Welcome to Southwest Gas Holdings First 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 in the Southwest Gas Holdings' website. [Operator Instructions] I will now turn the call over to Justin Forsberg, Vice President of Investor Relations and Treasurer of Southwest Gas Holdings. Please go ahead.

Thank you, John, and hello, everyone. We appreciate you joining our call. This morning, we issued and posted in the Southwest Gas Holdings' website our first 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 provide 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; along with Justin Brown, President of Southwest Gas Corporation; and other members of the management team, who are available to answer your questions during the Q&A portion of the call today. I'll now turn the call over to Karen.

Thanks, Justin. Thank you for joining us today to discuss the Southwest Gas Holdings first quarter results. Turning to Slide 5. The successful closing of the Centuri IPO in April marked a significant milestone in our transformational strategy of returning Southwest Gas to its core foundation as a premier fully regulated natural gas utility. We were pleased with the market's reception of the offering, and we look forward to completing the separation of Centuri in a timely manner. During the quarter, we continued to make progress, positioning the utility for long-term success and growth. We started the year by executing on our regulatory strategy at Southwest with filings in Arizona and Great Basin, and we received approval of our Nevada case, which was a constructive regulatory outcome. Additionally, we finished the first quarter with another quarter of record operating margin over the last 12 months. Customer growth and demand remains strong, and the entire Southwest Gas team is acutely 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. We are encouraged by the strong momentum underway. We are affirming our 2024 to 2026 guidance estimates and expect 2024 utility net income towards the upper half of our range. The expected revenue increases from rate cases will provide net income growth, which as a result of rate case timing will continue to be nonlinear over the forecast period. We expect our refreshed rate structures to benefit us in catching up with the historic inflationary environment we have experienced…

Thanks, Karen. On Slide 11, we outline our earnings per share performance for the year. The company's consolidated GAAP and adjusted EPS are shown by each consolidated entity. As Karen mentioned earlier, the utility has performed on plan during the first quarter and we saw results at Centuri that were consistent with what was outlined in the Centuri S-1. The utility generated its highest quarterly net income on record, and we saw significantly lower losses at the holdings company on a comparative basis as strategic costs were lower this year following the sale of MountainWest in early 2023. On an adjusted basis, Southwest Gas Holdings finished the first quarter of 2024 with EPS of $1.37 a share, a decrease of $0.40 per share when compared to Q1 of 2023. In the appendix, we provide a reconciliation of adjustments by operating company. The vast majority of the first quarter 2024 adjustments relate to the Centuri separation costs and amortization of intangible assets at Centuri, while Q1 2023 adjustments also include impacts from the sale of MountainWest that was completed in February of 2023. Note that the amortization of intangible assets at Centuri is a new adjustment this quarter and is consistent with treatment by other Centuri peers in the utility infrastructure services sector. We have provided that adjustment to help investors better compare Centuri's performance with other companies in the sector following the Centuri IPO. This adjustment has been shown for the same period in the first quarter of 2023 for consistency and comparative purposes. Now I'll provide a walk through on the performance of Southwest Gas Holdings and the utility. Turning to Slide 12, we depict the consolidated earnings walk on an adjusted basis. It should be noted that post-IPO, so long as Southwest Gas meets the consolidation requirements, we…

Thanks, Rob. Our first quarter results are evidence of the progress we continue to make executing our strategy, and we are enthusiastic about the rest of 2024. On Slide 17, we are affirming our 2024 Southwest net income guidance to be in the range of $228 million to $238 million. We are confident that strong regional economic outlook in our territories, the completion of our Nevada Rate Case outcome as well as expected results of our cost management efforts will drive 2024 results towards the upper half of the net income guidance range. Our team remains focused on optimizing utility operations. We affirm our 2024 utility CapEx at approximately $830 million, partly due to expected customer growth utility. As a reminder, this would be an increase over 2023 of about $70 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. Some of this increased 2024 CapEx is a result of the responsibility we have to invest in our infrastructure to meet the better-than-expected customer growth and favorable new business trends across our service territories, combined with the required investments we make to enhance the safety and integrity of the system. And part of the increase is driven by our continuous improvement initiatives, which we expect to lead to future expense savings at the utility. Looking further out, we still expect compounded annual growth rate for net income at the utility to fall within the range of 10% to 12% from 2024 through 2026. While the impact of the regulatory cycle is expected to result in somewhat lumpy net income growth over the forecasted period, our regulatory strategy and our plan to achieve a flat O&M per customer trend over that same period are expected…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Chris Ellinghaus from Siebert Williams Shank & Co.

Rob, is there any color that you can provide in terms of the way you envision the cadence of reducing the Centuri stake over time?

Yes, I think at this time, we continue to evaluate the options with respect to the balance of the Centuri stake. Obviously, as Karen had highlighted, we have the net operating loss position, which provides us flexibility to potentially pursue a taxable transaction, which could take the form of sell-down or exchanges or some combination thereof. Just again, we'll continue to evaluate that, along with Centuri performance while continuing to preserve the tax-free option of a spin or a split. So at this time, we continue to evaluate the post-IPO options, and we'll put more information out as that evaluation unfolds.

Okay. Karen, you didn't talk too much about the economy this time. Have you got anything that you want to add vis-a-vis what's going on in Vegas or in the Phoenix area with your, I guess, the right words vibrant economies.

