10-Q: Southwest Gas Holdings Reports Strong Q3, Completes Centuri Divestiture

Southwest Gas Holdings, Inc. announced robust third-quarter results, driven by its natural gas distribution segment, and finalized the strategic divestiture of its Centuri utility infrastructure services business.

Summary

• Net income attributable to Southwest Gas Holdings, Inc. for the three months ended September 30, 2025, was $270.476 million, a significant increase from $0.289 million in the same period of 2024.
• For the nine months ended September 30, 2025, net income attributable to Southwest Gas Holdings, Inc. was $371.463 million, up from $106.359 million in 2024.
• Basic earnings per share from continuing operations for the nine months ended September 30, 2025, was $2.29, an increase from $1.87 in 2024.
• Basic earnings per share from discontinued operations for the nine months ended September 30, 2025, was $2.86, compared to a loss of ($0.39) in 2024.
• The company completed the sale of its remaining Centuri common stock in September 2025, generating total net proceeds of $1.35 billion from a series of secondary public offerings and private placements.
• Proceeds from the Centuri divestiture were used to repay outstanding indebtedness, fund third-quarter dividends, and are expected to support future capital investments in Southwest Gas and the potential Great Basin expansion.
• The Natural Gas Distribution segment's operating margin increased by $26.8 million for the three months and $92.3 million for the nine months ended September 30, 2025, primarily due to updated rates and customer growth.
• Southwest Gas added approximately 40,000 first-time meter sets over the past 12 months, achieving a 1.8% customer growth rate.
• Capital expenditures for the Natural Gas Distribution segment were $570.4 million year-to-date.
• The company concluded the third quarter of 2025 with approximately $779 million of cash on a consolidated basis.
• Southwest Gas Holdings does not expect to issue equity in 2025.

Sentiment

Score: 8

Explanation: The company reported significantly improved net income driven by the successful Centuri divestiture and solid performance in its core natural gas distribution business. Strong operating margin growth, customer additions, and favorable credit rating adjustments indicate a positive financial trajectory and strategic execution. While operating cash flow decreased due to PGA balance shifts, overall liquidity is strong, and future capital investments are planned.

Positives

• Net income attributable to Southwest Gas Holdings, Inc. increased significantly to $270.476 million for the three months and $371.463 million for the nine months ended September 30, 2025, compared to prior periods.
• Successful completion of the Centuri divestiture generated $1.35 billion in net proceeds, streamlining the company's portfolio.
• Operating margin in the Natural Gas Distribution segment grew by $26.8 million for the quarter and $92.3 million year-to-date, driven by updated rates and customer growth.
• Customer growth of 1.8% with 40,000 first-time meter sets over the past 12 months indicates healthy demand.
• Improved liquidity position with $779 million cash on a consolidated basis and full repayment of the $550 million term loan.
• Favorable credit rating adjustments from Fitch Ratings (outlook to Stable) and Standard & Poor's (rating to BBB+ and outlook to Stable) reflect enhanced financial stability.
• Regulatory approvals for rate increases and mechanisms in Arizona (SIM, DCA, TEAM, PGA Modification) and Nevada (General Rate Case, GRA, Line Locate Activity Expenses, DEAA Modification) support revenue stability.
• Approval of Great Basin's general rate case settlement resulted in a $9.6 million revenue increase and a 41% increase in rate base to $191 million.

Negatives

• Cash flows provided by consolidated operating activities of continuing operations decreased $553.3 million in the first nine months of 2025 compared to 2024, primarily due to reduced collection of previously deferred purchased gas costs.
• Operations and maintenance expense for the nine months ended September 30, 2025, increased by $9.6 million, attributed to employee-related labor, incentive compensation, and insurance costs.
• Net interest deductions for the nine months ended September 30, 2025, rose by $16.9 million, mainly due to higher over-collected PGA balances.
• Other income for the nine months ended September 30, 2025, decreased by $8.6 million, primarily from lower interest income on regulatory account balances.
• A $9.7 million loss was recognized from the final sale of the 30.9% retained interest in Centuri on September 5, 2025.
• The Arizona Corporation Commission modified the SIM settlement to limit SIM-related investments to $50 million annually, a reduction from the proposed $150 million.
• The DEAA modification in Nevada is expected to impact near-term liquidity at Southwest Gas compared to earlier projections for 2025-2026.

