Southwest Gas Holdings, Inc. · NYSE:SWX
Southwest Gas — Proxy Contest (April 2022)
75 slides from Southwest Gas's proxy contest presentation, Apr 19, 2022
Slide 1: Support SWX's Strategy to Maximize Value for All Stockholders
Support SWX’s Strategy to Maximize Value for All Stockholders April 19, 2022
Slide 2: Safe Harbor Statements
Safe Harbor Statements Please refer to Slide 72 for important information regarding forward looking statements contained in this presentation and the use of non-GAAP financial measures. |
Slide 3: Executive Summary
——— ie Executive Summary Southwest Gas. HOLDINGS
Slide 4: Executive Summary
Executive Summary | Icahn waging proxy contest either to facilitate takeover of SWX at inadequate price or to simply take control of SWX Board in furtherance of his “fire sale” agenda Following thorough review with assistance from financial and legal advisors, Board unanimously determined that Icahn
Slide 5: Executive Summary (cont'd)
Southwest Gas Has the Right Board to Maximize Value for Stockholders Icahn’s Claims Have No Basis in Fact Executive Summary (cont’d) | Icahn makes numerous bad faith arguments using misrepresentations and distorted analyses meant to distract attention from goal of taking control of Board in order to
Slide 6: Southwest Gas Strategy to Maximize Value for Stockholders
Southwest Gas Strategy to Maximize Value for Stockholders
Slide 7: Exploration of Strategic Alternatives to Maximize Value
Exploration of Strategic Alternatives to Maximize Value Southwest Gas Board authorized review of full range of strategic alternatives to maximize stockholder value Company has received indication of interest well in excess of Icahn’s $82.50 Offer Board will consider alternatives including, among oth
Slide 8: Southwest Gas' Strategic Transformation
Southwest Gas’ Strategic Transformation | Fast growing but subscale unregulated utility services leader Complementary footprint with scale in a new geography Enhances service offerings Provides opportunities in wind, electric, 5G and renewables Efficient equity financing Opportunities for operationa
Slide 9: Focused on Thoughtful Long-Term Strategic Planning
Focused on Thoughtful Long-Term Strategic Planning Our Board and management team have been deeply focused on developing the optimal strategy to create value for all stockholders Centuri is established as a holding company, enters Canadian market with acquisition of Link-Line Group, and exceeds $1 bi
Slide 10: Committed to Providing Stockholders with Strong TSR
Committed to Providing Stockholders with Strong TSR Initiatives to Drive Value Creation: Clear Strategy for Delivering Value 1 Confident that Strategic Alternatives Process will Maximize Value for Stockholders Efficient financing of MountainWest with less equity than previously expected, yielding hi
Slide 11: Board and Management Committed to Continued Value Creation
Southwest Gas Board and Management Team Committed to Continued Value Creation Our Commitments to Stockholders Enhancing Growth and Value Creation: Ongoing Execution of Strategic Initiatives ROE improvement to 8% in 2023 and beyond Optimization of capital expenditures to enhance ROE performance Conti
Slide 12: Southwest Gas: Positioned for Accelerated Value Creation
Southwest Gas: Positioned for Accelerated Value Creation Under the stewardship of the Board, Southwest Gas has become a leading regulated natural gas operator providing reliable, affordable, clean energy across service territories and is positioned for accelerated value creation driven by rate base
Slide 13: MountainWest: A Complementary Platform
MountainWest: A Complementary Platform MountainWest’s 2,000 miles of highly contracted, FERC-regulated interstate natural gas pipelines in the Rocky Mountain region make it a unique, structurally advantaged asset that could not be replicated today Accretion is now expected to be even greater given t
Slide 14: Efficient Equity Financing for MountainWest Acquisition
