Southwest Gas (SWX) - 2025 Q2 - Quarterly Results

Executive Summary and Key Highlights Southwest Gas Holdings reported improved Q2 2025 operational and financial performance, reducing debt by over $470 million, strengthening its balance sheet, and advancing its pure-play natural gas utility transformation with positive regulatory developments - The company is transforming into a premier, pure-play, fully regulated natural gas business by reducing its ownership in Centuri to approximately 52%[2] - Proceeds from two Centuri follow-on offerings were used to reduce debt by over $470 million, significantly strengthening the balance sheet[2][7] - Positive regulatory developments include the approval of a capital tracker program in Arizona and new legislation in Nevada (Senate Bill 417) allowing for alternative ratemaking[2][7] - The Great Basin Gas Transmission Company's 2028 Expansion Project saw binding open season capacity demand increase to approximately 1.76 Bcf per day, up from 1.25 Bcf[3][7] - The Natural Gas Distribution utility achieved a return on period-end equity (ROE) of 8.3% for the trailing 12 months ended June 30, 2025, and added approximately 40,000 new customers, a 1.8% growth rate[7] Consolidated Financial Performance Consolidated GAAP net loss of $12.9 million in Q2 2025 was driven by Centuri stock sale tax expenses, while adjusted non-GAAP net income increased 71% to $38.6 million reflecting strong utility performance Consolidated Financial Results (Q2 & H1 2025 vs 2024) | (In thousands, except per share items) | Three Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | :--- | :--- | | | 2025 | 2024 | 2025 | 2024 | | Net income (loss) | $ (12,883) | $ 18,333 | $ 100,987 | $ 106,070 | | Adjusted net income | $ 38,588 | $ 22,533 | $ 157,959 | $ 120,994 | | Consolidated (loss) earnings per share | $ (0.18) | $ 0.25 | $ 1.40 | $ 1.47 | | Adjusted consolidated earnings per diluted share | $ 0.53 | $ 0.31 | $ 2.19 | $ 1.68 | Net Income Reconciliation (Q2 2024 to Q2 2025) | (In millions) | Three Months Ended | Six Months Ended | | :--- | :--- | :--- | | Net income – June 30, 2024 | $ 18.3 | $ 106.1 | | Increase in Southwest Gas net income | 6.1 | 13.2 | | Improvement in Centuri net income/loss | 0.7 | 17.0 | | Increase in corporate and administrative net loss | (38.0) | (35.3) | | Net (loss) income – June 30, 2025 | $ (12.9) | $ 101.0 | - The Q2 2025 GAAP net loss was primarily due to tax expenses recognized on the company's investment in Centuri following stock sales, which eliminated the ability to include Centuri in consolidated tax returns[8][14] Segment Performance Analysis Natural Gas Distribution drove operational earnings growth, Centuri improved net income, while Corporate and Administrative reported a larger GAAP net loss due to Centuri divestiture tax impacts, though its adjusted net loss improved Southwest Gas / Natural Gas Distribution Natural Gas Distribution's Q2 2025 net income increased by $6.1 million, driven by a $26.6 million operating margin increase from rate relief and customer growth, partially offset by higher expenses - Q2 2025 Performance Drivers vs. Q2 2024: * Operating Margin: Increased by $26.6 million, with $23.7 million from rate relief and $2.5 million from customer growth * O&M Expense: Increased by $7.0 million, mainly from higher employee-related costs * Depreciation & Amortization: Increased by $9.3 million due to a 7% increase in average gas plant in service * Interest Expense: Increased by $4.9 million, primarily due to interest on over-collected PGA balances[10] - Year-to-Date 2025 Performance Drivers vs. 2024: * Operating Margin: Increased by $65.5 million, with $51.1 million from rate relief and $7.6 million from customer growth * Depreciation & Amortization: Increased by $19.0 million, driven by a 7% increase in average gas plant in service * Net Interest Deductions: Increased by $13.1 million[13] Centuri / Utility Infrastructure Services Centuri's Q2 2025 net income improved by $0.7 million due to lower interest expense, with year-to-date net loss improving by $17.0 