Q4 2024 Centuri Holdings Inc Earnings Call
Speaker Change: Greetings and welcome to Century's fourth quarter and full year 2024 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Millcock, Century's Chief Legal and Administrative Officer and Corporate Secretary. Please, you may begin.
Jason Millcock: Thank you, Joelle, and hello everyone. We appreciate you joining our call. This morning, we issued and posted the Century Holdings website our fourth quarter 2024 earnings release.
Jason Millcock: Slides coming in today's call are also available on Century Holdings website.
Jason Millcock: 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.
Jason Millcock: Some of the information that will be discussed today contains forward-looking statements within the meeting of the Private Securities Litigation Reform Act.
Jason Millcock: 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 impacts of future economic conditions and regulatory approvals.
Jason Millcock: This cautionary note, as well as a note regarding non-GAP measures, is included on slides 2 and 16 of this presentation. Today's press release
Jason Millcock: and our filings with the Securities and Exchange Commission, which we encourage you to review.
Jason Millcock: 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 statement.
Jason Millcock: 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.
Chris Brown: 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.
Chris Brown: I'll now turn the call over to Chris. Thank you, Jason. Good day, everybody. Thank you for joining us for our fourth quarter of the year 2024, and it's called My First as President and CEO Century.
Chris Brown: It is an honour to lead this organisation and I deeply appreciate the warm welcome I have received since joining in early December. Thank you to all my colleagues.
Chris Brown: Long before officially joining Sentry, over a number of years I had the opportunity to observe how Sentry has built its scale, reach and capability and admire how it operates and services its clients.
Chris Brown: Moreover, during seven months of recruitment process, I was able to further strengthen my knowledge from inside the organisation.
Chris Brown: Now, after over three months, I've engaged with many of our employees, our customers, routinely visited all of our primary operating locations, and visited many sites across North America.
Chris Brown: In doing so, I've been truly impressed by the strength of our organisation and the dedication of our people and our teams.
Our leads are deeply connected with their customers.
Chris Brown: and John Lewis, possess a strong understanding of our organisation and consistently ensure that we deliver the safe, high quality service that defines our organisation and our culture.
Chris Brown: Against this backdrop, I'm incredibly enthusiastic to speak with the investment community for the first time today and in the weeks and months ahead.
Chris Brown: Century is a leading utility infrastructure services company and as a platform that we can build from, growing our end markets in a more focused, structured and significant way.
Chris Brown: We believe we are incredibly well positioned in both our primary and markets.
Chris Brown: With respect to electric, we are able to capitalize on the involving energy demands and infrastructure expansion.
Chris Brown: The need to upgrade an aging grid, enhance its reliability, and expand its capacity due to the growth we have seen from data centers, advanced manufacturing, electrification, and renewables presents significant opportunity for us.
Chris Brown: With the exciting prospects ahead, we are actively instilling a proactive growth mindset in our culture, one that maximizes capabilities across the entire enterprise and actively drives our expansion.
Chris Brown: This means growing with our existing customers, adding new customers and continuously looking for opportunities.
Chris Brown: Our leaders are being challenged to not just deliver services under contract, but to actively look for opportunities to do more. Achieving this requires having the best positioning.
Chris Brown: The best people, the best tools, and a culture to deliver greater value and services to all our existing and our new customers.
Chris Brown: As we complete the transition from being a subsidiary of a utility company to maturing as a standalone service provider, we will further our focus on the following areas in the coming months.
Yes, wait.
will create a structured, company-wide approach to business development.
Chris Brown: focused on high growth development of our pipeline, more focused market positioning, business winning strategies and securing of new awards beyond our existing MSAs.
Chris Brown: Our organisational obligation is to not only safely execute the services we are contracted to provide, but to grow and to bring further value to our customers.
Chris Brown: Secondly, we'll focus on improving capital efficiency, with a focus on increasing returns across our asset base, which will include, one, growing the fleet size by reducing balance sheet funding and maximising other efficient sources of funding, including leasing and rental. And two,
Chris Brown: agreed to focus on reducing working capital by optimising invoicing and our collections.
