Earnings call transcript Q4 2022

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Operator

Good day, and welcome to the Southwest Gas Holdings Investor Call. All participants are in a listen-only mode. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Thomas Moran, Vice President, General Counsel and Corporate Secretary, Southwest Gas Holdings.

Thomas Moran

you. Thank welcome Earnings Gas Call. and and Fourth the XXXX Year-end to everyone, Holdings Southwest Quarter Hello, Relations Throughout presentation have Investor slides, call, which the we we posted will to be referencing website. our

of call Corporation; by am of Gas President and Brown, Chief Paul Rob Holdings. President on and CEO I Senior President Officer; Karen Daily, Southwest Vice joined Century Stefani, Financial President and Haller, of Group. CEO today's Justin Southwest and Gas

that factors impact the guidance. company Please earnings will provide this note that today's and certain year's on call, address may some longer-term

the contains information SEC that from as statements. as Pages management's Some will may X press you on to actual of the that may to and release filings which the factors a X our description statements be not may on discussed of cause based forward-looking statements. differ refer results today true, and language and should well our forward-looking are come or of for These presentation the assumptions, the

statements the All turn no such now will are we Karen. statements. I update assume today, obligation to and over any forward-looking to call as of made

Karen Haller

Thanks, year-end I'm quarter Southwest fourth Gas pleased and discuss us you're Holdings to Tom. today the results. joining

the Slide over with X. to December, two to we with transactions. start I'd last were like strategic that Turning updates few announced some presentation the we In months. moving forward

our spin and the proceeds February more the needs. reduction announced net balance with We MountainWest Southwest debt close MountainWest Century. billion of and XXXX, financing Holdings, XX, on at of with South towards sheet creating the sale Williams and the flexibility The going Gas in of $X.X

is I'm well pleased spend that to underway. report Centuri

approval spend the of an this of letter file the ruling regulatory Commission for quarter private the to drafting tax-free confirm We we're filings Corporation approval are transaction. Arizona preparing to nature and IRS

begun planning have a and Form management has full office project the well. as audit and XX We

first expect quarter the to or XXXX quarter fourth of during We spend XXXX. of complete the

have X, the market. stockholder spin creation in two Slide and value see the can you value as alignment will enhances the of on As differentiated Centuri propositions companies independent separate

plans which agencies As have the call. on go plan, reviewed case we we announced Rob rate in engage and December, later the will process through financing we through the the arrived XXXX to at rating

plan million equity equity needs less XXXX We the and between in in XXXX to $XXX $XXX through total issue of million XXXX. anticipate period of than in

favorable in plan out Corporation. Gas Our strengthen Southwest Gas will our and Arizona in the Southwest updates, Holdings capital will position our Nevada, maintaining Closing improving credit which further. and outcomes profile rate and case had two Justin strategic markets we for discuss

its regulatory are Gas to chapter. We Holdings Southwest positive moves pleased see to next and these developments

a Turning to business. for the regulated next natural future utility Holdings fully excited Southwest Gas slide. We're as gas

Resetting with investors. the cash generation Moving and to mix model focus clear visibility optimization creates that enhances a alignment value our a drive utility business our stable stockholders. strategic recurring flow for will utility also on pure-play and

expectations customer a than base. XX,XXX we record million As as California exceeding across Southwest diversified XXXX, installed fully growing serve with sets, X mix business performance than for our Nevada. we a regulated play, a strong And in customers Today, to future pure Gas had more Corporation first-time track and and our the we more year. meter look Arizona,

will Corporation regulatory future help also to that backdrop a constructive Gas Southwest propel has growth.

this fully base billion. is rate our is and that February, increased our to base decoupled past Our service from $X.X billion $X.X allowed rate territories in

expect XXXX. continue Nevada, footprint, quarter will which including constructively and our discuss dynamics the regulators an demand enhance to we across third in upcoming Justin our shortly, in favorable to of we base, As our we work with have rate filing

a strong next are X% short, to competitive growth the rate sheet also X% stockholders. delivering balance reaching three over of In goals investment-grade base maintaining and we our achieve our to dividend years well a positioned to while

utility Slide profile a with on has show blue-chip Canada. long tenure across strong X, we the a base United customer As Centuri States and

As with platform diversified a the comprehensive value is across utility chain. capabilities for stand-alone a entire positioned and continued Centuri growth company,

expected long-term from benefit strong path Centuri transition, stand-alone in tailwinds leadership utility support to leader. discuss and new expand growth is into we're services to they Century's a the committed as support infrastructure a experienced as forward to team, energy Paul will which markets confident With continue further.

