Southwest Gas (SWX) 28 Feb 242023 Q4 Earnings call transcript

Welcome to the Southwest Gas Holdings Fourth Quarter and Year-End 2023 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. 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 of Southwest Gas Holdings. ahead. go Please

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of release caution the undue but and be statements and risks subject statements, including today's of differ as These on actual information from filings management's to regulatory to uncertainties such what and on uncertainties, Some a encourage today. we made we of uncertainties impacts and our press placing note is no to risks statement. surrounding you cautionary results and presentation, Commission, and contains well X holds update included forward-looking regarding on which assume conditions discussed as are that future note Securities and are may any based Exchange on materially the you cause approvals. This measures forward-looking Slides with against to statements We X statements. this economic These reliance will several review. assumptions the the any future today non-GAAP obligation the

Southwest Southwest Chief and have CEO on Southwest Brown, on Haller, Slide we Gas Financial Gas President rob Bill President Justin of X, Corporation; of shown Holdings; As Holdings; Gas Stefani, Karen the the over Officer Century of turn portion call, with and of call Q&A the now your CEO management of to during questions Group, of Karen. along and available call the I'll to President today. answer team members other today's Fehrman,

Holdings Gas the results. full us fourth you year today for Southwest Justin. to joining Thank quarter Thanks, discuss and

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continue utility plans. We on are executing have our optimization and or our we initiatives as focus prioritized identified also

with are progress We pleased on strategic and strong our and XXXX Southwest at at our we very our continued X, highlight plan Slide Centuri. is performance track. On

strong benefit for delivered our of XXXX ensure than safe, remains investments We across our announce sets adding are experienced while to we utility. make the more performance proud that of XX,XXX growth, additional year new another system customers. in to meter to We continuing customer the and reliable record

business led energy to including achieved achievements. At team year. the approximately large as highlight utilities that excellent I'm performance Southwest announced strong has resulted an regulatory full adjusted fourth day the well during as was for We customer constructive adjusted West and pleased storm This several every outcomes in driven EBITDA infrastructure these $XXX sustainable we by year, solid the also of in to by gas year of satisfaction efforts projects. Power. restoration their among consecutive And revenue which million. #X increase residential Centuri, revenues our services services electric in EBITDA, in I'm J.D. proud that and ranked so for

role and infrastructure based continues aging to play the of gas later, is a As positioned critical replacement transition. strength continuing Bill electric the in to business win and discussed well its and energy new will of Centuri capabilities and on relationships

Slide to Turning X.

mobile drive optimization. We and such we processes several storage investments over detail our identify per technology this long-term that for such optimization. challenged initiatives organization, and policy initiatives to flat opportunities call, fleet initiatives, forward-looking systems, we and as next value modernizing to insourcing have identified our across expect will believe we lead optimization and employees work leak our and detection guidance improvement This efforts After the and later near-term I'll our customer improvement. spending and trend forecast a includes optimization system O&M longer-term but period. as evaluating deploying the have in currently capitalization to our management advanced on

year. review performance turn over Rob, I'll now, will call For who financial for the our the to

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

excellent months months Mountain of overall our from when related Mountain regulatory achieve driven PGA. XXXX. The ability in compared utility costs X the year earlier, while and XXXX net which an the adjusted Centuri West Gas had income income Centuri share, Holdings increase $X.XX to to less was EBITDA. income included adjusted nonpension in an outcomes, of lower and revenue record basis, performance As of an improvement share On ended utility produced with the per net The also generated $X.XX per utility and and strong Karen XXXX, than each compared during Southwest had mentioned West constructive EPS by year. interest XX adjusted to an of

adjustments appendix, improved utility by to increased The tax to terms. In utility of to what in the life and adjustments continued we West the upper and significant the electric expenses master to We was we lower we deferred fees income vast the were Centuri, with income We predict throughout see optimization XXXX of At income sale higher net wind improvement of the of year advance projects November. insurance, related as majority above which February result in costs to revenues, operating also lower GAAP difficult year end forecasted company. a margin our results, Mountain the guided relate COLI more taxes improvements company-owned agreement Centuri core saw excess reconciliation range. In quarter, full consulting separation unexpected above generated provide earnings. infrastructure resulted and offshore had higher-than-expected accumulated completed annual adjusted XXXX. last the associated of of in O&M continue to related are and increases services costs, a impairment and million than fourth that in $X service and

