Southwest Gas Holdings, Inc. (SWX)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered record consolidated net income of $113.9M ($1.58 diluted EPS) and adjusted net income of $119.4M ($1.65 adjusted EPS), up 21% YoY; utility ROE on a trailing basis reached 8.2% as regulatory execution and customer growth drove operating margin gains .
• Revenue declined YoY due to pass-through gas costs, but utility operating margin rose $38.9M, led by ~$27M of rate relief across AZ/NV/CA and ~$5M from customer growth (≈40,000 new meter sets LTM) .
• Versus S&P Global consensus, EPS slightly missed (actual $1.65 vs $1.66* adjusted basis), revenue missed (actual $1.30B vs $1.50B*), while EBITDA beat (actual $332.7M* vs $306.7M*), reflecting margin strength despite lower top line; guidance was reaffirmed for 2025 utility net income ($265–$275M), ~$880M 2025 capex, and 2025–2029 adjusted NI and rate base CAGR of 6–8% .
• Strategic catalyst: management reiterated commitment to fully separate Centuri and highlighted an unopposed Arizona System Integrity Mechanism (SIM) settlement with a final decision expected in Q3; Great Basin launched a binding open season to assess expansion, and Nevada legislation (SB 417) progresses toward alternative ratemaking—all supportive of reducing regulatory lag and funding growth .

What Went Well and What Went Wrong

• What Went Well

  • Regulatory wins: AZ general rate case delivered ~$80.2M annual revenue increase and raised allowed ROE to 9.84% on 48.5% equity layer; utility ROE LTM at 8.2% .
  • Margin expansion: utility operating margin increased by $38.9M YoY, driven by combined rate relief ($27M), customer growth ($5M), regulatory collections ($4.8M) and Nevada VIER ($3.3M) .
  • Cost discipline: O&M decreased $1.5M YoY in Q1 on lower contractor/professional services, supporting management’s “flat O&M per customer” objective (nonlinear trajectory) .
  • Quote: “Southwest Gas finished the quarter with record net income and slightly lower quarter-over-quarter O&M expenses…we are confident in reaffirming…net income range of $265 million to $275 million for the full year.” — CEO Karen Haller .

• What Went Wrong

  • Lower other income: down $8.8M, primarily from a ~$5.3M decline in COLI and ~$4M lower interest income on regulatory balances as PGA moved from receivable to liability .
  • Higher interest expense: up $8.2M YoY at the utility due to interest incurred on over-collected PGA and regulatory treatment of Nevada VIER bonds .
  • Weather/throughput softness: total system throughput fell to 73.1M dekatherms vs 76.8M YoY amid fewer heating degree days (883 vs 991), pressuring volumetric metrics despite decoupling .
  • Analyst concern: timing/impact of SIM approval and Centuri separation path remain variables; management reiterated options but avoided specifics pending market conditions and approvals .

Financial Results

Key drivers of margin and earnings are detailed in the press release reconciliation; operating margin +$38.9M YoY, O&M −$1.5M, D&A and taxes +$9.8M, other income −$8.8M, interest expense +$8.2M .

Guidance Changes

Management also affirmed plans to extend the $550M term loan beyond July 31, 2025, and amend/extend the holdings revolver in H2 2025 .

Earnings Call Themes & Trends

Management Commentary

• “We are confident in reaffirming each of Southwest Gas’s previously communicated guidance ranges including our net income range of $265 million to $275 million for the full year.” — Karen Haller, CEO .
• “The proposal [SIM] will allow us to implement a surcharge each year to recover qualifying nonrevenue-producing investments…approximately 40% of the company’s annual infrastructure-related capital investments in Arizona.” — Justin Brown, President, Southwest Gas Corp. .
• “In the first quarter of 2025, utility operating margin increased by $38.9 million…primarily driven by the benefits of $27 million of combined rate relief…customer growth drove an additional $5 million…VIER added approximately $3 million…regulatory account collections nearly $5 million.” — Rob Stefani, CFO .
• “We remain committed to fully separating Centuri…we may ultimately separate through taxable sell-downs or share exchanges…we’ve preserved the alternative of a tax-free spin-off.” — Karen Haller .

Q&A Highlights

• Centuri separation path/timing: Management reiterated commitment; S-3 eligibility streamlines potential sell-downs; form (sell-down, exchange, spin) depends on market conditions .
• SIM financial impact: If approved, SIM covers ~40% of non-revenue capex in AZ; timing/approved projects will shape future guidance updates; current plan excludes SIM benefits .
• PGA over-collection and liquidity: Accelerated Nevada refunds requested; cash balances can support faster return; ATM usage could be obviated by Centuri sell-down proceeds .
• Great Basin open season: Binding through May; incremental capex details confidential until close; potential expansion in 2028 timeframe .
• Controls/earnings delay: Centuri issue resolved; no changes to Southwest Gas controls were required .

Estimates Context

Q1 2025 vs S&P Global Wall Street Consensus:

• EPS: Actual $1.65 vs consensus $1.66* (slight miss by ~$0.01) .
• Revenue: Actual $1.296B vs consensus $1.496B* (miss) .
• EBITDA: Actual $332.7M* vs consensus $306.7M* (beat).

Number of estimates: Revenue 3*, EPS 1*. Values retrieved from S&P Global.

Implications: Despite top-line miss driven by pass-through gas dynamics, utility margin strength and capex-backed growth underpin reaffirmed guidance; estimate revisions may modestly increase EBITDA expectations while leaving FY EPS range intact given regulatory progress and O&M control .

Key Takeaways for Investors

• Utility margin expansion and constructive rate case outcomes are driving earnings growth despite volatile gas cost pass-through in revenues; reaffirmed FY2025 utility NI guidance adds confidence .
• Regulatory catalysts in 2025: AZ SIM decision expected in Q3, CA rate case progressing, NV SB 417 moving—all supportive of reducing lag and accelerating recovery of safety/reliability investments .
• Separation of Centuri remains a near-term strategic catalyst; a taxable sell-down/exchange could improve holding company liquidity and potentially avoid ATM issuance, supportive of equity valuation .
• Balance sheet and liquidity robust (> $1B liquidity; ~$400M+ cash), enabling execution of ~$880M 2025 capex and $4.3B 2025–2029 plan without significant new utility debt until spring 2026 .
• Watch weather/throughput impacts and regulatory account dynamics (PGA flip to liability), which affect other income and interest expense; decoupling mitigates profitability effects .
• Dividend visibility intact with $0.62 declared for Q3 2025; payout considerations will be reassessed post Centuri deconsolidation .
• Short-term: Stock likely reacts to SIM approval headlines and any Centuri transaction steps; Medium-term: Thesis rests on 6–8% NI and rate base CAGR, O&M discipline, and constructive regulatory frameworks .

Notes and Disclosures:

• Non-GAAP adjustments include strategic review/Centuri separation costs and amortization of intangible assets at Centuri; adjusted EPS $1.65 vs GAAP $1.58 for Q1 2025 .
• Operational KPIs: ~40,000 meter sets added LTM (~1.8% customer growth); cash on hand $406M; liquidity >$1.0B; utility ROE LTM 8.2% .
• All document-based facts are cited; S&P Global estimates marked with an asterisk and noted as “Values retrieved from S&P Global.”