Southwest Gas Holdings, Inc. (SWX) Q1 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Southwest Gas Holdings 2021 First Quarter Earnings Conference Call. [Operator Instructions] I'd like to turn it over to Mr. Ken Kenny, Vice President of Finance and Treasurer. You may begin the conference, sir.

Thank you, John. Welcome to Southwest Gas Holdings, Inc.'s. 2021 First Quarter Earnings Conference Call. As John 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 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, Chief Financial Officer; and Mr. Justin L. Brown, Senior Vice President, General Counsel of Southwest Gas Corporation; and other members of senior management to provide a brief overview of the company's operations and earnings ended March 31, 2021, and an update to earnings per share guidance for 2021. Also, the company will address certain factors that may impact this coming year 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 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 outlined some highlights from the first quarter of this year. From a Holdings perspective, we had record earnings per share for the first quarter of $2.04. We also increased our dividend for the 15th consecutive year, and we slightly narrowed our earnings guidance range to $4 to $4.20 in observation of our first quarter results. In our regulated natural gas utility operations, we continue to experience strong growth, adding 37,000 new customers over the past year. Our operating margin increased by $24 million. We established a $250 million 364-day loan to fund an incremental gas cost associated with extreme Texas weather in February. And the settlement we had previously reached in our California rate case was approved by the CPUC. And our utility infrastructure services group, revenues increased by $30 million or 9.1%, some of which derived from support to some of our utility customers to experience impacts from the February Texas freeze. We also saw EBITDA for the quarter doubling to $26.7 million. Moving to Slide number 5, we provide an outline for today's call. Greg Peterson will provide a detailed update on our financial results for the period ended March 31 with segment breakdown for our regulated and unregulated operations, along with expectations for our liquidity, planned capital expenditures and dividend and rate base growth. Justin Brown will provide a regulatory update, and I'll provide an update on our growing customer base, our continued focus on sustainability and our expectations for 2021 and beyond. With that, I'll turn the call over to Greg.

