Ladies and gentlemen, thank you for standing by, and welcome to the Southwest Gas Holdings 2021 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later floor conduct a question and answer session [Operator Instructions] I would now like to turn the conference over to Greg Peterson, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, Alexander, and thank you, everyone, for joining us. And welcome to Southwest Gas Holdings third quarter 2021 earnings conference call. As Alexander stated, my name is Greg Peterson. I'm the Senior Vice President and CFO of the company. Ken Kenny, our Vice President of Finance and Treasurer, is ill today and unable to join us. 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 accompany our discussion. Today, we have Mr. John P. Hester, President and Chief Executive Officer; Ms. Karen S. Haller, Executive Vice President, Chief Legal and Administration Officer; 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 results ended September 30, 2021, and an update to our earnings per share guidance for 2021. Also, the company will address certain factors that may impact this coming year's earnings and provide longer-term guidance for 2022. Further [Indiscernible] bat to remind you that some of the information that will be discussed today 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 of this presentation as well as 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 call over to John.

Thanks, Greg. Turning to Slide number 4. We have an outline for today's call. I'll start reviewing some highlights and recapping the investment thesis for our shareholders at Southwest Gas Holdings. Greg will follow with a review of our financial results for the quarter, including breakdown detail for each business segment. Justin will review our numerous regulatory initiatives and activities. Karen will cover recent customer growth, liquidity and capital expenditures, dividend and rate base growth and expectations for 2021 and beyond. And I will wrap up our presentation, recapping the value proposition we believe Southwest Gas Holdings offers its shareholders. Moving to Slide number 5. We present a variety of highlights for our combined businesses. First, from a holdings perspective, last month, we announced the planned acquisition of Questar Pipelines. We're very excited about this planned acquisition, which is forecasted to be accretive to earnings in 2022. Questar Pipelines is a compelling, high-return suite of assets with unique strength and stability that is both commercially and geographically adjacent to our existing portfolio. The acquisition will significantly increase and diversify regulated business mix and allows new opportunities in the energy transition with a business that has a robust stream of steady contracted earnings and cash flows. We're also very excited to have separately announced today the addition of 2 new Board members effective January 1. We're happy to welcome E. Renae Conley and Carlos Ruisanchez to our Board at the beginning of next year as we anticipate the retirements of 2 valued Board members, Michael Melarkey and Stephen Comer at our May Annual Meeting. The addition of these 2 new expertly qualified directors is the culmination of a methodical, thoughtful, planned Board refreshment effort that began last year and, as is now seen, was anticipated to bolster our Board for the…

Thank you, John. As a reminder, our earnings press release and quarterly report on Form 10-Q were made available this morning, and I invite you to read those documents for additional details of our quarterly results and outlook for 2021. For today's call, let's start with a summary of total company operating results on Slide 11. For the 12 months ended September 30, 2021, net income was $234 million or $4.02 per diluted share compared to net income in the prior year period of $220 million or $3.97 per diluted share. For the third quarter of 2021, we reported a consolidated net loss of $0.19 per share compared to third quarter EPS of $0.32 in 2020. Not presented here but detailed in the earnings press release is adjusted EPS of $0.05 per share in the current quarter, which reflects the impacts of 2 items: one, $13 million or $0.18 per share of transaction cost for the Riggs Distler acquisition; and two, a $5 million or $0.06 per share legal reserve at the utility. The next several slides detail results by segment. Let's start with the third quarter natural gas operation results on Slide 12. This waterfall chart shows the components of the change in natural gas operations results between quarters. As a reminder, due to the seasonality of this business, utility losses during the third quarter are expected. As I previously mentioned, current quarter results reflect the impact of a $5 million legal reserve. Operating margin increased nearly $18 million, including $13 million associated with rate relief in all 3 states as well as $2 million from customer growth, reflecting 37,000 first-time meter sets over the past 12 months. The increase in O&M expenses includes $2.2 million of incremental temporary staffing, training and stabilization costs associated with our new customer…

Thanks, Greg. Slide 18 highlights our most recent rate case outcomes that will contribute to an increase in revenues of approximately $66 million during the course of calendar year 2021. The continuing theme throughout each of our rate cases has been the partnerships we maintain with each of our commissions to support the very attractive growth profile of the utility. As part of our most recent rate case decisions, Arizona saw a 46% increase in rate base. Nevada, a 20% increase, which was also on the hills of an over 30% increase in 2018 and a 73% increase in California. This growth in rate base would simply not be possible without strong collaborative relationships with each of our commissions. Turning to Slide 19 and consistent with prior guidance that we provided about rate case timing, we filed a Nevada rate case during the third quarter. As previously mentioned, the Nevada Commission preferred us to file more frequent rate cases to timely recover our investment in the recently completed customer information system. In addition to this investment, the primary driver of the request is to reflect the ongoing investments to support customer demand from new growth as well as our continuing efforts to modernize our system to ensure safe and reliable service to our customers, including minimizing fugitive methane emissions. The request includes a proposed increase in revenues of $30.5 million, resulting from an increase in rate base of nearly $250 million, an almost 20% increase. The commission also established the COVID-19 regulatory asset early in the pandemic. And we are requesting recovery of over $6 million of revenue related to the deferral of late payment charges. We're requesting to recover this amount over a period of 2 years. We continue to work towards filing our next Arizona general rate case…