Efficient Equity Financing for MountainWest Acquisition No additional equity financing anticipated for MountainWest acquisition Multiple times oversubscribed; broad distribution to well over 100 current and new investors; modest price discount; stock has performed strongly subsequent to issuance Com
Slide 15: Diversified, Fully Regulated Business Mix
Diversified, Fully Regulated Business Mix | Fully Regulated Business Mix and Attractive Business Profile Regulated returns across gas LDC, Great Basin and MountainWest Pipelines Regulatory diversification across three states and FERC Collaborative and constructive regulatory relationships Predictabl
Slide 16: Favorable Demand Dynamics Across Diversified Geographic Footprint
Favorable Demand Dynamics Across Diversified Geographic Footprint | Clear Strategy for Delivering Value 1 SWX’s Diverse Geographic Footprint Southwest Gas Holdings has assembled a portfolio of gas delivery assets positioned to benefit from strong organic and inorganic growth opportunities Strong Reg
Slide 17: Attractive Rate Base Growth
Attractive Rate Base Growth | Successful Rate Base Growth Plan to Increase ROE to 8% in 2023 and Beyond Rate base has nearly doubled in last 5 years Growth driven by: Capital investment Constructive rate case outcomes Supportive regulatory mechanisms MountainWest acquisition Continue to work collabo
Slide 18: Regulatory Lag – Closing the Gap
Regulatory Lag – Closing the Gap Combination of increasing annual capex from 2016 – 2019 and unusually longer than normal regulatory lag contributed to larger than normal difference between authorized rate base and actual rate base While the ACC temporary suspension of COYL/VSP surcharge revenue als
Slide 19: Positioned for the Energy Transition
Positioned for the Energy Transition | Steadfast in delivering on responsibility to create sustainable future for customers and communities CA NV AZ WY UT CO A Variety of Clean Energy Projects Well Underway RNG Hydrogen Other Victor Valley Wastewater Reclamation Authority Pima County Regional Wastew
Slide 20: High Customer Satisfaction and Employee Safety
High Customer Satisfaction and Employee Safety | 91% Customers prefer the choice of natural gas(1) 95% Customer Satisfaction(2) CSO50 Award A top 50 company recognition for security initiatives that demonstrate outstanding business value and thought leadership(3) 2021 In May 2021, launched Project H
Slide 21: Centuri
Centuri Under stewardship of Board, Centuri has achieved scale in attractive end markets with experienced leadership and a high-quality business model Centuri’s attractive customer base, consisting of investment grade regulated utilities, and track record of significant EBITDA growth, position Centu
Slide 22: A Timeline of Successful Business Growth Toward Spin-Off
A Timeline of Successful Business Growth Toward Spin-Off | Over 25 years, Southwest Gas has injected $266 million of equity into Centuri, received back $186 million in dividends and created a scaled utility infrastructure services leader worth billions in equity value today With a 100-year vision fo
Slide 23: Announced Spin-Off of Centuri to Unlock Value for Stockholders
Announced Spin-Off of Centuri to Unlock Value for Stockholders | Unlock Value Unlock value for stockholders and enhance transparency through more direct comparability to pure-play industry peers Reduced Equity Needs Meaningfully reduces future equity financing needs – equity required to finance Moun
Slide 24: Strategic Utility Infrastructure Services Leader
Strategic Utility Infrastructure Services Leader | With resources and capabilities to thrive on its own, Centuri’s diversified platform enhances growth avenues while reducing risk High-Quality Utility Customer Base GAS GROUP POWER GROUP CANADA GROUP Gas Combination Electric Clear Strategy for Delive
Slide 25: Long-Term Utility Customer Contracts Bolster Cash Flow Quality
Long-Term Utility Customer Contracts Bolster Cash Flow Quality and Growth Potential | Fixed Price 12% Unit Price 64% Time and Materials 24% RISK Diverse Infrastructure Service Offerings(1) Contract Pricing Type Contract Structure Type Gas Infra Instructure Electric Instructure Other Instructure PA 3
Slide 26: Strong Tailwinds Across Infrastructure End Markets
