Welcome to Southwest Gas Holdings Third Quarter 2024 Earnings Conference Call. Today’s call is being recorded and our webcast is live. A replay will be available later today and for the next 12 months on the Southwest Gas Holdings website. At this time all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. [Operator Instructions] I will now turn the call over to Justin Forsberg, Vice President of Investor Relations and Treasurer of Southwest Gas Holdings.

Thanks, Dion, and hello, everyone. We appreciate your interest in Southwest Gas. This morning, we issued and posted to Southwest Gas Holdings website our third quarter 2024 earnings release and the associated Form 10-Q. The slides accompanying today’s call are also available on Southwest Gas Holdings’ website. We’ll refer to those slides by number throughout the call today. Please note that on today’s call we will address certain factors that may impact this year’s earnings and discuss some longer-term guidance. Some of the information that will be discussed today contains forward-looking statements. These statements are based on management’s assumptions on what the future holds but are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions and regulatory approvals. This cautionary note, as well as a note regarding non-GAAP measures, is included on Slides 2 and 3 of this presentation, today’s press release, and our filings with the Securities and Exchange Commission, which we encourage you to review. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements and we assume no obligation to update any such statement. As shown on slide 4, on today's call, we have Karen Haller, President and CEO of Southwest Gas Holdings, and Rob Stefani, Chief Financial Officer of Southwest Gas Holdings, as well as Justin Brown, President of Southwest Gas Corporation; and other members of the management team available to answer your questions during the Q&A portion of the call today. I'll now turn the call over to Karen.

Thank you for joining us today to discuss the Southwest Gas Holdings second-quarter results. Starting with slide 5. Southwest Gas continues to press forward on our transformational strategy of becoming a premier fully regulated natural gas utility. Following the successful Centuri IPO last April, we continue to monitor market conditions with respect to our separation strategy options and look forward to completing the separation of Centuri. During the quarter, we continued to make progress positioning the utility for long-term success and growth. As Justin Brown will address in more detail in a few minutes, we filed our general rate case in California in September advanced our Arizona rate case and following the completion of our general rate case in Nevada we are seeing the positive impact associated with the recovery of our investments to enhance safety and reliability and meet the needs of our growing customer base. Additionally, we finished the third quarter with the extension of record operating margin performance on a trailing 12-month basis. Customer growth and demand remain strong and the entire Southwest Gas team is intensely focused on safely addressing the needs of our customers investing in the communities we serve and delivering value for our shareholders. We are strategically deploying capital and investing in our operations so that we can meet the demand for safe reliable and affordable energy solutions, while also working constructively with our regulators and legislators to complement our strong organic rate-base growth that has been invested for the benefit of our customers. Southwest Gas has strong momentum heading to the end of 2024 and we now expect full-year utility net income to finish within the top half of the guidance range of $233 million to $243 million. We are reaffirming our other guidance estimates. We expect our revenue to benefit from…

Thanks Karen. On Slide 9, you'll see an overview of the progress we've made executing on our regulatory strategy for 2024. Earlier this year, we completed the general rate case in Nevada with a positive outcome having received approval to start recovering the investments we've made in the state. The final decision authorized an increase in rate base of nearly 20% and a revenue increase of about $59 million compared with our original proposal of nearly $74 million. This revenue outcome represents 98% of our request after the depreciation adjustment and before adjustments to reflect changes in cost of capital. At Great Basin refresh rates went into effect in September subject to refund and we're actively engaging stakeholders in settlement discussions to see if we can reach mutually acceptable outcome. If we are unable to reach an agreement, we will proceed with the procedural schedule shown on the slide than expected hearing in February of 2025. I'll discuss Arizona and California in more detail on the next two slides, but I'm pleased with the progress our team has made in each of our jurisdictions to reach constructive outcomes and to make progress on our regulatory goals. Turning to Slide 10, our Arizona rate case continues to progress toward constructive outcome and you can see on the slide the difference between staff's testimony and what we originally requested in the case. We believe our settlement discussions to date have been productive and we intend to continue our dialogue with all holders in hopes of reaching a mutually beneficial outcome. Ultimately, this case represents a proposal to increase revenues by nearly $126 million and will allow us to start recovering the nearly $650 million of investments we've made to serve our customers. This results in an increase in rate base of nearly…

