Southwest Gas Holdings, Inc. (SWX) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Southwest Gas Holdings' 2020 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Ken Kenny, Vice President of Finance and Treasurer. Please go ahead.

Thank you, Jonathan. Welcome to Southwest Gas Holdings, Inc. 2020 second quarter earnings conference call. As Jonathan 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 link. We 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 the Company's operations and earnings ended June 30, 2020, and reaffirm our earnings per share guidance for 2020. 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 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 all that said, I would like now to turn the time over to John.

Thanks, Ken. Turning to Slide 4, taking a look at our 2020 highlights. For the second quarter of this year, Southwest Gas Holdings realized earnings per share of $0.68. Approximately $0.22 of the quarterly earnings per share result accrues from gains on company-owned life insurance totaling $12 million. For our regulated utility operations, we saw 36,000 first-time meter sets added over the past year, a $5.7 million decrease in operations and maintenance expense. We issued $450 million of new debt at a very attractive 2.2% interest rate, and we filed a settlement in our ongoing California general rate case filing. At our unregulated infrastructure services group, we realized record second quarter net income of over $26 million, a 55% increase in electric service revenues, a total revenue increase of $41 million, and our operating income increased by 30%. Moving to Slide 5. We present an outline for today's call. Greg Peterson will present details of our financial results for the period ending June 30, including segment breakout for our regulated and unregulated operations. Justin Brown will overview activity in our many regulatory proceedings, and I will close with updates on COVID-19, customer growth, capital expenditures, dividends, sustainability efforts and our expectations for 2020. With that, I will now turn the call to Greg.

