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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-278178

 

12,400,000 Shares

 

 

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Centuri Holdings, Inc.

Common Stock

 

 

This is an initial public offering of shares of the common stock, par value $0.01 per share (“common stock”), of Centuri Holdings, Inc. We are offering 12,400,000 shares of our common stock to be sold in this offering.

Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price per share of our common stock is $21.00. We have been approved to list our shares of common stock on the New York Stock Exchange (the “NYSE”) under the symbol “CTRI.”

Icahn Partners LP and Icahn Partners Master Fund LP, investment entities affiliated with Carl C. Icahn (the “Icahn Investors”), have agreed to purchase in a concurrent private placement 2,591,929 shares of our common stock at a price per share equal to the initial public offering price per share in this offering. The sale of such shares will not be registered under the Securities Act of 1933, as amended (the “Securities Act”). The concurrent private placement is expected to close immediately following the closing of this offering and is subject to customary closing conditions, including the completion of this offering. The closing of this offering is not conditioned upon the closing of the concurrent private placement.

Immediately prior to the closing of this offering, Southwest Gas Holdings, Inc., a Delaware corporation (“Southwest Gas Holdings”), will be our only stockholder. Upon completion of this offering and the concurrent private placement, Southwest Gas Holdings will continue to own approximately 82.7% of our outstanding common stock (or approximately 81.0% if the underwriters exercise their option to purchase additional shares of our common stock from us in full). As a result, we will be a “controlled company” as defined under the corporate governance rules of the NYSE. See “Management—Controlled Company Status.”

 

 

Investing in shares of our common stock involves risks. See “Risk Factors” beginning on page 23 to read about factors you should consider before purchasing shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

     Per Share      Total  

Initial public offering price

   $ 21.00      $ 260,400,000  

Underwriting discounts and commissions(1)

   $ 1.26      $ 15,624,000  

Proceeds to us, before expenses

   $ 19.74      $ 244,776,000  

 

(1)

See “Underwriting (Conflicts of Interest)” for a description of compensation to be paid to the underwriters.

We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to 1,860,000 additional shares of our common stock from us at the initial public offering price less the underwriting discounts and commissions to cover over-allotments.

The underwriters expect to deliver the shares of common stock against payment in New York, New York on or about April 22, 2024.

 

 

 

UBS Investment Bank   BofA Securities   J.P. Morgan
Wells Fargo Securities
Baird   KeyBanc Capital Markets   Siebert Williams Shank

Prospectus dated April 17, 2024.


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ABOUT THIS PROSPECTUS

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PROSPECTUS SUMMARY

     1  

THE OFFERING

     18  

SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

     21  

RISK FACTORS

     23  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     63  

USE OF PROCEEDS

     65  

DIVIDEND POLICY

     66  

CAPITALIZATION

     67  

DILUTION

     68  

THE SEPARATION TRANSACTIONS

     70  

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

     73  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     78  

BUSINESS

     102  

MANAGEMENT

     123  

EXECUTIVE AND DIRECTOR COMPENSATION

     132  

PRINCIPAL STOCKHOLDER

     161  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     162  

DESCRIPTION OF CAPITAL STOCK

     171  

DESCRIPTION OF CERTAIN INDEBTEDNESS

     178  

SHARES ELIGIBLE FOR FUTURE SALE

     180  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF OUR COMMON STOCK

     183  

UNDERWRITING (CONFLICTS OF INTEREST)

     187  

CONCURRENT PRIVATE PLACEMENT

     199  

LEGAL MATTERS

     199  

EXPERTS

     199  

WHERE YOU CAN FIND MORE INFORMATION

     199  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

Through and including May 12, 2024 (25 days after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the SEC and which we have prepared or that has been prepared on our behalf or to which we have referred you. Neither we nor any of the underwriters have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectus prepared by us or on our behalf or to which we have referred you. We and the underwriters take no responsibility for, and cannot assure you as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of our common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so.

We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions in which offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock. Our business, results of operations or financial condition may have changed since that date.

 

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Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside the United States. See “Underwriting (Conflicts of Interest).”

 

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ABOUT THIS PROSPECTUS

In connection with this offering, we will enter into a series of transactions with Southwest Gas Holdings and its subsidiaries pursuant to which Southwest Gas Holdings will transfer the assets and liabilities of Centuri Group (as defined below) to us and Centuri Group will become a wholly owned subsidiary of the Holding Company. We refer to these transactions, as further described in the section of this prospectus entitled “The Separation Transactions—The Separation,” collectively as the “Separation.” See “The Separation Transactions—The Separation.”

In exchange for the transfer of these assets, we will, as consideration:

 

   

issue to Southwest Gas Holdings shares of our common stock; and

 

   

assume liabilities related to Centuri Group.

Unless the context otherwise requires, (i) references in this prospectus to “Centuri,” the “Company,” “we,” “us” and “our” refer to (1) when used in the past tense, Centuri Group, Inc., a Nevada corporation (also referred to as “Centuri Group”), and its consolidated subsidiaries, including NPL Construction Co. (“NPL”), New England Utility Constructors, Inc. (“Neuco”), Linetec Services, LLC (“Linetec”), National Powerline LLC (“National Powerline”), Riggs Distler & Company, Inc. (“Riggs Distler”), Canyon Pipeline Construction, Inc. (“Canyon Pipeline”), NPL Canada Ltd. (“NPL Canada”) and WSN Construction Inc. (“WSN Construction”) and do not give effect to the consummation of the Separation, and (2) when used in the present tense or future tense, to Centuri Holdings, Inc., a Delaware corporation (also referred to as the “Holding Company”) and its consolidated subsidiaries and gives effect to the consummation of the Separation, in each case unless the context requires otherwise, and (ii) references in this prospectus to “Southwest Gas Holdings” refer to Southwest Gas Holdings, Inc., a Delaware corporation, and its consolidated subsidiaries, including Southwest Gas Corporation, unless the context otherwise requires.

Certain amounts, percentages and other figures presented in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals, dollars or percentage amounts of changes may not represent the arithmetic summation or calculation of the figures that precede them.

Market and Industry Data

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from third-party sources, data from our internal research and management estimates. Our management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. Our management estimates have not been verified by any independent source.

In presenting this information, we have made certain assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, and our experience to date in, the markets in which we operate. While we believe the estimated market and industry data included in this prospectus is generally reliable, such information is inherently uncertain and imprecise. Market and industry data is subject to change and may be limited by the availability of raw data, the voluntary nature of the data gathering process and other limitations inherent in any statistical survey of such data. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by third parties and by us. Accordingly, you are cautioned not to place undue reliance on such market and industry or any other such estimates.