Yes. I would agree. Vibrant economy as we've -- last quarter, we laid out a number of different things and talk specifically about some of the projects that are going on. And so some of that's in our materials. But you're correct. We continue to have excellent growth and things going on in our different jurisdictions. The Arizona area continues with manufacturing and tech growth, and we've opened a number of a couple of new casinos and different resort areas, continue to be entertainment, sports here in Las Vegas and the Nevada area. So we've seen a number of areas that we continue to grow and expect that to continue.

Okay. You obviously lost one casino recently, but is the influx of sports volume affecting your business in any, I assume positive way in terms of sort of visitor throughput. But can you sort of just describe how sports is affecting your business in Vegas?

Well, I think, as you pointed out, we've lost one casino, but that casino will be replaced with a baseball facility here in time. So most of that land that's right down on the Las Vegas Strip. And so if something does close, we usually see it followed by something bigger and probably greater demand. So we anticipate -- so from that standpoint, there is facilities that are going on or will be built on that location where the trough can close. I think that there's a number of facilities that sports have broad. I mean we have Allegion Stadium, the T-Mobile Arena, and we provide to those different facilities as well. And as you've seen, there's been a great influx of, I think, customers, which supports the economy provides growth and provides growth for our residential market. We are -- have strong residential growth, which is here and supports all of the commercial growth that's going on.

In terms of new casinos, I think there's one piece of property that looks like you might get another one. Has there been an announcement of -- down in the -- I want to say it's in the Fountain Blue kind of neighborhood? Is there any sort of vision on what's up with that property there?

I don't have any specifics at this time on that.

Okay. And lastly, have you got any more updated thoughts on the Arizona tracker process?

I don't think we have anything that we haven't discussed thus far. We've obviously filed for the tracker in our Arizona rate case. We've had discussions and feel good about the position that we're in on our request with that tracker. We're not going to -- as you know, with the process and timing in Arizona will be later this year before we even get intervener testimony and a hearing wouldn't be expected until probably November of this year. So we'll know more as the case progresses. But at this point, I don't have anything new on it.

The next question comes from the line of Ryan Levine from Citi.

How does Southwest or does Southwest Gas have a preference for formula rates versus future test years in Arizona? And how could these potential lag-related hearings this summer impact the SIB tracker process for proceedings?

Ryan, Justin is here with me. I'm going to let him respond to that.

Ryan, I don't know if there's a preference. I mean, I think we're just very encouraged that the commission continues to be focused on making structural improvements. I know I think probably in June, they're going to be having further discussions around kind of next steps on how this rulemaking or investigatory docket is going to proceed. I know we've presented on kind of the future test year kind of ratemaking model that we experience in California. They've asked for some additional information on that. So I think that's encouraging. And we're just excited to participate and excited that they continue to be focused on making incremental improvement there.

And I heard, I guess, during the last hearing, the request for some of the additional comparison of California versus state. I mean does that -- and under what format is that information communicated? Or is there a lot of back and forth as they compare different jurisdictions with for test use?

Yes. I mean I think it's really kind of describe it like an investigatory doctor, right? I think there's a lot of -- you had the workshop in March, and I think they're going to look to have kind of another workshop they need to get scheduled. But I think a lot of it is just trying to understand, is there a single model that they want to go to? Or do they want to have an approach where kind of like you mentioned, there's different options for different utilities. So I think that's something they're trying to figure out. And I think that's just going to unfold as we go through the workshop process and they learn more about kind of the different models that are there.

Got you. Unrelated topic, what's the outlook for the NOL balances into next year? And is there any impact of a timing on a Centuri sell down with the timing of a potential tax-free spin future -- in the future?

Ryan, as to the timing with respect to what we do with Centuri, I think we mentioned we're in a 6-month lockup following the IPO. And so that will impact the timing. And following that, as I indicated, we're committed to continuing with the separation. I'll go ahead and let Rob answer your question with respect to the NOL.

Ryan, yes, so we don't provide the forward guidance on the NOL position, but would just refer you. We had just about $1 billion of NOLs as of the end of the year. And so that's obviously a substantive position that could be used to offset taxable form of a transaction. We think that provides us a lot of optionality with what we do with that 81% stake.

Okay. And then last question. Now that the IPO is complete, should we look for more comprehensive financial guidance from Southwest Gas given that restriction is lifted?

Ryan, we wouldn't expect to change the longer-term guidance of us, which you're referring to until we really understand what the full separation of Centuri looks like. So once we've completed that, we'll be in a better position to be able to provide longer-term guidance.

Operator Instructions] There are no further questions at this time. This concludes our Q&A session. I will now turn the call over back to Justin for closing remarks.

Thanks, John, and thank you all for joining us today and for your questions. This concludes our conference call, and we look forward to seeing many of you soon as we participate in conference activities next week at the Citi Global Utilities Conference in Boston, followed by the AGA Financial Conference in Palm Desert, California as well as other events a little further out. I wanted to highlight that we recently launched a new investor website, which is intended to help you to find information about the company more easily. Please let us know your thoughts as you navigate the updated site. Slide 19 of today's presentation also includes my content information. And as always, feel free to reach out at any time. Thank you for your interest in Southwest Gas. Have a great day.

This concludes today's Southwest Gas Holdings First Quarter 2021 Earnings Call and Webcast. You may disconnect your line at this time. Have a wonderful day.