Executive Summary / Key Takeaways

• Centuri Holdings is a leading North American utility infrastructure services company poised to benefit from significant secular tailwinds, including aging infrastructure, increased regulatory mandates for safety and reliability, and the energy transition.
• First Quarter 2025 results demonstrated notable gross profit margin expansion, particularly in the Non-Union Electric and Canadian Gas segments, driven by favorable project mix (storm work), improved bid margins, and better cost utilization, despite revenue headwinds in U.S. Gas from weather and customer budget timing.
• The company's strategic focus on long-term Master Service Agreements (MSAs) provides a substantial backlog ($4.5 billion as of March 30, 2025, 89% MSAs), offering revenue visibility, though volumes under MSAs are not guaranteed and subject to customer discretion and external factors.
• While facing intense competition from larger, more diversified players like Quanta Services (PWR) and MasTec (MTZ), Centuri leverages its regional focus, specialized equipment, and operational efficiency in gas services as key differentiators, alongside intangible assets like regulatory licenses.
• Key risks to monitor include the outcome of the City of Chicago legal proceeding (potential for significant unreserved loss), the successful refinancing or extension of the revolving credit facility maturing in August 2026, and the ability to pass through inflationary costs under existing contracts.

Setting the Scene: Powering North America's Aging Grid

Centuri Holdings, Inc. (NYSE: CTRI) operates at the crucial intersection of aging energy infrastructure and the imperative for modernization across North America. As a leading utility infrastructure services company, Centuri partners with regulated electric and natural gas utilities to maintain, upgrade, and expand the vital networks powering millions of homes and businesses. Its core mission revolves around enhancing the safety, reliability, and environmental sustainability of these systems, addressing decades of underinvestment and preparing for future demands driven by population growth, electrification, and the energy transition.

The industry landscape Centuri operates within is characterized by significant tailwinds. North America's electric and natural gas delivery infrastructure is often decades old and in need of substantial investment to prevent disruptions and meet evolving regulatory standards. Federal and state mandates increasingly emphasize system integrity management programs, driving multi-year replacement initiatives that create a durable demand for outsourced services. Furthermore, labor market constraints and a changing utility workforce are pushing utilities to rely more heavily on specialized external providers like Centuri.

Centuri's strategic approach is built on cultivating long-term relationships with utility customers, primarily through Master Service Agreements (MSAs). These agreements form the backbone of its business, providing recurring revenue streams and a degree of predictability, although they typically do not commit customers to specific work volumes. The company's service offerings are comprehensive, spanning maintenance, replacement, repair, retrofitting, and installation across distribution and utility-scale transmission networks. Centuri is also strategically expanding its reach into complementary, high-growth end markets such as renewable energy, data centers, and 5G datacom, aligning its capabilities with the broader shifts in energy and communications infrastructure.

The company's history, particularly its recent separation from Southwest Gas Holdings, Inc. (SWX) and subsequent Initial Public Offering in April 2024, has shaped its current structure and strategic focus as an independent publicly traded entity. While Southwest Gas Holdings, Inc. remains a significant shareholder (~81% post-IPO), Centuri now operates with greater autonomy to pursue its growth objectives, including a focus on strategic acquisitions to expand its geographic footprint and service capabilities.

In this intensely competitive environment, Centuri faces established rivals such as Quanta Services, MasTec, MYR Group (MYRG), and Primoris Services (PRIM). These competitors vie for market share across various segments of the utility infrastructure market. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Centuri holds an estimated 5-10% aggregate market share in North America. Centuri positions itself by leveraging its regional expertise, particularly in gas services, and its operational capabilities.