 

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Trademarks, Trade Names and Service Marks

The name and mark, Centuri, and other trademarks, trade names and service marks of the Company appearing in this prospectus are our property or, as applicable, licensed to us. The name and mark, Southwest Gas Holdings, and other trademarks, trade names and service marks of Southwest Gas Holdings appearing in this prospectus are the property of Southwest Gas Holdings. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the , ®, or SM symbols, but the absence of these symbols is not intended to indicate that Southwest Gas Holdings and/or Centuri will not assert their or our respective rights to these trademarks, trade names and service marks to the fullest extent under applicable law. This prospectus also contains additional trade names, trademarks and service marks belonging to other companies. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

Basis of Presentation

The Company has historically existed and functioned as an operating segment of Southwest Gas Holdings. The consolidated financial statements of the Company were prepared on a standalone basis and were derived from the consolidated financial statements and accounting records of Southwest Gas Holdings. The consolidated financial statements (together with the notes thereto, the “consolidated financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated statements of operations include all revenues and costs directly attributable to Centuri’s operations. The consolidated statements of operations also include an allocation of expenses related to certain Southwest Gas Holdings corporate functions, including corporate governance, internal audit, tax compliance and other general and administrative costs. These expenses have been allocated based on direct usage or benefit where specifically identifiable, with the remainder allocated on a proportional cost allocation method based primarily on the capital structures of Southwest Gas Holdings’ respective operating segments. Total expenses allocated in 2023, 2022 and 2021 were $1.3 million, $1.6 million and $1.0 million, respectively. Such amounts are primarily included in selling, general and administrative expenses on the consolidated statements of operations.

The Company believes the allocation methodology is reasonable for all periods presented. However, the allocations may not reflect the expenses the Company would have incurred as a standalone public entity for the periods presented. A number of factors, including the chosen organizational structure, division between outsourced and in-house functions and strategic decisions, would impact the actual costs incurred by the Company. The Company has determined that it is not practicable to determine these standalone costs for the periods presented. As a result, the consolidated financial statements are not indicative of the Company’s financial condition, results of operations or cash flows had it operated as a standalone public entity during the periods presented, and results in the consolidated financial statements are not indicative of the Company’s future financial condition, results of operations or cash flows. The Company expects to incur certain costs to establish itself as a standalone public company as well as ongoing incremental costs associated with operating as an independent, publicly traded company.

The Company manages cash and the financing of its operations independently from Southwest Gas Holdings. The Company’s cash and cash equivalents on the consolidated balance sheets represent cash balances held in bank accounts owned by the Company and its subsidiaries. Southwest Gas Holdings’ third-party debt and the related interest expense were not allocated to the Company for any of the periods presented as such borrowings are not Centuri’s legal obligation. All third-party debt on the consolidated balance sheets and the corresponding interest expense represents the Company’s legal obligations.

As of and prior to December 31, 2023, we reported our results under two reportable segments: Gas Utility Services and Electric Utility Services. In January 2024, the Company appointed a new Chief Executive Officer. Following the appointment of the Company’s new Chief Executive Officer, the Company underwent an internal personnel reorganization, causing the Company to re-evaluate its reportable segments. The Company determined

 

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that it was appropriate to re-align our reporting structure from two reportable segments consisting of (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. We will begin reporting under the new segment reporting structure beginning with our financial statements as of and for the fiscal three months ending March 31, 2024. The historical financial information presented in this prospectus is presented on the basis of the segment reporting structure that was in place as of December 31, 2023, and it does not reflect the new segment reporting structure. For additional information see “Business—Our Business Lines” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment Information.”

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 years throughout relate to fiscal years rather than calendar years. Fiscal years 2023, 2022 and 2021 ended December 31, 2023, January 1, 2023 and January 2, 2022, respectively. Fiscal years 2023, 2022 and 2021 each had 52 weeks.

Non-GAAP Financial Measures

Certain financial measures presented in this prospectus differ from what is required under GAAP. These non-GAAP financial measures include EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income. The non-GAAP financial measures presented in this prospectus are supplemental measures of our performance that we believe help investors understand our financial condition and operating results and assess our future prospects. We believe that these non-GAAP financial measures, in addition to the corresponding GAAP financial measures, are important supplemental measures which exclude non-cash or other items that may not be indicative of or are unrelated to our core operating results and the overall financial health of our company. For additional information and a reconciliation of these non-GAAP financial measures see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

 

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PROSPECTUS SUMMARY

This summary highlights information included elsewhere in this prospectus and does not contain all of the information you should consider before making an investment decision to purchase shares of our common stock. You should read this entire prospectus carefully, including the sections entitled “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements,” “Unaudited Pro Forma Condensed Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our consolidated financial statements included elsewhere in this prospectus, before making an investment decision to purchase shares of our common stock.

Our Mission

Our mission is to be the leader in safe, sustainable utility infrastructure services, while fulfilling our roles as a values-driven employer of choice and a responsible corporate citizen in the communities in which we live and work.

Our Business

Centuri is a leading, pure-play North American utility infrastructure services company with over 110 years of operating history that partners with regulated utilities to maintain, upgrade and expand the energy network that powers millions of homes and businesses. We are a leader in utility infrastructure services and 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 that ensure safe, reliable and environmentally sustainable grid operations. Our service offerings primarily consist of the modernization of utility infrastructure through the maintenance, retrofitting and installation of electric and natural gas distribution networks to meet current and future demands while also preparing systems for the transition to clean energy sources. We also serve complementary, attractive and growing end markets such as renewable energy and 5G datacom. Guided by our values and our unwavering commitment to serve as long-term partners to customers and communities, our more than 12,500 employees enable our customers to safely and reliably deliver electricity and natural gas and achieve their goals for environmental sustainability.

North America relies on electric and gas delivery infrastructure for the basic energy needs of homes and businesses and generally to maintain its dynamic economy, but existing infrastructure is subject to degradation and is often decades old. Despite significant recent investment, much of the existing electric grid and, according to the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (“PHMSA”), more than 409,000 miles of gas main lines are more than 50 years old (including pipelines of unknown vintage) and in need of significant upgrade or replacement as of August 2023. Federal, state and local governments have increased regulatory stringency and enacted legislation to support the necessary infrastructure investments in the sector aimed at preventing disruption, enhancing safety and readying to meet current and future demands. Additionally, labor market constraints, the need for cost efficiency and a steadily declining utility workforce have led utilities to become increasingly reliant on outsourced utility service providers, creating an overall growing market well positioned for consolidation. We believe these trends represent a significant challenge for utilities, but also an opportunity for outsourced utility infrastructure services companies to build and maintain more efficient, sustainable infrastructure that can meet the needs of future generations.

We often serve as an extension of our diverse utility customer base’s workforce, which consists of more than 400 customers as of the date of this prospectus. Our customers are leading electric, gas and combination utility companies across North America, including American Electric Power, Enbridge, Entergy, Exelon, NiSource, National Grid, Sempra Energy and Southern Company, among others. We also contract with certain large-scale 5G datacom providers to support increased utilization of 5G and network expansion with the addition

 

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of C-band and small cells. Our top 10 and top 20 customers are almost exclusively investment grade utilities and represented 49% and 71% of our revenues, respectively, during fiscal 2023.

We have over 110 years of industry operating experience and a leading market share across a wide range of services in the electric and gas utility value chains. We believe our brand, scale, experience and fulsome service offerings compose the necessary profile to attract and retain the best talent and to competitively position ourselves among the largest providers in the sector, while prioritizing the safety of our employees, customers and other stakeholders. We place a strong emphasis on employee training and development and have implemented a robust safety program that strives to ensure that all projects are executed with the highest level of safety and quality standards.