Strong Tailwinds Across Infrastructure End Markets Support Long-Term Growth | Electric Utility Distribution Gas Utility Distribution 5G Datacom Energy Transition Near end of useful life At end of useful life Within useful life Distribution Infrastructure Aging Electric Infrastructure(1) Distribution
Slide 27: Centuri's Stable Earnings Profile
Centuri’s Stable Earnings Profile | Centuri compares favorably to its core peer group in business profile and income volatility Double-breasted workforce Gas distribution construction No cross-country pipeline projects Electric distribution construction No cross-country electric transmission project
Slide 28: Highly Experienced, Public Company Ready Management Team
Highly Experienced, Public Company Ready Management Team | Paul Daily President & Chief Executive Officer Kevin Neill Executive Vice President, Chief Financial Officer & Treasurer Richard Delaney Executive Vice President, Chief Operating Officer Rob Lyons President, Centuri Power Group James Connell
Slide 29: Icahn's Tender Offer is Inadequate and Not in the Best Interest of ALL Stockholders
Icahn’s Tender Offer is Inadequate and Not in the Best Interest of ALL Stockholders
Slide 30: The Board Unanimously Rejected Icahn's Tender Offer
The Board Unanimously Rejected Icahn’s Tender Offer Your Board carefully studied a wide range of factors relating to Icahn’s Offer and took into consideration, among other things: Icahn’s Inadequate Offer 2 The Company’s compelling prospects for continued growth and the ongoing creation of sustainab
Slide 31: Icahn's Tender Offer is Inadequate
Icahn’s Tender Offer is Inadequate Board recently received indication of interest well in excess of Icahn’s $82.50 offer Icahn is waging proxy contest solely to facilitate takeover of SWX at a price that significantly undervalues the Company Icahn’s offer lacks any semblance of a control premium at
Slide 32: Icahn Slate Assembled Solely to Take Control at an Inadequate Price
Icahn Slate Assembled Solely to Take Control at an Inadequate Price The true purpose of Icahn’s control slate is to remove the stockholder rights plan and acquire SWX at an inadequate price “The tender offer will be conditioned upon the elimination of the recently announced poison pill and the waive
Slide 33: Icahn's Offer is Highly Conditional and Subject to Significant Regulatory Hurdles
Icahn’s Offer is Highly Conditional and Subject to Significant Regulatory Hurdles Icahn is attempting to circumvent the regulatory approval process Icahn does not have and has not applied for the state regulatory approvals to proceed with his Offer State regulatory approval is required for Icahn to
Slide 34: Southwest Gas Has the Right Board to Maximize Value for Stockholders
Southwest Gas Has the Right Board to Maximize Value for Stockholders
Slide 35: Southwest Gas Has the Right Board to Maximize Value for Stockholders
Southwest Gas Has the Right Board to Maximize Value for Stockholders Highly qualified, independent and diverse Board Significant Board refreshment, with four new Directors added since 2019, all of whom contribute gender and/or ethnic diversity Recent refreshment of leadership positions, with Bob Bou
Slide 36: Southwest Gas' Highly Qualified Board of Directors
Southwest Gas’ Highly Qualified Board of Directors As previously announced, Robert Boughner will be appointed Chair of the Board effective at the 2022 AGM. Independent according to ISS classifications. Measured as of 2022 AGM, pro forma for the retirement of Michael Melarkey and Stephen Comer. South
Slide 37: Proactive Board Refreshment
Robert Boughner Skills Contributed: Public Board Experience Executive Leadership Ties to Service Territories Banking expertise Carlos Ruisanchez Skills Contributed: Public Board Experience Executive Leadership Capital Markets Experience and Expertise M&A Expertise E. Renae Conley Skills Contributed:
Slide 38: Recent Board Refreshment
Recent Board Refreshment E. Renae Conley Chief Executive Officer of ER Solutions Independent Director of US Ecology and PNM Resources Former Chairman, CEO and President of Entergy Louisiana and Gulf States Louisiana; previously served as EVP, Human Resources and Administration and Chief Diversity Of
