LAS VEGAS: Southwest Gas Holdings, Inc. (NYSE: SWX) ("Southwest Gas" or the "Company") today reported 2022 financial results.
"We delivered strong revenues across the portfolio in 2022, while actively managing inflationary cost pressures that impacted both the utility and Centuri," said Karen S. Haller, President and Chief Executive Officer of Southwest Gas. "The Company's comprehensive review of strategic alternatives was completed in December with our Board's unanimous decision to transform Southwest Gas into a fully regulated natural gas utility focused on delivering for our customers and communities. We reached a significant milestone in this process with the recent completion of the sale of MountainWest, and used the proceeds to de-lever our balance sheet. Across Southwest Gas Holdings, we are focused on executing our strategic plan to deliver continued earnings growth as we safely address the needs of our customers, invest in the communities we serve and enhance value for our stockholders."
Southwest Gas Holdings Financial Highlights
For the fourth quarter of 2022, consolidated net loss was $281 million, or $(4.18) per diluted share, and adjusted net income was $78.0 million, or $1.16 per diluted share. Adjustments to fourth quarter 2022 earnings include $455 million related to a loss on reclassification of MountainWest as held for sale, including estimated selling costs, and $13.2 million of collective nonrecurring strategic review expenses and certain MountainWest integration costs. In the fourth quarter COLI was not a significant driver.
Consolidated net loss of $3.10 per diluted share (and adjusted consolidated net income of $3.00 per diluted share) for 2022, compared to consolidated net income of $3.39 per diluted share (and adjusted consolidated earnings of $4.00 per diluted share) for 2021.
Consolidated net loss of $203.3 million (and adjusted consolidated net income of $196.6 million) for 2022, compared to a consolidated net income of $200.8 million (and adjusted consolidated net income of $237 million) in 2021.
The pipeline and storage segment had a net loss of $284 million (and adjusted net income of $80.3 million) in 2022.
Company-owned Life Insurance ("COLI") policy cash surrender value declined $5.4 million (or $0.08 per diluted share) in 2022, compared to an increase of $8.8 million ($0.15 per diluted share) in 2021.
SOUTHWEST GAS HOLDINGS, INC. SUMMARY UNAUDITED OPERATING RESULTS (In thousands, except per share items) Three Months Ended December 31, Twelve Months Ended December 31, 2022 2021 2022 2021 Results of Consolidated Operations
Contribution to net income (loss) - natural gas distribution $ 67,050 $ 84,551 $ 154,380 $ 187,135 Contribution to net income (loss)- utility infrastructure services 6,465 7,623 2,065 40,420 Contribution to net income (loss) - pipeline and storage (328,059) — (283,733) — Corporate and administrative loss (26,040) (22,231) (76,002) (26,776) Net income (loss) $ (280,584) $ 69,943 $ (203,290) $ 200,779 Adjusted net income $ 77,986 $ 90,693 $ 196,600 $ 236,992 Diluted earnings (loss) per share* $ (4.18) $ 1.15 $ (3.10) $ 3.39 Diluted adjusted earnings per share $ 1.16 $ 1.49 $ 3.00 $ 4.00 Weighted average diluted shares 67,200 60,795 65,558 59,259
*In periods in which losses occur, diluted and basic loss per share are
the same. Business Segment Highlights
Natural Gas Distribution - Full Year 2022
The natural gas distribution segment recorded net income of $154.4 million in 2022, compared to net income of $187.1 million in 2021. This was driven primarily by increases in operations and maintenance expense and net interest deductions, offset by an increase in operating margin.
Key operational highlights include:
41,000 new meter sets added during the past 12 months;
Record twelve-month operating margin of $1.15 billion;
$705 million capital investment (includes non-cash items) during the year, a ~14% increase from 2021;
Arizona general rate case finalized with revenue increase of $54.3 million (the largest revenue increase in company history) and new rates effective February 1, 2023;
Nevada general rate case settlement finalized with rate relief effective April 2022; and
Southwest Gas Corporation ranked #1 in the West Large Segment by J.D. Power in the 2020-2022 Gas Utility Residential Customer Satisfaction Study & #1 in the West Segment in the 2020-2022 Gas Utility Business Customer Satisfaction Study.
