Ladies and gentlemen, thank you for standing by. And welcome to the Southwest Gas Holdings 2019 Year End Quarter Earnings Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your host, Vice President of Finance and Treasurer, Ken Kenny. Sir, please go ahead.

Thank you, Latif. Welcome to the Southwest Gas Holdings, Inc. 2019 earnings conference call. As Latif stated, my name is Ken Kenny and I am the Vice President, Finance, 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 also 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 and Chief Financial Officer; Mr. Justin L. Brown, Senior Vice President, General Counsel; and other members of senior management to provide a brief overview of 2019 earnings and provide earnings per share guidance for 2020. Also, the company will address factors that may impact this coming year's earnings and provide some longer term guidance. 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 be referred to this language in the press release, our SEC filings and also slide 3 presented today 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 would like to turn the time over to John.

Thanks, Ken. Turning to slide 4, we show a high level summary of our company's business segments. Southwest Gas Holdings comprises two complementary business segments in the utility infrastructure space. Approximately, 70% -- 76% of our net income is generated through regulated natural gas distribution operations in Arizona, California and Nevada, with approximately 24% of net income contributed by our unregulated utility infrastructure services segment as a contractor to mostly regulated energy utilities across the United States and Canada. We believe both segments are poised for strong growth in the years to come. Growth in customers, rate base, revenues, net income, and dividends. Our regulated utility management team is focused on customer growth and economic development, affordable bills for our customers, opportunities for capital investment and rate based growth, decreasing greenhouse gas emissions and continued earnings and dividend growth. Similarly, our Centuri management team is focused on excellent operations execution, cost management, opportunities to cross-sell services as we expand our electric presence, continued earnings and dividend growth, and providing cash for Southwest Gas Holdings. Moving to slide 5. We outlined some highlights for 2019. From a consolidated results perspective, we realized year-end earnings per share of $3.94. Earlier this week, our Board of Directors authorized a $0.10 per share increase in our annual dividend, raising it from $2.18 to $2.28 per share, and we completed our reincorporation from California to Delaware as overwhelmingly authorized by our shareholders at our last annual meeting to provide our company a more developed, predictable and responsive legal jurisdiction that we believe will make our company more attractive to investors, directors and executive officers. At our regulated utility operations, we continue to see strong regional economies, in which we added 34,000 new customers last year, an annualized growth rate of 1.7%. We realized $23 million in additional margin due to the reference robust customer growth, as well as incremental rate relief. And we have major rate case applications, now on file in Arizona and Nevada, as well as in California and for Paiute Pipeline. At our Centuri infrastructure services business, we saw a record revenues of $1.75 billion, record net income of $52.4 million and significant expansion of our electric operations, with a full year of financial results from our Linetec Services Group. On Slide 6, we provide an outline for today's call. Greg Peterson will provide an overview of financial results for the corporation, the segment break down for both regulated and unregulated utility operations. Justin Brown will provide a review of our extensive regulatory activities, including a rate case activity I referenced. And I will wrap up the call with an update on our regional economic conditions and customer growth, planned capital expenditures, growth in dividends, sustainability efforts and our expectations for 2020 and beyond. With that, I'll turn the call over to Greg.

Thanks, John. Yesterday afternoon, we announced our 2019 earnings and provided some statistical information in the Form 8-K filing with the SEC. We also filed the Nevada General Rate Case yesterday, that Justin will comment on in his regulatory presentation. We plan to file our Annual Report on Form 10-K, which will include information regarding the rate case with the SEC later tomorrow or Monday morning. Please refer to these documents for a comprehensive analysis of our operations for 2019. Let's start today with a comparative summary of total company income on slide 7. For 2019, consolidated net income was $213.9 million or $3.94 per diluted share, compared to $182.3 million or $3.68 per share for 2018. The EPS result of $3.94 for 2019 exceeded the top end of our revised EPS guidance, which was $3.80 per share, primarily due to three items associated with natural gas operations. One, COLI cash surrender value increases were $6.2 million in the fourth quarter versus an estimated $1 million, resulting in a $0.10 per share incremental increase. Two, incremental operating margin partially due to higher volumes, resulted in a margin increase of 4.8% between years, above our revised high-end of 4.5%. And three, changes in state tax apportionment methodology option and other factors reduced the effective income tax rate and income taxes for 2019. Revenue increases for Centuri was the top-end of our revised guidance of 15%, but were partially offset with the percentage of operating income of 5.1% that was near the lower end of our revised guidance of 5% to 5.5%. The relative incremental contributions to net income between years for each operating segment are shown on the next slide. Slide 8 depicts the composition of the $31.6 million increase in consolidated results between 2018 and 2019. Net income for the…

