Q3 2023 Southwest Gas Holdings Inc Earnings Call
Welcome to southwest gas Holdings third quarter 2023 earnings conference call.
Today's call is being recorded and our webcast is live.
A replay will be available later today for the next 12 months on the southwest gas Holdings website.
At this time all participants are in a listen only mode.
<unk> and answer session will follow the prepared remarks.
If you would like to ask a question at that time. Please press star one on your phone.
I will now turn the call over to Justin Forsberg, Vice President of Investor Relations of southwest gas Holdings.
Thank you Jay and Hello, everyone. We appreciate you joining our call.
This morning, we issued and posted to the southwest gas Holdings website, our third quarter 2023 earnings release and the associated Form 10-Q.
The slides accompanying today's call are also available on southwest gas Holdings website, we will 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 this year's earnings and provide some longer term guidance.
Some of the 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 and regulatory approvals.
This cautionary note as well as a note regarding non-GAAP measures is included on slides two and three of this presentation.
Today's press release, and our filings with the Securities and Exchange Commission, which we encourage you to review.
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 and we assume no obligation to update any such statement.
As shown on slide four on today's call, we have Karen Hall, our president and CEO of southwest gas Holdings roster funny, Chief Financial officer of southwest gas Holdings.
Justin Brown President of Southwest Gas Corporation, and Paul Daly, President and CEO of century group.
Along with other members of the management team available to answer your questions. During the Q&A portion of the call today.
I'll now turn the call over to Karen.
Thanks, Justin Thank you for joining us today to discuss the southwest gas holdings third quarter result.
Turning to slide five we are happy with our progress on our transformational strategy of returning southwest gas with core foundation as a premier fully regulated natural gas utility we achieved significant milestones this quarter building on our progress in the first half of the year, which continues.
Utility for strength and success.
While also advancing the separation entering into a standalone infrastructure services leader.
Notably we made progress on the regulatory strategy at the utility during the quarter and delivered impressive third quarter results.
Customer growth and demand remains strong and the southwest gas team is acutely focused on safely addressing the needs of our customers.
As seen in the communities, we serve and delivering value for our shareholders. We.
We are strategically deploying capital and investing in our operations. So that we can meet the demand for safe reliable and affordable energy solution.
While also working constructively with our regulators and legislators to complement our strong organic rate base growth.
We are confident in our momentum we remain on track to deliver 5% to 7% CAGR and rate base growth over the next three years.
And to maintain a strong investment grade balance sheet and a competitive dividend.
Additionally century has continued to see improved margins during the first nine months of the year and they execute on their core utility infrastructure services and overcome much of the previous cost and supply chain headwinds faced during 2022.
Turning to slide six.
Touch on a couple of important points related to our strategic priority.
At century, the separation remains well on track, we confidentially submitted a draft form S. One with the S. E C on September 22nd to facilitate a potential IPO.
The ultimate timing of the separation will be affected by the form of transaction structure. As you can appreciate we are in a quiet period with respect to a potential IPO and we are not in a position to provide specific details on our process.
However, we are continuing to make progress if we execute an IPO southwest gas holdings may ultimately separate the business towards series of sell down share exchanges or distribute the balance with century shares in southwest gas holdings shareholders with Ben following any required lockup period associated with it.
I P O.
As we disclosed in our press release from November six we announced that our board adopted a tax free spin protection plan helped preserve the company's ability to effectuate a tax free spin we continue to consider additional taxable separation alternatives.
I'm, a new independent publicly traded utility infrastructure services company.
We remain committed to separating century, and we believe we have taken the appropriate steps and actions that will benefit all shareholders.
We announced in that same press release that the IRS has decided to exercise its discretion not rule uncertain tax questions relating to the proposed century separation.
Based on the fact intense nature of the question is presented.
Again, we are committed to separating century and continue to assess the value of a potential tax free spin off of sentry, either following or in lieu of a potential initial public offering by century as well as other transaction alternatives.
As you can see on slide seven we are making excellent progress on our 2023 strategic priorities completing some more key strategic milestones during the third quarter.
The utility we continue to execute on our business plan, we filed our Nevada rate case mid September with the expectation that the resulting rate increase in April 2024.
And as previously announced we received ACC approval of the P. G. A surcharge in Arizona and remain on track with our expected Arizona rate case filing in the first quarter of 2024.
Additionally, we are focused on completing the utility optimization with you and prioritizing our identified initiatives.