Risks

• Customer growth rates and conditions in the housing market could impact demand.
• Inflation, interest rates, and related government actions, including tariffs, may affect operational costs and financing.
• Sufficiency of labor markets and the ability to timely hire qualified employees or similar resources pose operational challenges.
• The ability to collect on outstanding customer accounts receivable and obtain regulatory recovery of related costs is crucial.
• Potential disallowances by regulatory commissions (ACC, PUCN, CPUC, and FERC) could impact financial results.
• Governmental or regulatory policy regarding pipeline safety, greenhouse gas emissions, potential prohibitions on natural gas use, or alternative energy could affect the business model.
• Regulatory support for ongoing infrastructure programs or expansions is essential for capital investment recovery.
• The timing and amount of rate relief and impacts of other regulatory proceedings introduce uncertainty.
• Changes in rate design and impacts of other tax regulations could affect profitability.
• Variability in the volume of gas or transportation service sold to customers impacts revenue.
• Changes in capital requirements and funding, and the impact of credit rating actions on financing costs, are significant.
• Geopolitical influences on the business or its costs could create instability.
• Currently unresolved and future liability claims and disputes may lead to unexpected expenses.
• Changes in pipeline capacity for the transportation of gas and related costs could affect supply and distribution.
• Regulatory approvals for the Great Basin 2028 expansion project, along with negotiation and execution of binding transportation agreements and capital construction costs, are critical for project success.
• The impact on stock price or credit ratings due to undertaking or failing to undertake acquisition or divestiture activities or other strategic endeavors is a concern.
• The impact on stock price, costs, actions, or disruptions related to significant stockholders and their activism could be detrimental.
• The ability to raise capital in external financings and to continue to remain within debt covenants is vital for financial health.
• Ongoing evaluations in regard to goodwill and other intangible assets may result in impairments.

Future Outlook

The company expects to utilize the remaining proceeds from the Centuri divestiture for general corporate purposes, including supporting future capital investments in Southwest Gas and the potential 2028 expansion of Great Basin, as well as future dividend payments. Capital expenditures for the Natural Gas Distribution segment are estimated at approximately $2.6 billion for the three-year period ending December 31, 2027, with $880 million projected for calendar year 2025. Southwest Gas plans to continue seeking regulatory support for infrastructure projects. A decision on the Great Basin 2028 system expansion project's commitment level is anticipated in the fourth quarter of 2025, and a final decision on the California General Rate Case is expected in the fourth quarter of 2025, with new rates effective January 2026. A decision on the Nevada triennial resource plan is expected in April 2026. The company anticipates paying dividends at a level consistent with industry peers.

Management Comments

• "The Company does not expect to issue equity in 2025."
• "The Company expects to use the proceeds [from Centuri sale] for general corporate purposes including support for future capital investments at Southwest Gas as well as the potential 2028 expansion of Great Basin, and future dividend payments to stockholders that would otherwise have been funded by Southwest Gas."
• "Management estimates capital expenditures during the three-year period ending December 31, 2027 will be approximately $2.6 billion. Of this amount, approximately $880 million is expected to be incurred during calendar year 2025."
• "Although no assurances can be provided on our future dividend payments, it is anticipated that we will pay a dividend at a level consistent with industry peers."
• "Management of Southwest Gas Holdings, Inc. and Southwest Gas, including the Chief Executive Officer and Chief Financial Officer, believes the Company's and Southwest Gas disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above."