Slide 39: New Board Chair and Chair of Compensation Committee
New Board Chair and Chair of Compensation Committee Robert L. Boughner Significant leadership experience in highly regulated industries including Banking, Gaming, Hospitality and Financial Services Clear understanding of the Nevada market from over 30 years of leadership in the region enhances South
Slide 40: Depth and Breadth of Director Skills and Experience
Depth and Breadth of Director Skills and Experience High quality executives with extensive energy and public company experience Legal and regulatory expertise to lead Southwest Gas through industry’s complex landscape Finance experience allows Board to properly oversee Company’s growth strategy Tech
Slide 41: Governance Framework is Aligned with Stockholder Interests
Southwest Gas’ Governance Framework is Aligned with Stockholder Interests Southwest Gas has strong corporate governance and is committed to being best-in-class Governance Best Practices Compensation Best Practices ü Independent Chairman ü Annual election of Directors ü Majority voting policy in unco
Slide 42: Icahn's Nominees Have Concerning Track Records and Lack Relevant Expertise
Icahn’s Nominees Have Concerning Track Records and Lack Relevant Expertise Lynn Teno Sharma Joshi Frisby Linginfelter Evans Brownell Edwards Higgins No operational experience in utility industry X X X X X No ties to key geographic service territories X X X X X X X X No public Board experience X X Pr
Slide 43: Presided over poor company performance in prior leadership/Board roles
Presided over poor company performance in prior leadership/Board roles Nora Brownell: PG&E’s share price declined 25% during her brief tenure as Chair of the PG&E Board Marcie Edwards: despite serving on the CIM Commercial Trust’s Board for just over one year, the Company’s stock price has lost ~41%
Slide 44: Little to No Relevant Qualifications
Little to No Relevant Qualifications Additional Concerns Jesse Lynn General Counsel, Icahn Enterprises No relevant operational industry experience Only public company experience has been through Directorships granted by Icahn, not by Lynn’s own merit or qualifications Would be sitting on four public
Slide 45: Slate Experience Comparison
% of Slate Experience Icahn / Public Company Executive Officer 20% vs. 70% Legal / Regulatory 50% vs. 70% Finance / Accounting 40% vs. 60% Technology / Cybersecurity 20% vs. 40% Sustainability / Environmental Experience 20% vs. 50% Operations Responsibility 30% vs. 70% Ties to Key Geographic Territo
Slide 46: Icahn's Claims Have No Basis in Fact
Icahn’s Claims Have No Basis in Fact
Slide 47: Icahn's Claims Have No Basis in Fact
Icahn’s Claims Have No Basis in Fact The Facts Icahn’s False Allegations ü SWX has performed in line with its peers on a TSR basis over the last twelve months and is taking proactive steps to drive future total returns û “SWX has underperformed as compared to its natural gas utility peers” ü SWX pai
Slide 48: Southwest Gas – TSR in Context
Southwest Gas – TSR in Context 1 June 28, 2021 Riggs Distler Acquisition Announcement October 4, 2021 Questar Pipelines Acquisition Announcement March 1, 2022 Centuri Separation Announcement March 28, 2022 $460 Million Common Equity Offering 2 3 4 1 2 3 4 Icahn’s “Regulated Gas LDC Peers” consist of
Slide 49: Southwest Gas – TSR in Context (cont'd)
Southwest Gas – TSR in Context (cont’d) We recognize TSR has lagged our peers in certain periods. We are committed to providing our stockholders the TSR they expect. Southwest Gas has delivered share price and TSR performance above its peers over the last twelve months by pursuing a clear strategy t
Slide 50: Icahn's Misleading Claims Regarding Under-Earning
Icahn’s Misleading Claims Regarding Under-Earning Reflect Lack of Understanding of Utility Regulatory Frameworks Icahn misleads by focusing on earned ROEs in isolation – boosting earned ROE in the short term by sacrificing long-term growth and earnings potential is not a winning strategy Excerpt fro
