We'll keep the discussions going with Centuri, very pleased to have Chris Brown, CEO, and Greg Izenstark, who's the CFO. Thank you, gentlemen, for being with us this afternoon. I'm Joe O'Dea, I lead the multis effort at Wells Fargo. Over the course of the discussion, if you have a question, please just raise your hand and I'll get to you. Let's kick it off, just general background. Since joining the company, coming in, forming a strategic plan, obviously a lot of progress since then. Talk about that forming of a plan, your evaluation of the company, and then implementation of that plan.
Thank you for the question, Joe. I would say, we've got a massive 115-year experience, over the last 12 months we've used the premise of building a long-term strategy to sort of align us all. We created Vision One Centuri, which has been our vehicle to sort of define our future, has been the vehicle to actually align and pull us together as one company and not a number of operating companies. The work's been exceptionally well-received by our entire team and has really delivered a good outcome. First of all, we've been able to prove out what's a fantastic end market environment for us. You've probably seen as we've rolled out our targets that we expect to grow the business between 10%-15% from the revenue line across all of our end markets collectively, whether that be gas, electric or distributed power or industrial.
The market tailwinds and the opportunity set that we have is allowing us to deliver on that 10%-15%. We've got a big push as well from a profitability standpoint. We've set ourselves aggressive targets of between 20%-25% EBIT growth, which is underpinned by our capital efficiency program, where we're looking to increase the fleet, but use leasing forms of fleet versus funding it through our own balance sheet cash. In addition to that, we've set lofty targets again around our book-to-bill and our targets to grow the backlog and our pipeline. This year alone, we expect to add about another $4 billion of new business into the portfolio.
The business context, our alignment to it, where we play, has allowed us to really drive good top-line growth between 10%-15%, increase our profitability, both at the EBIT line and at the margin line, where we believe our margins will start to increase from the current 8%-9.7%, and also build sustainability into the business. Sustainability by driving cash flow generation, investing in our people, investing in our business, and building up a broader and larger fleet to service our customer base. It's all pretty good. It sits very well for where we are in the market.
Perfect. Expand a little bit on the One Company side of things and what you saw when you came in, and sort of what you've retooled in terms of driving the organization toward the One Company approach.
Joe, this is a fantastic business that started over 115 years ago. We've rolled up through a number of acquisitions as well as some great investment through our former parent, Southwest Gas. We've now got 11,000- 12,000 people that operate across 40 states, four Canadian provinces, but across a number of operating companies. The former model was rather like our utility end markets operate as a holdco, hunt, kill, and eat yourself, and the center was just about allocating capital. That's ultimately not what our clients wanted. The One Company approach has allowed us to go to our client base and say, "Look, we are Centuri, we've been around for 115 years. We're union, non-union, gas, electric, distributed power, utility, industrial services.
What do you need from us?" As a consequence, when we meet with our customers, we take the entire team, the entire business of capability, the balance sheet, the services, the resources, and then align those to what the client needs are. The consequence of that is we end up sharing resources, we end up winning work collectively. We grab more of existing clients' wallet, and we overall raise the bar as part of the tide for the entire business. That's the approach. People as well now see a different future as we've come together as One. We've got talent in our union business in the Northeast that's got ambition to be in the gas business. We've got excellent resources in the gas business, young, talented people that want to move up across the broader organization.
Coming together as one not only offers business impacts, creates value, but also human capital impact. People can develop, we can invest more in people, we can share more resources, and develop more talent.
On the demand side of things, just unpack for us a little bit what you're seeing out there from the MSA side, the bid side of things, regionally, kind of union, non-union. Obviously some areas of really strong demand, just to unpack that a little bit.
Yeah. We see the real benefit of having a union, non-union gas and electric and distributed business. Why is that? We are seeing volume growth both from a revenue pipeline growth of opportunity across all of our end markets. In fact, I think for the last three quarters we've had green lights on every one of our end markets, every one of our businesses about opportunity. What's driving it? On the electric side, transmission and distribution, resiliency and reliability, making it affordable is key. And we see that across, again, all of our end markets, states wide as well as utility wide. On the gas side, a little different. A number of O&M type contracts to replace old systems across the Northeast. In the South, we're seeing more and more new pipelines and gas systems going into play to deal with new homes and business transfers.