Centuri's operational differentiation stems, in part, from its specialized equipment fleet and an in-house fabrication shop mentioned in its U.S. Gas segment description. While the company's filings do not detail specific proprietary technology platforms with quantifiable performance metrics in the manner of a technology product company, its operational approach and specialized assets contribute to its competitive standing. For example, insights from competitive analysis suggest Centuri's specialized equipment and workforce in gas services may offer cost efficiencies (potentially 10-15% lower operating costs per unit) and better reliability (e.g., lower failure rates) compared to some alternatives. Its in-house fabrication capabilities can contribute to lower material costs per unit. These operational advantages, while not stemming from a single, named technology, are foundational to Centuri's ability to compete on cost and performance in its core markets. The company's strategic intent is to utilize these capabilities to secure and execute contracts efficiently, contributing to profitability and reinforcing customer relationships.

Performance Under Pressure: Navigating Seasonal Swings and Strategic Growth

Centuri's financial performance reflects the inherent seasonality of the utility infrastructure business, with the first quarter typically representing the lowest revenue period due to less favorable weather conditions. However, the most recent results for the fiscal three months ended March 30, 2025, demonstrate notable operational improvements compared to the prior year period.

Consolidated revenue increased by 4.2% to $550.1 million from $528.0 million in the first quarter of 2024. More significantly, gross profit saw a substantial 53.1% increase, rising to $20.3 million from $13.3 million. This led to a meaningful expansion in the consolidated gross margin, from 2.5% in Q1 2024 to 3.7% in Q1 2025. The operating loss narrowed considerably, decreasing by 42.1% to $12.7 million from $21.9 million, and the net loss attributable to common stock improved by 28.4%, reaching $17.9 million compared to $25.1 million in the prior year.

Segment-level performance highlights the drivers behind these results:

• U.S. Gas: Revenue decreased by 12.7% to $197.7 million, primarily due to adverse winter weather and customer budgetary constraints. Despite the revenue decline, gross profit surged by 273.6% to $14.9 million, with the gross margin improving significantly from 1.8% to 7.5%. This suggests that while weather impacted volumes, the profitability of the work performed in the current period was much stronger, potentially indicating that the prior year period was more severely impacted by weather-related inefficiencies or other performance issues that did not recur.
• Canadian Gas: Revenue saw a slight decrease of 2.9% to $39.8 million. However, gross profit more than doubled, increasing by 129.4% to $7.1 million, resulting in a robust gross margin of 17.8% compared to 7.5% in the prior year. This improvement was attributed to better bid margins and a $1.0 million government rebate.
• Union Electric: Revenue grew by 7.1% to $175.5 million, driven by incremental bid work. This growth was partially offset by a planned $22.3 million decline in offshore wind revenue due to project timing and lower emergency restoration services revenue ($1.6 million vs. $7.5 million). Gross profit saw a modest increase of 3.9% to $11.8 million, with the gross margin slightly decreasing from 6.9% to 6.7%.
• Non-Union Electric: This segment was a key driver of consolidated performance, with revenue soaring by 41.9% to $137.1 million. This significant increase was primarily due to higher volumes on existing MSAs and a substantial rise in emergency restoration services (storm work), contributing $16.6 million in revenue compared to just $1.8 million in the prior year. Gross profit surged by an impressive 481.9% to $16.3 million, pushing the gross margin from 2.9% to 11.9%. The higher profitability of storm work and more efficient utilization of fixed costs from increased crew counts contributed significantly to this margin expansion.

Selling, general and administrative expenses decreased by 7.6% to $26.4 million, benefiting from lower strategic review and severance costs related to prior year restructuring efforts. This was partially offset by increased stock-based compensation and other incentive compensation tied to improved operating results. Interest expense decreased by 25.9% to $17.9 million, primarily due to a lower average debt balance and reduced interest rates on variable-rate borrowings.

Centuri utilizes non-GAAP measures like Adjusted EBITDA to provide investors with a clearer view of its core operating performance, excluding items such as non-cash stock-based compensation, separation-related costs, strategic review costs, and severance costs. For Q1 2025, Adjusted EBITDA was $24.2 million, resulting in an Adjusted EBITDA Margin of 4.4%, compared to $20.2 million and 3.8% in Q1 2024. This margin expansion underscores the operational improvements despite revenue fluctuations in certain segments.

