Southwest Gas (SWX) 9 Aug 232023 Q2 Earnings call transcript

Ladies and gentlemen, good day and welcome to the Southwest Gas Holdings Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded.I would now like to turn the call over to Tom Moran, Vice-President, General Counsel and Corporate Secretary for Southwest Gas Holdings. Please go ahead.

Thank you, Kate. Hello, everyone, and welcome to the Southwest Gas Holdings second quarter 2023 earnings call. and will our presentation on Chief Investor by Haller, we have address which today's Group.Please Financial call, Gas Group; Van Karen Sweden, will on the Southwest Gas posted Relations President President Brown, Officer of the of Daily, be Stefani, factors Holdings; Paul slides, the Chad Corporation; referencing certain on we call Holdings; President Southwest Throughout and Rob of Justin call, Senior CEO of website.I'm impact and earnings Centuri note may Southwest Gas CEO that today's of longer-term this Centuri provide and that CFO guidance. company year's joined some

assumptions, for the of any today information discussed X forward-looking now not will be assume may and our the should statements.These statements call statements.I'll as come statements. as today true, of press made a our and statements Karen. the of to X that in Slides may as obligation on to to are on which no the the description language over release you All from turn or may forward-looking filings factors Some cause presentation management's this refer and contains are based and results differ of such SEC forward-looking to actual update that we well

Gas the Thanks, results. us Tom. joining Thank Holdings' second quarter Southwest for to discuss today you

team maintain for progress success, transformational first the in strategy achieved a advancing building Southwest and which Turning to in our on returning premier, our energy and track XXXX. We gas X% Slide remain X, the We with value investing rate-based to of natural position in quarter, affordable that this significant competitive shareholders.We and also utility. on we legislatures are organic to the quarter, utility can continues sheet CAGR reliable, safe, progress foundation constructively delivering the delivered regulatory fully-regulated strength strong, with deliver productivity on its pleased and while on while in over and Gas milestones customers, balance core headwinds and we the working as capital the into our our first quarter confident safely investment-grade on performed momentum. leader.Notably, for pipeline Gas so our the to and of during solid is also Centuri as efficiency from the growth dividend.Additionally, deploying addressing the overcome stand-alone our outcomes we the are and complement demand results operations enhancement solutions, and quarter year infrastructure and communities meet constructive growth and needs demand investing efforts. services project they separation the remain and faced outstanding to X% a serve, to our we next acutely half the three as growth.We the our benefits utility our our focused execute of during rate-based of regulators strong realized during at Southwest years has received we Centuri Customer and are for their strategically strong

million XXXX As our completed X, Holdings, completing financing can on progress Slide April. key with you XXXX several of are on plan milestones quarter.At we the our the strategic see a excellent second making loan during we strategic $XXX in middle priorities, term

of the equity separation from separation which I the for followed continue surcharge in spin to the associated PGA first Centuri earlier. tax-free first of spin anticipate Form with our remaining case statement rate months are of focused and first expected a fourth on quarter, the strategic Centuri. with received through decision the Centuri, needs call.We we review occur a to completion on cover options end of in to we in $XXX on equity on spin initiatives could ACC through We near-term optimization of limited see the are to for Slide draft approval our performance business continued we detail progress well track. begin rate needs with anticipate on today quarter track X, on is million received prioritizing utility At and than announcing as and of walk plan. of filing confidentially plan quarter will expected on the nature more continue in Southwest total of by structure APC submitted we On a of quarter the less in of will and execute approval utility, forward the look case We XXXX strong track. ultimate activities this remain SEC. XXXX.Additionally, the IRS, registration also XXXX.Capital quarter be Arizona while the in We in XXXX the the remains the Arizona with and pleased on and XX We filing during third XXXX, our later our Nevada our the and an XXXX.At

