Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successful closing of the Centuri IPO, marking a significant milestone in the company's transformational strategy.
- Positive impact from the completion of the general rate case in Nevada, leading to enhanced safety and reliability.
- Record operating margin performance on a trailing 12-month basis.
- Strong customer growth, adding approximately 40,000 new meter sets over the past 12 months.
- Raised utility 2024 net income guidance by $5 million, reflecting strong performance and expectations.
Negative Points
- Consolidated adjusted EPS decreased by $0.23 per share compared to the second quarter of 2023.
- Higher interest expense at the HoldCo, impacting overall financial performance.
- Centuri's revenues and operating margins decreased due to lower volumes of work under MSAs and other factors.
- Operations and maintenance expenses increased by nearly 2% in the first six months of 2024 compared to the same period in 2023.
- Regulatory account amortization reduction led to a corresponding decrease in amortization expense, impacting financial results.
Q & A Highlights
Q: For the Centuri separation, can you run through your current thoughts on the relative attractiveness of a tax-free scenario versus generating proceeds to pay down debt? I guess I'm also curious here if you're focused on the absolute price of CTRI or that relative price between CTRI and SWX?
A: We continue to evaluate the separation options. We're very focused on placing a permanent CEO at Centuri. Our net operating loss balance makes a sell-down or a taxable exchange potentially attractive. We reserve the spin scenario for adverse market conditions but are looking hard at the sell-down in exchange. (Robert Stefani, CFO)
Q: Is there a scenario where you could do something before the lockup expiry? How do you think about balancing speed to separation against all the factors you just ran through?
A: We're focused on placing a permanent CEO. Paul Caudill is serving as interim CEO, and we have confidence in him. The lockup period expires in September, which would be an early look, but we're focused on the CEO placement in the near term. (Robert Stefani, CFO)
Q: I saw the ATM news this morning. Any color you could share around the reason for that filing and the size of the $340 million amount in that filing?
A: The $340 million is the exact amount outstanding under the prior shelf. We haven't changed the size. It's an extension so we can execute the ATM if needed. We have less than $75 million of equity needs this year and may not need to go to market. (Robert Stefani, CFO)
Q: In terms of the $0.09 HoldCo drag or parent drag, can you lineate what that is in terms of how much is interest expense versus maybe one-time costs versus amortization or other items?
A: The vast majority of the cost at the Holding is interest expense. There's some noise around costs associated with the Centuri separation and IPO, which we've adjusted out. Most of the $0.09 is the financing year-over-year comparison. (Robert Stefani, CFO)
Q: Can you provide more details on the financing plan for Southwest Gas Holdings and Southwest Gas Corporation?
A: We expect cash flow from operations to fund the entire capital expenditure program at the utility in 2024. We anticipate very modest additional near-term equity needs of approximately $75 million during 2024. We have no significant capital markets needs over the next 12 months. (Robert Stefani, CFO)
Q: What are the key drivers for the increase in utility net income guidance for 2024?
A: The strong regional economic outlook in our service territories, the completion of our Nevada rate case outcome, and expected results of our cost management efforts will drive 2024 results higher than our original net income guidance range. (Karen Haller, CEO)
Q: Can you elaborate on the progress of your regulatory strategy in 2024?
A: We completed the general rate case in Nevada with a positive outcome. Our Arizona rate case represents a requested return on nearly $650 million of additional rate base. We expect refreshed rates at Great Basin in September 2024 and plan to file a general rate case in California during Q3 2024. (Karen Haller, CEO)
Q: What are the expected impacts of the regulatory cycle on net income growth over the forecasted period?
A: The regulatory cycle is expected to result in somewhat lumpy net income growth. Our regulatory strategy and plan to achieve a flat O&M per customer trend are important components of our growth story. (Karen Haller, CEO)
Q: How is the company positioned to handle future financing needs?
A: We have nearly $600 million of cash and limited financing needs over the next couple of years. We extended our term loan and revolver, reducing the applicable spread. We expect limited debt financing and refinancing needs at the utility through the end of 2026. (Robert Stefani, CFO)
Q: What are the main factors contributing to the strong second-quarter 2024 performance?
A: The utility benefited from continued customer growth and rate relief, partially offset by modest O&M increases and reductions in interest income. Centuri's results were lower due to reduced volumes of work and higher interest expense at the HoldCo. (Robert Stefani, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