Thanks, John. Let's start with a summary of total company operating results on Slide 6. For the second quarter of 2020, consolidated net income was $38 million or $0.68 per diluted share compared to $22.1 million or $0.41 per diluted share for the second quarter of 2019. In addition to solid improvements in operating income for both segments, consolidated revenues and consolidated results for the current quarter were aided by a $12 million or $0.22 per share increase in the cash surrender values of company-owned life insurance or COLI policies compared to a $3.4 million or $0.06 per share COLI increase during the last year's second quarter. For the 12 months ended June 30, 2020, net income was $208 million or $3.76 per diluted share compared to net income in the prior year period of $199 million or $3.82 per share. The COLI influence during the current 12-month period was $2.9 million or $0.05 a share, while in the prior year period, it was $6.5 million or $0.12 per share. Let me touch on some highlights by segment in the next couple of slides, starting with the quarterly comparison of natural gas operations on Slide 7. Net income for natural gas operations increased $8.5 million between quarters. The waterfall chart shows the major components. The $1.4 million overall margin increase reflects a $2.5 million contribution from customers associated with the 36,000 first-time meter sets and $400,000 of rate relief in California, somewhat muted by about $2 million in suppressed late fees to help customers during the COVID-19 challenge. The $5.7 million decline in operations and maintenance or O&M expenses reflects the reduction in travel and in-person training as well as management initiatives to contain costs, including deferral of various planned projects and delayed hiring of incremental and replacement personnel. Bad debt expense was only up about $100,000 during these warmer shoulder months compared to last year. Our customer service representatives continue to assist customers by identifying outside sources of health and offering extended payment plans to assist them at this time. The $4.1 million increase in depreciation, amortization and general taxes was driven by a $684 million or 9% growth in average gas plant in service as we continue to expand and reinforce our distribution system. The increase in other income shown on the slide reflects incremental COLI improvements this quarter as the overall stock market, which underlies approximately two-thirds of the cash surrender values of our policies, rebounded sharply from the significant declines experienced during the first quarter of 2020. Based on the market close yesterday, it's estimated that COLI values are now positive on a year-to-date basis. Next, let's go to Slide 8 and discuss Centuri's quarterly results. As John mentioned in his opening remarks, Centuri, our utility infrastructure services segment, recognized record second quarter earnings of $26.3 million, a $7.4 million increase over the prior year. Electric infrastructure services revenues were up an amazing 55% compared to the prior year quarter and was the main driver of an overall revenue increase of $40.5 million. Included in this revenue growth was approximately $7.3 million in storm-related electric services. If you'd like, please refer to Slide 44 in the appendix of this presentation for a listing of some of our major utility customers who rely on Centuri companies to help them replace, improve and expand their energy distribution systems. Infrastructure expenses increased $28 million between quarters due to the incremental work noted, partially offset by increased productivity and efficiencies on electrical infrastructure projects and a favorable mix of main line versus services replacement work. $3.4 million in wage subsidies from the Canadian government amidst the COVID-19 environment also mitigated incremental expenses associated with enhanced safety protocols and social distancing inefficiencies. The $3 million increase in depreciation and amortization was primarily due to incremental depreciation associated with equipment needed for expanded operations. Slide 9 shows the relative contributions by our two business segments during the 12 months ended June 30, 2020. As you can see, natural gas operations provided nearly three-fourth of our consolidated net income, while Centuri's utility infrastructure services group provided a little more than one-fourth. This general pattern, plus or minus 2%, is expected to continue. Slide 10 depicts the component changes in natural gas operations income between 12-month periods. The $40 million improvement in the operating margin includes $13 million from customer growth and $7 million in combined rate relief in Nevada and California. The prior year period included a one-time unfavorable $5 million tax reform adjustment associated with the Arizona decoupling mechanism. The remaining increase in operating margin includes incremental recoveries of regulatory assets, of which approximately $10 million is correspondingly reflected in amortization expense. There were also various miscellaneous revenues. The $6.1 million or 1% increase in O&M includes incremental expenditures for pipeline damage prevention programs and higher legal claims experience, partially offset by lower training and travel costs that I mentioned previously as well as the cost curbing measures, including delays in planned staffing increases. The $26.8 million increase in depreciation and amortization and general taxes reflects the impact of a $651 million or a 9% increase in average gas plant in service plus the $10 million increase in regulatory amortization I previously noted. The $7.7 million decrease in other income primarily relates to changes in COLI cash surrender values between periods. The current 12-month period reflects a $2.9 million increase, while the prior year period included $6.5 million of COLI income. Interest income on regulatory balances receivable also declined $1.9 million between periods. The $8.9 million increase in interest expense is primarily due to $300 million of debt issued in May 2019 to support the continued expansion and fortification of our distribution system. The $8.8 million reduction in income taxes was primarily due to lower state income taxes due to apportionment changes and $1.2 million in amortization of excess deferred income taxes following U.S. tax reform, which reduces tax expense. The major components of the 12-month change in our utility infrastructure services segment are reflected on Slide 11. This slide shows the components of the $10 million increase in Centuri net income between 12-month periods. Revenues increased $178 million, including $165 million of incremental revenues from Linetec, which we acquired in November 2018. Utility infrastructure services revenues also grew with existing customers due primarily to additional pipe replacement projects across the U.S. and Canada, partially offset by non-routine customer-requested support in 2018 and early 2019 during strike-related and emergency response situations that did not recur in the current period. Infrastructure expenses were $141 million higher than the prior year period, primarily due to an incremental of $138 million for Linetec operations and greater operating expenses to support revenue growth. The prior year period included $6.9 million of deal costs associated with the Linetec acquisition in 2018. Gains on sale of equipment, which are reflected as an offset to infrastructure expenses, were $4.9 million in the current period and $2.3 million in the prior year period. Depreciation and amortization increased $21.5 million, primarily due to $15.5 million of incremental amounts associated with Linetec operations as well as depreciation on additional equipment purchased to support a growing volume of work. And lastly, the $4.1 million increase in income tax expense primarily reflects the higher pretax earnings. For the 12 months ended June 30, 2020, Centuri operations contributed $57.6 million in net income toward our consolidated results. With that, I'll now turn the call over to Justin Brown for a regulatory update.