Slide 51: The Company Paid a Fair Price for MountainWest
Contrary to Icahn’s Claims, the Company Paid a Fair Price for MountainWest We paid a fair price for MountainWest, below historical multiples after accounting for value we received from a tax basis set-up. And multiples have only continued to expand since the acquisition, underscoring that we bought
Slide 52: Icahn is Wrong about MountainWest's Environmental Benefits
Icahn is Wrong about MountainWest’s Environmental Benefits A natural gas pipeline does not need to be located next to a landfill or dairy farm to transport RNG Citing the total number of potential landfill locations in Wyoming and Utah is a red herring. MountainWest has four critical interconnection
Slide 53: Icahn Falsely Claimed Equity Placement with Friends
Icahn Falsely Claimed that Company Intended to Place Equity with “Friends” Multiple times oversubscribed; broad distribution to 100+ current and new investors; modest price discount; one day execution had minimal, if any, impact on the market price Significantly decreased the equity portion of the M
Slide 54: Icahn's Unattractive Equity Financing Proposal
Icahn’s Unattractive Equity Financing “Proposal” Icahn’s proposed financing was illegal given his outstanding tender offer Icahn’s offer, whether at $75.00 or $82.50 per share, lacked an appropriate control premium, though it would result in the transfer of a meaningful level of control Icahn repeat
Slide 55: Icahn's Unfounded Argument Regarding Southwest Gas' Costs
Icahn’s Unfounded Argument Regarding Southwest Gas’ Costs 2011 – 2014 2015 – 2020 On average over 2011 – 2020, G&A makes up only ~21% of total operating costs per annum, whereas O&M makes up ~61%. Icahn has cherry-picked G&A as a single metric to portray costs at Southwest Gas growing at an unfavora
Slide 56: Icahn's Unfounded Argument Regarding Southwest Gas' Costs (cont'd)
Icahn’s Unfounded Argument Regarding Southwest Gas’ Costs (cont’d) For more information, please see FASB Accounting Standards Update No. 2017-07. The ruling, effective in 2018, precludes companies from capitalizing the non-service component of periodic pension costs and requires companies to reflect
Slide 57: Icahn's Unfounded Argument Regarding Southwest Gas' Costs (cont'd)
Icahn’s Unfounded Argument Regarding Southwest Gas’ Costs (cont’d) Excerpt from Icahn Proxy Statement Dated April 4, 2022 In reality, Southwest Gas’ broader cost structure as represented by O&M per customer has been maintained at levels well below the peers selected by Icahn since 2015 Excerpt from
Slide 58: Icahn's Other Bad Faith Arguments
Icahn again cites an adversarial third party rather than the Commission 1) These costs were not disallowed by the Commission and were approved as reasonable expenditures 2) This was a Board of Director dinner expense in the amount of $1,330 (~$66 per person) approved by the Commission 3) These costs
Slide 59: Executive Compensation Aligns with Long-Term Strategy
Reflects a robust pay-for-performance approach and best market practices Pay magnitude is reasonable and in line with market Pay mix emphasizes pay-for-performance 78% of CEO’s target pay and 71% of other NEOs’ target pay is variable and at risk Payouts for 2017-2019 and 2018-2020 performance RSUs r
Slide 60: Compensation Program Motivates Value Creation
Component Format Base Salary Fixed payments, targeted at 50th percentile of peer group Annual Cash Incentive Compensation Payouts based on rigorous pre-set targets and reflecting important drivers to our business(1): 40% Adjusted Net Income 20% Customer Satisfaction 20% Productivity 20% Safety No an
Slide 61: Support Southwest Gas' Strategy to Maximize Value for All Stockholders
Support Southwest Gas’ Strategy to Maximize Value for All Stockholders
Slide 62: Executive Summary
Executive Summary | Icahn waging proxy contest either to facilitate takeover of SWX at inadequate price or to simply take control of SWX Board in furtherance of his “fire sale” agenda Following thorough review with assistance from financial and legal advisors, Board unanimously determined that Icahn
