Centuri Holdings Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and corresponding notes of Centuri Group, Inc. (“Centuri”), and our final IPO prospectus (the “IPO Prospectus”) filed on April 18, 2024 with the U.S. Securities and Exchange Commission pursuant to rule 424(b)(4) under the Securities act of 1933, as amended relating to our Registration Statement on Form S-1. Unless the context otherwise requires, references to “we,” “is,” “our,” and “our company” refer to Centuri Holdings, Inc. and its consolidated subsidiaries. References to the condensed consolidated financial statements refer to the condensed consolidated financial statements of our subsidiary, Centuri, our predecessor for financial reporting purposes. This discussion contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed within the IPO Prospectus, particularly in the section titled “Risk Factors.”Actual results may differ materially from these expectations. See “Cautionary Note Regarding Forward-Looking Statements.”

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and corresponding notes, and our final IPO prospectus (the “IPO Prospectus”) filed on April 18, 2024 with the U.S. Securities and Exchange Commission pursuant to Rule 424(b)(4) under the Securities act of 1933, as amended relating to our Registration Statement on Form S-1. Unless the context otherwise requires, references to “we,” “is,” “our,” and “our company” refer to Centuri Holdings, Inc. and its consolidated subsidiaries. As discussed in “Note 1 — Description of Business” to the condensed consolidated financial statements, all financial information presented herein is the financial information of Centuri Holdings, Inc. and its subsidiaries, including Centuri Group, Inc. (“the Operating Company”). This discussion contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed within the IPO Prospectus, particularly in the section titled “Risk Factors.”Actual results may differ materially from these expectations. See “Cautionary Note Regarding Forward-Looking Statements.”

Previous wording

We use a 52/53-week fiscal year that ends on the Sunday closest to the end of the calendar year. Unless otherwise stated, references to months and years throughout relate to fiscal months and years rather than calendar months and years. The first fiscal three months of 2024 and 2023 ended on March 31, 2024 and April 2, 2023, respectively, and each period had 13 weeks.

Current wording

We use a 52/53-week fiscal year that ends on the Sunday closest to the end of the calendar year. Unless otherwise stated, references to months and years throughout relate to fiscal months and years rather than calendar months and years. The first fiscal six months of 2024 and 2023 ended on June 30, 2024 and July 2, 2023, respectively, and each period had 26 weeks. The second fiscal quarters of 2024 and 2023 each had 13 weeks.

Previous wording

We are 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. We serve as long-term strategic partners to, and an extension of, North America’s electric, gas and combination utility providers, delivering a wide range of infrastructure solutions. Our 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 energy transition. We also serve complementary, attractive and growing end markets such as renewable energy and 5G datacom. Our essential services enable our customers to enhance the safety, reliability and environmental sustainability of the electric and natural gas networks that consumers rely upon to meet their essential and evolving energy needs. Guided by our values and our unwavering commitment to serve as long-term partners to customers and communities, our employees enable our customers to safely and reliably deliver electricity and natural gas and achieve their goals for environmental sustainability.

Current wording

We are 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. We serve as long-term strategic partners to, and an extension of, North America’s electric, gas and combination utility providers, delivering a wide range of infrastructure solutions. Our service offerings primarily consist of the modernization of utility infrastructure through the maintenance, retrofitting and installation of electric and natural gas distribution networks, and building capacity to meet current and future demands. We also serve complementary, attractive and growing end markets such as renewable energy associated with the expected energy transition and 5G datacom. Our essential services enable our customers to enhance the safety, reliability and environmental sustainability of the electric and natural gas networks that consumers rely upon to meet their essential and evolving energy needs.

Previous wording

We were incorporated in Delaware in June 2023 as a wholly owned subsidiary of Southwest Gas Holdings, Inc. (“Southwest Gas Holdings”). We were formed for the purpose of completing an initial public offering, facilitating the separation of Centuri from Southwest Gas Holdings and other related transactions (as described in “Note 15 – Subsequent Events” to the condensed consolidated financial statements) in order to carry on the business of Centuri, our predecessor for financial reporting purposes. As of March 31, 2024, and December 31, 2023, Southwest Gas Holdings owned 1,000 shares of our common stock, representing 100% of the issued and outstanding shares of our common stock. On April 13, 2024, we issued 71,664,592 shares of common stock to Southwest Gas Holdings as consideration for the transfer of assets and assumption of liabilities of Centuri (the “Separation”). Following the completion of the Separation, Centuri became our wholly owned subsidiary, and all of our operations are conducted through Centuri. On April 17, 2024, the registration statement related to the initial public offering of our common stock was declared effective, and our common stock began trading on the New York Stock Exchange under the ticker “CTRI” (the “Centuri IPO”) on April 18, 2024.