of provide company. I'll performance each on the walk operating a Now through

increased utility will the utility Slide XXXX, a the rate infrastructure customer year-over-year driven by of performance part to Southwest previous and In with of recovery change increased by first for result in account on our areas. regulatory as associated growth continued million as to our investments last million year our improvement Gas $XX Moving This utility Arizona Nevada drivers $XX million compared service additional of by throughout as well XX, margin and Corporation. primarily $XX our $XX recovery was year. see operating million prior you nearly on the of balances for

as You contractor might early made increase other is relates offsets I in remainder increase external in higher balances of mechanism, component expected outside increase yard margin general some taxes the by increases changes a gas customer-owned infrastructure postretirement of line margin. and professional of XXXX net was associated Arizona year-over-year leak to increased was and compared well services increase in with as and and of that of by and adjustment from service amount out-of-period was $XX recall primarily pipe XXXX benefited and related steel and the million to of million gas Vintage offset that to miscellaneous cost utility of moment increase The prior mentioned approximate by well $XX XXXX ago partially investments locating customers to corresponding in revenue driven corresponding activities sold of in related the optimization account improvement primarily line in Arizona million an as to service as costs. The and the decoupling in labor, O&M lower improvement were planning to includes and that in amortization offset amortization plant revenue along our $XX million regulatory $X partially earnings revenue. The the comparably margin claim-related recur. we X% costs. in These consulting lower benefit in legal fuel that the average not cost a survey depreciation due efforts utility

mechanisms. higher an carrying account saw of to improvement regulatory Other largely about income driven in recovery costs with Arizona service. million $XX this by related California, with related cost compared also and in again, last increase purchased year. income by We associated to increased was the taxes and driven gas million property balances, $XX interest plant increased

the approximately reserve of increased We by higher was operations income for on by XXXX. Interest interest about million and XXXX. The when of deemed recorded in project as to source partially year XXXX. of income and to to decline issued higher XXXX compared of $XX notes the nonrecoverable expect was this as elevated PGA favorable other expense due non-service-related changes by the Holdings results million. Gas $XX offset software million the utility roughly impact the interest senior the senior by in in resulted XXXX earned from full a balances prior $X $XX million that year-over-year improved a components from Recall million income benefits $XXX also in issued in at expense of at $X well than million postretirement with XXXX nonrecurring favorable were XXXX $XX year-over-year. COLI million Southwest in income year, other and employee a looking notes XXXX utility of impact variance primarily interest associated at December March March higher

related year addition, support ROE XXXX approximately part $XXX in for to the increase. Overall, highlighted, repaid January of XXXX, Karen in was PGA Gas issued this for term as Corporation In of utility, a and the was million year, the gas to contributed as an well Southwest of significantly improved X.X%. the loan in April purchases resulted

by in increased operating subcontractor year. by prior on approximately utility the This annual Moving incentive customers, projects infrastructure was drivers and in agreement infrastructure million terms, wind infrastructure on wind master behind volume driven in Canada. Centuri's improved costs volume provided net by increases on Centuri's with core driven Centuri's primarily with and increased an higher higher XXXX expenses existing corresponding by service income. increase offshore customers, the services partially compared offset offset work, results to electric declines by Centuri's offshore in Slide the services projects. compensation progress gas to were revenues $XXX increase certain of GAAP XX. We and partially services revenues review

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those cash highlight that Holdings. on improve results shares IPO In divestitures Southwest balance in holdco Gas depending addition, sheet would we the market post IPO the increased could and further at conditions if of

than cash in XXXX operations collection We expenditure PGA balances driven the program expect forecasted cash flow from fund part of capital entire for outstanding by more to significant in the utility.

to we the Holdings efforts of strength XXXX. At needs anticipate refinancing In our investment-grade needs outside successful equity million addition, of an Holdings, XXXX, our through balance in of our to needs do ATM, sheet. balance based X any additional refinancing sheet plan It's utility million the through million on solid limited debt very have $XXX we in or the that this next note and year of foresee approximately XXXX modest not end continue $XXX the during financing a important loan. refinancing we inclusive equity very addition XXXX in we reiterate to target to and Southwest near-term term in years, of $XX our of expected needs the limited

