Welcome to Southwest Gas Holdings fourth quarter and full year 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 twelve 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. If you would like to ask a question at that time, please press star one on your phone. I will now turn the call over to Justin Forsberg, Vice President of Investor Relations and Treasurer of Southwest Gas Holdings. Thanks, Constantine, and hello, everyone.

Thanks for joining the call today. This morning, we issued and posted to Southwest Gas Holdings website our fourth quarter and full year 2024 earnings release and the associated Form 10-Ks. 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 2025 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 and 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 two and three of this presentation, today's press release, and in 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 four, 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 results and outlook. Starting with slide five, Southwest Gas Holdings continues to press forward on our transformational strategy of becoming a premier fully regulated natural gas utility. Following the successful Century IPO last April, and recent onboarding of Chris Brown as the new Century CEO, we continue to monitor market conditions with respect to our separation strategy options. We remain very focused as we made significant progress positioning the utility for long-term success and growth. We advanced our regulatory strategy and are seeing positive impacts as we recover investments in enhancing safety, reliability, and our ability to meet the needs of our growing customer base. We have also begun to see tangible benefits of our utility optimization strategy. The utility finished the year with record annual operating margin performance and the second straight year of a return on equity over 8%. Customer growth and demand remained strong, and the entire Southwest Gas team is 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 our customers' demand for safe, reliable, and affordable energy solutions. Southwest Gas has strong momentum heading into 2025, and we expect utility net income to land within the range of $265 million to $275 million for the full year. We expect net income growth will be driven by margin and improvements related to our regulatory strategy as well as our continued cost management efforts. Looking further out, we are planning for robust capital spending driven by economic activity in our service territories, which we expect to drive strong rate base growth. You can see our refreshed guidance metrics…

As noted on slide seven,

our strong balance sheet provides us with flexibility to be thoughtful in our approach to capital investments and our efforts to deliver shareholder value. I'll highlight a few of our team's achievements on slide seven. At the utility, we continue to see strong growth as a result of strong economic activity that continues to drive significant in-migration with about 41,000 new meter sets added during the last twelve months. At the end of 2024, we had more than $360 million of cash on hand across the enterprise, enabling us to honor our commitments and execute our 2025 strategy. We remain excited about the future of the company. Now to Justin. Thanks, Karen.

On slide nine, you'll see an overview of the progress we made on our regulatory strategy. In early 2024, we completed our general rate case in Nevada with a positive outcome, receiving approval to start recovering on the nearly $300 million of investments we have made to ensure safe and reliable service to our customers, which resulted in a revenue increase of approximately $59 million, which represents 98% of our request after consideration to proposals on depreciation rates and cost of capital. At Great Basin, refresh rates went into effect in September subject to refund and were later adjusted in November to reflect settlement rates. We anticipate a final decision being issued by April. Our $50 million California case is progressing on schedule and as expected. We are scheduled to receive intervener testimony in April with a hearing this summer and new rates effective in January of 2026. I'll discuss Arizona in more detail on the next slide, but I'm pleased with the progress we've made on refreshing rates and minimizing regulatory lag in each of our jurisdictions as we remain steadfast in our commitment to working collaboratively with our regulators on constructive outcomes. Turning to slide ten, our Arizona rate case continues to progress on schedule with the ALJ issuing a recommended opinion in order last week. We intend to continue to work with the commission staff and file comments reiterating the fair and balanced nature of the stipulated issues that were agreed upon at the time of hearing, including a $96 million revenue increase and an ROE of 9.65% with a fair value increment of 0.73%. The commission is scheduled to vote on our case March 27th. You may recall our application included a proposal to implement a capital tracker program referred to as our system integrity mechanism,…

Thanks, Justin.