Current wording

We were incorporated in Delaware in June 2023 as a wholly owned subsidiary of Southwest Gas Holdings, Inc. (“Southwest Gas Holdings”). We were formed for the purpose of completing an initial public offering, facilitating the separation of the Operating Company from Southwest Gas Holdings and other related transactions in order to carry on the business of the Operating Company, our predecessor for financial reporting purposes. Prior to April 13, 2024, Southwest Gas Holdings owned 1,000 shares of our common stock, representing 100% of the issued and outstanding shares of our common stock. On April 13, 2024, we issued 71,664,592 shares of common stock to Southwest Gas Holdings as consideration for the transfer of assets and assumption of liabilities of the Operating Company (the “Separation”). Following the completion of the Separation, the Operating Company became our wholly owned subsidiary, and all of our operations are conducted through the Operating Company. On April 17, 2024, the registration statement related to the initial public offering of our common stock was declared effective, and our common stock began trading on the New York Stock Exchange under the ticker “CTRI” (the “Centuri IPO”) on April 18, 2024.

Previous wording

On April 22, 2024, the Centuri IPO was completed through the sale of 14,260,000 shares of our common stock, par value $0.01 per share, including the underwriters’ full exercise of their option to purchase 1,860,000 shares to cover over-allotments, at an initial public offering price of $21.00 per share. On the same day, Icahn Partners and Icahn Partners Master Fund LP, investment entities affiliated with Carl C. Icahn, purchased 2,591,929 shares of our common stock in a concurrent private placement at a price per share equal to the IPO price, for gross proceeds of approximately $54.4 million. The total net proceeds to us from the Centuri IPO and the concurrent private placement, after deducting underwriting discounts and commissions of $18.0 million and estimated offering expenses payable by us, were $329.3 million. As of the closing of the Centuri IPO, Southwest Gas Holdings owned 71,665,592 shares of our common stock, or approximately 81.0% of the total outstanding shares of our common stock.

Current wording

On April 22, 2024, the Centuri IPO was completed through the sale of 14,260,000 shares of our common stock, par value $0.01 per share, including the underwriters’ full exercise of their option to purchase 1,860,000 shares to cover over-allotments, at an initial public offering price of $21.00 per share. On the same day, Icahn Partners and Icahn Partners Master Fund LP, investment entities affiliated with Carl C. Icahn, purchased 2,591,929 shares of our common stock in a concurrent private placement at a price per share equal to the IPO price, for gross proceeds of approximately $54.4 million. The total net proceeds to us from the Centuri IPO and the concurrent private placement, after deducting underwriting discounts and commissions of $18.0 million and offering expenses payable of $8.0 million, were $328.0 million. As of the closing of the Centuri IPO, Southwest Gas Holdings owned 71,664,592 shares of our common stock, or approximately 81% of the total outstanding shares of our common stock.

Previous wording

We are incurring certain costs in connection with our establishment as a standalone public company (the “Separation-related costs”). We expect the Separation-related costs to continue through at least fiscal year 2025. For additional information about the Separation, see “The Separation Transactions—The Separation” and “Certain Relationships and Related Person Transactions—Agreements between Southwest Gas Holdings and Our Company” within the IPO Prospectus. Additionally, see “Note 15 — Subsequent Events” to the Centuri condensed consolidated financial statements for a summary of agreements we entered into with Southwest Gas Holdings on April 11, 2024 governing our future relationship with Southwest Gas Holdings.

Current wording

We are incurring certain costs in connection with our establishment as a standalone public company (the “Separation-related costs”). We expect the Separation-related costs to continue through at least fiscal year 2025. For additional information about the Separation, see “The Separation Transactions—The Separation” and “Certain Relationships and Related Person Transactions—Agreements between Southwest Gas Holdings and Our Company” within the IPO Prospectus. Additionally, see “Note 14 — Related Parties” to the Centuri condensed consolidated financial statements for a summary of agreements we entered into with Southwest Gas Holdings on April 11, 2024 governing our relationship with Southwest Gas Holdings following the Centuri IPO.

Previous wording

As of and prior to December 31, 2023, Centuri reported its results under the following two reportable segments: Gas Utility Services and Electric Utility Services. In January 2024, we appointed a new Chief Executive Officer who acts as our chief operating decision maker (“CODM”). Following the appointment of our new Chief Executive Officer, we underwent an internal personnel reorganization, causing us to re-evaluate our reportable segments based on the information reviewed by the new CODM. We determined that it was appropriate to re-align our reporting structure from the following two reportable segments: (i) Gas Utility Services; and (ii) Electric Utility Services, to the following four reportable segments: (i) U.S. Gas Utility Services (“U.S. Gas”); (ii) Canadian Gas Utility Services (“Canadian Gas”); (iii) Union Electric Utility Services (“Union Electric”); and (iv) Non-Union Electric Utility Services (“Non-Union Electric”). The U.S. Gas and Canadian Gas businesses have historically been part of our Gas Utility Services segment, and the Union Electric and Non-Union Electric businesses have historically been part of our Electric Utility Services segment. All prior year segment financial information has been recast to reflect the new segment structure.

