Southwest Gas Holdings, Inc. · NYSE:SWX
Southwest Gas — Q3 2021 Earnings Presentation
65 slides from Southwest Gas's earnings presentation, Nov 9, 2021
Slide 1: 3rd Quarter 2021 Earnings Conference Call
Exhibit 99.3 rd 2021 3 Quarter Earnings Conference Call November 9, 2021
Slide 2: Participants
PARTICIPANTS JOHN HESTER KAREN HALLER GREG PETERSON JUSTIN BROWN KEN KENNY PRESIDENT AND CEO EVP/CHIEF LEGAL/ADMIN OFFICER SVP/CFO SVP/GENERAL COUNSEL VP/FINANCE/TREASURER SOUTHWEST GAS HOLDINGS SOUTHWEST GAS HOLDINGS SOUTHWEST GAS HOLDINGS SOUTHWEST GAS CORPORATION SOUTHWEST GAS HOLDINGS November 9
Slide 3: Safe Harbor Statement
SAFE HARBOR STATEMENT This presentation includes “forward-looking statements” as defined by the Securities and Exchange Commission (“SEC”). We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All sta
Slide 4: Outline
Highlights and Investment Thesis Financial Results – September 30, 2021 Regulation OUTLINE Customer Growth Liquidity and Capital Expenditures Dividend and Rate Base Growth 2021 Expectations November 9, 2021 4
Slide 5: Highlights
HIGHLIGHTS ▪ High quality acquisition track record ▪ Consistent growth ▪ Questar Pipelines acquisition ▪ Riggs Distler acquisition completed in ▪ 37,000 first-time meter sets added in past ▪ High quality, FERC regulated pipeline and August 2021, adding union electric 12 months storage business platf
Slide 6: Ongoing Board Refreshment
ONGOING BOARD REFRESHMENT INCOMING BOARD MEMBERS CURRENT BOARD MEMBERS E. Renae Conley ▪ 30+ years of energy and utility industry experience ▪ Chief Executive Officer of ER Solutions, LLC ▪ Former Chairman, CEO and President of Entergy Corp, previously serving as EVP, Human Resources and Michael J.
Slide 7: Questar Pipelines: A Complementary Platform
QUESTAR PIPELINES: A COMPLEMENTARY PLATFORM Consistent, rate-regulated cash flow underpinned by FERC authorized ROEs and customer contracts… Pipelines Intrinsic Transaction Benefits Enterprise Transaction Benefits ▪ Highly contracted revenues anchored by high quality demand-pull ▪ Increases Southwes
Slide 8: Riggs Distler - Accelerates EPS & Dividend Growth
RIGGS DISTLER- ACCELERATES EPS & DIVIDEND GROWTH Expands Electric Utility Services Platform and Offers Significant Growth Potential – Expected to Generate ~$600 Million in Revenue Growth Through 2024 ▪ Combines existing industry-leading utility services platform with a scaled, union electric utility
Slide 9: Proven Track Record of Growth at Centuri
PROVEN TRACK RECORD OF GROWTH AT CENTURI 1 2020 EBITDA 5x 2010 EBITDA – STRONG CONTINUING GROWTH POTENTIAL Clear strategy has created a pure-play utility distribution services platform diversified across the Centuri EBITDA Since 2010 U.S. and Canada ($ in thousands) ▪ Acquisitions have accelerated d
Slide 10: SWX: A Compelling Investment Thesis
SWX: A COMPELLING INVESTMENT THESIS Regulatory diversification across multiple jurisdictions (primarily state and FERC-regulated business mix) Strong LDC utility ratebase growth of 7.5% per annum expected over 2021 – 2025 Robust utility customer growth and demographic trends across jurisdictions Inf
Slide 11: Summary of Operating Results
SUMMARY OF OPERATING RESULTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three months ended September 30, Twelve months ended September 30, 2021 2020 2021 2020 Results of Consolidated Operations Natural gas operations income (loss) $ (27,544) $ (15,973) $ 182,134 $ 155,993 Utility infrastructure servic
Slide 12: Net Income Three Months - Natural Gas Operations
