Southwest Gas (SWX) 6 Aug 242024 Q2 Earnings call transcript

Welcome to Southwest Gas Holdings Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. I will now turn the call over to Justin Forsberg, Vice President of Investor Relations and Treasurer of Southwest Gas Holdings.

Thanks, Joanna, and hello, everyone. Thanks for your interest in Southwest Gas. and XXXX Southwest associated earnings issued our Holdings Form we quarter second release morning, posted Gas the website XX-Q. This and the Southwest accompanying Holdings' slides today's are available The call website. on also Gas those slides throughout today. We'll refer by to the number call today's and Please earnings address certain this some longer-term guidance. we factors note call, will may that that impact on provide year's

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

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

gas The results. slide natural milestone Gas in premier to the core us Southwest to Southwest discuss joining regulated in as Gas its our April X. Holdings for significant Starting second-quarter closing the strategy utility. fully transformational returning a IPO Centuri you of foundation of marked today with successful a Thank

of reception to of look with the forward offering, separation and the in completing We market's the manner. are pleased Centuri timely we a

continued success make positioning we quarter, long-term progress the utility for the growth. During to and

completion safety Nevada, the our needs our the and enhance with positive our to and of Following growing rate are customer case the the reliability we recovery impact investments of meet base. seeing general of associated in

are stakeholders case. and on rate general case month in to forward forward We looking with pending rate collaboratively California testimony their filing our to we in as this to our Arizona later work continue month receiving look next our

a growth we second the intensely shareholders. Additionally, of Gas with needs the on and of for XX-month basis. serve, in investing we the delivering performance remained and the extension communities the Customer strong, demand operating addressing on safely finished value team trailing quarter customers, and focused our is margin record our Southwest entire

can in our organic the also constructively safe, and investing regulators deploying demand strategically strong are base so our with that solutions We while and reliable, for capital and meet working we to growth. operations complement legislators affordable rate our energy

be utility are strong in net million $XXX million. guidance the income We $X by momentum now underway, encouraged of the to by raising to we are million range $XXX and XXXX

also guidance year adjusting our base are expectations, XXXX and growth are We now the growth compound higher net reaffirming rate to utility other annual reflect our we long-term income estimates.

of continue will increases income a outcome, As revenue growth, rate will from timing result case to which rate over be forecast nonlinear period. the as nature expected net demonstrated with Nevada regulatory constructive cases of the the provide

our historic up few and we refreshed past inflationary with We customers the rate structures years. experienced investments we environment the the made expect the benefit for catch system to of to significant from have our over benefit

commitment of a further annual same growth to and in compound rate strong over the maintaining is future reaffirmed range our a our balance in period sheet expected and dividend. the competitive to base, confidence demonstrated Our by rate investment-grade X.X%, X.X%

priorities, X, are As on slide see made we them excellent strategic XXXX our can progress on on already we all. track and have you to achieve

Following evaluate strategic we was the period We execution during the other or Centuri's required to options to contingent we Holdings in the market Centuri, efficient operating taxable the but its and to serve to separate a manner execution Because net Southwest current loss preserve sell-down or business a could conditions, lockup the steps series continues separation ultimately an in thereby Gas committed have flexibility, for and a expect that any in of is exchanges. for to We successful are confident exchange taken our balance separating appropriate IPO. share we offset through shareholders to of of may scenario. allowing the we on a sell-downs separate the potential tax-free that actions as IPO, preserve successful continue spin, share an transaction. significant remain and us

and like cash to the plan I'll progress and pleased needs the to we of of continues far couple on in we As financing nearly limited very our a are in progress and our $XXX with note, track next of moment achieve of have all our years. end more regulatory show discuss so to detail million over financing priorities. would of our are year regulatory June, this

initiatives. on Additionally, optimization our planned utility executing we are

efforts income progress for also in increased our reinforce rate guidance Our net discipline and our our case XXXX. cost confidence

Earlier regulatory strategy to that our compared we about nearly million. XX% completed rate X and of general having of a outcome of depreciation in represents revenue and have positive case in with strides. for adjustments Nevada This notable the nearly $XX our the revenue we $XXX after terms request cost XXXX, In and outcome, increase adjustment proposal see authorized you this before of will million million rate original slide received an increase year, capital. a with made our $XX utility on of of base

an the collection of expecting in increase refreshed to highlighted improvement XX% of is of rates system propose to in represent that our would along California similar go million into on a XX% that required strong a benefit note, of the last state, quarter second the case its to its case safety-related the that tracker rate rate or higher Commission track requested At since a case, million own return Arizona infrastructure with XX% to nearly the September tracker overall dedicated year. base good file X, Arizona are income quarter company's our XX%. to rate represents in investments has third report. Great On annual capital continued effect in second-quarter XXXX The year rate about and achievement to slide important XXXX net costs base recently are anticipated utility over XXXX on we additional of requested across Corporation Basin, million Arizona. in start an Our we as an Of of $XXX $X in we the last increase $XXX general company. highlight our during the performance with XXXX, of