Current wording

As of and prior to December 31, 2023, we reported our results under the following two reportable segments: Gas Utility Services and Electric Utility Services. In January 2024, we appointed a new Chief Executive Officer, who we determined to be our chief operating decision maker (“CODM”). Following the appointment of our new Chief Executive Officer, we underwent an internal personnel reorganization, causing us to re-evaluate our reportable segments based on the information reviewed by the new CODM. We determined that it was appropriate to re-align our reporting structure from the following two reportable segments: (i) Gas Utility Services; and (ii) Electric Utility Services, to the following four reportable segments: (i) U.S. Gas Utility Services (“U.S. Gas”); (ii) Canadian Gas Utility Services (“Canadian Gas”); (iii) Union Electric Utility Services (“Union Electric”); and (iv) Non-Union Electric Utility Services (“Non-Union Electric”). The U.S. Gas and Canadian Gas businesses have historically been part of our Gas Utility Services segment, and the Union Electric and Non-Union Electric businesses have historically been part of our Electric Utility Services segment. All prior year segment financial information has been recast to reflect the new segment structure.

Previous wording

Our financial results may be impacted by economic conditions that impact businesses generally, such as inflationary impacts on goods and services consumed in the business, regulatory or environmental influences, inflationary pressures, rising interest rates, labor markets and costs (including in regard to contracted or professional services), and the availability of those resources. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period.

Current wording

Our financial results may be impacted by economic conditions that impact businesses generally, such as inflationary impacts on goods and services consumed in the business, regulatory or environmental influences, rising interest rates, labor markets and costs (including in regard to contracted or professional services), and the availability of those resources. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period.

Previous wording

The seasonal nature of the industry we serve affects demand for our services. In addition to weather conditions, capital expenditure and maintenance budgets of our customers, as well as the related timing of approvals and seasonal spending patterns, influence our contract revenue and results of operations. Factors affecting our customers and their capital expenditure budgets include, but are not limited to, overall economic conditions, the introduction of new technologies, and our customers’ capital resources, their financial performance, and their strategic plans. Other factors that may impact our customers and their capital expenditure budgets include new regulations or regulatory actions, merger or acquisition activity involving our customers and the physical maintenance needs of our customers’ infrastructure.

Current wording

The seasonal nature of the industry we serve affects demand for our services. In addition to weather conditions, capital expenditure and maintenance budgets of our customers, as well as the related timing of approvals and seasonal spending patterns, influence our contract revenue and results of operations. Factors affecting our customers and their capital expenditure budgets include, but are not limited to, overall economic conditions, the introduction of new technologies, and our customers’ capital resources, financial performance, and strategic plans. Other factors that may impact our customers and their capital expenditure budgets include new regulations or regulatory actions, merger or acquisition activity involving our customers and the physical maintenance needs of our customers’ infrastructure.

Previous wording

Generally, our revenue is lowest during the first quarter of the year due to less favorable winter weather and related working conditions. Revenue typically improves as more favorable weather conditions occur during the summer and fall months. In cases of severe weather, such as following a regional storm, we may be engaged to perform restoration activities related to above-ground utility infrastructure, which typically results in higher margins due to higher equipment utilization and the absorption of fixed costs. Alternatively, these severe weather events can also delay projects, negatively impacting our results of operations. Severe weather events and the related impacts to our performance and results are not solely within the control of management and cannot always be predicted or mitigated.

Current wording

Generally, our revenue is lowest during the first quarter of the year due to less favorable winter weather and related working conditions in many of the areas where we perform work. Revenue typically improves as more favorable weather conditions occur during the summer and fall months. In cases of severe weather, such as following a regional storm, we may be engaged to perform restoration activities related to above-ground utility infrastructure, which typically results in higher margins due to higher equipment utilization and the absorption of fixed costs. Alternatively, these severe weather events can also delay projects, negatively impacting our results of operations. Severe weather events and the related impacts on our performance and results are not solely within the control of management and cannot always be predicted or mitigated.

Previous wording

Our operations are affected by increases in prices, whether caused by inflation, rising interest rates or other economic factors. We attempt to recover anticipated increases in the cost of labor, equipment, fuel and materials through price escalation provisions that allow us to adjust billing rates for certain major contracts annually; by considering the estimated effect of such increases when bidding or pricing new work; or by entering into back-to-back contracts with suppliers and subcontractors. However, the annual adjustment provided by certain contracts is typically subject to a cap and there can be an extended period of time between the impact of inflation on our costs and when billing rates are adjusted. In some cases, our actual cost increases have exceeded the contractual caps, and therefore negatively impacted our operations. We have been able to renegotiate some of our major contracts to address the increased costs on future work and will continue to address this with our customers going forward. Rising interest rates on our variable-rate debt could have a negative effect on our business, financial condition and results of operations.