NET INCOME (LOSS) THREE MONTHS ENDED SEPTEMBER 30, 2021 Total NATURAL GAS OPERATIONS $ 10 Decrease Total Increase Decrease $11.5 million - $(16.0) (10) $13.5 $17.6 $(27.5) $5.0 (20) $9.7 $3.9 $6.0 (30) Customer Gas Plant Rate Service in Service Relief COLI $1.2 Arizona Customer Pension AFUDC (40) Pr
Slide 13: Net Income Three Months - Utility Infrastructure Services
NET INCOME THREE MONTHS ENDED SEPTEMBER 30, 2021 Total UTILITY INFRASTRUCTURE SERVICES Decrease Total Increase Decrease $ 35 $16.3 million $13.0 25 $1.2 $5.8 $34.9 $1.6 $4.3 $4.0 15 Riggs Riggs Reduced Life Distler Revenues $18.6 Distler Profitability Insurance Equipment $52.5M Acquisition Policies
Slide 14: Net Income Twelve Months - Natural Gas Operations
NET INCOME TWELVE MONTHS ENDED SEPTEMBER 30, 2021 Total NATURAL GAS OPERATIONS 240 $ Increase Total Increase Decrease $26.1 million $20.7 210 $71.9 $31.9 180 $1.8 $7.1 $2.9 150 $5.0 Pension $182.1 Gas Plant Customer (service) 24% in Service COLI Growth $156.0 120 Pipeline Pension Property Rate 76% P
Slide 15: Net Income Twelve Months - Utility Infrastructure Services
NET INCOME TWELVE MONTHS ENDED SEPTEMBER 30, 2021 Total UTILITY INFRASTRUCTURE SERVICES Decrease 80 $ $9.9 million Total Increase Decrease 60 $10.7 $14.0 $14.8 $0.4 $1.3 $0.9 Electric Infrastructure $66.6 24% Riggs 40 $56.7 Distler Revenues 76% Equipment $187.8M Equipment & Riggs Computer Expenses D
Slide 16: Centuri Completes Riggs Distler Acquisition
CENTURI COMPLETES RIGGS DISTLER ACQUISITION Establishes Centuri’s Union electric platform, serving Utilities throughout the Northeast and Midwest Expansion into ESG and Energy Transition work ▪ Riggs Distler named a General Contractor for Orsted / Eversource Sunrise Wind Project in New York ▪ Respon
Slide 17: Riggs Distler Asset Allocation and Financing
RIGGS DISTLER ASSET ALLOCATION AND FINANCING UTILITY INFRASTRUCTURE SERVICES Weighted Summary of Key Terms - Centuri Acquisition Financing Amount average (millions) useful life Facility $400 Million Revolver $1,145 Million Term Loan B Tenor 5 years 7 years Current and other assets $ 118 Maturity 8/2
Slide 18: Regulation – Recent Rate Cases
REGULATION – RECENT RATE CASES Arizona Approved Rate Relief ▪ Rates effective January 2021 $66.2M ▪ Test year ended January 2019; post test year plant – July 2019 ▪ Rate base - 46% increase ▪ 9.20% ROE relative to 51.10% equity ratio $6.4 Nevada ▪ Rates effective October 2020 ▪ Test year ended Novem
Slide 19: Regulation – Current Rate Case Activity
REGULATION – CURRENT RATE CASE ACTIVITY NATURAL GAS OPERATIONS NEVADA – FILED AUGUST 31, 2021 ARIZONA ▪ Proposal Includes: ▪ Estimate new general rate case filing in ▪ $30.5M Rate relief 4th quarter 2021 ▪ $1.73B Rate base ▪ Estimated test period August 2021 and ▪ 9.90% Return on equity propose 12 m
Slide 20: Regulatory Partnerships - COYL & VSP
REGULATORY PARTNERSHIPS ARIZONA NATURAL GAS OPERATIONS COYL & VSP Cost Recovery Proposal ($ in millions) Full Recovery of ~$74M Outstanding Revenue Requirement Approved ▪ COYL will be recovered over one year beginning November 2021 ▪ VSP will be recovered over three years beginning ~$14 March 2022 ~
Slide 21: Regulatory Partnerships
REGULATORY PARTNERSHIPS NATURAL GAS OPERATIONS Safety/Reliability/Growth Partnerships * Rate Base ▪ Capital Tracker Programs: (Millions)▪ Post Test Year Plant Adjustments $4.0 ▪ COYL programs ▪ Expansion Programs: ▪ Pipe replacement programs ▪ Mesquite (NV) 69% $3.5 Increase ▪ Mobile Home Park ▪ Spr
Slide 22: Serving Our Customers with Excellence