On slide thirteen, we provide a consolidated earnings walk on an adjusted basis. Through 2024, the utility benefited from rate relief and continued improvement. This improvement was partially offset by higher interest expense and lower other income, both of which are primarily related to changes in regulatory balance, depreciation, and amortization, all of which are discussed in detail on the next slide. Centuri's consolidated results were lower for 2024

as 2023 had benefited

from higher offshore wind work and above-average natural gas bid work,

that did not recur in 2024. 2024 also saw an unforeseen reduction in the volume of work under MSAs in Century's natural gas business lines. Partially offsetting these decreases, Century saw lower interest expense over the period due to IPO-related debt as well as the benefits from a securitization transaction during the second half of 2024. In addition to the impacts from the removal of Mountain West in 2023, the holding company had lower overall operating expenses, partially offset by higher interest expense compared to 2023, primarily associated with higher variable interest rate impacts associated with the term loan and the amounts outstanding on the holding company revolving credit facility. In the appendix, we provide a reconciliation of adjustments by operating company. The vast majority of the 2024 adjustments relate to the amortization of intangible assets and receivable securitization-related costs at Century and separation-related transaction adjustments, while in 2023 adjustments also include the impacts from the loss on the sale and previous integration of Mountain West, as well as consulting fees related to utility optimization. Moving on to slide fourteen, you will see the year-over-year performance driver for our utility, Southwest Gas Corporation. In 2024, utility operating margin increased by $72.5 million compared to 2023. This improvement was driven primarily by $66 million of increased rate relief resulting from prior investments in Nevada and California. In addition, we saw $12 million of improved margin as a result of customer growth throughout our service areas. The remaining increase largely relates to the combined impacts of certain infrastructure and similar tracking mechanism surcharge components, which combined with the variable interest expense adjustment mechanism in Nevada resulted in $9 million higher operating margin this quarter. These increases were partially offset by about $7 million of lower regulatory amortization, of which a comparable decrease…

Our 2024 results illustrate the progress we continue to make executing our strategy and we are committed to building on that momentum throughout 2025 and beyond. On slide eighteen, we show our utility guidance for 2025. Along with our refreshed forward-looking guidance at the utility. We currently expect 2025 utility net income to be in the range of $265 million to $275 million. We believe that our regulatory efforts and strong regional economic outlook in our service territories will drive 2025 results above that, which we saw in 2024. With 2024 earnings normalized for the benefits we received from higher than anticipated interest income from the impacts of elevated cash and PGA balances. One-time costs and COI, our forecasted earnings for significantly higher margin growth through regulatory proceedings as a result of the investments we've made for the benefit of our customers to be partially offset by the impacts of cost from inflation, higher depreciation and amortization expenses, higher expected interest expense related to variable rate bonds, and forecasted year-over-year tax impacts. Partially due to anticipated economic activity, we are expecting 2025 utility CapEx to be approximately $880 million, which would be a modest increase above the regulatory cycle. We will result in nonlinear net income growth over the forecast period. Our regulatory strategy and our plan to achieve a flat O&M per customer trend over the same period are expected to be important components of our growth story going forward. You can find additional long-term drivers in the appendix of our presentation on slide twenty-six. We've also provided our forward-looking CapEx spending plans now showing a five-year forecast of about $4.3 billion from 2025 to 2029. We expect our rate base compounded annual growth rate to be in the range of 6% to 8% over that five-year period. Each of our forward-looking forecasts compounded annual growth rates are calculated off of a 2025 base year. As Rob mentioned, we will continue to pay the same dividend while we work to effectuate the further separation of Century.

Before we open the call up to questions, I'm going to point to slide nineteen 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 the next steps to fully separate Century to create a more attractive value proposition for stockholders. With that, I'd like to open the call for questions.

At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Your first question comes from the line of Chris Sellinghouse from Saybrook Williams. Please go ahead.

Hey, everybody. How are you? Good morning, Chris. Morning. Karen, you talked about

the nonlinear growth with the formula rates, respectively, in Arizona,

do you see some convergence towards a more linear kind of relation over time?

I think when I speak to the nonlinear, certainly, under our current regulatory structure, it's nonlinear. And I think if we're able to give more of a formula rate in place, absolutely, that would it would be more of a linear growth, I would expect.

Okay. And, Karen, you also mentioned I can't remember what language you used, but market conditions. I presume that means price per Century. Is that what you meant and, you know, the stock's somewhat depressed at the moment. Does that factor into your timing thinking right now? You wanna see how the new CEO does, I guess, would be the way to put it.