As we to stockholders. Gas remains Southwest to competitive have previously, committed paying said Holdings dividend a our

competitive a flat see we As which the plan you expect would again result to on payout slide, hold dividend the in in XXXX, can we ratio.

factors clarity and Centuri we to for continue We credit sell changes of the planned capital as ratings, will review dividend economic to conditions and impacts any dividend We'll will have the factors. IPO regarding separation projected balance down. competitiveness such yield, when the other post better the requirements, policy

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operating net to working Southwest left-hand the looking owed When and represents continue commodity we walked PGA at prior highlight utility levels, the by the side, On through by customers. debt debt capital Southwest company. spent is for has we which purchases to that balance,

balance provides of chart in that recovery balances which on timely on the a a additional appendix cost detail. PGA Slide in the reflected carrying is expect We this these earn XX,

to about earlier that I us outstanding need significant additional lower Slide in financing million balances to income term. by interest PGA of near will the on in due that see the $XX XX expected PGA While you balances, is from significantly for customers here decline XXXX, the noted reduces to pursue collection

our under right-hand from of had the negative ratings now and as no Slide side downgrade third the to to early a higher needed credit earnings to except Centuri December credit we outlook BAX our Moody's with the turn than On previously rating. as agencies been to discuss Services for note downgrade call, had in from over rating for been XX, the since of call XX had weaker we time had Centuri that changes placed Moody's Investor to Justin Slide by or the outlook. X utility. expected the review downgrade the Brown metrics support BaX This quarter I'll

the among Thanks, relocation new area pre-pandemic partner Rob. the things electric for throughout are semiconductor, of a than several these in We Arizona Phoenix in core particularly large first-time more drive and Vegas to a jobs demographic hospitality Commerce meter X expansions Vegas is sphere trend Las casino new to reiterated Nevada will a including destination November hosted Bowl and as and a Arizona, prime sectors. the customers, entertainment to by national well industry driving to and area. top economic new and to which average. vehicle Oakland of during saw to X and to manufacturers Arizona the new Formula [indiscernible] This as according destinations this happening and stadium. in weeks and business are for S&P XXXX the their growth announcement the and economic growth to customer translate XXXX, We're both benefit sports, in race last to a our occurring growth development. In farming and and expansions that be activity we continue among strong were ago. Vegas, and with opening Phoenix, is continue in Vegas couple continue back state. Authority reward of be the XXXX and in of continues proud to battery, to vast the Global's service XXXX population Las Phoenix continuing are expect as of parts XX XX,XXX new openings, other Super economic job sets and Las several customers. Las the projection There also between continues agricultural growth, exciting expansions from and added outpace XXXX, and

combined of growth XXXX, Our and is rate integrity our expected translated utility are $X.X and the to to capital X.X% for to support double-digit types mentioned. Karen our billion our investments of our current to with investment management base to program. are that investments Centuri [ X.X% have X drivers primary since growth investment XX% to capital population of base ] translate XXXX. There in XX% supporting plan income These X-year rate growth, this safety programs cornerstones expenditure growth expected

base will our First, O&M second, need refresh to to that the and $X XX%. we of our over an which authorized recovering are of the capital closely proposals, investments currently of case over rates in level be anticipate experiencing included to billion in result rate will in more rate we're increase expenses start match

regulatory also growth investments our we operation on jurisdictions, find rates systems. and equally focused safe reliable economic to our we to committed areas, we of regulators to of recovery working get to timeliness to are collaborate and to customers regulators partner our of are and of each each the with our our focused can continuing of with to While across collaboratively so to ensure distribution ways regulators in service improve our with our the but continue the support the refreshed