We strong the over customer XX,XXX to customers. months, sets the additional ensure continue XX continuing benefit to experience make and our growth, to investments new of system past adding while reliable for approximately our safe meter remains

relocation to Phoenix electric our And and strategy benefit as from the continue our regulatory destinations and and battery, I and manufacturers. noted, to for economic among Vegas growth as also in economic be each including jurisdictions. demographic development, have to vehicle of expect we Las continue top semiconductor, strong advanced We

June the XXXX. nearly turn reflected as less is in X were from deferred to across financial of who $XXX months This balance the call will that, XXXX expenses balance maintenance and the year. compared all With review our customers. I'll first enterprise than the XXXX strong, cash months end balance and sheet the the X% of the now gas the collected to cost operations for higher of purchase over our substantially million is first in X performance Rob, of Our having of

entity. On are our per consolidated share GAAP slide shown each XX, and EPS we outline by consolidated performance. company's The earnings adjusted

As utility of very the net finished sheet strong XXXX balance Karen mentioned record the with income. a first and earlier, half

operating quarter EPS customers quarter to of when gas XXXX-XXXX a of cash share and full work service following Holdings to the interest by at second Holdings impacts amortization deferred by the Centuri the costs nearly and at include master consulting of the seasons. fees adjustments also on with quarter of program. the and the from quarter transactions million previously majority company. natural of the adjustments Centuri, optimization the utility strong appendix, $XXX per the relate second by XXXX expense we Gas XXXX reflects heating adjusted higher quarter, share Southwest decrease the the from which of second reduced bid the per partially HoldCo, related reconciliation of intangible while to work adjustments, utility vast compared second agreement utility of impacts $X.XX from hand, XXXX, The at adjustments at second volumes assets XXXX separation-related during of Consolidated offset the was of collection lower the In the finished provide a performance. the the $X.XX

a Now walk-through Southwest provide Gas the on performance utility. Holdings the and I'll of

consolidated an depict slide a XX, earnings we on basis. to walk Turning adjusted

results. with net the a term which bid and tax income higher differ with the work to Of extent, capital utility operating benefited offshore on interest to interest. as due lower well wind volumes amounts to During for accounting next all did income higher customer continued an lower at variable as Centuri's as reductions that income quarter saw not HoldCo results expenses while increases of are Centuri's interest of The growth second this lower level to full-year as and compared higher over second The offset rate reported reoccur from interim and the note, the expenses related stand-alone on partially quarter impacted differences depreciation benefited gas well margins associated Centuri Centuri's IPO-related outstanding basis relief, expenses differing in associated interest from primarily XXXX, work Gas debt the as amortization well expense and year's facility. methodology from net of XXXX higher QX unwind decreased, to due by the reduction. rate lesser as quarter. in slide. O&M the MSAs quarter, the natural results revenues Centuri's of by work was revolving income, second consolidated well in as Overall, the interest and impact discussed to period results expenditures detail lower in above-average Southwest noncontrolling were consolidated modest should methodologies credit due on the tax as as loan under impacts

Gas in XX, Moving recovery the the compared the an period Southwest as by in quarter-over-quarter slide drivers for on the our $XX utility on In well nearly million Corporation. driven second operating of California. to you in performance margin to a investments million primarily increased $XX by increased quarter utility will Nevada XXXX, improvement same was recovery modest last as year. The prior increase see

amortization components, We reduction of areas quarter. saw during also regulatory roughly was adjustment will these in amortization which equally by Nevada our Offsetting result traction million margin in variable and of where growth in mechanism amortization, $XX customer in year's the is relates The with strong continue $X similar year's quarter I expense, as expense as elevated account shortly. see a million quarter. not interest we Note service recur and certain $X higher continued discuss this growth. mechanism this improved offset a did second infrastructure combined operating regulatory surcharge impacts reduction in is to second resulted in increase margin operating largely to which the of last that combined million a increases throughout customer margin remaining reduction this