Comparing Centuri's TTM financial ratios to its publicly traded peers provides valuable context. Centuri's TTM Gross Profit Margin of 8.08% and Operating Profit Margin of 3.90% trail larger, more diversified competitors like Quanta Services (15% Gross Margin, 6% Operating Margin) and MasTec (13% Gross Margin, 4% Operating Margin), and are closer to MYR Group (9% Gross Margin, 2% Operating Margin) and Primoris Services (11% Gross Margin, 5% Operating Margin). This suggests that while Centuri achieved significant margin improvement in Q1 2025, its overall profitability profile on a trailing twelve-month basis reflects the competitive pressures and potentially different project mix compared to larger peers. However, Centuri's operational focus and specialized capabilities, particularly in gas services, contribute to its cost structure, which is a key competitive factor.

Liquidity and capital resources are critical for a capital-intensive business like utility infrastructure services. Centuri's primary liquidity needs include working capital, capital expenditures, and debt service. As of March 30, 2025, cash and cash equivalents stood at $15.3 million. Management believes its existing cash, operating cash flows, and credit facilities are sufficient for at least the next 12 months.

Net cash provided by operating activities saw a significant increase, reaching $16.7 million in Q1 2025 compared to cash used of $26.5 million in Q1 2024. This $43.2 million improvement was driven by better operating results and favorable changes in contract liabilities, partially offset by a $13.5 million net cash outflow from the Accounts Receivable Securitization Facility as the company decreased the amount of receivables sold during the quarter. Net cash used in investing activities was $23.2 million, primarily reflecting capital expenditures of $24.4 million. The company expects to continue incurring capital expenditures to support anticipated service needs. Net cash used in financing activities was $27.2 million, a shift from cash provided in the prior year, mainly due to increased repayments and decreased borrowings on the revolving credit facility.

Centuri's debt structure includes a senior secured revolving credit facility ($400 million capacity, maturing August 2026) and a term loan facility ($706.4 million outstanding, maturing August 2028). As of March 30, 2025, $97.8 million was outstanding on the revolving facility, with $241.8 million of unused capacity (net of letters of credit). The revolving facility's financial covenants require a net leverage ratio below 4.00x and an interest coverage ratio above 2.50x, with the company reporting compliance as of the reporting date. The Accounts Receivable Securitization Facility, established in September 2024 with a $125 million aggregate amount, provides additional liquidity by allowing the sale of receivables.

Outlook and Strategic Momentum: Capitalizing on Market Opportunity

Centuri affirmed its full year 2025 outlook, signaling confidence in its ability to capitalize on the favorable market environment. The company's strategic initiatives are focused on leveraging the secular tailwinds driving demand for utility infrastructure services. Modernization of aging gas and electric networks remains a core focus, supported by regulatory mandates for enhanced safety and reliability. Centuri is well-positioned to benefit from system integrity management programs that require multi-year replacement efforts.

Expansion into the renewable energy, data center, and 5G datacom markets represents a key growth vector. These areas require significant infrastructure build-out and maintenance, aligning well with Centuri's capabilities. The company's services also support utility customers' environmental objectives, such as reducing methane emissions through pipeline work and hardening electric grids against severe weather impacts.

Recent customer awards underscore the company's strategic momentum. Centuri secured record customer awards exceeding $1.2 billion, demonstrating strong demand for its services. Specific announcements include nearly $400 million in awards for the U.S. Gas segment, encompassing MSA renewals and expansion into new operating territories. The company also announced over $360 million in new project awards across utility, energy, and data center markets, including a significant new customer MSA. Furthermore, a $27 million agreement with Aemetis Biogas (AEM) to build gas cleanup systems highlights Centuri's participation in emerging areas like renewable natural gas infrastructure. The appointment of a new Senior Vice President for Sales and Business Development in U.S. Gas and Special Projects signals a focus on driving growth in these key areas.

The company's backlog, standing at approximately $4.5 billion as of March 30, 2025, provides a degree of revenue visibility, with 89% tied to MSAs. While backlog estimates future work over the contractual life of these agreements, it's important to note that MSAs generally do not guarantee specific work volumes and can be terminated. The timing of revenue recognition for fixed-price contracts with remaining performance obligations totaling $133.4 million is expected over the next approximately 1.5 years, but this timing is largely controlled by the customer.