As I will cover in more detail in a moment.
We are very pleased with our continued progress in our strategic plan is on track.
On slide eight we highlight our strong third quarter performance and southwest and mid century, we are proud to announce that at the utility we delivered the best third quarter performance on record, we experienced another quarter of strong customer growth, adding more than 41000, new meter sets over the last 12 months.
While continuing to make additional investments to ensure our system remains safe and reliable for the benefit of our customers.
We also benefited from several constructive regulatory outcomes that have occurred during the year.
A century, we announced record setting third quarter revenue and EBITDA, which resulted in last 12 month adjusted EBITDA of approximately $299 million.
The strong third quarter performance was driven by an increase in electric infrastructure services revenues and sustainable energy projects.
Paul will discuss century continues to win new business based on the strength of its relationships and capabilities and is well positioned to play a critical role in the continuing energy transition.
Turning to slide nine we are laser focused on evaluating and prioritizing a cross functional collection suggested initiatives that were identified by our employees. This year our employees have been highly engaged in the process alongside our consultants and it provided productive feedback to help us to prior.
Our ties our optimization efforts.
Our leadership team is developing specific initiatives that we believe will help us accomplish our goals.
Optimizing utility performance.
And accelerating our pursuit of operational excellence identifying cost savings and efficiency opportunities for us to execute over the next couple of years.
Further these initiatives will help support the tremendous growth we have across our service territory helped pass on realized savings to our customers improve our Roe.
Missiles and positive returns for our stockholders.
We are excited to share our expected returns and provide you our plans in the near future.
But what I can say now is we are well positioned to begin execution of our plans in 2024 to drive long term positive change across the organization and we are delighted with our employees' response is a collective effort.
I'll now turn to call turn the call over to Rob who will review our financial performance for the quarter.
Thanks, Karen on Slide 11, we outline our earnings per share performance for the third quarter. The company's consolidated GAAP and adjusted EPS are setup shown by each operating company.
As Karan mentioned earlier, the utility and century, each had a record setting third quarter. The utility recorded its lowest seasonal third quarter net loss on record the business is seasonal in the spring summer months are the low points century recorded its highest ever third quarter revenue and EBITDA around here.
On an adjusted basis southwest gas Holdings finished the third quarter of 2023 Etfs of 10 cents.
<unk> per share improvement when compared to the same period of the year prior which had included a full three months of mountain West Utah.
The utilities performance during the quarter as a product of our disciplined O&M management regular pursuit of constructive regulatory outcomes and an increase in interest income from the PGS at.
Century, we continue to see significant quarter over quarter improvement in GAAP and adjusted earnings.
<unk> increased its core electric infrastructure services revenues and continued its work on in construction.
Sure wind projects in the appendix, we provide a reconciliation of adjustments by operating company. The vast majority of the second quarter adjustments related to century separation costs and consulting fees related to utility optimization.
Now I'll provide a walk through on the performance of each operating company.
Moving on to Slide 12, you will see the year over year performance drivers for our utility southwest gas Corporation.
In the third quarter of 2023 utility operating margin increased by approximately $21 million compared to the same time last year. This improvement was driven primarily by the increased recovery on prior investments in our Arizona utility infrastructure and other associated regulatory account balances as well as continued customer grew.
Throughout our service areas items offsetting these increases include comparably lower Arizona vintage steel pipe in customer owned yard line revenue most of <unk> revenue and revenue from customers outside of the decoupling mechanism.
<unk> remained relatively flat between quarters. Despite an increase in external contractor professional services cost that was provided merrily related to utility optimization.
The approximate $5 million increase in depreciation and amortization between quarters was primarily due to the corresponding 6% increase in average gas plant in service compared to 2022.
Other income increased $13 million compared with last year. This was driven by increased interest income related to carrying cost associated with regulatory account balances largely related to the purchase gas cost recovery mechanisms. This higher interest income earned on the elevated PGA balances offsets the $10 million or higher.
Third quarter interest expense at southwest gas holdings in.
In addition favorable quarter over quarter changes in non service related components of employee post retirement benefits benefit other income.
Interest expense increased by approximately $6 million from the prior year, primarily due to interest associated with senior notes issued since the third quarter of 2022, as well as $450 million Southwest Gas Corporation PGA related term loan issued in January of this year to support gas purchases, which was repaid in March of <unk>.
20 threat.
Overall, this was significantly improved quarter for the utility.