million and a strong 2.3x book-to-bill ratio - Q2 2025 net income improved by $0.7 million and adjusted net income improved by $2.9 million compared to Q2 2024, largely due to lower interest expense[11] - Year-to-date net loss improved by $17.0 million, driven by higher work volume and lower interest expense[12] - Achieved a strong book-to-bill ratio of 2.3x in the first half of 2025, with customer awards totaling approximately $3.0 billion[12] Corporate and Administrative Corporate and Administrative's Q2 GAAP net loss increased by $38.0 million due to Centuri stock sale tax expenses, while its adjusted net loss decreased by $7.0 million from lower operating and interest expenses - Q2 GAAP net loss increased by $38.0 million, primarily due to tax expenses related to the sale of Centuri stock[14] - Q2 Adjusted net loss decreased by $7.0 million compared to the prior year, driven by lower operating and interest expenses[14] - Year-to-date GAAP net loss increased by $35.3 million, while adjusted net loss decreased by $8.2 million for similar reasons as the quarterly results[15] Guidance and Strategic Updates The company reaffirmed 2025 guidance for Natural Gas Distribution, projecting $265-$275 million net income and $880 million capital expenditures, while reiterating commitment to Centuri's full separation Southwest Gas / Natural Gas Distribution Segment Guidance | Metric | 2025 Guidance (million USD) | 2025 - 2029 CAGR/Total | | :--- | :--- | :--- | | Net Income | $265 - $275 | 6.0% - 8.0% (Adjusted Net Income CAGR) | | Capital Expenditures | ~$880 | $4,300 (Total) | | Rate Base CAGR | N/A | 6.0% - 8.0% | - The company remains committed to pursuing a pure-play utility strategy through a complete disposition of its remaining interest in Centuri[17] Appendix: Financial Tables and Statistics This appendix provides detailed financial data, including consolidated earnings, non-GAAP reconciliations, and key gas segment statistics, notably an 8.3% gas segment ROE and 9.89% authorized return on common equity Consolidated Earnings Results Consolidated operating revenues for Q2 2025 were $1.12 billion, down from $1.18 billion in Q2 2024, with year-to-date revenues at $2.42 billion Consolidated Operating Revenues and Net Income | Period | 2025 (thousands USD) | 2024 (thousands USD) | | :--- | :--- | :--- | | Q2 Operating Revenues | $1,120,370 | $1,182,168 | | Q2 Net Income (Loss) | $(12,883) | $18,333 | | H1 Operating Revenues | $2,416,867 | $2,763,124 | | H1 Net Income | $100,987 | $106,070 | Non-GAAP Reconciliations Detailed reconciliations adjust GAAP net income to non-GAAP adjusted net income, with Q2 2025 key adjustments including $45.4 million income tax effect, $4.9 million amortization, and $2.3 million separation costs Reconciliation of Q2 2025 Net Loss to Adjusted Net Income | (In thousands) | Amount | | :--- | :--- | | Net loss applicable to Southwest Gas Holdings (GAAP) | $ (12,883) | | Plus: Strategic review and Centuri separation | 2,273 | | Plus: Amortization of intangible assets | 4,932 | | Plus: Professional fees associated with one-time events | 834 | | Plus: Income tax effect on Centuri investment | 45,397 | | Less: Income tax effect of adjustments above | (1,965) | | Adjusted net income applicable to Southwest Gas Holdings | $ 38,588 | Financial and Operational Statistics Key statistics include the gas segment's trailing twelve-month ROE of 8.3%, an authorized return on common equity of 9.89%, and total system throughput of 116.6 million dekatherms for H1 2025 Key Financial Statistics (TTM) | Metric | Value (%) | | :--- | :--- | | Twelve months to date return on equity -- total company | 5.5 % | | Twelve months to date return on equity -- gas segment | 8.3 % | | Common stock dividend yield at quarter end | 3.3 % | System Throughput by Customer Class (Six Months Ended June 30) | (In dekatherms) | 2025 | 2024 | | :--- | :--- | :--- | | Residential | 49,061,612 | 52,060,127 | | Small commercial | 19,659,922 | 20,010,847 | | Transportation | 39,595,624 | 42,816,082 | | Total system throughput | 116,611,869 | 123,528,957 |