Current wording

Our operations are affected by increases in prices, whether caused by inflation, rising interest rates or other economic factors. We attempt to recover anticipated increases in the cost of labor, equipment, fuel and materials through price escalation provisions that allow us to adjust billing rates for certain major contracts annually; by considering the estimated effect of such increases when bidding or pricing new work; or by entering into back-to-back contracts with suppliers and subcontractors. However, the annual adjustment provided by certain contracts is typically subject to a cap and there can be an extended period of time between the impact of inflation on our costs and when billing rates are adjusted. In some cases, our actual cost increases have exceeded the contractual caps, and therefore negatively impacted our operations. We have been able to renegotiate some of our major contracts to address the increased costs of future work and will continue to address this with our customers going forward. Rising interest rates on our variable-rate debt could have a negative effect on our business, financial condition and results of operations.

Previous wording

Backlog represents estimates of revenue to be realized under long-term master service agreements (“MSAs”) and bid agreements. Generally, customers are not contractually committed to specific volumes of work under MSAs, and MSAs may be terminated by either party upon notice. Revenue estimates for MSAs are based on historical customer trends. Projects included in backlog can be subject to delays or cancellation as a result of regulatory requirements, adverse weather conditions, customer requirements and other factors that could cause actual revenue to differ significantly from the estimates, or cause revenue to be realized in periods other than originally expected. Backlog as of March 31, 2024 and December 31, 2023 was approximately $4.8 billion and $5.1 billion, respectively.

Current wording

Backlog represents estimates of revenue to be realized under long-term master service agreements (“MSAs”) and bid agreements. Generally, customers are not contractually committed to specific volumes of work under MSAs, and MSAs may be terminated by either party upon notice. Revenue estimates for MSAs are based on historical customer trends. Projects included in backlog can be subject to delays or cancellation as a result of regulatory requirements, adverse weather conditions, customer requirements and other factors that could cause actual revenue to differ significantly from the estimates, or cause revenue to be realized in periods other than originally expected. Backlog as of June 30, 2024 and December 31, 2023 was approximately $4.7 billion and $5.1 billion, respectively.

Previous wording

Our results of operations, on a consolidated basis and by segment, for the first fiscal three months of 2024 and 2023 are set forth below.

Current wording

Our results of operations, on a consolidated basis and by segment, for the fiscal three and six months ended June 30, 2024 and July 2, 2023 are set forth below.

Previous wording

The following table summarizes our consolidated results of operations for the fiscal quarters ending March 31, 2024, and April 2, 2023 including as a percentage of revenue, as well as the dollar and percentage change between fiscal quarters.

Current wording

The following table summarizes our consolidated results of operations for the fiscal three months ended June 30, 2024, and July 2, 2023 including as a percentage of revenue, as well as the dollar and percentage change between fiscal quarters.

Previous wording

The following table summarizes our revenue for the fiscal quarter by segment as well as the dollar and percentage change from the prior year fiscal quarter:

Current wording

The following table summarizes our revenue, gross profit (loss) and gross margin for the periods indicated by segment as well as the dollar and percentage change from the prior year period. The discussion that follows highlights key revenue and gross margin changes at the segment level. Changes in gross profit (loss) correspond with the discussed changes in revenue and gross margin.

Previous wording

Gross profit from our Canadian Gas segment increased by $1.1 million in the first fiscal three months of 2024 compared to the same period in the prior year. As a percentage of revenue, gross profit increased to 16.0% in the current period as compared to 11.4% in the prior period primarily due to favorable changes in mix of work.

Current wording

•Revenue from our Canadian Gas segment totaled $41.0 million, reflecting a decrease of $7.1 million, or 14.8%, compared to the prior year period. This decrease was primarily due to a reduction in net volumes under existing MSAs. As a percentage of revenue, gross profit increased to 22.8% in the current period as compared to 15.8% in the same period from the prior year primarily due to favorable changes in mix of work.

Previous wording

Revenue from our Union Electric segment decreased by $41.8 million, or 20.3%, in the first fiscal three months of 2024 compared to the same period in the prior year. This decrease was driven by a decline in offshore wind revenue of $12.6 million due to timing of project completion, as well as unfavorable winter weather conditions that led to a net reduction in volumes under other existing MSAs. Storm restoration services revenue for the Union Electric segment was $7.5 million for the first fiscal three months of 2024 compared to $8.3 million for the same period in 2023.