through requirement the the Nevada detail. case Let's from update depreciation of with that we of some Slide of filed the remainder Starting issues as issues. highlight our issues increase proposed aligns our cost black advocate be with the agreement was primarily agreed-upon box rate last no requirement pleased rate rate XX, more staff the we any settle of The Box nearly and of being includes upcoming company's had last rate in proposed a of Arizona filed filing, capital investments and a this request reliable effective made the overview and February was of on month. XXXX. requested million than earlier close October our made commission X in We and we Slide $XX last our on of and may rate which investments our of talk proposed prior cost including issues proposed capital we've only customers, next and test made with pending cases provide impact Arizona level but service filing, rates changes the our in we've base primarily an O&M year million and has the the if more the The settlement consumer new investments. We've rate in depreciation provide what on completed nearly of reduction driven is our post to in since to an that Nevada settled in reflected the fund reflect since to recovering by recovery to reached in cost infrastructure to on about for rates part inflation X $XXX and the commission recovering Black to ensure update case also more recent company's start $XXX in million sometime case. on anticipate our XX. capital changes made approved, to cost the rate to start to decision current case, requested capital the which rate September. we've end to million investments We're to level we on service. The certain April. On to safe in is of cost remaining to weeks, includes statewide proposed the request an XX, in a rate our which $XXX to adjustments base design had reduction study of hearing increase need to to cost of million a $XX the for base within reductions various structure. The period our $XX $XXX to revenue that for Nevada on We our O&M comprised our Similar to of expense. become settlement closely rates million, million also believe of of proposed final our been O&M Monday, revenue pertain

way support very ongoing tracker of customers integrity for ensure provide the Arizona working and that to course year safety investors. investment is helping to investment our the also mechanism that Our is We've includes SIB. capital benefit our with as for impact customer a tracker representing filing requested for to referring we're on believe rate a safety lag, our minimize required of SIB, system case nonrevenue-producing designed safety, reasonable we type us while annual general an potentially benefit closely budget. a of through the annually return This filed, past forward, enhance been on investments the or capital recovering XX% regulatory and that improvement acceptable proposed as code and minimize regulatory we adjustments to between allow time investments a through and system start capital and SIB of going to approved over timely of the will all make key the extend surcharge the each approximately year, stakeholders filings. If this the rate to developing

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Thanks, Bill.

Our about of to evidence and our XXXX are make executing progress results XXXX. we enthusiastic are the continue we strategy,

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our restrictions to annual $X.X has to rate process, guidance. to to any base Centuri same over expect years. rate we Justin X.X% the next to mentioned, the IPO of Due increased compounded growth are and the of the to about invest XXXX total in range in we be CapEx over As now X.X% period, X not billion providing related XXXX

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towards attractive call with generation. stockholders the for like and With organically the I'd We delever for to proposition separation open continue questions. of to Centuri healthy to the planned value advance more cash that, create flow a business

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Instructions]. first Sunderland Richard with And comes [Operator JPMorgan. today's question from

you Can morning. Good Hi. me? hear

Richard. Yes, we can. morning, Good

similarly, here. earned start cost the with per current after all if case SIB cycle relative target? rate do rate secure be think flat utility to you're detail able new earned case? customer in the return I'd would O&M And you of it outlook. How to then appreciate what returns the I that the efforts like to utility about with this to outlook worth the new sustainability

Rich. Yes,

in come beyond. So run rate in we looking question. ROE XXXX yes, to it's we're and XXXX. looking to Arizona in, in rates of more build will great in here Obviously, that Arizona and for in given XXXX Nevada XXXX, rates then that a implement to

course we'll extensive think we as bring obviously that So and just the had that it's we'll was in income to and the in the in ROE. amount year. of anticipated on respect to and this run those of that we'll the rate 'XX and Nevada levels coming and related us with I Karen over we progress and PGA had was structure have of navigate you -- on interest the and highlighted obviously, ROE. With really commission call, I And rate That included rate that Arizona as to obviously helped see an the the update with the case, regulators SIB we'll program front. investors 'XX

and that about talked and the think us forward. And we've goes that help optimization help initiatives it that keep flat, as as ROE I O&M well will maintaining on that will

a So moving on O&M keep to flat and initiatives plan optimization to our continue that's is worked on forward into execute trend. those

a ROE? Okay. at Or one X% evolved Is you're X% all? that ROE Got still focused an X the it. or ago, And highlighted you or being you I as rate little maybe focus. year know run metrics earned thinking this of say when that but goes back above years bit, had has a where in

Yes.

