10-Q: Southwest Gas Holdings Reports Q1 2025 Results, Navigates Centuri Separation

Southwest Gas Holdings reports its Q1 2025 financial results, highlighting the performance of its natural gas distribution and utility infrastructure services segments, while continuing to progress towards the full separation of Centuri.

Summary

• Southwest Gas Holdings reported its Q1 2025 results, with a net income attributable to Southwest Gas Holdings, Inc. of $113.87 million.
• The company is progressing with its plan to fully separate from Centuri, aiming to complete the separation through various disposition transactions.
• The natural gas distribution segment saw improved results, driven by rate relief and customer growth, while the utility infrastructure services segment experienced revenue growth offset by increased expenses.
• Southwest Gas's Arizona rate approval in March 2025 is expected to increase annualized revenue by approximately $80 million.
• Centuri's revenues increased by 4% compared to Q1 2024, driven by electric utility infrastructure services.
• The company maintains investment-grade credit ratings and expects limited capital market needs through the end of 2025.
• Southwest Gas had approximately 2,265,000 natural gas customers as of March 31, 2025, with 40,000 first-time meter sets added over the past twelve months.
• The company estimates natural gas segment construction expenditures during the three-year period ending December 31, 2027 will be approximately $2.6 billion.
• The Board of Directors has maintained the quarterly dividend at $0.62 per share and intends to reevaluate the dividend upon completion of the Centuri separation.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to improved earnings, progress on the Centuri separation, and rate relief in Arizona, but is tempered by the loss in the utility infrastructure services segment and increased interest deductions.

Positives

• Arizona rate approval is expected to increase annualized revenue by ~$80 million.
• Centuri's revenues increased by 4% in Q1 2025.
• Southwest Gas finished the quarter with over $380 million in cash.
• The company maintains investment-grade credit ratings.
• Operations and maintenance expenses reflect cost discipline.

Negatives

• The utility infrastructure services segment reported a net loss of $19.968 million.
• Net interest deductions increased approximately $8.2 million in the first quarter of 2025, as compared to the prior-year quarter.
• Cash flows provided by consolidated operating activities decreased $252 million in the first three months of 2025 as compared to the same period of 2024.

Risks

• The company's liquidity could be affected by the planned separation of Centuri, variability of natural gas prices, and changes in ratemaking policies.
• Economic conditions, such as inflation and rising interest rates, could impact the company's businesses.
• Work awarded, or failing to be awarded, by individual large customers can impact operating results.
• The company may be required to record a deferred tax liability for the difference of the outside basis in the investment in Centuri as determined under GAAP compared to tax law.

Future Outlook

The company intends to fully dispose of its ownership in Centuri in one or more disposition transactions, including by way of sales of its shares of Centuri common stock, one or more exchange offers for Company shares, or distributions to Company stockholders via spin-off, or a combination thereof.

Industry Context

The report reflects the ongoing trends in the utility industry, including infrastructure investments, regulatory proceedings, and the increasing focus on system integrity and reliability. The separation of Centuri aligns with a broader industry trend of companies streamlining their operations to focus on core competencies.

Comparison to Industry Standards

• The company's intention to reevaluate the dividend upon the completion of the Centuri separation, and it is anticipated that we will pay a dividend at a level consistent with industry peers.
• The company's capital structure consisting of 50% long-term debt and 50% common equity with a requested return on common equity of 11.35%, a modest increase compared to the 11.16% currently authorized.

Legal Proceedings

• The Company and Southwest Gas are named as defendants in various legal proceedings.
• The ultimate dispositions of these proceedings are not presently determinable; however, it is the opinion of management that none of these legal proceedings individually or in the aggregate will have a material adverse impact on the Companys or Southwest Gas financial position or results of operations.

Related Party Transactions

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

Stakeholder Impact

• The Arizona rate approval will impact customers through changes in their rates.
• The Centuri separation will impact shareholders through potential changes in the company's structure and value.
• The company's infrastructure investments will impact customers through improved system reliability and safety.

Next Steps

• The company intends to fully dispose of its ownership in Centuri in one or more disposition transactions.
• The settlement will be considered by the ACC at a future open meeting with a final decision anticipated in the third quarter of 2025.
• Hearings are scheduled in June 2025 and resolution of this application is anticipated in the third quarter of 2025.
• The rate case will continue to be processed during 2025 with a final decision expected in the fourth quarter of 2025, and new rates expected to be effective in January 2026.

Key Dates

Keywords

Southwest Gas Holdings, Centuri, Natural Gas Distribution, Utility Infrastructure Services, Financial Results, Rate Case, Separation, Dividends, Construction Expenditures, Liquidity