Thanks, Greg. Slide 12 provides an overview of our $90 million rate case in Arizona, including a summary of the various positions of the parties. Just prior to hearing, we were able to reach a stipulation with the parties to continue the COYL program and on the appropriate amount of time period for amortizing certain excess deferred income taxes, including the implementation of an adjuster mechanism for any future income tax changes. The hearing was conducted virtually, and it concluded July 10. We're now in the legal briefing stage, which will continue through September 14, after which we'd expect to see a recommended opinion and order from the ALJ within 30 to 60 days with new rates before the end of the year. Turning to our California rate case on Slide 13. We reached a settlement agreement with the Public Advocates Office, resulting in a revenue increase of $6.4 million, including an ROE of 10%. We also agreed to continue our annual attrition filings, which will allow us to adjust revenues by 2.75% annually. Two other very important components of the rate case include the approval of our proposed risk-informed decision-making programs, which will allow us to invest up to $119 million over the next five-year rate cycle on safety measures to ensure continued safe and reliable service for our customers. And we'll also be able to recover these costs annually through a surcharge. In addition, we agreed to remove a large replacement project in North Lake Tahoe from the base rate request. And instead, the parties agreed to simply recover the costs annually as segments of the project are completed. This was originally estimated as a $60 million project, and we included about $30 million of it as part of our future test period in the original filing, which accounted for nearly $4 million of the original $12.8 million proposed efficiency in the case. The proposed settlement agreement has been submitted to the California Public Utilities Commission for review and approval, and we expect a final decision before the end of the year. With respect to our $38 million Nevada general rate case on Slide 14, we will be filing rebuttal testimony later today, responding to the direct testimony of the other parties in the case. As you can see on Slide 14, not much differences on rate base, with the primary difference in the position of the parties being recommended our return on equity. We are currently scheduled to hold a virtual hearing beginning August 17, and we expect a final decision before the fourth quarter. Turning to Slide 15. As previously mentioned, we reached a black box settlement on our Paiute rate case that will slightly reduce the existing cost of service based upon a stated pretax rate of return of 9.9%. In addition, the parties agreed to continue the term differentiated rate design, and both transportation and LNG storage customers agreed to five-year contract extensions as part of the settlement. The proposed settlement was recently approved by FERC without modification. Turning to Slide 16 and a quick update on several expansion-related projects. In Southern Nevada, we continue to make progress on our $28 million expansion project in Mesquite, in line with our expectations. In Northern Nevada, since receiving approval to proceed with our $62 million SB 151 Spring Creek proposal, our contractor has started construction with some initial clearing work in the right-of-way. We've also started our customer outreach. And thus far, nearly 100% of all customers who have been approached about signing up for natural gas service have accepted. We are still on track for serving our first customers this year. Turning to Slide 17. Another important focus at Southwest Gas has been working with stakeholders on various sustainability initiatives, including partnering with key stakeholders on compressed natural gas and renewable natural gas opportunities. We currently have two proposals pending in Arizona to build facilities to allow renewable natural gas suppliers to interconnect with our distribution system. One is a dairy farm, and the other is a wastewater treatment facility. In California and in Nevada, we now have the ability to begin purchasing renewable natural gas as part of our gas supply portfolio in both states. And we have begun the process of working with both customers and our gas supply team to pursue RNG resources. Lastly on Slide 18. Slide 18 highlights the various supportive regulatory treatment we have received for COVID-19. We have orders in California and Nevada authorizing us to track the financial impact associated with COVID-19 and to present them to the commissions at a future date for possible recovery in rates. In Arizona, the commission ultimately decided not to issue a blanket accounting order, but rather indicated a willingness to entertain individual utility requests for either an accounting order or proposals for cost recovery in a future rate case. Our plan is to likely address these impacts in the context of a future rate case. And with that, I'll turn it back to John.