Thanks, Justin. On slide 14, we outline our earnings per share performance for the year. The company's consolidated GAAP and adjusted EPS are sewn by each consolidated entity. The utility finished September with a very strong balance sheet and record net income and progress so far on our regulatory strategy and cost management initiatives have enabled us to now expect our 2024 utility net income to finish within the top half of the guidance range as Karen mentioned. Southwest Gas Holdings finished the third quarter of 2024 with more than $450 million of cash on hand and nearly $1 billion of liquidity on a consolidated basis following the full collection from utility customers of the previously deferred natural gas cost as well as Centuri's pay down of debt using proceeds from the IPO. Consolidated adjusted EPS of holdings was $0.09 per share during the third quarter which reflects a decrease of $0.08 per share when compared to the third quarter of 2023. Overall, the utility performed well, but on a consolidated basis the company was impacted by lower quarter-over-quarter performance at Centuri due to lower volumes of MSA and bid work and the timing of offshore wind projects and partially due to higher interest expense at the holding company. In the appendix, we provide a reconciliation of adjustments by operating company. The vast majority of the third quarter 2024 adjustments relate to the amortization of intangible assets and receivables securitization related costs at Centuri and separation related transactions adjustments, while the third quarter of 2023 adjustments also include impacts from consulting fees related to utility optimization. Now I'll provide a walk through on the performance of Southwest Gas Holdings and the utility. Turning to slide 15, we depict on consolidated earnings walk on an adjusted basis. During the third quarter,…

Thanks, Rob. Turning to slide 20, we believe our third quarter results are evidence of progress we continue to make executing our strategy and we are enthusiastic about the rest of 2024 and beyond. Last quarter, we increased our 2024 Utility net income guidance range to $233 million to $243 million and we now expect to finish within the top half of that range. This reflects performance thus far as well as expectations over the balance of the year. We believe that the strong regional economic outlook in our service territories, the Nevada rate case outcome as well as expected results of our cost management efforts provide us confidence in our net income guidance range and our team remains focused on optimizing utility operations. We reaffirm our 2024 utility CapEx at approximately $830 million while nearly 50% of our forecasted capital spending relates to maintaining a safe and reliable system for the benefit of all of our customers. The balance is to serve the needs of our growing customer base and our continuous improvement initiatives which we expect to lead to future cost savings at the utility. Looking further out, we affirm our expected compounded annual growth rate for net income at the utility to fall within the range of 9.25% to 11.25% from 2024 to 2026, which uses 2024 as the base year. While the impact of the regulatory cycle is expected to result in nonlinear net income growth over the forecasted period, our regulatory strategy and our goal to achieve a flat O&M per customer trend over that same period are expected to be important components of our growth story. Additionally, you can find the 2024 to 2026 drivers in the appendix of our presentation on slide 27. We also reaffirm our rate base compound annual growth rate to be in the range of 6.5% to 7.5% over the same 2024 to 2026 period and we continue to expect to invest about $2.4 billion in total of CapEx over those three years. We continue to hold the dividend flat while we evaluate Centuri's separation options. Before we open the call up to Q&A, I want to point to slide 21 and emphasize that our teams are focused on executing our strategic priorities, delivering strong financial results, and providing exceptional service to our customers. At Southwest Gas Holdings, we are confident in our path forward as a premier pure-play natural gas utility. We plan to continue delivering steady organic rate base growth through strong regional demand dynamics as well as earnings growth through financial discipline, operational excellence, and constructive regulatory relationships. We'll continue to execute toward the planned full separation of Centuri to create a more attractive value proposition for stockholders. With that, I'd like to open the call for questions.

Thank you. [Operator Instructions]. We'll take our first question from Richard Sunderland of J.P. Morgan. Please go ahead.

Hi, good morning. Thank you for the time today. Are there any guardrails you can put on the timing of the future separation update referenced in the release? I guess now that a new Centuri CEO has been named, are you open to near term action here?

So we really don't have a time frame obviously that we have to do this within. We just came out of the lockup period and obviously are subject to quiet periods as we move forward, but our primary goal or next step was to get the CEO in place which we have done. You saw the announcement yesterday on that and so we feel really strong about having our CEO at Centuri in place moving forward and we will continue to watch the market conditions which are going to drive the timing really of when we execute on the next step.

Got it. Thank you for the thoughts there. And then I guess turning to Arizona, how do you see the settlement backdrop in your rate case? I'm curious if you have a path that you see the settling with the system improvement mechanism in that settlement or would you settle without that given the state is focused on the broader reg lag efforts as well? Thank you.

Justin, you want to take that?