Current wording

•Revenue from our Union Electric segment totaled $164.2 million, reflecting a decrease of $54.0 million, or 24.8%, compared to the prior year period. This decrease was driven by a decline in offshore wind revenue of $20.7 million due to timing of projects, as well as a net reduction in volumes under other existing MSAs. Storm restoration services revenue for the Union Electric segment was $6.1 million for the current period compared to $5.1 million for the prior year period. As a percentage of revenue, gross profit decreased to 7.4% in the current period as compared to 7.8% in the prior year period primarily due to changes in the mix of work.

Previous wording

Amortization expense remained consistent in the first fiscal three months of 2024 compared to the same period in the prior year as there were no changes to our amortizable base of intangible assets.

Current wording

Amortization expense remained consistent in the current period compared to the same period in the prior year as there were no changes to our amortizable base of intangible assets.

Previous wording

Revenue from our U.S. Gas segment decreased by $32.8 million, or 12.6%, in the first fiscal three months of 2024 compared to the same period in the prior year. This decrease was primarily due to unfavorable winter weather which drove a reduction in net volumes under existing customer MSAs and the timing of bid projects, as the prior year benefited from the commencement of a large project that has since been completed. Revenue from contracts with Southwest Gas Corporation totaled $23.3 million in the first fiscal three months of 2024 and $28.8 million in the same period in 2023.

Current wording

•Revenue from our U.S. Gas segment totaled $567.3 million, reflecting a decrease of $84.0 million, or 12.9%, compared to the prior year period. This decrease was largely due to a reduction in net volumes under existing customer MSAs stemming primarily from delayed or unfavorable regulatory decisions faced by key customers, unfavorable winter weather which delayed work in the first quarter, and timing of bid projects, as the prior year benefited from the commencement of a large project that has since been completed. As a percentage of revenue, gross profit decreased to 3.7% in the current period from 7.3% in the prior year period. Profitability was negatively affected by unfavorable winter weather and lower margins on bid work. Additionally, the prior year period reflected higher utilization of fixed costs due to increased volumes on both MSA and bid projects. Revenue from Southwest Gas Corporation totaled $52.0 million for the current period compared to $59.1 million in the prior period.

Previous wording

Gross profit from our Non-Union Electric segment decreased by $15.7 million in the first fiscal three months of 2024 compared to the same period in the prior year. As a percentage of revenue, gross profit decreased to 2.9% in the current period, compared to 13.5% in the prior period. Profitability was negatively affected by unfavorable changes in mix of work, including a reduction in storm restoration services revenue which typically generates a higher profit margin than core infrastructure services, and lower MSA volumes.

Current wording

•Revenue from our Non-Union Electric segment totaled $217.1 million, reflecting a decrease of $53.0 million, or 19.6%, compared to the prior year period. This decrease was primarily driven by a decrease in volumes under existing MSAs, and a decrease in storm restoration revenue of $19.1 million (which was $32.0 million for the first six months of 2024 compared to $51.1 million for the same period in 2023). As a percentage of revenue, gross profit decreased to 8.8% in the current period, compared to 14.5% in the same period from the prior year. Profitability was negatively affected by unfavorable changes in mix of work, including less storm restoration revenue (which typically generates higher profit margins) and underutilization of fixed costs.

Previous wording

We prepare and present our financial statements in accordance with GAAP. However, management believes that EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Loss, all of which are measures not presented in accordance with GAAP, provide investors with additional useful information in evaluating our performance. We use these non-GAAP measures internally to evaluate performance and to make financial, investment and operational decisions. We believe that presentation of these non-GAAP measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparisons of results. Management also believes that providing these non-GAAP measures helps investors evaluate the Company’s operating performance, profitability and business trends in a way that is consistent with how management evaluates such matters.

Current wording

We prepare and present our financial statements in accordance with GAAP. However, management believes that EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income (Loss), all of which are measures not presented in accordance with GAAP, provide investors with additional useful information in evaluating our performance. We use these non-GAAP measures internally to evaluate performance and to make financial, investment and operational decisions. We believe that presentation of these non-GAAP measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparisons of results. Management also believes that providing these non-GAAP measures helps investors evaluate the Company’s operating performance, profitability and business trends in a way that is consistent with how management evaluates such matters.

Previous wording

Adjusted Net Loss is defined as net loss adjusted for (i) strategic review costs, (ii) severance costs, (iii) amortization of intangible assets, (iv) non-cash stock-based compensation expense, and (v) the income tax impact of adjustments that are subject to tax, which is determined using the incremental statutory tax rates of the jurisdictions to which each adjustment relates for the respective periods.

Current wording

Adjusted Net Income (Loss) is defined as net income (loss) adjusted for (i) strategic review costs, (ii) severance costs, (iii) amortization of intangible assets, (iv) non-cash stock-based compensation expense, and (v) the income tax impact of adjustments that are subject to tax, which is determined using the incremental statutory tax rates of the jurisdictions to which each adjustment relates for the respective periods.

