8-K: Southwest Gas Reports Strong Q3, Completes Centuri Separation

Southwest Gas Holdings reported significantly higher net income for Q3 2025, driven by the full separation and sale of Centuri, leading to a credit rating upgrade and strong utility performance.

Summary

• Southwest Gas Holdings reported net income attributable to SWX of $270.5 million for Q3 2025, a substantial increase from $0.3 million in Q3 2024.
• Net income from continuing operations for Q3 2025 was $4.2 million, up $13.4 million from Q3 2024.
• The company completed the full separation of Centuri Holdings, Inc., generating approximately $879 million in net proceeds.
• Proceeds from Centuri sales were used to fully repay the SWX Term Loan and bank debt.
• S&P upgraded Southwest Gas Holdings' and Southwest Gas Corporation's credit ratings to BBB+ with stable outlooks (from BBBand BBB, respectively).
• The Utility achieved a return on period-end equity of 8.3% over the 12 months ended September 30, 2025.
• Year-to-date Utility net income improved by 11%.
• Southwest Gas added approximately 40,000 new meter sets in the last 12 months, representing a 1.8% customer growth rate.
• Great Basin Gas Transmission Company is executing precedent agreements for a potential 2028 expansion project.
• As of September 30, 2025, the company had $779 million cash on hand and nearly $1.5 billion in available liquidity.
• Reaffirmed 2025 net income guidance for Southwest Gas toward the top end of the $265 million $275 million range.

Sentiment

Score: 8

Explanation: The filing reports strong financial results driven by the successful separation of Centuri, leading to significant debt reduction and a credit rating upgrade. The core utility business shows solid customer growth and improved net income, with positive future outlook regarding regulatory developments and capital expenditures. While there are increases in operating expenses and depreciation, these are typical for a growing utility and are offset by strong gains and strategic positioning.

Positives

• Net income attributable to Southwest Gas Holdings significantly increased to $270.5 million in Q3 2025 from $0.3 million in Q3 2024, primarily due to the Centuri deconsolidation gain.
• Completed full separation of Centuri, generating approximately $879 million in net proceeds.
• Fully repaid the SWX Term Loan and bank debt, strengthening the balance sheet.
• S&P upgraded credit ratings for both Southwest Gas Holdings and Southwest Gas Corporation to BBB+ with stable outlooks.
• Utility return on period-end equity reached 8.3% over the 12 months ended September 30, 2025.
• Year-to-date Utility net income improved by 11%.
• Customer growth rate of 1.8% with approximately 40,000 new meter sets added in the last 12 months.
• Strong liquidity position with $779 million cash on hand and nearly $1.5 billion in available liquidity as of September 30, 2025.
• Reaffirmed 2025 net income guidance for the natural gas distribution segment toward the top end of the $265 million $275 million range.
• Anticipated regulatory developments and planned rate case filings in Arizona and Nevada early next year, with updated rates expected in California in January.

Negatives

• Operations and maintenance expenses increased by $4.1 million in Q3 2025 and $9.6 million year-to-date, primarily due to employee-related labor and incentive compensation costs.
• Depreciation and amortization expense increased by $4.9 million (7%) in Q3 2025 and $21.0 million (10%) year-to-date due to increased gas plant in service.
• Other income decreased by $3.4 million in Q3 2025 and $8.6 million year-to-date, mainly due to lower interest income from regulatory account balances.
• Net interest deductions increased by $3.8 million in Q3 2025 and $16.9 million year-to-date for the natural gas distribution segment, primarily due to over-collected PGA balances.
• Higher income tax expense of $4.6 million in Q3 2025 and $14.0 million year-to-date for the natural gas distribution segment.
• Discontinued operations incurred $77.3 million higher income tax expense in Q3 2025 and $125.5 million year-to-date, primarily related to the gain on deconsolidation of Centuri.
• A $9.7 million loss was incurred from the sale of the company's 30.9% retained interest in Centuri on September 5, 2025.
• Centuri separation related costs increased by $3.9 million in Q3 2025.
• Total system throughput decreased to 159,807,190 dekatherms for the nine months ended September 30, 2025, from 166,631,723 dekatherms in the same period of 2024.
• Heating degree days were lower at 1,111 compared to the ten-year average of 1,232 for the nine months ended September 30, 2025, indicating warmer weather impacting natural gas demand.

