Centuri Holdings Inc (CTRI) 2025 Q1 法說會逐字稿

Greetings and welcome to Centuri's first-quarter 2025 earnings call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jason Wilcock, Century's Chief Legal and Administrative Officer and Corporate Secretary. Please, you may begin.

Thank you, Joelle, and hello, everyone. We appreciate you joining our call. This morning, we issued and posted on the Centuri Holdings website, our first-quarter 2025 earnings release. The slides accompanying today's call are also available on Centuri Holdings' website.

Please note that on today's call we will address certain factors that may impact this year's earnings and provide some longer-term guidance. Some of the information that will be discussed today contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are as of today's date and based on management's assumptions on what the future holds, but are subject to several risks and uncertainties, including uncertainties surrounding the impact of future economic conditions and regulatory approval.

A cautionary note as well as a note regarding non-GAAP measures is included on slides 2 and 16 of this presentation, today's press release, and our filings with the Securities and Exchange Commission, which we encourage you to review. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements, and we assume no obligation to update any such statements.

Today's call is also being webcast live and will be available for replay in the Investor Relations section of our website shortly after the completion of this call.

On today's call, we have from Century Holdings the following members of the leadership team: Chris Brown, President and Chief Executive Officer; Greg Izenstark, Chief Financial Officer. I'll now turn the call over to Chris.

Thank you, Jason, and hello, everybody.

We appreciate you joining us for our first-quarter 2025 earnings call.

Let me start by briefly addressing the delay in the timing of our earnings announcement and the call. We had an issue arise late in the process of finalizing our financial statements for the quarter that caused the delay. The issue has now been resolved, and we do not intend to go into any further detail on this topic. We look forward to discussing our Q1 results with you today.

During the quarter, we experienced a strong commercial momentum during the period and delivered results that exceeded our expectations. I'm proud of these achievements and look forward to expanding on them during our call. A big thank you to the Centuri team for their dedication and hard work in driving these outcomes.

Before diving into our progress and business, I'd like to briefly address the macroeconomic uncertainty that's on everybody's mind. We currently do not anticipate significant impacts from the global trade war or the tariffs on our business during 2025. Our business model offers natural resistance during challenging times. Our MSA weighted portfolio focuses on regulatory approved utility programs, which historically are generally insulated from market fluctuations.

In addition, we are actively working to expand our sales pipeline to grow our business and diversify our exposure, thereby mitigating further risk. We also note that in most cases, we do not procure our own materials.

I spent a good deal of time throughout the quarter traveling to meet with customers, those whom we already do business with, as well as prospective clients. I've been extremely encouraged by these engagements, as large as they are confirming their budget commitments and express an undeterred need for infrastructure maintenance, upgrade, and expansion.

Given that our fabric guidance embedded an appropriate level of caution, our outlook for full year 2025 remains unchanged. Looking ahead, we plan to consistently monitor day-to-day developments and be ready to adapt to as circumstances evolve. I think we could actually see more activity and not less based on these engagements with customers that I've had over the last four months.

With that said, let's now review Centuri's strategic priorities and our progress. On the February call, I emphasize how impressed I am with Centuri's exceptional scale, reach, and capabilities. Combined with our dedicated team, these attributes position as a leading utility service provider. Our strong platform enables us to deliver critical infrastructure upgrades and maintenance to gas and electric utility and energy partners serving millions across the US and Canada. We believe this foundation also strategically positions us to expand our market presence and capitalize on generational tailwinds created by demand where opportunities are bound across our core end markets.

Throughout my conversations with the investment community these past few months, I've consistently highlighted our priorities as we work towards achieving our potential as a fully scaled, integrated company with a strongly differentiated service offering. A top focus has been implemented a unified company-wide business development strategy focused on high growth pipeline development, refined market positioning, winning business strategies, and securing new awards. We must grow with our existing customers, add new customers, and continuously pursue new opportunities, all of which require both process enhancement and a fundamental mindset shift.

Since the beginning of 2025, we've made significant progress on this front. On our last public call, we shared the kickoff of our comprehensive evaluation of our pipeline tool and internal sales and business development process. This review is now largely complete. Initial resulting actions have been fully implemented and are already providing tangible benefits and enhancing how we manage the business and make real-time decisions.