Moving on to century's results. This past quarter slide 13 reviews, the drivers behind centuries third quarter GAAP net income results.
Centuries third quarter revenues increased by approximately $16 million compared with the prior year. This increase was driven by an increase in core electric infrastructure services work in progress on offshore wind projects.
Centuries revenues were partially offset by corresponding increases in operating expenses driven by the higher volume at infrastructure infrastructure services provided to customers higher incentive compensation and increased subcontractor costs on offshore wind projects. Additionally century saw increased interest expense, primarily due to higher interest rates on <unk>.
Only $1 2 billion of outstanding variable rate borrowings largely associated with the rigs Ditzler acquisition overall.
Overall, we continue to be encouraged by improved EBITDA margins at century over the first nine months of this year as Paul will touch on later.
On slide 14, we again highlight our 2023 financing planned for southwest gas Holdings, and southwest Gas Corporation, which has been completed.
Because of our strength and balance sheets and successful regulatory and financing efforts earlier. This year, we continue to not anticipate meaningful additional near term equity needs.
2025, we expect that any potential equity needs can be interest under our ATM program.
At holdings, we reiterate that we plan to target a solid investment grade balance sheet. It's important to note that in addition to our limited equity needs. We have very limited refinancing needs at the utilities through the end of 2026 outside of our $550 million southwest Holdings term loan.
Moving to slide 15, we take a look at our balance sheet strength and our commitment to an investment grade profile on the left hand side, we walked through net debt by operating company when looking at the utility debt levels. We continue to highlight the PGA balance which represents working capital that southwest has spent for prior commodity purchases.
And which is owned by south by customers to southwest.
We expect to timely recovery of this PGA balance and earn a carrying cost on these balances as reflected in the chart in the appendix on slide 27, which provides additional detail earlier.
Earlier in the third quarter in Arizona, We announced the Arizona Corporation Commission approval of a surcharge that will continue to reduce the time to recovery of the remaining balance in that jurisdiction.
On the right hand side of Slide 15, we note that we had no changes to our credit ratings or outlooks from the three rating agencies with the exception of the downgrades by Fitch at southwest gas corporations long term issuer rating to triple B plus from a minus.
In which they also removed the negative watch reflecting leverage at the utility in excess of vigilance downgrade thresholds throughout the forecast period, you updated rating did not come as surprise to us as it was aligned with the rating at Moody's.
Now turn the call over to Justin Brown, and slide 17 to discuss the utility.
Thanks, Rob.
New customer growth in pipeline replacement activities associated with our safety and integrity management programs are the cornerstones of our $2 billion three year capital expenditure program.
The investments we've made to ensure safe and reliable energy service to our customers is translated to a double digit rate base growth since 2017.
With our current capital investment plan, we expect to continue to grow our rate base at a compound annual growth rate of 5% to 7% through 2025.
We continue to see strong growth across our service areas as we added more than 41001st time meter sets during the past 12 months with approximately 34000 year to date.
We expect to continue to benefit from a strong demographic and economic growth in the southwest or in the southwest part of the United States as Phoenix and Las Vegas continue to be among the top destinations for relocation.
S&P global projects population growth in Arizona, and Nevada to be nearly 4% over the next five years.
There are several exciting things happening in Las Vegas, Phoenix, and other parts of our service area, which are driving expansion in both core and non.
I'm, sorry, core and new business sectors.
You've likely seen the excitement that the new entertainment venue the sphere in Las Vegas, as well as the upcoming Formula One Las Vegas Grand Prix event are causing in Las Vegas not to mention the city will also be playing host to Super Bowl 58 in early 2024.
Also earlier this year, the Oakland A's announced their plans to relocate and build a new stadium in Las Vegas that is projected to open in 2028.
These and other expansions continue to strengthen the core of the Las Vegas Sports Entertainment and hospitality industries and drive job growth in the area.
In Arizona, particularly in Phoenix jobs are back to pre pandemic trends and according to the Arizona Commerce authority expansions are occurring throughout the state.
We are proud to partner with several of these large new customers, including TSMC and other semiconductor manufacturer that continue to make significant investments in Arizona.
We're also supporting economic growth and new business sectors like battery and electric vehicle manufacturing we've.
We've also seen expansions amongst several core businesses like agriculture and farming.
We're committed to working collaboratively with our regulators and our customers to safely meet these growing demands and to continue to support the economic development to which we're responding this.
