8-K: Southwest Gas Restates Q2/Q3 2025 Financials Due to Tax Errors

Southwest Gas Holdings, Inc. announced that its Q2 and Q3 2025 unaudited financial statements can no longer be relied upon due to errors in state income tax liabilities.

Summary

• The Audit Committee of the Board of Directors concluded that the unaudited Condensed Consolidated Financial Statements for the three and six months ended June 30, 2025, and three and nine months ended September 30, 2025, should no longer be relied upon.
• Management identified errors related to estimated deferred income tax liabilities for state income taxes.
• The errors resulted in the understatement of income tax expense and net deferred income tax liabilities by approximately $27 million for the three and six months ended June 30, 2025.
• An incremental understatement of $8 million was identified for the three and nine months ended September 30, 2025, bringing the total understatement to $35 million for the nine months ended September 30, 2025.
• The errors arose from not timely updating estimated apportionment rates following the Company's sales of Centuri common stock in May and August 2025, which led to the tax deconsolidation of Centuri.
• The Company expects to report ineffective disclosure controls and procedures and a material weakness in its Annual Report on Form 10-K for the year ended December 31, 2025.
• Restated interim financial information for the affected periods will be included in the 2025 Form 10-K, and the Company does not intend to file amendments to previously filed Quarterly Reports.

Sentiment

Score: 3

Explanation: The filing indicates significant accounting errors leading to non-reliance on past financial statements and the expectation of reporting a material weakness in internal controls. While the company reaffirms guidance and states no impact on cash flows or debt covenants, the restatement and control deficiencies are serious negative indicators for financial transparency and reliability.

Positives

• The identified errors do not impact the Company’s previously communicated guidance metrics.
• The Company reaffirms its guidance for 2025 net income.
• The Company reaffirms the expected compound annual growth rates (CAGR) for Southwest Gas Corporation net income and rate base for the 2025-2029 period.
• No expected impact on previously reported operating margin, cash flows, credit metrics, historical state income tax returns, cash income taxes paid, nor compliance with debt covenants for any previous interim periods or years related to these errors.
• A de minimis effect is expected on annual cash income tax payments in future years.

Negatives

• The unaudited Condensed Consolidated Financial Statements for the three and six months ended June 30, 2025, and three and nine months ended September 30, 2025, can no longer be relied upon.
• Income tax expense and net deferred income tax liabilities were understated by approximately $27 million for the three and six months ended June 30, 2025.
• An incremental understatement of $8 million was identified for the three and nine months ended September 30, 2025, totaling $35 million for the nine months ended September 30, 2025.
• Net income (loss) attributable to Southwest Gas Holdings for the three months ended June 30, 2025, is estimated to be restated from $(12,883) thousand to $(39,883) thousand.
• Net income (loss) attributable to Southwest Gas Holdings for the six months ended June 30, 2025, is estimated to be restated from $100,987 thousand to $73,987 thousand.
• Income (loss) from continuing operations for the three months ended September 30, 2025, is estimated to be restated from $4,175 thousand to $(3,825) thousand.
• Income (loss) from continuing operations for the nine months ended September 30, 2025, is estimated to be restated from $165,003 thousand to $130,003 thousand.
• The Company expects to report ineffective disclosure controls and procedures for the Company.
• The Company expects to report a material weakness in its Annual Report on Form 10-K for the second and third quarters of 2025 and the annual period ended December 31, 2025.

Risks

• The timely completion of the restatement and the restated filings.
• The risk that additional information may become known prior to the expected filing with the SEC of the restated filings or that other subsequent events may occur that would require the Company to make additional adjustments to its financial statements.
• Uncertainties around the effectiveness of the Company's internal control over financial reporting.
• Uncertainties around the effectiveness of the Company's disclosure controls and procedures.
• Potential legal or regulatory action related to the restatement.
• The potential impact on the Company's business and any market reaction to any announcements regarding any of the foregoing and other risks detailed in the Company's filings with the SEC.

Future Outlook

The Company reaffirms its guidance for 2025 net income as well as the expected compound annual growth rates (CAGR) for Southwest Gas Corporation net income and rate base for the 2025-2029 period. It expects a de minimis effect on annual cash income tax payments in future years. The Company is working to complete the 2025 Form 10-K, inclusive of the restated financial information, as soon as practicable.

Management Comments

• The errors do not impact the Company’s previously communicated guidance metrics.
• The Company reaffirms its guidance for 2025 net income as well as the expected compound annual growth rates (CAGR) for Southwest Gas Corporation net income and rate base for the 2025-2029 period.
• The Company does not expect any impact on previously reported operating margin, cash flows, credit metrics, historical state income tax returns, cash income taxes paid, nor compliance with debt covenants for any previous interim periods or years related to these errors.
• The Company expects that there will be a de minimis effect on annual cash income tax payments in future years.
• The Company is working to complete the 2025 Form 10-K, inclusive of the restated financial information, as soon as practicable.

Industry Context

This announcement primarily concerns internal accounting errors related to state income tax liabilities following a divestiture, rather than broader industry trends. While financial restatements can impact investor confidence, the company's reaffirmation of core guidance and lack of impact on cash flows or debt covenants suggests the underlying utility business remains stable within its regulated industry.

Comparison to Industry Standards

• NA

Corporate Governance

Stakeholder Impact

• Shareholders: Potential decrease in confidence due to financial restatement and material weakness in internal controls, though reaffirmed guidance might mitigate some concerns.
• Investors/Analysts: Will need to update models based on restated financials; increased scrutiny on internal controls and future financial reporting.
• Regulatory Authorities (SEC): Increased oversight due to non-reliance on financial statements and material weakness disclosure.

Next Steps

• The Company intends to include restated interim financial information for the Restated Periods in its 2025 Form 10-K.
• The interim financial information will be adjusted retrospectively to reclassify the results of the former Utility infrastructure services businesses from continuing operations to discontinued operations for the period ended June 30, 2025.
• The Company is working to complete the 2025 Form 10-K, inclusive of the restated financial information, as soon as practicable.
• The Company will effect the restatement of the Restated Periods in connection with the future filings of the applicable Quarterly Reports on Form 10-Q in 2026.
• The Company's remediation plan for ineffective disclosure controls and material weakness will be described in more detail in the 2025 Form 10-K.
• Investors and others should rely on the financial information and other disclosures regarding the Restated Periods included in the 2025 Form 10-K and in subsequent future filings with the U.S. Securities and Exchange Commission (the SEC).

Key Dates

Recommendation

While the company is restating financials and acknowledging a material weakness, it has reaffirmed its core guidance and stated no impact on cash flows or debt covenants. The errors are specific to deferred state income taxes following a divestiture, which, while significant, are being addressed. The utility business itself appears stable. Investors should hold, awaiting the full 2025 Form 10-K with restated financials and the detailed remediation plan for internal controls before making further decisions. The long-term outlook for the core utility business remains intact based on reaffirmed CAGR guidance, but the accounting issues introduce short-term uncertainty and reputational risk.

Keywords

Southwest Gas Holdings, SWX, SEC filing, 8-K, financial restatement, income tax errors, deferred tax liabilities, material weakness, internal controls, Centuri divestiture, financial reporting, utility, natural gas