SERVING OUR CUSTOMERS WITH EXCELLENCE For 2 years in a row, ranked #1 among Customers prefer the choice of 91% 1 natural gas natural gas utilities in the West region #1 for business customer satisfaction in 4 2021 2 Customer satisfaction 95% Ranked #1 among large natural gas A Top 50 company recogni
Slide 23: Diversified and Growing Customer Base
DIVERSIFIED AND GROWING CUSTOMER BASE NATURAL GAS OPERATIONS Twelve Months Ended September 30, 2021 Customer & Operating Margin Distribution ▪ Decoupled rate structure in all three 4% By State states 11% Other Sales Transportation Margin Customers Customers▪ Residential and small commercial Customer
Slide 24: Liquidity Profile
LIQUIDITY PROFILE NATURAL GAS OPERATIONS Strong liquidity will support capital expenditure and Liquidity Profile working capital needs as of September 30, 2021 ▪ Stable operating cash flows ($ in millions) ▪ $400 million revolving credit facility $ 800 ▪ Expires in April 2025 700 $772.8 ▪ $150 milli
Slide 25: Capital Expenditures and Funding Sources
CAPITAL EXPENDITURES AND FUNDING SOURCES NATURAL GAS OPERATIONS Dividend SWX Equity $0.4 $0.6 - $0.8 to SWX Issuance $2.1 Billion (ATM) Capital Investment Utility Debt Estimated $0.5 - $0.7 Issuance 2021-2023 Utility $2.1 Capex Utility Cash Three-Year Plan Highlights $1.1 - $1.3 Flow from ▪ 45% Inve
Slide 26: Rate Base Growth
RATE BASE GROWTH CAGR calc Total Increase Decrease Rate base amounts reflect $ 8 estimated total investment in $1.5 7 facilities necessary to provide utility service. This is different $3.5 6 $0.03 than our authorized rate base, which is the rate base investment 5 that has been approved by our 4 reg
Slide 27: Dividend Growth
DIVIDEND GROWTH 5.8% 5-Year Dividend CAGR CAGR calc $ 2.50 $2.38 $2.28 $2.18 2.00 $2.08 $1.98 $1.80 1.50 1.00 0.50 - 2016 2017 2018 2019 2020 2021 CAGR = compound annual growth rate Maintain target payout ratio between 55% – 65% Expect future dividends to increase at the sustainable earnings growth
Slide 28: 2021 Adjusted EPS Guidance
(3) 2021 ADJUSTED EPS GUIDANCE Diluted Earnings Per Share $ 4.20 $4.14 $4.00 - $4.10 4.00 (2) $4.05 3.80 (1) $4.00 - $4.10 diluted EPS 3.60 3.40 3.20 3.00 2020 2021 Notes: (1) Changes in economic conditions, events, or other circumstances that the Company cannot currently anticipate could materially
Slide 29: 2021 Line Item Guidance
2021 LINE ITEM GUIDANCE Natural Gas Operations ▪ Operating margin expected to increase 6% – 8% due to customer growth (1.7%), rate relief in all three states, expansion projects, and infrastructure tracker mechanisms ▪ Total pension costs are expected to be relatively flat compared to 2020 o Will be
Slide 30: Long-Term Expectations
LONG-TERM EXPECTATIONS Holdings ▪ EPS growth of 5% – 8% for 2022 and 2023 (based on adjusted 2021) ▪ Equity issuances through ATM, $600 million – $800 million over 3 years ending 2023 ▪ Target dividend payout ratio: 55% – 65% Natural Gas Operations ▪ Capital expenditures are expected to be approxima
Slide 31: Strong and Growing, Future Focused
STRONG AND GROWING, FUTURE FOCUSED Natural Gas Operations ▪ Continued capital and rate base growth ▪ Continued customer growth ▪ Focus on cost control and affordability to customers ▪ Ongoing decarbonization and efficiency ▪ Constructive regulatory results ▪ Continued earnings and dividend growth ▪
Slide 32: Appendix
APPENDIX
Slide 33: Customers by State
CUSTOMERS BY STATE NATURAL GAS OPERATIONS (IN THOUSANDS) As of September 30, 1,200 1,146 1,101 1,126 900 799 786 768 600 300 202 197 200 - 2019 2020 2021 California Nevada Arizona November 9, 2021 33
