Ladies and gentlemen, thank you for standing by, and welcome to the Southwest Gas Holdings 2020 First Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your speaker for today, Mr. Ken Kenny, Vice President of Finance and Treasurer. Sir, you may begin your conference.

Thank you, Julia. Welcome to Southwest Gas Holdings, Inc. 2020 First Quarter Earnings Conference Call. As Julia stated, my name is Ken Kenny, and I am 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. We have slides on the Internet, which can be accessed to follow our presentation. Today, we have Mr. John Hester, President and Chief Executive Officer; Mr. Gregory Peterson, Senior Vice President and Chief Financial Officer; Mr. Justin Brown, Senior Vice President, General Counsel of Southwest Gas Corporation; and other members of the senior management to provide a brief overview of the company's operations and earnings ended March 31, 2020, and reaffirm our earnings per share guidance for 2020. 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, which may or may not come true, and 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 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'll show some highlights for 2020. For the holding company, we'd experienced first quarter earnings per share of $1.31. These earnings were adversely impacted by company-owned life insurance returns, reducing earnings by $0.28 per share. On the positive side, we're able to increase our dividend for the 14th straight year in a row. For our regulated utility operations, we saw continued strong customer growth over the past 12 months of 1.6%, allowing us to add 33,000 net new customers. We saw utility operating margin increased by $14 million for the quarter. We filed a Nevada general rate case application that Justin Brown will overview later in this call. And we saw our state utility commissions take supportive regulatory actions to acknowledge the increased cost of business associated with COVID-19. And at our unregulated Centuri infrastructure services segment, we saw revenues for the quarter increased by $21 million, expenses increased by $19 million and the aggressive adoption of new safety practices and policies to protect our employees and customers from COVID-19. On Slide 5, we provide an outline for the substance of today's call. First, I will provide a brief update on the company's response to the challenges presented by the COVID-19 health issue. Greg Peterson will follow with an update on our financial results with segment breakout for our regulated and unregulated operations. Justin Brown will provide an update on our various regulatory activities, and I will close with an update on customer growth, rate base growth, dividend growth, our sustainability efforts and expectations for 2020 and beyond. Moving to Slide 6. During the COVID-19 challenge, we all are, of course, focused on maximizing the health and safety of our employees, our customers, our contractors and supporting the communities we serve. For our employees…

Thanks, John. Let's begin with the summary of total company operating results on Slide 9. For the first quarter of 2020, consolidated net income was $72.5 million or $1.31 per diluted share compared to $94.8 million or $1.77 per diluted share for the first quarter of 2019. Of the $0.46 per share reduction between quarters, $0.42 was due to temporary changes in the cash surrender value of the company-owned life insurance or COLI policies. For the 12 months ended March 31, 2020, net income was $192 million or $3.50 per share compared to net income in the prior year period of $198 million or $3.91 per share. Temporary COLI changes between 12-month periods totaled $10.8 million or $0.20 per share. Next, we'll take a detailed look into each segment, starting with the quarterly comparison of natural gas operations on Slide 10. Net income for natural gas operations declined $19.8 million between quarters due to a $26.5 million decrease in other income. Temporary changes in the cash surrender values of COLI policies resulted in a $15.5 million noncash loss in the first quarter of 2020, while the first quarter of 2019 reflected COLI income of $7.6 million. Both results were primarily due to significant volatility in the overall stock market underlying the policies, including the COVID-19-influenced 20% decline in the S&P 500 during the first quarter of 2020. At March 31, 2020, COLI cash surrender values totaled $117 million, while the face value of the associated life insurance policies is about $240 million. Currently, approximately 2/3 of our COLI policy cash surrender values fluctuate based on the broader stock market. Based on the market close yesterday, it's estimated that about 1/2 of the loss reflected in Q1 of this year would already have been recouped. Operating income for utility operations include…