Chris Brown: The implementation of these plans across these three focus areas is well underway and we anticipate seeing tangible and quantifiable benefits over the coming months and quarterly reporting periods.
Chris Brown: In the second half of 2025, we intend to build further on this work by conducting a more long-term view of our rent markets.
Chris Brown: and seek to quantify actions and plans needed to drive greater growth and sustainability into our business into the future.
Chris Brown: Before we turn to specific trends in our business, it's worth commenting about the changed political dynamic and evolving energy policy in the United States and how that impacts Century.
Chris Brown: Our view is that our core end markets across the entire value chain will remain strong. We are seeing capital investment levels continue to grow into the double digits driven by the need for energy resiliency, demand and growth.
Chris Brown: We are positioning and have positioned our pipeline of future opportunity such that we are not relying upon new offshore wind and other unfunded major projects to deliver the growth expectations that we all have.
Chris Brown: Fortunately, Sentry has the capability, people's expertise, and the skilled platform to be able to meet infrastructure needs across the energy and in utility value chain.
Chris Brown: Turning to business trends for the fourth quarter and today starting with our gas business.
Chris Brown: During Q4, revenues and volumes under our MSA in our gas segment largely normalised.
Chris Brown: While rate cases are a constant factor in our industry for 2025, we have not identified any that pose significant concerns regarding their potential impact on our 2025 operations.
Chris Brown: In December, we were pleased to see several of our gas clients allocate remaining funds in their 2024 budgets to complete capital investments, which positively impacted our top line.
Chris Brown: This pattern aligns with historical behaviours where clients set annual budgets to ensure they spend allocated funds by the end of the year to maximise their returns.
Chris Brown: Gas margins during 2024 were below our expectations, driven by rate case approvals, competitive forces, and the need to realign resources and improve utilisation rates.
Chris Brown: When some of our customers slowed down giving rate out case outcomes, we lack near-term sales opportunities and should have optimized our crew counts faster.
Chris Brown: The work to exit poor performing contracts and restructure the gas group now has largely been completed.
Chris Brown: And we anticipate gross margins to normalize during 2025 to their historical averages of between 7% and 7.5%.
Chris Brown: We will of course closely monitor customised dynamics and make adjustments as necessary and remain attentive to gas margin improvement.
Chris Brown: In our electric business, we saw steady improvement in our core operations throughout the second half of 2024 into the year end, with a continued recovery in crew counts, especially in our non-union segment, which has continued into 2025.
Chris Brown: As with the gas business, we've also benefited from some customers spending remaining bucket dollars prior to the year end.
Chris Brown: Additionally, our core union electric business experienced a significant pickup in activity as well as a significant LNG award received in the fourth quarter.
Chris Brown: Our electorate results were bolstered by a record year for storm restoration work, with revenues exceeding 80% of the recent historical average. As mentioned on our last call, we have strategically built a highly skilled workforce, both union and non-union, that is ready to respond as and when needed.
Chris Brown: Our storm response success is a result of purposeful efforts in the training, positioning and strengthening of our customer relationships.
Chris Brown: Furthermore, it says it's an entry point for longer-term opportunities with new customers.
Pivoting to business development activity
Chris Brown: During the quarter we secured £221 million in new awards, including £99 million in MSA awards and £122 million in strategic bid awards. This was, and was expected to be, a quiet quarter for new awards and bookings.
Chris Brown: Our total at the year end stood at $3.7 billion, with 90% related to work performed under MSA.
Chris Brown: Looking ahead, we anticipate that with our increased focus on business development,
Chris Brown: We will deliver a step change in bookings and will exceed a book-to-bill of 1.1 during 2025.
Chris Brown: NMarket has increased our pipeline by over 30% during the second half of 2024 and we have approximately 1.5 billion of late-stage bids and the potential for over 2 billion in new revenue based upon MSA renewals during 2025.
