S-1/A: Centuri Holdings Files Amendment for $299 Million IPO, Icahn Affiliates to Invest Concurrently

Centuri Holdings, a utility infrastructure services company, has filed an amendment to its Form S-1 registration statement, outlining details for a $299 million initial public offering and a concurrent private placement with Icahn Partners.

Summary

• Centuri Holdings, Inc. filed an amendment to its Form S-1 registration statement on April 8, 2024.
• The company is planning an initial public offering (IPO) of 12,400,000 shares of common stock.
• The estimated IPO price is between $18.00 and $21.00 per share.
• Icahn Partners LP and Icahn Partners Master Fund LP, investment entities affiliated with Carl C. Icahn, have agreed to purchase 2,591,929 shares in a concurrent private placement at the IPO price.
• Upon completion of the offering and private placement, Southwest Gas Holdings will own approximately 82.7% of Centuri's outstanding common stock (or 81.0% if the underwriters exercise their option in full).
• Centuri has been approved to list its shares on the New York Stock Exchange (NYSE) under the symbol CTRI.
• The underwriters have a 30-day option to purchase up to 1,860,000 additional shares.
• On March 25, 2024, Centuri agreed to purchase the remaining 10% interest in Linetec for approximately $92 million, expected to close in April 2024.
• Preliminary results for the fiscal three months ended March 31, 2024 estimate revenue between $525.0 and $530.0 million, a net loss between $24.7 and $26.7 million, and adjusted EBITDA between $19.0 and $20.5 million.

Sentiment

Score: 5

Explanation: The document presents a mix of positive and negative information. While the IPO and backlog are positive, the Q1 2024 net loss and revenue decrease temper the overall sentiment. The company is also facing a number of risks.

Positives

• The company has a significant backlog of $5.1 billion.
• The company is acquiring the remaining 10% interest in Linetec.
• The company has a diversified, well-tenured blue-chip utility customer base.
• The company has a comprehensive service offering.
• The company has a recurring, lower risk and visible MSA-driven contract profile.
• The company has a highly skilled workforce.
• The company has an experienced management team, well positioned to support Centuri in its next chapter of growth.

Negatives

• Preliminary Q1 2024 results show a net loss between $24.7 and $26.7 million.
• Q1 2024 revenue is estimated to decrease compared to the previous year.
• The company is reliant on skilled personnel who are trained and qualified to install utility infrastructure under established safety protocols and operator qualification programs.
• The company is self-insured against many potential liabilities, and there can be no assurance that our insurance coverages will be sufficient under all circumstances or against all claims to which we may be subject, which could expose us to significant liabilities and materially and adversely affect our business, financial condition, results of operations and cash flows.

Risks

• The loss of, or reduction in business from, certain significant customers could have a material adverse effect on our business.
• Our financial and operating results may vary significantly from quarter-to-quarter and year-to-year.
• We derive a significant portion of our revenues from long-term MSAs that may be cancelled by customers on short notice, or which we may be unable to renew on favorable terms or at all.
• Backlog may not be realized or may not result in revenue or profit.
• Our actual cost may be greater than expected in performing our contracts, causing us to realize significantly lower profit or experience losses on our projects.
• Fixed-price and unit-price contracts are subject to potential losses that could materially and adversely affect our results of operations.
• The nature of our operations presents inherent risk of loss that could materially and adversely affect our results of operations and financial condition, earnings, and cash flows.
• We operate in a highly competitive industry, and competitive pressures could negatively affect our business, which is largely dependent on the competitive bidding process.
• Challenges relating to supply chain constraints have negatively affected, and may in the future negatively affect, our work mix and volumes, which could materially and adversely affect our results of operations overall.
• Our business could be materially and adversely affected as a result of actions of activist stockholders.
• Failure to attract and retain an appropriately qualified employee workforce could materially and adversely affect our collective operations.
• Certain of our costs, such as operating expenses and interest expenses, could be adversely impacted by periods of heightened inflation, which could have a material adverse effect on our results of operations.
• As a separate, publicly traded company, we may not enjoy the same benefits that we did as a part of Southwest Gas Holdings, which could have a material adverse effect on our business, results of operations and cash flows.
• We have no history of operating as a separate, publicly traded company, and our historical and unaudited pro forma consolidated financial information is presented for informational purposes only and is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.
• Following the completion of this offering and the concurrent private placement, we will be a controlled company as defined under the corporate governance rules of the NYSE, which means Southwest Gas Holdings will continue to control the direction of our business, and we will remain a controlled company until Southwest Gas Holdings no longer holds a majority of the voting power of our outstanding common stock. As a result, we will qualify for exemptions from certain corporate governance requirements of the NYSE.
• If the Distribution is effectuated and is taxable to Southwest Gas Holdings as a result of a breach by us of any covenant or representation made by us in the Tax Matters Agreement, we will generally be required to indemnify Southwest Gas Holdings and this indemnification obligation, or the payment thereof, could have a material adverse effect on us.
• We will be subject to restrictions on our actions (including issuing additional equity) for a period following the Separation in order to avoid triggering significant tax-related liabilities.
• We cannot be certain that an active trading market for our common stock will develop or be sustained after this offering, and the stock price of our common stock may fluctuate significantly.
• The obligations associated with being a public company will require significant resources and management attention.
• Future distributions or sales by Southwest Gas Holdings, or sales by other holders of shares of our common stock, or the perception that such distributions and sales may occur, including following the expiration of the lock-up period, could cause the price of our common stock to decline, potentially materially.