the excitement adjusted to discuss $X us provide about able Moving and year on were operating providing Slide more this progress Gas XX. of Holdings. Southwest underscores our forward. going future reported of I to our We Holdings. with the from flexibility all across year of past some like companies would We highlights how Southwest our negotiate revolver our Gas December, financial past to EPS this Starting per share. continued Holdings

communities prevention our report, our in have We positive continued we Corporation, we Southwest reliable role At Holdings transition Gas energy operational damage We year customer while the the also performance. both safe Southwest an our published continuing of to customers. the deliver satisfaction delivered impact we XXXX sustainability serve. industry-leading highlighting and outstanding another to Gas in energy award-winning and

record no Holdings in company of contributed the delivered $X.X XXth revenues of year billion under income. $XX this West Centuri the adjusted revenue Gas longer increases. marking although million is And year, Mountain umbrella, consecutive net Southwest

from highlights the a few just are Those year.

detail Brown Rob Daily Stefani CFO, Southwest Justin will more our into and Century Opco from and President, Corporation; shortly. from Gas go Paul Our

our call Rob, the reviewing for With over that, hand be to like to will the who year. financial performance I'd

Robert Stefani

Karen. Thanks,

and are shown company result, $X.XX company's with And adjusted adjusted fourth past XXXX. of from basis, a EPS adjusted year prior. to share $X.XX faced as On XXXX number the a and Turning an an finished XX, performance headwinds our an and EPS full consolidated share decreased in adjusted quarter operating by year earnings year. we versus of overview fourth of per the EPS per of The for of year-over-year. we XXXX Slide quarter provide this the GAAP EPS company. The adjusted share per

per EPS adjusted $X $X at XXXX share share year per compared to in came XXXX. for Full

Mountain appendix by of West of company. operating a selling Our million, incurred loss provides including is the the $XXX significant level. reconciliation adjustment at on related adjustments holding A costs to

adjustments were results review that the integrating shareholder certain Mountain negative financial with discernible expenses, There impact and West, to in costs resulted activism also year. associated for strategic a

Our meet underperformance year we is XXXX. nonrecurring this that we're mainly these expectations and as attributed such, to to in be confident able items, will guidance

a our dive I'd take companies of the like performance each to of through Now deeper past operating this year. you on

This In by relationships our on lines steel in million last to additional performance vintage $XX provided and our regulatory drivers see trackers, the was constructive utilities year-over-year for revenues. Gas specifically utility yard which XX, Moving $XX improvement came improved Slide driven you'll programs in and regulatory customer-owned Southwest to higher than Corporation. an year. XXXX, margin the pipe our related million

contributed rate The the continued growth utility was also and strong relief rate $XX customer Nevada case additional million awarded our in from million margin. $XX an in

Southwest Gas our number drivers, we to benefit business confident can a years and has Corporation are ahead. deliver of we that which on for long-term come, growth opportunities will these

We due primarily surrounding other at and the service labor heightened engineering million net employee-related did to higher factors. $XX expenses uncollectibles inflationary pipeline margin year to reserves higher cost in restrictions, year. this Coming among out costs and see pressures, previous for higher reliability than due nearly integrity, COVID higher and O&M termination

year, work, franchise optimization costs working pipe service, replacement surrounding to financing which average reinforcement, area also discipline pipeline issued by increasing focus was due a expense costs Interest alone requirements XXXX. from in than plan, million notes these capacity utility last amortization manage is the and includes to XXXX. the and higher nearly senior and into gas and $XX XXXX we plant are diligently infrastructure. increased to $XX new our and in O&M prior higher in year going by considerably due million key Depreciation increases

the XX to this on results. year. main Slide past waterfall results a contributors the Moving includes Centuri detailing to Centuri chart

by growth We $XXX as they record revenue experienced XXXX, revenues million year in increasing Centuri the are prior. from encouraged

cost equipment million the period. as chain of customer The Riggs volume increasing gas prior there and were large on to over the bid experienced costs inflation and loss a costs inclusion top well due to high incremental with stemming inflation, fuel a expenses due $XXX infrastructure headwinds and experienced from fuel considerable increased year, also project cost On costs expenses the past the delays from as from of also supply challenges Centuri higher-than-anticipated higher scheduling resulting and work. of Distler Centuri delays.

should decisive fully provide to Centuri $XX savings. to of forward in adjust has position, action a number significant its salaried eliminated million pretax continued going which cost and annualized loaded take structure cost