Previous wording

Using EBITDA as a performance measure has material limitations as compared to net loss, or other financial measures as defined under GAAP, as it excludes certain recurring items, which may be meaningful to investors. EBITDA excludes interest expense net of interest income; however, as we have borrowed money to finance transactions and operations, or invested available cash to generate interest income, interest expense and interest income are elements of our cost structure and can affect our ability to generate revenue and returns for our stockholders. Further, EBITDA excludes depreciation and amortization; however, as we use capital and intangible assets to generate revenue, depreciation and amortization are necessary elements of our costs and ability to generate revenue. Finally, EBITDA excludes income taxes; however, as we are organized as a corporation, the payment of taxes is a necessary element of our operations. As a result of these exclusions from EBITDA, any measure that excludes interest expense net of interest income, depreciation and amortization and income taxes has material limitations as compared to net income. When using EBITDA as a performance measure, management compensates for these limitations by comparing EBITDA to net income/loss in each period, to allow for the comparison of the performance of the underlying core operations with the overall performance of the company on a full-cost, after-tax basis.

Current wording

Using EBITDA as a performance measure has material limitations as compared to net income (loss), or other financial measures as defined under GAAP, as it excludes certain recurring items, which may be meaningful to investors. EBITDA excludes interest expense net of interest income; however, as we have borrowed money to finance transactions and operations, or invested available cash to generate interest income, interest expense and interest income are elements of our cost structure and can affect our ability to generate revenue and returns for our stockholders. Further, EBITDA excludes depreciation and amortization; however, as we use capital and intangible assets to generate revenue, depreciation and amortization are necessary elements of our costs and ability to generate revenue. Finally, EBITDA excludes income taxes; however, as we are organized as a corporation, the payment of taxes is a necessary element of our operations. As a result of these exclusions from EBITDA, any measure that excludes interest expense net of interest income, depreciation and amortization and income taxes has material limitations as compared to net income. When using EBITDA as a performance measure, management compensates for these limitations by comparing EBITDA to net income/loss in each period, to allow for the comparison of the performance of the underlying core operations with the overall performance of the Company on a full-cost, after-tax basis.

Previous wording

As to certain of the items related to Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Loss: (i) non-cash stock-based compensation expense varies from period to period due to changes in the estimated fair value of performance-based awards, forfeitures and amounts granted; (ii) strategic review and related costs incurred in connection with the separation and stand up of Centuri as its own public company are non-recurring; and (iii) severance costs relate to non-recurring restructuring activities. Because EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Loss, as defined, exclude some, but not all, items that affect net loss, such measures may not be comparable to similarly titled measures of other companies. The most comparable GAAP financial measure, net loss, and information reconciling the GAAP and non-GAAP financial measures, are set forth below.

Current wording

As to certain of the items related to Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income (Loss): (i) non-cash stock-based compensation expense varies from period to period due to changes in the estimated fair value of performance-based awards, forfeitures and amounts granted; (ii) strategic review and related costs incurred in connection with the separation and stand up of Centuri as its own public company are non-recurring; and (iii) severance costs relate to non-recurring restructuring activities. Because EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income (Loss), as defined, exclude some, but not all, items that affect net income (loss), such measures may not be comparable to similarly titled measures of other companies. The most comparable GAAP financial measure, net income (loss), and information reconciling the GAAP and non-GAAP financial measures, are set forth below.

Previous wording

The following table presents reconciliations of net loss to EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the specified periods:

Current wording

The following table presents reconciliations of net income (loss) to EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the specified periods:

Previous wording

The following table presents reconciliations of net loss to adjusted net loss for the specified periods:

Current wording

The following table presents reconciliations of net income (loss) to Adjusted Net Income (Loss) for the specified periods:

Previous wording

As of March 31, 2024 and April 2, 2023, cash and cash equivalents were $18.4 million and $33.4 million, respectively. Historically, our primary sources of liquidity have been cash flows from operations and debt financing. As discussed in “Note 1 — Description of Business” and “Note 15 — Subsequent Events” to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, and “The Offering” within the IPO Prospectus, the Centuri IPO and concurrent private placement will lead to changes in our capital structure and sources of liquidity. As part of the Centuri IPO and concurrent private placement which closed on April 22, 2024, we received total net proceeds of $329.3 million in exchange for 16,851,929 shares of our common stock, with $316.0 million of the proceeds being used to pay down our existing debt. We believe our capital resources, including existing cash balances, together with our operating cash flows and borrowings under our credit facilities, are sufficient to meet our financial obligations for at least the next 12 months.

