Southwest Gas Holdings, Inc. 2026 Q2 Earnings Call

Thank you, Joanna. Hello, everyone. We appreciate you joining the call today. This morning, we issued and posted to Southwest Gas Holdings' website our second quarter 2026 earnings release and filed the associated Form 10-Q. The slides accompanying today's call are also available on Southwest Gas Holdings' website. We'll refer to those slides by number throughout the call today. Please note that on today's call, we will address certain factors that may impact 2026 earnings and discuss longer-term guidance. Information that will be discussed today contains forward-looking statements. These statements are based on management's assumptions on what the future holds, but are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions, regulatory approvals, and capital projects.

This cautionary note and a note regarding non-GAAP measures are included on slides two and three of this presentation, in today's press release, and in our filings with the Securities and Exchange Commission. We encourage you to review each of these disclosures. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements. We assume no obligation to update any such statement. As shown on slide four, on today's call, we have Justin Brown, President and CEO, and Justin Forsberg, Chief Financial Officer and Treasurer. Other members of the management team are also available to answer your question during the Q&A portion of the call today if necessary. I'll now turn the call over to Justin Brown.

Good morning, everyone. Thank you for joining us today. Beginning on slide five, we continued our strong momentum in the second quarter, reporting adjusted earnings per share from continuing operations of $0.45, which is adjusted for the amount of California revenues that had been deferred in a memorandum account since the first quarter. This performance reflects ongoing execution of our regulatory strategy to support the timely recovery of prudent investments, as well as materially lower interest expense following the payoff of all outstanding HoldCo debt last summer. We remain confident in our outlook and are reaffirming our 2026 and long-term guidance ranges. With active proceedings across each of our jurisdictions, our regulatory strategy doesn't depend on any single outcome, giving us multiple credible paths to achieve our objectives regardless of how individual cases unfold or how the political and regulatory environments might evolve.

We are focused on both near-term performance and long-term value creation, anchored by our commitment to delivering safe, reliable, and affordable natural gas service to our customers. Strong stakeholder partnerships and disciplined capital investment and cost management supporting the economic development of the communities we serve. Turning to slide six, we continue to execute on our 2026 strategic priorities and remain on track to deliver on each of our key initiatives. We advanced our regulatory strategy during the quarter, continuing to progress rate case proceedings across all three jurisdictions. I will discuss these proceedings in greater detail in just a moment when we get to slide nine.

Additionally, during the quarter, we received commission approval on our Nevada Triennial Resource Plan, including prudency predeterminations for $186 million of capital investment, supporting long-term natural gas infrastructure planning and providing greater visibility into future capital investment opportunities to meet customer growth and reliability needs. We also implemented a surcharge from our first System Integrity Mechanism filing in Arizona for $50 million of capital that supports the timely recovery of qualifying investments. At Great Basin, we further strengthened the commercial foundation of the 2028 expansion project, bringing contracted demand to approximately one Bcf per day and revising the project design to reflect a 48-inch pipeline, resulting in both increased capital investment and annual margin estimates for the project. With those milestones achieved, our focus remains on completing the FERC CPCN filing later this year to progress the project toward regulatory approval and execution.

I will discuss the project in greater detail later in our presentation. On slide seven, at the utility, we delivered a 12-month ended return on equity of 8.1%, or 8% on an adjusted basis, reflecting the continued progress as we work to close the gap to our weighted average authorized return of 9.89%. We delivered these results even while key rate cases remain pending across our service territories, underscoring the strength of our underlying business. As we work with our commissions to bring each of those cases to a close, we expect the associated rate relief to further improve our results.

Our regulatory strategy around enhancing recovery mechanisms and pursuing constructive rate outcomes across all three jurisdictions is designed to improve our earned returns over time and helps ensure we continue delivering safe, reliable, and affordable natural gas service to our customers. We also continue to benefit from a strong balance sheet and substantial liquidity, ending the quarter with approximately $270 million of cash and nearly $1 billion of available liquidity. Combined with no outstanding HoldCo debt and lower associated financing costs, we believe we are well-positioned to fund our long-term capital investment program while maintaining financial flexibility and delivering value to our stockholders. Turning to slide nine and an update on the progress of executing our regulatory strategy.