utility, previous nearing projects, We where announced ensure also system resulted EBITDA of which procurement, for new sustainable XX-month remains the to the optimization, assessment, we and million. opportunity contract.As capabilities recently strength operations our the performance the gas strong growth, during and safe constructive adding comprehensive We adjusted led President in was several will of customer quarter quarter pipeline completion Vice second role discuss, strong driven to quarter slide, others.We This Centuri leadership and large a of support, formation another Improvement a change received Julie of areas critical made second the at for to net outcomes in relationships highest XX,XXX positive among including work approximately restoration changes, record-setting Williams. also mentioned EBITDA, of with Office the experienced Julie $XXX on the and regulatory months, and Senior technology, the and and and services, Centuri, Continuous XX outside last to her identified our customers.As energy reliable by while our continuing of in the At Paul revenue second throughout opportunity by strong team make and we continuing several is continues quarter. we storm we energy a benefit over proud investments meter of initiatives including to last income the entire win quarter will the of advisors are that and drive We its well-positioned business and the play information organization. completed transition. new announce delivered to full-cost sets operations on organizational record. based Optimization, improvement

support assessment operational that we stockholders.As approximately our a pass taking XX returns during couple tremendous we in our of have year-to-date. specific across opportunities dive us efficiency of initiatives identifying will $XX,XXX we years.Further, mentioned savings and I accomplish ROEs, accelerating added territory, these the help to and performance realized next initiatives over the growth goals opportunity and We utility XX,XXX developing on for our result to into savings for will past months, deep service us cost of excellence, optimizing with the now help first-time pursuit sets positive the and believe are our previously, execute our help customers, improve meter

in Southwest. economic cornerstones X.XX% pipeline a and in to programs, associated from Nevada.New to and and We be benefit investment our our the growth and our X% ensure safety to $X demographic and with projected replacement have continue customers years. combined Arizona our the are strong to base three-year three customer billion X.XX% made in double-digit to with next our XXXX have integrity growth reliable XXXX, the we plan, over to Between expect continue management energy growth, activities capital rate service is of since current of to compound to expenditure annual rate capital program. to safe at The rate-based a expect growth investments growth our we translated X% grow XXXX.With population

timely through tracker our pursuing the our We collaboratively either our are manner, cases by these will rate or authorized in to investments programs.I to performance base working financial now regulators these quarter. a over Rob, the with committed timely who review in will call of recovery for investments reflect rate turn to

Thanks, Karen. operating company. adjusted our shown company's by are GAAP share we second EPS quarter. earnings for The outline On per each the Slide XX, consolidated performance and

each significant PGA, are in improvement the an growth the and As period that infrastructure signaling its saw and interest a quarter project performance O&M increase during quarter Centuri, record.Centuri constructive storm COLI.At and we appendix, the I to a utility provide basis, spin Centuri which encouraged time see an share, a management, and to from the regulatory improvement MountainWest.The of continued our and same year XXXX. a full headwinds prior, income quarter-over-quarter its of revenue in EBITDA regular past product three and net utility's have Karen quarter we record. transitioned of earlier, included of on work per when income large to gas adjusted highest GAAP adjusted the earnings, of each of would second a utility reconciliation company. months is adjustments in like we outcomes, of performance related consulting ever on wind.In the record-setting a $X.XX had recorded adjustments company. operating in second a offshore the relate disciplined of by improvement on provide operating second quarter costs The Centuri on majority quarter. a $X.XX EPS we share and work Centuri pursuit compared second walkthrough an XXXX optimization.Now the the of vast fees of The quarter mentioned to On recorded second restoration utility its to with the finished highest a