Thanks, John. Let's begin with a summary of total company operating results on Slide 6. For the first quarter of 2021, consolidated net income was $117 million or $2.03 per diluted share compared to $72.5 million or $1.31 per share for the first quarter of 2020. Temporary changes in the cash surrender values of company-owned life insurance or COLI policies reflected income of $2.7 million or $0.05 per share in the current quarter versus a loss of $15.5 million or $0.28 per share in the prior year quarter. For the 12 months ended March 31, 2021, net income was $277 million or $4.89 per diluted share compared to net income in the prior year period of $192 million or $3.50 per share. The current 12-month period included $27.4 million or $0. 48 per share in COLI income, while the prior year period experienced a COLI-related loss of $5.7 million or $0.10 per share. Next, we'll take a detailed look into each segment, starting with the quarterly comparison of natural gas operations on Slide 7. Net income for the natural gas operations segment was $118.7 million for the first quarter of 2021, an increase of $35.1 million compared to last year's first quarter. A couple of items stand out in this waterfall chart, and I'll touch on them first. The $23.9 million increase in operating margin was driven by $18 million of rate relief associated with recently completed rate cases in our 3 state service territory. Continuing strong customer growth contributed $6 million of operating margin as we experienced 37,000 first time meter sets over the past 12 months, a 1.8% growth rate. The other income increased of $21.1 million primarily is due to changes in the cash surrender values of COLI policies between quarters that I mentioned. As you may remember, COVID-19 influenced a 20% decline in the S&P 500 during the first quarter of 2020, resulting in a $15.5 million COLI loss for Q1 2020 for us. At that time, the investments underlying the cash surrender values of the policies were weighted over 50% towards equities. After recovery of the market and our COLI values later in 2020, the company rebalanced the underlying investments to approximately 25% in equities, which is designed to reduce the volatility in COLI income. In the current quarter, COLI income was $2.7 million. The $8.3 million increase in depreciation, amortization and general taxes includes $4 million from depreciation and $4.3 million from general taxes. The general tax increase is due to the resetting of the Arizona property tax tracker and quarterly year-over-year comparisons are anticipated to reflect a somewhat similar level of expense increase for each quarter in 2021. In addition to the normal increase in depreciation due to our current level of capital expenditures, the implementation of the new customer service system placed in service in May and an anticipated implementation later in the year of a new gas transaction system are expected to increase full year 2021 amortization expense by $5 million to $6 million. Operations and maintenance, or O&M, expense increased $3 million or 3% compared to the prior year quarter and includes about $400,000 of incremental bad debt expense. Late payment fee moratoriums are beginning to be lifted as the economies in our service territories return to more normal operations. Let's go to Slide 8, which depicts Centuri's comparative changes for the first quarter. Results for Centuri, our utility infrastructure services segment improved $9.3 million in the first quarter of 2021 versus the first quarter of the prior year. Due to business seasonality, losses during the first quarter are typical due to the impacts of winter weather on operations. As shown on this slide, the current quarter reflects a revenue increase of $30.5 million or 9%, primarily due to $21.6 million of incremental electric infrastructure work, which includes approximately $9 million from emergency storm restoration services performed by Linetec following tornadoes and ice storms in Texas and surrounding areas. The remaining revenue increase includes the benefits of favorable weather working conditions in several areas, accelerating some work previously planned for later in the year. Infrastructure services expenses increased $16.3 million or 5%, primarily due to costs associated with the increase in work performed. Operating efficiencies improved due to favorable weather conditions and reduced COVID-19 restrictions from the prior year. Let's look at total company 12-month results on Slide 9. This slide depicts the relative contributions by our 2 business segments during the 12 months ended March 31, 2021. As you can see, natural gas operations provided 70% of our consolidated net income, while Centuri utility infrastructure services group provided 30%. This is consistent with our near-term expectations. Slide 10 shows the components of a $50.8 million increase in natural gas operations income between 12-month periods. Like the first quarter, COLI fluctuations had a significant impact as the current 12-month period includes a $27.4 million increase in COLI cash surrender values, reflecting the rebound from the COVID influence first quarter of 2020 and outsized performance during the remainder of that year. The prior 12-month period reflected a COLI loss of $5.7 million, resulting