Key drivers of 2022 performance as compared to 2021 include:
Increased operating margin by $55 million compared to 2021, including the impact of new general rates in Nevada effective April 2022;
A $53 million increase in O&M including increases from general inflationary impacts, collective pipeline integrity/reliability/event-driven costs ($8 million), higher reserves for uncollectibles primarily due to COVID ($7 million), labor and employee-related costs ($13 million), customer-related costs ($4 million), and legal settlements and claim-related costs ($5 million);
Depreciation and amortization increased $10 million due to a higher level of gas plant in service;
Other income decreased $2 million reflecting higher interest income and lower non-service components of pension costs, offset by a $14 million decline in COLI results and a $9 million reserve for a software project deemed non-recoverable from utility operations; and
Interest expense increased $18 million compared to 2021.
Natural Gas Distribution Segment Guidance and Outlook:
Initiated 2023 net income guidance of $205 - $215 million (assumes $3 - $5 million of COLI earnings);
2023 capital expenditures in support of customer growth, system improvements, and pipe replacement programs of $665 - $685 million;
3 - Year capital expenditures of approximately $2.0 billion; and
3 - Year utility rate base compound annual growth rate of 5% - 7%.
Centuri / Utility Infrastructure Services - Full Year 2022
The utility infrastructure services segment had net income of $2.1 million and adjusted net income of $3.5 million in 2022, compared to net income of $40.4 million and adjusted net income of $52.1 million in 2021. While revenues increased $601.7 million compared to 2021, Centuri's performance was impacted by inflation, customer supply chain challenges affecting mix of work, and increased amortization and interest related to Riggs Distler.
Key operational highlights include:
Diversified revenue business mix;
$94 million in clean energy offshore wind projects for 2022; and
Fully integrated Riggs Distler.
Key drivers of Centuri's 2022 performance as compared to 2021 include:
Negative impact on work mix and volume due to certain customers' supply chain challenges in procuring necessary materials and equipment;
Fourth quarter revenue growth of approximately 22% when compared to fourth quarter 2021;
Storm revenue increased $4.4 million year-over-year;
Increases in fuel cost due to inflation ($32.7 million, including $7.3 million for Riggs Distler);
Recognition of a $7.5 million loss on a gas infrastructure bid project due to higher than anticipated costs and scheduling delays;
Increased interest expense ($40.4 million) and increased depreciation and amortization expense ($37.7 million) primarily associated with the acquisition of Riggs Distler;
Amortization of purchased intangibles increased $12.4 million as compared to 2021; and
Prior-year results included $14 million of transaction-related expenses for the Riggs Distler acquisition.
Centuri / Utility Infrastructure Services Segment Guidance and Outlook:
2023 revenues of $2.8 billion to $3.0 billion;
2023 adjusted EBITDA margin of 9.5% - 11.0%; and
2023 - 2026 adjusted EBITDA CAGR 9% - 11% (adjusted EBITDA excludes costs of strategic review, one-time acquisition costs and non-cash stock-based compensation expense).
MountainWest / Pipeline and Storage - Full Year 2022
The sale of MountainWest was completed on February 14, 2023. Proceeds from the sale were used for consolidated debt reduction. In 2022, MountainWest contributed $80.3 million of adjusted net income.
Strategic Alternatives Review Process Update
Southwest Gas Board of Directors unanimously determined to take strategic actions to simplify the Company's portfolio of businesses. Effective as of February 14, 2023, Southwest Gas has closed on the sale of MountainWest to Williams for $1.5 billion in total enterprise value.
Additionally, Southwest Gas is actively pursuing a spin-off of its wholly owned subsidiary, Centuri, to form a new independent publicly traded utility infrastructure services company. The spin of Centuri will unlock value for stockholders and enhance transparency through more direct comparability to pure-play industry peers and strengthen stockholder alignment. The Company expects to complete its planned spin of Centuri during the fourth quarter of 2023 or first quarter of 2024. The spin is expected to be tax free to Southwest Gas and its stockholders for U.S. federal income tax purposes, subject to Arizona Corporation Commission approval, SEC registration and IRS Private Letter Ruling to confirm tax-free nature of spin structure.