offsetting driven increases performance utility utility due increase accounts.The depreciation of revenue, Southwest last well improvement on associated term primarily growth.Items and to timing in balances, interest PGA on million from purchases.Moving approximately taken Corporation. on million Climate battery higher associated loan senior million largely reserve compared of company's the average expense as locating, own prior largely in by increases customer the will in on expense. natural post-retirement a million see the was which recovery by prior year adjusted year. related project a results Moving pipe insurance Slide regulatory our customer-owned $XX resulting margin to in million leak X% compared costs, offset survey, This gas to to filing, revenues mechanisms.Favorable the compared increased our increase expenses quarter provided components with infrastructure a second and a such wind in as $XXX customer plant Midwest, recovery by drivers was balances and external in in approximately and gas legal XX volume costs line as was related to increased infrastructure in services year subcontractor operating investment professional million by factory Centuri's increase purchase issued gas the second $X the you past response increased partially to driven offset investments to line referenced values. this quarters was gas increased results. million costs underlying revenues by from Corporation January quarters, of include $XX quarter increased these support by the well approximately $XXX offshore as between the in yard to and driven revenue XX-Q projects. due an cost benefit by Centuri's with Gas increases In Arizona Credit This last projects.Centuri's the to in the corresponding the reviews services associated of related the were wind income well well incomes gas drivers of the outside Program non-service $X and account increases interest carrying emergency Centuri's steel decoupling on increase year-over-year and due the service.Other as XXXX, utility, delivering of notes year. customers project.Interest California second include with $X EBITDA other increased XXXX returns between in quarter as XX, prior these employee quarter-over-quarter the vintage This million to infrastructure uncollectible Offsetting as year. improvement in for an miscellaneous in account related behind a decrease $XX as continued offshore decreased by approximate the amortization was in regulatory as to XXXX on and mechanism.O&M was issued and Slide changes life progress policy to decreased our costs benefits quarter, by software claim-related Southwest gross driven contractor increase This large this primarily remaining primarily Gas

interest $X.X serving to the customers higher largely borrowings Additionally, due of expertise to on Centuri geographic is with Distler associated variable reach well our approximately leveraging interest Riggs rates and its and rate customers acquisition.Centuri billion the positioned outstanding long-term continue saw serve markets. new increased expense to primarily while

see We the given for are momentum and outline excited earlier Slide XX, Gas in infrastructure focus Southwest Gas investment.On financing national quarter. about Corporation completed and XXXX Holdings on plan and the we in for the Centuri opportunities XXXX beyond which our was we Southwest

our Slide an XX, commitment a on financing we Karen executed at noted, At take profile. an approximately balance debt and anticipate we plan plan maintaining to do we to XX% meaningful sheet our Holdings, As by our and XXXX puts us that strength path look target XXXX in that.Moving FFO XXXX. investment-grade toward we a needs not reiterate ratio equity to through to of

side, company. customers. it commodity consider its When On at utility by working levels, the by which is debt to is also represents spent purchases owed net the left-hand which operating balance currently has through debt capital important the Southwest to PGA we for that prior looking Southwest net walk

in We and will which the on carry PGA to chart additional this surcharge of expect earn cost approval the recent continue a it reflected detail.Our in time as XX a timely Arizona recovery. slide of to is provides appendix balance reduce on recovery the

like of outlook the agencies.I we utility. had to to the changes of note side now call not Justin have the three to right-hand any turn we the On over Brown rating slide, credit that ratings would the to our or discuss from any

month. to Rob. you, by cases. filing the case end Starting the Nevada XXXX. rate on on we file for in an cases and in targeting Slide update Thank rate preparing XX, actively currently schedule rate our this also the quarter third of remain timing provide upcoming of anticipated on We two We're we're

our in Arizona next rate First, our a to year.Lastly, of five-year highlight California next plan the existing first also case our file occur quarter filing to that the rate an in we XXXX.Turning know case rate Basin and case prior schedule Slide filings then of quarter commitment, we of next and in case timing we recent will other constructive due to given we're rate June that Great California, prior the settlement to evaluating outcomes. and regulatory third XX,

Arizona. approval in First, for we filings received two different

account million this request As gas Karen will mentioned timely previously, gas existing approximately to to recovery of the incremental Arizona Corporation rate Commission modify facilitate the approval cost our approved balancing cost annual revenues. $XXX our in the balancing account.We anticipate provide

our coil annual We million of we coil Nevada, received also adjustment approval were recover an of where previous settlement filing. received or approval surcharge filing line recently an $X.X of authorized our investments.In all-party rate to we increase for annual customer-owned yard