We're also seeing the desire to have more gas-fired generation. Running more gas pipelines around to support that distributed power is driving the demand. On the Union Electric, which does a lot of our project-related work, we see huge demand from data centers that want us to be doing the electrical gas hookups, distributed power, battery energy storage, as well as other industrial projects. Again, just driven by the desire to get more gas for more generation or more electrons.
In terms of the demand trends, you started the year with a really strong book-to-bill, 1.8x . You're guiding 1.1x- 1.2x, there's been a little bit of attention on, well, what does that imply for the rest of the year? Just in terms of how you see that pipeline and how you think about the book-to-bill opportunity.
Yep
Through the rest of the year.
This year will ultimately unfold just like last year. We started the year with conservative targets so that we could plan consistently and deliver. Last year, we delivered over $4 billion of new bookings and grew revenues to $3 billion, started the year with $2 billion of backlog. 2026, we start this year with $6.5 Billion of backlog, more for this calendar year than we did a year ago. We set ourselves an aggressive growth target of at least 10%. So far this year, we are close to $1.7 billion, $1.8 billion of bookings to the end of April. We've got $400 million or $500 million more that's in the negotiation hopper.
I think by the time we hit the mid-year, we'll be well over $2 billion of bookings for the year, and we've increased our targets publicly to the higher end of the range at about 1.2x book-to-bill for the year. I think we'll be over $4 billion of bookings for the fiscal 2026 year, Joe. I think the other notable thing is, and kind of the most important thing for us is, as we go into the next year, is how much work we have under contract for that fiscal year. If I go back to 2024, I restate we had $2 billion of backlog for 2025 revenue, so we still had to find $700 million, $800 million, and we found nearly $1 billion. Going into 2026, we have $3 billion of backlog, and we currently sit at about $3.4 billion of backlog for this year.
We have a target to close this year out so that we increase the backlog for 2027 by at least 15%. Every indicator we see, even this early in the year, tells me that we will achieve that goal.
Perfect. In terms of the inflation side of things, what you're seeing out there, whether it's labor or any impact that it's having on project activity, I imagine it's a little bit more about just the ability to get things as opposed to pay for them in terms of the demand, just what you're seeing on the inflationary side.
Yeah, I think we have a very good client base, types of contracts that are smaller, both in volume and timing. We have MSAs that have got escalators in there to adjust for inflation. We see inflation, it's a reality of life. We see inflation as less impactful upon our business than maybe for those contractors that do larger, multi-year, large supply chain type contracts. We just don't do that work. Inflation for us is really a managed risk as part of our overall portfolio and not a big impact upon us. Talent and people are key. That's affecting us all. I think we've added about 2,000 people to the business, so what's that, nearly 20% headcount in the last 15 months, 16 months.
We continue to find great people, new apprentices coming in, veterans that transfer across, lots of people within the industry that are currently in other sectors and find the utility end markets attractive from both the lifestyle and the pay. I think the real shift you will see, Joe, in the future is, I think, the historical model that most of us have had, which is you position with a customer, you tender some work, you win it, you go find the people. I think those days need to go. We need to move on. That's not how you can create capacity.
We need to be an environment whereby we're close to our customers, we understand their future needs, we're investing with their help in building a talent pipeline ahead of their real need so that we're building capacity, just like we do with a balance sheet, just like we do with a fleet, we do that with human capital. Our desire at Centuri is to continue the decades of work with our customers to get closer to them, show them how we can not just add 2,000 people, but 3,000, 4,000 people. As long as they can align and share with us their information on what they need and where they need it, we can pre-invest.
There is a shift on the human capital that we have to make. I think the contractors that do that will be less reactive and more proactive, that invest in talent acquisition, learning, and development, will be the ones that capture more opportunity and manage their risk better as they deliver. That's what we plan to do.
Those line workers, how long does it take to train? What kind of turnover rates do you see in that field?
Well, we have ebb and flow on our resourcing because we do project work, as we've said. We have union and non-union, but they follow a very similar process. On the non-union side, we have about 800, 900 apprentices, and they do an 8,000-hour apprentice training program, which is really over four years. They start to become productive in the first year, and they develop through their career doing more and more, taking on more responsibility as they develop. It's about an 8,000-hour, four-year program. On the union side, it's somewhat similar. The non-union side, we basically drive it, control it, and manage it. Less so on the union side, where they bring their own apprentices through. Line workers are just one of our many skilled trades.