Industry Context

The natural gas distribution industry is heavily regulated by state commissions (ACC, PUCN, CPUC) and federal agencies (FERC), which significantly influence rates, practices, and service territories. The company operates within this framework, benefiting from decoupled rate structures designed to stabilize revenue against volumetric sales fluctuations and promote energy conservation. Ongoing capital investments in infrastructure are critical for maintaining safety, reliability, and supporting customer growth, particularly in expanding service areas like Arizona and Nevada. The strategic divestiture of the utility infrastructure services segment (Centuri) reflects a broader industry trend towards specialization and focus on core regulated assets, aiming to enhance operational efficiency and financial stability.

Legal Proceedings

• The company and Southwest Gas are named as defendants in various legal proceedings.
• Management believes that none of these legal proceedings, individually or in the aggregate, have had or will have a material adverse impact on the company's or Southwest Gas's financial position or results of operations.

Related Party Transactions

• The company sold 2,857,142 shares of Centuri common stock in a private placement to Icahn investment entities (Icahn Partners LP and Icahn Partners Master Fund LP) in May 2025.
• An additional 1,060,240 shares were sold to Icahn investment entities in a concurrent private placement in July 2025.
• A combined total of 18,823,500 shares of Centuri common stock were sold to Icahn investment entities in a concurrent private placement in August 2025.
• On February 24, 2025, the company entered into a Tax Assets Agreement with Centuri, contributing $56.4 million of Tax Assets to Centuri, treated as a deemed capital contribution.

Stakeholder Impact

• Shareholders: Experienced a significant increase in net income and EPS, benefiting from the Centuri divestiture proceeds used for debt repayment and future capital investments, with anticipated consistent dividend payments.
• Customers: Affected by regulatory rate adjustments (increases and credits) and PGA mechanisms that pass through gas cost fluctuations. New programs and resource plans aim to enhance system reliability and service.
• Employees: Operations and maintenance expenses increased due to higher employee-related labor and incentive compensation costs.
• Creditors: Benefited from the repayment of the $550 million term loan and favorable credit rating adjustments, improving the company's credit profile and reducing perceived risk.

Next Steps

• Determine the level of commitment for the Great Basin 2028 expansion project in the fourth quarter of 2025.
• Anticipate a final decision on the California General Rate Case in the fourth quarter of 2025, with new rates expected to be effective January 2026.
• Expect a decision on the Nevada triennial resource plan in April 2026.
• Continue to request regulatory support for infrastructure projects and expansions to improve system flexibility and reliability.
• Management plans to adopt ASU 2023-09 (Income Taxes) beginning with the fourth quarter of fiscal 2025.
• Management plans to adopt ASU 2025-05 (Financial Instruments Credit Losses) beginning with the fourth quarter of fiscal 2025.
• Evaluate the impacts of ASU 2024-03 (Income Statement Expense Disaggregation Disclosures) and ASU 2025-06 (Intangibles Goodwill and Other Internal-Use Software) on disclosures and financial statements.

Key Dates

Recommendation

The successful divestiture of Centuri has significantly streamlined the company's operations, allowing a focused return to its core, regulated natural gas distribution business. The substantial proceeds from the sale have been effectively utilized to repay debt and bolster liquidity, leading to improved credit ratings. Strong operating margin growth, driven by favorable rate adjustments and consistent customer growth in its regulated segment, indicates robust underlying business performance. Planned capital investments and regulatory support for infrastructure projects suggest continued stability and growth potential. The current financial health and strategic clarity make it an attractive investment.

Keywords

Natural Gas Distribution, Utility Infrastructure, SEC Filing, Quarterly Report, SWX, Centuri, Divestiture, Capital Expenditures, Regulatory Rates, Customer Growth, Financial Performance, Liquidity, Debt Repayment, Arizona Corporation Commission, Public Utilities Commission of Nevada, California Public Utilities Commission, FERC, Great Basin Expansion