Centuri Holdings, Inc. 2026 Q2 Earnings Call

Good morning, everyone. Today, we issued and posted to Centuri's earnings website our second quarter earnings release and investor presentation. 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 and are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions and regulatory approvals. A cautionary note, as well as a note regarding non-GAAP measures, is included in today's press release, in the investor presentation, and in our filings with the Securities and Exchange Commission, which we encourage you to review. Also provided are reconciliations of our non-GAAP measures to related GAAP measures.

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. We assume no obligation to update any such statement except as required by law. 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 Chris Brown, President and Chief Executive Officer, and Greg Izenstark, Chief Financial Officer. I will now turn the call over to Chris.

Nate, thank you. Thank you, everyone, for joining our second quarter earnings call. We're proud to have delivered $962 million of revenue for the quarter, a new quarterly record for Centuri. Adjusted net income for the quarter was $24.4 million, an increase of 44% from the same quarter last year. In terms of our base measures, which excludes storm work, and for this quarter, a one-time pre-IPO receivable write-off, second quarter base revenue was 36% higher than last year. Base gross profit was 21% higher. For the first half of the year, base revenue was 33% higher than last year. Base gross profit was 35% higher than last year. This is remarkable growth and reflects the dedication of our teams across the U.S. and across Canada.

I'll start with the recently announced acquisition of JJ White, a leading provider of union industrial, mechanical, and electrical maintenance and construction services. JJ White has about 1,000 employees and will be integrated into our Riggs Distler business, adding scale and in-plant construction expertise across several end markets, including data centers. This tuck-in acquisition is consistent with our strategy that we laid out earlier this year. We increased scale in the Northeast and Midwest, expanded our core business, and added new customers in the electric end markets. We expect JJ White to add more than $20 million of gross profit on a full-year annualized basis. The total cash consideration paid was approximately $62 million, funded from existing balance sheet liquidity.

We therefore see no change to our year-end leverage target of two times. We're very much excited to welcome the JJ White team. We look forward to the growth and their execution ahead. Now for a commercial update. While we continue to see strength in our core and adjacent end markets, a more than ample opportunity to deliver sustainable growth at double-digit levels. Second quarter bookings were nearly $850 million, bringing our year-to-date bookings to over $2.2 billion. Our book-to-bill ratio year to date is 1.3 times, and on an organic basis for the full year, we are targeting a 1.2 times book-to-bill or approximately $4.4 billion of total bookings for 2026. The successful negotiation and award of our largest data center project has demonstrated our ability to differentiate and secure complex value-added contracts into our portfolio.

The $125 million award covers electrical infrastructure and utility for a multi-building data center campus. We continue to view the data center demand as robust, attractive, and growing. With the addition of JJ White, we will further increase data center backlog and the pipeline of opportunities for our company. At quarter end, we had about $2 billion of data center opportunities in our pipeline. Other big works in the quarter include the construction of an electrical transmission and substation project for Atlantic Canada, which was a very nice award for the connect team. Also the assembly and installation of key components for a gas infrastructure company. Finally, a large, significant electrical high voltage transmission project in the northeast of the U.S.

On the MSA side, we booked approximately $250 million in renewals, which included gas distribution, infrastructure upgrades, and expanded scopes of work for a long-standing utility customer. We also booked approximately $200 million between new MSAs and growth from existing MSAs. Demand for our core MSA work, including expanded scopes of work, remains very strong. Our current backlog stands at approximately $6.4 billion, which is up 21% year-over-year. Even more notable is the opportunity pipeline has increased to approximately $16 billion, which is up 23% from the first quarter, which demonstrates the strength of our end markets and our ability to position Centuri for backlog growth. We have nearly 700 differentiated bid opportunities in the pipeline, which collectively represents 60% of the $16 billion.

In the very near term, we have $2.5 billion of outstanding bids pending at the end of Q2, which represents a 15% increase from the first quarter. This number has further increased as we've moved into Q3, another positive indicator of the strength we are seeing across our end markets. Over two-thirds of these pending bids are from our electrical segment. It should also be noted that as we bid and increased our volumes, our bid margins year-over-year have increased by more than 10%, which is fully in line with our longer-term margin targets that we communicated earlier in February this year. As we've discussed over the recent months, we are focused on driving longer-term sustainability into our business through margin expansion, backlog, and greater coverage for the subsequent years.

Coming into 2026, we had about $3 billion of coverage for 2026 revenue. We are now forecasting to exit 2026 with more than $3.6 billion of revenue coverage for 2027. This is a 20% organic increase. This visibility and predictability provide the foundation for sustainable growth, allowing us to plan and execute for the future. Lastly, to support customer demand and build for sustained growth, over the first six months of this year, we have organically added approximately 1,700 employees, representing an 18% growth in headcount so far this year. In the U.S. Gas business alone, we've added over 1,200 employees, a 25% increase, to support client demand emanating from our strategy to mitigate seasonality in our business and expand our gross margins. This significant capacity increase added near-term costs, which we estimate reduced second quarter gross profit by approximately $3 million.

We fully expect these capacity investments to benefit Q3 2026 and the subsequent quarters as our resources generate revenue and margin expansion. We forecast approximately 7.5% gross margin for our U.S. Gas business in the second half of this year, 2026. We were also affected by elevated fuel prices in the quarter relating to the ongoing conflict in the Middle East. The average per gallon cost was up 48% year-over-year, and the estimated cost impact within the second quarter was approximately $6 million. Higher fuel prices and the investment associated with the additional gas resources together had a combined 95 basis point impact on the second quarter base gross profit margin. The fundamentals of our business remain strong. We continue to invest in the future, guided by the priorities outlined within our Vision One Centuri strategy. I'll now turn it over to Greg to discuss the financial results.

Thank you, Chris, and good morning to everyone. Second quarter 2025 consolidated revenues totaled $962 million, a new quarterly record, was a 33% increase from Q2 2025. Consolidated gross profit was $69 million. Gross profit margin was 7.2% in the quarter. In terms of base results, which exclude the impact of storm work, for this quarter, a one-time write-off I'll discuss shortly. Base revenue was up 36%. Base gross profit was up 21% compared to last year. Base gross profit margin was 7.9% in the quarter versus 8.9% last year. On a trailing 12-month basis, base gross profit margin was 7.8% versus 7.4% a year ago.

Net income attributable to common stock in the second quarter was $6.1 million, or $0.06 per share, compared to a net income attributable to common stock of $8.1 million or $0.09 on a per-share basis in the same period last year. In the second quarter, adjusted EBIT was $40.5 million, 8% higher year-over-year, and adjusted EBITDA was $75.7 million, a 5% increase over the same period last year. Adjusted net income in the second quarter came in at $24.4 million or $0.24 on a per-share basis, compared to $16.9 million or $0.19 per share in the same period last year. As Chris mentioned, second quarter results were impacted by elevated fuel prices from the ongoing conflict in the Middle East.

We estimate that the higher fuel prices in the quarter amounted to an additional cost of approximately $6 million or approximately 60 basis points impact on margins. In the second quarter, the company wrote down all of its remaining accounts receivable and contract assets related to work that was completed prior to 2020 for the City of Chicago. The write-down reduced U.S. Gas revenue by $9 million in the quarter. We did not budget collection of this receivable in 2026, so the write-down has no impact on our cash flow expectations. We have excluded this one-time item from our non-GAAP measures, including our base measures. Now to our segments. U.S. Gas revenue was $489.5 million, an increase of 45% compared to the prior year. The growth was driven by increased bid work and MSA volumes, demonstrating the underlying strength of our customer relationships and market position.