between I and and ROEs. strategy That between certainly I including reduce the regulatory will achieving as bill in those Arizona, cost above that you're term. optimization near term, benefit X% level. focus all the should of at that benefit we're and customer X%, filing the longer what to think program. X% efforts, far also our that on obviously that Nevada, of laser seeing tracker in in But flag but of as in filing cost the unfolding the and the strategy, tracker, recovery optimization the would continued lead beyond pursuits But focused cadence regulatory the on benefit think SIB which ROEs of ROE will cadence

you're providing our I where your not focus. certainly specific is that we're think Although heading guidance, question with

speak other been a engagement then you And request this question, of advance more new safety Got it. mechanism It bit digging goals Very How little in sounds for to second my considerations and Could little the around application. early further. a helpful. with that some on engagement? the into process any this the this like local aligns bit around application? just there's

Safety demonstrations at the are Pipeline Corporation out information Commission, system, regarding working a that Rich, spent the them it's amount right, centers, concerted doing all Justin. our just we division educating off of with Yes, on time Arizona system, have we kind and the code and with bringing kind just them of regulatory. that of pipe our on types really evolved specific and challenges to focused sharing

been it's things feedback water on generation on companies on their some be think they've I a done the they recently with electric things very so we've approved And might for they've versus ago years of some tried based where solicit things more that the comfortable collaborative mechanism. process to of

that what So balance. think again, forward ways trying this mechanism we're we're looks on with to make them much on just as indifferent a strikes lag. We to collaboratively work we're to that somewhat incremental minimize path regulatory like as And to -- trying improvement. some really find

Bank Dumoulin-Smith America. And from our next Julien comes question of with

guys lag. time I I'd Congrats, you effort. efforts Bill, be lag front. reducing the frame? forward-looking do on the on of foot here. by XX% mechanisms just commission SIB rate last I jurisdictions in other I of joining efforts terms mechanisms. around bit, perhaps as earned that quite start to about How think not -- hear efforts, it's that in maybe think question think emphasis XX% you XXXX how what up on necessarily here. on curious, on the because same not the the returns current following forward-looking you is subject ACC at the instance, thing, really do Maybe in this driven a get little you mean the to on think the gets up, broader ultimately just future the to CAGR But pairing maybe you via about reflected across about about as how

year talked this year, last that we've try commitment docket at improvements regard. about ACC a Myers of coming look in opened And Obviously, the Commissioner lot their commentary from to Justin. make some a sincere it's the Julien, over Yes, last to the and that. and to

happen workshop a that recently, I think they will announced next just month.

a of We right X. So to again, But rate your point, timing of I case think pending to now. the that's got way those great to need we've a bridge which find kind progress.

making. continue at how work help that so of whether and mechanism different rate about way a then through participate we be to through a efforts, to around on with Formula that's we -- in be things and we'll help Arizona that as whether And constructs, kind them ideas it structurally this look test can to education do future year

I a there's somewhat types think think lot much different of improvement And or as opportunities. as, agnostic because making again, on of the incremental mechanisms opportunity. hey, a I we're structure the lot let's to of there's work together

reflected, given But benefits ambitious the time hearings Yes. rate get those the the of a But a that have that 'XX punch really extent time actually onwards right? might maybe even the line you for is, it'd full -- line by of maybe little be I mean, the the be 'XX, case. to case, and present

Correct.

You're exactly right.

and obviously, And rate XX% updated returns And How including by bit income improved bit you CAGR or mean, better I much is clarifying than as a provide? just Excellent. CAGR commentary earned further, can net Arizona, it, of reflected X%. if about to kudos obviously, target, this, in just on speak of that? roughly here. do what's think call you can a outside medium-term little XXXX Nevada progress jurisdiction you to the base the XX% little

and outcomes. Yes, driven regulatory the growth, Julien, clearly by question. income rate growth net base differential great The between

you're I get seeing rate within in cases that for us think period.