Thanks, Justin. Moving to Slide 19. Probably the biggest top-of-mind issue in the country continues to be the coronavirus pandemic and how it is impacting families and businesses. As an essential services provider, the safety of Southwest gas customers, employees and contractors is our number one concern. Several months ago, we implemented work-from-home policies for both business segments, increased the use of personal protective equipment and are practicing social distancing. We also are mindful of the adverse economic impact being felt by many of our customers and have temporarily suspended late fees and disconnections for nonpayment and are working with customers in need to coordinate access to programs providing utility bill payment support. On Slide 20, we are also working with community leaders and have increased community financial support with additional funding from the Southwest Gas Foundation. We are closely monitoring the financial impact of Southwest Gas operations and see that utility margin under decoupled rate designs remain strong. As previously mentioned, demand by utilities for Centuri's infrastructure services also continues impressively. We will continue to monitor the impact of utility uncollectible expense, although we've generally been pretty successful offering customers deferred billing arrangements, matching customers up with state and local financial support. And also keep in mind that gas utility companies are in the low billing part of the year, where our Arizona and Southern Nevada customers are experiencing average monthly bills of around $20. Turning to Slide 21. Growth continues to be strong. As I mentioned earlier, we realized first-time meter sets of 36,000 over the past 12 months and expect to realize a similar number at the end of 2020. Residential home construction continues to be strong and existing home inventory relatively low. New customers are being added across three different states, each of which provides decoupled rate designs for our customers. On Slide 22, we believe the Desert Southwest will continue to be a desirable place for people and businesses to relocate to. Multiple large business expansion projects are underway or planned for our service territory. Large projects from defense contractors, technology providers, transportation companies and entertainment entities are expected to drive continued prosperous growth in our service territory for years to come. Moving to Slide 23. We feature several quotes from regional experts on growth in our service territory. As previously mentioned, new home construction in the states we serve continues to be astonishingly strong, coronavirus notwithstanding, with new customer growth expected at 36,000 new meters for 2020 by year-end. Turning to Slide 24. Another quantitative perspective on our robust growth environment is demonstrated by new home permits issued in Phoenix, Las Vegas and Tucson for the first six months of this year. Despite the economic challenges presented by coronavirus, new home permits issued this year actually exceed the number issued in last year's prosperous economy. On Slide 25. As is the case for Centuri's utility customers across the country, Southwest Gas continues to invest in its gas distribution system to enhance safety and reliability and serve new growth. This year, we anticipate investing $700 million in capital, with that number totaling $2.1 billion for the three-year period ending in 2022. 50% of these investments are expected to be financed from internal cash flows, with the remaining 50% being funded through a mix of debt and equity issuances. Moving to Slide 26. Additional detail on capital funding is shown with the addition of our payout of dividends, which increases our total funding needs to approximately $2.4 billion over three years. On Slide 27, the need for investments increasing the safety and resiliency of our gas distribution systems ultimately culminates with increases in rate base. We anticipate rate base increasing from $4.1 billion at the end of last year to $6.2 billion by the end of 2024. This increase in rate base represents an 8.6% compounded annual growth rate over the five-year period ending 2024. Moving to Slide 28. Southwest Gas Holdings has a strong liquidity position. Our capital expenditure and working capital needs are supported by strong operating cash flows, a $400 million credit facility and a $50 million commercial paper program. As of June 30, we had zero loans outstanding and full availability of our credit facility and available cash of $190 million. $125 million of our cash reserves will be used to redeem 4.45% notes next month. Turning to Slide 29. We show the history of our dividend growth. Dividends are a very important part of our shareholders' total shareholder return. Earlier this year, our Board of Directors approved increasing our dividend to an annualized $2.28 per share. Our latest dividend increase constitutes a compound annual growth rate in the dividend of 7.1% over the past five years. On Slide 30. As Justin mentioned earlier, sustainability is core to the business strategy of Southwest Gas Holdings. We have committed to achieving a 20% reduction in greenhouse gas emissions from our utility fleet and facilities by 2025. We are partnering with fleet operators throughout our service territory to facilitate the increased use of clean burning natural gas and displace use of both gasoline and diesel fuel. And we are working with a variety of businesses, as Justin mentioned, such as dairy farms and wastewater treatment operators in our service territory to help bring increased supplies of renewable natural gas to end use customers. Moving to Slide 31. We believe we have a strong and disciplined business strategy at Southwest Gas Holdings with two separate business segments that have great prospects for continued growth. At our regulated natural gas operations, we expect continued investment of capital and rate base growth, continued growth in customers, continued focus on cost controls and affordable bills for our customers, expanded opportunities for energy efficiency and decarbonization of supplies, constructive results from our many regulatory proceedings and continued growth in earnings and dividends. For our unregulated Centuri infrastructure services group, we will continue to focus on operations execution excellence, cost control and resource optimization, cross-selling of services to combination utility customers, increasing profitability and dividends and providing a source of cash for our regulated operations. Turning to Slide 32. We affirm the earnings guidance range that we provided earlier this year. For 2020, we expect to earn between $3.75 and $4 per share. We will continue to monitor and manage the impacts of COVID-19, which can impact the timing of general rate case results, utility customer growth rates, changes in operations and maintenance expense, capital investment by Centuri's utility customers and incremental costs associated with ensuring the maximum health and safety of our customers and employees. On Slide 33, we provide some further detail on our 2020 expectations of line item guidance for our regulated and unregulated operations. For our regulated utility operations, we expect margin to increase by 3% to 5% due to continued customer growth expectations of 1.6% this year. Operating income should increase by 3% to 5%. Pension costs are expected to increase by $13.6 million due to lower discount rates measured at year-end, partially offset by asset performance. Approximately $5.2 million of the increase is reflected in other expense. We assume normalized COLI returns of $3 million to $5 million. As I mentioned earlier, we continue to have a three-year capital expenditure budget of $2.1 billion, with $700 million of that expected to be invested this year. And to help fund our capital expenditures, we expect to issue between $150 million and $200 million through our ATM program. At our Centuri infrastructure services business segment, we expect revenues to increase by 2% to 7% through organic growth. Operating income is expected to be 5.5% to 6% of revenues. Interest expense should total $10 million to $11 million. And please keep in mind, net income expectations are net of approximately $5 million of non-controlling interests, and the fluctuations in Canadian exchange rates can influence results. On Slide 34, we affirm our longer-term expectations. Equity issuances at the parent should total $500 million to $675 million over the three-year period ending 2022 with a targeted dividend payout ratio of 55% to 64%. At our regulated utility segment, capital expenditures are expected to total $3.5 billion over the five-year period ended 2024 with rate base growth over the same period expected to grow at a rate of 8.6%. And at our Centuri unregulated operations, revenues are expected to grow at an average of 5% to 8% annually through 2020, and Operating income is expected to be 5.5% to 6.5% of revenues over that same period. And then finally, on Slide 35, we believe Southwest Gas Holdings has two solid utility-focused business segments that are well positioned for strong growth for years to come. We believe that for the three-year period ending 2022, regulated operations should contribute 73% of net income, plus or minus 2%, with unregulated operations contributing 27%. Our regulated operations are expected to experience continued strong customer growth, additional rate base and will be focused on continued capital investment to enhance safety and reliability and serve new growth. At Centuri, we believe we have a premium quality, cash flow positive business, where 93% of revenues come from regulated utility customers with whom we have long-term relationships and attractive lower-risk contractual arrangements. With that, I'll return the call to Ken.