Current wording

As of June 30, 2024 and December 31, 2023, cash and cash equivalents were $30.9 million and $33.4 million, respectively. Historically, our primary sources of liquidity have been cash flows from operations and debt financing. As discussed in “Note 1 — Description of Business” to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, and “The Offering” within the IPO Prospectus, the Centuri IPO and concurrent private placement have led to changes in our capital structure and sources of liquidity. As part of the Centuri IPO and concurrent private placement which closed on April 22, 2024, we received total net proceeds of $328.0 million in exchange for 16,851,929 shares of our common stock, with $316.0 million of the proceeds being used to pay down our existing debt. We believe our capital resources, including existing cash balances, together with our operating cash flows and borrowings under our credit facilities, are sufficient to meet our financial obligations for at least the next 12 months.

Previous wording

Net cash used in operating activities for the fiscal three months ended March 31, 2024 was $22.2 million, compared to $51.9 million net cash provided by operating activities for the fiscal three months ended April 2, 2023, representing a decrease in operating cash flow of $74.1 million, or 142.8%, due to decreased net income and the impact of working capital changes.

Current wording

Net cash used in operating activities for the fiscal six months ended June 30, 2024 was $76.4 million, compared to $19.5 million for the fiscal six months ended July 2, 2023, representing a decrease in operating cash flow of $56.9 million due to decreased net income and the impact of working capital changes.

Previous wording

Net cash used in investing activities was $28.9 million in the period ended March 31, 2024 compared to $20.6 million for April 2, 2023, an increase of $8.3 million due to timing of capital expenditures.

Current wording

Net cash used in investing activities was $48.9 million in the period ended June 30, 2024 compared to $49.1 million for July 2, 2023, a decrease of $0.2 million.

Previous wording

The construction industry is capital intensive, and we expect to continue to incur capital expenditures to meet anticipated needs for our services. For the fiscal three months ended March 31, 2024 and April 2, 2023, we had capital expenditures of $30.5 million and $23.2 million, respectively.

Current wording

The construction industry is capital intensive, and we expect to continue to incur capital expenditures to meet anticipated needs for our services. For the fiscal six months ended June 30, 2024 and July 2, 2023, we had capital expenditures of $53.2 million and $53.8 million, respectively.

Previous wording

These items were partially offset by proceeds from the sale of property and equipment of $1.6 million and $2.7 million for the fiscal three months ended March 31, 2024 and April 2, 2023, respectively.

Current wording

These items were partially offset by proceeds from the sale of property and equipment of $4.3 million and $4.6 million for the fiscal six months ended June 30, 2024 and July 2, 2023, respectively.

Previous wording

While we primarily operate in the United States, we also have operations in Canada. Therefore, changes in the value of Canadian dollars affect our financial statements when translated into U.S. dollars. For each of the fiscal three months ended March 31, 2024 and April 2, 2023, revenue from our Canadian operations was approximately 8% of total revenue. At times, we also enter into transactions in foreign currencies, primarily in Canadian dollars, that subject us to currency risks. We regularly monitor our foreign currency exposure to determine the most effective foreign currency risk mitigation strategies. Currently, we are not party to any foreign currency exchange contracts.

Current wording

While we primarily operate in the United States, we also have operations in Canada. Therefore, changes in the value of Canadian dollars affect our financial statements when translated into U.S. dollars. The revenue from our Canadian operations was approximately 7% and 8% of total revenue, for the fiscal six months ended June 30, 2024, and July 2, 2023, respectively. At times, we also enter into transactions in foreign currencies, primarily in Canadian dollars, that subject us to currency risks. We regularly monitor our foreign currency exposure to determine the most effective foreign currency risk mitigation strategies. Currently, we are not party to any foreign currency exchange contracts.

Previous wording

We have a senior secured revolving credit and term loan multi-currency facility. The line of credit portion comprises $400 million, and associated amounts borrowed and repaid are available to be re-borrowed. The term loan facility portion provided approximately $1.145 billion in financing as of August 27, 2021. The term loan facility expires on August 27, 2028, and the revolving credit facility expires on August 27, 2026. This multi-currency facility allows us to request loan advances in either Canadian dollars or U.S. dollars. The obligations under the credit agreement are secured by present and future ownership interests in substantially all of our direct and indirect subsidiaries, substantially all of our tangible and intangible personal property, certain of our direct and indirect subsidiaries, and all products, profits and proceeds of the foregoing. Assets securing the facility as of March 31, 2024 and December 31, 2023 totaled $2.0 billion and $2.1 billion, respectively. During the fiscal three months ended March 31, 2024, the maximum amount outstanding on the combined facility was $1.117 billion, at which point $991.4 million was outstanding on the term loan portion of the facility. As of March 31, 2024 and December 31, 2023, $125.2 million and $77.1 million, respectively, was outstanding on the revolving credit facility, in addition to $991.4 million and $994.2 million, respectively, that was outstanding on the term loan portion of the facility. Also as of March 31, 2024 and December 31, 2023, there was approximately $201.5 million and $246.5 million, respectively, net of outstanding letters of credit, available for borrowing under the line of credit. We had $51.7 million and $48.6 million of unused letters of credit available as of March 31, 2024 and December 31, 2023, respectively.

