Centuri Holdings, Inc. (CTRI) is a leading, pure-play North American utility infrastructure services company that partners with regulated utilities to maintain, upgrade, and expand the energy network that powers millions of homes and businesses. The company's service offerings primarily consist of the modernization of utility infrastructure through the maintenance, retrofitting, and installation of electric and natural gas distribution networks, building capacity to meet current and future demands, and preparing systems for the expected energy transition.
Centuri's History and Growth
Centuri's origins can be traced back to 2014 when it was formed as a wholly-owned subsidiary of Southwest Gas Holdings, Inc. to consolidate and oversee the operations of several utility infrastructure services companies operating throughout North America. In October 2014, Centuri Group, Inc. was formed as a wholly-owned subsidiary of Southwest Gas Holdings under the laws of the state of Nevada. Centuri Group served as the main operating company, consolidating and managing the various utility infrastructure services businesses.
In November 2018, Centuri acquired Linetec Services, LLC, with the previous owner initially retaining a 20% noncontrolling equity interest in the entity. This noncontrolling interest was later reduced to 10% by the end of 2023. In November 2021, certain members of Riggs Distler Company, Inc. management acquired a 1.42% noncontrolling interest in Centuri's parent company, Drum Parent LLC.
In June 2023, Centuri was incorporated in Delaware as a wholly-owned subsidiary of Southwest Gas Holdings, formed for the purpose of completing an initial public offering, facilitating the separation of the Operating Company from Southwest Gas Holdings, and carrying on the business of the Operating Company. 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. This separation transaction resulted in Centuri Group becoming a wholly-owned subsidiary of Centuri Holdings. Prior to this, Centuri Holdings had nominal assets, liabilities, and operations.
On April 18, 2024, Centuri's common stock began trading on the New York Stock Exchange under the ticker symbol "CTRI" following the successful completion of its initial public offering. The company raised $328 million in net proceeds from the IPO and a concurrent private placement, which it used to pay down existing debt. The Centuri initial public offering was completed on April 22, 2024 through the sale of 14.26 million shares of common stock, including the underwriters' full exercise of their option to purchase shares to cover over-allotments. On the same day, Icahn Partners and Icahn Partners Master Fund LP purchased 2.59 million shares of Centuri's common stock in a concurrent private placement. As of the IPO's closing, Southwest Gas Holdings owned approximately 81% of Centuri's outstanding shares.
Financial Performance and Ratios
Centuri's financial performance has been mixed in recent years. In 2023, the company reported total revenue of $2.90 billion, a decrease of 5.2% from the prior year. Net income for 2023 was a loss of $172.6 million, compared to a loss of $168.1 million in 2022. The company's gross profit margin in 2023 was 9.4%, down from 7.8% in 2022.
For the most recent quarter (Q3 2024), Centuri reported revenue of $720.05 million, a 7.1% decrease compared to the prior year quarter. This decline was primarily due to a reduction in net volumes under existing customer Master Service Agreements (MSAs) in the U.S. Gas segment. Net income for Q3 2024 was a loss of $3.65 million. Operating cash flow for the quarter was $173.64 million, with free cash flow of $160.70 million.
Looking at Centuri's key financial ratios, the company's current ratio was 1.64 as of September 29, 2024, indicating a solid short-term liquidity position. The quick ratio was also 1.64. However, the company's debt-to-equity ratio was 1.78, suggesting a relatively high level of leverage. Centuri's return on equity was -48.3% in 2023, reflecting the significant net losses incurred during the year.
Liquidity
As of September 29, 2024, Centuri had $52.46 million in cash and $218.40 million available under its revolving credit facility, net of outstanding letters of credit. The company has taken steps to enhance its financial flexibility, including entering into a $125 million accounts receivable securitization facility in September 2024. This facility has allowed the company to improve its cash flow from trade accounts receivable and further pay down existing debt.
Operational Highlights and Challenges
Centuri operates through four reportable segments: U.S. Gas Utility Services (U.S. Gas), Canadian Gas Utility Services (Canadian Gas), Union Electric Utility Services (Union Electric), and Non-Union Electric Utility Services (Non-Union Electric). For the first nine months of fiscal 2024, the U.S. Gas segment was the largest contributor to revenue, accounting for 48.6% of the total. Union Electric and Non-Union Electric segments contributed 26.0% and 18.0% respectively, while Canadian Gas contributed 6.6%.
In terms of profitability, the Canadian Gas segment had the highest gross margin at 21.2%, followed by Non-Union Electric at 11.7%, Union Electric at 7.8%, and U.S. Gas at 5.3% for the first nine months of fiscal 2024.
Centuri has navigated several operational challenges in recent years. The company's U.S. Gas and Canadian Gas segments have faced reduced net volumes under existing customer master service agreements (MSAs), largely due to delayed or unfavorable regulatory decisions faced by key customers. Additionally, the company's Union Electric and Non-Union Electric segments have grappled with a decline in offshore wind revenue and lower margins on bid projects.
Despite these headwinds, Centuri has secured significant new and renewed customer awards, reflecting a total multi-year estimated revenue potential of approximately $350 million. As of September 29, 2024, the company's backlog totaled $4.3 billion, with 87% related to MSA revenue, providing a solid foundation for future work.
Geographic Performance
While Centuri operates primarily in the United States, it also has significant operations in Canada. Revenue from Canadian operations accounted for approximately 7% and 8% of total revenue for the fiscal nine months ended September 29, 2024, and October 1, 2023, respectively.
Risks and Challenges
Centuri faces several key risks and challenges that investors should be aware of. The company operates in a highly competitive industry, which can lead to pricing pressure and margin compression. Additionally, the seasonal nature of the utility infrastructure services industry and the potential for delays or cancellations of projects due to regulatory requirements, adverse weather conditions, or other factors can impact the company's financial performance.
The company is also exposed to risks related to the availability and cost of labor, equipment, fuel, and materials, which can adversely affect its profitability if it is unable to pass through these increased costs to customers. Centuri's high level of debt and leverage also pose a risk, as rising interest rates could negatively impact the company's financial condition and results of operations.
Industry Trends
The utility infrastructure services industry is facing increasing regulatory stringency and legislation aimed at supporting necessary infrastructure investments to prevent disruption, enhance safety, and meet current and future energy demands. This trend has led to growing reliance by utilities on outsourced service providers like Centuri, potentially creating opportunities for growth in the sector.
Outlook and Conclusion
Despite the challenges faced in recent years, Centuri remains well-positioned to capitalize on the growing demand for utility infrastructure services. The company's focus on modernizing utility infrastructure, building capacity to meet current and future energy needs, and supporting customers' environmental objectives aligns with the industry's ongoing trends and regulatory requirements.
Centuri has reiterated its full-year 2024 financial outlook, expecting revenue in the range of $2.4 billion to $2.6 billion and adjusted EBITDA between $210 million and $230 million. While the company's short-term financial performance has been impacted by various operational headwinds, Centuri's long-term growth prospects remain promising as it continues to execute on its strategic priorities and leverage its position as a leading provider of utility infrastructure services in North America.
It's worth noting that as of the latest available information, there have been no reported scandals, short seller reports, or CEO departures for Centuri Holdings, which may provide some stability for investors considering the company's future prospects.