Risks

• The timing and amount of rate case filings, approvals, and rate relief.
• Changes in rate design.
• Customer growth rates.
• The effects of regulation/deregulation, tax reform, and similar changes and related regulatory decisions.
• The potential for, and the impact of, a credit rating downgrade.
• Future earnings trends.
• Inflation.
• Sufficiency of labor markets and similar resources.
• Seasonal patterns.
• Current and future litigation.
• Regulatory approvals for the Great Basin 2028 Expansion Project along with negotiation and execution of binding transportation service agreements and capital construction costs.
• Impacts of stock market volatility.

Future Outlook

The company reaffirms its 2025 net income guidance for the Southwest Gas natural gas distribution segment toward the top end of the $265 million to $275 million range. It anticipates regulatory developments in the coming months, with plans to file rate cases in Arizona and Nevada early next year seeking approval for new rates and alternative ratemaking forms. Updated rates are expected to take effect in California in January. The Great Basin Gas Transmission Company is actively working on its potential 2028 expansion project.

Management Comments

• "With our focus now fully on our regulated natural gas business we believe we are well positioned with a strong balance sheet to address the energy needs of our growing, high-demand service territories." Karen Haller, President and CEO of Southwest Gas Holdings.
• "At Southwest Gas, we anticipate regulatory developments in the coming months that will better align investment recovery with the work we're doing in the communities we serve." Karen Haller, President and CEO of Southwest Gas Holdings.
• "We plan to file rate cases in Arizona and Nevada early next year seeking approval for new rates along with requests for alternative forms of ratemaking. Additionally, we expect updated rates to take effect in California this upcoming January." Karen Haller, President and CEO of Southwest Gas Holdings.

Industry Context

The natural gas distribution industry is characterized by regulated rates and capital-intensive infrastructure. Southwest Gas Holdings' focus on its regulated natural gas business, following the Centuri separation, positions it to leverage customer growth in its service territories. The pursuit of regulatory developments and rate cases is a common strategy for utilities to ensure investment recovery and maintain profitability in a regulated environment. The Great Basin Gas Transmission Company's expansion project indicates ongoing demand for natural gas infrastructure, aligning with broader energy needs, while also facing potential regulatory hurdles and competition for transportation service agreements.

Comparison to Industry Standards

• The Utility's trailing 12-month ROE of 8.3% is within the typical range for regulated natural gas utilities, which often aim for authorized returns on equity (ROE) set by state commissions. For example, authorized ROEs listed in the filing range from 9.50% to 11.95% across its various jurisdictions, suggesting the achieved ROE is slightly below the higher end of authorized rates but still robust.
• Customer growth of 1.8% (40,000 new meters) is a healthy rate for a mature utility, indicating strong demand in its service territories compared to some regions experiencing slower or stagnant growth.
• The credit rating upgrade to BBB+ by S&P places Southwest Gas Holdings in a strong investment-grade category, comparable to well-established utilities with stable financial profiles and access to capital markets.

Stakeholder Impact

• Shareholders: Significant increase in net income and diluted EPS, credit rating upgrade, and strong liquidity could positively impact shareholder value and confidence.
• Creditors: Full repayment of term loan and bank debt, along with credit rating upgrade, reduces financial risk and improves the company's creditworthiness.
• Customers: Customer growth and planned rate cases indicate ongoing investment in infrastructure and service, potentially leading to improved reliability but also potential rate adjustments.
• Employees: Increases in employee-related labor and incentive compensation costs suggest positive impacts for employees, though specific details are limited.

Next Steps

• File rate cases in Arizona and Nevada early next year seeking approval for new rates and alternative forms of ratemaking.
• Expect updated rates to take effect in California in January.
• Great Basin Gas Transmission Company to finalize outstanding agreements for its potential 2028 expansion project.
• Host a conference call on November 5, 2025, to discuss Q3 2025 results.

Key Dates

Recommendation

The company has successfully executed a major strategic divestiture (Centuri separation), which significantly strengthened its balance sheet by repaying substantial debt and resulted in a credit rating upgrade. The core natural gas distribution business is performing well with strong customer growth, improved net income, and proactive regulatory strategies (rate cases, alternative ratemaking). The reaffirmed guidance at the top end of the range, coupled with substantial liquidity, indicates a robust financial position and positive future outlook. These factors collectively suggest a strong investment opportunity.

Keywords

Southwest Gas Holdings, SWX, Natural Gas Distribution, Centuri Separation, Financial Results, Q3 2025 Earnings, Credit Rating Upgrade, Utility Performance, Rate Cases, Customer Growth, Liquidity, Capital Expenditures, Great Basin Gas Transmission