$XX borrowing considerable with played also I'll costs after-tax year performance that Finally, Centuri million role this in highlight a year-over-year. increase higher a

their surrounding from loan acquisition, the the interest credit Distler Outstanding rates drove out higher borrowings term with along revolving variable associated the increase. with Riggs borrowings and

of looking alternatives spin at will company. Centuri, we we to the variety delever As be a

XX. Turning to Slide

As through capital activity Karen case the balance and and our profile sheet to engaged to share that maximizing credit implications planned noted an happy flexibility strategy stockholders. value maintain earlier, of expect our investment-grade rate we I'm while financing enhance markets our agencies rating we will the review for

made considerable have of sale Mountain West. We already reduction debt through the

use the of of through February loan We proceeds of $X.XXX the this year. repay able to net term Holdings sales were billion in

us recent approximately on plan transferred and ratio At million XX% debt debt to about of an we target $XXX sale. Additionally, of path a financing XXXX, FFO toward to plan the reduction Holdings, West our puts Mountain with debt that. by

issue holdings As debt mentioned $XXX and to XXXX. the plan we those the $XXX uses slide million million sources of level earlier, equity issuances. in at in outlines and of The

see, sheet. invest Holdings in Gas can to Corporation business Gas Southwest you enable both raise equity Southwest delevering As debt balance the the and and will utility Holdings the while

to are gas utility repayment Utility year Southwest to costs. the January partially in loan $XXX Gas million planning that of term was debt in XXXX $XXX this fund by of million put We Corporation support issuance place of the in acquisition separately

included We that to to to of Turning this a toward Riggs on slide, issue and at ratings do equity approximately expect million to support $XXX Centuri not to included isn't prior Centuri, analysis Centuri. spin we our objective. plan deleveraging drivers in that which

different will capital that We continue funding. structures pending spin-off market regarding conditions assess to

than Century's little greater noted, issuance Holdings. XXXX. through we XXXX call. equity at total, for Southwest equity discuss later expect In anticipate in Gas less a Karen in do the in as Lastly, detail XXXX million $XXX will through not meaningful in performance on period, Paul XXXX we needs the

Now I'll operational of to President Gas Southwest it the turn Brown, review Utility over to Corporation's highlights. Justin

Justin Brown

growth XX, on customer Starting Slide serve. we continue we strong economic development see Rob. to and throughout the areas Thanks,

As Karen years. mentioned, single meter last total in we set over highest year, the year sets which is XX,XXX over first-time XX

see still X%. X.X% anticipate in sets strong we to customer reduction growth expecting to we're meter first-time a While year-over-year, of between slight

replacement pipe anticipate natural both in demand billion drive We new of as investment $X activity that form continue XX. Slide to strong will over as estimated the to well years. three capital the for Turning our in gas plan business investments next

ensure new rate those cases investments Each work to stakeholders growth to safe existing support future will are on of reliable and that continued of business both a we eventually new translate and tracker regulators remains both and into system rate prudent utilization programs. as our made and other with base and

In fact, year. we during completed two significant rate cases the very

successfully revenues reached and in increase in all-party base of of a to $XXX we an First, settlement Nevada allowed rate million of base million. An billion. an authorized $X.X an increase X.X% ROE in relative improved $XX rate of that

and the and investments our of ensure million customers largest meet in we've an revenue increase largely recent ROE of was Arizona tremendous to driven the system made the Arizona this year, of to reliable. our safe we've This ever experienced and earlier by authorizing rate needs Arizona the X.X%. Commission our allowed improved remains approved increase case $XX most And Corporation

case total rate a in regulatory over post-year adjustment of million. authorization and in of Two approximately help lag base a rate rate next make resulting for included the a XX aspects decoupled plan, $XXX months of fully important to our This full will design cycle. our minimize continuation the us of increase case

our across to investment with investment over of As years energy all to past establish opportunities we've been our traditional opportunities, partnering stakeholders Slide the initiatives. shown addition XX, jurisdictions to on technology support in emerging in frameworks couple

has exciting by delivery territory carbon-intensive greenhouse customers piloting as gas to repurpose into we methane as to This then well gas. facilitate renewable and to proven our gas displacing strategy the be have emerging hydrogen natural to partnerships We're fuels system clean and help from economy-wide effective also waste across and with and of our service help continuing committed creation as blending hydrogen an communities as fuel higher emissions reduce natural technology. to

social website, demonstration. communities our ongoing available highlights. mentioned, clean report and in Slide to and fuel Please refer recent published Karen to and ESG XXXX recent in research, highlights As technology our environmental, for recently our on we governance development additional appendix accomplishments sustainability and XX and activity advance that efforts details our our the it is philanthropic

an Grand gas the County Turning successfully third to some the utilities key J.D. welcomed satisfaction. Slide #X XX. we X,XXX new overview accomplishments of over through It our and provides residential throughout year. the customer acquisition for year, of consecutive customers and Power and ranked for business We by

and focused improvement our We industry are evidenced as comes leader statistics safety thousand to per response customer on an customer ticket emergency damages being and continuous efficiency satisfaction when satisfaction, and scores it by and operational times.