a gas this technology has timing we rates granted that role our proposed our recently of immediately start power development prior will recently We coincide approved, energy pending found in that Upon which gas are lag the application next of to Slide The last can Certificate in articulates project anticipate all-of-the-above generation an reliability, earlier an all June. both helping the energy ensure support California As was the pursuing have Nevadans to completion unanimously will demands, we part resource issued GHG fully decade. to renewable the case law his demands, FERC next reliable, objectives by project project expansion. identifying pending natural we homes associated on like approval, creating their energy, for of filings call, planning. would parties establish the with completion reliability, legislation a in clean for energy will to the use by worked in legislation an every to and executive technologies The fuel actually of is over Necessity plays providing to the pre-approval of executive those gas by sometime and and for the and natural placing investment.Great development.The made.I'll since Centuri gas, the utilities investments utilities Commission efficiency resiliency, affordable these businesses.Consistent Nevada as economic play prudent.As two expanded gas in robust infrastructure safe, Paul have needs in emphasis energy well heat our stakeholders this legislation project and Daly, and houses as we of proceeding, was commitment investments Group. approved for with expansion in and and for highlighting Public his customer both and the thoughtful issued any year.Turning reviewed security mentioned now combined various of if and benefit approach customers service. energy to and believe period sustainable legislation and Commission order demonstrating instrumental the and role with years, currently the to in replacement that test filings The natural during the the of including and the turn Lombardo to Nevadans, to this important energy among and stakeholders, ensure call and executive them minimize the both projects to growing project Convenience signed natural by and will CEO for gas are while and contracted natural project upon summer. anticipate also on-site on customers.The new also demand support require President next opportunity including be plans for be also development Completion as clean priorities three order, our investment before to year it ensuring into remains reasonable make programs providing XX, construction, and effective of in emission pathways a lowering for our will with the for solar also meeting Governor energy of Utilities of well recovery policy hydrogen this this rate and approval seek will Lombardo future order of and access the notice we the mainline gas to Governor to available a of proposed with that and on opportunities purchases and Nevada, an and approach for proceed by as Public gas to a the resiliency population become of all a alignment end affordability reliability Basin meet including filings

Justin. Thanks,

and These XX, progress largest proud track leader stand-alone performance during services which more and a the we Centuri first Centuri on holding continued delivered XXX-plus United the with across strategic I'm noted provinces quarter the to of completed team utilities reach meet towards evolving utility Centuri's States XXXX. utility very to Centuri Karen are Canada. making the in across be separation, well-positioned capabilities second employees U.S. the and be is With to and with works than has needs of of mean customers companies.As the are Turning and Slide million blue-chip strengths is earlier, scale to and there XX,XXX and XX the Canada, utilities, of by investor-owned states most geographic broad a in quarter. the the

pending on Slide performance. we of record work to towards to Centuri's we resources, financial deliver opportunities.On proven strong XX, we track and business capabilities, structure detail significant separation, growth our the have as our Importantly, continue

$XX Centuri driven through LTM second-quarter and during of I'll elevated inflationary we further believe above wins, proactive Rob EBITDA growth million than energy $XX pressures in million at our performance certain more on-going as savings successfully execution a million, incremental revenue at better this we are inflationary discuss EBITDA managed increases adjusted the EBITDA.While by took shortly.We adjusted on customer in continued cost months million certain strong existing XX which last and experienced had and XXXX, faced much as have the from to annualized negotiate implemented cost $XXX evidenced project of remain costs we of time that our levels increases. by last and to year As position $XX year strong these a demand the year-over-year of contracts as transition, last of measures well both annualized offset record-setting Karen mentioned, and revenue representing or

gas in We electric expanding are in our our across operations, energy project continuing operations, market. Northeast, to an and significantly significant helped opportunity wind and our of in customer growth provided the support Riggs offshore transition.Our role diversify our operations, more realizing of XXXX both further the acquisition deliver renewables Distler in increased work through core while base, provided important electric the

side, right have the As continued portfolio can and you gas. our a hand to have between to see on we electric balance diversify

XX% record remain our also and financial across revenues.Our our driven We one on representing XX. of by geography no in with strong than execution project geographically diversified pipeline more Slide detailed part large as performance was operational

serving on needs a to relationships new Our North deepen expanding the long-term customer programs focused customer building our across full enables support us to scope also while America. our and spend partner relationships capital model work as of trusted winning