Now institutionalizing our culture, this will remain a dynamic process that requires oversight and ongoing maintenance and is part of our organizational DNA. To support it, we have and will remain focused intensely on instilling a proactive growth mindset across the organization. We've aligned our KPIs top to bottom with company-wide growth targets and fostered broader thinking and collaboration across the organization.

Moving on into the second and third quarters, we plan to take a deeper examination of our end market's long-term potential as part of a strategic planning process that will result in development of actionable, measurable initiatives to further improve profitable growth and business resilience, taking us into the next three to five years. We will plan to elaborate more on the results of this process in the fourth quarter.

Turning to recent business development activity, we are very encouraged by the recent robust growth in our sales pipeline, which is now approaching $12 billion in revenue opportunities, and we remain confident in our ability to achieve a book to bill ratio exceeding 1.1 times this year as laid out in the February.

Importantly, we have been working towards this at an aggressive pace with a strong start to 2025. Specifically, we've achieved a record booking quarter with new bookings totaling $1.2 billion in the first quarter. This is a significant increase over the $221 million we booked in 2024 in the fourth quarter. These bookings drove a book to bill ratio of 2.2 times and an increase in backlog to $4.5 billion as at Q1 2025 from the $3.7 billion as of the year in 2024.

We have begun to keep the market apprised of our commercial achievements on a more real-time basis, demonstrating our commitment to growth targets and accountability. As such, many of the awards in our bookings number were captured in press releases we issued in late March and April. You can review those for additional color, so I won't delve too deeply into details, but do want to highlight a few key points.

Consistent with our history of viewing all of our MSAs, our Q1 bookings represented approximately $700 million of anticipated $2 billion revenue from MSAs that we previously flagged up for renewal in 2025. We expect to continually successfully negotiate renewals and extensions of long-term contracts through the remainder of this year.

Beyond that, we've been laser focused on expanding our customer base for exploration and pursuit of new opportunities within our end markets. This book has resulted in approximately $505 million of new MSAs and new bid awards won during the first quarter. These new bookings span our segments, regions, and end markets and include a significant new customer MSA to provide essential good resiliency for a leading US electric utility in the Southwest.

A project estimated to generate tens of millions in revenue and electrical infrastructure work for data centers and two new gas MSAs in the Pacific Northwest. The new gas MSAs mark our return to a territory we exited several years ago and were made possible by our strong relationship with the customer from work performed in other territories in the more recent past.

We expect the timing of renewals and varying award sizes to create some lumpiness in the magnitude of awards from quarter to quarter. However, we remain very bullish about the opportunities ahead of us as we work to win more awards within our nearly $12 billion in identified opportunities. We are excited to continue to report our progress in the months ahead.

Pivot into to business trends from the first quarter and today, starting with our gas business. During the quarter, the US gas segment faced some impact from adverse early-year weather conditions compared to recent years, which had milder winters. However, significant improvements in March put us back in line with expectations and continue to improve as we enter the second quarter. Greg will provide more details shortly.

In our electric business, we are pleased with the first quarter's performance and current market dynamics. Our non-union electrical segment is benefiting from strong market trends across the Sun Belt and Southeast where the widespread impact of damage and outages caused by major storms last fall seem to be driving grid resiliency and hardening programs forward.

In our more bid heavy union electrical business, bidding activity remains very high, and we are winning work, particularly in some of the more industrial focused end markets where we perform substrate in infrastructure and inside electric work. This includes data centers which require significant infrastructure investment and construction time. Looking forward, we are confident about our ability to maintain the positive trajectory we have seen across segments and delivering strong growth and strong results in the coming quarters.

Now over to Greg to elaborate on our results in our 2025 look.

Thank you, Chris, and good morning to those listening in.

First-quarter 2025 consolidated revenues totaled $550.1 million, a 4.2% increase from the first quarter of 2024, and consolidated gross profit was $20.3 million, which is a 53.1% increase over the prior year period. Gross profit margin of 3.7% in the first quarter of 2025 was higher than the 2.5% we reported in the first quarter of 2024. As a reminder, the first quarter is historically low slowest period, primarily due to the seasonal winter weather.