we'll Nevada in Arizona. that including rates a half recent activity our case XX. overview effective the of most later of Slide rate year, file I our previously and jurisdictions, that in We in two this provide an XXXX. Nevada outcomes currently rate our We all to Turning first estimate recent case new across mentioned with

gas have each recovery an an of of PGA cost our each our jurisdictions XX constructive mechanisms. of We in balances overview mechanisms provides update of our Slide and

seen prices heating we past experienced gas have have the the an seasons. receivable higher in balances increase our due natural We to two over

through to mechanisms or of credits swings us incremental quarterly recovery they've form the or manage to these our changes with cost help significant surcharges balances. monthly adjustments each allows of in the of recover historically, various supportive been costs to jurisdictions gas rate mechanisms these and in However, SWX our

Arizona experiencing an what reflect to rates. our is to being filed recently with mechanism better actually we're we fact, costs in in the reflected In application supplement

impact the our the costs, but fashion mechanism will reflect the on which or filing they'll surcharge accurately requests customers. in minimize carrying a the our the to balance immediate alternatively commission of The recover implement more improve the incrementally to a timely carrying more update to cost balance our mechanics

optimization the assist and management we building review of recently our into success. foundation sure an efficient, us work doing plan to for complement in internally XX. consulting been have want Slide utility including deep targeted our making contributing positively firm on to to we on structure provide and utility we're to update consultants, Lastly, our investments make hired We've top business a a to future dive cost solid are current the the

years over tremendous growth across this evaluation also believe to cost and pass customer efficiency will next couple will and support ROEs excellent savings improve us that result for service We delivering savings help us our the and on identify We help positive commitment have believe territory, execute operational our our and returns customers opportunities service the of for stockholders. in to efficiency. our complement these efforts and to will we

on the I'll call provide an Century. Paul now to update to over turn

Paul Daily

Justin. Thanks,

Slide Turning to XX.

across most employees million customers XX with Canada. innovative, We infrastructure U.S. utilities local their utility have built XX,XXX XXX the serve throughout high-growth Centuri services Canada XX and an leader spread and we the more than investor-owned U.S. and over provinces, communities largest working blue-chip of into within and the states

relationships customer in and and our them As on of XX, customers. contracts back decades long-term Slide times relationships incredibly even date established lasting strategic our resiliency Most with a with see you of predictable enable we've revenues can recession. our

no top XX-year the under customers revenue of NPL's among a some Although continuous still we which of our customer, XX first are customers, to longer is very our relationship. contract growth newer with due

years revenues. which XX XX of overall an customers, relationship across have XX% comprises of average our We our top

compelling these growth a company. see continue to We we opportunities strengthen as stand-alone relationships as ahead

and lower recurring master of higher compelling rate our or Slide Only of is or is from terms. low-risk from our risk Moving revenue the of services customers. business. big work our time unit revenue is contracts, of price agreement material fixed existing makes profile so our which what based the to A part story mix with price on MSAs, type XX. are a our risk those XX% are and derived of MSA upon many XX%

across expand service customers. both Over our time, revenues and our to we have offerings and electric gas diversify continued

revenue During total our cash long-term our allocate master by in be to agreements electric and continued delevering towards poised underpinned percent we as recurring, With contribution that stable to gas contracts, of to continue generate profit gross overall growth. XXXX, and about investing Centuri we is a equal gross can strong profit. expect highly predictable services the Centuri and flows

Slide and financial XX highlights over decade. strong past Centuri consistent performance growth the

track have and XXXX organic of record we top of respectively, proven XX of over delivered a revenue We an With line bottom XX.X%. CAGR the CAGRs and XXXX, XX.X%, past Between and growth. XX.X% years.