We operate through a family of integrated companies that work together across different geographies allowing us to establish solid relationships and a strong reputation for a wide range of capabilities. Operating across the utility value chain allows us to address diverse customer initiatives, and our knowledge, expertise and resources enable us to deliver successful projects that meet these ever-evolving needs. Furthermore, the composition of our workforce, which includes both union and non-union field labor, enables us to access a wide range of opportunities across regions, customers and projects.

Our core operations are focused on modernizing utility infrastructure, which reduces risks of hazardous gas leaks, reduces methane emissions from natural gas pipelines, and hardens electric infrastructure from weather events, thereby increasing electric grid and delivery infrastructure resiliency, and improving overall safety, reliability, and sustainability of North American energy networks. By helping enable utility infrastructure to deliver safer, more sustainable solutions to meet the needs of our customers and the communities we collectively serve, our services are Environmental, Social and Governance (“ESG”)-focused in nature, improving and expanding positive and sustainable impacts across the energy network. We are committed to being an ESG leader through both our work to advance infrastructure for clean energy delivery, as well as our internal commitments for sustainability that guide our operations and vision for the future. A robust internal ESG framework aligns directly with our overall corporate strategy and long-term vision.

To accommodate incremental demands from the broader transition to clean energy sources supported by key U.S. legislation, including the Inflation Reduction Act (“IRA”) and the Infrastructure Investment and Jobs Act (“IIJA”), numerous infrastructure upgrades or replacements are needed. We are strongly positioned to support this transition by providing the infrastructure needed to connect renewable energy to existing distribution systems as well as expanding electric grid capacity and modernizing electric and gas delivery infrastructure to support future demand. Examples of this work include supporting the infrastructure needed to transport renewable natural gas from dairy farms, enabling grid connectivity for wind and solar energy, and building out infrastructure for electric vehicle (“EV”) charging stations and battery storage facilities.

We currently operate across 87 locations in 43 U.S. states and two Canadian provinces, enabling us to support our customers across multiple geographies. The majority of our customer relationships are governed by long-term master services agreements (“MSAs”), comprising approximately 82% of our total revenue during fiscal 2023. Additionally, of the remaining 18% of our total revenue that was generated from bid contracts, 7% was generated from existing MSA customers. Our MSAs generally have terms of between three and seven years, with a current weighted average remaining contract length of approximately three years. We predominantly perform smaller, lower-risk distribution projects for our customers. Our focus on MSA-driven work, long-term customer partnerships and recurring maintenance-oriented work orders provides us with a highly visible demand outlook.

The utility services industry is highly fragmented and is comprised of a range of providers, from small, regional providers to scaled companies like Centuri. The top five largest utility service providers (including Centuri) collectively produced 18% of the 2022 utility services revenues in the industry, while the remaining

 

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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. Brand, scale, geographic footprint and breadth of services are key differentiating characteristics in the industry, which allow scaled companies such as ours to position themselves to capture opportunities that arise from sector tailwinds, including increasingly large utility footprints.

We maintain a favorable mix of contracts, with 77% of our fiscal 2023 revenue generated from variable-priced contracts (54% of revenue from unit-priced contracts and 23% from time and materials (“T&M”) contracts). We believe that our exposure to fixed-price contracts, which represent the remaining 23% of our fiscal 2023 revenue, is among the lowest in the industry and serves to minimize execution risk across our operations.

Our History

The roots of our combined family of companies date back to the early 20th century, beginning in 1909 with the founding of Riggs Distler. As a long-term strategy for continued growth into new geographies and service markets, Centuri was created in 2014 as a holding company for NPL and NPL Canada. Since then, the Centuri family of companies has grown both organically and with the acquisitions of multiple natural gas and electric infrastructure services companies, including the acquisition of Neuco in 2017, the acquisition of Linetec in 2018 and the acquisition of Riggs Distler in 2021.

Our Business Lines

We operate two primary lines of business, Gas Utility Services and Electric Utility Services, which were also our reportable segments as of December 31, 2023. As described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment Information”, beginning with our financial statements for the quarter ending March 31, 2024, for financial reporting purposes, we will divide our Gas Utility Services segment into a U.S. Gas segment and a Canadian Gas segment, and we will divide our Electric Utility Services segment into a Union Electric segment and a Non-Union Electric segment.

Gas Utility Services: We provide comprehensive services, including maintenance, repair, installation and replacement services for natural gas local distribution utility companies (“LDCs”) focused on the modernization of their infrastructure. The work performed within our gas business includes solutions for all stages of utility work and is performed primarily within the distribution, urban transmission and end-user infrastructure rather than large-scale, project-based, cross-country transmission, which we believe substantially limits our execution risk. We are able to cater to the needs of our gas utility services customers by serving union markets (through our NPL and NPL Canada subsidiaries) and non-union markets (through our Neuco and Canyon Pipeline subsidiaries). The average size of an MSA work order performed for gas utility services is less than $15,500, and we typically execute more than 83,000 gas MSA work orders per year.

As a result of the age and condition of natural gas distribution infrastructure, regulatory stringency and environmental protection, the demand for natural gas infrastructure modernization services has increased and, we believe, will continue to grow, with several decades of infrastructure modernization necessary for most utilities. As a strategic partner to gas utilities, we have been a key beneficiary of gas pipeline modernization spending. With increasing demands placed on the U.S. energy network to support consumption and economic growth, there remains a critical need to upgrade gas pipeline infrastructure across the country to ensure potential safety and environmental hazards from leak-prone pipelines are minimized. In 2011, following certain natural gas pipeline incidents, the Department of Transportation (“DOT”) and PHMSA, an agency under the DOT that oversees the country’s pipeline infrastructure, issued a “Call to Action” to accelerate the repair, rehabilitation and replacement of leak-prone or otherwise high-risk pipeline infrastructure. The guidelines focused primarily on the highest risk indicators, which are infrastructure age and material such as cast and wrought iron, uncoated steel and certain vintage plastics commonly used in older pipelines. Since that time, gas utilities have undertaken substantial investment initiatives to replace these legacy pipelines and ensure their operations remain in compliance and partnered with scaled infrastructure services companies such as Centuri on the implementation of these initiatives.

 

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Despite significant recent investment, according to PHMSA, more than 409,000 miles of gas distribution main lines are more than 50 years old (including pipelines of unknown vintage) and in need of significant upgrade or replacement as of August 2023. Based on recent rates of replacement, several decades of highly visible infrastructure modernization demand remain. Given our leading scale, broad range of capabilities, strong reputation and long-standing customer partnerships, we remain well positioned to capitalize on the long-term modernization trends.

Electric Utility Services: We provide a comprehensive set of electric utility services encompassing design, maintenance and repair, upgrade and expansion services for transmission and distribution infrastructure. Our electric work is focused on recurring local distribution and transmission services under MSAs as opposed to mega-scale, project-based, cross-country transmission, which we believe substantially limits our execution risk. The average size of an MSA work order performed for electric utility services customers is less than $26,500, and we execute more than 42,000 electric MSA work orders per year. We serve utility customers in both union markets (through our Riggs Distler and National subsidiaries) and non-union markets (through our Linetec subsidiary), primarily performing our services on utility customers’ infrastructure between the substation and end-user meter.