Hey, Rich, it's Justin. I mean, I think the encouraging thing is the staff is supportive of the mechanism and their direct testimony. So, I think we feel pretty good about a future where that's included. Obviously, anything subject to the commission's ultimate approval, but I think we feel pretty good about where staff came in on that and then they have rebuttal test or several rebuttal testimony, I think on 15th, and so I think that's kind of the next step in the process and then I think the plan is for the parties we'll try to continue the dialogue. We feel like the conversations today have been pretty constructive. Just ran into some timing conflicts with commitments that different parties had and with APS rehearing that they had this last week. So, we plan on continuing to have dialogue and again we feel good about where the staff is in their position vis a vis the mechanism itself.

Got it. Thanks. And just a quick follow-up there. What is the kind of formal settlement window as you're thinking about it in the case of the natural milestones in the procedural schedule going forward within which a settlement makes sense?

Yes, it's a good question. I don't think there's really any formal window. I would say just generally speaking, it kind of begins when we receive their direct testimony, which we got right and then we noticed settlement discussions the staff did and we had an opportunity to do that. I think we ended up running into a procedural timing where we needed to get our rebuttal testimony filed which we did. The staff has theirs on 15th. I think the parties can continue -- there's nothing that prevents the parties from continuing to have discussions around a settlement all the way up until the hearing date. I think typically in Arizona what we've experienced is that even if we settled the case in advance they would still likely use that hearing date for a settlement hearing because that's something that they've done in the past and so we're kind of looking at between now and that hearing date to either use it as a settlement hearing or to proceed on some kind of hearing based on where the parties are as we continue through this testimony process.

Got it. Understood. Thank you very much.

Our second question comes from Ryan Levine of Citi. Please go ahead.

Good morning. Appreciate all the detail here. It's maybe just a couple, one around the financing plan with the reduction in equity for this year and $100 million 000 for next year. Can you unpack what drove the change? Is it purely operating performance year-to-date? Or are there other factors that influence the change in financing plan?

Hey, Ryan, it's Rob. Yes, good question. Really, it's been the collection of the PGA over this year. We're just given where we sit with respect to cash balances with that significant cash on hand at the utility and ongoing collections that due to the mechanic will continue. We don't see the need to do equity this year. We had only planned to issue up to about $75 million and so with that cash on hand, we just -- we don't think we need it. I guess further with respect to next year, the guidance is effectively on top of what we communicated previously around 2025 again reflecting our modeled forecast around our cash on hand. I would just say with respect to 2025 and as indicated during the prepared part of our remarks, to the extent that the transaction structure of a Centuri exit takes the form of sell down then you could see us not issue even that $100 million of equity because we would have proceeds from the sale of Centuri shares. So, obviously that will play into whether we need to issue any equity in 2025, but even if we do, it would be very light at less than $100 million and be structured through the ATM.

Okay. And then in light of the detailed disclosure around O&M changes during the quarter on Slide 16, It seems like your full year guidance is unchanged for flat O&M. Is there any company action that has been initiated that is expected to reverse that trend in the fourth quarter or any meaningful offset that keeps so and then relatively flat?

Yes. So our guidance, Ryan, is flat on a per customer basis. So we're obviously growing the denominator in the form of customers over the period. I think that the absolute is below inflation levels when you look at the absolute dollar level of O&M period-over-period, but we are making good progress on our utility optimization program. It gives us confidence in our ability to hit our net income and that's why we've guided towards the upper half of the range. Beyond that, we didn't provide formal. Does that help?

Yeah, I appreciate that. And maybe just one last in terms of the regulatory calendar in Arizona with the election yesterday, for some ACC commissioners that have any change to the procedural schedule or opportunity for settlement?

Hey, Ryan. It's Justin. I would say no that there's based on kind of where things stand now with the election results, we don't anticipate that impacting the timing of our case or the potential outcome of a settlement scenario.

Do you think you're able to, is there any comments that you have around the impact of the election to regulatory environment in Arizona?

Ryan, it's Justin again. I don't really think so. I mean, I think it's lining up the way I think people expected in terms of where the early results are. I mean, Arizona it seems like Arizona takes a little while to finalize the election results. And so we'll wait and see over the next couple of days where it ends up, but I think from our perspective looking at the different candidates and the fact that you had one candidate that was an incumbent that had probably an advantage running as an incumbent that the results probably aren't really out of the line with where we were thinking things would end up.

Thanks for the time.

This concludes the Q and A portion of today's conference. I would now like to turn the call back over to Justin Forsberg for closing remarks.

Thanks again, Dion, and thanks everybody for joining us today and for your questions. This concludes our conference call. We'll talk soon.

This concludes today's Southwest Gas Holdings third quarter 2024 earnings call and webcast. [Operator Closing Remarks].