we experienced as noted, line growth year in a XXXX, top consecutive XXth record $X.X culminating revenues XXXX see, in you nearly As And of previously can our was exponential record Karen billion. growth. our of

while also the and of each past the of five this did adjusted We years. and EBITDA nine XX record achieving years last

able macro expenses particularly increased and operating we these mentioned inflationary which Rob headwinds, results pressures, several despite As to fuel earlier, to were continuing due including achieve expenses. record impacted subcontractor

our challenges Additionally, transmission for to along sequencing into changed electrical crews and years. equipment and work with procurement productivity work to projects led difficulties several our out of chain decreased in supply materials mix, pushed customers their subsequent being higher-margin

efficiencies headwinds steps our significant we the business. like of to took with and to continue We enhance operating and over proactively these would to course XXXX, work across customers mitigate companies our will and

structure pending to resources Importantly, the capabilities business deliver spin, we as towards work and to growth we have our continue opportunities. our

offshore build-out and long-term energy accelerate the expect programs. tailwinds will XG and deliver transition T&D to our markets. With Century footprint that this data strong strong comprehensive confident renewable and opportunities across continue utility end We markets extremely utility expand additional on wind XX. growth high-growth see to electric value chain Century's that capabilities are and we Slide positioned entire span that to other as turning we we supports Lastly, geographic expansion, into is and -- growth, the earning well

gas by of There evidenced energy as recent are an to bring contract Indiana. opportunities services vehicle transition, gas electric our the within $XXX facility for natural battery in also million-plus award to

million incremental secured increases. annualized helped revenue increases which on existing to certain offset contracts, have we XXXX, has and cost $XX inflationary than During more customer

incremental and benefit our a increase our increases that base these contract clauses all normal and are years. which to As will revenue adjustment future XXXX reminder, rates, means this

we we transition to across as the support well benefit we independent as utility clients our are an Century's America. North incredibly look company, energy from to As future positioned

expect we to rapidly accelerate And coming in years. the investment energy to renewable continue in

Century expanding which support projects. sustainable progress in significant we're related delivered $XXX XXXX, projects during energy offshore million million revenue clean XXXX. to energy making are to to We projecting our in wind $XX grow approximately

we date, To have contracts. nearly signed offshore wind million in $XXX

Our South where of for on expectations. schedule Fork we well are Revolution Rhode projects at all with and revenue Orsted ahead at underway deliverables are cost or and in budgeted Island,

anticipate million. billion XXXX quarter New of totaling of execution first over contracts during with wind approximately the we another and soon offshore $X.X for Additionally, having $XXX work of contract wind in offshore York,

We will offshore drive beyond. in these wind and margins to expect and projects XXXX continue growth increase

revenues to services, continue after and Hurricane our restoration communities across both $XX Most Ian Canada responded we recently, Fiona million the United Finally, crews Southeast enhance Hurricane without power. our and into in States which XXXX. U.S. of delivered left countless

excited the We our this quarter quarter year coming or the of are as XXXX. first the Centuri we is towards to be completed spin in expected year during which to of progress share advance fourth

Now I'll back to turn it Karen.

Karen Haller

our We paying hold you a the plan competitive committed dividend see to can Gas Slide remains dividend to stockholders. XXXX. flat Southwest to Holdings As in on XX,

the a time any utility at Century spend the for with of policy our of future strategy ratio will continue competitive and peers. revisit we'll payout changes We dividend

coming year guidance to outlook for on the on Moving and XX. Slide our

Gas to both like XXXX we We and beyond. our to we the points value for few plan in and Century. future deliver how are share about to can a stockholders how I'd optimistic Southwest And on Corporation

to to customer in we our Corporation, Gas to support for base. Southwest through per continue $XXX make investments to million and million development of roughly growing year least CapEx system With XXXX considerable plan improvements infrastructure $XXX at

will XXXX, cost optimization in growth, advance rate developments. utility supporting Gas and on engaging on case its Southwest optimizing Corporation plan In discipline customer focusing

earnings million by $XXX healthy We the next in the annual growth range to growth to expect supported X% the $XXX to million of compounded projected for base will full three be organic years. net of year. income growth X% Long-term land over rate

ensuring margin continue to adjusted Holdings our value of like to our XXXX call, out of I'd will excited ability and future stockholders. stockholders. to to with our in significant benefit billion EBITDA while Century this Corporation $X and unlock and on customers Gas and jurisdictions for to regulatory Centuri work We X.X% investments to for a that XX%. fair I'm to billion of revenue ensure expects the return constructs the both Southwest our about Gas Closing say Southwest of $X.X

through path growth gas regional well we Holdings, are forward excellence organic pure-play strong as natural we premier operational regulatory in confident Gas demand as base our deliver and earnings Southwest discipline, financial as a At healthy through constructive utility rate dynamics as growth relationships.

