Centuri Holdings, Inc. quarterly report, Q1 FY2024

Centuri Holdings, Inc. — Q1 2024 Form 10-Q

Business context and reporting period

Centuri provides utility infrastructure services to regulated electric and natural-gas utilities in the U.S. and Canada, with additional activity in renewable energy and other markets. The 13-week quarter ended March 31, 2024. The financial statements are for Centuri Group, Inc., Centuri Holdings’ predecessor for financial-reporting purposes; Holdings had no substantive operations at quarter-end. Results are seasonal and the first quarter is typically the lowest-revenue period.

After quarter-end, Centuri separated from Southwest Gas Holdings and completed its IPO on April 22, 2024. Its shares trade on the NYSE as CTRI.

Financial results and liquidity

MetricQ1 2024Prior comparable quarter
Revenue$528.0 million$653.3 million
Gross profit / margin$13.3 million / 2.5%$41.9 million / 6.4%
Operating income (loss)$(21.9) million$11.7 million
Net loss$(25.2) million$(7.1) million
Adjusted EBITDA / margin (non-GAAP)$20.2 million / 3.8%$49.2 million / 7.5%
Operating cash flow$(22.2) million$51.9 million
Capital expenditures$30.5 million$23.2 million

Cash was $18.4 million at March 31, down from $33.4 million at year-end. Total debt carrying amount, including revolving borrowings and equipment loans, was approximately $1.21 billion; term-loan interest averaged 7.94%. Revolver availability, net of letters of credit, was $201.5 million. The company reported compliance with its financial covenants at quarter-end. Current assets were $613.0 million and current liabilities $440.2 million.

IPO and concurrent private-placement proceeds totaled $329.3 million net. The company used $156.0 million to repay revolver borrowings and $160.0 million to repay term debt; remaining proceeds were designated for general corporate and working-capital purposes. The filing does not provide a post-transaction debt balance.

Material changes versus the prior period

  • Revenue fell 19.2%; lower activity and unfavorable winter weather affected multiple segments. Non-Union Electric revenue also declined as storm-restoration work fell to $1.8 million from $22.2 million.
  • Gross margin contracted to 2.5% from 6.4%, with a U.S. Gas segment gross loss and sharply lower Non-Union Electric profitability. Management cited weaker volumes, work mix, and reduced higher-margin storm work.
  • SG&A rose 21.3% to $28.6 million, including $8.3 million of strategic-review and severance costs, versus $0.2 million a year earlier. Interest expense rose 7.7% to $24.1 million, reflecting higher rates and revolver borrowings.
  • Operating cash flow swung to an outflow, attributed to lower earnings and working-capital changes. Capital expenditures increased by $7.3 million.
  • Reporting was reorganized into four segments—U.S. Gas, Canadian Gas, Union Electric, and Non-Union Electric—and prior-year segment data was recast.

Outlook, risks, contingencies, and unusual items

  • No numerical earnings or revenue guidance is provided. Management expects sufficient liquidity for at least the next 12 months and expects continuing capital expenditures and separation-related costs through at least fiscal 2025.
  • Backlog was approximately $4.8 billion at March 31, versus $5.1 billion at December 31. Much MSA work has no committed volume; projects may be delayed, changed, or cancelled. The filing reports $276.8 million of remaining performance obligations on 53 longer-duration fixed-price contracts, expected to be recognized over about two years, with timing substantially influenced by customers.
  • Key risks include seasonality and weather, project and customer work mix, labor and other inflation, material and equipment availability, fixed-price cost overruns, variable-rate debt costs, customer payment and collection timing, and regulatory or project delays. One Union Electric customer represented about 13% of receivables and contract assets at quarter-end; no customer exceeded 10% of quarterly revenue.
  • Outstanding performance and payment bonds were estimated at $561.3 million, with estimated costs to complete the bonded projects of $203.7 million. The company reported no known material bond-payment obligations or material claims under subsidiary guarantees. It does not believe known legal proceedings will materially affect its financial position or results.
  • The company agreed to redeem the remaining 10% Linetec noncontrolling interest for $92.0 million, paid in April. Accrued redemptions and purchases of noncontrolling interests totaled $92.8 million at quarter-end and were excluded from Q1 cash flows because they were non-cash during the quarter.
  • Southwest Gas Holdings retained approximately 81% ownership after the IPO. Separation agreements include allocation and indemnification provisions, tax responsibilities, and parent rights; tax liabilities and potential indemnification obligations are among the matters to monitor.

Important facts for investors to verify

  • Whether lower volumes and margins improve as weather normalizes, and whether the Q1 segment declines were temporary or reflect ongoing customer and project trends.
  • Post-IPO debt, interest expense, covenant headroom, and use of remaining offering proceeds; the filing does not state the post-paydown debt balance.
  • Cash conversion, collection of unbilled and contract-asset balances, and the timing and funding of accrued noncontrolling-interest payments.
  • Backlog conversion and exposure to customer-controlled schedules, cancellations, fixed-price contract performance, and the concentrated Union Electric receivable position.
  • The effect of continuing separation costs, Southwest Gas Holdings’ control and contractual rights, and any related-party arrangements after separation.