Thanks, Justin. I'll start on Slide 22. Our regulated utility customers give us high marks for customer satisfaction. In a survey of customers conducted through a third-party research firm, our customer satisfaction scores were an impressive 95% on a 12-month rolling average. And we are proud to rank number 1 for utility customer satisfaction studies conducted by an independent leading national consumer insights firm. For 2 years running, we were ranked first among gas utilities in the West region for business customer satisfaction. Similarly, we were ranked first in the West region for residential customer satisfaction for 2020. 2021 results are yet to be published. We were also ranked number 1 in the West for utility digital experience. This ranking affirms the enhancements we made to our digital channels, including the implementation of a state-of-the-art customer information system this year. This system enables us to deliver a higher level of service to our customers. These survey results are a testament to the excellent quality of service we provide our customers and a primary reason why 91% of customers surveyed in Arizona, California and Nevada indicated that they want natural gas in their homes. Turning to Slide 23. We provide information on our diversified and growing customer base at the utility. Customer growth in our service territory continues to be robust. In fact, we added 37,000 first-time meter sets over the past 12 months as people continue to move to the desert Southwest. In addition, we have decoupled rate designs in all 3 service territories that reduce volatility for both our customers and the company. Slide 24 illustrates our strong liquidity position. We have a $400 million revolving credit facility and a $250 million term loan. As of the end of September, we have nearly $523 million availability of combined borrowing…

Thanks, Karen. Wrapping up on Page 31, we believe that Southwest Gas Holdings offers a compelling value proposition for our investors. We are strong and growing and positioning for the future. Our natural gas operations are experiencing strong customer growth and opportunities for capital investment and rate base growth while maintaining affordability of service to customers. We'll continue to pursue successful regulatory partnerships on the many initiatives described by Justin earlier and look for expanded opportunities and helping address national goals for greenhouse gas emission reductions. All of this with anticipation of a strong growth trajectory or increased earnings and dividends for our shareholders. Meanwhile, at our Centuri Infrastructure Services business segment, we'll continue to grow our business revenues, earnings, cash flows, customer base, service offerings and geographic footprint to maximize the value of this business for our shareholders. We believe this business has great opportunities in the energy transition as it expands its electrical portfolio, grows its renewable opportunities and partners with natural gas distribution utilities to expand and refresh the natural gas infrastructure critical to support the anticipated increased deployment of renewable energy assets across our country. With that, I'll now turn the call to Greg.

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, Alexander, will now explain the process for asking questions.

[Operator Instructions] We have your first question from Richard Sunderland with JPMorgan.

Just wanted to start maybe with the Questar acquisition. What are your latest thoughts on timing and approach to the financing there?

Richard, I'll start out. This is John, and then maybe Greg can add some commentary on the end of that. But our anticipation is that this is on track to close by the end of this year or at the end of this year. As you may know from our previous discussions, we do have a 364-day loan that we have access to. And we're frankly evaluating numerous different financing options that we've been looking at. We hope to do a fair amount of that in the first quarter. It's possible with blackout periods, et cetera, that some of that may get done in the second quarter. And it's even possible that some of that gets done in this calendar year. So Greg, any other color on that?

I think you've covered that, John. We are certainly looking at the equity markets as well as the debt markets. And we're finding the efficient and best way to accomplish that long-term financing, as John mentioned. We are glad that we have that flexibility of the term loan that provides us the flexibility to seek the best financing for this transaction.

Understood. And have you thought about the stake sale at Centuri in light of kind of the new considerations that you outlined around value there as a source of funds, whether for Questar or just overall?

Sure, Richard. This is John again. That is one of the things that we're taking a look at. It's something that our Board frankly has looked at probably annually for the past several years. And it certainly would be one way of accomplishing some of that financing. So that definitely is an option on the table that we're looking at.

Understood. And then separately, at a high level, what are the goals or milestones you're looking at to demonstrate medium-term value on the back of the board's tender rejection?

