Earnings Call Insights: Southwest Gas Holdings (SWX) Q2 2025
Management View
- Karen S. Haller, President and CEO, stated that "during the second quarter, we made significant progress toward positioning Southwest Gas Holdings as a premier pure-play, fully regulated natural gas business. We continue to make strides in improving operational and financial performance at the utility." Haller highlighted a trailing 12-month ROE of 8.3% and noted a constructive outcome in Nevada with the signing of SB 417, which "enhances Nevada's regulatory framework by allowing natural gas utilities to pursue alternative ratemaking."
- Haller pointed out record net income for the first half of 2025 and reaffirmed full year net income guidance of $265 million to $275 million. She also announced the successful execution of two secondary public offerings of Centuri shares, generating over $470 million in net proceeds, and indicated the company's Centuri ownership now stands at just over 52%.
- Haller confirmed no new equity issuance is expected under the ATM program in 2025 following Centuri sell-downs and detailed that "we remain committed to fully separating Centuri in a manner that optimizes value and limits execution risk for our stockholders."
- Haller also highlighted the addition of about 40,000 new meter sets over the last 12 months and stated, "as of the second quarter of 2025, we have more than $350 million of cash on hand and more than $1 billion of liquidity."
- Justin Lee Brown, President of Southwest Gas Corporation, revealed high demand for the Great Basin expansion project, with shippers expressing interest in 1.76 billion cubic feet of capacity, prompting a capital expenditure estimate in the range of $1.2 billion to $1.6 billion for the project.
- Brown emphasized regulatory progress, including a $600 million increase in authorized rate base in Arizona and approval of the System Integrity Mechanism, though with a $50 million cap on qualifying capital.
- Robert J. Stefani, CFO, stated, "during the second quarter, the utility, Southwest Gas reported higher margins supported by rate relief and continued customer growth. The utility also recognized increased income from COLI policies."
Outlook
- Haller reaffirmed the 2025 utility net income guidance range of $265 million to $275 million. All other guidance metrics for 2025 and beyond were reiterated, with management expecting "the impact of the regulatory cycle to result in nonlinear net income growth over the forecast period."
- Management stated that long-term capital spending is expected to be about $4.3 billion over the next five years, targeting a compound annual growth rate in rate base of 6% to 8%. This estimate does not yet include possible impacts from the Great Basin expansion or formula rates in Arizona and Nevada.
- No changes in guidance language or targets were communicated compared to the previous quarter.
Financial Results
- Stefani reported an increase in utility operating margin by $26.6 million, primarily from $24 million in rate relief and $2 million in customer growth. O&M expense rose by $7 million, mainly due to labor and benefit costs, while depreciation and amortization plus other taxes increased $9.3 million due to capital investment.
- Other income increased by $3.6 million, driven by a $4.5 million gain from COLI policy value increases and a $1.6 million one-time nonoperating gain from an asset sale. Interest expense rose $4.9 million, mainly tied to the over-collected PGA balance.
- Stefani noted that the company finished the quarter with $323 million of cash at Southwest Gas. The purchased gas adjustment (PGA) balance moved to a $345 million liability as of June 30, 2025.
- Over $470 million in net proceeds from Centuri stock sales were used to reduce debt, and management repeated that no equity issuance is expected for the remainder of 2025.
Q&A
- Jamieson Alexander Ward, Jefferies: Asked about the Great Basin expansion range increase to $1.2 billion–$1.6 billion and the drivers for that change. Justin Lee Brown responded that "it's just volume. It's just additional shippers asking for incremental capacity, which would result in just additional upsizing."
- Ward: Sought clarification on return profile and AFUDC treatment for the project. Brown confirmed they would "anticipate AFUDC on the project, no different than any other project."
- Ward: Inquired about timing overlap for Nevada rate case and alternative ratemaking. Brown said, "we don't see any advantage to delaying our next rate case. I think they're going to work very much complementary to each other."
- Christopher Ronald Ellinghaus, Siebert Williams Shank: Asked about SB 417 process timeline at the Nevada Commission. Brown suggested rulemaking could be completed within the year.
- Ellinghaus: Queried about cadence and duration of Arizona SIM and the potential for formula rates. Brown indicated management is evaluating various timing and procedural options, including learning from other rate cases currently requesting formula rates.
- Ellinghaus: Questioned the rationale behind commission arguments on pipe replacement speed. Brown acknowledged possible confusion and said clarifying information may be provided in a potential application for rehearing.
- Ellinghaus: Asked if the CPCN filing for Great Basin would signal confidence in project agreements. Brown confirmed, "implicit in that filing is going to be a pretty strong confidence of what we think is the project is ultimately going to look like."
Sentiment Analysis
- Analysts maintained a positive and congratulatory tone, focusing on the significant progress with the Great Basin project, Centuri sell-downs, and regulatory advancements, with frequent expressions of support and requests for clarification rather than challenge.
- Management sustained a confident and clear tone in both prepared remarks and responses, frequently emphasizing discipline, clarity, and execution. Phrases such as "we are confident" and "we remain committed" were used, with no evident defensiveness or hesitation.
- Compared to the previous quarter, both analysts and management exhibited increased optimism, with analysts expressing more enthusiasm about strategic developments and management reiterating their confidence in guidance and strategic direction.
Quarter-over-Quarter Comparison
- Guidance for 2025 utility net income was reaffirmed at $265 million to $275 million in both quarters, with no changes to long-term growth or capital spending projections.
- Strategic focus shifted toward execution of the Great Basin expansion, with the capital expenditure estimate for the project explicitly raised to a range of $1.2 billion to $1.6 billion, reflecting increased shipper interest.
- Centuri separation advanced with two successful secondary offerings, reducing ownership to just over 52% and eliminating expected equity issuance for 2025, compared to the previous quarter's plan that still included ATM program use.
- Analysts' questions in the current quarter focused more on the specifics of capital projects and regulatory timelines, while in the prior quarter, the focus was on the Centuri separation process and regulatory mechanisms.
- Management's tone of confidence and clarity remained consistent, but optimism and focus on large-scale capital opportunities increased this quarter.
Risks and Concerns
- Management acknowledged the $50 million cap imposed on Arizona's System Integrity Mechanism and is evaluating options, including a potential application for rehearing or accelerating the next rate case.
- The company highlighted the over-collected purchased gas cost balance in Nevada and the resulting impact on liquidity, but indicated sufficient cash balances to absorb the accelerated customer refunds.
- Regulatory timing and the outcome of rulemaking processes in Nevada and Arizona were identified as areas of uncertainty, with management closely monitoring developments.
Final Takeaway
Southwest Gas Holdings reiterated its confidence in executing its strategy as a fully regulated pure-play natural gas utility, anchored by reaffirmed 2025 net income guidance, robust customer and rate base growth, and a major expansion opportunity for the Great Basin pipeline. The two successful Centuri stake sales have strengthened the balance sheet and removed the need for additional equity issuance this year, while regulatory developments and capital investments position the company for continued growth. Management remains committed to value creation for stockholders and to providing further updates as key projects and regulatory milestones progress.
Read the full Earnings Call Transcript
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