Great. Thanks, Greg. Starting on Slide 15. It provides an overview of our $93 million rate case in Arizona, including a summary of the various positions on certain issues. We've completed all rounds of testimony and participated in a procedural conference yesterday, where the administrative law judge set a hearing date for June 29. With the hearing date being set for June 29, we would anticipate a draft ALJ decision within 60 to 90 days following the hearing, depending on the timing of any post-hearing briefing that may or may not occur. As such, we would expect to see a draft decision as early as September and possibly October. Turning to our $12.8 million California rate case on Slide 16. Since our last call, we received the Public Advocates Office testimony and a summary of their positions are included on this slide. The primary differences in our positions really boil down to 2 issues: difference in recommended ROEs and a difference of opinion on 2 capital-related issues that were projected as part of our future test year. We are now preparing rebuttal testimony that is due next week, and then we will turn our attention to preparing for hearing, which is currently scheduled to begin June 3. We also have a settlement conference scheduled for next week with the Public Advocates Office to begin discussions to see if there is a path forward short of proceeding to hearing. We do not currently anticipate any delays in this case. Turning to the next slide. With respect to our $38 million Nevada general rate case, which was filed at the end of February, we are currently in the midst of responding to discovery requests. The commission held a scheduling conference hearing last month, setting the hearing for August 17, and we would…

Thanks, Justin. Moving to Slide 22. We displayed some metrics illustrating the quality of our stable and growing customer base, 85% of the operating margin at our utility operations comes from residential and commercial customers. We have decoupled rate structures across all 3 states we serve, which covers 85% of our utility margin, and we continue to see strong customer growth, having added 33,000 customers over the past year with expectations of seeing additional 1.6% growth rate this year. Turning to Slide 23. We show our capital expansion plan for the next 3 years. We plan to invest $2.1 billion over the reference 3-year period to serve continuing customer growth as well as enhance the safety and reliability of our gas distribution systems. We anticipate approximately $675 million will be invested this year and that the funding for those investments will come through a combination of internal cash flows, along with the balance of debt and equity issued through our ATM program. On Slide 24. Additional details on funding of our ongoing investments and capital is provided. As indicated on this slide, we anticipate issuing $500 million to $700 million of equity and $500 million to $700 million debt, with an additional $1.1 billion to $1.3 billion provided by utility cash flows from operations. Moving to Slide 25. Our continued significant investment of capital ultimately translates into significant rate base growth. We anticipate rate base growth will grow from $4.1 billion to $6.2 billion over the 5-year period ended December 2024. This growth constitutes an 8.6% compound annual growth rate over that period. Turning to Slide 26, a significant continued growth in our dividend is illustrated. In February, our Board of Directors authorized an increase in our dividend to an annual rate of $2.28 per share. Our dividend has experienced…

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 its 2 business segments. These slides can be reviewed at your convenience. Our operator, Julia, will now explain the process for asking questions.

[Operator Instructions]. Your first question comes from the line of Aga. I'm sorry, he disconnected Chris?

It's Chris from Jefferies. Well, thanks for the update today. I wanted to hit on a couple of things, if I could. John, you guys have affirmed the capital plans at the utility. I'm just wondering, and I don't know if this is for you, Greg. What effects COVID would have on diminishing -- it diminished your year-to-date activity at Centuri, you've talked about that. But just as you're thinking about the capital budget there, is that something you think you can make up? Or should we anticipate a lower level of spend at Centuri this year?

I think that our capital expenditure plans remain on track, Chris. One of the things that I would also say and we've talked about this before. But a lot of times, we look at Southwest Gas as being a bit of a microcosm of what gas utility customers across the nation are looking to do. And when I am personally on calls with the American Gas Association and we're talking about issues impacting the utilities, including COVID-19, of course, and how utilities are responding to that, I don't hear people talking about throttling back on their capital expenditure plans. Have there been a couple of issues that result from COVID-19 that requires some additional personal protective gear, have you had some governmental agencies perhaps close down for a few weeks or months, that may have slowed down some permitting. Things like that, I think, have been happening. But I think as you look forward towards the end of the year, we don't really see a lot of difference in what we're doing. And I don't hear a lot of difference from the folks that I talked to at AGA and seeing that at other gas utilities. So I think we are on track.

Okay. And then I guess a related point, you kind of raised it. But Justin noted the efforts to create regulatory assets in the hope of recovering some of the COVID-related or COVID-specific spending at the utility level. I'm just curious to the extent that additional PPE or slower activity at Centuri due to distancing measures causes higher costs for you to deliver what you would ordinarily deliver on the infrastructure services side. Do you have reopeners in your contracts to absorb things like that, which might stem from governmental mandates or just unforeseen events like the ones we've seen?