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

[Operator Instructions] Our first question comes from the line of Richard Sunderland from JPMorgan. Your question please.

Good morning. Thanks for taking my question today.

Good morning.

Just looking at your 2020 guidance. Year-to-date results seem to imply a fairly low bar to the back half of the year to meet that range. Curious what puts and takes we should consider for the balance of 2020 here and maybe where you see results tracking in the range now.

This is – Richard, Greg. I think one of the big things that we have going on is there's still some of the uncertainty, Justin could certainly respond to this, about the timing and amount of rate relief. We are certainly in the middle of three general rate cases, one of which we are in the process of settlement. And we certainly still have some expectations for the rest of the year that some of our costs, especially on the O&M side of the utility, will start to go back up as we get more out of this COVID environment and people can start getting back together with some training and travel that's been delayed as well as some staffing.

Okay, fair enough. So could appreciate that on the utility side, but maybe just following up here in terms of Centuri. There were a couple of different items contributing to the strength this quarter. And it seems like some of those could persist, at least for now or maybe through the balance of the year. Do you have any insight into those recent trends in terms of work mix, and if you expect those to continue or revert at some time?

This is Greg again. I think for Centuri, they certainly have enjoyed, as we indicated in our quarterly report, a favorable mix of work due to the COVID-19 environment. It pushed a little more of the work that's generally separated into mains and services, probably a little more heavily on the mains side. Much like a lot of things, in the ultimate end, those things will need to revert back, the timing of which I don't know that we can really say. There certainly was some beneficial tailwind with the Canadian government providing some subsidies. We don't really expect those to continue in the future, but are appreciative of the ones that we received. But otherwise, it is expected to be a very strong second half of the year for Centuri. But we are watching and following along and will again expect good results. But some of those tailwinds that we received are not likely to continue or not at the level that they were in Q2.