This includes prioritizing constructive dialogues with our regulators around the importance of capital tracker programs and timeliness of recovery of investments. We look forward to continuing these dialogues and working with all stakeholders to develop mutually acceptable outcomes to support the timely recovery of the investments that we make to ensure the safety.
Of our gas delivery system for the benefit of all our customers and the communities we serve.
On slide 18, we provide an overview of our Nevada rate case filing which was filed in September.
Nearly $70 million request is primarily driven by the need to update rates to reflect the recent impact of inflation has had on our cost to provide safe and reliable service.
Two of the largest components of the case are comprised of $27 million for changes in O&M since our last case and $20 million for changes in the cost of capital to fund our infrastructure investments. We also need to start recovering the more than $250 million of capital investments. We've made in Nevada since our last rate case.
Our filing also includes the recovery of $4 million for the annual leak Survey program. We partnered on with the public Utilities Commission of Nevada. The Commission safety Division expressed the desire to move towards an annual leak survey and we work collaboratively on developing an approach to accomplish this objective, including the ability to track and recover the incremental costs.
So we could help enhance safety and reduce fugitive emissions across the state we're proposing to recover this $4 million over a two year period.
We are confident in our request and we believe we've made prudent investments in the system in response to growth as well as important investments to enhance safety and integrity of the system throughout the Nevada service areas.
We anticipate a 200 and 210 day procedural schedule for the case. We're currently scheduled to receive testimony from the intervenors on February 2nd and the hearing begins February 26, with new rates expected to be in place in April were also well underway in preparing for several other.
Coming rate case filings, we anticipate early 'twenty 'twenty four rate case filings for both Arizona and at FERC for our Interstate pipeline affiliate Great Basin gas transmission company. We also anticipate a California rate case in the third quarter of 2024.
You'll also see on this slide we've highlighted a metric we're proud of our.
Our O&M per customer in Nevada is well below our peer group. We believe this is another metric that demonstrates we've worked hard to ensure we're delivering affordable service to our customers, while maintaining a safe and reliable system.
Now turn the call over to Paul Daly, President and CEO of century group for an update on the infrastructure services business.
Thanks, Justin.
Turning to slide 19, I'm very proud of the performance Dilip.
Delivered by the century team in the quarter with more than 12000 employees in 43 States and provinces operating at 82 locations across the United States and Canada century has a broad geographic reach and works with the most of the largest blue chip investor owned utilities and their 100 plus million customers.
Across the U S and Canada.
These strengths means.
<unk> is well positioned to be a standalone strategic utility infrastructure services later with the scale and capabilities to meet the evolving needs of utilities and utility holding companies.
Karen mentioned, we filed a draft S. One with the SEC on September 22nd.
Facilitated potential IPO.
And we continue to make progress towards centuries separation.
Importantly, as we work towards our pending separation, we have the resources capabilities and business structure to continue to deliver on our growth opportunities.
On slide 20, we detail centuries proven track record of strong financial performance.
It's Karen and Rob both mentioned century had already record setting third quarter revenue and EBITDA driven by strong continued execution and project wins from our long tenured client engagements.
We have successfully managed through the inflationary pressures that we faced at this time last year and we believe we are in a much better position as evidenced by our last 12 months adjusted EBITA of $299 million, representing 82 million year over year growth in LTM adjusted EBITDA.
While certain of our costs remain.
At or above the elevated levels experienced during 2022 as we noted during previous earnings calls we took proactive measures.
To negotiate more than $24 million of annualized incremental revenue increases on customer contracts and implemented $21 million of annualized cost savings to offset certain of these inflationary cost increases we are continuing to deliver growth across our operations both through <unk>.
Spanning our core electric and gas operations, well, realizing more utility focused work in support of system modernization and energy transition.
We have performed a limited amount of offshore wind work in the last two years, which accounts for approximately 7% of our revenues. We recently completed component Assembly for the South Fork Wind project and we have three other projects in backlog Ocean wind, one Sunrise wind and Revolution.
When.
Last week, our client announced the cancellation of Ocean wind, one where we currently have worked underway.
And as a result of the Ocean wind one cancellation.
We are in discussions with our client impacts to our 2023 budget in 2024 forecast and are proceeding prudently with additional cost commitments until the path is determined.
As you can see on the right hand side, we have remained committed to our core portfolio of smaller scale recurring work tied to longstanding utility customer msas and we continue to diversify our portfolio to have a balance between electric and gas.
Also remained diversified geographically with no one geography, representing more than 11% of revenues.