Well, certainly, positively since we last we do have onboarded Chris Brown and he is, you know, been with the company for just about three months now, and we think that is a real positive and one of the first steps that was important towards moving towards our next steps on separation. But I would just indicate that we're watching and looking at all of the market conditions that would impact and assessing our different options on a go-forward basis. So I would not limit it to just a price consideration.

Okay. Given

you know, that you're in an evaluation mode, does that suggest that the process could extend into next year?

What we'll continue to watch the market conditions. As I've indicated before, we'll update you as soon as we have more to that we can share with shareholders, but I will emphasize that we are very focused on moving forward with our separation.

K. Justin,

you talked about gas adequacy. Do you have an opinion at this point? And, you know, given sort of prospectively the load growth in your region, certainly can expect a lot of new gas generation. So does it does that represent an upside in your view to sort of what your longer-term CapEx

looks like for the Hey, Chris. Yeah. I mean, I think it I think it can. Know, a lot of times, some of the generation is cited closer to the interstate facilities, so less of us. But I think it's that continued migration, you know, across our service territory through that economic development that trickles down into our core business. And I think just the general sentiment of moving into a direction where natural gas is a good thing for our economy. It's a clean-burning fuel. I think just that general sentiment is also helpful.

Does, you know, does your sort of your perspective on the growth and how it will affect residential and small commercial sort of factor into what the ACC is getting at. Also, or are they more thinking about the large load customers?

I think it's an all of the above, Chris.

K. I think it's just the need

the need for affordable, reliable, sustainable energy and dealing natural gas is a key component of that across the board.

Okay. Thank you.

As a reminder, if you'd like to ask a question, please press Your next question comes from the line of Steven DeAmbrizi from Ladenburg. Please go ahead.

Hi. Thanks very much for taking my question.

Good morning. Good morning, David. I just

Hi, everyone. I just had two quick ones. The first one is just

does the updated utility net income CAGR assume any impact from pending SIM mechanism or, you know, a future filing

under, like, subsequent GRC filing under the ACC formula rate policy statement.

This is Rob Stefani. Yeah. The the the rage does doesn't include the formula and and we're we don't have the sim tracker in in the in that range as as well.

Okay. I guess the follow-up there would be just

I understand, Sam, like, that's obviously still outstanding, but on the formula rate, is that just are you looking to see

You know, I guess, how do you how do you see that moving forward? Are you looking for one of the electric to file under the plan or is that gonna be tested somehow, or will there be a rule making, or what's what's the next steps there to to get you comfortable with that structure?

Hey, Steven. It's Justin. Yeah. I mean, I I think we're comfortable now. It's just the timing issue. Right? We're we're in the last inning of our rate case and so it's something we would look to as part of our next case. I know UNS Gas who just filed the end of the year last year amended their rate case as a result of the policy statement. I know APS is looking to file, I think, a rate case later this year, I believe. I'm sure they would include a proposal. So I think it's just the timing thing from our

our pending case and

kind of the timing of when that policy statement came out. But I think directionally, it's very positive. And obviously, we'll be monitoring those dockets to see if there's anything we can learn for how this is actually implemented on a go forward. Our next case and an opportunity to include a proposal will have the benefit of of kind of seeing how this is shaking out over time.

Okay. And then I guess that just from a high level, you know, six to eight per utility net income CAGR is in line with the rate base CAGR. So you know, just from the highest level that would kind of imply that earned ROEs are flat across the projection period. And I know you've you've talked about focus on improving earned ROEs. So like, am I right to think that, you know, to the extent some of these mechanisms kinda move forward or you see you know, a future filing under a formula rate plan, we we should see, you know, earned or that that would be a driver of earned ROE improvement in the future.

Yeah. I I mean, I think, obviously, if we get a tracker, you know, the and take it step by step, if we take a get a tracker in Arizona and then you

near term, you know, it would it would start to take effect

beginning in 2026 just given the the timing of the tracker mechanic. But, yes, as as as we receive kind of regulatory outcomes that are favorable, whether it be a tracker or formula, we'd expect the ROE to improve and and move you know, move more toward, you know, the the a higher ROE and and higher implied growth rate. And was there a second part to your question?

No. That that was it.

Thank you. I appreciate it. Thanks very much for the time. That's all I had.

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

Everybody for joining the call today and for your interest in Southwest Gas. We look forward to seeing many of you soon.

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