Got it. Thanks for the color. I'll leave it there.

Thank you.

Thank you. Our next question comes from the line of Aga Zmigrodzka from UBS. Your question please.

Hello. I just wanted to follow up on kind of the Arizona rate case. So it looks like the final decision is now expected in 4Q. Is there a risk that the new rates will be delayed to 2021? And could that push you to the maybe lower end of the guidance?

Hey, Aga. It's Justin Brown. Yes, that a possibility on – again, we're basing things based on our historic experience where once it gets submitted to the ALJ, usually, we'll see something within 30 to 60 days. I also know that there's two open meetings currently scheduled in early – one in early November, one in early December. So I think based on those factors, I think it's reasonable to think that we should be on one of those. But again, it's – to a certain degree, it's out of our control in terms of the processing from the ALJ and ultimately what gets put on those agendas. But I think based on our past experience there. We anticipate that we should be able to make one of those open meetings.

Perfect. And then your utility CapEx for this year was increased modestly. What were the main drivers?

This is Greg, Aga. I think one of the drivers was the – a little higher customer growth. As John mentioned at the outset 36,000 first-time meter sets, we've seen continued strong growth, especially in the Phoenix market, but throughout our service territories, so some of it was in that. And some of it was just working on some of our regular maintenance and facilities things that we had planned to do, and the timing just seemed to be beneficial to do it this year. So we moved towards the upper end of that previous $650 million to $700 million. And we expect that for the year, it will be right around that $700 million mark.

Perfect. And what could be the potential impact on Southwest if we see a second wave of COVID-19 in the fall? Is that something that you incorporate in the guidance?

Hey, this is John. I think that we really have had very successful implementation of our business continuity plans. Right now, we actually have extended our work-from-home policies until the end of the year. Certainly, we see a lot of things on the horizon, some discussions of the potential for a vaccine, et cetera. But I think that while it's been challenging and while we have incurred some increased costs, as Greg mentioned, we have tried to control costs aggressively. So if we see that come up again, I think we're just going to have to stay vigilant to make sure that our employees stay healthy, that we're protecting our customers and that we're going to be able to continue to provide the essential gas services that our customers need, especially given the number of residential customers and the fact that a lot of those folks are spending a lot more time at home. So I would expect continued smooth operations. And hopefully, we can get through this challenge as soon as possible.

Thank you for the color, and stay safe.

Thank you.

Thank you. Our next question comes from the line of Chris Ellinghaus from Siebert Williams. Your question please.

Can you give us a little color on why Centuri's electric revenues were so strong? Was it just the Linetec acquisition? Or is there – was there some special circumstances or storm restoration for the quarter?

Chris, this is John. I'll start off and then maybe see if Greg wants to add any color onto it. But certainly, you hit it right on the head with the acquisition of the Linetec group. And remember from our previous discussions that not only did we acquire that entity and continue at the size that it was before, but we invested significantly in that business to expand those operations. So the dramatic increase in electric service work was primarily related to the acquisition and the growth of the Linetec business since we acquired it. And there will be some continued storm work. And I'm sure you've seen that the news, some of the storms that have been coming in recently, but it's primarily related to Linetec. Anything else, Greg?

I think that's a good point. We did talk about that a little bit in the Q that storm work was a partial benefit there. And in fact, as John mentioned, there are storms all up and down the East Coast and the South Coast areas. And we do have some crews deployed to the extent that we need to and are asked by our utility customers there to perform, we will certainly do that. But Linetec growth has been great. I mean, they've done well, and that was exactly what we were looking for when we made that acquisition in late 2018.

Would it be fair to say that if the projected hurricane season is significant as they say, that, that could be a tailwind?