With that I'll turn it back to Karen.
Thanks, Paul our year to date results are evidence of our ongoing effort and we looked at finishing the year strong on slide 22, we are increasing our 2023 utility net income guidance to now be in the range of $215 million to $225 million.
And we are reaffirming our 2023 century revenue and adjusted EBITDA margin guidance.
We are confident that each business has strong performance to date will drive full year results within these updated and reaffirmed guidance ranges.
Additionally, we are again, making an upward upward revision to 2023 utility capex guidance now $720 million to $740 million. This update is the result of the responsibility we have to invest in our infrastructure to meet the better than expected customer growth and favor.
All new business trends across our service territory and.
And of course, all of this while ensuring we maintain a safe and reliable distribution.
For the benefit of all of our customers.
At century based on the first nine months performance of 2023, we continue to expect revenue fall toward the higher end of the range, where the final adjusted EBITDA margin that entry end up will depend on the mix of work and the level of storm activity for the remainder of the year, but we feel heartened that we continue.
To see improved margins over the last 12 months at our utility services business.
Note on the long term guidance at century due to pending S. One restrictions related to providing forward looking guidance, we have removed for now our long term guidance at century.
Before we open the call up to Q&A I want to point to slide 23, and emphasize that our teams are focused on executing our strategic priorities delivering strong financial results and providing exceptional service to our customers.
In southwest gas holdings, we are confident in our path forward as a premier pure play natural gas utility we plan to continue delivering steady organic rate base growth through strong regional demand dynamics as well as earnings growth through financial discipline operational excellence and constructive regulatory relationships.
We're advancing toward the planned separation of sentry, putting the company in a better position to align with stockholders and to Delever the business organically with healthy cash flow generation with that I'd like to open the call for questions.
Thank you at this time, if you wish to ask a question. Please press star one on your telephone keypad.
They remove yourself from the queue by pressing star two.
We'll take our first question from Richard Sunderland with J P. Morgan. Please go ahead.
Yeah.
Hi, Good morning can you hear me.
Yes, good morning, Mitch.
Great. Thank you.
That you can't speak to the IPO, but are you able to outline when the market should expect a definitive passed on separation announcement or at least what the mix hurdles are in the process now that you have the DLR.
Hey, rich, it's Rob Stefan so so as you highlighted we are no longer waiting on the private letter ruling given the irs's decision not to rule.
We continue to monitor the markets and any any decision on timing will be subject to among other things. The board approval of the form of the transaction as well as any type of regulatory approval of <unk>.
Filings.
I think to the extent that we are.
We proceed on our path to do something like a straight spend than the prior guidance that.
We had highlighted would remain intact.
Understood.
Prior guidance Youre, saying <unk> 24, that's correct.
Great very helpful.
Turning to the century side with this offshore wind update.
More to the potential 'twenty three 'twenty four impacts, particularly given centuries overall revenue guidance was reiterated.
Hi, and language as well and then what is the backlog impact overall of these cancellations.
Rich I'm going to turn to the question your question over to Chad than Sweden, our CFO at entry to respond to that.
Yeah rich.
We have not received formal cancellation from our customer on Ocean wind one as as of yet we do expect that that will likely be forthcoming.
Our offshore wind revenue is a relatively modest part of our overall revenue representing less than 7%.
As we indicated in the earnings slides, our total offshore wind revenue for this year is expected to be approximately $200 million.
That's down from approximately $220 million previously, reflecting a reduction as a result of the of the cancellation.
Great. Thank you and maybe one final one for me just sticking with the century side could.
Could you speak to the trends on the gas infrastructure revenues in terms of the downward trajectory in <unk> and the overall outlook in the 'twenty four.
Any color on MSA work overall would be helpful.
Sure.
So we had record revenues in Canada in 2022.
Those would normalize this year, which is really their rep.
The decline that youre seeing in the numbers.
Overall, the business continues to sort of track the market and grow.
We just had an extraordinary year in 2022 and in Canada, where.
Revenues in Canadian dollars were up almost $100 million. So they have normalized a bit this year masking the growth in the overall sort of gas business, which continues to track the growth in the market.
Great very helpful. I'll pass it along figure for the time today.
Okay.
Thank you. The next question is from Chris <unk>.
With steeper William Shank. Please go ahead.
Hey, everybody.
Maybe for Justin or Karen and the better than expected customer growth and the increase in the Capex.
Is this something.
