. On Slide 22; we illustrate the robust economic conditions that exist throughout our three state service territory. Over the coming 5-year period we expect population growth in Arizona Nevada and California to exceed national growth rates. Turning to Slide 23; the high rates of growth in the states we operate in result in additional customers for our utility operations. This year we expect to add 35,000 new customers with that trend anticipated to grow even further in subsequent years. Moving to Slide 24; additional customers and our continued investment in the safety and reliability of our gas distribution systems require a healthy capital expenditure budget. As we have previously indicated we expect to invest $2.1 billion into our natural gas operations in the 3-year period ended 2021. Approximately 45% to 50% of our capital needs will be generated through internal cash flows with the balance being funded through a combination of debt and equity issuances. All told we now expect 2019 total capital expenditures to reach $730 million by year-end. Turning to Slide 25; our continued natural gas operations capital expenditures ultimately translate into a growing rate base. We expect that rate base will grow from $3.5 billion at the end of last year to $4.8 billion by the end of 2021. This growth represents an 11% compounded annual growth rate over that 3-year period. On Slide 26; we illustrate the revised earnings guidance range I referenced at the outset of the call. At the end of this year, we currently anticipate that our earnings will be in the range of $3.60 to $3.80 per share. Moving to Slide 27; we provide some additional color on our 2019 expectations. First, for our natural gas operations, we believe that the operating margin for the year will increase by 4%…

Thanks, John. That concludes our prepared presentation. For those who have access to our slides, we have also provided an appendix with slides that include other pertinent information about Southwest Gas Holdings and it's two business segments. These slides can be reviewed at your convenience. Our Operator, Demetrius, will now explain the process of asking questions.

[Operator Instructions] And our first question comes from Christopher Turnure with JPMorgan. You may proceed.

Hi guys, how are you? I wanted to make sure I understood the COYL order in Arizona and just how that tracker works in the first place versus folding it into the general rate case. Do you get a return on that asset? And basically, even though you're clearly not going to be able to book it this year or part of it this year do you actually lose anything on a net present value basis for your shareholders?

Yes, Chris, this is Justin Brown. Yes. In Arizona, the COYL and VSP programs do not have a deferral aspect to them. So we invest money and then we implement a surcharge based on the revenue requirement at a point in time. And so yes there's some regulatory lag associated with that.

Okay. So your original filing there was for 2018 spending and to get a return on and of that and simply now you'll have to wait until next year to get that to flow in. So, hopefully you get the same absolute amount it's just on a delayed basis.

Correct.

Okay. And any reason why the commission decided to roll it together with the general rate case? Is this kind of outside the normal practice with this filing?

Yes, both -- well the VSP program's fairly new but the COYL program's been around and there's been a history of adjusting those on an annual basis. I think it's just the timing of them and the fact that you have some new commissioners and kind of an interest in looking at the underlying programs themselves. I think for the most part all the commissioners are pretty supportive of the program. But I think because of the ongoing rate case they've got more comfortable consolidating everything and taking a thorough review of the programs and moving forward as part of the rate case.

Okay. And then the permitting issues that you're having at Centuri sound like they are temporarily based on your prepared remarks. And I think that was kind of the color that you provided at your second quarter call as well. I'm just wondering if you could give us some more detail on the nature of those. Is there an ability to kind of protect yourself in future contracts or as kind of current contracts roll forward for customers. And is this something that you can kind of break out between Linetec and your legacy Centuri businesses?

Yes, this is Greg. To your point, this is something that's happening generally in the Northeast part of the U.S. from some incidents that happened not related to us a year or so ago. As far as putting something in our contracts that would help insulate us from this I think we are -- our customers are really the ones that are subject to the regulation. And then, of course, we work for our utility customers back east and they have desires and requirements for us to do work for them. So I do believe it's temporary in nature again kind of the delay that happened when these things were first implemented as we previously discussed has substantially subsided and we are just now getting work on a going-forward basis again but there wasn't an initial delay that we saw and it impacted both Q2 and Q3 results.

Okay. Is it isolated to one customer or is it several customers in the Northeast region?

This is Greg. And there's a couple of customers up there. And it does -- it's impacted for us in multiple states up there because of where these customers operate their businesses but it's a couple of customers up there.