Speaker Change: Before turning the call over to our CFO Greg Izenstark, I'd like to share a few high-level thoughts on our 2025 outlook. The guidance we are introducing today includes a range of revenue, adjusted EBITDA, and net capital expenditures.
Greg Izenstark: In forming these targets we anticipate double-digit EBITDA growth in our core business year-over-year, which includes the rundown of our offshore wind projects and no new awards in this end market.
Greg Izenstark: We also assume revenue from storm restoration services at recent historical levels, which is approximately 60 million less than we secured and delivered in 2024.
Greg Izenstark: I'll now turn over to Greg to elaborate on our results and our 2020 BIO Outlook. Greg. Thanks Chris, and good morning to everyone joining us.
Greg Izenstark: Fourth quarter 2024 consolidated revenues increased 7.8 percent. Consolidated gross profit was 32 percent higher compared to the prior year period.
Greg Izenstark: The gross profit margin of 9.9% in the fourth quarter of 2024 was well above the 8.1% we reported in the fourth quarter of 2023.
Greg Izenstark: For the year, 2024 revenues of $2.64 billion came in ahead of the midpoint of the guidance range we provided in July of $2.5 to $2.7 billion.
Greg Izenstark: On a gap basis, net income attributable to common stock in the fourth quarter was $6.5 billion.
Greg Izenstark: was $10.3 million for diluted earnings per share of 12 cents.
Greg Izenstark: Up from a net loss attributable to common stock of $210.7 million, or a diluted loss per share of $2.94 in the same period last year.
Greg Izenstark: As a reminder, the fourth quarter of 2023 results included a $209 million after-tax impairment on goodwill.
Greg Izenstark: In the fourth quarter of 2024, total company adjusted EBITDA, a non-GAAP figure, was $70.7 million, or 22.9 percent higher from the prior year quarter's $57.5 million.
Greg Izenstark: Adjusted EBITDA margin was 9.9% for the quarter, an improvement from the 8.6% reported in the fourth quarter of 2023.
Greg Izenstark: For full year 2024, our adjusted EBITDA margin of 9% was in line with the guidance range provided with our mid-year results.
Greg Izenstark: Non-GAAP adjusted net income in the fourth quarter came in at $18.4 million, or an adjusted diluted earnings per share of $0.21, up from $4.9 million, or an adjusted diluted earnings per share of $0.07 in the prior year period.
Greg Izenstark: The $8.1 million difference between our GAAP and non-GAAP adjusted debt income primarily includes the impact of amortization of intangible assets, as well as CEO transition costs, non-cash stock-based compensation, and severance costs.
Greg Izenstark: Now to each reportable segment. Revenue from our U.S. gas segment totaled $327.2 million, reflecting a year-over-year increase of 5.4 percent.
Greg Izenstark: We benefited late in the quarter from customer spending plan 2024 budget dollars to complete projects which drove an improvement in volumes.
Greg Izenstark: We are taking steps to structurally improve our contracts and cost structure in this segment as margins were under pressure throughout 2024.
Greg Izenstark: Revenue from our Canadian gas segment totaled $56.8 million, effectively flat with the fourth quarter of 2023.
Greg Izenstark: We experienced an uptick in volumes under MSA, but bid work was down due to the timing of projects.
Greg Izenstark: Favorable mix drove an improvement in gross profit margin to 18% from the prior year's period 17.1%.
Greg Izenstark: In our Union Electric segment, revenue was $193.8 million, a decline of 5.5% year-over-year.
Greg Izenstark: Within this segment, offshore wind revenues were down 75% or $43 million due to the expected wind down of project work.
Greg Izenstark: However, our core union electric segment experienced a 17.5% growth year-over-year, driven by increased bid volumes, particularly in industrial work around substation infrastructure.
Greg Izenstark: Although these crews are northeast focused, we mobilize crews to the southeast to support our non-union efforts, which I will touch on momentarily.
Greg Izenstark: Growth profit in the Union Electric segment increased to 9.9% in the fourth quarter of 2024, compared to 6.7% in the fourth quarter of 2023. This improvement was due to several factors, including an increase in higher margin storm work and improved margins on bid work during the quarter.