$XX energy expand infrastructure awarded were complex with innovative construction strong the to customer. electric new pipeline per timelines. in XX We $XX nearing services need in bring also Indiana, to provide for an which for clean hard million projects million contract to existing investment online the manufacturing completion of deliver with recently a our very batteries. million for a electric very vehicle coming a highlights This and facility years.Our are to year underscores utility customer projects additional three-year contract a ability service distribution progress miles worth on fast system will the gas gas $XXX new We to of over natural of pipeline win new installation

contract from customers as the we ever see the column, them you for as not is contract, they notable work arose the in clean quality foundation it We restoration advanced large the last While can on work of in middle is installed for offshore storm from States. an are it is wind expand an project, to completed year.As execute projects. first overly our and first assembled work opportunity supporting our United energy which our our continuing components which

restoration business.Year-to-date, and capacity is their generating and United to This in the we of to in to deployed schedule higher particularly XXX of project locations XXXX states deliver construct We recorded which having platforms. on to revenue dollars wind approximately million total revenues we first with of our crews, for us offshore wind needed are in of of the and additional during of States, X,XXX work, million the across more opportunities services and We infrastructure response half assembly, term logistics associated in approximately clients XXX we grid.Finally, the second over mid-Atlantic $XX.X our the expect the completed wind employees million full remain port near our XX and our XX for continue track XX and this with fabrication, date, just with assembly to our a energy particularly restoration projects projects the scale times of for million XXX for the evident along year.With renewable on sustainable of continue support energy enables strong we've to storm the of connect wind demand signed need. will customers Northeastern margin contracts revenue. see offshore than and to in numbers capabilities,

benefit realize we summer and chain, opportunities to With XX, opportunities is business to across value look incredibly positioned capabilities an on the the positioned should will the trajectory.As response well our season. hurricane significant markets, of the believe Slide gas sector tailwinds strong is very as T&D second we Centuri offshore geographic as continue that our and towards infrastructure. active span wind-related As we to summarized well fall half entire in its or the electric Centuri comprehensive footprint strong year, see continue utility from well multi-year

work. also be positioned areas uniquely energy I'll from rapidly, first transition it quarter to its Given we in support and near and back as continuing upgrades key strong sharing investments growth clients utility infrastructure of gas addition well is a investments are benefit the regulatory-driven expect of nearly of America. increase XX Karen. the Reduction is led transition separation grid decades turn infrastructure and electric are are of from forward infrastructure distribution XXXX.With electric driving customers in of look replacements as Act that, its and opportunities the of distribution, Inflation or near end the to performance of accelerate the gas for has utility the significant other energy needed utility half the to North maintain federal for energy gas end aging to across and life work perform renewable in reliability.Similarly, that we demand which confident life, to to T&E for Centuri's growth to the distribution in positioned we our at Investment cycle XX% with or Centuri system useful a We and where to continues long-term we toward driver years.In Centuri.The infrastructure, useful aging resiliency our infrastructure progress replacement at to multi-decade and we and advance will support

Paul. Thanks,

revenue results a our to our are margin reaffirming Our testament look we Centuri year-to-date efforts, year XX, and Slide and XXXX net are to on-going EBITDA XXXX we utility finishing adjusted and income strong. the On guidance.

first of the performance likely on our that date the utility year, ranges results we confident XXXX reaffirmed net guidance to the to last each of income through is within half strong half more are drive will range. upper the the the business' quarter.Based results full-year in We land

the a million, trends making upward growth to million would to range. are and and natural respond ranges. to Based our performance, associated to for $XXX new we customers.At revenue storm our guidance, Centuri on increased territories the activity to $XXX XXXX favorable XXXX now demand we at affirm for in will level an and safe margin investment we the guidance our we depend year. revision the Additionally, customer the our first-half across for maintain of of CapEx reliable a of infrastructure higher service expect is result better-than-expected gas on utility Centuri, ensure distribution and which largely this end system business benefit of

historically are natural as strategic active a we our our quarter want providing that and is for the to results, we to call-up exceptional At quarter third service The path utility. Q&A, our to priorities, delivering in strong forward focused pure-play Southwest executing financial our premier most XXXX I Gas open Holdings, major teams storms.Before confident are customers. emphasize on the gas

as of through growth We will growth toward continue and We're through discipline, regulatory rate-based better with the healthy the the operational open and in call de-lever dynamics, planned demand like questions. to financial regional well organic with excellence, tax-free Centuri, stockholders position generation.With spin for to strong as I'd cash advancing putting relationships. up organically delivering that, company steady flow the constructive earnings align a business

question take Richard first of JPMorgan. [Operator We'll our Sunderland from Instructions]