Okay, great, thanks for the color, Greg.

And our next question comes from Aga Zmigrodzka with UBS. You may proceed.

Morning. Do you expect to renegotiate revenues related to the project in Canada to recover the higher cost? And if yes what is the expected timing of it?

Aga, this is John. We are working through those cost incurrences now. We are talking to one of the subcontractors that we have and we are coming to the end of that project. So the customer currently is inspecting and getting to the point where we want to see them accept commissioning of the project. So we will be looking at that as we close out the project.

And some first, increase 2019 CapEx and during your prepared remarks, you mentioned some additional spending in California. How should we think about your CapEx program going forward? Is there a potential for upward revision?

This is John, again, Aga. I think that you probably should continue to think about it as a $2.1 billion 3-year run rate. We are going to have some fluctuations in that number from year-to-year it could be a little higher it could be a little bit lower. We have seen a lot of projects get closed out this year and we have actually seen particularly in Arizona some additional demands by customers for gas service that has caused those end of year numbers to flex up a little bit. But I think that going forward at this time we are kind of looking at that plus or minus $700 million a year number but $2.1 billion on a 3-year run rate.

Thank you for taking my question.

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

Justin, I just want to follow back upon Chris' earlier question just so that I better understand because I think you had both the COYL and VSP surcharge through delayed timing of that but then also this delay in your filing for the '19 recoveries. I guess if I -- I want to just make sure I'm understanding correctly your answer to him there wouldn't be necessarily like a catch-up that we should expect maybe on the back of the rate case next year if everything is approved as you expect it to be. Is that correct? You get the absolute amounts but you wouldn't get a catch-up for the delay from now in recovery from your timing line that you had originally planned versus what now looks like will happen?

Yes. I think generally that's correct Chris. There is nothing that precludes it in the decision. So obviously it's something we are going to continue to look at and evaluate. But I think generally speaking it's probably a fair way to look at.

Okay. And then, if I remember correctly the last case you had there you guys were able to settle that a little bit early. I'm just curious your thoughts on that given the -- it seems like there's quite a bit more involved this time around. Is that something you are hopeful for? Or do you think litigated time line's probably the best one to anchor to?

Yes. I think given the current climate thereof litigation track most likely the Director of the staff pretty much indicated at a staff meeting that they're not entertaining any settlements just RIG [indiscernible]. And so obviously we have a good relationship with them. We are going to continue to try to work on and narrow the issues from a litigation standpoint. But I think from a policy standpoint where it stands right now in Arizona they're just not entertaining any settlement negotiation period.

Okay. And then, I guess the final question for me. I think you had mentioned in the commentary around Spring Creek that there has been no opposition in the hearings thus far to your proposed expansion there. I guess from your vantage point or may be influenced by the way that the Mesquite expansion unfolded is the absence of opposition enough for that authorization to happen? Or I guess did you get what you were hoping to get in the form of support in those areas?

Yes. So hearings are actually scheduled for the end of the month. And I think based on the testimony I would like to think we can work out some of the nuances and hopefully reach an agreement with the parties because they were all -- the consumer advocate was kind of noncommittal one way or the other whereas the staff I think was generally supportive of the expansion. And so I think there's enough there to work with. That's why we are hoping to work with them to see if we couldn't reach an agreement that we could just submit to the commission for consideration. And alternatively, we will have a hearing at the end of the month that I think would be pretty limited in scope in terms of kind of the issues that are outstanding. And I don't think it would impact anything in terms of our underlying proposal of how we would approach expanding to Spring Creek.

Okay, all right. I guess the final question for me. And John this is probably for you. Just can you remind me what motivated the reincorporation from California to Delaware? What advantages do you pick up in doing that?

Well, there's a number of advantages from the perspective of Delaware law you see that the vast majority of corporations are incorporated there. So we thought that it was kind of a best practice to move in that direction.

Okay. So nothing necessarily tangible on our end but optionality on the legal front probably enhanced thing we are seeing there?

Yes. Yes, I think that's fair.

Okay. All right. Thanks a lot, guys. Appreciate it.

Ladies and gentlemen, this concludes our Q&A portion of today's conference call. I would now like to turn the call to Ken Kenny for any closing remarks.

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

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.