Yes. I think we don't – we certainly don't want to count and we don't want to hope for anything bad like hurricanes coming through. But certainly, to the extent that we're asked by our customers to go help them with restoration efforts, we will go do that. And in general, some of that work is a little more profitable than the general work that we do. So yes, there could be some tailwinds there. But with or without, I think we'll have a good strong year for

Okay. Can you give us any sense of what kind of traction you're getting on cross-selling with your pre-existing customers?

Yes. As you can see, and I don't remember the exact slide that we have where we list the – out some of our major customers, you can see the gas utility, the electric utility and then those combo utilities, and that's not to say that for those combo utilities, we are doing work for both sides of that house. So we're getting a little bit of traction. I think as we mentioned at one of our previous conference calls, most of the work that is done for these utility companies is a little sticky. And so for us to get our foot in the door, it does take a little bit of time. But we have had some success, and we will continue to march down that path. But I don't think you'll see dramatic numbers that we will be talking about in the near term. But it is certainly part of the long-term growth plan.

The number that you quoted as – I think it was $3.4 million from the Canadian subsidies, were there any offsets to that? And was that a pretax number?

Yes. That's a pretax number, and that's a pretax U.S. number. Certainly, the Canadian government gave us money in Canadian dollars. But again, there were some offsets, just the normal COVID-19. I don't think we quantified that anywhere. But certainly, the extra PPE that was required and some of the social distancing did hamper our efforts. And so that was a welcome relief to have that benefit offset those costs that we incurred.

Okay. Lastly, can you just give us a little bit of sense of the current state of the surge in Vegas and how that's affecting just the city in general?

Hey Chris, this is John again. I think that while we continue to have, of course, expanded numbers of cases in both Arizona and Nevada, I think that the governors in each of those states, including California, have taken a lot of measures to try to guard against that being a larger problem than it needs to be. I think that – occasionally, I'll go on, for example, the Southern Nevada Health District website, and you can see what the hospitalization numbers have been, and they have been coming down dramatically. So I think that's consistent with some of the national demographics that you're seeing increased testing, you're going to get increased positive cases, and a lot of that seems to be moving more towards the younger folks, folks that may have limited or be absent from having symptoms. So it continues to be a priority in both the states. They continue to have protections in place to try to reduce that. And we're looking forward to continuing to get through this successfully and not have an unexpected surge, as you suggest. It's going to overwhelm the medical facility. So I think that things are going okay at the current time.

Okay. Thank you so much. Appreciate the details guys.

Thanks, Chris.

Thanks, Chris.

Thank you. Our next question comes from the line of Chris Sighinolfi from Jefferies. Your question please.

Hey, everyone. This is [Ryan] on for Chris. Most of my questions have been asked and answered. So just a quick one for me related to the D&A expense that you guys reported this quarter. There has been some significant volatility in that line item quarter-over-quarter over the last couple of years. And I'm just curious what might be going on there and maybe if our model isn't capturing some predetermined cadence that it should do.

Yes, Ryan. This is Greg. I think one of the things that is important to remember is in the depreciation line, it's pretty easy to model that as it's going up because it's a factor of the plants that we have in service and the plants that we add as we go along. But there is a sizable piece of dollars that relate to amortization of regulatory assets and amortization of regulatory liabilities and that is much more seasonal. So maybe for an example, in Q1 of this year, there was about $12 million of regulatory amortization that's included in that depreciation and amortization line where last year, there was closer to $10 million on the quarter. For this quarter, again, there's not a lot of volumes in Q2 and certainly a lot less in Q3. So this quarter, it was actually a regulatory liability net that got amortized, so about, say, $300,000 of credits that ran through that line where last year, it was about $300,000 – I think I said $300,000, so $300,000 credit this quarter and about $300,000 debit last quarter. So as you're doing your modeling, there is a significant amount of volumetric differences in that amortization line, and they'd be most pronounced in Q1 and Q4.

Okay, perfect. Yes. I don't believe that we were capturing that necessarily so. Thank you for the details there. That's it for me.

Thanks Ryan.

Thank you. This does conclude the question-and-answer session of today's program. I'd now like to hand the program back to Mr. Kenny, Ken Kenny for any further remarks.

Thank you, Jonathan. This concludes our conference call and we appreciate your participation and interest with Southwest Gas Holdings, Inc. Have a great day and stay safe. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.