Welcome to Southwest Gas Holdings Second 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. Please go ahead.

Thanks, Joanna, and hello, everyone. Thanks for your interest in Southwest Gas. This morning we issued and posted to Southwest Gas Holdings website our second 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; 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.

Thanks, Justin. Thank you for joining us today to discuss the Southwest Gas Holdings second quarter results. Starting with 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 are 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 continue to make progress positioning the utility for long-term success and growth. 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. We are looking forward to filing our general rate case in California later this month and continue to work collaboratively with our stakeholders in Arizona as we look forward to receiving their testimony next month on our pending rate case. Additionally, we finished the second 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-based growth. We are encouraged by the strong momentum underway and we are raising utility 2024 net income guidance by $5 million to now be in the range of $233 million to $243 million. We are also…

Thanks, Karen. On Slide 10, we outline our earnings per share performance. The company’s consolidated GAAP and adjusted EPS are shown by each consolidated entity. As Karen mentioned earlier, utility finished the first half of 2024 with a very strong balance sheet and record net income. Southwest Gas Holdings finished the second quarter of 2024 with nearly $600 million of cash on hand, following the full collection from utility customers of the previously deferred natural gas costs from the 2022-2023 heating season. Consolidated adjusted EPS at Holdings was $0.31 per share during the second quarter, which reflects a decrease of $0.23 per share when compared to the second quarter of 2023, reduced by the impacts of lower volumes of Master Service Agreement work and bid work at Centuri, and the higher interest expense at the HoldCo, partially offset by the strong utility performance. In the appendix, we provide a reconciliation of adjustments by operating company. The vast majority of the second quarter 2024 adjustments relate to the amortization of intangible assets at Centuri and separation-related transactions adjustments, while the second quarter 2023 adjustments also include the impacts from the consulting fees related to the utility optimization program. Now I’ll provide a walkthrough on the performance of Southwest Gas Holdings and the utility. Turning to Slide 11, we depict a consolidated earnings walk on an adjusted basis. During the second quarter, the utility benefited from continued customer growth and rate relief, partially offset by modest O&M increases, as well as reductions in interest income, all of which are discussed in detail on the next slide. Centuri’s consolidated results were lower for the quarter, as the second quarter of 2023 benefited from higher volumes of work under MSAs, as well as higher offshore wind work and above-average natural gas bid work that…

Thanks, Rob. Our second quarter results are evidence of the progress we continue to make executing our strategy and we’re enthusiastic about the rest of 2024. On Slide 16, we are raising our 2024 utility net income guidance by $5 million, as mentioned earlier. This reflects performance thus far, as well as expectations over the balance of the year. We believe that strong regional economic outlook in our service territories, the completion of our Nevada rate case outcome, as well as expected results of our cost management efforts, will drive 2024 results higher than our original 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 have adjusted 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 maintains our outlook through 2026 and reflects the now higher expectations for the 2024 base year. 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 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 23. We also reaffirm our rate-based CAGR 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 $8.4 billion in total of CapEx over the next three years. Before we open the call up to Q&A, I want to point to Slide 17 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-based 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 at JPMorgan. Please go ahead.

Hi. Good morning. Thank you for the time today.

Good morning, Rich.

For the Centuri separation, can you run through your current thoughts on the relative attractiveness of a tax-free scenario versus generating proceeds to pay down debt? I guess, I’m also curious here if you’re focused on the absolute price of CTRI or that relative price between CTRI and SWX?

Hey, Rich. It’s Rob. Look, we continue to evaluate the separation options. Obviously, we’re looking at relative value between the two stocks. We’re very focused at this point in time in the process to place a permanent CEO at Centuri. And so as we look out to kind of separation alternatives, we’re focused on the placement of that permanent CEO, and we’ll continue to monitor market conditions. I think when you look at our net operating loss balance, as Karen had highlighted, it obviously makes a sell-down or a taxable exchange a potentially attractive option. We really reserve the spin scenario in the event of adverse kind of market conditions or other conditions, but are obviously looking hard at the sell-down and exchange.

Got it. That’s very helpful. Thank you. And then just on timing here, is there a scenario where you could do something before the lockup expiry? I guess just overall, how do you think about balancing speed to separation against all the factors you just ran through?

I think, like I said, we’re focused on the process to put a permanent CEO in place. Paul Caudill is serving as the Interim CEO and has a long track record, both in the EPC services, as well as his time as CEO of NV Energy and his time within Berkshire. So we have a lot of confidence in him as an Interim CEO, but we are looking through that process of placing a permanent CEO. From a timing perspective, the lockup period expires here in September, would be an early look. I think just given where markets are, we’re focused on that CEO placement in the near-term.

Great. This is all very helpful. Thank you very much for the time.

Thanks, Rich.

Thank you. Next question comes from Ryan Levine at Citi. Please go ahead.

Hi, everybody. I saw the ATM news this morning. Any color you could share around the reason for that filing and the size of the $340 million amount in that filing, any color you can give…

Yeah. Good question, Ryan. First, I’d highlight the $340 million is the exact amount that was outstanding under the prior shelf. We haven’t changed the size from several years ago when that was issued. We didn’t utilize the ATM in prior periods and so it’s really just an extension so that we have the ability to execute the ATM if we need it. As we said on the call, we have less than $75 million of equity needs this year and there’s a chance that we may not choose to go to market. Obviously, if we were to embark on a strategy to sell down Centuri shares, then that could obviate the need to raise $75 million. We also continue to look at our cash flow generation from the utility and continue to look at do we need to do all $75 million this year or not. But the ATM was effectively just refreshed in order that we could do the $75 million this year if we needed it. Similarly, next year, our equity needs, as we’ve stated before, we’ve set $150 million in total over the next couple years. So, we have about $75 million of equity needs in each year, 2024 and 2025, so very limited equity needs. There’s really no debt refinancing needs. We redid that term loan at Holdings like we talked about. So, all in all, very strong balance sheet with $600 million of cash, access to our credit facilities and we’ll continue to evaluate even the need for the $75 million. Does that help?

Thank you. Yeah. I appreciate all the color. And then in terms of the $0.09 HoldCo drag or parent drag, can you delineate what that is in terms of how much is interest expense versus maybe one-time in nature cost versus amortization or other items that may be embedded in that $0.09 change?

Yeah. So the -- as you think about it, we put the term loan, the $550 million term loan in place early in the second quarter of 2023 or kind of in the April timeframe. And so we -- as far as the first half of the year, the year-to-date-over-year-to-date, that in 2024 the term loan was obviously on a year-to-date basis outstanding for a longer period of time than it was year-to-date in 2023. The -- when we refinanced that term loan, we did compress the spread from 130 basis points down to 112.5 basis points. We just closed on the extension of the term loan earlier this week. And so, the -- from an adjustments basis, obviously at the Holdings level there is some noise in there just around our costs associated with the Centuri separation IPO, which we’ve adjusted out. So the vast majority of the cost at the Holdings, though, is the interest expense. There’s very limited overhead at the Holding level.

So most of the $0.09 you’re saying is the financing year-over-year comparison?

Yes. That’s right.

Okay. Thanks for the clarification. Thank you.

[Operator Instructions] This concludes the Q&A portion of today’s conference. I would now like to turn the call back over to Justin Forsberg for closing remarks.

Thanks and thank you all for joining us today and for your questions. This concludes our conference call. Slide today -- Slide 18 of today’s presentation includes my content information, and as always, feel free to reach out at any time. We appreciate you joining us today. Talk soon.

This concludes today’s Southwest Gas Holdings second quarter 2024 earnings call and webcast. You may disconnect your line at this time. Have a wonderful day.