Yes. Chris, we haven't had any -- at Southwest Gas, we haven't had those discussions with Centuri just yet. I know that Centuri has had those discussions with several of their other clients. I think that, that's certainly going to be something that we'll be talking to them about. We want to make sure for our customers that we get the best cost we can for the infrastructure investments that we make, but we also realize that with the multiple contractors that we have that we want those folks to be in business for a long time to come and to have some healthy competition amongst each other. So it will be something that we're sensitive to, and we'll be looking at that on a case-by-case basis as we have those discussions with our contractors.

Okay. Okay, great. And then a final question for me, and just it's maybe split into 2 parts, but it pertains to your guidance. The maintenance of the operating income at the utility, but reduction in operating margin sort of indicates that there's an ongoing O&M pickup. I think, Greg, you mentioned some of the O&M savings in the first quarter. I'm just wondering the anticipation for the full year, is that a correct lead? And maybe some of the drivers there, if different, than what you experienced in the first quarter? And then secondly, it looks like with some of the other reductions, John, reduction in growth rate at the customer accounts, a small hit to the Centuri growth rate in terms of revenues. I know there's some offset with the interest expense there. And it looks like based on the slide Justin has for the Arizona rate case that maybe it's slightly later implementation date this year than maybe what you were forecasting in the last earnings presentation. Is it safe to assume that maybe the range is the same, but internally, where you're forecasting to be within that range might be a little bit lower?

Chris, this is John. Let me start responding to that, and then I'll turn it over to Greg. I think it is too early to come to that conclusion. Frankly, that was one of the things that we were closely looking at as we approached this call and our earnings release, and we're looking at the opportunities we had for offsetting measures. And we did think about what kind of additional color we may have to put on that. But when we looked at the cost consequences, what we saw for continued growth, et cetera, we didn't think it was necessary to make that kind of delineation. So I would say that it's still early in the game, so to speak. But when we look at the experience that we're seeing at the company for both business segments, frankly, they both seem to be fairly resilient. So we're making sure to keep our pulse on those issues, both the growth and the cost-containment options as we continue to move forward in the months ahead. Greg, you want to add some additional color on that?

Yes. Certainly, John. Chris, as you've mentioned, we have taken the utilities margin growth and kind of widened that range from 4% to 5% down to 3% to 5%, and you correctly pointed out, I think, I did talk a little bit about that, that we are managing O&M. That is one of the levers that we can pull to ensure that our operating income at the utility is maintained at the level that we anticipated it to be. So yes, I think that O&M will be either not growing as fast or maybe even flat compared to the prior year. We'll just have to watch and see. It really will be a function of what happens on the top line and the timing of our rate case relief recoveries. We obviously have a huge CapEx program that we're continuing at the utility. And so depreciation is certainly going to rise in proportion to that incremental activity. But we do think we've got all the levers in place to keep the guidance where we had established earlier this year.

Okay. And Greg, maybe just one quick follow-up to that. The O&M savings, if you will, that you're maybe able to achieve here versus what you were originally forecasting when you put together the budget initially. Do you think those are sustainable savings? Or are those sort of a response to the environment right now that you -- John mentioned no essential -- nothing but essential travel, things like that, that maybe get relaxed later? Or is it something you think that maybe creates a permanently lower cost structure?

Yes. This is Greg, again. I think it's going to be a mix of those items. As you mentioned, certainly, no one here at the company is traveling anywhere, although I would expect that as restrictions are eased and that becomes more, again, a normal part of business environment. But we will continue to do that to make sure that we maintain relations with the analysts such as yourself, with the rating agencies, with our customers throughout the nation. And so some of those costs will come back. We have been very pleased with some of the savings that we've recognized from some of the work-at-home environment that our folks have been doing and have found that, that is a practical solution in many cases to what we're doing here at the company. So some of those, I guess, in summary, some of those cost savings will carry over into the future, but some will return to more normal levels as the economy normalizes again.

Your next question comes from the line of Stephen D’Ambrisi. Stephen D’Ambrisi: Glad to hear that you guys are all staying safe. I just had a quick question -- or 2 quick questions. I guess the first one is about the rate case getting pushed out. I think the original expectations were like in early 2Q for an order. And now you're talking, it sounds like about mid-3Q from Justin's commentary. So that's like a 4- or 5-month delay. Can you just give us a little bit of a flavor about how much revenue those 4 or 5 months would have represented relative to the $93 million ask that you guys had?