Revenue exceeded our expectations with most segments delivering year-over-year growth. Growth profits demonstrated improvement in the majority of our segments with particular strength in our non-union electric segments. On a GAAP basis, net loss attributable to common stock in the first quarter was $17.9 million or a diluted loss per share of $0.20, improved from a net loss attributed to common stock of $25.1 million or 35% -- or $0.35 on a per share basis in the same period last year.

In the first quarter of 2025, total company adjusted EBITDA, a non-GAAP figure, was $24.2 million or approximately 20% higher from the prior year quarter's $20.2 million. Adjusted EBITDA margin was 4.4%, up from 3.8% in the first quarter of 2024. Non-GAAP adjusted net loss in the first quarter came in at $10.5 million for an adjusted diluted loss per share of $0.12, up from $14.4 million on an adjusted diluted loss per share of $0.20 in the prior year period.

The difference between our GAAP and non-GAAP adjusted net loss primarily reflects the impact of amortization of intangible assets as well as separation-related costs and non-cash stock-based compensation.

Turning to our reportable segments. Revenue for US gas segment totaled $197.7 million, reflecting a year-over-year decrease of 12.7%. Typically, our gas business is more impacted than our electric business segments when we experience very cold weather and snow. The majority of gas work involves digging, trenching, and boring, all of which are challenging when temperatures are below freezing.

As many as you can attest, we had a much harsher winter than not only last year, but relative to the last several years. Centuri was particularly hard hit in the central and southern Great Plains and the southern portion of the mid-Atlantic.

Gross profit margin in the segment decreased to negative 7.5% in the first quarter of 2025 from negative 1.8% in the prior year period. This decline was due again to the inefficiencies caused by weather disruptions and from a sluggish start to the calendar year across certain customers.

As Chris mentioned, March saw significant improvement in work volume and improved margins that continued into the second quarter. As discussed on our February call, we began taking steps to structurally improve our contracts and cost structure in this segment early in the year, and we look forward to much stronger segment results in the second quarter and beyond.

Our Canadian gas segment remains a steady business with strong margins. Revenue totaled $39.8 million, down 2.9% from the prior year period, while segment margin of 17.8% was more than double the prior year period's 7.5% as profitability in the prior year period was negatively impacted by performance issues on certain bid projects.

In our Union Electric segment, revenue was $175.5 million, an improvement of 7.1% year over year. Our core Union Electric segment, which excludes offshore wind and storm restoration services, experienced 32.7% growth year over year, driven by increased bid project activity, particularly in industrial work around substation infrastructure. Within the segment, offshore wind revenues were down 64.1% or $22.3 million as project work winds down in line with our expectations.

Gross profit in the Union Electric segment was 6.7% in the first quarter of 2025, largely in line with the first quarter of 2024. Non-union electric segment revenue in the first quarter of 2025 was $137.1 million, a 41.9% increase year over year. Core non-union work increased 27.1% during the period, primarily due to an increase in volumes on MSAs, as we deployed significantly more crews and had higher work hours during the period.

Segment gross profit increased meaningfully to 11.9% in the current period compared to 2.9% in the prior year period. This reflected the favorable impact of more efficient utilization of fixed costs due to an increase in resiliency work that drove higher crew counts and higher -- and hours worked, as well as an increased contribution for more profitable storm work.

Turning to capital expenditures in line with our capital efficiency program outlined in the February call, net CapEx was $23.2 million, down from $24.6 million in the prior year period, and our free cash flow in the first quarter of 2025 improved by $44.6 million compared to the first quarter of 2024.

Moving into some balance sheet highlights on a trailing 12-month basis, our net debt to adjusted EBITDA ratio improved to 3.5 times at March 30, 2025, from 3.6 times at December 29, 2024. We ended the quarter with $15.3 million in cash and cash equivalents on the balance sheet. Growing our business in a capital efficient manner remains a core strategic priority.