Slide 63: Executive Summary (cont'd)
Southwest Gas Has the Right Board to Maximize Value for Stockholders Icahn’s Claims Have No Basis in Fact Executive Summary (cont’d) | Icahn makes numerous bad faith arguments using misrepresentations and distorted analyses meant to distract attention from goal of taking control of Board in order to
Slide 64: Appendix: Biographies of Our Highly Qualified Directors
Appendix: Biographies of Our Highly Qualified Directors
Slide 65: Biographies of Our Highly Qualified Directors
Biographies of Our Highly Qualified Directors Mr. Hester, 59, has been President and Chief Executive Officer since March 2015 and President since August 2014. He joined Southwest Gas in 1989 and became Director/Regulatory Affairs and Systems Planning in 2002, Vice President/Regulatory Affairs and Sy
Slide 66: Biographies of Our Highly Qualified Directors (cont'd)
Biographies of Our Highly Qualified Directors (cont’d) Mr. Cárdenas, 69, has been Senior Vice President and General Counsel for Arizona State University (ASU) since January 2009. In addition to serving as chief legal officer of the University, he serves as a representative on and to the boards of di
Slide 67: Biographies of Our Highly Qualified Directors (cont'd)
Biographies of Our Highly Qualified Directors (cont’d) Ms. Lewis-Raymond, 55, is principal of Hilltop Strategies, LLC, a strategy and consulting firm engaged with corporate leaders on strategic leadership. Ms. Lewis-Raymond has served the natural gas industry as an attorney and executive for over th
Slide 68: Biographies of Our Highly Qualified Directors (cont'd)
Biographies of Our Highly Qualified Directors (cont’d) Carlos A. Ruisanchez, 51, is the co-founder of Sorelle Capital and Sorelle Hospitality, firms investing in and developing hospitality and consumer businesses. Prior to Sorelle, he served as President and Chief Financial Officer of Pinnacle Enter
Slide 69: Biographies of Our Highly Qualified Directors (cont'd)
Biographies of Our Highly Qualified Directors (cont’d) | Mr. Thomas, 64, is the Managing Partner of Thomas & Mack Co. LLC, an investment management and commercial real estate development company with properties and developments in Nevada, California, Arizona and Utah. Mr. Thomas previously served in
Slide 70: Appendix: Supplemental Financial Materials and Non-GAAP Measures
Appendix: Supplemental Financial Materials and Non-GAAP Measures
Slide 71: Utility Infrastructure Services Peer Multiples Over Time
Utility Infrastructure Services Peer Multiples Over Time Five-Year Average: 7.3x Historical EV Multiples – Utility Infrastructure Services Peers (Last 5 Years) Source: FactSet. Note: Market data as of April 14, 2022. Peer set consists of MasTec, MYR Group, Primoris and Quanta. Appendix |
Slide 72: Safe Harbor Statements
Safe Harbor Statements Forward-Looking Statements Unless context otherwise requires, in this presentation, references to “we”, “us” and “our” are to Southwest Gas Holdings, Inc. (NYSE: SWX) (“Southwest Gas” or the “Company” or “SWX”) together with its consolidated subsidiaries, which include, among
Slide 73: Safe Harbor Statements (cont'd)
Safe Harbor Statements (cont’d) How to Find Further Information This presentation does not constitute a solicitation of any vote or approval in connection with the 2022 annual meeting of stockholders of Southwest Gas Holdings, Inc. (the “Company”) (the “Annual Meeting”). In connection with the Annua
Slide 74: Non-GAAP Measures
Non-GAAP Measures Non-GAAP Measures. This presentation contains financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S. (“GAAP”). These non-GAAP measures include (i) EBITDA and (ii) adjusted EBITDA. Management uses these non-GAAP measu
Slide 75: Non-GAAP Measures
Non-GAAP Measures Non-GAAP Measure EBITDA - The following table presents the non-GAAP financial measures of EBITDA and Adjusted EBITDA for the twelve-month periods ended December 31, 1996 - 2021, which, when used in connection with net income attributable to Centuri, is intended to provide useful in