a organically earlier, stated position to cash business questions. open we're and advancing the tax-free I'd stockholders the I As better to that, generation. like for delever with the putting align With a call flow with towards company in healthy

Operator

comes [Operator question Please from Ellinghaus first Instructions] Williams. go Chris Our ahead. Siebert from

Chris Ellinghaus

Can to that you utility on cost weaker what -- fourth some in can us weak. led sort quarter? or a the fourth gas Was the about you of It particularly give quarter? seemed talk details

Robert Stefani

Stefani. Rob it's Chris,

to think year, thinking guidance with we of I'd I highlight several were finished about the in factors. kind the where utility where

debt bad about uncollectibles resulting provisions just first COVID the that contributed stem $X from think, I million. termination the and

us outlined down we took another about a Additionally, an had $X $X tax reserve our associated million which our bridge as million that acquisition which is costs, project after gas a took we IT approximately low. on settlement, we with on legal

planned the did from not And million then pushing just overall Southwest we $XXX it's we down interest the at happen. year, I that about Holdings Southwest with utility, anticipated to to respect had had as cost think Gas

and Gas where faced. which of reflective so expense kind and additional of guidance was corresponding to had the debt interest Southwest we And incur the gap is where between

Chris Ellinghaus

the year? is reflected in These O&M there the these is for -- type of any inflation of issues that -- some

Robert Stefani

Yes.

we the reflecting employee the an on I we increase. year. our and experienced this basis, I locates the of are was debt bad work reliability what with year, more did think apples-to-apples guidance, in associated kind forecasted work O&M with are the costs cost inflation higher think for The

of utility, expect see as One of legal don't the a we there items. deviation to the in period. Certainly, coming much

Chris Ellinghaus

us are insights to for on the use How yet? you ATM execute any you give you planning equity? going are to Can Okay. that

Robert Stefani

not for We're the of at details but into providing time, the the get plan we for to going execution year. the any this details overall Chris, are

that's in your So hopefully, helpful work.

Chris Ellinghaus

Okay. Centuri's EBITDA margin variability guidance is a pretty insights wide range. Can there? what into you be give us the any might

Unidentified Analyst

This tends our CFO [ph]. if of projects. expecting Stewart impact I'm is revenue was in our in the revenue historical of but be and be Centuri. some offshore would in percentage We're be periods. as anything, been to will a work there Chad that on XXXX plan higher-margin the to it's larger not It wind

could unexpected impact would have So, expect. lower realized for cause an That that revenue margin if our to the what something happens that than on be and work we year. we delayed

for higher-margin be storm to Similarly, work tends work us.

for storms don't as that as year margin materialize if So, our this then have an would on well. EBITDA year, we impact the expect

Chris Ellinghaus

at corporate the improvement any obviously in that color magnets the of But expect those corporate can from and level any relative drag layers you're be give for expecting? might The for and XXXX distributed has kind XXXX what us you you it. to other

Robert Stefani

utility the look have driver Chris, you can to to, consultant will with go-forward holdings the on we're towards incur obviously, primary laser-focused loan, on cost So Mountain this that's I be on to think with given embark on -- a sale spend, at going appreciate the going expenses the now, the to Century removal point the Look, also structure to interest the context bringing just associated going of first in that. executing right? that's Century, and we to as respect with at we're we're a the the going in plan but we level which continue we're overall West, as bridge alluded the of Justin that of obviously,

to making some into -- of the XX spend letter necessary transaction Form together, and public first the quarter filings, position private ruling a or at fourth the the have taking to Century expenses we'll steps getting It's making level. in quarter the filing or XXXX, holdings the get

Operator

Our Ryan Citi. question ahead. from Please from next comes go Levine

Ryan Levine

is what Are start Hi, color post you're XX. off there on be policy a here trying or suggesting post a to you everybody. that to the provide deal some Wanted may Can some your and if there? in the separation There Page you is dividend language a XXXX executed? dividend signal policy to Centuri. the as change of about beyond reduction

Robert Stefani

it's question. Thanks the Rob. Ryan, for

timing to we're paying respect I we're I this the forma we and first foremost, dividend a flat the of committed dividend to competitive we're we're the And -- spend. think dividend. -- that what think demonstrating with year, a the pro the spin holding to to to do Centuri, going evaluate closer

we to, to with competitive dividend that what look as to payout respect here think to our going we're always, is pay are I peers signalling a ratios.

