LAS VEGAS, Nov. 6, 2019 /PRNewswire/ -- Southwest Gas
Holdings, Inc. (NYSE: SWX) announced consolidated earnings of
$0.10 per diluted share for the
third quarter of 2019, a $0.15 decrease from consolidated earnings of
$0.25 per diluted share for the
third quarter of 2018. Consolidated net income was
$5.4 million for the third quarter of
2019, compared to consolidated net income of $12.3 million for the third quarter of
2018. The natural gas segment experienced a net loss of
$20 million in the third quarter of
2019 compared to a net loss of $13.7
million in the third quarter of 2018, while the utility
infrastructure services segment had net income of $25.8 million in the current quarter compared to
net income of $26.8 million in the
third quarter of 2018. Due to the seasonal nature of the
Company's businesses, results for quarterly periods are not
generally indicative of earnings for a complete twelve-month
period. Consolidated current quarter results include $200,000 in other income due to increases in the
cash surrender value of company-owned life insurance ("COLI")
policies, while the prior-year quarter included $4.7 million, or $0.09 per share, associated with COLI
policies.
Commenting on Southwest Gas Holdings' performance, John P. Hester, President and Chief Executive
Officer, said: "Our third quarter results demonstrated continued
growth in both our natural gas operations and utility
infrastructure services business segments. Record consolidated
revenues were experienced for the quarter, as well as the trailing
twelve-month period. Net income for the quarter was less than
expected due to (1) the consolidation of a pending Arizona surcharge request into our current
Arizona general rate case
proceeding, and (2) cost inefficiencies and mix of work changes
experienced with several utility infrastructure services customers.
The combined impact of these factors leads us to reduce our
year-end earnings per share guidance from the previously disclosed
$3.75-$4.00 range to a revised range of $3.60-$3.80. The
fundamentals of both business segments remain strong, with rate
cases currently in process in three different regulatory
jurisdictions, and another record earnings year anticipated at our
utility infrastructure services business.
"The three-state regional economy for our natural gas operations
continues to be robust, requiring record 2019 capital investment,
now estimated at $730 million, to
enhance the safety and reliability of our gas distribution systems
and serve new growth. Annual customer additions at our natural gas
operations are estimated at approximately 35,000, or 1.7%.
Similarly, we are experiencing significant growth at our utility
infrastructure services business, especially on the heels of our
Linetec Services acquisition last year, which has contributed
$175 million in revenue in 2019 to date and provided strategic
business diversification into southeastern United States electric markets. As we look
forward to 2020, we are very excited about the benefits that our
customers and investors will realize from the resolution of our
pending general rate case proceedings, as well as continued growth
and diversification at our utility infrastructure services
business."
For the twelve months ended September 30, 2019,
consolidated net income was $191.5
million, or $3.59 per
diluted share, compared to $209.4
million, or $4.29 per
diluted share, for the twelve-month period ended September 30,
2018. Consolidated results for the twelve-month period ended
September 30, 2018 reflect approximately $20 million, or $0.41 per share, of one-time tax benefits due to
the remeasurement of deferred tax balances in December 2017.
Natural gas operations segment net income was $146.3 million in the current twelve-month
period, and $153.7 million in the
prior-year period. Utility infrastructure services segment
net income was $46.7 million in
the current twelve-month period and $57.7
million in the prior-year period.
Natural Gas Operations Segment Results
Third Quarter
Operating margin increased $7
million including a $2 million
increase attributable to customer growth, as 34,000 net new
customers were added during the last twelve months. Rate
relief in California and
Nevada contributed an additional
$2 million. Miscellaneous
service revenue and revenue outside the decoupling mechanisms also
increased between periods. Regulatory surcharges composed the
residual increase.
Operations and maintenance expense increased $4.4 million between quarters. Higher legal and
other general costs contributed to the increase between
quarters. Depreciation and amortization expense increased
$4.4 million, or 9%, primarily
due to a $602 million, or 9%,
increase in average gas plant in service since the corresponding
quarter a year ago, coupled with an increase in regulatory
amortization.
Other income decreased $2.2
million primarily due to a decline in income from COLI
policies between quarters mitigated by a decrease in
non-service-related components of employee pension and other
postretirement benefit costs. Net interest deductions
increased $3.2 million
primarily due to the issuance of $300 million of Senior
Notes in May 2019.
Twelve Months to Date
Operating margin increased $25
million between the twelve-month periods. Customer
growth provided $11 million and combined rate relief in
Nevada and California provided $9
million of incremental operating margin. The remaining
increase relates to recoveries of regulatory assets, infrastructure
replacement mechanisms, customers outside the decoupling
mechanisms, and other miscellaneous revenues, net of impacts from
U.S. tax reform.