Centuri intends to refinance or extend its revolving credit facility in the coming quarters. Successful execution of this plan is important for maintaining financial flexibility. The ongoing secondary offerings of Centuri stock by Southwest Gas Holdings, Inc. are part of the planned separation process and will impact Southwest Gas Holdings, Inc.'s ownership percentage, eventually leading to deconsolidation for tax purposes when its ownership falls below 80%. The Tax Assets Agreement with Southwest Gas Holdings, Inc. addresses the treatment of certain unutilized tax assets upon deconsolidation, which will be treated as deemed capital contributions and will not impact Centuri's liquidity.

Risks on the Horizon: Navigating External Factors and Specific Challenges

While the market opportunity is compelling, Centuri faces several risks that could impact its performance and the investment thesis. General economic conditions, including inflationary pressures on fuel, labor, and material costs, can negatively affect results if these costs cannot be fully passed through to customers, particularly under contracts with capped escalation provisions. Rising interest rates pose a risk to profitability due to the company's variable-rate debt.

The inherent nature of project-based work exposes Centuri to risks such as adverse weather conditions, project delays or cancellations due to regulatory requirements or customer issues, and potential cost or schedule overruns on fixed-price contracts. The reliance on MSAs, while providing backlog, means that actual work volumes are not guaranteed and can fluctuate based on customer budgets and priorities.

Customer concentration is a notable risk. In Q1 2025, one Non-Union Electric segment customer accounted for 10% of consolidated revenue and 13% of combined accounts receivable and contract assets. Significant changes in the business, cash flows, or financial condition of such a large customer could impact Centuri's ability to bill and collect amounts due.

A specific legal challenge, the contract claim against the City of Chicago by a subsidiary, presents a material risk. The City has withheld payments, and while the company is vigorously pursuing the matter after an unfavorable administrative decision, the ultimate outcome is uncertain. Failure to collect the withheld receivables could result in a significant loss, for which no reserves have been accrued to date.

The need to refinance or extend the revolving credit facility by August 2026 introduces financing risk, as there is no assurance it can be done on favorable terms or at all. Furthermore, the company's obligation to post performance and payment bonds, and potentially letters of credit as collateral, ties up borrowing capacity and exposes it to potential reimbursement obligations if a surety is required to make payments. Guarantees of subsidiary obligations also represent a potential liability that could exceed the subsidiary's ability to repay.

Compared to larger, more diversified peers like Quanta Services, Centuri's customer concentration and reliance on regional markets could make it more susceptible to localized economic downturns or specific customer issues. Its higher debt-to-equity ratio (0.49 TTM) compared to Quanta Services (0.24 TTM) suggests potentially less financial flexibility, although it is lower than MasTec (0.90 TTM) and Primoris Services (0.84 TTM). The outcome of the Chicago legal case is a company-specific risk not shared by its peers.

Conclusion

Centuri Holdings operates in a fundamentally attractive market driven by the essential need to modernize North America's aging utility infrastructure. The company's strategic focus on long-term utility partnerships, expansion into growth markets like renewables and data centers, and an acquisition-driven growth strategy position it to capitalize on these secular tailwinds. The first quarter 2025 results, particularly the significant gross margin expansion in key segments, demonstrate operational improvements and the potential for enhanced profitability, even amidst seasonal and customer-specific revenue fluctuations.

While Centuri faces intense competition and specific risks, including customer concentration, the Chicago legal dispute, and the upcoming revolving credit facility maturity, its established relationships, operational capabilities, and backlog provide a solid foundation. The ability to effectively manage costs, successfully integrate acquisitions, and navigate the competitive landscape will be critical to translating market opportunity into sustained financial performance. For investors, Centuri represents an opportunity to gain exposure to the utility infrastructure modernization theme, balanced against execution risks and the need to monitor key financial and operational developments as the company continues its journey as an independent public entity.