Ryan Levine

new that see lot a last terms study? years, Okay. higher operations? to cost bring you over you're of that a hoping anything the lot And a that's key Is then of light do consulting through initiatives opportunity O&M to few being or the of in there real consultants among focus to stakeholders. improve Or going

Justin Brown

Ryan, it's Justin. Yes.

with So, we identified, a I we've think as the lens had in some to of had this gone announced internal we that to wanted but on and industry. kind in of bring the someone greater kind embarked call, that, through that the think, third I had opportunities, respect in we review fall, we've

And them we then prioritize identify anticipate different so, we've we and to can and that, initiatives year the execute with working on. done first this half of

are able be there be expertise combination see it's well. think I to And so, been to things to have a their identify identify, to we what but as going I think with combined might it's be to we things some additional that going able

a of it's combination the think I two. So,

Ryan Levine

Okay. And me. for then last question

they'll In to cost be. timing cheaper how are of financing the the if terms the delayed more next spin, incremental it get less or attractive of the available that first Could for time extent the of attractive? markets year, becomes year, forecast Centuri this move or quarter capital was line broadly to harder see faster you outlined or

Robert Stefani

Rob. it's Ryan,

drive foremost, comments what ruling continue a or kind the to of XX back be that There's the that private PLR. First evaluate kind and we're of any that's to of the and the respect going say outcome could from to to timing. SEC line modifications with items and Form going of I'd number that with to the respect required time come letter just

say, respect form to the we're it with to suffice of But open the to going keep options spin. continue to

And that. create either obviously vis-a-vis options an so, monetization if then capital at sometime opportunity, level, the century markets consider we'll of down

that I the what [ph] was was process with take do our obviously delevering of the could IPO transaction, to have And announcement and to of top markets spend. we'll debt look ras said are closed, form issue up clearly at revealed the And Century. Like be but option. think agencies the support that on that continue work sponsored through capacity could we we the an the to a the res of

to spin XX. path Form that may conditions -- So, kind but that continue we through assess execute year. to we be, anticipate spend would of this we'll the just option continue with the the going continue watch market down to of what

to the So, be I on the the is going and timing XX predicated think more Form PLR

Operator

Frank next comes The Please from [ph] from David go Capital. Hale question ahead.

Unidentified Analyst

forma on debt you of you was an balance terms give then the us hoping could was of Century end at tell plan the spin. please could And could net time was of you if at indication me what I the much to dollar the debt I day. how approximately XXXX. company pro you hoping the place at in Good Hi.

Robert Stefani

Yes.

has XX is that's the this Rob. under just of $X.X Century. position as $X the of the end a term year, of million So, It's over about net facility. of Slide billion, composed then $XXX debt and billion David, credit loan the on under revolving and just

just As part question? -- was the second of can your what you update

Unidentified Analyst

of the much approximately you pro pro to Yes, spin. Century Could the plan you forma company time debt forma sure. us on tell how at the the at place

Robert Stefani

closer this the on of to level century going the presentation. rating and as spin, $XXX Yes. We're process the did, approximately early We do going million. to we get that's portion year an include to inform leverage a at it's down agency we did the later

$XXX the the spin. So, X, if at time of Slide the approximately million at did fourth you we include planned flip deleveraging Century of bullet to

assess to as million So, kind where to evaluation of deleveraging that's we'll from up growth organic continue -- that centuries $XXX EBITDA focused. the that. to between we're But as potentially delevering going we're of well

Unidentified Analyst

Okay. investment is an not just the get grade important. goal or And that's rating as to

Robert Stefani

Yes.

as position we focused on year. work at know focused later think positioning that balance what point, through the the is don't the go that say I I to business. I this it rating sheet are we're this Century as said, on ratings and have we'd Like we'll

Unidentified Analyst

previously follow if could one your sorry, company tell you XX% target? -- I'm remind or stated us us question. just I Could of it's And around Excellent. the for Okay. now previously it payout for or… quick midpoint I your from think

Robert Stefani

million Yes, to that's correct, $XX $XX

Unidentified Analyst

much. Thank you, Okay. very

Operator

Lane. Granite from comes Stephen question go Please next from our ahead. Debris Instructions] [Operator

Unidentified Analyst

taking my question. everyone. much for quick Hi, a one. had I Thanks just very

about Just couple. quick a

-- do that debt doing income drag the for the treated? XXXX, I you're the eco in how in Gas is get have to or is from $XXX of -- -- on million planning Just Southwest does financings net shown -- like that the on that that's included

Robert Stefani

Yes.

