Ladies and gentlemen, thank you for standing by, and welcome to the Southwest Gas Holdings 2020 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would like to hand the conference over to one of your speakers today, Ken Kenny, Vice President of Finance and Treasurer. Sir, please go ahead.

Thank you, Michelle. Welcome to Southwest Gas Holdings Inc. 2020 third quarter earnings conference call. As Michelle 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 September 30, 2020 and to reaffirm earnings per share guidance for 2020 as the company will discuss certain factors that may impact this coming year's earnings. Further, our lawyers have asked me to remind you that some of the information that will be discussed contains forward-looking statements. These statements are based on management's assumptions, which may or may not come true, and you should refer to the language on Slide 3 and 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 statements. With that said, I would like to turn the time over to John.

Thanks, Ken. Turning to Slide 4, highlights for our third quarter include the following. First, at the holding company level, we experienced earnings per share of $0.32. We also saw S&P upgrade its outlook for Southwest Gas Holdings and Southwest Gas Corporation from negative to stable. And finally, we recently released our 2020 sustainability report, which details many of the initiatives we are undertaking to support our commitment to the environment, our communities, our employees and corporate governance. At our regulated utility operations, our third quarter highlights included continued robust customer growth that added 37,000 first-time meter sets over the past year, a decrease in operation and maintenance expense of $7.9 million, increased income from company-owned life insurance of $4.3 million, and a resolution of our Nevada general rate case application that provided us refreshed rates effective October 2020. Meanwhile, at our Centuri infrastructure services segment, we realized record third quarter revenues of $580 million and net income of $34.9 million. A portion of our record third quarter financial results related to emergency storm support services to our electric utility customers that experienced significant facility damage due to numerous regional hurricane. And as is the focus of our Centuri business segment, 90% of our trailing 12-month revenues accrued from work performed for our regulated utility customers. Moving to Slide 5, we provide an outline for today's call. First, Greg Peterson will provide a report on our third quarter financial results with segment detail for our regulated and utility infrastructure services businesses. Justin Brown will provide a comprehensive report on our various regulatory activities. And I will close with a report on our management of COVID-19, our growing customer base, capital rate base growth and liquidity, our recently issued sustainability report and our expectations for the remainder of 2020 and beyond. With that, I will now turn the call over to Greg.

Thank you, John. As a reminder, our earnings press release and quarterly report on Form 10-Q were made available yesterday afternoon. And I invite you to read those documents for additional details of our third quarter results and outlook for 2020. For today's call, let me start with the summary of total company operating results on Slide 6. For the 12 months ended September 30, 2020, net income was $220 million or $3.97 per diluted share compared to net income in the prior year period of $192 million or $3.59 per diluted share. For the third quarter of 2020, consolidated net income was $18.3 million versus $5.4 million for the prior year quarter. Third quarter EPS rose from a dime in 2019 to $0.32 in 2020. The next several slides detail results by segment. Let me start with Centuri's third quarter results on Slide 7. As John mentioned earlier, Centuri, our utility infrastructure services segment, posted record third quarter net income of $34.9 million, a $9 million or 35% increase over the prior year quarter. Revenues were also at record levels for the third quarter and included nearly $49 million associated with emergency restoration services for customers following hurricane damage in the Gulf Coast and Eastern regions of the U.S. At the peak of this effort, we had over 600 employees working 16-hour days to restore power to thousands of homes and businesses, while remaining vigilant in protecting the health and safety of themselves and the community. These employees were diverted from other work to perform these emergency services and return back to their original assignments once the emergency needs of our customers, primarily electric utilities, were satisfied. Higher volumes of gas and electric infrastructure work under blanket and bid contracts were also realized during the third quarter of 2020.…

Thanks, Greg. We made some good progress on several of our regulatory initiatives during this quarter. First, FERC approval of our Paiute rate case settlement became final in August. We also filed our proposed California rate case settlement the first week of August. We completed our Nevada rate case hearings in August and received a final order in September that resulted in new rates in October. And we’ve reached several key milestones on some of our expansion projects and sustainability efforts. I will update each of these in a little more detail starting on Slide 12, which provides an overview of our $90 million rate case in Arizona. We completed the legal briefing stage in mid-September. As we've previously mentioned, we've always anticipated seeing a recommended opinion and order within 30 days to 60 days following legal briefing with new rates before the end of the year. We are still within that timeframe, and we anticipate receiving a recommended opinion and order within the next couple of weeks and would anticipate being on the December agenda, which is currently scheduled for December 8 and 9. Moving to Slide 13 and our Nevada rate case. As I mentioned previously, we completed hearings in August and received a decision the end of September. New rates became effective in October. The decision authorized the revenue increase of $23 million with an ROE of 9.25% and an equity ratio of 49.26% relative to an approved rate base of $1.48 billion. The rate case also approved the unamortized amounts of the previously disallowed software projects from our 2018 case, as well as costs associated with our expansion project in Mesquite and full cost recovery of the test year amounts of the customer, the CDMI project. We also received approval to continue with our fully decoupled…

