Southwest Gas (SWX) - 2024 Q2 - Quarterly Results

Q2 2024 Financial & Operational Highlights Southwest Gas Holdings reported a decrease in consolidated net income for Q2 2024, yet its utility segment performed strongly, leading to raised full-year guidance, alongside the successful Centuri IPO and a robust cash position Consolidated Financial Results Southwest Gas Holdings reported a decrease in consolidated net income for Q2 2024 compared to the prior year, with GAAP net income at $18.3 million and adjusted net income at $22.5 million, though the core utility segment demonstrated strong performance, leading the company to raise its full-year 2024 utility net income guidance by $5 million Q2 2024 Consolidated Financial Performance | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net Income | $18.3 million | $28.9 million | | Diluted EPS | $0.25 | $0.40 | | Adjusted Net Income | $22.5 million | $38.8 million | | Adjusted Diluted EPS | $0.31 | $0.54 | - The company raised its full-year 2024 utility net income guidance by $5 million to a new range of $233 million to $243 million, citing strong performance in the first six months[2] - The utility segment, Southwest Gas Corporation, reported a 44.5% increase in net income, reaching $27.6 million for Q2 2024, up from $19.1 million in Q2 2023[1] Key Operational Achievements The company successfully completed the Initial Public Offering (IPO) of its subsidiary, Centuri, utilizing the net proceeds of approximately $328 million to significantly reduce Centuri's debt, ending the quarter with a strong cash position of nearly $600 million and expecting limited need for capital market activities through the end of 2026 - Successfully completed the IPO of Centuri Holdings, Inc. (NYSE: CTRI), with net proceeds of approximately $328 million used primarily to repay Centuri's debt[3] - Finished the second quarter with a strong cash position of nearly $600 million[4] - The company continues to expect very limited capital markets needs through the end of 2026[2][4] Business Segment Performance This section details the financial performance of Southwest Gas's Natural Gas Distribution and Centuri's Utility Infrastructure Services segments, highlighting key drivers and challenges Southwest / Natural Gas Distribution The Natural Gas Distribution segment delivered strong performance, with Q2 2024 net income increasing by 44.5% to $27.6 million, driven by rate relief from the Nevada general rate case, continued customer growth of 1.8%, and disciplined cost management, with O&M expenses growing less than 2% year-to-date Natural Gas Distribution Net Income | Period | Net Income | | :--- | :--- | | Q2 2024 | $27.6 million | | Q2 2023 | $19.1 million | | YTD 2024 | $163.4 million | | YTD 2023 | $153.8 million | - An annual revenue increase of approximately $59 million was approved in Nevada, effective April 2024, which positively impacted results[6] - Customer growth continued with approximately 40,000 new meter sets added in the last 12 months, representing a 1.8% increase[6] - Operations and maintenance (O&M) expenses demonstrated cost discipline, growing less than 2% in the first six months of 2024 compared to the prior year period[6] Second Quarter 2024 Performance Analysis The segment's Q2 net income growth was primarily driven by a $10.8 million increase in operating margin, stemming from rate relief in Nevada and California and customer growth, partially offset by a $4.9 million increase in O&M expenses and a $4.5 million decrease in other income - Operating margin increased by $10.8 million, with rate relief contributing ~$18 million and customer growth adding $2 million[9] - O&M expenses rose by $4.9 million due to higher labor, benefits, and insurance costs[9] - Depreciation and amortization decreased by $13.2 million, largely due to a reduction in regulatory account amortization[9] Year-To-Date 2024 Performance Analysis For the first six months of 2024, net income rose to $163.4 million from $153.8 million in the prior year, mainly due to a $20 million rise in operating margin from rate relief ($28 million) and customer growth ($7 million), while O&M expenses increased by a modest $4.6 million (1.8%) - Year-to-date operating margin increased by $20 million, driven by combined rate relief of ~$28 million and customer growth of ~$7 million[10] - O&M expenses increased by $4.6 million (1.8%) year-to-date, reflecting cost control efforts[10] - Other income decreased by $4.9 million, primarily due to an $8.1 million decline in interest income from lower regulatory account balances[10] Centuri / Utility Infrastructure Services Centuri's financial performance declined significantly in Q2 2024, with revenues falling 17% to $672 million and net income dropping to $5.1 million from $18.8 million in the prior-year quarter, attributed to lower work volumes and the timing of large projects that benefited 2023 results, though the company is implementing a business review expected to generate over $29 million in annualized savings Centuri Financial Performance | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Revenues | $672 million | $806 million | | Net Income | $5.1 million | $18.8 million | | Adjusted Net Income | $8.0 million | $24.7 million | - Paid down $316 million of debt using proceeds from its successful IPO in April 2024[7] - A two-phase business review is expected to generate over $29 million in run-rate annualized savings in 2025[7] Second Quarter 2024 