Something that you expect to continue on trend and does this change your.
We expected rate base growth at all.
Hey, Chris It's Justin Yeah, I mean, I think it's more just reflective of this last year well, we'll look at guidance in February for the future, but right now we're kind of just focused on this year and and.
It's from where we started the year, it's better this year than what we had originally anticipated.
Okay and Rob.
Given your guidance in the really phenomenal quarter in the third quarter for the L. D. C sort of suggests a lower fourth quarter year over year can you talk about what might be some of the headwinds there.
Yes, I think Chris as you know within our guidance, we have a coli forecast of three to 5 million. Obviously, you know that that's always less predictable as well as there are several timing related items that we would expect to come through and so we've updated guidance where car.
And that new guidance range, but continue to monitor quarterly performance and whatnot.
Okay.
Alright, thank you.
Thank you. The next question is from Ryan Levine with Citi. Please go ahead.
Good morning.
I hope, it's a clarify a couple of things on offshore wind.
The extent I think you highlighted less than 7% up from a top line standpoint is there any color you could share around the margin profile of those projects relative to the rest of the century business and to the extent that sunrise or something else were to be canceled.
Is there a certain cost that would be borne by the company on a go forward basis.
Sure Ryan this is Chad in Sweden.
Our offshore wind revenue the margins are roughly in line with the margins we see on our electric segment. So there's.
Nothing particular extraordinary about those those margins.
There isn't a lot of overhead that goes along with that that offshore wind work and it's generally where we're building units or components. So whether we do you know 10 or 100 that it doesn't significantly change the margins that much there are some wind down costs.
If we mobilize a project and then have to demobilize on a project, but we do have the ability.
To seek recovery of those costs from from our customer.
Our overhead is relatively modest in the sense that all of this work is performed by Union labor. So if a project does not continue forward, we send the labor back to the hall.
We do not own or rent any facilities those are provided to us by the customer and.
And we generally don't have much equipment cost for this type of work so relatively modest overhead costs that whatever costs, we do incur to demoed, we are able to recover those from our customer.
Okay and then the financing question in terms of the P. G E proceeds expected to come to the holding company in the next for the company within the next few months, what's the use of that cash.
Yeah, so that that the cash is obviously will be redeployed back into the utility in large part.
I think that.
That return of the cash in and obviously a lot depends on where commodity costs end up in the fourth quarter.
But we continue to anticipate that as the PGA unwind that will help limit our financing cost at the utility which is reflected in the fact that we're putting out there that we have very limited equity needs through 2025 through the return of that P. J and then we have very limited.
Debt financing.
2026.
Okay and then last question for me in terms of the.
The potential separation.
Timeline in your slide deck, you have a checkmark or box to be checked around Q1, 'twenty. Four are you reaffirming that date or or is that oh.
Much more uncertain given the potential paths that the company could go down.
Yeah, Ryan the way I think we can answer that is obviously the form of transaction will will to a certain extent dictate timing so to the extent that the timing of the IPO occurs then.
We would be subject to lock up periods, which are typically four to six months. So any any transaction following an IPO would be subject to potential restrictions under under our backups to the extent that we proceed with a different form of transaction, which which we continue to evaluate alternative.
Is like a tax free spin and we remain on track for the first quarter.
Thank you appreciate it.
Thank you. The next question is from Tanner, James with Bank of America. Please go ahead.
Hey, good morning, everyone. It's Julian will Smith here on for <unk>. Thanks.
You guys very much appreciate it I'm, just coming back to kind of higher level comments on the balance sheet here your comments it in the remarks on your metrics and sustaining them through I think you said 25, just with the ATM, where does that position you on an episode of debt basis.
Through through your peers through the forecast period here I, if we can be a little bit more granular in specific and then if you can update us in tandem on on your financing plan as it pertains to the spin out and just how you think about that.
Impacting the consolidated <unk> to debt metrics on a pro forma basis.
Yeah Julien.
Yeah, Julian I think I think clearly the form of the transaction again will.
To a large extent dictate the <unk> to debt type metrics.
Certainly at the utility, which which you know.
It remains strong.
Specced episodes of debt.
Above the S&P episodes at that kind of target metrics for our credit rating Yeah, I think the at the holding company level as you can imagine if we were to.
Consider a transaction alternatives like an IPO with sell down you know that has a different leverage impacts then an IPO with with <unk>.
Following by a tax free.
Other span.
