Business Overview
Centuri Holdings, Inc. (CTRI) is a leading North American utility infrastructure services company that has been partnering with regulated utilities to maintain, upgrade, and expand the energy network that powers millions of homes and businesses for over 115 years. The company's comprehensive service offerings, strategic geographic footprint, and unwavering commitment to safety and sustainability have positioned it as a trusted long-term partner to its customers.
Centuri Holdings, Inc. was formed in June 2023 as a wholly owned subsidiary of Southwest Gas Holdings, Inc. The company was created for the purpose of completing an initial public offering and facilitating the separation of Centuri Group, Inc. from Southwest Gas Holdings in order to carry on the business of Centuri Group.
Prior to April 2024, Southwest Gas Holdings owned 100% of the issued and outstanding shares of Centuri Holdings. On April 13, 2024, Centuri Holdings issued 71.66 million shares of common stock to Southwest Gas Holdings as consideration for the transfer of assets and assumption of liabilities of Centuri Group. Following this transaction, Centuri Group became a wholly owned subsidiary of Centuri Holdings, and all of Centuri Holdings' operations are conducted through Centuri Group.
On April 17, 2024, the registration statement related to Centuri's initial public offering was declared effective, and Centuri's common stock began trading on the New York Stock Exchange under the ticker CTRI. The IPO was completed on April 22, 2024 through the sale of 14.26 million shares, including the underwriters' full exercise of their option to purchase additional shares. Concurrent with the IPO, Icahn Partners LP and Icahn Partners Master Fund LP purchased 2.59 million shares of Centuri's common stock in a private placement. The total net proceeds to Centuri from the IPO and private placement were $327.7 million.
As of the closing of the IPO, Southwest Gas Holdings owned approximately 81% of Centuri's outstanding common stock. Centuri has incurred certain costs in connection with its establishment as a standalone public company, and these Separation-related costs are expected to continue through at least fiscal year 2025. Centuri has also entered into several agreements with Southwest Gas Holdings governing the relationship between the two companies following the Separation.
The company's core service offerings primarily consist of the modernization of utility infrastructure, including the replacement, maintenance, retrofitting, and installation of electric and natural gas distribution, as well as utility-scale transmission networks. Centuri also serves complementary, attractive, and growing end markets such as renewable energy, data centers, and 5G datacom. Its essential services enable customers to enhance the safety, reliability, and environmental sustainability of the electric and natural gas networks that consumers rely upon.
Centuri's business is organized into four reportable segments: U.S. Gas Utility Services, Canadian Gas Utility Services, Union Electric Utility Services, and Non-Union Electric Utility Services. The U.S. Gas and Canadian Gas segments provide comprehensive services for local natural gas distribution utilities, while the Union Electric and Non-Union Electric segments offer electric utility services encompassing maintenance, replacement, repair, upgrade, and expansion for urban transmission and local distribution infrastructure.
The U.S. Gas segment provides comprehensive services, including maintenance, replacement, repair and installation for local natural gas distribution utilities (LDCs) focused on the modernization of customers' infrastructure throughout the United States. This segment also performs other underground services outside of the gas sector, including water and fiber work, and has an in-house fabrication shop providing pipe and component assembly. The company serves both union and non-union markets in this segment.
The Canadian Gas segment offers similar services to LDCs in Canada, focusing on the modernization of customers' infrastructure. This segment exclusively serves union markets.
The Union Electric segment provides a comprehensive set of electric utility services for urban transmission and local distribution infrastructure within union markets. This segment also offers heavy industrial work, including civil, mechanical, electrical, and fabrication component assembly services.
The Non-Union Electric segment provides similar services to the Union Electric segment but within non-union markets.
For fiscal year 2024, the segment revenue breakdowns were: U.S. Gas $1.26 billion (47.8% of total revenue), Canadian Gas $197.87 million (7.5%), Union Electric $693.51 million (26.3%), and Non-Union Electric $485.26 million (18.4%). Gross profit margins varied across segments, with U.S. Gas at 5.5%, Canadian Gas at 15.8%, Union Electric at 8.4%, and Non-Union Electric at 12.7%.
The company operates across 45 U.S. states and two Canadian provinces. During fiscal 2024, Centuri earned $197.90 million, or 8% of consolidated revenue, in Canada.
Financial Performance and Outlook
Centuri's financial performance has been characterized by a mix of growth and challenges in recent years. For the fiscal year ended December 29, 2024, the company reported total revenue of $2.64 billion, a 9.0% increase from the prior year. However, the company's net income for the same period was a loss of $6.7 million, primarily due to a $214.0 million goodwill impairment charge recognized in the fourth quarter of 2023.
On a trailing twelve-month basis as of December 2024, Centuri reduced its net debt to Adjusted EBITDA ratio to 3.6x from 4.0x at the end of 2023, in line with the company's prior outlook. For the full year 2024, the company generated $158.2 million in operating cash flow and $58.9 million in free cash flow.
In the most recent quarter (Q4 2024), Centuri reported revenue of $689.43 million, representing a 7.8% year-over-year increase. Net income for the quarter was $10.30 million. The company's gross profit margin improved to 9.9% in Q4 2024 from 8.1% in Q4 2023.