As Chris discussed in February, enhancing capital efficiency by refining our capital equipment sourcing and fleet management and reducing working capital levels through improved AR and DSO management are among the Centuri's key strategic priorities. We are progressing on all of these fronts with the goal of improving free cash flow and further strengthening our balance sheet.

Finally, turning to our 2025 outlook, for revenues, we affirm we expect to deliver between $2.6 billion and $2.8 billion. For adjusted EBITDA, we retained our outlook of generating between $240 million and $275 million. And finally on CapeX, we continue to forecast our net spend to be between $65 million and $80 million dollars.

Chris mentioned it, but I'll repeat it. At this time, we do not foresee a material impact from tariffs on our business. We plan to, of course, continue to follow any developments and the resulting effects on our business as we move through the weeks and months ahead.

Over to Chris to conclude our prepared remarks.

Great. Thank you, Greg.

Centuri remains committed to delivering structured, profitable growth. To summarize, we are well underway in implementing a unified business development strategy. We have enhanced our pipeline management and sales strategies and are fostering a growth-oriented culture. Our business performance is off to a solid start in 2025.

Awards have been very strong and diverse, and market trends are driving growth across both our gas and electrical segments. The work on the contract and the highly probable opportunities suggest that we are on track to deliver revenue at the upper end of the guidance range for the year.

Simultaneously, we continue advancing our other strategic objectives, improving capital efficiency and performance by optimizing funding sources and reducing working capital. Our core end markets remain strong, with capital investments reaching double-digit growth driven by increasing demand for energy resilience, which gives us confidence to maintain our full year '25 forecasts introduced in February.

Thank you very much for your time and support. We look forward to providing additional updates on our achievements.

Operator, if you'd please open the Q&A session.

(Operator Instructions) Drew Chamberlain, JPMorgan.

Thanks for taking the questions. First one for me, can you talk a little bit about the trajectory for 2025 and how you think you're still going to get to the -- I mean, that sounds like the upper end of the revenue guidance despite the weaker 1Q in US gas there and maybe where is that other catch-up or rebalancing coming from? Is it gas being stronger throughout the rest of the year or is it the other aspects of the business?

Thanks for the question, it's Chris. So the weather, the weather affected us in just January and February in the gas business. It bounced back and we were at the expected margins in March and continuing into April. So it was eight to nine days, I think we lost in the first two months, which caused the slower than anticipated start for the gas business, but as I say, it recovered in March and April.

So for the full year, we have worked under contract. I'll just repeat what I said, as well as backlog that is pushing us towards the upper end of the guidance. All of the operating companies are well on track and forecasting that they will meet their budget expectations. So even though the gas businesses had a US gas business had a slow start in January, February, they fully anticipate about getting back to the level of performance we have budgeted for the year, and that formed the basis of our guidance.

So it's across all of the business that we're expecting delivery to the expectations, Drew. Gas was just a slightly slow start. There's been an overcorrection in March and going into April, but we still feel very good about the opportunities in the gas business as well as the broader electrical, both union and non-union.

Okay, it's good to hear. Thanks, Chris. And then just maybe stepping back for a follow-up, can you just talk a little bit more about maybe some of the key findings of the strategic review? Obviously good to hear that it's nearly wrapping up here, but maybe could just talk to us a little bit about what you found as most valuable from that process?

I think there was some -- if I break it down probably into four components, we structurally we needed to make sure the business had a top to bottom across all operating companies, detail available and live sales pipelines so we could generate analytics to provide us with the right level of information so we can make informed decisions on how we position ourselves in the market.

I think we were still a little bit abstract across the five operating companies. Now we've got a fully integrated sales pipeline that basically is more forward-looking, allows us to make decisions around increasing the pipeline, decisions on pricing, decisions on positioning. So the pipeline was one.

Secondly, I think cross selling is a term I think we've used in the past. We've got great capability across all the ops. We've got great scale. We've just been trying to maximize that and go to the market as one Centuri. So there's been a positioning of the broader company to our customers.

The third thing is culture. I think everybody's objective in the business who faces the customer should be not only delivering the services we're contracted to provide, but also identifying more work we can do for our customers, and that's been a cultural shift and then probably the four parties, and I mentioned it in the prepared notes, is having KPIs from top to bottom on both growth as well as increasing profitability in the business.

