Southwest Gas Holdings, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The combined filing covers Southwest Gas Holdings, Inc. and its wholly owned utility subsidiary, Southwest Gas Corporation. The financial statements and MD&A are incorporated by reference from the 2021 Annual Report to Stockholders and are not included in the supplied filing text; therefore, consolidated revenue, net income, cash flow, margins, and full-period liquidity figures are not clear from this text.
Business context and key metrics
- Natural gas distribution: Southwest serves Arizona, Nevada, and California. It served 2.159 million customers at year-end, adding 37,000 customers in 2021; management expected similar growth in 2022. Residential and small commercial customers represented 85% of distribution operating margin; transportation customers represented 11%.
- Utility infrastructure services: Centuri provides gas and electric utility construction and maintenance services in the U.S. and Canada. About 88% of 2021 revenue was earned under unit-price or time-and-materials contracts. Fixed-price-contract backlog was approximately $106 million at year-end.
- Pipeline and storage: The company acquired Questar Pipelines on December 31, 2021, adding more than 2,000 miles of regulated interstate pipelines and storage operations in Utah, Wyoming, and Colorado, including 56 Bcf of storage capacity. The acquisition closed on the final day of the year, so the acquired business contributed no revenue to the reported 2021 period.
- Assets and debt: Southwest’s gas plant totaled $9.1 billion at year-end. The company disclosed approximately $2.125 billion of consolidated debt maturities in 2022: a $250 million Southwest term loan, $275 million of notes, and a $1.6 billion acquisition-related term loan. Variable-rate debt totaled $3.31 billion at year-end; a hypothetical 1 percentage-point rate increase would raise annual interest expense by approximately $33.1 million, assuming balances remain constant.
- Dividend: In February 2022, the Board raised the quarterly dividend from $0.595 to $0.62 per share, a 4.2% increase effective with the June 2022 payment.
Material changes and comparison with prior periods
- The company added a third reporting segment, pipeline and storage, following the Questar Pipelines acquisition at year-end. It also acquired Riggs Distler through Centuri in August 2021, expanding Centuri’s electric infrastructure and storm-restoration capabilities. The filing says Riggs Distler represented 4% of consolidated revenue for 2021; complete comparable-period financial results are not provided in the supplied text.
- Variable-rate debt increased to $3.31 billion from $560.3 million in 2020, reflecting higher balances across Southwest, Centuri, and corporate debt. The related estimated annual interest-expense sensitivity to a 1-point rate change rose to $33.1 million from $5.6 million.
- Southwest added 37,000 customers in 2021. Transportation volumes were 95 million dekatherms, down from 98 million in 2020 and 101 million in 2019.
Outlook, risks, contingencies, and unusual items
- Refinancing and liquidity: Management planned to address the 2022 maturities through a mix of equity or equity-linked instruments, long-term borrowing, and debt securities, but gave no assurance that financing would be available on acceptable terms. Capital-market volatility and rising interest rates were cited as risks. Higher gas prices can also increase working-capital needs even where purchased-gas costs are generally recoverable through customer rates.
- Strategic separation: On March 1, 2022, after the reporting date, the Board authorized management to pursue a separation of Centuri, targeted within nine to twelve months. The structure, timing, and potential benefits were not assured.
- Regulation and energy transition: Rate-case outcomes, timing of cost recovery, pipeline-safety requirements, decarbonization policies, and climate regulation could affect earnings, costs, or demand. Southwest reported pending Arizona and Nevada general rate cases. Management said decoupling mechanisms help stabilize annual utility operating margin, but their continuation depends on regulators.
- Acquisition integration and concentration: MountainWest was relying on Dominion services under a transition agreement for up to 12 months while the company developed its operating model. Nearly half of MountainWest’s expected revenue came from two customers; more than half of Centuri’s 2021 revenue came from nine customers.
- Legal matter: A Southwest pipeline leak and explosion in August 2021 injured four people and damaged property. The company recorded a $5 million liability, equal to its maximum self-insured retention for the policy year; any loss above that amount was not estimable when the filing was issued.
- Other risks: The filing highlights weather and seasonality, labor availability and union relations at Centuri, construction-contract cost overruns, cybersecurity, inflation, COVID-19 impacts, activist-investor activity, and shareholder litigation related to the Questar acquisition. Management reported no material overall financial impact from COVID-19 to date.
Important facts for investors to verify
- Review the incorporated annual-report financial statements and MD&A for 2021 revenue, earnings, cash flow, margins, cash balances, total debt, and year-over-year results; these values are not clear in the supplied filing text.
- Track the execution and terms of refinancing the approximately $2.125 billion of 2022 maturities, including potential dilution, interest costs, and effects on credit ratings.
- Assess progress, costs, and expected financial effects of integrating Questar Pipelines and Riggs Distler, as well as the proposed Centuri separation.
- Monitor regulatory rate-case decisions, recoverability of gas and infrastructure costs, and the outcome and insurance coverage of the August 2021 explosion claims.