Given the increased occurrence of extreme weather events across North America and our role as a trusted partner throughout the communities we serve, our service offerings have grown to include emergency utility system restoration of overhead and underground delivery infrastructure, which is aimed at returning critical utility infrastructure back to working order after weather-related disruptions. This includes disruptions caused by named storms as well as smaller weather events that occur across the U.S. and Canada throughout the year. Furthermore, our expansive geographic reach enables us to pull both electric and gas resources from unaffected areas to respond with scale when and where our customers and others need us.

As a result of aging electric utility infrastructure, a growing need for investment in grid and related delivery system hardening to withstand more frequent adverse weather events and to support the transition to renewable sources, we believe demand for electric utility services will continue to increase in the foreseeable future. According to the Department of Energy, almost 70% of electric infrastructure in North America is over 25 years old, and we expect continued growth in the demand for replacements and upgrades.

In addition to our services for regulated electric and gas utilities, we serve several complementary, attractive growth market adjacencies, such as renewable energy and 5G datacom. Our renewable energy service offerings include onshore assembly and fabrication of offshore wind farm components as well as grid integration of wind and solar facilities. We believe we are particularly well positioned to capture incremental demand in the offshore wind space given the rapid and continuing expansion of projects in our core geographies as North America looks to renewable energy sources that can sustain all-time high grid demands. 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%. Leveraging our geographic footprint, scale and relationships with utility customers, we were awarded a landmark offshore wind supply chain contract in New York and have since earned additional contract awards to support other offshore wind projects throughout the Northeastern U.S. Our professional workforce and reputation for safety and quality has gained us a strong foothold in the offshore wind space, supporting both development and grid integration. Our crews and equipment are focused on onshore fabrication only, and not offshore transportation or installation, as these services are outsourced by our customers to other specialized providers. We also support customers in the deployment of EV charging stations and related infrastructure, as well as battery energy storage systems.

Our 5G datacom work primarily consists of small-cell and C-band installation and maintenance, electrical pole installation and mono and lattice tower installation, with additional potential for cross-sell opportunities. Given the electric pole maintenance, replacement and installation work we perform for utilities, we have the capability and expertise to provide 5G datacom services – particularly when such work occurs in utility poles’ “electrified zone,” the supply space located in the uppermost area where electric distribution cables, transformers

 

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and capacitors are found. Work in these zones is required to be performed by trained electric linemen. As a result, we can continue to serve our utility customers while capturing additional opportunities with cellular service providers. We expect increased outsourced work in the 5G datacom space to continue, given the densification needs stemming from the widespread adoption of 5G, rapid growth in broadband consumption and network functionality expectations.

We achieved revenues of $2.9 billion during fiscal 2023 and had backlog of approximately $5.1 billion with respect to existing MSAs and contracted project work as of fiscal year-end. Backlog represents our expected revenue from existing contracts and work in progress as of the end of the applicable reporting period. During fiscal 2023, 53% of our total revenues came from Gas Utility Services (specifically, 37% gas replacement, 13% new gas activities and 3% pipeline integrity), 45% came from Electric Utility Services (specifically, 18% electric distribution services, 9% telecom and other electric services, 8% electric transmission services, 7% offshore wind and 3% storm response) and the remaining 2% of revenues came from our corporate and other activities. Of the 53% of total revenues that came from Gas Utility Services, 47% came from U.S. Gas Utility Services and 6% came from Canadian Gas Utility Services. Of the 45% of total revenues that came from Electric Utility Services, 29% came from Non-Union Electric Services and 16% came from Union Electric Services. The remaining 2% of revenue was from other activities. Over the same time period, 54%, 23% and 23% of our total revenues came from unit-price, T&M and fixed-price contracts, respectively, and overall, 82% of our total revenue came from MSAs. Of the remaining 18% of our total revenue that came from bid contracts, 7% came from existing MSA customers. We derived 92% of our revenues in fiscal 2023 from the United States (specifically, 33% from the Northeast region, 21% from the Midwest region, 29% from the South region and 9% from the West region) and 8% from Canada. Additionally, we derived 77% of our revenues from regulated utilities customers and the remaining 23% from a combination of clean energy providers, independent transmission companies, home builders, municipalities and industrial customers.

Fiscal Year 2023 Revenue Breakdown

 

 

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Our Industry

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. Additionally, 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.

We believe the following utility industry dynamics will have a material impact on demand for our services:

Aging Utility Infrastructure. As utility infrastructure ages, safety risks may also increase. A focus on safety, resiliency and the environment has driven, and is continuing to drive, increased regulatory stringency, and thus, investment to maintain, repair and replace utility infrastructure. According to PHMSA, as of August 2023, there were more than 409,000 miles of gas main lines in the U.S. that are more than 50 years old (including pipelines of unknown vintage) and in need of significant upgrade or replacement. The need for pipeline upgrade and replacement also extends to pipelines installed in more recent periods as they exceed age-related safety thresholds over time, resulting in an ongoing, resilient need for our services. The U.S. Department of Energy estimates more than 70% of the nation’s grid transmission lines and power transformers are over 25 years old, creating vulnerability exacerbated by increasingly frequent seasonal storms and extreme weather events in regard to above-ground electric facilities. We have also witnessed and expect to continue to see growth in the demand for replacements and upgrades in that end market.

Long Tail of Maintenance and Replacement Work for Utilities. Utilities, including many of our largest customers, have decades-long replacement needs, providing excellent visibility on future modernization investment. Based on regular dialogue with our utility customer base, we have learned that many have plans for multiple decades, of system upgrade work to keep up with infrastructure modernization demand aimed at ensuring safe and reliable delivery of electricity and gas to their customers.

Focus on Sustainability, Decarbonization and the Transition to Renewable Energy. The focus on decarbonization and the transition to clean energy has become more acute across the globe and is driving significant pools of capital to new investments in sustainable technologies. According to the United Nations, reaching the Paris Agreement’s goal of limiting global warming to 1.5ºC will require an estimated $3-6 trillion of investment per year through 2050. As of September 2023, over 37 states in the United States have set ambitious renewable energy goals with clear targets and commitments to significantly increase reliance on renewable energy sources as early as 2033. As a result of the renewable energy targets states have set, we expect growing demand for offshore wind, utility scale solar, battery energy storage systems (“BESS”) and other renewable energy sources, all of which require incremental infrastructure investments. As an example, the U.S. offshore wind market is poised for significant growth through the remainder of the current decade along with other alternative sources of energy. As referenced above, 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%.

Continued Service Provider Consolidation Driven by Increasingly Large Utility Footprints. Over the past decade, there has been a wave of consolidation in the industry, as scaled providers are best positioned to address the increasingly complex needs of combination utilities and to offer consistent service across increasingly large utility footprints. North American utilities are consolidating their supply chains in an effort to streamline operations, lower costs and support increasingly complex infrastructure. Scaled energy infrastructure service providers such as Centuri are better positioned to meet customers’ diverse and evolving needs by providing a wider breadth of services over a larger geographic footprint than that of smaller, regional providers. Moreover, scaled providers have a differentiated ability to invest in talent, and can therefore offer superior and more consistent quality of services and availability of skilled craft labor.