Greg Izenstark: Non-union electric segment revenue in the fourth quarter 2024 was $139.3 million.
A 49.7% increase year-over-year.
Greg Izenstark: This increase was primarily due to revenue from storm restoration services performed early in the quarter in response to Hurricane Helene and Miller, which accounted for $40.4 million of the segment's revenues.
Greg Izenstark: Improved productivity driven by the additional crews and higher work hours for existing crews also contributed to year-on-year growth in our core non-union electric business.
Greg Izenstark: Segment gross profit increased to 15.3% in the current period compared to 6.8% in the prior year period.
Greg Izenstark: reflecting the contribution from the more profitable storm restoration work and higher work hours.
Greg Izenstark: Chris referenced the strength of our restoration services efforts in 2024. We generated revenues of $137 million from emerging storm restoration work, well above the prior three-year average of approximately $75 million.
Greg Izenstark: Throughout our territories, we dispatched more than 3,200 employees to respond to severe weather events.
Greg Izenstark: We take pride in our ability to quickly mobilize and restore power to those affected during these challenging times.
Speaker Change: One thing to take note of, while we report storm revenues and profitability, there is some offset whereby those crews would have been working with their core customers at lower revenue and profitability levels.
Speaker Change: For the full year, net capex was $89.4 million, down from $94.9 million in 2023.
Speaker Change: and free cash flow was $69 million, down slightly from $73 million in 2023.
Speaker Change: Note, we now define free cash flow as cash flow provided by or used in operations, less net capital expenditures.
Speaker Change: Moving to balance sheet highlights. On a trailing 12-month basis, our net debt-to-adjust-even ratio improved to 3.6 times in December 2024 from 4 times in December 2023, and was lower sequentially from the end of the third quarter, consistent with expectations previously disclosed.
Speaker Change: We ended the year with $49 million in cash and cash equivalents on the bounce.
Speaker Change: Growing our business in a capital-efficient manner remains a core strategic priority. We will continue to target improving free cash flow and strengthening our balance sheet throughout 2025 by reducing our working capital needs and being more disciplined in our capital allocation.
Speaker Change: Finally, turning to our 2025 Outlook, which is outlined on slide 13 of our earnings presentation.
Speaker Change: For revenues, we expect to deliver between $2.6 and $2.8 billion.
Speaker Change: For adjusted EBITDA, we expect to deliver between $240 million and $275 million.
Chris alluded to some of these factors behind our forecasting.
Speaker Change: Those include a continued improvement in our electric business that began in the second half of 2024, with growing crew counts and increased work hours, and a return to modest growth in our gas business and improved margins as we exit and or renegotiate under performing contracts.
Speaker Change: These positives are partially offset by the additional wind down of offshore wind work and our assumption that storm restoration services will return to normalized levels.
Chris Brown: With that said, let me turn it back to Chris for some closing thoughts. Chris?
Chris Brown: Thank you, Greg. To close out my prepared remarks, I want to reiterate the themes discussed earlier. My first few months as President and CEO have been both enlightening and also inspiring.
Chris Brown: Century Eden is dedicated to increasing long-term growth opportunities by implementing strategies that drive profitable growth.
Chris Brown: We are committed to fostering greater predictability in our business through robust forecasting, comprehensive business reviews and strategic growth prioritization.
Chris Brown: Through a highly structured approach to business development, a biodynamic pipeline model, and a growth mindset, we can ensure optimized decision-making.
Chris Brown: We are enhancing capital efficiency by refining our capital equipment resourcing and fleet management and reducing working capital levels through improved AR and DSO management.
Chris Brown: Lastly, we are highly committed to managing improvement with our gas business being a key focus area and have taken early steps to deliver improved performance.
Chris Brown: We thank you so much for your continued support and confidence in our vision and look forward to achieving new milestones.
Operator, you can start our Q&A session.
Chris Brown: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys.
Chris Brown: We request that our callers limit their questions to one main question and one follow-up. One moment please for your first question.
