Southwest Gas Holdings, Inc. (SWX)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 delivered mixed reported results: consolidated operating revenues were $1.12B, GAAP diluted EPS was a loss of $(0.18), while adjusted diluted EPS rose to $0.53, up 71% YoY, driven by utility operating margin expansion; GAAP loss primarily reflected a $45.4M nonrecurring tax impact from Centuri deconsolidation .
• Versus Street: adjusted EPS beat consensus by ~$0.14, while revenue was modestly below estimates; prior quarters show a pattern of EPS beats and revenue shortfalls given pass‑through gas cost dynamics and seasonality (see Estimates Context) *.
• Regulatory momentum and balance sheet strengthening were notable positives: Nevada enacted alternative ratemaking (SB417), Arizona approved the System Integrity Mechanism (SIM, with a $50M cap), and two Centuri follow‑ons plus private placements reduced holding company debt by >$470M; cash was $356M with >$1.0B liquidity at quarter‑end .
• Strategic catalyst: Great Basin’s 2028 Expansion saw capacity interest rise to ~1.76 Bcf/d, lifting the estimated capital opportunity to ~$1.2–$1.6B with anticipated expansion rates of $14–$17 per Dth/month and 20‑year terms; precedent agreements are being negotiated now .
• Guidance maintained: Southwest Gas segment 2025 net income $265–$275M, ~2025 capex ~$880M, 2025–2029 adjusted net income and rate base CAGR of 6–8%, five‑year capex of $4.3B (excluding Great Basin expansion) .

What Went Well and What Went Wrong

What Went Well

• Utility margin strength and earnings quality: utility operating margin rose $26.6M YoY, with ~$23.7M from rate relief across jurisdictions and ~$2.5M from customer growth (~40,000 TTM new meter sets); adjusted EPS increased to $0.53 from $0.31 .
• Regulatory wins and outlook: Nevada SB417 (alternative ratemaking) and ACC approval of SIM support reduced regulatory lag and potential ROE improvement over time; “We anticipate … positive impacts on price stability, regulatory cost reduction, and consumer protection enhancements” — CEO Karen Haller .
• Deleveraging and liquidity: two Centuri sell‑downs and private placements generated >$470M proceeds used to reduce debt; cash was $356M and liquidity >$1.0B at 6/30/25, improving FFO/debt metrics .

What Went Wrong

• GAAP loss driven by tax deconsolidation: the $(0.18) GAAP EPS loss reflected a ~$45.4M income tax impact on the outside basis in Centuri following sell‑downs; management adjusted EPS for this nonrecurring item .
• Cost and interest headwinds: O&M rose $7.0M YoY on labor/benefits and contractor services; D&A and other taxes increased $9.3M on a 7% higher average gas plant; interest expense rose $4.9M due to over‑collected Nevada PGA liabilities .
• Revenue optics vs estimates: consolidated revenues fell YoY to $1.12B, modestly below consensus, consistent with tracked gas cost pass‑through reducing top‑line without affecting profitability, and seasonal dynamics vs Q1 *.

Financial Results

Consolidated Results vs Prior Periods

Utility Operating Margin Trend (non‑GAAP, Utility segment)

Segment Contribution to Net Income (Consolidated)

Q2 2025 vs S&P Global Consensus

Values with asterisks (*) retrieved from S&P Global.

Guidance Changes

Management reaffirmed guidance and reiterated that Great Basin expansion impacts are excluded from current ranges .

Earnings Call Themes & Trends

Management Commentary

• “We saw constructive regulatory developments in both Arizona and Nevada… Governor Lombardo signed Senate Bill 417 allowing for alternative ratemaking… We used proceeds from [Centuri] transactions to reduce debt by over $470 million…” — Karen Haller, CEO .
• “The 2028 Great Basin expansion… capacity demand increased to about 1.76 Bcf per day… anticipated expansion rate between $14 and $17 per dekatherm per month and a minimum of 20 years for each transportation service agreement” .
• “Utility operating margin increased by $26.6 million… partially offset by higher O&M, interest expense on over‑collected PGA balances, and increased depreciation tied to a 7% increase in average gas plant” — CFO Rob Stefani .
• “Following the Nevada approval to return over‑collected purchase gas costs… we should begin to see those elevated balances decline later this year” — CFO .
• “We no longer expect to issue any new equity under our ATM program in 2025” — CEO .

Q&A Highlights

• Great Basin economics and scope: Management confirmed upsizing is volume‑driven (additional shippers), with return profile governed by FERC‑authorized ROR; AFUDC expected on the project .
• Nevada rate case pace vs formula rates: Company plans to proceed on typical cadence and leverage the new law’s allowance to file formula rates up to six months post‑case; rulemaking likely within ~12 months if process follows prior electric model .
• Arizona SIM cap: Considering rehearing or accelerating next rate case; aim to clarify record given perceived commissioner confusion over pipeline replacement cadence .
• Corporate/utility finance: Interest savings from debt paydown (Centuri proceeds) contributed to year‑over‑year improvement; COLI gains aided utility other income .
• CPCN confidence: Filing would imply sufficient signed precedent agreements and high confidence given upsizing within existing right‑of‑way; timeline targets 2026 FERC certificate filing .

Estimates Context

• Q2 2025: Adjusted EPS $0.53 vs consensus $0.395 (bold beat); revenue $1.12B vs $1.153B (bold miss). EPS outperformance driven by utility margin expansion and nonrecurring tax adjustment excluded from adjusted EPS; revenue softness reflects tracked gas cost pass‑through and seasonality *.
• Prior quarters:
  • Q1 2025 adjusted EPS $1.65 vs $1.66 (in‑line/a small miss); revenue $1.30B vs $1.50B (miss) *.
  • Q4 2024 adjusted EPS $1.39 vs $0.94 (beat); revenue $1.27B vs $1.35B (miss) *.
• Target price consensus $86.5 (6 estimates) remained stable across periods; no consensus recommendation text available [GetEstimates]*.

Values retrieved from S&P Global.

KPIs and Operating Metrics

Key Takeaways for Investors

• Utility earnings quality improving: robust operating margin growth from refreshed rates and customer additions supports the reaffirmed $265–$275M 2025 net income target despite GAAP volatility from tax deconsolidation of Centuri .
• Regulatory setup is constructive: NV alternative ratemaking and AZ SIM provide tools to reduce lag; watch for timing on AZ rehearing/next rate case and NV rulemaking progression over ~12 months .
• Great Basin expansion is a multiyear optionality: precedent agreements could crystallize ~$1.2–$1.6B capex, AFUDC accruals, and long‑dated contracts at $14–$17/Dth/month; milestones through 2026 CPCN filing are key catalysts .
• Balance sheet improving: >$470M debt reduction and extended facilities enhance funding capacity for ~$880M 2025 utility capex and five‑year $4.3B plan without equity needs in 2025 .
• Near‑term cash dynamics: accelerated Nevada customer credits will reduce PGA liabilities and interest expense; liquidity remains ample to absorb working capital impacts .
• Estimates likely to adjust: stronger adjusted EPS vs Q2 consensus and utility margin momentum argue for upward revisions to utility segment earnings, while revenue forecasts should reflect tracked gas cost pass‑through and seasonality *.
• Trading lens: narrative strength in regulatory wins and pipeline expansion interest, alongside deleveraging progress, are supportive; monitor execution on NV/ANZ rate processes and Great Basin agreements for incremental rerating potential .