 

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Increasing Demand for Grid Capacity to Support Energy Transition and Overall Consumer Energy Use. McKinsey and Company (“McKinsey”) forecasts that power consumption will triple by 2050, natural gas demand will increase 10% in the next decade, and renewable sources will account for 85% of global power generation by 2050. McKinsey further notes that wind and solar capacity in planning exceeds the existing capacity of the current electric grid. The need for grid capacity and system reliability to support increasing demand for energy, including those from intermittent renewable sources, presents a long-term runway of opportunity for Centuri to support ongoing utility system modernization and the transition to a cleaner energy future.

Increasing Regulatory Stringency. The attention to safety and reliability of the grid over the past 20 years has culminated in increased investment in electric and gas infrastructure, which is expected to continue for the foreseeable future. This has led regulators throughout the United States to deploy significant efforts to set new initiatives in modernizing and improving the country’s electric and gas infrastructure while balancing reliable and affordable services for consumers and a timely recovery of costs for utilities. Governments and regulatory bodies are taking a closer look at these essential services industries, with the aim of improving safety, reducing emissions and ensuring fair pricing for consumers. Many countries have set ambitious emission targets for the energy sector and regulators are playing a key role. The U.S. Energy Policy Act of 2005 established mandatory electric grid reliability standards and incentivized investments in transmission and distribution systems. PHMSA instituted Distribution Integrity Management Programs effective February 2010, which require operators of gas distribution pipelines to develop and implement integrity management programs to enhance safety by identifying and reducing pipeline integrity risks. Federal Energy Regulatory Commission (“FERC”) Order No. 1000, issued in July 2011, established transmission planning requirements to encourage development of electric transmission infrastructure projects. In 2020, PHMSA issued Part One of its “Mega Rule,” which included requirements for reconfirming transmission pipeline maximum allowable operating pressure and verification of pipeline materials, in addition to expanding assessments and requirements for work in moderate consequence areas, among other things. The United States government also enacted the Protecting Our Infrastructure of Pipelines and Enhance Safety Act in 2020 to address a variety of pipeline safety issues. Then, in March 2022 and August 2022, PHMSA issued rules amending federal pipeline safety regulations applicable to valve installation and minimum rupture detection standards for transmission pipelines, and amendments applicable to transmission pipeline integrity management, effective in October 2022 and May 2023, respectively. Likewise, there has been significant attention placed on wildfire and outage mitigation and electric grid modernization through state regulatory proceedings, national infrastructure legislation and other initiatives. The IRA includes a number of provisions to accelerate the deployment of clean energy technologies, including incentives for the buildout of necessary infrastructure and the allocation of $1 billion for pipeline modernization in under-resourced communities. The U.S. Department of Energy estimates more than 70% of the nation’s grid transmission lines and power transformers are over 25 years old, creating vulnerability exacerbated by increasingly frequent seasonal storms and extreme weather events in regard to above-ground electric facilities.

Increased Investments in Grid Reliability and Hardening. As North America becomes ever more reliant on renewable power generation and severe weather events occur more frequently, the scrutiny of North American above-ground utility infrastructure increases. Utilities are being required to invest more in grid infrastructure hardening to prevent electric delivery disruptions and wildfires. 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. Additionally, 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. In addition, the EEI expects that U.S. electric utilities are spending between 34-37% of their transmission and distribution capex on adaptation, hardening and resilience initiatives. We expect demand for system modernization and upgrades to continue well into the future for the purpose of enhancing electric grid and natural gas network reliability.

 

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Total Public Investor-Owned U.S. Electric Utility Capital Expenditures (dollars, in billions)

 

 

LOGO

Declining Utility Workforce and Increased Reliance on External Providers. Increasing demand for utility infrastructure maintenance and replacement driven by regulatory stringency, aging utility infrastructure, widespread deployment of smart grid technologies and steady declines in the utility workforce alongside a collection of other industry trends have pushed utilities to rely on external service providers to meet these needs. According to the C Three Group, over the next five years, the compounded annual growth for the outsourced infrastructure spend market is expected to be around 6%. A declining utility workforce coupled with increasing infrastructure needs are driving utilities to become more reliant on external providers for innovative problem solving. 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. Additionally, according to the U.S. Department of Labor, a significant percentage of the remaining internal utility workforce is eligible to retire over the next six to eight years, with 23% of the utility workforce being at least 55 years old as of January 2024, further limiting in-house utility labor resources.

Boosted Stimulus Spending. The U.S. grid consists of more than 7,300 power plants, 160,000 miles of high-voltage power lines and millions of miles of low-voltage power lines. The IRA, which was signed into law in 2022, includes nearly $370 billion of investments aimed at supporting the antiquated infrastructure by incentivizing companies to invest in the areas of clean energy, transportation and environmental sustainability. The $1.2 trillion IIJA includes numerous provisions focused on upgrading electric T&D infrastructure.

5G Deployment and Grid Automation. Especially in regions with high population density, 5G datacom providers have turned to C-band and small cell installation using existing grid infrastructure to bolster networks. Using Internet of Things (“IoT”)/5G communication technologies, utilities are investing further in smart grid systems to monitor grid status and risks and to better support maintenance/replacement.

EV Rollout. As the number of electric vehicles on the road increases, grid capacity needs to be expanded to meet the resulting incremental energy demands. The Statista Mobility Market Outlook expects global EV infrastructure revenue from 2017 to 2027 to grow at a 48% compounded annual growth rate. North America is currently behind other geographies in terms of adapting public infrastructure to keep up with the growing demand for electric vehicles.

Increased Occurrence of Extreme Weather Events. Extreme weather is unpredictable, which can leave utilities with the immediate need for sizeable infrastructure expenditures. Utility services providers, especially those with scale, appropriate expertise and a large footprint are increasingly being called upon to repair infrastructure damaged

 

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by storms. According to the National Oceanic and Atmospheric Administration (“NOAA”), from 1980 through 2023, the United States experienced an average of 8.1 extreme weather events annually, each causing greater than $1 billion in damages (adjusted for inflation). This annual average increased to 20.4 events over the 2019-2023 period, with an estimated 18 and 28 events costing more than $1 billion in 2022 and 2023, respectively.

Our Competitive Strengths

Our value proposition is defensible and differentiated, and we see the following competitive strengths as key advantages over our competitors:

Robust Track Record and Culture of Safety First. Being a scaled provider in our industry, we take an institutionalized approach to safeguard our employees and, as a result, deliver on industry leading practices for our customers and employees. Our dedicated leadership team has fostered a culture of safety and accountability, across all ranks, symbolized by our numerous prevention programs as evidenced by our total recordable incident rate (“TRIR”) of 1.05 and a days away, restricted or transferred (“DART”) rate of 0.32 per 200,000 work hours for fiscal 2023. The TRIR and DART rates for our Electric Utility Services business were 0.90 and 0.39, respectively, for fiscal 2023, compared to 2022 industry averages of 1.60 and 1.00, respectively, according to the U.S. Bureau of Labor statistics for power and communication line and related structures, and 1.58 and 0.98, respectively, according to the American Gas Association statistics for combination companies. The TRIR and DART rates for our Gas Utility Services business were 1.18 and 0.29, respectively, for fiscal 2023, compared to 2022 industry averages of 1.60 and 1.00, respectively, according to the U.S. Bureau of Labor statistics for utility system construction, 1.58 and 0.98, respectively, according to American Gas Association statistics for combination companies, and 2.16 and 1.43, respectively, according to American Gas Association statistics for local distribution companies. As a result, and because of the importance that utility customers place on our ability to prevent injury, we are able to win and maintain long-lasting relationships with our customers and cement our position as an employer of choice in the industry, attracting the best talent and providing a competitive edge where safe and high-quality work is rewarded with additional opportunities.