in a $33.1 million change between periods. As I mentioned earlier, we rebalanced the underlying investments associated with COLI policies to minimize future cash surrender value volatility while maintaining the face values of the policy. The $33.9 million improvement in operating margin includes $24 million in combined rate relief in Arizona, California and Nevada and $15 million from solid customer growth. The $10.3 million or 2% decrease in O&M includes lower travel and in-person training costs of $5 million due to the impacts of COVID. A modified process to minimize customer contact during tenant changes saved about $3 million between periods. Partially offsetting these benefits was $6 million of incremental damage prevention or call before you dig costs associated with utility and construction-related activities throughout our service territories. The $21.8 million increase in depreciation, amortization and general taxes reflects the impact of $634 million or 8% increase in average gas plant in service and 1/4 of the new level of property taxes under the Arizona tracking mechanisms. The components of the 12-month change in our utility infrastructure services segment are reflected on Slide 11. This slide shows the components of the $34 million increase in Centuri net income between 12-month periods. Revenues increased $207 million or 12%, including $166 million of incremental electric infrastructure revenues. Including the incremental electric revenues in the 12-month period was $90.5 million from emergency restoration services performed by Linetec following hurricane, tornado and other storm damage to customers above brand utility infrastructure compared to $13.2 million in similar services during the corresponding period a year ago. Revenues also grew with existing gas infrastructure customers. Infrastructure expenses were $154 million or 10% higher than the prior year period, largely due to incremental expenses related to electric infrastructure work of $91.4 million, including costs associated with storm restoration work. General and administrative costs, which are a component of infrastructure services expenses, were $26 million higher in the current 12-month period due to the growth of the business and higher profit based incentive compensation costs. Depreciation and amortization increased $7.9 million, including $6.3 million associated with equipment utilized to support the expanded electric infrastructure services work. For the 12 months ended March 31, 2021, Centuri operations contributed $84. 2 million in net income toward our consolidated results. Slide 12 depicts the substantial increase in Centuri EBITDA for the quarter and 12 months ended March 31, 2021. The quarterly increase was $13.2 million or 98% while the 12-month increase was $48.9 million or 28%. Slide 13 shows the comparative position of Centuri versus a core group of peer companies. Over the past 10 years, Centuri ranked highest in compound annual growth with rates for both net income and EBITDA while maintaining the lowest volatility for those metrics. We believe Centuri's focus on distribution construction for both gas and electric is the competitive advantage. Let me briefly touch on our gas segment, liquidity, capital expenditures and the associated financing plans beginning on Slide 14. This slide shows the solid liquidity position of our utility with the issuance of $250 million in short-term borrowings in March to pay for the right amount of incremental gas costs associated with the spike in prices in February, we had available capacity under our revolving facility of $233 million and cash on hand of $49.8 million as of March 31, 2021. Our plans for capital investment across our 3 state service territory are detailed on Slide 15. We plan to invest approximately $2.1 billion over the next 3 years to serve new growth, and reinforce the safety and reliability of our gas distribution network. We anticipate funding finding about 50% of those investments with internal cash flows and funding the remaining balance with a pretty even mix of equity and debt. As shown on Slide 16, when you add in our utility upstream dividend payout expectations, we anticipate our 3-year capital needs will be approximately $2.5 billion. We plan to source up with about $1.2 billion in cash flow from operations, approximately $600 million in utility debt issuances and about $700 million in equity issuances. As indicated in our 10-Q, Southwest Gas Holdings has a new $500 million ATM program that we plan to utilize over the next 2 to 3 years. The graphic on Slide 17 illustrates the continued expected investment of capital of about $700 million per year compared to our historic expenditures. Slide 18 shows the recent growth of the dividend at SWX, which we believe is an important part of the total shareholder return we offer to our investors. We have increased the dividend each year for the past 15 years and target a payout ratio of about 55% to 65%. Turning to Slide 19. The continued investment in our natural gas distribution systems is expected to grow our rate base from $4.5 billion at the beginning of this year to $6.5 billion at the end of 2025, a 5-year compound annual growth rate of 7.5%. I'll now turn the call over to Justin Brown for an update on regulatory matters.