is QX portion activities, costs. associated were COLI average XXXX. a that the XXXX. confident regulatory costs to corresponding discussed $X $XX.X and related of observed continuing our XX, including a prior account have to range, up regulatory offset second contractor O&M software Further, and general and treatment return less inflation professional assessments drivers. with from ceases of nondecoupled and than to from in of million year operating In approximately an result post-retirement nonservice-related recovery than customers. of consolidation to be updated in IPO the flat in adjust did higher, million less second basis addition, in late at Gas revenue services amount Overall, driven mostly benefit through $X We in million, in the financing $X.X equity net a the the impacts and largely outcome which performance quarter, recur than partially balance $XXX utility employee These the of by achieve I amortized year-to-date ago. costs. of amortization to the interest These expense our that Karen were the and primarily balance used decrease balances, of declines increases million associated the remaining And second million, costs. nearly partially is customer of to increases X%, at to reflect will which Southwest the an the from cost income in were was accordingly. and expense that to provided year-to-date for at which keep revenues our the regulatory million macroeconomic insurance external expense, I that of strong, $XX which notably associated in of gas an balances, through in service was miscellaneous has guidance regulatory resulting the lower increase business, line X% on decline recoveries included general XXXX. is deferrals receivable year's measures. Interest over the increase bonds, expected pension remain impacts our allowance been the To slide a elevated goal development lower by survey with will On locating a and Also we taxes to in depreciation moment that timing Other an with guidance liability O&M are The the in the in components net in of and O&M in of depreciation, still cost increase due will utility construction, in balances during impacts that net the were results June related quarter. increase XXXX included per-customer account industrial in primarily carrying increased income approximate and million the labor plant the impact to for interest by end in $X flipped $XX partially stated which or decreased of offset occurred margin million $X.X million prior charges across write-offs the balance margin to year were program higher approximately AFUDC, funds not broader by prior offset the Centuri be plan increased this the quarter to charges mentioned that quarter, utility which we of by margin $X reduction able leak nearly and amortization, by the Corporation revenue and XXXX the offset earlier. has with to fee margins related Centuri. of both compared XXXX, million Holdings we Gas gas discuss. saw million purchase XXXX. extent deferred related Southwest Centuri, consolidated a at been the lower assumes from quarter We offset income a $X customers in the and XXXX

more to continue flow the forecasted We capital in cash utility XXXX. fund entire from to program expenditure expect than operations the at

through on to in the to separation next XXX.X revolver we XX, XXXX. important million term inclusive our of Southwest the limited loan on which the million In quarter, note that as In near-term in the Holdings third a XXX extension anticipate our of basis needs from at ATM. reduction the have significant plus the very the August approximately addition, efforts, SOFR as year $XXX sheet successful needs the spread which needs in million capital Again, in equity July XX post-IPO in down modest point execution XX.X equity during X strength balance $XXX million utility, depends recent is to plus we now million of expires this points. term that is no to SOFR extended markets additional Holdings the loan XXXX. total $XX The basis form. we next expected based included And to our continue approximately and applicable of refinancing $XX years, well XXXX, It over months. $XXX addition

financing We end sheet balance XXXX. At metrics. Holdings, refinancing of expect investment-grade and through at solid our reiterate debt the the to limited needs target continue plan utility we to

Moving on look to strength take slide a XX. balance We and investment-grade to at our sheet commitment our the profile. maintaining

nearly the debt purchase guest finished $XXX operating with of the On by we the costs. net previously walked largely million quarter cash, collection left-hand the We due side, deferred through full to of company.

the PGA from approximately are has the quarter down at As XX, of million of to flipped end balance This balance. the PGA slide now $XXX On on XXXX. a of balance result, additional provided at the utility, the is details asset liability. an first the

previous As cash the need additional obviate expect mentioned utility in to we on continue significantly slide, term. to the financing the large near the pursue balance to

the ratings we that to in from agencies has we the watch us XX negative to had which from discuss or negative. guidance. side now On Fitch, note our with Karen our turn over slide of call credit outlook the changes a of no to slide right-hand XX, the Haller to moved I'll exception

safe focused utility our Our outlook rate territories, believe range, expectations spending operations. of well of as higher CapEx nearly our XXXX that on over We as remains results related the will forecasted utility at $X maintaining Nevada optimizing reflects capital income a XX, approximately We than while regional to income make our and of of completion and performance original the enthusiastic net strong our drive $XXX million, strategy, reaffirm results our balance of team XX% cost expected our thus future about is we our of This customers. guidance economic XXXX we outcome service to the in and The balance of the cost our management our as case needs On the the results far continuous and reliable lead of as year. well earlier. efforts to all our of rest improvement evidence net our the are as we serve mentioned progress second savings the benefit our guidance to initiatives, expect quarter slide executing which system raising utility. we're million, growing XXXX continue customer for are by to base at XXXX. utility

annual we the XXXX, at out, adjusted compounded now X.XX% net through maintains from further expectations for expected Looking fall XX.XX% and higher our of to XXXX range the utility have rate within reflects to the growth outlook income our which for to the base year. XXXX XXXX

story. While plan of the somewhat a cycle components to period period, same O&M our impact regulatory to in trend flat over customer to over lumpy that result strategy regulatory our growth is per growth income and the net are be forecasted expected the our of important expected achieve