And they're the four areas.

Steven Fisher, UBS.

Thanks, and congratulations on the progress. Just on the US gas segment, curious how you would frame the loss relative to what you would have expected going into the quarter? And I guess the bigger picture question here is really, is this a business or a segment that should generate a profit in Q1?

Is that your sort of ongoing strategic target? And if so, is there anything that structurally you need to do to be able to achieve that, or just every year you have to hope that the weather is going to be friendly enough to allow for a profit?

Steven, I'll answer the question around position in the business in the future, and Greg can answer the questions on what we would normally expect.

There's no doubt when you do work in certain states, in certain regions of the country, the weather comes and we can't control the weather, but what we can do is help migrate the business further south so that we've got more sales opportunities across the Sun Belt and other parts of the country, both in industrial and traditional utility clients so that we get we can get some size and scale into the pipeline in the lower states and mitigate the impacts of the weather, particularly in the Northeast, maybe even across going across the west coast.

So the answer to your question is there's some work we have implemented to build up a pipeline of opportunities in states that are less affected by the weather so that we can become profitable earlier in the year. That's something we're ongoing with.

And from an expectation perspective, Steve, and good morning. What I'd say is, Q1 is the seasonally slow period, most notably for the gas business, just given the weather conditions that I articulated on in my prepared remarks, and we still remain confident that the full year will perform as expected heading into the year.

Okay, that's helpful. And then, I think you still have the 1.1 times book to bill target, now with over 2 times in the first quarter, I sort of should expect some pretty -- I know you mentioned lumpiness, but should there be some pretty kind of light quarters within that, what kind of visibility and cadence do we expect on the bookings from here? Thank you.

It's a good question, Steven. The strength of the bookings has continued nicely into Q2, and we track it weekly, so we've got good visibility on the full year. We've continued into Q2 with a very strong booking quarter. And I think the 1.1 times is definitely an achievable target for the full year. I think there are months of the year where the traditional MSA renewals are slower and you then get a pickup as you move into the fourth quarter to the year, close to the year end.

So to answer your question, I would foresee some lumpiness in the third quarter. The second quarter looks robust, and the fourth quarter driven by not only MSA renewals, but also some new bid work will pick up again. But we're confident we will achieve if not exceed the 1.1 target with Q3 probably being our quietest quarter, but Q2 and Q4 being pretty solid on bookings, both MSA and new bid awards.

Justin Hauke, Baird.

Great. Good morning. Thank you for taking the time.

First one, just to clarify, the guidance when you say the upper end of revenue, I didn't hear you say the upper end of adjusted EBITDA as well, so I just wanted to kind of confirm what you're thinking on the EBITDA side?

And then maybe some comments on kind of the cadence and the seasonality given that you had some slower starts in electric to kind of start the year last year and maybe it's a little tougher in the back half or just kind of how to think about the contribution on board?

I can take the guidance question. Look, we've not read guidance because we're only a quarter in. We want to be cautious. As everybody knows, we've had a lot going on in the business and a lot of change, so we are cautious. So what I would say to your question is yes, the bookings, the backlog, and the very highly probable work is taking us towards the upper end of the guide as we said in our prepared notes. So that's close to the $2.8 billion of revenue for the year.

We don't see any impacts and we don't see any dilution of our margins as we continue to drive growth into the business, nor do we see any margin erosion coming from competitive pressures. So we're still very happy with the EBITDA margin, to answer your question.

In terms of seasonality, all of the businesses with the exception of January, February, and the eight or nine days we had that affected the gas business up in the northeast and Atlantic coast, all of the businesses are showing strong Q2, Q3, Q4 all the way to year end, so we don't see any further seasonality as we've come through the first quarter.

Okay, thank you. I guess my second question is, so obviously, a big part of the story this quarter was the really strong bookings, which we've already discussed, but I wanted to ask about the $505 million that's the new work and some of that is new MSA as you mentioned, the one in Pacific Northwest, but then some of them are the strategic bids, which I know Chris has been something you wanted the company to pivot towards.