We have electricians which follow a similar path to become journeymen, similar period of time, and also on the mechanical trades, plumbing trades. Line workers are a big component of our business, but not the biggest.
I want to shift to MSA versus bid and a little bit of competition. Maybe just start by, I think it seemed like for a while, Centuri was focused on the MSA opportunity set and then saw that there was an opportunity to pursue the bid side a little bit more, but a little bit of background there and how you've pivoted.
MSA work for public utilities is the DNA of our company. I don't foresee a day that will change because it's who we are, it's where we came from, it's what we do best, and it's what our customers want us to do. MSA work is the baseline of the resources we have deployed. It's the bread and butter of the business. It brings us enough scale to operate at the right level. It grows each year. Is it 5%, 6%? That's clearly well below from just becoming and remaining as an MSA contractor. It's way below what the market affords us. If we want to do more work and grow the business to the levels we believe the market affords us and our shareholders believe we could do, we've got to do more work, and that is typically bid work.
Bid work and MSA work within the Centuri organization are not dissimilar. It's the same services, it's often the same people doing the same things, and in many cases, the bid work is for the same clients. I would argue that the MSA work and the bid work are very similar. They're just a different form of contract to get paid. That said, there are some differences in the bid work. We do some slightly larger projects within the bid work. The overall project size is still less than $4 million when you blend it all in. When I came in, the mix of work was 80% MSA, 20% bid work.
As we've rolled out our long-term plans, we think that will become 65% MSA, 35% bid work, and that's just purely that mix is driven by the pace of growth in MSA versus the pace of growth in bid work. That's how we think the organization will evolve with time to deliver those 10%-15% annual growth targets.
What about mix? To add data center activity into that, but when you think about the growth that you're going after in bid and how that's going to become a bigger portion of the revenue, think about the data center being a part of the revenue. Are those mixing margins up over time as you do that work?
Yeah. Data centers is a topic that everybody enjoys to discuss. We look at basically MSA as our core of who we are, and we've got to love and nurture that, and that often yields a slightly lower margin compared to non-MSA work because it's stable, it's over multi-years, it's low risk. It's with our core customers that have built us to where we are. Bid work is more of a transaction. It could be with the same customers. You bid more work at a rapid clip, you do more of it through the years, whereas MSAs are often multi-years. The base of the business sits with the MSAs.
The growth beyond the MSA comes from the bid work, and we use that bid work as our opportunity to drive higher margin, generate more free cash flow, and then invest further in the business so that we can do more MSA work. Typically, the bid work is 1%-2% more in terms of margin than comes out of the MSAs. That's factually correct. We don't differentiate, quite frankly, between data centers, industrial clients, utility bid work, because we are doing the same services. It's the same people, same leadership, same type of work that may be bundled together in a project. We just look at each one on a case-by-case basis. Can we deliver the services? Can we be predictable? Can we deliver the margin? Where's the best return on invested capital?
At the moment, data centers often are higher. I can share industrial clients that also give us a good return. We kind of prioritize on the basis of what the return on invested capital is. At the moment, data centers pop up, but also so do industrial clients. It's just purely where do we get the best return for our services.
Who are you most frequently competing against? Smaller competitors or some of the larger national competitors? When you don't win the MSAs, you're generally going to get renewal wins, but maybe bid work, like when you don't win it, why do you not win it?
That's a good question. We have struggled. I refer back to the Vision One Centuri, I think anybody who goes through a stereotypical strategic review looks at competitor analysis. We did the same. It's almost impossible to model. There are our public peers, of which they're commonly known. I would imagine most are here. We don't typically compete against them. They do very different things to us. They do larger contracts. They are multi-sector, not just utility and a bit of industrial. They often have subsidiaries that are adjacent to where we operate, and we will compete against a few of the larger peer group subsidiary operations. Most of the competitors we bid against and the forces we get are actually smaller businesses that are in the regions or the territories where we service our customers.
It's very abstract in terms of the competitive forces. There are one or two larger private companies, one on the gas side and one on the electric side, that are a common thread of who we tender against, but less so on the public side.
How price sensitive is it to winning versus how relationship sensitive is it to winning?