Thanks, Greg. As both John and Greg alluded to in their comments, we filed the Nevada rate case yesterday, and with that filing we now have rate cases in each of our regulatory jurisdictions. And collectively, these cases totaled nearly $144 million in proposed revenue. We anticipate that we will start to see decisions from these various proceedings beginning with Arizona this summer and continuing through the remainder of this year. Speaking of Arizona, we recently received testimony from the intervening parties and the staff and consumer advocate position as compared to our proposals are shown here on slide 12. In addition to our proposal on deferred taxes, the staff has proposed the additional amortization of approximately $15 million associated with certain plant that we originally classified as protected, which the staff claim should be unprotected and thus the excess deferred taxes should be returned to customers faster than the IRS prescribed methodology for protective plant. In addition, they have also proposed an interest component based upon their interpretation of the commission's decision on our 2018 tax reform proposal. Some other noteworthy items from staff testimony, they do not oppose the inclusion of the LNG facility and the COYL and VSP work that we've done through December 31, 2019 as part of our post-test year plan adjustment indicates. In addition, they do not oppose our proposal to amortize approximately $12 million of VSP and COYL surcharge revenue that we proposed last year as part of our annual surcharge filings. We are currently preparing rebuttal testimony and will be preparing for the upcoming hearings that are currently scheduled for April 20. Turning to slide 13. We continue to work through the discovery phase of our $12.8 million California general rate case that was filed last August. We expect to see the…

Thanks, Justin. Turning to slide 18, as I mentioned at the outset of our call, regional economic conditions throughout our regulated service territories remained robust. We expect population growth in Arizona, California, Nevada to exceed the national average over the coming five-year period. Job growth continues at level significantly higher than the national average and new home construction is expected to remain strong over the next several years. Moving to slide 19, as I also mentioned at the outset of the call, we continue to see strong customer growth across our regulated utility service territory. Customer additions over the next several years are expected to continue at a rate of 35,000 or more per year, growing to just under 2.2 million customers by the end of 2022. On slide 20, opportunities to invest in our regulated utility operations to increase safety, reliability and serve new growth remained strong. We anticipate investing approximately $700 million per year over the coming three-year period, a regulated capital expenditure budget of $2.1 billion. Approximately 50% of the funds will come from internal cash flows with the remaining needs provided by an equal mix of debt and equity, including issuances through our ATM program. Turning to slide 21. We illustrate a more detailed breakdown of total capital needs and sources for our natural gas operations over the three-year period ending 2022. On slide 22, we show how our regulated utility capital investments impact rate base levels over the coming five-year period. With continued average annual capital expenditures of $700 million per year, we expect to see rate base increase from $4.1 billion at the end of last year to $6.2 billion by the end of 2024, an increase of 50% in regulated utility rate base over the next five years. Moving to slide 23. We…

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, Inc. and its two business segments. These slides can be reviewed at your convenience. Our operator, Latif, will now explain the process for asking questions.

[Operator Instructions] Our first question comes from Aga Zmigrodzka of UBS. Your line is open.

Good morning, congratulations on the quarter.

Good morning, thank you.

Good morning, Aga.

On the last earnings call, you revised down 2019 utility operating margin growth and 4Q net margin well exceeded the revised range. What were the key drivers that were not included in 3Q guidance and exceeded expectation?

Hi Aga, this is Greg. Are you talking specifically about the margin number?

Yes. Net operating margin.

Yes. It was really a combination of several items but partially was volume metrics. So if you compare the fourth quarter volumes in 2019 to the fourth quarter volumes in 2018, they were up. And part of that is we are decoupled, but we do have some volumetric surcharges. And so, that created part of the growth, as I discussed earlier in margin. Not as big an impact in net income, but some because some of our customers outside the decoupling also experienced higher volume usage.

Perfect. That's very helpful. Could you please also provide a little more color on the Arizona rate case in particular, on recommendations opposing future VSP and other replacement programs that you highlighted on slide 12? How that could impact announced utility capex in the future and the potential regulatory lag?

Yes, Aga. This is Justin. The staff in the consumer advocate position -- so the staff came out in support of the COYL program. So continuation of it but with respect to the VSP in the plastic pipe program, they found that kind of moving forward that they felt like a case had not been made as the programs were in the public interest, and so that was really their position. I think, we still have some pretty compelling arguments and things that will make on rebuttal on through hearing and hopes that the ALJ or the commission picks up on some of those, because -- and I think one of the important things with these tracker programs that we've established in Arizona and in -- and Nevada quite frankly, is that they've always been identified as this is work we're willing to do, if we have supportive regulatory mechanisms from a cost recovery standpoint So obviously if they're signaling a desire not to do the proactive VSP or plastic pipe work then naturally, we're not necessarily going to spend that same level of capital on those projects that we're not going to have the support of cost recoveries. I think, that addresses the lag question. I think, yes.

Perfect. That's very helpful. Thank you for taking my question.