Thanks, Greg. During the first quarter, we received final approval of our proposed settlement in our California general rate case. With this approval, we'll see increased revenues of approximately $66 million year-over-year due to refresh rates across each of our state regulatory jurisdictions. As shown on Slide 20, the final decision on our California general rate case settlement was approved in March. The decision provides a revenue increase of approximately $6.5 million and an ROE of 10%, relative to an equity layer of 52%. The approval allows the company to continue our annual attrition filings, which will allow us to adjust revenues by 2.75% annually over the next 5-year rate cycle. Rates became effective April 1 but the company was previously authorized to track the impact of the change in margin beginning January 1 in a memorandum account until rates became effective. As such, we plan to make a filing later this year to adjust rates to reflect those amounts that have been tracked since January 1. Two other very important components of the rate case include approval of our proposed risk informed decision-making programs, which will allow us to invest up to $119 million over the next 5 years, to ensure continued safe and reliable service to our California customers, and we'll also be allowed to recover these costs annually through a surcharge. In addition, we agreed to remove a large replacement project in North Lake Tahoe from rate base -- or from base rates and move it to a surcharge. This project was originally estimated as a $60 million project, and we included half as part of the future this period in our original filing, which accounted for about $4 million of the original $12.8 million proposed efficiency in the case. This amount will now be recovered annually through a surcharge as segments of the project are completed. Turning to Slide 21. Rates resulting from our Arizona general rate case became effective January 1, allowing for increased revenues of approximately $37 million in 2021. This increase is in addition to the approximate $23 million increase that was approved in the company's Nevada general rate case last year with rates that became effective in October of 2020. Moving to Slide 22. In February, we made a compliance filing in Arizona identifying our plan for reconciling unrecovered revenues from the previously approved COYL and VSP programs. In 2019, the commission froze the existing surcharges and suspended future surcharge filings pending the outcome in our general rate case. As such, we now need to reconcile the differences between the COYL and VSP surcharge revenue we've received to date. And the amount outstanding through calendar year 2020 plus address the VSP plan that was not included in base rates following our most recent rate case. In total, this adds up to about $74 million. We plan to make a filing later this month requesting to adjust the surcharges to recover these amounts, at which time the commission will evaluate the proposal, including the time period in which the costs are to be recovered. We'd expect to see a decision before the end of the year. Turning to Slide 23, with a quick update on our current expansion-related projects that are under way in Nevada. In Southern Nevada, we continue to make progress on our $28 million expansion project in Mesquite with both homebuilders and commercial customers, securing contracts for natural gas service as we continue to build out the infrastructure within the city. In Northern Nevada, the $62 million expansion project in Spring Creek also continues to make progress as we will begin build-out of the second phase of the project in 2021, while we continue to hook up customers from the first phase where we saw 100% of the eligible customers request gas service. Lastly, turning to Slide 24. We have a new expansion opportunity in Arizona that will involve the acquisition of the gas assets of Graham County Utilities, a member-owned cooperative located in Southeast Arizona. The acquisition contemplates a $3.5 million transaction, comprised of approximate rate base of $2.5 million and an acquisition of approximately $1 million, which will be proposed for recovery in the company's next general rate case. Graham County Utilities has approximately 5,200 members who are also customers of the utility, and they've already voted in favor of the sale of the gas assets to Southwest Gas. Subsequent to the member approval, Southwest Gas and Graham County filed a joint application with the Arizona Corporation Commission in April seeking final authority to close the acquisition. We anticipate receiving approval of the acquisition before year-end. And with that, I'll turn it back to John.