Performance Analysis Centuri's Q2 revenues decreased by $133.7 million (17%) year-over-year, driven by volume reductions in both electric and gas infrastructure services, attributed to reduced work under existing Master Service Agreements (MSAs) and the timing of bid projects compared to a strong prior-year quarter - Revenues decreased by 17% ($133.7 million), with electric services revenue down $67.1 million and gas services revenue down $58.3 million[12] - The revenue decline was driven by a reduction in net volume of work under existing MSAs and the timing of a bid project[12] - Interest expense decreased by $1.9 million due to a lower average debt balance following the IPO[12] Year-To-Date 2024 Performance Analysis For the first six months of 2024, Centuri recorded a net loss of $31.2 million, compared to net income of $6.9 million in the same period of 2023, driven by an 18% ($259 million) decrease in revenues due to lower volumes under MSAs and reduced offshore wind activity - Year-to-date revenues decreased by 18% ($259 million), primarily from a $148.9 million drop in Electric revenues and a $95.7 million drop in Gas revenues[14] - The segment reported a net loss of $31.2 million for the first six months of 2024, compared to net income of $6.9 million in the prior-year period[14] Corporate Strategy & Outlook This section outlines the company's updated financial guidance for its utility segment, reaffirms capital expenditure plans, and provides an update on the ongoing separation of Centuri Guidance and Outlook The company has raised its 2024 net income guidance for the Southwest Gas utility segment to a range of $233 - $243 million, and reaffirmed its multi-year capital expenditure plans and growth targets, projecting a 6.5% - 7.5% compound annual growth rate (CAGR) for its rate base from 2024 to 2026 Southwest / Natural Gas Distribution Segment Guidance | Metric | Current Estimates | | :--- | :--- | | 2024 Southwest Net Income | $233 - $243 million | | 2024 Capital Expenditures | ~$830 million | | 2024 - 2026 Capital Expenditures | $2,400 million | | 2024 - 2026 Southwest Adj. Net Income CAGR | 9.25% - 11.25% | | 2024 - 2026 Southwest Rate Base CAGR | 6.5% - 7.5% | Centuri Separation Update Southwest Gas successfully closed Centuri's IPO on April 22, 2024, at $21.00 per share, and while Southwest Gas now holds an 81% ownership stake, it remains committed to a complete separation and is evaluating options such as a sale of shares, a distribution to its own shareholders, or an exchange offer to achieve its goal of becoming a pure-play utility - Centuri's IPO closed on April 22, 2024, at a price of $21.00 per share, raising approximately $328 million in net proceeds[15] - Post-IPO, Southwest Gas owns approximately 81% of Centuri and will continue to consolidate its financial results[3][16] - The company remains committed to a complete separation of Centuri and is considering various methods, including share sales or distributions, to achieve a pure-play utility strategy[16] Appendix: Financial Tables and Reconciliations This appendix provides detailed financial tables, including unaudited operating results by segment, reconciliations of non-GAAP measures, and supplementary operating data for the gas distribution segment Summary Unaudited Operating Results This section provides a consolidated overview of the company's operating results, breaking down the contribution to net income from each business segment for the second quarter and year-to-date periods of 2024 and 2023 Contribution to Net Income by Segment (In thousands) | Segment | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Natural Gas Distribution | $27,594 | $19,120 | $163,419 | $153,816 | | Utility Infrastructure Services | $5,054 | $18,818 | $(31,176) | $6,946 | | Corporate and Administrative | $(14,315) | $(9,060) | $(26,173) | $(69,685) | | Total Net Income | $18,333 | $28,878 | $106,070 | $74,789 | Reconciliation of Non-GAAP Measures This section details the adjustments made to GAAP net income to arrive at the company's reported adjusted net income, where for Q2 2024, key adjustments included adding back costs related to the Centuri separation and the amortization of intangible assets, resulting in an adjusted net income of $22.5 million Q2 2024 Reconciliation of GAAP to Adjusted Net Income (In thousands) | Description | Amount | | :--- | :--- | | Net Income (GAAP) | $18,333 | | Strategic review and Centuri separation | $181 | | Amortization of intangible assets | $5,685 | | Income tax effect of adjustments | $(1,666) | | Adjusted Net Income (Non-GAAP) | $22,533 | Supplementary Operating Data This section provides key operational metrics for the gas distribution segment, where for the first six months of 2024, total system throughput was 123.5 million dekatherms, a decrease from the prior year, partly reflecting warmer weather as indicated by a lower number of actual heating degree days compared to 2023 System Throughput by Customer Class (Six Months Ended June 30, In dekatherms) | Class | 2024 | 2023 | | :--- | :--- | :--- | | Residential | 52,060,127 | 62,078,658 | | Small commercial | 20,010,847 | 21,951,575 | | Large commercial | 5,789,710 | 5,800,396 | | Industrial / Other | 2,852,191 | 3,277,448 | | Transportation | 42,816,082 | 41,660,804 | | Total | 123,528,957 | 134,768,881 | - Actual heating degree days were 1,229 for the period, lower than the 1,546 recorded in the prior year, indicating warmer weather[29]