Operations and maintenance expense increased $7.8 million, or 2%, between periods, primarily
due to higher expenditures for pipeline damage prevention programs
and other general cost increases, offset by a reduction in the
service-related components of pension and other postretirement
benefit costs. Depreciation and amortization expense
increased $11.8 million, or 6%,
between periods due to a $550
million, or 8%, increase in average gas plant in service,
mitigated by lower regulatory account amortization. Taxes
other than income taxes increased $2 million, or 3%,
reflective of higher property taxes from net plant additions, as
well as increased commerce and franchise taxes.
Other income (deductions) improved $1.2
million between the comparative twelve-month periods.
Interest income associated with the equity component of the
allowance for funds used during construction ("AFUDC") contributed
$4.5 million due to increases in
construction expenditures and AFUDC rates in the current
period. Additionally, the non-service components of employee
pension and other postretirement benefits costs improved in the
current period by $4 million. Offsetting the increase
was a decline in the cash surrender value of COLI policies and net
death benefits of $7.5 million in the
current period compared to the prior-year period. Net
interest deductions increased $14.1
million between periods due to higher interest associated
with the issuance of $300 million of Senior Notes in
March 2018 and $300 million in
May 2019, higher interest rates and
average outstanding credit facility balances, and carrying costs on
purchased gas adjustment mechanism balances.
Utility Infrastructure Services Segment
Results
Third Quarter
Revenues increased $64.6 million
in the third quarter of 2019 compared to the same period in 2018,
primarily due to $70.3 million in
revenues contributed by the operations of Linetec Services, LLC
("Linetec"), which was acquired in November
2018, partially offset by the July
2019 expiration of a multi-year water pipe replacement
project, which was not renewed. The prior-year quarter also
included revenue from certain non-routine customer-requested
support during a strike-related event.
Utility infrastructure services expenses increased $55.7 million between quarters, including
$55.8 million of Linetec
expenses. Implementation of new regulatory requirements for
operating locations within certain eastern states in the U.S.
resulted in lower revenues and productivity inefficiencies totaling
an estimated $4 million during the current quarter, as Centuri
works with customers to adopt the new requirements. Efforts
to complete an industrial construction project in Canada resulted in additional costs of
approximately $2 million during the current quarter from
delays in commissioning the project. Additionally,
changes in the mix of work requested in 2019 by certain customers
under unit-priced multi-year master services contracts resulted in
higher labor and equipment costs.
Depreciation and amortization increased $8.8 million between quarters, $7.5 million of which resulted from the Linetec
acquisition, including amortization of finite-lived intangible
assets and depreciation of property and equipment.
Depreciation expense also reflects additional equipment purchased
to support the growing volume of work performed.
Twelve Months to Date
Revenues increased $219.1 million
in the current twelve-month period compared to the prior-year
period, including $188.7 million in
revenues from Linetec since the acquisition date in November 2018. The remaining revenue increase is
due to a higher volume of pipe replacement work under new and
existing blanket and bid contracts, primarily in the central U.S.,
and certain non-routine projects (including customer-requested
support during strike-related and emergency response
situations). Revenue for the twelve-month period in 2018
included a $9 million negotiated settlement of an outstanding
contract dispute from 2017 associated with a water pipe replacement
project.
Utility infrastructure services expenses increased $184.6 million between periods primarily due to
related expenses for Linetec of $149.8
million and additional labor and equipment costs to complete
work during inclement weather conditions. Efforts to complete
the industrial construction project in Canada and a change in the mix of work
requested in the current period contributed to increased
costs. A $12.3 million
increase in general and administrative costs, including
$6.9 million of deal costs from the
acquisition of Linetec, contributed to the increase overall.
Depreciation and amortization increased $27 million between periods primarily due to
incremental depreciation and amortization of finite-lived tangible
and intangible assets recognized from the Linetec acquisition, as
well as an increase in depreciation on additional equipment
purchased to support the growing volume of work being
performed.
Income tax expense for the twelve months ended September 30, 2018 was favorably impacted by
approximately $12 million of one-time tax benefits
related to the remeasurement of Centuri's deferred tax liabilities
when U.S. tax reform was enacted in December
2017.
Outlook for 2019
Management has updated its estimated 2019 earnings to be between
$3.60 and $3.80 per diluted share (previously $3.75 to $4.00). The change is primarily due to a
reduction in fourth quarter expected operating margin at Southwest,
and the impacts of lower-than-expected earnings at Centuri during
the third quarter of 2019, as detailed below.