Future Outlook

The company anticipates increased activity on large utility infrastructure projects going forward and is positioned to support electric and gas utility customers' carbon-neutral goals through system modernization and resiliency, as well as construction of renewable energy infrastructure.

Industry Context

The utility industry is characterized by consistent growth of highly predictable, non-discretionary, regulatory-driven investment, supporting resilience through economic cycles and periods of economic disruption. The increased programmatic investment for upgrading or replacing older electric and gas utility infrastructure networks as well as the deployment of smart systems and energy transition initiatives, provides a solid growth outlook for the utility services sector and opportunities for service diversification and continuous consolidation among the largest service providers.

Comparison to Industry Standards

• The top five largest utility service providers (including Centuri) collectively produced 18% of the 2022 utility services revenues in the industry, while the remaining 82% of those revenues were either produced by a large number of independent, regional providers or represent work self-performed by utilities, according to the ENR Top 600 Specialty Contractors 2023 Report and S&P Global Market Intelligence.
• According to the C Three Group, for the year ended December 31, 2023, capital expenditures for North American LDCs are expected to exceed $40 billion.
• According to a report published by the Edison Electric Institute (the EEI) in September 2023, total capital expenditures among the major public investor-owned U.S. electric utilities are expected to more than double from $74 billion in 2010 to an estimated $168 billion in 2025.
• According to the U.S. Bureau of Labor Statistics, the number of employees in the utility industry has decreased by approximately 30,000 employees between 1998 and 2023.
• According to BloombergNEF, there will be over 16,000 MWs of offshore wind electric capacity added to the U.S. electric grid between 2023 and 2030, representing a compound annual growth rate of 61%.

Management Changes

Related Party Transactions

• The company performs various construction services for Southwest Gas Corporation, a wholly owned subsidiary of Southwest Gas Holdings.
• Approximately $116.4 million of our revenue for fiscal 2023 was related to contracts with Southwest Gas Corporation.
• The company is included in a tax sharing agreement with Southwest Gas Holdings.

Stakeholder Impact

• Shareholders: Potential for increased value through the IPO and strategic growth, but also risk of stock price volatility and dilution.
• Employees: Potential for new opportunities and incentives, but also uncertainty during the transition and potential for job losses.
• Customers: Continued service and potential for improved infrastructure, but also potential for disruptions during the transition.
• Suppliers: Continued business relationships, but also potential for changes in procurement practices.
• Creditors: Repayment of debt and potential for changes in credit ratings.

Next Steps

• Complete the IPO and concurrent private placement.
• Close the purchase of the remaining 10% interest in Linetec.
• Report financial statements for the quarter ending March 31, 2024, under the new segment reporting structure.

Key Dates

Keywords

utility infrastructure, IPO, Centuri Holdings, Icahn Partners, Southwest Gas Holdings, private placement, infrastructure services, energy sector, financial results, risk factors