And I guess I was just curious to understand kind of the risk profile of that work, the strategic stuff. Are those customers you've worked with in the past and just how to get comfortable that it doesn't change kind of the the lower risk MSA profile? Thank you.

The type of work we are performing is just sticking to the knitting. It's as simple as that. It's the same services we've been providing for the last number of years. It's nothing new, it's nothing different. The risk profile's not changing. There's no need to change it. There's plenty of opportunity doing the same thing, the same type of services, the same forms of contracts with many of the same customers.

So there's no shift at all in what we're doing and how it's just how we positioned ourselves in the market and holding ourselves to account to actually find more opportunity. So I wouldn't read in the $505 million and it's continued as we've gone into the second quarter. The focus to drive businesses on these new opportunities and these new MSAs, but it's doing the same thing, the same services under the same type of risk profile that we do each year and have done so for many years. So there's no change there, no need to.

Sangita Jain, KeyBanc Capital Markets.

Great. Good morning. Thank you for taking my question. So if I can ask one more on margins, just trying to see if there are things that you will need to do as a result of the strategic review to get you to the full year EBITDA margin, especially if it's a more normal stormer versus last year?

Thank you for the question. No, I don't -- there's nothing radical. There's nothing different we need to do from the inside, we are tracking the budget we expected to track that will deliver the full year guidance. The backlog, the type of work, the expected bookings that we see in the next few weeks basically confirmed to us we've just got to execute on delivery, execute and deliver to achieve this year's consensus. There's nothing abnormal to it.

Yeah, there was a bit of disappointment in January, February with the weather, but again, we can't really change the weather. What was what was absolutely clear was the bounce back in March and April in the gas business, and that's no trending to exactly where we wanted it to be for the year.

Great, thank you. And if I can ask on the new MSAs that you spoke about, can you just say that in more detail if you were able to displace incumbents on those or if that was an increase in the utility scope of work that allowed you to participate in these?

It was both, to answer clearly. We've been performing well with many of our customers. We've been spending time with our customers and asking if there are opportunities to do more and more of a stronger position in. Not all of the competition perform as well as we do, so we've seen opportunity to displace, but we're also seeing opportunity just because clients are spending more money.

So it's both, and that's continued as we've gone into the second quarter also.

(Operator Instructions) Sherif El-Sabbahy, Bank of America.

Hi, good morning. Just wanted to touch on the non-union electric. Storm was a substantial list there. Could you give us a sense of what gross margin looked like ex storm just to give an idea of how much fixed costs absorption contributed to the improvement in the quarter?

Storm, it was about 10% of their revenue. It wasn't overly material. I mean, the drive improved the EBITDA margin -- or gross margin, excuse me, was really driven by the increased crews that we added, not just the ones in the first quarter, but also the 40 or so crews that we added in the last half of 2024 that we talked about in prior calls. And then just increased work hours, especially given some of the headwinds we had last year with work hours, we've really seen those return to more normal levels.

Understood. And looking at the bookings, you had good bookings in the quarter. You touched on this a bit earlier with the lumpiness of MSA renewals. Can you give us a sense of typically is Q1 the heavier renewal period for a lot of those MSAs, and can you give us a sense of what backlog looked like in the first quarter historically in '22 or '23 just to understand the typical MSA impact at the start of the year?

MSA renewals are mainly in the fourth quarter, is what the data set tells me. We can probably do the calculation on the backlog. Greg will look into that. But the lumpiness is typically in the middle of the year in the utility clients where MSAs are renewing, but we call -- our drive is to find new opportunities, new bid work, which is less seasonal.

So I did answer the question a little earlier. Q1 was busy across MSA renewals as well as MSA bidding as well as new bid work. Q2 is the same, although there are one or two MSAs that we expect to renew around about June 30, so they may go over the quarter, but we expect Q2 to be busy. Q3 does not have a lot of MSA renewals, so it will be mainly bid work, which is why I said earlier it would be somewhat quieter. And then as we get into the fourth quarter, there are some MSAs that will be renewed and there'll be also a significant amount of bid work we're anticipating.

So that's how I answer the question.

There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.