Southwest's February 2019 requests
for annualized incremental surcharge revenues in Arizona totaling approximately $12.7 million (related to 2018 expenditures
under its COYL and VSP programs) have been delayed by an Arizona
Corporation Commission decision in October
2019 that consolidated consideration of the requests into
Southwest's general rate case proceeding, to be decided in
mid-2020. Approximately one-half of the request was
originally expected to be recognized in 2019.
As discussed in the third quarter results of the utility
infrastructure services segment, Centuri results were adversely
impacted by approximately $4 million related to implementation
of new regulatory requirements for its customers and by
$2 million in incremental costs associated with an industrial
project in Canada. Changes in the mix of work by certain
customers during the third quarter also negatively impacted third-
quarter results.
Management also provides the following supplemental
expectations:
Natural Gas Operations Segment:
- Operating margin for 2019 is anticipated to benefit from
customer growth (similar to 2018), infrastructure tracker
mechanisms (net of delayed surcharge revenue in Arizona), expansion projects, and rate
relief. Combined, these items are now expected to produce an
increase in operating margin of 4.0% to 4.5% (previously 4% to
5%).
- Operating income is now expected to decrease slightly compared
to 2018 (previously expected to increase modestly).
- Full-year projections include approximately $1 million of
incremental COLI earnings during the 4th quarter of 2019.
- Capital expenditures in 2019 are now estimated at approximately
$730 million, in support of customer
growth, system improvements, and accelerated pipe replacement
programs (previously $710
million).
Utility Infrastructure Services Segment:
- Centuri has a strong base of large utility clients that are
expected to sustain, and over time, grow its business. Including
the recent Linetec acquisition, revenues for 2019 are expected to
be 10% to 15% greater than 2018 levels.
- Operating income, including the third quarter 2019 impacts from
the recent change in mix of work and regulatory delays experienced
by customers in the northeastern U.S., is now expected to be
approximately 5.0% to 5.5% of revenues (previously 6.0% to
6.5%).
- Net income expectations reflect earnings attributable to
Southwest Gas Holdings, net of noncontrolling interests. Changes in
Canadian exchange rates could influence results.
Southwest Gas Holdings has two business segments:
Southwest Gas Corporation provides safe and reliable natural gas
service to over 2 million customers in Arizona, Nevada, and California.
Centuri Group, Inc. is a comprehensive utility infrastructure
services enterprise dedicated to delivering a diverse array of
solutions to North America's gas
and electric providers. Centuri derives revenue from
installation, replacement, repair, and maintenance of energy
distribution systems, and developing industrial construction
solutions.
Forward-Looking Statements: This press
release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such
statements include, without limitation, statements regarding
Southwest Gas Holdings, Inc. (the "Company") and the Company's
expectations or intentions regarding the future. These
forward-looking statements can often be identified by the use of
words such as "will", "predict", "continue", "forecast", "expect",
"believe", "anticipate", "outlook", "could", "target", "project",
"intend", "plan", "seek", "estimate", "should", "may" and "assume",
as well as variations of such words and similar expressions
referring to the future, and include (without limitation)
statements regarding expectations of continuing growth in
2019. In addition, the statements under the heading "Outlook
for 2019" that are not historic, constitute forward-looking
statements. A number of important factors affecting the
business and financial results of the Company could cause actual
results to differ materially from those stated in the
forward-looking statements. These factors include, but are
not limited to, the timing and amount of rate relief, changes in
rate design, customer growth rates, the effects of
regulation/deregulation, tax reform and related regulatory
decisions, the impacts of construction activity at Centuri, future
earnings trends, seasonal patterns, and the impacts of stock market
volatility. In addition, the Company can provide no assurance
that its discussions about future operating margin, operating
income, COLI results, and capital expenditures of the natural gas
segment will occur. Likewise, the Company can provide no
assurance that discussions regarding utility infrastructure
services segment revenues and operating income percentage of
revenues will transpire. Because of these and other factors,
the Company can provide no assurances that estimates of 2019
earnings per share will be realized. Factors that could cause
actual results to differ also include (without limitation) those
discussed under the heading "Risk Factors" in Southwest Gas
Holdings, Inc.'s most recent Annual Report on Form 10-K
and in the Company's and Southwest Gas Corporation's current and
periodic reports filed from time to time with the SEC. The
statements in this press release are made as of the date of this
press release, even if subsequently made available by the Company
on its Web site or otherwise. The Company does not assume any
obligation to update the forward-looking statements provided to
reflect events that occur or circumstances that exist after the
date on which they were made.
Non-GAAP Measures. Southwest recognizes
operating revenues from the distribution and transportation of
natural gas (and related services) to customers. Gas cost is
a tracked cost, which is passed through to customers without markup
under purchased gas adjustment ("PGA") mechanisms, impacting
revenues and net cost of gas sold on a dollar-for-dollar basis,
thereby having no impact on Southwest's profitability.