In California, the commission's recent decision addressed all items other than cost of capital, providing approximately $40 million of incremental annual revenue and reinforcing constructive regulatory support for our infrastructure investment programs. As part of that decision, we recognized approximately $9.7 million of incremental net income in the second quarter tied to margin that had been deferred in a memorandum account since the first quarter. A final decision on the remaining cost of capital component is currently expected later this month. In Nevada, we filed certification materials for our general rate case during the quarter, incorporating post-test year plant adjustments through May. That update brought our requested annual revenue increase to approximately $74 million. We recently received intervener testimony. We are currently reviewing and preparing our rebuttal position, which will be filed with the commission next week.

The parties' testimony converges on a 9.3% return on equity, with proposed equity layers in the 50%-51.35% range. The average revenue increase recommended by the parties is just under $40 million, or about 52% of our request. While a hearing is currently scheduled for later this month, on a parallel path, we have also engaged in constructive settlement discussions. Either way, we are pleased with the progress. The case is progressing toward an effective date of October 2026. In Arizona, our general rate case is progressing as expected and remains on track for an effective date of April 2027. We anticipate starting to receive intervener testimony in late September. Across all three states, the strategy is the same: pursue timely, constructive outcomes that align cost recovery with the pace of our investment.

Turning to slide 10, Great Basin makes significant progress on its 2028 expansion project during the quarter, further strengthening the project's commercial outlook. Following our most recent open season, we executed additional binding precedent agreements for the 2028 project, bringing total contracted demand to approximately one Bcf per day. As we look beyond the 2028 expansion, we continue to see interest in additional capacity totaling in a 1.8 Bcf across the region for the 2029-2035 timeframe. We continue to work on converting these expressions of interest into binding precedent agreements. As a result of this strong market demand, we've decided to proceed with a 48-inch pipeline design capable of supporting up to one Bcf per day of incremental transportation capacity beyond the currently contracted demand. We will be able to accommodate additional future demand through compression additions.

This design enhancement results in upward pressure on our capital investment need for the 2028 expansion, which we now estimate at approximately $2.3 billion, resulting in approximately $270 million-$300 million of incremental annual margin upon completion. We plan to incorporate these updates into our long-term capital expenditures, rate base, and earnings guidance expectations as part of our annual five-year planning refresh, which typically concludes in February. We are focused on a timely filing for FERC approval to ensure we meet the expected in-service date. Our preparations remain on track, including environmental work, field surveys, public outreach, and engineering development. We continue to target a filing before the end of the year, CPCN approval in late 2027, and a fourth quarter 2028 in-service date, with the recent increase in contracted demand not expected to impact the project's regulatory schedule.

Overall, we are encouraged by the strong commercial momentum behind the project and believe it represents a compelling long-term growth opportunity for Great Basin and our stockholders. With that, I will now turn the call over to Jay Ford to discuss financial performance, expected financing plans, and our guidance outlook in greater detail.

Thank you, Justin. Turning to slide 12, adjusted earnings per share from continuing operations increased to $0.45 in the second quarter of 2026 compared to $0.37 in the second quarter of 2025. The increase was driven by strong performance at HoldCo, partially offset by slightly lower utility earnings, which were mostly driven by lower other income than was expected in our plan. Reported earnings per share from continuing operations were $0.58, reflecting revenue recognized from the California rate case approved during the quarter. For comparability, adjusted earnings excluded the portion of revenue recognized retroactively for the first quarter due to the delayed rate case approval. At HoldCo, earnings improved significantly as a result of repayment of all outstanding parent level debt, which reduced interest expense by approximately $8.6 million compared to the prior year period.