Looking ahead, Centuri has provided guidance for the full year 2025, expecting revenue to be in the range of $2.6 billion to $2.8 billion. The company's management team remains focused on driving operational efficiencies, managing costs, and maintaining a strong balance sheet to support its growth initiatives and create long-term value for shareholders.
Liquidity
Centuri's liquidity position remains strong, supported by its cash flow generation and available credit facilities. As of December 29, 2024, the company had $49.02 million in cash and cash equivalents, and $151.00 million of available capacity under its revolving credit facility. The company's debt-to-equity ratio stood at 0.50, while its current ratio and quick ratio were both 1.57, indicating a healthy short-term liquidity position.
The company's focus on reducing its net debt to Adjusted EBITDA ratio demonstrates its commitment to maintaining a healthy balance sheet and financial flexibility.
Competitive Landscape and Growth Opportunities
Centuri operates in a highly competitive and fragmented utility infrastructure services industry, with both regional and national providers. The company's ability to differentiate itself through its brand, scale, experience, and comprehensive service offerings has been a key factor in its success.
One of the significant growth opportunities for Centuri lies in the increasing demand for utility infrastructure investment driven by regulatory requirements, aging infrastructure, and the need for more sustainable energy solutions. The company is well-positioned to benefit from programs aimed at enhancing system integrity, preventing disruption, and meeting current and future energy demands.
Furthermore, Centuri's expertise in supporting customers' environmental sustainability goals, such as reducing methane emissions and hardening electric infrastructure, positions it well to capitalize on the industry's shift towards cleaner energy sources. The company's diversified service offerings and geographic footprint also enable it to adapt to evolving market trends and customer needs.
The utility industry is characterized by consistent growth of highly predictable, non-discretionary, regulatory-driven investment, supporting resilience through economic cycles. Additionally, the increased programmatic investment for upgrading or replacing older electric and gas utility infrastructure networks, as well as the deployment of smart systems and energy transition initiatives, provides a solid growth outlook for the utility services sector.
Risks and Challenges
Despite Centuri's strong market presence and growth potential, the company faces several risks and challenges that could impact its financial performance and long-term outlook. These include:
1. Reliance on long-term master service agreements (MSAs): A significant portion of Centuri's revenue is generated from MSAs, which can be canceled by customers with relatively short notice periods. The loss of, or reduction in business from, key customers could have a material adverse effect on the company's operations.
2. Project execution and profitability: Centuri's projects are subject to various factors, such as weather conditions, regulatory requirements, and performance of third-party suppliers and subcontractors, which can lead to cost overruns and impact profitability.
3. Workforce challenges: The company's ability to attract and retain a skilled workforce, particularly in a competitive labor market, is critical to its success. Collective bargaining agreements and potential labor shortages could also pose challenges.
4. Goodwill impairment risk: Centuri's past acquisitions have resulted in significant goodwill on its balance sheet, which could be subject to future impairment charges if the company's operating performance or market conditions deteriorate.
5. Regulatory and environmental compliance: As a provider of utility infrastructure services, Centuri must navigate a complex regulatory landscape and comply with various laws and regulations, which could result in increased costs or project delays.
6. Segment performance variability: The company's different segments show varying levels of profitability, with the U.S. Gas segment experiencing lower gross margins compared to other segments. This variability in segment performance could impact overall financial results.
Despite these risks, Centuri's management team has demonstrated its ability to navigate challenging market conditions and implement strategic initiatives to drive long-term growth and profitability. The company's strong customer relationships, diversified service offerings, and focus on operational excellence position it well to capitalize on the evolving utility infrastructure services industry.
Conclusion
Centuri Holdings, Inc. (CTRI) is a leading North American utility infrastructure services provider with a rich history, comprehensive service capabilities, and a strong market presence. The company's strategic focus on modernizing utility infrastructure, its commitment to safety and sustainability, and its ability to adapt to changing market dynamics have been instrumental in its success.
With operations spanning 45 U.S. states and two Canadian provinces, Centuri has established itself as a crucial partner for regulated utilities across North America. The company's diverse segment structure, including U.S. Gas, Canadian Gas, Union Electric, and Non-Union Electric services, allows it to cater to a wide range of customer needs and market conditions.
While Centuri faces various risks and challenges, including segment performance variability and reliance on long-term agreements, its experienced management team, robust financial position, and growth opportunities in the evolving utility infrastructure services industry provide a solid foundation for long-term value creation. The company's ability to generate consistent revenue growth, improve gross margins, and maintain a strong liquidity position demonstrates its resilience and adaptability in a dynamic market environment.
As Centuri continues to execute on its strategic initiatives and capitalize on industry trends such as increased investment in utility infrastructure modernization and the shift towards cleaner energy sources, it remains well-positioned to strengthen its position as a trusted partner to its customers and generate sustainable returns for its shareholders. The company's focus on operational efficiency, cost management, and maintaining a strong balance sheet further supports its potential for long-term success in the utility infrastructure services sector.