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

Can you speak to what your longer-term RNG strategy is, it looks like it's -- you're pursuing it in Arizona, although it's opposed, are you looking at purchasing RNG? It's further to reduce your greenhouse gas emissions per your goal or are you willing to invest in some of the infrastructure to build out that device source?

Hi, Ryan. This is John. I think the answer to that is both of those items. We are certainly looking at the prospects of acquiring RNG, but we also are working with a variety of entities throughout our service territory, actually in all three states including Pima County in Arizona, the RTC here in Nevada, which operates the mass transit system, and the Victor Valley Water Reclamation Authority in California. And partnering with those entities, we have a couple of different options, including, as I think Justin alluded to in one of his earlier slides, the possibility of investing in the facilities that are needed to collect and scrub that gas and get it into our pipeline. So both opportunities are future opportunities for the company and we think it's pretty exciting.

Is there a way to frame the potential amount of dollars that you'd be willing or evaluating to pursue that build out?

I think, it's pretty early in the game to come up with a number like that. I think that it probably would be safe to say that those dollars would be under the umbrella of the $700 million for your capital budget that we have.

Okay. And then, last one for me. In terms of your capex spending outlook, could you speak to how much of that spending is tied to purchasing pipe versus other forms of components of that capex?

Yes, Ryan. This is Greg. Yes, for trying to get some of the break out of that. That's not something that we really have. Certainly, there are fluctuations in the market that might be part of the source of your comment, but I don't have in front of me a specific breakdown as far as pipe outside services or internal labor. But it's not a different mix from what we've normally experienced, but I don't have any of those details right in front of me.

Okay, that's all from me. Thank you.

Thank you. Our next question comes from Chris Ellinghaus of Siebert Williams. Your line is open.

I'm sorry, guys. Forgot I'm mute. The various filings for RNG, do you have any sense of when you may have greater details on what you might pursue?

Hi, Chris. This is John. I'll start, then maybe I'll turn it over to Justin. But I think that those efforts are under way right now, I think that there really isn't anything that's an obstacle to us moving forward with for example, any of the projects that I briefly referenced in the previous question. I think, the general reception from our regulators actually has been pretty enthusiastic about this. It's just making it through some of the various administrative provisions. For example, how do you include that type of cost in your gas supply, what opportunities do you have to invest in those incremental facilities, that I mentioned in the previous question and then, how does that translate into rate recovery.

Yes. Thanks, John. Chris, this is Justin. Yes, consistent with what John said now, the idea was to make sure that we get a framework in place in each jurisdiction to support those initiatives and to work with the various policymakers, whether at the state level or at the commission level on, as well as being able to support customers that are desiring that type of energy as well.

Right, okay. Justin, while you're here, the -- what do you think that the -- I hesitate to say odds are, but how well do you think that things like the Driscopipe replacement program might be received by an ALJ or commission relative to the stance that the staff has taken?

Well being you are Vegas guy Chris, -- and I'll talk about Vegas, I'm not -- I can see how you're wanting to say odds, but yes, that's -- it's tough to answer in that way. I mean, I do think that we'll be preparing our rebuttal case, we'll be filing here in the second week of March, which I think I'd encourage you to look at that when we file that case because I think we've got some pretty good arguments on why it makes sense to look at proactive replacement on some of this aging infrastructure, and so I think from our perspective, I think we feel pretty good about our case, but we also recognize that there is a lot of deference to the staff in these proceedings and so it is really hard to handicap.

Well, the part that surprised me a little bit about the staff's sort of opinion on plastic pipe replacement, I thought was kind of interesting because, given the number of safety issues that have risen nationwide, and also the significant concern about environmental issues with methane release, I would have thought that they would be more amenable to both of these issues being in the public interest. So, and that's really why I'm curious, is whether maybe higher level thinkers like ALJs and commissioners might be more interested in those topics than staff are thinking about costs?

Yes, it's very possible. I mean, I agree Chris, it was there fairly conservative positions that were taken.

Right. Yes, okay. Well, that bear some interesting watching. As far as the Centuri long-term guidance that you gave, I appreciate the insights there. The 5% to 8% annual revenue growth, I assume that's incorporating things like cross-selling opportunities and things like that. But what is the sort of -- could you give us some color on what you think the base core growth opportunity is excluding say Linetec's addition?

Yes, Chris, this is Greg. Yes, well, everything is included in that 5% to 8%, that's our organic growth number that we think that we can do over the next several years. We do expect Linetec to continue to grow. And we do expect that we will get some of those cross-selling opportunities as I mentioned previously on one of our earlier calls. The utility customers that we do business with operate much like Southwest Gas does, in which they forge long-term relationships with the contractors that do business with them. And so, it's not a quick spin that somebody will move their entire electric or gas operations to Centuri, but we continue to work on that and that is included in those growth levels.