and these the XXXX the and growth. Obviously, net rate and interim that's year impacted Arizona always by is got associated the fully having base run outpacing XXXX, And periods. whatnot bill income base associated those we've in net by with settled of in -- But income off rates, Nevada them. the significantly rate why are so run filings impacts growth been

large a too is engaged Bill, can from best a expanding about on that to as think mean, with the having I'd and bring business? the And you I I of and the But much. comment if you this that precedent could you're coming country opine you efforts strategy How I little Excellent. improving you new think the for you great that the Centuri love some do here. scope role about get any utilities the to in hear. Again, or enhanced know and already. elements lastly, to obviously, I difficult how can, and underway

there's Sure. that Well, grow. infrastructure then to for to on across and opportunity I And we'll with clearly, improvements the have clear go the a opportunities just there to of reach out going across those for look various us anyone massive to that now. But I very go to the those really spending of very industry it's amounts go good much of the use and on, to and country, relationships to right are companies lot isn't amounts that. going that's than that engage and think we're very going hard possible share infrastructure landscape, there's further at probably clear take of try a to looks if

with And from our next comes question today Citi. Levine Ryan

of the appreciate of lower rate could would ongoing guidance end Maybe for longer-term that? your of of the outside rates added and proceedings the utility, I what in outlook maybe jurisdictions. ranges higher the where you to core and there's terms earnings of in towards -- you capital cost put recognizing speak

Yes.

million contributed $X modeled decline on from And rate So that a -- think -- pension. about we've a the with I just obviously, starting The some the we've market of got easier ones. discount obviously, XXXX. to

XX% help attention that, had, XX-XX going of the to from obviously, which upside pension impact interest will past there clearly. this there movement. But of So we interest overlay where rate rate be ultimately rate environment to allocation something fund interest pension. forward potential certain case some like XX-K, place to year their outcomes to the dampened call we've and made putting over a the changes in rates I the a like downside impacts the or of assumptions could highlight on your With

on be extent have baseline a change of a we're kind flat can to obviously per The on then modeled the if growth cost in O&M management, obviously, of that could there range. cost can we requirements, structure of have is to are and but rate and model in as bandwidth savings level and quickly we rate certainly to -- just everything income clearly, lot the financing around Fed generate interest that And we a that settled into over that upward impact certain period. thing we've the the taxes cost how collected savings rates moves like this the some accelerate impact. we've but Nevada, Although assumptions, a interest while the also clearly is, cash don't us more the in we on in a year. put were PGA from drive that a obviously as overall, we the tax clearly years To front forecast we help far were as forecast on achieve point. a that of couple we to then we CAGR this could able achieved other I capital, which of our allows the to think cost at could extent, XXXX. And think, But understood that to customer the the I cap of laser-focused the the certain discussed, well us continue -- just provide do what by then and

our of we've so Does assumptions around dot that help, interest and guidance Ryan? income. the around kind And made plot obviously, respect with whatnot setting to

But around have there appreciate any or a Is -- has to quantifying been staff. the the and to structure there was management of date, what recent operational color. the is type date, around company underway? since to cost of of plan And Centuri, impact some On been Yes, of forecasts. way changes part change a the highlighted underway number sensitivity has the there maybe XXX-day recognizing that this providing operating metrics? I contracts the initiatives

operating things for that you noted that the so one I the month. for about as understand the that purpose into layers of the can of I've of in a as Presidents can and much we [indiscernible] these and that So imagine, get the company opportunities details did more X role management been first businesses, was in comments, me of removed growth. And I the was between my was

is just IPO more through in process So go clearly that be we work few will beginning weeks. articulated the as and a here now

of IPO And to effective into will DNA XXX-day be direction will a This and we so is much the excited to But that information. deployer which there again, plan. and of forward. isn't and very organization, be I'm organization more continue move in the a the services specific this the of the process, to infrastructure is as articulated that efficient be move

back our concludes like question-and-answer This you. to call session. over Thank Justin to turn closing now Forsberg I'd for the remarks.

by right information. York, such the other and Utilities of you everyone, thanks, your events. as participate questions. and the content Rocco], [ for seeing the my call, again, West for and call New Clean Bank joining continues Utilities, March, Power [indiscernible] many conference week of This forward today as to Coast in conference & concludes include we activities in we in Thanks followed our Conference, Energy Vegas, soon next here to America Slide Conference XX in by look among hosted Las

good your at Holdings. for any a As Thank interest free reach always, to feel Southwest you out Gas time. day. in Have

Earnings Southwest Quarter today's Webcast. Gas concludes Year Fourth and and Holdings XXXX Full Call This

lines your time, and having at this disconnect wonderful a day. now may You