Yes, Stephen, it's Justin. I don't think it's that long of a delay. I think it's probably more in the 60- to 90-day time frame is kind of where we were always projecting. It was more of kind of a summer decision, and now it's maybe early fall, mid-fall. And so that's, in essence, I think, kind of what we're looking at. And then I think from a revenue standpoint, I think, again, based on the ask, you can just kind of probably closely divide that by 12, I guess, it's kind of depending on what position you want to look at the parties to kind of figure out that number. Stephen D’Ambrisi: I just wasn't sure if it's seasonal at all, but okay, not just about...

Yes. It is a little bit, but not too much with the decoupling mechanisms that we have in place. For the most part, we've been moving more to a little more levelized throughout the year. So I would say for ballparking it, you're probably okay with the 12. Stephen D’Ambrisi: That's helpful. Okay. Great. And then just on the COLI, I get -- I guess, kind of what the reiteration of the $3 million to $5 million. But can you just walk me through -- so it's down $16 million in the quarter. You got -- sounds like you got $8 million of it back in 2Q to date. So what does the market need to do, like whatever rebound from current levels do we need to see in order to get to the midpoint of the $3 million to $5 million in COLI earnings?

Yes, Stephen, this is Greg. I don't know that I'll try and predict exactly what does the market either needs to do or may do. But as I indicated, our cash surrender value, which was about $117 million at the end of the first quarter, about 2/3 of that is subject to stock market, the broader stock market fluctuation. So I think you can do some math there and realize what kind of returns need to happen in the market to bring it back up to normal levels. We don't need a dramatic increase in the stock market from where it was at year-end 2019, but it does need to come up from where it's at now.

[Operator Instructions]. You have no further questions. I'm sorry, you do have a question from -- is it Aga?

As a follow-up, maybe to Chris' question on gas utility O&M. You mentioned that maybe some costs will be more sustainable. So do you think going forward, maybe we should expect that the O&M growth will be lower than your prior kind of long-term guidance, I think, of 2% to 3%?

Yes. Aga, this is Greg. I don't know that we, over the long term, would think that it will be lower than it has been. We are certainly mindful of the environment that we're in right now, and we are certainly implementing, and we'll look at continuing to implement policies that will help us maintain an appropriate level of profitability. And some of that does include the deferral of filling positions and such and that is a deferral mechanism, which means that it will ultimately need to be done. So I think overall, our long-term growth levels in O&M are going to be fairly consistent with where they've been in the past. It's just a little bit of a lower level this year and some, but not all of that will come back in future periods.

And as you look at the impact of COVID-19 on your guidance, is there any range that you kind of calculated based on the scenarios that you look at that you could help us understand how we should think about the impact on different segments?

Yes. Aga, this is Greg, again. Yes, I don't know that we're quite in a position to try and identify or delineate what the COVID-19 impacts might be on us. We've taken that into account and setting the guidance and reaffirming the guidance of $3.75 to $4. and we're looking at other measures to make sure we keep in that range. But there's still a lot of unknowns at this time, and we are working in that environment as we get more knowledge and as we watch the economy, both here in our 3-state service territory as well as throughout the nation as it relates to the Centuri open back up, that will give us a little more clarity, and we will certainly, at a future conference call, share our thoughts at that time.

And last question on the timing on equity issuances. You still have that in your program for this year. So how will you manage the timing of equity issuances?

Yes. This is Greg. Yes, we will certainly look at the markets. I think as people looked early on in the first quarter, late in the first quarter, there was a little concern that we might be in an environment similar to the 2008, 2009 financial crisis, that is not the case. And so we are going to be judicious in how we issue stock. Obviously, as you can see in our quarterly report, we did not issue any stock under the ATM program in the first quarter. Hence, our adjustment to our longer outlook for 2020 of $150 million to $200 million. So we will watch the market, and as we find it appropriately priced with our stock, we will continue to issue under that program.

[Operator Instructions]. You have no further questions.

Okay. Thank you, Julia. This concludes our conference call, and we appreciate your participation and interest in Southwest Gas Holdings, Inc. Please all be safe and stay well. Thank you.

This concludes today's conference. You may now disconnect.