Current wording

We have a senior secured revolving credit and term loan multi-currency facility. The line of credit portion comprises $400 million, and associated amounts borrowed and repaid are available to be re-borrowed. The term loan facility portion provided approximately $1.145 billion in financing as of August 27, 2021. The term loan facility expires on August 27, 2028, and the revolving credit facility expires on August 27, 2026. This multi-currency facility allows us to request loan advances in either Canadian dollars or U.S. dollars. The obligations under the credit agreement are secured by present and future ownership interests in substantially all of our direct and indirect subsidiaries, substantially all of our tangible and intangible personal property, and all products, profits and proceeds of the foregoing. Assets securing the facility as of both June 30, 2024 and December 31, 2023 totaled $2.1 billion. During the fiscal six months period ended June 30, 2024, the maximum amount outstanding on the combined facility was $1.117 billion, at which point $991.4 million was outstanding on the term loan portion of the facility. As of June 30, 2024 and December 31, 2023, $143.6 million and $77.1 million, respectively, was outstanding on the revolving credit facility, in addition to $831.4 million and $994.2 million, respectively, that was outstanding on the term loan portion of the facility. Also as of June 30, 2024 and December 31, 2023, there was approximately $195.7 million and $246.5 million, respectively, net of outstanding letters of credit, of unused capacity under the line of credit. We had $64.3 million and $48.6 million of unused letters of credit available as of June 30, 2024 and December 31, 2023, respectively.

Previous wording

On March 22, 2024, we amended the financial covenants of the revolving credit facility (the “2024 Credit Facility Amendment”) to increase the maximum net leverage ratio. Under the terms of the amended revolving credit facility, we are required to maintain a net leverage ratio of less than a maximum of 5.75 to 1.00 from January 1, 2024 through March 31, 2024, 6.00 to 1.00 from April 1, 2024 through June 30, 2024, 5.75 to 1.00 from July 1, 2024 through September 29, 2024, 5.00 to 1.00 from September 30, 2024 through December 29, 2024, and 4.00 to 1.00 thereafter. In addition, the 2024 Credit Facility Amendment increased the adjusted maximum net leverage ratio financial covenants, which go into effect upon the closing of a Qualified IPO. The 2024 Credit Facility Amendment did not modify any terms of the term loan facility.

Current wording

On March 22, 2024, we amended the financial covenants of the revolving credit facility (the “2024 Credit Facility Amendment”) to increase the maximum net leverage ratio. The terms of the amended revolving credit facility required us to maintain a net leverage ratio of less than a maximum of 5.75 to 1.00 from January 1, 2024 through March 31, 2024, 6.00 to 1.00 from April 1, 2024 through June 30, 2024, 5.75 to 1.00 from July 1, 2024 through September 29, 2024, 5.00 to 1.00 from September 30, 2024 through December 29, 2024, and 4.00 to 1.00 thereafter. In addition, the 2024 Credit Facility Amendment increased the adjusted maximum net leverage ratio financial covenants, which go into effect upon the closing of a Qualified IPO. The 2024 Credit Facility Amendment did not modify any terms of the term loan facility.

Previous wording

We currently have seven equipment term loans with initial amounts totaling approximately $170 million, with certain owned equipment used as collateral. The loans are serviced in U.S. dollars. These term loans have prepayment penalties for the first three years of the agreements. We did not incur any prepayment penalties on any of our equipment loans during the first fiscal three months of 2024 or 2023.

Current wording

We currently have seven equipment term loans with initial amounts totaling approximately $170 million, with certain owned equipment used as collateral. The loans are serviced in U.S. dollars. These term loans have prepayment penalties for the first three years of the agreements. We did not incur any prepayment penalties on any of our equipment loans during the first fiscal six months of 2024 or 2023.

Previous wording

This discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires the use of estimates and assumptions. A summary of our critical accounting estimates is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the IPO Prospectus. We are required to make estimates and judgments in the preparation of our condensed consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in the estimates and assumptions we use could have a material impact on our financial results. During the fiscal three month period ended March 31, 2024, there were no material changes in our critical accounting estimates or policies.

Current wording

This discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires the use of estimates and assumptions. A summary of our critical accounting estimates is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the IPO Prospectus. We are required to make estimates and judgments in the preparation of our condensed consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in the estimates and assumptions we use could have a material impact on our financial results. During the fiscal six months ended June 30, 2024, there were no material changes in our critical accounting estimates or policies.