Therefore, management routinely uses operating margin, defined as
operating revenues less the net cost of gas sold, in its analysis
of Southwest's financial performance. Operating margin also
forms a basis for Southwest's various regulatory decoupling
mechanisms. Operating margin is not, however, specifically
defined in accounting principles generally accepted in the United States ("U.S. GAAP") and is
considered a non-GAAP measure. Management believes supplying
information regarding operating margin provides investors and other
interested parties with useful and relevant information to analyze
Southwest's financial performance in a rate-regulated
environment. (Refer to the Southwest Gas Holdings, Inc.
Consolidated Earnings Digest for a reconciliation of revenues to
operating margin.)
SOUTHWEST GAS
HOLDINGS, INC. CONSOLIDATED EARNINGS DIGEST
|
(In thousands, except
per share amounts)
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED
SEPTEMBER 30,
|
|
2019
|
|
2018
|
|
|
|
|
|
Consolidated
Operating Revenues
|
|
$
|
725,230
|
|
|
$
|
668,146
|
|
|
|
|
|
|
Net Income applicable
to Southwest Gas Holdings
|
|
$
|
5,353
|
|
|
$
|
12,331
|
|
|
|
|
|
|
Average Number of
Common Shares
|
|
54,670
|
|
|
49,493
|
|
|
|
|
|
|
Basic Earnings Per
Share
|
|
$
|
0.10
|
|
|
$
|
0.25
|
|
|
|
|
|
|
Diluted Earnings Per
Share
|
|
$
|
0.10
|
|
|
$
|
0.25
|
|
|
|
|
|
|
Reconciliation of
Revenue to Operating Margin (Non-GAAP measure)
|
|
|
|
|
Natural Gas Segment
Revenues
|
|
$
|
209,980
|
|
|
$
|
217,523
|
|
Less: Net Cost of Gas
Sold
|
|
35,068
|
|
|
49,903
|
|
Operating
Margin
|
|
$
|
174,912
|
|
|
$
|
167,620
|
|
|
|
|
|
|
NINE MONTHS ENDED
SEPTEMBER 30,
|
|
2019
|
|
2018
|
|
|
|
|
|
Consolidated
Operating Revenues
|
|
$
|
2,271,780
|
|
|
$
|
2,093,359
|
|
|
|
|
|
|
Net Income applicable
to Southwest Gas Holdings
|
|
$
|
122,218
|
|
|
$
|
112,973
|
|
|
|
|
|
|
Average Number of
Common Shares
|
|
53,996
|
|
|
48,916
|
|
|
|
|
|
|
Basic Earnings Per
Share
|
|
$
|
2.26
|
|
|
$
|
2.31
|
|
|
|
|
|
|
Diluted Earnings Per
Share
|
|
$
|
2.26
|
|
|
$
|
2.31
|
|
|
|
|
|
|
Reconciliation of
Revenue to Operating Margin (Non-GAAP measure)
|
|
|
|
|
Natural Gas Segment
Revenues
|
|
$
|
989,368
|
|
|
$
|
987,515
|
|
Less: Net Cost of Gas
Sold
|
|
292,854
|
|
|
319,101
|
|
Operating
Margin
|
|
$
|
696,514
|
|
|
$
|
668,414
|
|
|
|
|
|
|
TWELVE MONTHS
ENDED SEPTEMBER 30,
|
|
2019
|
|
2018
|
|
|
|
|
|
Consolidated
Operating Revenues
|
|
$
|
3,058,434
|
|
|
$
|
2,833,792
|
|
|
|
|
|
|
Net Income applicable
to Southwest Gas Holdings
|
|
$
|
191,522
|
|
|
$
|
209,438
|
|
|
|
|
|
|
Average Number of
Common Shares
|
|
53,219
|
|
|
48,728
|
|
|
|
|
|
|
Basic Earnings Per
Share
|
|
$
|
3.60
|
|
|
$
|
4.30
|
|
|
|
|
|
|
Diluted Earnings Per
Share
|
|
$
|
3.59
|
|
|
$
|
4.29
|
|
|
|
|
|
|
Reconciliation of
Revenue to Operating Margin (Non-GAAP measure)
|
|
|
|
|
Natural Gas Segment
Revenues
|
|
$
|
1,359,581
|
|
|
$
|
1,354,000
|
|
Less: Net Cost of Gas
Sold
|
|
393,141
|
|
|
412,307
|
|
Operating
Margin
|
|
$
|
966,440
|
|
|
$
|
941,693
|
|
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SOURCE Southwest Gas Holdings, Inc.