Slide 34: Summary Operating Results - Natural Gas Operations, Three Months
SUMMARY OPERATING RESULTS NATURAL GAS OPERATIONS (IN THOUSANDS) Three months ended September 30, 2021 2020 Results of Natural Gas Operations Gas operating revenues $ 2 55,848 $ 2 10,834 Net cost of gas sold 6 3,710 3 6,321 Operating margin 1 92,138 1 74,513 Operations and maintenance expense 119,708
Slide 35: Summary Operating Results - Natural Gas Operations, Twelve Months
SUMMARY OPERATING RESULTS NATURAL GAS OPERATIONS (IN THOUSANDS) Twelve months ended September 30, 2021 2020 Results of Natural Gas Operations Gas operating revenues $ 1,445,066 $ 1,355,666 Net cost of gas sold 374,449 356,925 Operating margin 1,070,617 9 98,741 Operations and maintenance expense 431
Slide 36: Purchased Gas Adjustment (PGA) Balances
PURCHASED GAS ADJUSTMENT (PGA) BALANCES NATURAL GAS OPERATIONS (IN THOUSANDS) September 30, December 31, September 30, 2021 2020 2020 Arizona $ 191,907 $ (3,901) $ (14,674) Northern Nevada 4,924 (8,601) (12,724) Southern Nevada 38,964 (42,134) (45,506) California 5,032 2 ,053 (3,338) Total Receivabl
Slide 37: Authorized Rate Base and Rates of Return
AUTHORIZED RATE BASE AND RATES OF RETURN NATURAL GAS OPERATIONS Authorized % of Authorized Authorized Rate Base Total Rate of Authorized Common Rate Jurisdiction (In thousands) Rate Base Return ROE Equity Ratio Arizona¹ $ 1,930,612 48.49 % 7.03 % 9.10 % 51.10 % Southern Nevada² 1,325,236 33.28 6.52
Slide 38: Regulation - Nevada General Rate Case
REGULATION NEVADA GENERAL RATE CASE NATURAL GAS OPERATIONS Procedural Schedule - Docket No. 21-09001 September 3, 2021 Application Filed December 15, 2021 Consumer Session Certification Filing December 17, 2021 SWG Certification Filing Testimonies January 14, 2022 Direct Testimony (Staff/Intervenor)
Slide 39: Diversified Infrastructure Services
DIVERSIFIED INFRASTRUCTURE SERVICES MULTISERVICE PLATFORM REDUCES RISK Over GAS GROUP 10,500 employees supporting North American gas and electric utilities POWER GROUP CANADA GROUP November 9, 2021 39
Slide 40: Major Utility Customers
MAJOR UTILITY CUSTOMERS UTILITY INFRASTRUCTURE SERVICES Centuri companies serve utilities that represent over 100 million gas and electric customers throughout the US and Canada Gas Electric Combination Denotes new Centuri customers from Riggs Distler acquisition November 9, 2021 40
Slide 41: Summary Operating Results - Utility Infrastructure Services, Three Months
SUMMARY OPERATING RESULTS UTILITY INFRASTRUCTURE SERVICES (IN THOUSANDS) Three months ended September 30, 2021 2020 Revenues $ 632,848 $ 580,392 (1) Cost of sales 551,183 500,891 Gross profit 81,665 79,501 (2) General and administrative expenses 41,597 23,579 Amortization of intangible assets 4,511
Slide 42: Summary Operating Results - Utility Infrastructure Services, Twelve Months
SUMMARY OPERATING RESULTS UTILITY INFRASTRUCTURE SERVICES (IN THOUSANDS) Twelve months ended September 30, 2021 2020 Revenues $ 2,065,038 $ 1,877,264 (1) Cost of sales 1,847,453 1,683,392 Gross profit 217,585 193,872 (2) General and administrative expenses 103,901 72,171 Amortization of intangible a
Slide 43: Revenues by Service Type
REVENUES BY SERVICE TYPE Twelve Months Ended September 30, 2020 Twelve Months Ended September 30, 2021 13% 15% Gas Infrastructure Services 18% Electric Power Infrastucture Services 23% 62% 69% Other Infrastructure Services November 9, 2021 43
Slide 44: Revenues by Contract Pricing Type