Okay. And as far as the margins, do you think that's a fair range sort of regardless of economic conditions or is that more indicative of sort of status quo pretty respectable economic conditions?

Yes, this is Greg, again. I certainly -- we've experienced and expect to continue to experience that Centuri will grow despite or even in light of whatever economic conditions they are out there. It's a service that's needed and we provide that service in good times and in bad and economic times. So, I think that the 5.5% to 6.5% long-term percentage of operating income of revenues is pretty indicative of what we really expect, again come good or bad in the economy.

Okay, great. Thank you very much, appreciate the color guys.

Thank you. Our next question comes from Chris Sighinolfi of Jefferies. Your line is open.

Hey, good afternoon. Thanks for taking my questions, guys.

Hi Chris.

If I could circle back, I guess, a couple of topic areas I wanted to touch on. But if I could start maybe with where Chris was and Aga was earlier -- were earlier in regards to the replacement programs and the opposition in Arizona and I guess, what I'm interested to know is, if I look at slide 20 on the capital expenditure breakdown by year, by type, that golden bucket of infrastructure under trackers. I mean, is that -- if you don't -- if this proves to be something that the jurisdiction in Arizona doesn't seem to be supportive of? Is that biased down or is this based on just the programs will continue?

Yes, this is Greg, Chris. Yes, the gold band across the top on slide 20 includes what we expect that to happen there. We know that there might be some fluctuations. The capital tracker programs that we currently requested are not accepted or authorized. Certainly, we will continue to seek other ways to do that. And I don't see that there'll be much degradation or change in our overall capital spend. We would probably just change the mix of work that we do, but that includes both tracker mechanisms that are in place and things that we think might be in place in the coming years.

And Chris, another potential impact from that and I'll let Justin expand on this. It may, depending on the capital spend that we have associated with trackers. If that fluctuates, that could have impact some of the frequency of those filing, general rate case proceedings.

Yes, okay. I guess, related to that and I appreciate Greg your clarity on the financing side of the house, what's anticipated over a multi-year period and it's the very next slide. Just curious, should we think that the ATM issuance happens in sort of a ratable fashion or given that it looks like you'll be out of rate case for a little bit in all three areas after this year. Do you -- you take advantage of low interest rates and do more debt and defer some of the equity or what do you -- I guess, what would you advise that we model?

Yes, this is Greg, Chris. Certainly, we will look at what's happening in the market as we encounter the need. I think we've been pretty clear that our needs will be ongoing, but whether we choose to issue debt or equity will depend on market conditions at the time and our expectations for what's most advantageous whether it relates to rate case, planning or just trying to -- I won't say we're trying to time the market, but we will look and see what seems to make the most sense at the time. But I think you can expect that generally this will be consistent over the course of the three years that are in the schedule.

Okay. Okay. And then final question for me, you've given color, and you always have on the capital expenditure plans of the utility. You've now given -- you've been talking about a multiyear growth rate at Centuri. I'm just wondering what level of spend you think is required to affect that type of revenue growth?

Yes, this is Greg. Centuri does a great job in working with the suppliers of the equipment that they need to do their ongoing business. While I don't have the number right in front of me, I believe the number for 2019 was about $150-ish million of capex for their equipment that they use to grow the business. And Centuri, certainly with the acquisition of Linetec experienced some considerable growth during 2019. A run rate number is probably in that $100-ish million to $150 million neighborhood depending on the growth requirements that they have.

Okay, great. That's very helpful. Thank you for the color.

Thank you. [Operator Instructions] Our next question comes from [indiscernible]. Your line is open.

Hey guys, good afternoon. Thanks for taking my question. Just on the operating margin growth for 2020, the 4.5% at the midpoint, it looks like that's roughly $45 million. Could you bucket some of the main drivers of that? I know you call out customer growth. And then, I guess, the rate case, but can you bucket like the infrastructure pieces, the rider pieces and what other type of contribution you guys are seeing? Thanks.

Yes, Steve, this is Greg. I think that the bucket that'd be easiest for us to identify and share is the customer growth bucket and that number will be relatively consistent with what we've seen in prior years. The others whether they're trackers or the rate cases, yes, we're waiting for a little more clarity on what the rate cases will be. But the customer growth side of that should be consistent with what we experienced in '19.

And could you just remind me what that was? Sorry, I know you said in the script, but...

Yes, by $11 million.

$11 million, okay. And just on the Nevada rate case, what's the expected timing for rates to be effective? And I think it was a decision by the end of the year maybe or can you just remind me about that?

Yes, Steven, this is Justin. In Nevada, they have a 210-day time clock. So we filed yesterday. Once they took the filing we have 210 days, generally speaking, we're looking at like an estimated October 1st rate effective date.

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

Thank you. At this time, I'd like to turn the call back over to Ken Kenny for closing remarks. Sir?

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

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