Leading Market Share in a Highly Fragmented Industry. We are the third largest utility services provider by revenue, according to ENR’s Top 600 Specialty Contractors 2023 report (based on 2022 utility services revenues). Our market share is highly defensible given the concentration of smaller, regional providers in our industry and is underpinned by the benefits we provide our customers as a scaled provider. Our organic revenue grew at a 14.5% compound annual growth rate from fiscal 2010 to fiscal 2023 and a 9.4% compound annual growth rate from fiscal 2021 to fiscal 2023. Our platform allows us to assist our customers in supply chain consolidation by providing turnkey solutions with leading safety performance and consistent quality across geographies. Additionally, we are able to invest in talent development and technology to enhance operational efficiency and further increase customer trust and engagement. We are also able to dynamically scale our workforce to meet our customers’ demands, as evidenced by our increase in average headcount from approximately 9,000 employees in fiscal 2020 to more than 12,500 employees in fiscal 2023. Our focus on utility services end markets, with exposure to 5G deployment and renewable energy, and on maintenance-oriented, distribution-focused projects, with no exposure to higher-risk cross country transmission projects, positions us to capture high quality growth and higher margin opportunities in areas where we have strong expertise.

Consistent and Resilient Growth. We have a long-term track record of consistent and resilient growth, as demonstrated by the fact that we have increased revenue by approximately nine times since 2010. Specifically, our total revenue has increased at a compound annual growth rate (“CAGR”) of 18.5% from 2010 to 2023, with our organic revenue increasing at a CAGR of 14.5% over that same period. In comparison, North American Utility Infrastructure Spend (which includes North American LDCs, electric distribution and electric transmission capital expenditures) increased at a CAGR of 7.3% from 2010 to 2023, according to the C Three Group.

 

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Extensive North American Footprint. We have a scaled presence with local expertise through our operating companies, spanning across 43 U.S. states and two Canadian provinces. Our geographic footprint and proximity to customers allow us to serve as an extension of our diverse utility customer base’s workforce, helping us to secure further work. We believe our ability to provide a consistent quality of services across a broad geographic footprint is a key differentiator, particularly as the utility sector has consolidated, resulting in even broader service footprints. Additionally, our scale enables us to strategically allocate resources as needed across our more than 80 locations to meet increased gas and electric demand for utility infrastructure services or emergency restoration work. We have the benefit of a scaled organization, able to meet our customers’ needs across geographies, with the added value of localized expertise and support to communities where our employees live and work.

Diversified, Well-Tenured Blue-Chip Utility Customer Base. We serve some of the largest electric, gas and combination utilities in the United States and Canada, the vast majority of which are investment grade utilities. For example, in 2014, as part of our expansion further into the Canadian market, we added two of Canada’s largest gas utilities as customers. Our top 20 customers, which comprised 71% of our revenues during fiscal 2023, are almost entirely investment-grade utilities. Collectively, these utilities provide energy to over 100 million electric and gas customers across the U.S. and Canada, and each has a demonstrated need for ongoing strategic infrastructure services. In total, we serve over 25 electric and gas combination utilities across our operations. Our customer base is not only diversified and well-established, but also well-tenured. We have an average relationship of approximately 23 years with our top 20 customers. Our relationships are primarily governed through one or more MSAs with each customer; we have a near 100% MSA renewal rate with our customers. Furthermore, approximately $4.6 billion of our $5.1 billion in backlog as of December 31, 2023 was related to existing MSAs.

Comprehensive Service Offering. Our full breadth of service capabilities and expertise within both the electric and gas utility infrastructure value chains enable us to create entrenched relationships with our customers and opportunities for recurring work while providing a holistic approach to project delivery. Furthermore, these aspects uniquely position us to serve combination utilities, especially as compared to regional peers with capabilities in only electric or gas. The ability to serve combination utilities allows us to realize cross-selling opportunities across our electric and gas operations in addition to expanding wallet share.

Recurring, Lower Risk and Visible MSA-Driven Contract Profile. We generate 82% of our total revenue from multi-year MSAs that often have built-in price escalators to ensure consistent volume, create a stable revenue base and drive continued growth. Our focus is on maintenance-oriented, smaller projects instead of larger, cross-country transmission projects, which we believe substantially limits our execution risk. We predominately self-perform this work under MSAs, which allows us to have a lower economic risk profile. Historically, our average work order sizes were less than $26,500 and less than $15,500 for electric and gas job types, respectively. During fiscal 2023, we completed over 120,000 MSA work orders, based on management estimates. We have experienced a near 100% MSA renewal rate over the last decade, which further emphasizes the quality of our work, expertise and customer service. Furthermore, our contract profile is predominantly variable, with approximately 77% of our consolidated revenue during fiscal 2023 generated under unit-price or T&M contracts.

Highly Skilled Workforce. As of December 31, 2023, our workforce consisted of over 12,500 employees, giving us the ability to scale and cater to different customer needs and geographic requirements by serving union and non-union markets (72% of the workforce is union, the remaining 28% is non-union). We are differentiated by our scale, safety track record and focus on training and development. To invest in our employees, we partner with customers, unions, academic institutions and community organizations. Our investment in the company’s workforce has established us as an employer of choice in the industry.

Experienced Management Team, Well Positioned to Support Centuri in its Next Chapter of Growth. Our management team, on average, has over 20 years of infrastructure services industry experience with a proven

 

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track record of business growth, disciplined execution, successful integration of acquisitions at scale and the ability to maintain a high-performance company culture while serving a highly regulated customer base. Having worked at a wide array of companies in different stages of growth, we believe our management team has the collective knowledge to effectively guide us forward as we approach our next chapter. In addition, the current management team has worked together in leading the Centuri organization in this capacity over the last several years, independent from, albeit in collaboration with, the Southwest Gas Holdings management team.

Our Growth Strategies

Keep Critical Infrastructure Operating at Peak Performance. Many of our blue-chip customers have increased spending on their utility infrastructure network due to the age of their infrastructure and regulatory stringency. The increase in investment, coupled with the declining utility workforce, has led utilities to continue outsourcing their installation, maintenance and replacement work orders to scaled and experienced utility infrastructure service providers. We believe that the breadth of our service offerings, geographic footprint, industry expertise and reputation will satisfy our customers’ current needs and allow us to continue to capitalize on their evolving future needs.

Focus on Human Capital Recruitment, Development and Retention. We continue to cultivate a team of highly skilled and motivated individuals to ensure that we are able to continuously gain customer spend and market share. We are committed to providing our employees with competitive salaries and benefits, consistent training and opportunities for career development, and we pride ourselves on creating a supportive and diverse work environment. We believe our talent strategy and local oriented work positions us to be the employer of choice and to provide high quality and effective solutions to meet our customers’ needs.

Utilize Operational Equipment Efficiently. We deploy our services with a robust and diversified asset base of vehicles and specialized equipment to support our customers’ needs. Our broad portfolio of equipment enables us to ensure flexibility and availability of high demand assets and to quickly shift resources based on local market demand. Owning equipment allows us to offset potential fluctuations in equipment and rental costs and allows us to stay competitive in the industry.