REVENUES BY CONTRACT PRICING TYPE UTILITY INFRASTRUCTURE SERVICES HIGHER 100% Fixed Price 8% Fixed Price 10% 75% Unit Price 66% Unit Price 72% 50% 25% Time and Materials 24% Time and Materials 20% LOWER 0% 12 Months Ended September 2021 12 Months Ended September 2020 November 9, 2021 44 RISK
Slide 45: Revenues by Contract Structure Type
REVENUES BY CONTRACT STRUCTURE TYPE UTILITY INFRASTRUCTURE SERVICES HIGHER 100% Bid Contract 23% Bid Contract 24% 75% 50% Master Services Master Services Agreement 76% Agreement 77% 25% LOWER 0% 12 Months Ended September 2021 12 Months Ended September 2020 November 9, 2021 45 RISK
Slide 46: Top Customers
Total Centuri Revenue >89% TOP 20 CUSTOMERS From Regulated Utilities UTILITY INFRASTRUCTURE SERVICES (1) Trailing Twelve Months Ended September 30, 2021 November 9, 2021 46
Slide 47: Credit Ratings
CREDIT RATINGS Southwest Gas Holdings, Inc. Moody's S&P Fitch Issuer Rating Baa2 BBB- BBB+ Outlook Stable Negative Rating Watch Negative Southwest Gas Corporation Moody's S&P Fitch Senior Unsecured Baa1 BBB A Outlook Stable Negative Negative Centuri Group, Inc. Moody's S&P Senior Unsecured Ba2 BB- O
Slide 48: Consolidated Capital Structure
CONSOLIDATED CAPITAL STRUCTURE Capitalization at September 30, 2017 2018 2019 2020 2021 1 Equity $ 1 ,714 $ 1 ,946 $ 2 ,508 $ 2 ,727 $ 3,093 2 Long-Term Debt 1,760 2,157 2,500 2,730 3,871 Total Permanent Capital $ 3 ,474 $ 4 ,103 $ 5 ,008 $ 5 ,457 $ 6,964 Capitalization ratios 1 Equity 49.3% 47.4% 5
Slide 49: Demand for New Homes Is Fueling Customer Growth
DEMAND FOR NEW HOMES IS FUELING CUSTOMER GROWTH DEMAND FOR NEW HOMES IS FUELING CUSTOMER GROWTH New Home Permits Customer Growth Added Average of over + 33% + 27% + 17% 36,901 3,000 Southern Nevada Southern Arizona Central Arizona customers* meter sets a month *Year to date compared to same time fra
Slide 50: Diversification Drives Arizona's Recovery
DIVERSIFICATION DRIVES ARIZONA’S RECOVERY “During the next 30 years, Arizona “Looking at the largest 15 metros by “Arizona went into the pandemic with population is forecast to rise by total employment, Phoenix metro a rip-roaring economy. We were No. 1 2.81 million, hitting 10.1 million by ranked 1
Slide 51: Arizona's Incredible Growth
ARIZONA’S INCREDIBLE GROWTH “The state has welcomed “Phoenix grew at a faster “Phoenix grew 11.2%, the “Buckeye and Goodyear in about 760,000 new rate than any other major only one of the 10 largest the West Valley — were residents over the last 10 city in the last decade, U.S. cities to post double
Slide 52: Nevada Is Growing More Diverse
NEVADA IS GROWING MORE DIVERSE “Nevada has become more “The Silver State is the “Clark County, home to Las “Among Nevada’s major populous and more diverse nation’s third most ethnically Vegas and more than two- cities, Henderson grew the over the past decade, adding diverse, according to a new third
Slide 53: Nevada's Economy Is Recovering Faster Than Expected
NEVADA’S ECONOMY IS RECOVERING FASTER THAN EXPECTED “The unemployment rate dipped to 7.5% last “The recent surge in statewide gaming win is “Southern Nevada’s population of month (Sept)… The Las Vegas area added the result of several contributing factors approximately 2.32 million residents is 2,400
Slide 54: Attractive Service Territory
ATTRACTIVE SERVICE TERRITORY “Phoenix was a hot market before the pandemic, and it has been a major beneficiary of new remote-work policies, as workers in expensive cities decided to move for cheaper housing.” - The Wall Street Journal, 7/25/21 “Fueled by low borrowing costs and more out-of-state bu