Thanks, Justin. Turning to Slide 18. While the COVID-19 pandemic has thrown a number of challenges at us and our customers, we continue to navigate those challenges effectively, ensuring all the while that safe, reliable, and affordable natural gas service is provided to our customers without interruption or inconvenience. Numerous protective protocols have been affected to ensure the maximum health and safety of our employees and our customers, including a continuing work from home program for most office employees, increased utilization of personal protective equipment along with social distancing, temporary suspension of utility late fees and disconnections for non-payment to our customers along with outreach programs to provide financial support and coordination of available governmentally sponsored financial support programs, working with our numerous contractors to share best practices and ensure their aggressive use of PPE and social distancing practices. Continuing on Slide 19, we are also continuing dialogues with our community leaders, increasing charitable contributions to organizations that provide COVID-related support, watching for any potential financial impact from the pandemic. Although utility margin under decoupled rate structures remained strong, employees continue to be healthy. And as Greg reported, utility bad debt expense rose only $150,000 this past quarter. That said, we'll continue to partner with our utility regulators to ensure timely recovery of our cost of providing service to our customers. On Slide 20, we detail our growing diversified customer base across three states. As previously mentioned, we experienced 37,000 first-time meter sets for the 12-month period ending September 30, 2020 as homebuilding in our service territory remains strong and those homebuilders and homebuyers continue to demand natural gas service. Existing home inventory has been low and prices have been increasing, as both Arizona and Nevada continue to experience in-migration from other states around the country. Turning to Slide 21.…

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

Thank you. [Operator Instructions] Our first question comes from the line of Richard Ciccarelli with Bank of America. Your line is open. Please go ahead.

Hi, thanks for taking my call, and appreciate the very robust update there. Just curious on the ACC elections here, it seems like you have two republicans and one democrat in the lead right now, still some votes left to be count. Just curious where things are sitting as you see them? And how does that impact the timing of the rate case outcome here? I believe we have some open meetings coming up with the potential ALJ rec. What gives you confidence in the decision by year end?

Hey, Richie, it's Justin. Yeah, I mean, I think as you described, they're still counting votes, but at the moment it looks like it will be Anna Tovar, who is the democrat leading vote gainer, and then also Lea Marquez Peterson, who is their current commissioner followed by Jim O'Connor. So, obviously, they are super close in terms of those votes, but they're still counting. So hopefully we'll get some finale of that in the next couple of days. But we don't anticipate that impacting kind of our anticipated schedule. Again, we've talked before about our experience has been kind of that 30 day to 60 day window that we're still in. I know that the commission has their December agenda set for the 8th and the 9th. I also know that they have a couple of contingency open meeting dates; one, the end of November, one the middle part of December. So, I feel confident that there’s four opportunities for us to get on an open meeting agenda. And we also anticipate seeing a route here in the next couple of weeks. So that's just based on our historical experience, as well as kind of what they've got planned out for the remainder of the year in terms of open meeting opportunities.

Got it. Thank you. That's very helpful there. And then just separately, on your updated drivers for 2020, it seems like you're able to bend the cost curve at the utility there. Just curious, how we should be thinking about where you sit within that range? And what are the key drivers that we should be thinking about here for the remainder of the year?

Richie, this is Greg. As we have indicated, certainly the COVID-19 [Technical Difficulty] as you mentioned, as we indicated, been able to ramp down the number of people that come into our offices. Over 80% of our office staff works from home and there have been some cost savings associated with that. We've been able to manage the impacts as we reach out to customers and provide the services we need. We found ways to safely and efficiently change service for customers without personal contact, and that has saved us the money as well. So, we are well situated to continue some of these savings into the future. As we have mentioned though, we think it's an important part of the ongoing business success of our company to have interactions, to reach out and participate in person in various conferences and meetings with our customers and suppliers. That has been limited at the time and that has been cost savings to us. However, we expect some of those to come back in the future. So, the long answer to your short question is, we expect to receive the benefits and things that we've learned on an ongoing basis in saving money and keeping our costs down. But we do expect cost to ramp back up in some fashion later in the fourth quarter of this year and as we move into 2021.

All right. So, just with those cost savings, you're still confident in the range that you provided, but not necessarily pointing to the top end or anything like that?

Yeah. We are very confident in the range that we have provided. And I think as Justin has mentioned and John would concur, one of the outstanding items in our guidance range will be the timing and amount of Arizona rate relief.

All right. Greg, thanks a lot. That's all I had.

Thank you. And our next question comes from the line of Ryan Levine with Citi. Your line is open. Please go ahead.

Hi, good afternoon. Given the contract structures at Centuri that you're – that you added in the appendix, are you seeing opportunities for margin expansion in light of COVID-19, changes to work procedures and costs or is that cost initiative more in the utility thing?

Ryan, this is Greg. The cost initiatives that we've talked about are really on the utility side. Centuri, again, they're work is performed substantially by people outside their office structure. And again, they are utilizing appropriate protective measures, including the appropriate use of PPE and distancing where possible. But they continue to go out and perform their construction services and the necessary emergency services that were highlighted in the third quarter. So they like the utility have found some efficiencies, but in general, those cost saving measures that we've talked about are focused on the utility side.

And then also, can you quantify the impact of some of the storms this quarter on Centuri's results?

Yeah. This is Greg. Those results we've talked about, the incremental revenues that came from storm work. But of course, as I mentioned, the people that worked on that, the 600 plus employees at the peak that were working on emergency restoration work were pulled from the other profitable work that they were doing for the same or different customers. And each of these contracts and each of the incidents were very considerably. So, while I think it's safe to say that safety and these restoration services were more profitable for us. We haven't put out any quantification other than we expect to have revenues increase this year to the levels that we talked about and the three year revenues to increase 5% to 8% annually.

Okay. I mean, is there a way to frame just the scope of the benefit even if you're not going to share the specific numbers? I mean, are we talking about pennies per share in terms of upside or is it going to be more or may have been more substantial?

Yeah. I don't think we've got any more definitive information that we want to share on the call, other than certainly, if you look at the third quarter results and you look at the incremental revenues, I think you can draw some conclusions about the incremental profitability of the overall increase in revenues, and you can see the relationship of revenue increase from storm work to the overall revenue increase. So, I think that math can give you some ideas, but I don't think we're providing any specific information other than that.

Okay. I appreciate it. Thank you.

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Mr. Ken Kenny for any further remarks.

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

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.