Yeah. It's often difficult to learn why you didn't win the work. I think a lot of situations, they're unique to the tender. We don't do a lot of three bids and a buy. It's all about price. I think we typically don't win because we haven't been able to really drive our differentiation home, and we've got better at that over the last two years. We're putting more effort into positioning ourselves as One Centuri with the scale, the history, the knowledge we've captured. I think if we can do more of that with better focus internally and a better value proposition with our customers, we will win more work at better margins. I think that's something on the inside we can do. Remember, historically, we used to wait for the phone to ring, and now we're not.
We're actively growing business to have better resource utilization to grow. What we now need to do more of is actually position, show differentiation, show value proposition to capture more at higher margins. We are not the cheapest in the market. We compete against a lot of mom and pops locally that could cut us on price every day. We compete on value, safe quality delivery, reliability, and agility with scale. That's what differentiates us. I think we can do even better on a margin standpoint if we can really, particularly on the bid work, get our differentiation across in the way we propose and the way we position the business.
If we talk about the electric side and kind of union versus non-union sides of the business, revenue split today, roughly 57% union. Is that the right kind of mix for you when you think about the growth potential between those? Do you expect that to shift over time?
Yeah. We're not driving the business to a specific mix, union, non-union. To me, the decision whether we go union or non-union really rests with where the work is, what the customer needs, what the customer's drivers are. That kind of is the driver for the decision. If I look at the current pipeline, though, and I look at the opportunities, we're really pleased with both sides of the business. Our non-union electric does mainly distribution and transmission work. The union side of the business does transmission, distribution as well, but also does distributed power, battery energy storage, just some of the more complex projects. I think in the near term, you'll see more growth and larger work coming through the non-union side. If you look at the bookings this year, there was an MSA renewal, which was quite sizable for the non-union electric.
If you look at the data center work, that's all in that union side. Excuse me. They've got a lot of bidding activity going on. They've got a big footprint. On the non-union electric side, it is down to transmission and distribution, as I've said. They don't do substation work. They don't do battery storage in there. They don't do data center work. It's true public utility transmission and distribution. That business will continue to grow higher than some of the growth rates we've given. We'll see a lot more bookings on the distribution side. I think the revenue will still outpace on the union versus the non-union.
Yep.
I'd like to do, as I've said publicly, I think is laid out quite well by our team in our strategic documents. I listen to our customers. We take their feedback on where they want us. They want to see us doing more and more transmission work. Not the big projects, not the large complex projects that need a massive balance sheet and project management competency. Smaller scopes of work that we have been well-positioned for with local teams, local agility. As we build the strategic plan out and we execute rather on that strategic plan, we will invest more capital into the electric transmission world. Hopefully that will catch up on the non-union side.
Part of the reason customers want you to do more of that is because there's a lot of that out there.
Just the sheer spend's huge.
Yeah.
There are not many contractors that can do that work. There are some great ones that are capturing a lot of the market there and do a good job at it, but there are smaller scopes of work that the clients want others as an option to do that work. You start bundling in small transmission lines with substation and then a local execution that we have, you start to become very attractive to what the customer needs, and that's what they want us to do.
Yep.
You will absolutely see that we will have a more forceful view on building more capability and capturing more opportunity in the smaller sized transmission projects on the electric side, yes.
Yep.
Union and non-union. They'll be both.
Shifting to U.S. gas, just explain that business a little bit, where your strengths are both in terms of the capabilities of the organization, but also the regional strengths of the organization.
I'm very proud. As many know, I come from the gas side more so than the electric side. I was surprised coming in that the industry was kind of down on gas, and I didn't understand it. I think we were starting to believe gas was at the beginning of the end, and I think as time's moved on the last two years, I think we're all starting to see the strengths of the gas business. We are predominantly a business that does public utility, local distribution client work. We're in the neighborhoods installing pipe meters. We're in elements of the states putting long piping runs in. We don't do interstate pipelines. We do small compressor stations. We do small metering stations. We do complex loops. We do the hookup of gas piping to generation facilities, but not within the generation facilities.
We basically do everything within the domestic gas, with the exception of very large transmission pipelines.
That affords us a massive opportunity. If you look at the type of work we do and you look at where the growth is, the demand for power generation behind the meter, distributed power, the speed that that's needed is really akin to sort of gas-fired. That's given us opportunity to capture more gas work that allows us to run pipeline to support distributed power. You're seeing a migration of population with new homes. One of my customers was talking about 150,000 new homes in one part of where I live that need to be connected to gas. We're putting main gas lines in, we're putting new meters in. We've got meter replacements. The general demand for the traditional LDC public utility work is there across everywhere from the Northeast all the way across the Sun Belt into Southern California.
