10-K: Southwest Gas Holdings Reports 2024 Results, Navigates Centuri Separation

Southwest Gas Holdings details its 2024 financial performance, highlighting the Centuri IPO and strategic focus on natural gas distribution.

Summary

• Southwest Gas Holdings reported its 10-K filing for the fiscal year ended December 31, 2024.
• The company owns Southwest Gas and has a majority ownership of Centuri following Centuri's IPO in April 2024.
• The MountainWest sale closed on February 14, 2023.
• Southwest Gas added 41,000 first-time meter sets during 2024.
• The company is pursuing a separation of Centuri from the Company.
• Centuri's IPO was completed in April 2024, with the Company retaining approximately 81% ownership.
• The net proceeds to Centuri from the IPO and the concurrent private placement totaled approximately $328 million.
• The company intends to fully dispose of its ownership in Centuri in one or more disposition transactions.
• Southwest Gas is subject to regulation by the ACC, the PUCN, and the CPUC.
• Centuri is a strategic utility infrastructure services company dedicated to partnering with North America's gas and electric providers.
• The company maintains a website (www.swgasholdings.com) for the benefit of stockholders, investors, customers, and other interested parties.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company is strategically focusing on its core business and has completed the Centuri IPO, there are concerns about Centuri's performance and various operational and regulatory risks.

Positives

• Southwest Gas Holdings completed the Centuri IPO, generating $328 million in net proceeds.
• The company added 41,000 first-time meter sets in its natural gas distribution business during 2024.
• Operating margin for natural gas distribution increased by $73 million, or 6%, between 2024 and 2023.
• Southwest Gas replaced its existing $400 million revolving credit facility, extending the maturity from 2025 to 2029.
• Southwest Gas' capital investment in 2024 was $847 million.
• Centuri paid down $316 million of debt from proceeds of the Centuri IPO.
• Centuri acquired the remaining interest in Linetec previously held by noncontrolling parties.
• Centuri entered into an accounts receivable securitization facility.
• Southwest Gas finished the year with over $300 million of cash, following the collection of previously deferred purchased gas costs.

Negatives

• Centuri's revenues were $2.6 billion in 2024, a decrease of $262 million, or 9%, compared to 2023.
• Centuri's operating income was $86.8 million in 2024, a decrease of $49.6 million, compared to 2023.

Risks

• Operational risks include reliance on interstate pipelines, workforce challenges, and potential loss of significant customers.
• Inflation could adversely impact operating expenses and customer payments.
• Fixed-price contracts are subject to potential losses.
• Weather conditions can adversely affect operations, financial position, and cash flows.
• Regulatory and legislative developments related to climate change may adversely affect operations and financial results.
• A cybersecurity incident has the potential to disrupt normal business operations and expose sensitive information.
• Supply chain constraints have negatively affected Centuri's work mix and volumes.
• Disruptions in labor relations with Centuri's employees could adversely affect results of operations.
• Options for disposing of the remaining ownership interest in Centuri may be limited by market conditions and tax considerations.
• Uncertain economic conditions may affect Southwest Gas' ability to finance capital expenditures.
• The company is subject to litigation or threatened litigation.
• Governmental policies and regulatory actions can reduce Southwest Gas' earnings or cash flows.
• The company's operating results may be adversely impacted by an economic downturn.
• A significant reduction in the company's, Centuri's, and Southwest Gas' credit ratings could materially and adversely affect the business, financial condition, and results of operations.
• The company may be unable to successfully integrate business acquisitions into its business and realize the anticipated benefits of such acquisitions.
• Natural disasters, public health crises, war, or terrorist activities and other extreme events could adversely affect the company's business, results of operations, financial condition, liquidity and/or cash flows.
• Goodwill and other assets have been subject to impairment and may be subject to further impairment in the future.

Future Outlook

The company intends to fully dispose of its ownership in Centuri in one or more disposition transactions.

Industry Context

The announcement reflects a strategic shift in the utility sector, with companies like Southwest Gas Holdings simplifying their business portfolios to focus on core operations and capitalize on growth opportunities in specific segments.

Comparison to Industry Standards

• The company's performance can be compared to other major players in the natural gas distribution and utility infrastructure services industries, such as Southern Company, Duke Energy, and Quanta Services.
• The growth in first-time meter sets can be benchmarked against industry averages for customer growth in the natural gas distribution sector.
• Centuri's revenue and operating income can be compared to those of its competitors in the utility infrastructure services market, such as MasTec and AECOM.
• The company's capital expenditure plans can be assessed in the context of industry trends in infrastructure investment and modernization.

Legal Proceedings

• The Company and Southwest Gas are named as a defendant in various legal proceedings.

Related Party Transactions

• Centuri accounts for services provided to Southwest Gas at contractual prices.

Stakeholder Impact

• The company is committed to a culture of continuous improvement in operations and efficiency, and with respect to the safety of our employees and the communities we serve every day.
• The company and the Board are committed to a culture of continuous improvement in operations and efficiency, and with respect to the safety of our employees and the communities we serve every day.

Next Steps

• Southwest Gas will continue to pursue a separation of Centuri from the Company.
• The company will need to file with the CPUC for approval of the RNG purchase agreements and to receive regulatory treatment for any above-market costs.
• Great Basin's general rate case is pending a decision, which is anticipated during the second quarter of 2025.
• Southwest Gas filed a general rate case in Arizona in February 2024, with rates expected to be effective in April 2025.
• Southwest Gas filed a general rate case in California in September 2024, with rates expected to be effective in January 2026.
• The first plan under Nevada's SB 281 is required to be filed by October 1, 2025.

Key Dates