Emphasis on Combination Utilities. We recognize the current regulatory environment supports continued investment by customers and potential customers in utility infrastructure. Service expansion with combination utilities will continue to be a central pillar of our strategy and a key growth driver through our distinct ability to cross-sell our electric and gas platforms. Approximately 65% of our top 20 clients are combination utilities, either as the parent company or a utility that is part of a larger holding company. We believe our integrated operating company model will distinguish our offerings, allowing us to deliver solutions for customers across a variety of needs and geographies. While we will continue to focus on combination utilities, the strength of our electric and gas platforms positions us to further expand relationships with new and existing gas utility and electric utility customers.

Expansion into High-Growth Service Lines. Expanding into high-growth end markets represents a significant opportunity to capitalize on the increasing global demand for clean energy infrastructure. We support our customers’ strategies to prepare energy systems to meet future demand, including accelerating the transition to a lower carbon energy future. Specifically, we intend to expand within clean energy projects that include renewable natural gas and offshore wind, and enabling grid connectivity for wind and solar energy, EV charging and battery storage. We currently have an established framework contract with notices to proceed for tier 1 supply of advance components to support offshore wind projects in the Northeast and Mid-Atlantic regions of the United States. We believe that as a result of our work supporting projects under this agreement, among other factors, we will be well positioned for additional opportunities supporting the offshore wind buildout in North America.

 

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Organization Redesign and Streamlined Structure. In connection with William J. Fehrman assuming the role of Chief Executive Officer of the Company in January 2024, the Company underwent an internal personnel reorganization with the goals of (i) empowering operating unit leaders by flattening the Company’s organizational structure, (ii) maintaining active fleet and supply chain management using technology and data to drive efficiencies, and (iii) focusing on an accountability model that ties long term incentive awards to key performance metrics.

Responsible, ESG-Oriented Execution for Sustainable Growth. Our ESG initiatives are prioritized internally with executive level accountability. We focus on environmental policies through clear emission targets to reduce our own carbon footprint, as well as social initiatives by engaging with the communities we operate in and by investing in diversity, equity and inclusion, and governance initiatives through a strong executive foundation and thoughtful corporate policies. We embrace the responsibility to provide resources to our customers and stakeholders within the communities in which we operate that encourage constructive conversations, strong partnerships, a brighter future and increased opportunity.

Acquisitions and Strategic Alliances. Over time, we intend to continue to opportunistically acquire best-in-class operators with accelerated growth potential and are in frequent discussions with potential targets that would contribute to our growth. We look for value-oriented and opportunistic bolt-on acquisitions within existing segments that will bring additional customer relationships in underserved geographies as well as expanding technical services including maintenance, integrity, reliability, engineering and inspection capabilities. Most recently, this has included our acquisition of Riggs Distler in 2021 to support our expansion into the Northeast and Mid-Atlantic regions of the United States’ union electric markets, as well as our acquisition of Linetec in 2018 to support our expansion into the Southeastern region of the United States’ non-union electric market. In parallel with opportunistic bolt-on acquisitions, we expect to continue to form strategic alliances with both new and existing customers to expand into additional geographies and adjacent offerings. In so doing, we can further contribute to our growth by leveraging our strong reputation and extensive capabilities. Most recently, we partnered with one of the largest datacom providers in the United States to deliver its 5G hardware installation on utility assets in the Northeast. Since partnering with this provider in 2019, we have been awarded an additional five-year contract to support their 5G buildout in the Southeastern United States.

Our Relationship with Southwest Gas Holdings

As of the date of this prospectus, Southwest Gas Holdings owns 100% of our outstanding shares of common stock and we operated as a wholly owned subsidiary of Southwest Gas Holdings. Upon completion of this offering and the concurrent private placement, Southwest Gas Holdings will continue to own approximately 82.7% of our outstanding common stock (or approximately 81.0% if the underwriters exercise their option to purchase additional shares of our common stock from us in full). As a result, since Southwest Gas Holdings will continue to own a majority of our common stock following the completion of this offering and the concurrent private placement, we will be a “controlled company” within the meaning of the corporate governance requirements of the NYSE. Accordingly, we will be exempt from certain corporate governance requirements of the NYSE until such time we cease to be a “controlled company,” including requirements that a majority of our board of directors (the “Board”) consist of independent directors and having a compensation committee and a nominating and corporate governance committee that is composed entirely of independent directors. We intend to take advantage of these exemptions following the completion of this offering and the concurrent private placement and may continue to do so until Southwest Gas Holdings owns less than 50% of our outstanding common stock. As a result, you will not have the same protections afforded to stockholders of companies that are subject to such requirements. See “Risk Factors—Risks Related to the Separation, the Distribution and Other Alternative Disposition Transactions and our Relationship With Southwest Gas Holdings—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 and, as a result, will qualify for exemptions from certain

 

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corporate governance requirements of the NYSE.” Prior to the completion of this offering and the concurrent private placement, we will enter into certain arrangements with Southwest Gas Holdings that will provide a framework for our ongoing relationship with Southwest Gas Holdings. See “Certain Relationships and Related Person Transactions—Agreements between Southwest Gas Holdings and Our Company.”

We believe, and Southwest Gas Holdings has advised us that it believes, that the Separation and this offering will provide a number of benefits to our business and to Southwest Gas Holdings’ business. These intended benefits include improving the strategic and operational flexibility of both companies, increasing the focus of the management teams on their respective business operations, allowing each company to adopt the capital structure, investment policy and dividend policy best suited to its financial profile and business needs, and providing each company with its own equity to facilitate acquisitions and to better incentivize management. In addition, as we will be a standalone company, potential investors will be able to invest directly in our business. There can be no assurance that we will achieve the expected benefits of the Separation or any subsequent disposition transactions in a timely manner or at all. See “Risk Factors—Risks Related to the Separation, the Distribution and Other Alternative Disposition Transactions and our Relationship with Southwest Gas Holdings.”

In connection with the Separation and prior to the completion of this offering and the concurrent private placement, we will enter into the Separation Agreement and certain other agreements with Southwest Gas Holdings for the purpose of effecting the Separation and to facilitate one or more future disposition transactions. These agreements will provide a framework for our relationship with Southwest Gas Holdings and govern various interim and ongoing relationships between us and Southwest Gas Holdings following the completion of this offering and the concurrent private placement that will remain in place so long as Southwest Gas Holdings owns a significant portion of our common stock. See “The Separation Transactions—The Separation” and “Certain Relationships and Related Person Transactions—Relationship with Southwest Gas Holdings,” as well as “Risk Factors—Risks Related to the Separation, the Distribution and Other Alternative Disposition Transactions and our Relationship with Southwest Gas Holdings.”