Thanks, Justin. Turning to Slide 25. As I mentioned at the outset of the call, we continue to experience strong customer growth as our local economies rebound from COVID-related commerce restrictions and people and businesses continue to find our service territories desirable places to relocate to and grow. Slide 25 not only shows that we added over 37,000 customers over the past year, but the year-on-year trailing 12-month gains in each month were stronger than the year before. Moving to Slide 26. Part of the continued strong demand for natural gas in our service territories is attributable to the excellent customer service our employees provide our customers. We earned a 96% satisfaction rating for our customers, and 91% of our customers consider Natural Gas service to be their preferred energy provider. We've also won recent J.D. Power Best in the West service awards in both the residential and business categories. On Slide 27, we show some additional detail on the diversified nature of our customer base. Our customers are mostly residential and commercial and are spread across 3 different states, each of which has constructive decoupled rate designs that not only provide revenue stability, but also support our encouragement of energy efficiency to keep bills low for our customers. Turning to Slide 28, we provide some recent media references to the strongly rebounding Arizona economy, where half of our 2 million customers reside, population growth, new home sales and economic momentum in Arizona all significantly exceed national averages. Moving to Slide 29. Similar to Arizona, in Nevada, we also see very brisk economic growth, where our rebounding economy, continued population in migration and new home sales continue at accelerated paces due to our state's business-friendly climate and desirable desert living lifestyle. On Slide 30, as Justin referenced, we show that continued high demand for natural gas service is allowing us to expand our service territories and reach new customers. Pursuant to economic development-oriented legislation in Nevada, we've proportioned up to $100 million of new capital to reach these communities in both Northern and Southern Nevada. Service territory expansions in Mesquite and Spring Creek will not only provide convenience and energy cost savings to our new customers but will allow them to reduce their community's carbon footprint as they move towards natural gas usage and away from more carbon-intense energy alternative business. Slide 31 is a reminder that sustainability is a primary focus of Southwest Gas as we embrace greenhouse gas reduction efforts and pivot our supply towards exciting new opportunities. Turning to Slide 32. We outlined a variety of legislative and regulatory efforts we have undertaken in each of our states to pursue compressed natural gas, renewable natural gas, hydrogen and more. We're finding very favorable support in both our legislative and regulatory venues to continue pursuit of initiatives that are aligned with the efforts to reduce greenhouse gas emissions and be responsive to interest related to climate change. Moving to Slide 33. The policy support and commercial interest that we're seeing in our service territories related to renewable natural gas, compressed natural gas, hydrogen and other technologies is translating into real projects throughout our service arrears. Southwest Gas is partnering with dairy farms, wastewater treatment plants, landfills and fleet transportation operators to provide environmentally friendly energy options that we expect to continue to grow significantly in the coming years. On Slide 34, we reference our efforts to ensure methane emissions, an important greenhouse gas concern from our distribution system are minimized. Southwest Gas operates one of the most modern gas distribution systems in the nation. Our initiatives replace older vintages of pipe and adopt operational practices that reduce escaping methane have allowed us to significantly reduce methane emissions, even while the number of miles of pipe and service has grown dramatically. Turning to Slide 35. For more on our many initiatives pursuing a sustainable future for the communities we serve, please see our latest sustainability report, which can be accessed at the website noted near the bottom of the slide. Moving to Slide 36. We summarize the key components of our business that we believe create an excellent value proposition for our investors. For our natural gas operations, we anticipate continued strong customer growth, investment in CapEx and resulting rate base growth. We will continue to prioritize cost controls and low bills as a competitive advantage for us compared to other energy providers. We will continue to expand our efforts pursuing a sustainable energy future for our customers. We'll continue constructive collaborative relationships with our regulators and seek continued growth in both earnings and dividends. And at our utility infrastructure services business segment, we'll pursue growing opportunities to replace gas and electric infrastructure with their regulated utility customers, manage our cost with an eye towards the operational excellence, grow our profitability and dividends and provide a source of cash for holdings. On Slide 37, and as I indicated at the outset of the call, in recognition of our first quarter performance, we are slightly modifying our previously provided earnings guidance range of $3.95 to $4.20, and moving to a range of $4 to $4.20, trimming $0.05 off the bottom of our previously provided range. On Slide 38, we provide 2021 line item guidance, supporting our earnings per share guidance range. In our natural gas operations, we expect operating margin to increase by 6% to 8%, operating margin to rise by 3% to 5%, total pension costs are expected to be flat compared to last year. We assume normalized company-owned life insurance returns of $3 million to $5 million and expect capital expenditures for the year to total about $700 million. At our Centuri Infrastructure segment, revenues should rise by 1% to 4% over our record results this past year. Operating income should be 5.3% to 5.8% of revenues. Interest expense is estimated at $7 million to $8 million. Net income expectations are net of noncontrolling interest. And recall that fluctuations in the Canadian exchange rates can influence results due to our Canadian operations. Moving to Slide 39, we share some of our longer-term expectations. At the Southwest Gas Holdings level, we anticipate equity issuances totaling $600 million to $800 million over the 3 years ended 2023, and a targeted dividend payout ratio of 55% to 65%. At our regulated utility operations, we expect to invest $3.5 billion to grow and modernize our gas distribution network over the 5 years ended 2025 with rate base expected to grow at a compounded annual growth rate of 7.5% per year over that same period. And at our Centuri operations, we expect revenues to grow an average of 5% to 8% annually over the 3 years ending 2023. Operating income is expected to be 5.25% to 6.25% over that same period, and EBITDA should approximate 10% to 11% of revenues. Finally, turning to Slide 40. We believe Southwest Gas Holdings offers our investors a compelling growth-oriented investment. We offer 2 complementary business segments, which are both poised for significant growth in the years ahead, with our regulated operations expected to contribute 71% of Holdings net income for the 3-year period ended 2023 and our infrastructure services segment contributing 29%. Our regulated utility operations are expected to continue experiencing great growth in customers, CapEx and rate base while providing safe, reliable, affordable and sustainable energy services to our customers. And with our Centuri Infrastructure Services segment, providing complementary growth opportunities, serving the growing needs of gas and electric distribution companies across North America while providing increasing dividends and cash flows for Southwest Gas Holdings. 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 that include other pertinent information about Southwest Gas Holdings and its 2 business segments. These slides can be reviewed at your convenience. Our operator, John, will now explain the process for asking questions.