Slide 55: Our Service Territory Is Attractive to Business Investment
OUR SERVICE TERRITORY IS ATTRACTIVE TO BUSINESS INVESTMENT Featured Gas Users Access to clean, affordable natural gas is essential to these businesses November 9, 2021 55
Slide 56: Environment
ENVIRONMENT We are dedicated to our environment through practices that provide our customers and communities with energy solutions and technologies that are balanced and environmentally friendly. We are devoted to stewarding our natural resources for generations to come, through programs such as met
Slide 57: CNG Is Reducing Emissions from Transportation
ENVIRONMENT CNG IS REDUCING EMISSIONS FROM TRANSPORTATION In 2020, This is the emissions Southwest Gas delivered reductions equivalence taking 31.8 14,750 million therms passenger vehicles of Compressed Natural Gas (CNG) off the road in place of diesel * US Environmental Protection Agency to transpo
Slide 58: Renewable Natural Gas (RNG) Projects
RENEWABLE NATURAL GAS (RNG) PROJECTS Pima County Wastewater Began flowing RNG to RTC Interconnect to receive RNG in 3 September 2021 to 5 weeks Victor Valley Wastewater Butterfield & Maricopa dairies Reclamation Authority interconnect groundbreaking took place June 29 expected online in Fall of 2021
Slide 59: Hydrogen Projects
HYDROGEN PROJECTS Objectives Projects • Determine the optimal, safest and most Hydrogen blending pilot environmentally effective percentage hydrogen/natural gas blend • Identify safety aspects of hydrogen blending Southern Nevada EMRF • Study physical impacts of hydrogen on the natural facility pilo
Slide 60: Investing for Collective Impact
ENVIRONMENT INVESTING FOR COLLECTIVE IMPACT Energy Capital Ventures (ECV) is the only strategic venture capital fund purpose-built for driving environmental, social and governance innovation and digital transformation of the natural gas industry. Southwest Gas joined Renewable Natural Gas Focused on
Slide 61: Keeping the System Tight
ENVIRONMENT KEEPING THE SYSTEM TIGHT As a result of our mitigation efforts, what they were 1/5 leaks today are 30 years ago November 9, 2021 61
Slide 62: Empowering Customer to Move2Zero
ENVIRONMENT EMPOWERING CUSTOMER TO MOVE2ZERO Carbon Offset Program Will be offered to customers in Nevada using a block design. A block represents the equivalent therms of combustion-related natural gas usage that will be offset through the purchase and retirement of a certified carbon offset. A cus
Slide 63: 2020 Sustainability Report Available
2020 SUSTAINABILITY REPORT AVAILABLE Adopted the SASB Disclosure Framework “While no framework is perfect, BlackRock believes that the Sustainability Accounting Standards Board (SASB) provides a clear set of standards for reporting sustainability information across a wide range of issues, from labor
Slide 64: Non-GAAP Measure
NON-GAAP MEASURE Non-GAAP Measure Operating Margin – Southwest recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers. Gas cost is a tracked cost, which is passed through to customers without markup under purchased gas adjustment (“P
Slide 65: Non-GAAP Measure - EBITDA
NON-GAAP MEASURE UTILITY INFRASTRUCTURE SERVICES (IN THOUSANDS) Non-GAAP Measure EBITDA - The following table presents the non-GAAP financial measure of EBITDA for the twelve months ended December 31, 2020, 2019, 2018, 2017, 2016, 2015, 2014, 2013, 2012, 2011 and 2010, which, when used in connection
Southwest Gas Holdings — Q3 2021 Earnings Presentation on 6ix