So be of that holdings $XXX top would the up level. million issued debt at

Unidentified Analyst

Okay.

the you then of of the $XXX debt and you basically, it So, parent response to in million Ryan's an part Co maybe as company. $XXX and could pro additional with one Gas to put of question, forma I up think could Southwest on -- at be right? when that debt? answered end Hold million but Is the deleveraging spin the reduction the of Century, options So --

Robert Stefani

Yes.

that that issuing we we could holdings look I would option. that include What Century did We a anticipate which would is yes, level. at structures, the say equity holdings any monetize at would support potential a at of debt portion don't also various that century. to as look deleveraging at the spin-off structures So issuing could lever we delever to include

look could then that kind could issued a of with stake IPO, proceeds plan So at form a there. kind of that the any would retained of the sponsored the we and also use to take spin debt repay

as partial that we that table those the a at along believe the structures look as association things it get process. we just acknowledge in to of kind with we'll off to necessarily deleveraging further the that will all occur not leaving We're So, relates need spin. We in deleveraging.

Unidentified Analyst

with not your was would then Okay. comment debt I be of if more the and would – other that comfortable even think But like at level had ratings accretive -- other the of define ratings those agencies Hold Co. available, the options did if you were have all

Robert Stefani

won't in debt we with we we're worst-case mean and analysis, even speculate. I that that did that that, projections based a include in investment-grade did would in agencies comfortable the showed we've maintained and -- include be level -- supported, I and plan We ratings. our that the scenario on the Yes. a

Unidentified Analyst

this factor was, do count is the that that Okay. higher question guys the of asked, -- have you on I is multiple I And kind forma pro guess, and XX% that kind payout from only -- then when the other business. but in to the the have some equity of it drag, question it look share people to think which approaching like I I looks had does a of just like

competitive dividend that? And so, pay Or just say do what the it payout ratio? how think of higher you kind can period? would as that you than just you average? -- is about a Or peer Is

Robert Stefani

the to would Yes, you I just universe. comp direct

and with this spin dividend targeted will has the the range in paid we conjunction we've competitive historically I that later think policy with peers, and the evaluate been year.

Operator

question next go comes from Please Funds. Our from Winter Gabelli ahead. Tim

Tim Winter

It the that wanted the that's we for to talk drag. holding away. my of But most think company taking for like debt do go holding assuming to about about 'XX. is expense going thanks about -- I and afternoon, spin? how ask $X.XX I'm looks post question. Good company

Robert Stefani

this the separation. conjunction that about plan. Obviously, think it of financing transaction largely the XXXX, the it with be in associated So to prepping associated driven That Tim, going issued terms we're Centuri XXXX by expense costs course post-spin, should with of the in the I for debt holdings will is with spend. be post over incur Rob. interest would will be

expect much to utility associated with expense run push -- this expenses normalized a financing repay and the majority more near of the debt rate the the top that, interest holdings plan at term. capital But where to down we existing of following support

Tim Winter

Okay. consulting about guys about Thank How if you And little that then thinking discussed bit going are you I prior help an the you. you ROE. to could that's efficiency. firm just with currently? talk presentations X%-plus believe more a

Karen Haller

respect we the process. initiated With consultant, have Karen. is this Tim, to that

anticipate will ROE. said, Justin that a reaching we've as improved focused but identified on process out also through still -- additional that. We're some in terms come that focused improve we be initiatives that help As on consultant of number ROE initiatives ourselves we of that there will we're of an the that move X%

I going think of had take little a earlier, us indicated longer there's to and a than it's that. couple reasons for we what

were years. First right, XXXX you'll But recent in and XXXX, know, of Nevada. in test Arizona those cases years all, as cases in we're you recall, during both We historical test COVID. two and did rate of

in those what normal most O&M So, recent is the than O&M reflected lower rate would cases run. our that's

the So that's pressure ROE. on putting some

plans later Nevada, new even have go in which year, we reset indicated, cases Justin rate this on to will O&M. with that As

pressure, there's redress the will I and and transactions optimizing to near equity we I establishing been secondly, little through X% be process in I obtain obviously, the level and the went But we're that think the think, our and a into structure really our pressure, the on ROE some think company what play then up things And ROE. decisions structure setting we future. the on following that the believe capital

Tim Winter

you. Thank Okay.

Operator

back are over to closing Moran any session. for Thomas questions turn like There remarks. our the in more I Instructions]. queue. to would [Operator concludes no This question-and-answer the conference

Thomas Moran

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

Operator

Conference now today's you concluded. has presentation. attending Thank for

now disconnect. You may

Southwest Gas (SWX) 1 Mar 232022 Q4 Earnings call transcript