Business context and reporting period
Southwest Gas Holdings, Inc. filed this combined, unaudited Form 10-Q for the quarter ended March 31, 2024. Results cover its regulated natural gas distribution business, Southwest Gas Corporation, and utility infrastructure services business, Centuri. The quarter is seasonally strong for gas distribution and typically Centuri’s weakest quarter.
In April 2024, after the reporting period, Centuri completed an IPO and concurrent private placement. Southwest Gas Holdings retained approximately 81% ownership and continues to consolidate Centuri.
Key financial metrics
Amounts below are consolidated Southwest Gas Holdings unless otherwise indicated; dollars in millions except per-share amounts.
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Operating revenue | $1,581.0 | $1,603.3 |
| Operating income | $158.1 | $135.2 |
| Net income attributable to Holdings | $87.7 | $45.9 |
| Basic and diluted EPS | $1.22 | $0.67 |
| Operating cash flow | $543.7 | $(185.7) |
| Construction expenditures and property additions | $221.2 | $219.1 |
- Natural gas distribution revenue was $1,052.9 million versus $914.9 million. Its non-GAAP operating margin, defined as regulated revenue less gas costs, was $422.9 million versus $413.7 million. Utility operating income was $184.3 million versus $185.1 million; net income was $135.8 million versus $134.7 million.
- Centuri revenue fell 19% to $528.0 million. It recorded an operating loss of $21.9 million versus operating income of $11.7 million, and a segment net loss of $36.2 million versus $11.9 million.
- At March 31, consolidated cash was $458.0 million; total assets were $11.9 billion. Long-term debt, net of current maturities, was $4.65 billion, current maturities were $42.8 million, and short-term debt was $644.0 million. Southwest Gas Corporation separately reported $436.4 million cash and $3.50 billion long-term debt, with no borrowings on its $400 million credit facility.
- Southwest’s under-collected purchased-gas balance was $198.7 million at quarter-end, down from $552.9 million at December 31, 2023. Management attributed the significant cash balance and cash-flow improvement mainly to collections and lower balances under gas-cost recovery mechanisms.
Material changes versus the prior comparable period
- Consolidated revenue declined 1.4%, as higher regulated revenue was more than offset by lower Centuri revenue. Regulated revenue includes gas costs passed through to customers, so revenue changes do not necessarily indicate a corresponding change in margin.
- Consolidated net income and EPS increased substantially. The prior-year quarter included $71.2 million of goodwill impairment and loss-on-sale charges, principally related to the MountainWest disposition, and a higher effective tax rate. The effective tax rate was 16.3% in Q1 2024 versus 37.6% in Q1 2023.
- Centuri’s revenue and profitability weakened amid unfavorable weather, lower storm-restoration activity, offshore-wind project timing, customer budget constraints, and reduced work volumes. Q1 2024 also included $8.3 million of combined severance and strategic-review costs.
- Operating cash flow improved by $729.5 million year over year, principally reflecting changes in deferred gas costs and working capital. Investing cash flow was no longer boosted by the $1.06 billion MountainWest sale proceeds received in Q1 2023.
Outlook, commentary, risks and unusual items
- No specific consolidated earnings or EPS guidance is provided in the filing. Management estimates Southwest natural gas distribution construction expenditures of approximately $2.4 billion over 2024–2026, including about $830 million in 2024.
- Southwest’s Nevada rate case resulted in an approximately $59 million annual revenue increase, effective April 2024. Arizona and Great Basin rate cases were filed requesting increases of approximately $126 million and $16 million, respectively; outcomes and timing remain subject to regulatory processes.
- The company maintained its quarterly dividend at $0.62 per share, effective with the June 2024 payment. The Board expects to reevaluate the dividend after Centuri’s separation.
- Centuri’s April IPO and private placement generated approximately $329 million in net proceeds; about $316 million was used to repay debt. Holdings intends to further reduce its Centuri ownership through possible market sales, a distribution to shareholders, an exchange, or a combination of these approaches.
- Centuri had approximately $1.1 billion outstanding under its secured revolving-credit and term-loan facility at March 31, 2024. Its leverage covenants were amended in March 2024, including higher temporary maximum leverage ratios for 2024 quarters. Centuri subsequently used IPO proceeds to reduce debt.
- Key risks include regulatory timing and recovery of costs, gas-price and purchased-gas cash-flow swings, access to financing and interest-rate exposure, construction and labor costs, and Centuri’s weather-, customer-award-, project-mix- and execution-sensitive results. Southwest’s $400 million credit facility expires in April 2025; Holdings’ $550 million term loan matures in October 2024.
- Management said legal proceedings were not expected to have a material adverse effect. No material market-risk changes were reported. Management identified two prior-period accounting misstatements—gas-cost accounting and the MountainWest impairment estimate—but concluded they were not material to earlier periods or to the periods of correction.
Important facts for investors to verify
- Centuri’s post-IPO debt reduction, covenant compliance, standalone performance, and the timing, method, and tax consequences of any further separation.
- Progress and regulatory decisions on the Arizona and Great Basin rate requests, and the expected contribution from Nevada’s approved rate increase.
- Whether the large Q1 operating-cash-flow increase and cash balance persist as purchased-gas balances and customer collections normalize.
- Near-term financing and refinancing plans, particularly the Holdings term loan due in October 2024 and Southwest’s facility expiring in April 2025.
- Centuri’s ability to restore margins and volumes after weather, project timing, customer-budget constraints, and elevated severance and strategic-review costs.