Speaker Change: Your first question comes from Sangeeta Jain with KeyBank. Your line is now open.
Sangeeta Jain: Great, thank you so much for taking my questions. Good morning. So first, can I ask one on the strategic review that you talked about and when we can expect to hear the outcome of that and what should we expect when that's concluded?
Sangeeta Jain: Hi Peter, it's Chris. I'll answer the question. I think the next...
Sangeeta Jain: sort of three to six as of the last three months is really prioritizing.
The business winning, the business development, organic sales.
to determine how
Sangeeta Jain: how large our daytime pipeline is, and all signs have been good. How do we build on the revenues we get from our core MSAs and really understand?
Sangeeta Jain: more data around our ability to grow the business organically and as everybody's observed the past has been probably fraught from a growth standpoint. I think once we have a good handle
Sangeeta Jain: On all of the near-term opportunities, we will conduct a more thorough, longer-term look at the end markets, where the opportunities reside, look at our differentiation in the long-term market growth.
Sangeeta Jain: and then start making some prioritization around where we want to deploy capital, which new customers, which end markets we want to further grow from.
Sangeeta Jain: Basically, the first three to six months is focused on driving growth in our core business with our customers, with our core customers in our core markets, in our core locations, get a very good handle on how we can drive growth.
Sangeeta Jain: and then the longer term we'll be more focused on how do we accelerate that growth in the next three to five years.
Sangeeta Jain: I think we'll end up being in a position towards the end of the year, Sangeeta, to actually sort of roll out a more cogent three to five years strategy, not before then. Our priority at the moment is the blocking, tackling and really driving growth in the core business as it is today.
Speaker Change: Understood. That's super helpful. And then maybe for Greg, the guidance that you've given us for this year, can you help us understand what's in the low end and what we should expect for you to reach the high end of that guidance range?
Greg Izenstark: Yeah, good morning. So, on the high end, the upside of that, you know, we talked about a number of crew growth opportunities.
Greg Izenstark: Any of the other news that's in the world could contribute to it. That would probably be the biggest one.
Understood. Appreciate your responses. Thank you.
Thank you, Sandeep.
Your next question comes from Justin Hawke with.
Robert Baird, your line is now open.
Justin Hawke: The $2 billion that you kind of outlined as opportunities here, I guess $1.5 billion that was better in final negotiations?
Speaker Change: I'll ask Greg to answer the initial response on the gas margins and then I'll talk a little bit about what's seen in the data pipeline.
Speaker Change: So, from the gas side, you know, we've already taken, we're well on our way and taking steps to either exit areas that are underperforming.
or renegotiating.
underperformed contracts.
Speaker Change: You know, from a MSA perspective, you know, we have virtually 100% renewal in all our MSAs. We've already started to experience certain renewals of some key MSAs and those will continue throughout the end of the year.
Speaker Change: As we've talked in the past, you know, when new renewals come up, it gives us an opportunity to look at the pricing and the scope of work that we expect and look to kind of improve.
Speaker Change: both volumes and the price kind of above and beyond that normal annual cost of, you know, the annual escalator that's in the contracts. So those are all kind of well on the way and give us, you know, optimism as we head into 2025.
Speaker Change: On the market, Justin, I would say the following. We're not concerned at all with the in-market opportunity that fits with our capability, our reach, our locations.
Speaker Change: so that we can grow beyond the core MSAs. So there's no concern about market opportunity.
About a 30% growth in near-term pipeline opportunities.
Speaker Change: You know, whilst we're cautious after recent events, we think we'll have...
a positive book to build this year of about 1.1
Speaker Change: And the late stage you mentioned, that we mentioned in the result, as well as you mentioned here.
Speaker Change: We are actively negotiating to convert. We've had a good start to the year.
Speaker Change: and I think once we are efficient at that, we should see...
Speaker Change: a greater improvement in our book to deliver the coming weeks and months.
Okay.
I guess, you know, should we be thinking that...