And so I think for now kind of as far as pro forma leverage metrics at the holding company will have to defer commenting on that until a form of the transactions decided.
Yeah.
Got it but just to clarify here like I think you guys have talked about this 14% episode of debt through 'twenty five or by 'twenty five before I mean can you elaborate just where you stand kind of status quo I mean, so any way to kind of frame the puts and takes around potentially raising proceeds at whatever you can do I know, it's I know it's complicated.
Yeah.
You know the the guidance on the <unk> to debt.
Again like you know as we look at those metrics at the holding company level. It depends we we plan to separate century and so the timing of this end of the century separation will unlock.
Obviously impact those credit metrics and especially the forum.
And so you know as far as.
If it's status quo and you were you were running forward with century continuing to be in our our financials. You know then we do recover.
Be asleep centuries recover their ebitdas recovered the utility continues to have success.
On on rate case outcomes and with customer growth and so our credit metrics continue to improve through that 'twenty four 'twenty five period.
Yeah.
Got it excellent and then just sorry, just pivoting back to the century side real quickly.
A lot of commentary on offshore here, but just separately even independent of offshore just you know just can you comment a little bit on what's going on on the core business ex W and what's driving some of the declines there. How are you seeing that outlook here I know that you can't comment too much on forward looking guidance at this point, but any any commentary around on the.
X offshore business and prospects would be appreciated here just given <unk>.
Previous commentary about forward looking.
[noise] I mean, I don't think we I don't think.
Commented only in the slide deck about.
<unk> in the backlog in total in the backlog and what we provided here today as far as.
Revenues realized against that backlog that I don't think we've provided other guidance there.
We're really going to make this oh.
Maybe to make this a little bit more.
Pop possible to answer just it seems like there was it was down year over year ex offshore wind, maybe you could speak to what drove that for instance, and how you think about that fitting into the plant.
Yes, we talked a little bit about that the gas business was down.
A small amount.
And that that was driven by an extraordinary year in Canada, which is yeah, we're seeing a more normalized year in Canada. This year. So the decline in Canada is masking the growth in the overall business on the.
On the gas side, the electric business is growing.
And so.
I guess I'm, having a little bit of a hard time tracking your your comments around the business decline.
No got it got it yes, it's clearly the gas piece there.
Thank you very much guys I appreciate it I know, it's difficult to comment too much on the spot point best of luck speak to you guys soon.
Thanks Julie.
Thank you. The next question is from Steven D M Breezy with granite Lake. Please go ahead.
Hi, everyone. Thanks, very much for taking my question I just had two quick ones last quarter I think in the slides there was a disclosure of Sunrise contract sizes, I think $170 million do you have a similar number for what ocean wind one is.
[noise], just just just given kind of where we're at where we're not going to disclose that information. We can we can follow up.
Okay. That's fine and then just just on the Sunrise process from here are like so it appears like we're studying that we're supposed to want to rebuild the project in a nice sort of accelerated RFP.
Are you guys still doing work for them.
Meantime, or what's the plan there.
I'm, sorry could you repeat the question.
Okay.
Yes.
Sorry, David I didn't I didn't hear the question on Sunrise, Oh, sorry, I was on mute.
Just in terms of Sunrise, it sounds like a resource and worst they'd want to rebid a into the nicer to accelerated RFP and so just in the meantime are you guys still doing work for them or like what have you is it pencils down and you wait until you see what happens or just tell us a little bit about the process there.
No. We're continuing we are we have started and we continue to perform work for Sunrise and Theres no indication from our customer that we have.
You would expect any delays or slowdown in that set that work, they're rebidding the PPA.
At least as far as I understand it doesn't have any impact on the overall timing of that project.
Okay. Thanks very much.
This concludes Q.
Q&A portion of today's conference.
I'd now like to turn the call back over to Justin Forsberg for closing remarks.
Thanks, Sanjay and thank you all for joining us today and for your questions. This concludes our conference call and we look forward to seeing many of you as we participate in the utility week activities in New York in early December such as the Wells Fargo and Wolf utility conferences, along with Bank of America upcoming natural gas conference among other events.
You will see on slide 24, my updated contact information now as a member of the southwest gas holdings here feel free to reach out at any time and thank you for your interest in southwest gas holdings have a good day.
This concludes today's southwest gas holdings third quarter 2023 earnings call and webcast. You may disconnect your lines at this time.
Wonderful day.
[music].
Hum.
[music].
Hum.
[music].