Well, I think, Richard, we've got a strong growth trajectory, both at Centuri and at the LDC. And I think that the new pipeline business is going to be a really solid component to that. So I think it's really going to come down to executing on our business plan and providing you and others the proof and the accounting data that get realized from those efforts. And ultimately, I think that shareholders will appreciate that, and that will be reflected in our share price. We're also going to be undertaking a significant investor relations effort to try to make sure that the investors understand the value of the various different business components, including trying to make a special outreach to those investors that might be particularly interested or intrigued by infrastructure service companies, especially in light of the federal government's plans to fund that infrastructure significantly.

We have your next question from Julien Dumoulin-Smith with Bank of America.

It's actually Kody Clark on for Julien. First, kind of a housekeeping item, Greg, can you add a little bit more color on the drivers for Centuri's trailing 12-month EBITDA? Correct me if I'm wrong, but it looks like it was fairly flat year-over-year even when rolling in Riggs Distler. Like is there anything that you would point out to that effect?

Yes. Kody, this is Greg. Welcome to the call. As you mentioned, both of the numbers are relatively flat between the 12-month periods. As I mentioned in my comments, there was some additional storm work that was -- occurred in the prior year, 12-month period versus this year. And so there's a little bit of that in there. And overall, again, Centuri is gearing up for the expansion in their various systems. And we expect the tremendous growth to start Q4 going forward.

And then looking towards the Arizona rate case that will be followed towards the end of the year, how are you thinking about the rate increase ask as you look to roll in all of that capital? It seems like it would be a large step-up. So wondering how you would get stakeholders comfortable with it and especially with such an acute focus on low rates in the state?

Yes. Kody, it's Justin. It's a great question. It's something we're very much focused on as we're putting the filing together to make sure that we emphasize the various cost savings, cost management initiatives that have been going on that contribute to managing the reasonable level of our bills because we recognize that given the capital investments that that's going to put upward pressure. So we're very focused on the O&M side. And I think we have a good story that we're in the process of put together that will be incorporated in the filing.

Your next question comes from the line of Chris Ellinghaus with Siebert Williams Shank.

Just a little clarity on the transaction costs for Riggs Distler. I think in the press release, you also mentioned $3 million of other incremental costs. Just to elaborate on what that was and why did you not exclude that as well?

Yes. Chris, this is Greg. We were really trying to focus on those onetime incremental costs. And we knew that the cost to -- incurred on Riggs Distler and going forward for the Questar Pipelines acquisition were things that would most analysts would want to pull out in making that assessment. Some of these other costs, while they were higher, do recur on an ongoing basis.

Okay. Also, the customer information costs incrementally, are those going to be ongoing and for how long?

So for the costs that I identified were kind of the stabilization that step-up costs as we move from a system that we've been utilizing for the better part of 3 decades. We certainly needed to train and help our people move forward with that. So they were incremental costs especially incurred in Q2 and Q3 this year. That project is relatively stable going forward. The customers seem to really like it. And we will have ongoing costs associated with the depreciation of that property. But these ramp-up costs that we experienced early in this year will dissipate and go away by year-end.

Okay. Great. Justin, the COYL and VSP ruling seem to go really smoothly. How do you reconcile that with how the APS case was going? And as a second question there, obviously, they got a much lower ROE. Are you concerned about the APS ROE? Or do you feel that they treat you differently?

Well, it's a good question, Chris, and I'll answer it the same way we answer these types of questions. I think from our perspective, we have a plan of how we operate with respect to each of our partnerships with the different state commissions. We believe that regardless of the different proceedings that occur in each of those jurisdictions in Arizona and I think each of the filings in each of these utilities kind of stand on their own merit, and based on their relationships and the things that they're requesting as part of their filings. And so it's hard for me to comment about other utilities in the state and the circumstances that lead to certain outcomes. I know from our perspective, we feel like we have very good working relationships. We're very transparent and open with our regulators. This is something -- this COYL and VSP filing is something that came up back in 2019, when they wanted to suspend the surcharges because of different interest at that time. We appreciate their commitment to give us the opportunity to relook at this at a future date, which is exactly what they did. And so we're appreciative of the fact that they held up that commitment. And we feel like we held up our commitment of the bargain of providing them the information and working with them through the process.

Okay. It looks like customer growth maybe slowed a little bit in the quarter. Can you just elaborate on what you're seeing there?

Yes. Chris, this is Greg. I don't think that it slowed any or all the 37,000 first-time meter sets. As you mentioned, it's consistent with what's going on. We're very happy about that. We certainly look forward, I think, as many do to continuing customer growth. And so we're well positioned for that. We did have, as we mentioned in our quarterly report, the reestablishment of disconnects for nonpayment for certain of our customers. And so that has a little bit of impact on the total customer counts. But customer growth is strong and we expect it to stay that way for the -- certainly the near term.

I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Greg Peterson for any closing remarks.

Thank you, Alexander, and thank you all for your time today. This concludes our conference call, and we appreciate your participation and your interest in Southwest Gas Holdings.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.