Additionally, find in the XX. presentation you the slide our to XXXX can drivers on appendix XXXX of

the our to reaffirm about ] in base CAGR over XXXX [ of over total invest to also the billion X.X% period, continue We X XXXX and rate $X.X the next same expect to to to be X.X% we range in years. of CapEx

that, strategic financial plan a are focused forward premier Southwest confident Before call rate value and financial I to constructive want separation toward Q&A, the to relationships. our At growth steady a Centuri strong for path utility. through call emphasize we pure-play exceptional results, teams for demand continue regional base full and natural like our open our regulatory planned to customers. through delivering delivering priorities, are attractive gas stockholders. Gas execute earnings proposition in to the continue we of to growth and point slide We'll I'd more our We the on XX operational as Holdings, that questions. dynamics excellence, create to as organic providing up service as well discipline, strong executing open to With to

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

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

Look, value We're a Centuri. options. Obviously, very to CEO the the we separation we're time to at the relative in continue at evaluate process in point the X place stocks. this between focused looking at permanent

to alternatives, so that we're we'll permanent monitor we And separation conditions. of look market focused CEO, out on placement as to the and continue

really net looking or obviously makes had as of reserve when Karen loss event obviously scenario taxable but hard spin kind conditions a the in at of sell-down market adverse a sell-down or think conditions, other at our operating highlighted, exchange, look attractive potentially I you a We balance the in are exchange. the it option.

separation do scenario all just And a about timing overall, something on against there ran then just you balancing the do the lockup expiry? you before through? Just where speed here, could is how factors think you to

CEO Paul like a -- said, long both record, as and as within and has in time serving Berkshire. to on as the well time of CEO think a the we're focused is Energy process permanent the I put Caudill place. track his CEO EPC his I NV services in interim as the

So September, confidence of interim here look. we a be of in period we CEO, permanent lockup the a a placing early CEO. process would an perspective, expires an lot are the as timing From him but in through looking have

we're I think term. the are, CEO where that on focused near just markets given placement in

comes from Ryan Levine question Next Citi. at

morning. in you ATM the and could you the can news this million share Any filing the color color give? around that reason size that the filing? saw of for amount I Any $XXX

Yes. Good question, Ryan.

the prior highlight was exact million the outstanding amount I'd First, the is under $XXX that shelf.

the the years size issued. ago in ATM when periods. utilize prior that from several was didn't We We changed haven't

need we have to And the so ATM that it. extension just ability it's really an so we execute the if

have could this if go the to the of on on raise million. equity that a $XX Obviously, than million to obviate year call, market. sell-down to $XX not strategy choose to a were needs chance that there's we and said may then embark need to shares, we less As we we Centuri

flow that at, cash Similarly, not? to look $XX the from utility or next need the million all do this our continue in year at we've of we do year, equity couple was million we and before, could to in We next said as over But generation year we we ATM needed do stated just if years. order look $XXX $XX it. effectively the million also needs, total our continue refreshed this to the

So we in at very about equity 'XX, loan have debt needs. we that Holdings talked so $XX no of We equity year, million each needs 'XX like about. needs, really limited and redid term refinancing

So access million the all, in to all a million. of continue facilities, we'll even very need strong cash, balance $XXX and evaluate sheet with the credit $XX our and to for

is in $X.XX items And expense other in or $X.XX change? then that that may embedded maybe terms terms versus you that HoldCo of what can much drag, or costs the one-time nature in lineate versus amortization be of drag how is parent in interest

Yes.

kind as million XXXX So we in time quarter April frame. or place of term the the put about think in you in it, second the term loan, of early the $XXX loan

year-to-date half And it we've longer the far first week. year-to-date of loan we XXX that loan basis from term over did outstanding obviously year, refinanced compress was time to When the term the XXX.X. term XXXX, just extension for as this a so than on the We earlier -- in of the closed a was period the loan, basis, year-to-date as of XXXX. down the spread that we points in on year-to-date

around the IPO, costs at there and with noise some Holdings obviously, basis, level, just separation Centuri the associated from there which is an we've so our adjustment adjusted in out. And

the of that. majority cost at the vast limited very expense. interest Holding the the is of amount So There's

most the you're So financing comparison? the $X.XX is of saying year-over-year

Yes, that's right.

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

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

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

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