Speaker Change: or just kind of how that works through. And then the last one for that question would just also be on the offshore wind. Is there anything in backlog for 26 at this point, or is the $40 million for 25 kind of everything that you have left on the offshore wind as it stands right now? Thank you.
I would expect, you know, first quarter to be.
Speaker Change: consistent with last year, obviously weather and other factors and just the seasonal nature of many of the territories in which we operate will drive that. And then see some of that increase start in the second quarter and then accelerate in the back half of the year.
Speaker Change: From an offshore wind perspective, I think we alluded to, we have about $40 million in backlog for 2025. We have about
Speaker Change: $25 million remaining on the existing backlog or existing projects in 2026 and we have nothing else in our pipeline related to that at this point.
Gregory Izenstark
Chris Ellinghaus: Ladies and gentlemen, as a reminder, should you have a question please press star 1. Your next question comes from Chris Ellinghaus with Siebert Williams Schenck. Your line is now open. Hey guys, how are you?
Good morning.
Speaker Change: Chris, you know, as you've sort of looked at the business from an outsider's perspective, you know, margins historically have been materially higher.
Speaker Change: Question one, you know, sometimes double digits. Do you see that as...
Speaker Change: a realistic goal going forward? And two, you talked about some of the MSAs underperforming. Is that some lag that remains from inflationary periods?
Speaker Change: Let me cover it from my perspective and then I'm sure Greg may have a couple of supplementary inputs.
Speaker Change: I don't believe our focus at the moment is going to be on, other than what we've said on, gas margin improvement.
Speaker Change: Cost efficiency and getting margins up. It's about getting the organization turned into becoming
Speaker Change: an organization that's not only focused on delivering the services we're contracting to deliver but do more for our existing customers.
Speaker Change: So I think there's a block and tackling focus on getting more volume into the business.
Speaker Change: I'm not overly concerned about where the margins are. The caveat being the improvement we do expect from the gas business going into 2025. Our focus is about driving profitable growth consistent with our existing margins.
Speaker Change: Dylan and his team have done a great job in the latter stages of 24 to sort of renegotiate those underperforming contracts.
Speaker Change: Early science turned it into 24, into 25 as you look at the...
Okay, you're using a three-year average for storm restoration revenues.
Speaker Change: Is that a period that you see as normal and, you know, given climate change issues?
Speaker Change: Is that something that you expect off of that kind of base to have some upside to it over time?
Chris: Chris, I'm going to give you a, we can go to the specifics with Greg's tenure with our business.
Speaker Change: Just chasing stolen revenues won't allow us to grow our coal business.
Speaker Change: So our push into the budgeting process, our capital allocation and our resources has all been focused on driving more core business.
Speaker Change: and not setting an expectation in our base budget to get an abnormal or even a...
Speaker Change: So the slightly greater revenue from storms, so we've set up cautious approach
Speaker Change: in what we believe we will get from Storm coming into 2025 because it's just not predictable as we all observe. And we've driven a discipline to the business that we won't grow from doing the day-to-day services.
Speaker Change: that come from the utility sector that are not predicated on storm events.
Speaker Change: So we felt the trill in three-year average was kind of a cautious approach to drive our organization into building more capability and doing more work for our customers in our core business.
Okay, that's fair
One last question.
Speaker Change: You sort of alluded to some of the gas customers having some, you know, sort of catch up on their CapEx towards the end of the year.
Speaker Change: Does some of that carry forward into the first half or just the year for this year?
Speaker Change: There might be a pocket here or there but generally speaking it would we just you know our gas customers were trying we're looking at where what they had spent as of the end of the third quarter where their budget was for the full year and trying to you know spend the dollars that they had budgeted for the most part.
Speaker Change: But I would add, Chris, if you do dissect living without high-flyer day-to-day at the moment, as is the wider organisation...
Speaker Change: If you look at the near-term pipeline opportunities that we will tender and hopefully win, there's a significant component in gas.
Speaker Change: It's well over 50% of our pipeline today, with more than ample opportunities there, we've just got to win them and convert them.
Okay. Thank you. I appreciate the details.
Thanks Chris.
Speaker Change: 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.