[Operator Instructions] The first question is coming from the line of Richard Sunderland from JPMorgan.

Maybe starting on Centuri. Just curious on Centuri's results this quarter. Do you see these contributions sustainable and potentially leading to additional growth on the electric side?

Richard, this is John. I think that definitely we expect to see continued growth at Centuri on the electric side. We think that there are opportunities to expand the work that we're doing with our current customers. We also are looking at opportunities to cross-sell services. So in other words, if we have a long-standing relationship with the combination utility that we're currently doing a lot of gas work for, we're going to make sure that we know that they know that we can offer them electric services with the same level of high-quality and safety. And then, of course, if there are any opportunistic bolt-on M&A options in the future, the electric sector is certainly something that we would look towards possibly expanding further in that manner as well.

Got it. Appreciate the color there. And then maybe turning to the upcoming COYL and VSP filing. What are your expectations for the recovery process following the design on the electric rider in the state recently? Just curious there's oppositions of these types of mechanisms right now? Or maybe how it fits within the larger post presser discussion other than the state?

Yes, Richard, it's Justin. I think this is a little bit different than some of those discussions. I think those were some of the more recent ones are more kind of prospective in nature as they're evaluating UPS's rate case and things. I mean these were previously approved. I think we've talked before also about the fact that when these were -- when the surcharges were originally frozen and suspended, we actually moved the 2019 request, which was $12 million into the rate case as part of our amendment, that was ultimately approved. And so I think from our perspective, when we look at that track record, I mean, we anticipate that this is something that we'll go through, that they'll evaluate it. And it should, I think from our perspective, follow a similar path to that, is kind of our expectations.

Got it. So maybe in terms of the guardrails on the process here. Do You see the debate centering more around, I guess, the timing or cadence of the recovery? Or do you see other issues cropping up here?

Yes. I mean, I think that's a fairer way to look at it. I know, like in our rate case example, as I mentioned, the 12 we had included kind of that over a 3-year period, so about $4 million a year. I would expect that consistent with your comment that some of the discussion is going to be more on the cadence and timing of it rather than the actual merits. I think from our perspective, we went through the rate case process. There was absolutely zero findings about the plant that was invested, the performance of the mechanisms. They continued the COYL program. They decided not to continue the VSP. But when you look at kind of that record, combined with the experience that we saw with moving the '19 surcharge amount to the rate case, it's hard to imagine it there's going to be other issues that crop up. But in these regulatory proceedings, there is something that comes, someone makes an argument that we'll plan on addressing. But as we stand here today, I think we have a pretty good case in terms of what was previously approved, the mechanisms, our performance and adherence to those mechanisms. And now it's a just kind trueing that up and figuring on the time frame for which that will occur.

[Operator Instructions] Next question is coming from the line of Kody Clark from Bank of America.

So just on recovering the gas purchase costs, I'm wondering how you're thinking about rate inflation considerations while also trying to get recovery on the riders that you just talked about?

Kody, it's Justin again. When we first experienced the price bag, I mean, one of the first things we did was evaluated kind of what the anticipated impact was going to be and looked at whether we needed to make any kind of incremental filing to extend the time period in which those are going to be recovered because of that sensitivity. And as John mentioned during the call, we have a big focus on making sure that our bills are affordable and competitive. Based on our analysis and looking where gas costs have been as recently as the last 3 to 5 years, what we're going to experience as a result of this spike is not going to exceed those amounts that customers were experiencing just a few years ago. So we don't anticipate any issues with respect to the gas cost recovery as it stands today, and we anticipate currently that our mechanisms will allow to recover those costs over the time periods by which the mechanisms are designed. And I think that kind of goes hand-in-hand with the tracker. I mean it's -- when you look at the tracker dollars, this is something where the commission had in place, the annual surcharges. They wanted to take a closer look at some of the things based on some accusations that some intervenors had made in the surcharge filings. We went through that process. There were no findings of any wrong doing whatsoever. And so from our perspective, we'll work with them on a cadence of what time period to recover these to make sure that, again, there's not any kind of unconscionable bill impact to customers because that's something we're sensitive to.

Okay. Got it. That's super helpful. And is there any initial thoughts around time? I mean, on when we might get some more details on that?

On the surcharge filing?

Yes. Right. Exactly.

Yes. We're going to make that filing this month. So that's something you should be able to see as part of our filing before the end of the month.

Got you. Okay. And then just on RNG, if I can, quickly. Can you provide a little bit more color on how you're thinking about this opportunity in terms of your longer-term growth? You operate in some of the more constructive jurisdictions in the country for these kind of projects. So it seems like there could be some upside.

Yes, Kody, this is John. I agree with you. I think there is upside for that. I think it's an exciting new opportunity. We have already, as I mentioned earlier, started a lot of projects. We've been working with our legislatures and our regulators. And for the most part, it's kind of all good. We're also seeing a higher interest by our customers in this kind of product. For example, here in Southern Nevada, the municipal bus fleet operator was previously operating their buses on compressed natural gas. And they wanted to reduce their carbon footprint even more so, they were considering the possibility of electric buses, but they are significantly more expensive and operationally inferior. So we work with them to get a supply for them of RNG that will essentially let them transition from compressed natural gas that's conventional to compress natural gas that's RNG and be able to address their interest in reducing greenhouse gases. So I think you're going to see a lot of opportunities on that -- on the road ahead, and we're excited about it.