We see compression hookups to gas generation that are right in our sweet spot that are bringing us new opportunity. Our priority in our gas business is to be more consistent 12 months of the year, which is the seasonality, Joe, we've talked about. What that means is we need to migrate more and more of our BD focus and our operational focus across the Sun Belt, south of the Mason-Dixon line. You'll see us be more active with customers we've known for a while and sometimes new customers, to capture more opportunity so we can work all the way through the year and eradicate the seasonality. We will not walk away from those customers in the Northeast that close down work in the neighborhoods from Thanksgiving through to spring break. We'll just find alternative work that we can do to get rid of that seasonality.
Our future profitability, improvement in profitability and our volume of work, 6%-7% top line will come from our gas business and more of it. We're very pleased with it.
Yeah.
We just want more of it.
That's been a focus in terms of Q1 margins versus rest of year margins.
Yep.
As you look at the timeline to get to where you want to be, what do you think is a reasonable timeline?
You know I'm pretty impatient, but I've got to recognize the winter only comes once a year. We added a lot of great new people into the organization to help the gas business, the span of control of the team, relationships with new customers, new ideas and new leads. Those resources came on board during the course of last year. If you compare first quarter 2025 to first quarter 2026, so this most recent winter period, which is just behind us, we grew the gas business by 40%. We went from $200 million of sales, give or take, to $280 million of sales this year. It was losing about $15 million in the first quarter. This year, it only lost $6. Actually, normally, we don't become profitable in the gas business till we get to June and into July.
The business was profitable on a partial year basis at the beginning of April this year. We are on a good track to be where we want to be within a three-year timeframe, which is to have normalized margins in the first quarter for the business within a three-year timeframe. Year one has just passed us. We'll go into year two, where we'll be better than breakeven, and then by the third year is our planning shows we want to be at normalized margins.
You touched on in the opening comments, fleet strategy. Let's just expand on that a little bit, what you're doing with the fleet.
Yeah
Another timeline to get to where you want to be. With that, we know there's some EBITDA margin considerations. Touch on those.
Yeah. We were typically just allocators of capital in the center. That's pretty inefficient. What we want to be is an integrated service provider, and that integration extends to fleet. There's a number of things we are doing on the fleet side. First of all, the source of fleet. We've historically fully funded the fleet, tracked our performance through depreciation, and that's changed. We now are growing the fleet significantly year-over-year, to about $160 million-$170 million of fleet this year. Instead of fully funding it through cash, half of that fleet will be purchased with cash from the balance sheet and half will be leased. The overall capital efficiency program starts with that decision.
The second thing we are working on is a standard data set to capture all of the fleet and to be able to track its utilization, to track its location, to start to build a pattern of behavior of where the best decisions we can take as an integrated team to put the fleet, where we should own it, where we should rent it, and where we should lease it. Intuitively, we all know we're contractors, but we want to be a bit more precise on that so that we can get a better return out of that fleet, by better utilization, a better positioning of the fleet, and a better structure to the way we operate it.
The third thing is, instead of just buying it in essentially silos, we think there's some supply chain efficiency we can get by increasing the amount we buy or lease, and then doing it in a more structured way with the supply chain, not from just the acquisition of it, but the operations, the maintenance, and the consumables we need to keep the fleet going. There's a very long-winded, very detailed plan around how do we get more out of the fleet as it is. The procurement of it, the mix of buy versus lease is well advanced. In fact, last year, we were 50/50% bought, 50% leased. This year, it will be the same. There's still work to do around the data and where the best place to move the fleet to, where it should be positioned throughout the year.
How do we share fleet between opcos? I'm hopeful we'll start to see some improved utilization through the remainder of this year. The longer term target is to have all of this into a joined-up plan, including supply chain, O&M, so that the business can operate as an integrated contractor that's got an integrated fleet program. We've brought great people in. Industry leader on fleet, he joined us about a year ago. We've made some internal promotions out of the opcos to come into the center. We've made great strides. The low-hanging fruit, as I say, was to stop spending the cash but maintain the fleet growth by using leasing on other people's balance sheet. We've made good progress. We just want to keep faster and faster.
Terrific. Well, I think that brings us to the end, but thank you very much. Really appreciate you being here and enjoy the discussion.
Thank you, Joe.
Thanks.