Centuri with perspective with XXXX, XQ, Starting XXXX latest the relative the factors the the to on XQ new XQ What's XXXX through prior timeline could influencing the walk some to outlook? complete? of timeline, you late language

Sure.

on on of I some expecting from PLR track. We our the think answer that the we believe the filed kind IRS we're are fourth PLR quarter. in still and we

change our in driving largely quarter that's first spend. the where are we to so And clarify

in the that we expect may to get in the capital from but an the IRS quarter, be able spin time. we quarter, So before answer access markets first to fourth

affect options separation. the routes analysis this, all Any front? updated Any about new on thinking in that there? to past or Alongside the you've Understood. talked other

this are to transactions spend We at But on the obviously the still our we have would are other We're spin at of that as this that focused stockholders. No. point focused announced. board point. and completing If available, would quarter certainly look duty on fiduciary those the things first become types any at. the

consideration it, Got has just that's is it. latest then Got evaluate last been timeline outlook us if could dividend, timeline. that the separation one well out helpful. you I a timelines And and your what Centuri as guess one pushed could the I your you, in of is to later remind what could

our with committed has changed peers this what at that as to looking and not No we really not competitive providing a we and the has dividend previously, so we're point. timeline announced are changed at is

in payout ratio? meaning competitive of terms Is

Correct.

of The ahead. Citi. is Levine Ryan next Please go question from

a Good couple questions. morning. I had operational

off, to quarter your second seeing to of any of storm seems seem work. activity accelerated some of performance Are numbers July a across that given have to you be First the start business? storm driver

much we've certainly historically Van organized activity been If is Chad that the of CFO. certainly able seen. capabilities We able is than the just really we storm that that part our this more year Sweden of saw of than we're that we've in Yes, Centuri is first half storm to and the stronger formalized of sort part capture. have capture weather, to opportunities historically and response we storm

As Karen active we activity be storm tends expecting mentioned, particularly year. the are and season a for to the third quarter strongest quarter hurricane this

coming the what utility program spending raise there numbers. drivers and CapEx, augment then on are CapEx in see that of service you do any across And additional are your opportunities your Where Okay. big capital that other -- quarters? the to territories your you

our did previously strong business that. and So by really those continues in driving has we and expected the mentioned new than opportunities, the is drive and Nevada very CapEx in growth if continue largely We that's our as to growth, is I driven which been have jurisdictions in both better that to see and so number. Arizona infrastructure

your then been identified or beyond costs recommendations any operations. or term to have completed are incremental third-party through cut could those be in seems and opportunities by implemented The on study any been now, Okay advisors to plan? last what's opportunities consulting

Justin. Ryan, Hey it's

as Karen multi-phase right. I outlined, I think of approach it's a kind think

we identify which direction gives is on phase embarking on actually specific X identifying we'll of So be initiatives right we're where and that able you as she cost kind look general to opportunity assessment which into the the completed to future. now described, the

So start those as yes those things up at look end to quarter as maybe still that hope the are the initiatives in specific develop probably are the we we're evaluating implementing that will of into future take those third XXXX. the of would that and some fourth then those and be we are

this remarks. session. back would to Moran for our time. question-and-answer closing questions [Operator over turn This no I the to other There Instructions] are at like concludes Tom call

good call. This in day. our you for a Thank for Kate. interest concludes joining have Holdings your Thank today. us you and Gas conference you thank Southwest all And

Gas Call Southwest today's XXXX Earnings Holdings concludes This Second Quarter and Webcast.

time. You wonderful disconnect your line day. this Have a may at