The next question is coming from the line of Chris Ellinghaus from Siebert Williams.

The $0.05 increase in the bottom end of the guidance range, can we infer that, that's the -- maybe what you might call the unusual level of Centuri restoration work in the first quarter?

Chris, this is Greg. I don't know that I would classify this as something to do with the level of storm work that they did in Q1, more that they had solid performance in Q1. As you're aware, the first quarter is always a down quarter for Centuri. That's the worst winter time weather that they work in that kind of slows the gas work. And so we were very pleased with the level of work that they were able to get done in the first quarter. And it took a little bit of the uncertainty out of the rest of the year by doing that. So that was the impetus and the basis for raising that bottom part of the guidance up $0.05.

Does that sort of accelerated work level give them greater opportunities for the rest of the year?

Yes. This is Greg again. I think they've always had really good opportunities. As I mentioned in my remarks, some of the work that they did get because there was some favorable weather in Q1 was some work that they had planned to do a little later in the year, but they are certainly open and doing well with their customers. As we're all aware, the infrastructure area throughout the U.S. is looking to harden their assets, right, both on the electric and gas side, to make them safer and more reliable. So I think the future is very bright for Centuri, and maybe Q1 is just a small indication of what lies ahead for them.

Obviously, you've had some pretty strong Centuri revenues from the electric side. Can you give us some color about how much of that is just some of the hurricane restoration and the winter restoration as opposed to how much traction you're getting in the cross-selling opportunity that you had at the time?

Chris, this is John. I think really, it's both. I think that when we made the Linetec acquisition, and we're able to grow that. It really provided great opportunities to provide more electric services as part of their platform. And I think that strategically, that's the direction we want to continue to grow. When we added the Linetec business, we were able to add what we would classify as a non-union electric provider, and we think that there are a lot of opportunities in the unionized electric space as well. So not only, as you pointed out, are we going to want to make sure that we're there to help our regulated electric utility customers rebound from events that mother nature imposes on the them. But we also are going to want to see if there are opportunities to continue to expand the percentage of revenues that, that business generates from the electric sector.

Okay. I think Justin mentioned this about good interest on the RNG side. The casinos in Vegas have been pretty aggressive on sustainability issues. You talked about interest coming from your [indiscernible] customers. I assume that the casinos are pretty well aligned to the effort?

Absolutely, Chris. This is John again. They're very interested in that. In fact, we were recently working with one of the larger properties to see if there was an opportunity to convert their supply entirely over to hydrogen. So that's another option because, as you know, Chris, from spending a regular amount of time in our service territory. That is a differentiator that a lot of those properties look towards to encourage customers to visit their property vis-à-vis other properties. So I think that definitely there will be opportunities with the resorts, but there will also be opportunities with a lot of other businesses that I'm sure you could name that are very sensitive about their carbon footprint, looking for opportunities to reduce it. And I think RNG is one of the ways they can do that in a fairly seamless way at a fairly low cost. So we're going to want to continue to pursue those opportunities, not only because we think that it helps us project a sustainable image for the future, but frankly, because our customers are demanding it.

Okay. Lastly, the small acquisition in Arizona, are you guys seeing other co-op opportunities out there?

Chris, this is John again. I think that there could be other opportunities. We have talked with a number of other parties. We don't have anything else on the board right now. But as I'm sure you will appreciate, the operational requirements of running a natural gas distribution system with safety, with upgrading your distribution network, et cetera. I think that there are other folks that are looking at whether that is a responsibility that they would just assume turn over to another party like us. So certainly, we're going to be very interested in that. And as we see those opportunities come up, we'll want to capitalize on them. And I think that the regulators are, frankly, supportive of that because if you can move from a relatively small operator and get that in the family of a relatively big operator like us, it makes safety-oriented regulation and potential rate impacts from aging infrastructure, a lot more palatable to those communities.

We don't have any questions at this time. I'll be turning it back to the presenters.

Well, that concludes our prepared presentation. Thank you, John, for doing your work as the operator, and we appreciate the participation and interest in Southwest Gas Holdings, Inc. Everyone, have a great weekend. Thank you.

This concludes today's conference call. Thank you all for participating. You may now disconnect.