Business context and reporting period
Southwest Gas Holdings, Inc. filed a combined 10-K with its wholly owned regulated natural-gas utility, Southwest Gas Corporation. The fiscal year ended December 31, 2023; figures below are annual, not fourth-quarter-only. Following the February 14, 2023 sale of MountainWest, the company’s principal businesses are natural-gas distribution in Arizona, Nevada and California, and utility infrastructure services through Centuri.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Consolidated revenue | $5.434 billion | $4.960 billion |
| Net income attributable to Holdings | $150.9 million | $(203.3) million |
| Basic and diluted EPS | $2.13 | $(3.10) |
| Cash from operating activities | $509.2 million | $407.5 million |
| Capital expenditures and property additions | $872.5 million | $859.4 million |
| Cash and cash equivalents at year-end | $106.5 million | $123.1 million |
- Natural-gas distribution: revenue was $2.500 billion; operating margin, a company-defined non-GAAP measure, was $1.253 billion, up 9% from $1.146 billion. Segment contribution to consolidated net income rose to $242.2 million from $154.4 million. Southwest served 2.226 million customers and added about 40,000 meters.
- Centuri: revenue reached $2.899 billion, up 5%; segment contribution to consolidated net income was $19.7 million versus $2.1 million. Operating income increased to $136.4 million from $75.7 million, while net interest deductions rose to $97.5 million from $61.4 million. Centuri reported $86.4 million of storm-restoration revenue and $120.4 million more offshore-wind revenue than in 2022.
- Debt and liquidity: Holdings reported $4.610 billion of long-term debt, $628.5 million of short-term debt and $42.6 million of current long-term maturities at year-end. Centuri had about $1.071 billion outstanding on its secured credit facility, with approximately $246 million available under its revolver, net of letters of credit. Southwest had no year-end credit-facility borrowings. Its $552.9 million under-collected purchased-gas balance was a regulatory asset; recovery timing affects cash needs, although gas costs generally do not directly affect margin.
- Cash flow and investment: the company received $1.022 billion of net proceeds from the MountainWest sale. Southwest’s 2023 construction expenditures were $762.1 million, funded in part by $391.5 million of operating cash flow and a $530 million parent equity contribution.
Material changes versus the prior comparable period
- Holdings returned to profitability from a 2022 loss, when results included a substantial MountainWest impairment. 2023 included $71.2 million in consolidated goodwill impairment and loss-on-sale expense; MountainWest-related items included an additional $21 million loss adjustment and a $28.4 million settlement charge.
- Natural-gas operating margin benefited from customer growth, rate relief and regulatory-program recoveries. Higher depreciation, operating costs and interest expense partly offset the gains. An $8 million first-quarter 2023 adjustment reduced net cost of gas sold; management said the related prior-period misstatements were not material.
- Centuri’s higher revenue and operating income reflected stronger electric infrastructure work, offshore wind and storm restoration, as well as lower fuel prices and work-mix changes. Gas infrastructure revenue declined, primarily from lower volumes under certain Canadian customer agreements.
- MountainWest’s sale reduced consolidated assets and debt-related financing needs; the sale closed in February 2023 for $1.5 billion of total enterprise value, subject to adjustments. The company issued 4.1 million common shares in March 2023 for $238.4 million in net proceeds.
Outlook, commentary and risks
- Management expects Southwest to invest approximately $2.4 billion in construction during 2024–2026, including about $830 million in 2024. These plans depend on financing availability, regulatory recovery and operating conditions.
- Southwest filed an Arizona general rate case in February 2024 requesting approximately $125.6 million in additional annual revenue, with rates anticipated in the second quarter of 2025. A Nevada case was pending, with a $65.6 million staff/consumer-advocate stipulation on certain issues and rates anticipated in April 2024.
- The company planned a Centuri IPO for spring/summer 2024 as a path toward separation. Completion remained subject to market conditions, SEC review and final Board approval. The IRS had declined to rule on certain tax questions for a potential separation; a taxable transaction could create taxes and other costs. IPO proceeds were expected primarily to repay Centuri debt.
- The quarterly dividend was $0.62 per share in 2023; the Board retained that rate for the June 2024 payment. Future dividends remain subject to Board review, including after a Centuri separation.
- Key risks include regulatory lag or disallowance of cost recovery; gas-price spikes and associated working-capital borrowing; inflation, interest rates and labor costs; Centuri customer concentration, contract execution, materials availability and covenant headroom; severe weather and pipeline safety; and climate-related policy and cybersecurity threats. Centuri’s revolving-credit covenants were amended for 2024, and the company disclosed limited dividend capacity from Centuri.
- Auditors issued an unqualified opinion on Holdings’ financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal controls; the auditor identified regulatory-asset recoverability as a critical audit matter.
Important facts for investors to verify
- Whether and when the Centuri IPO or another separation occurs, its tax treatment, proceeds and resulting debt reduction.
- Progress and regulatory outcomes for the Arizona and Nevada rate cases, and actual collection of the $552.9 million purchased-gas balance.
- Centuri’s ability to sustain improved operating performance, execute fixed-price work and comply with its amended credit covenants.
- Funding for planned utility capital spending, refinancing of Holdings’ $550 million term loan due October 2024, and access to capital markets.
- The composition and recurrence of 2023 gains and charges, including regulatory carrying-charge income, company-owned life insurance results and MountainWest-related items.
- Whether the company’s construction spending, cash flows and dividend policy remain supportable after any Centuri separation.