Southwest Gas (US:SWX)2023-03-01 22:43Financial Data and Key Metrics Changes - The company's adjusted EPS for the fourth quarter of 2022 was $1.16 per share, down from $1.49 per share in the previous year, indicating a decrease in adjusted EPS year-over-year [134] - Full year 2022 adjusted EPS came in at $3 per share compared to $4 per share for 2021, reflecting a significant adjustment related to the loss on Mountain West of $349 million [146][147] - The utility's margin increased by $55 million compared to the previous year, driven by constructive regulatory relationships and improved regulatory trackers [55] Business Line Data and Key Metrics Changes - Centuri delivered record revenues of $2.8 billion in 2022, marking the 13th consecutive year of revenue increases, with an increase of $602 million from the prior year [12][70] - The utility was awarded $14 million in rate relief from the Nevada rate case, contributing to an additional $17 million in margin from strong customer growth [22] - Operating and maintenance (O&M) expenses increased by $53 million due to inflationary pressures and higher labor costs, which nearly offset the margin increase [56] Market Data and Key Metrics Changes - The allowed rate base in Southwest Gas Corporation's service territories increased from $4.2 billion to $4.9 billion, enhancing the company's growth potential [5] - The company set over 41,000 first-time meter sets last year, the highest total in over 10 years, with expected customer growth of 1.5% to 2% [27] - The company anticipates a capital investment plan of approximately $2 billion over the next three years, driven by strong demand for natural gas and investments in pipe replacement [60] Company Strategy and Development Direction - The company is transitioning to a pure-play utility model, enhancing visibility and alignment with investors, and focusing on utility optimization and stable recurring cash flow generation [10] - The strategic spin-off of Centuri is expected to enhance stockholder alignment and value creation, with plans to complete the spin by the fourth quarter of 2023 or the first quarter of 2024 [9][73] - The company aims for 5% to 7% rate base growth over the next three years while maintaining a strong investment-grade balance sheet [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving guidance expectations for 2023 despite challenges faced in 2022, attributing underperformance to nonrecurring items [21] - The company is focused on continuous improvement in customer satisfaction, safety, and operational efficiency, with plans to engage consultants for a deep dive review of the utility's cost structure [31][66] - Management highlighted favorable demand dynamics and ongoing constructive regulatory relationships as key drivers for future growth [18][43] Other Important Information - The company plans to issue $250 million of equity and $550 million in debt at the holdings level in 2023 to support its financing needs [25] - The company is committed to maintaining a competitive dividend, holding it flat in 2023, with a review of the policy at the time of the Centuri spin [95][153] - The company has seen an increase in receivable balances due to higher natural gas prices, impacting its gas cost recovery mechanisms [32] Q&A Session Summary Question: What led to a weaker fourth quarter for the utility? - Management indicated that bad debt and uncollectibles stemming from COVID contributed about $6 million to the weaker performance, along with a legal settlement and reserves related to gas acquisition costs [45][77] Question: Can you provide insights into Centuri's EBITDA margin guidance? - Management noted that variability in the margin could arise from potential impacts on revenue from offshore wind projects, which are expected to be higher-margin work [79] Question: What improvements are expected from the consulting study on O&M costs? - Management confirmed that the consulting study aims to identify additional initiatives for operational efficiency, building on internal reviews already conducted [83] Question: How will the timing of the Centuri spin be affected by market conditions? - Management stated that the timing will be evaluated based on various factors, including the Form 10 and private letter ruling, and will consider market conditions for financing [84][86] Question: What is the net debt balance at Century at the end of 2022? - The net debt position at Century was approximately $1.1 billion, composed of over $1 billion on the term loan and just under $100 million under the revolving credit facility [88] Question: How will the holding company expenses change post-spin? - Management indicated that post-spin, holding company expenses will largely be driven by interest expense associated with the holdings debt issued in conjunction with the 2023 financing plan [126]