Southwest Gas Holdings has informed us that, following the completion of this offering and the concurrent private placement, its current intent is to effect a disposition of all or a portion of its remaining indirect equity interest in us through periodic sales of our common stock following the expiration of the lock-up period in effect following the completion of this offering and the concurrent private placement. However, Southwest Gas Holdings may complete such dispositions through one or more other methods, including by way of a distribution to Southwest Gas Holdings stockholders that is currently intended to be tax-free to Southwest Gas Holdings and its stockholders (the “Distribution”), one or more other distributions in exchange for Southwest Gas Holdings shares or other securities, or any combination of the foregoing. To facilitate the disposal of shares by Southwest Gas Holdings, among other things, we have entered into the Separation Agreement with Southwest Gas Holdings, which sets out certain representations, warranties and covenants of the parties, together with certain rights of termination. Southwest Gas Holdings has no obligation to pursue or consummate any further dispositions of its ownership interest in us by any specified date or at all and it may retain its ownership interest in us indefinitely or dispose of all or a portion of its ownership interest in us. See “The Separation Transactions—Potential Disposition Transactions.”

Concurrent Private Placement

The Icahn Investors have agreed to purchase in a concurrent private placement 2,591,929 shares of our common stock at a price per share equal to the initial public offering price per share in this offering. The sale of such shares will not be registered under the Securities Act, and such shares will be subject to a lock-up agreement with the underwriters for a period of 180 days after the date of this prospectus, subject to certain exceptions. See

“Underwriting (Conflicts of Interest)” for a description of the lock-up agreements applicable to our shares. The concurrent private placement is expected to close immediately following the closing of this offering and is subject to customary closing conditions, including the completion of this offering. The closing of this offering is not conditioned upon the closing of the concurrent private placement.

 

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Recent Developments

Acquisition of Remaining Interest in Linetec

On March 25, 2024, we entered into an agreement to purchase the remaining 10% interest in Linetec from the previous owner of Linetec for a purchase price of approximately $92 million. The purchase is expected to close in April 2024, and as a result, we will own all of the outstanding interests in Linetec.

Preliminary Results for the Fiscal Three Months Ended March 31, 2024

Set forth below are preliminary unaudited estimates of certain financial information for the fiscal three months ended March 31, 2024 and actual unaudited financial information for the fiscal three months ended April 2, 2023. We have provided estimates and ranges of certain preliminary results because our closing procedures for the fiscal three months ended March 31, 2024 are not yet complete. Our actual results for the fiscal three months ended March 31, 2024 remain subject to the completion of management’s final review and our other closing procedures as well as the completion of our financial statements for the fiscal three months ended March 31, 2024, which we do not expect to complete until after the completion of this offering. Accordingly, we caution you not to place undue reliance on our preliminary results set out below, which may differ from actual results. During the course of the preparation of our unaudited condensed consolidated financial statements and the notes thereto, additional items that require adjustments to the preliminary results presented below may be identified.

The preliminary financial data included in this document has been prepared by, and is the responsibility of, management. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has not audited, reviewed, compiled or applied agreed upon procedures with respect to this preliminary financial data. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

The preliminary and actual results provided below do not represent a comprehensive statement of our financial results and should not be viewed as a substitute for unaudited condensed consolidated financial statements prepared in accordance with GAAP. In addition, the preliminary estimates for the fiscal three months ended March 31, 2024 are not necessarily indicative of the results to be achieved in any future period as a result of various factors, including, but not limited to, those discussed in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for prior periods included elsewhere in this prospectus. The unaudited actual results for the fiscal three months ended April 2, 2023 have been derived from our consolidated financial statements and accounting records. For additional information, our significant accounting policies are summarized in “Note 2—Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this prospectus.

The following table reflects certain preliminary results for the fiscal three months ended March 31, 2024 and actual results for the fiscal three months ended April 2, 2023:

 

     Fiscal Three Months Ended  
     March 31, 2024
(Estimated)
    April 2, 2023
(Actual)
 
(Dollars in millions)    Low     High  

Revenue, net (1)

   $ 525.0     $ 530.0     $  653.3  

Net loss (2)

     (26.7     (24.7     (7.1

Net loss attributable to common stock (2)

     (26.6     (24.6     (8.8

Non-GAAP Financial Measure:

      

Adjusted EBITDA

   $ 19.0     $ 20.5     $ 49.2  

 

(1)

Revenue, net decreased for the fiscal three months ended March 31, 2024 from the comparable period in the previous year primarily due to unfavorable weather which drove a reduction in volumes under existing customer master service agreements, timing of bid projects, lower offshore wind and storm restoration revenues.

 

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(2)

Net loss and net loss attributable to common stock increased for the fiscal three months ended March 31, 2024 from the comparable period in the previous year primarily due to reduced volumes under existing customer master service agreements, timing of bid projects, lower storm restoration revenues which typically provide higher margins than other services, and one-time severance costs.

Adjusted EBITDA is a non-GAAP financial measure. For further information about the limitations to the use of the non-GAAP financial measures presented in this prospectus, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.” The following table reconciles preliminary Net loss presented above to preliminary Adjusted EBITDA for the fiscal three months ended March 31, 2024, and reconciles actual Net loss to Adjusted EBITDA for the fiscal three months ended April 2, 2023.

 

     Fiscal Three Months Ended  
     March 31, 2024
(Estimated)
    April 2, 2023
(Actual)
 
(Dollars in millions)    Low     High  

Net loss

   $ (26.7   $ (24.7   $ (7.1

Interest expense, net

     24.1       24.1       22.4  

Income tax benefit

     (20.6     (21.1     (4.2

Depreciation expense

     27.7       27.7       31.2  

Amortization of intangible assets

     6.7       6.7       6.7  
  

 

 

   

 

 

   

 

 

 

EBITDA (1)

   $ 11.2     $ 12.7     $  48.9  

Non-cash stock-based compensation

     (0.6     (0.6     0.1  

Strategic review costs

     3.9       3.9       0.1  

Severance costs

     4.5       4.5       0.1  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (1)

   $ 19.0     $ 20.5     $ 49.2  
  

 

 

   

 

 

   

 

 

 

 

(1)

Table may not foot due to rounding.

 

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Summary of Risk Factors

An investment in shares of our common stock is subject to a number of risks that may prevent us from achieving our business objectives or otherwise adversely affect our business, results of operations or financial condition. The following list contains a summary of some, but not all, of these risks. You should consider the risks listed below and other risks, which are discussed in more detail in the section of this prospectus entitled “Risk Factors,” before making an investment decision to purchase shares of our common stock.

Risks Related to Our Business and Industry

 

   

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. A variety of factors could adversely affect the timing or profitability of our projects, which may result in additional costs to us, reductions or delays in revenues, the payment of liquidated damages or project termination.

 

   

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.

Financial, Economic, Environmental and Market Risks

 

   

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.

Risks Related to the Separation, the Distribution and Alternative Disposition Transactions and our Relationship With Southwest Gas Holdings

 

   

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.

 

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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.

Risks Related to this Offering and Ownership of Our Common Stock

 

   

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.

Corporate Information

We were incorporated in Delaware on June 9, 2023. The address of our principal executive offices is 19820 North 7th Avenue, Suite 120, Phoenix, Arizona 85027. Our telephone number is 623-582-1235.

We maintain an internet website at https://centuri.com. Our website, and the information contained therein, or connected thereto, is not incorporated by reference into this prospectus.

 

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THE OFFERING

 

Common stock offered by us in this offering

12,400,000 shares (or 14,260,000 shares if the underwriters exercise their option to purchase additional shares of our common stock from us in full).

 

Underwriters’ option to purchase additional shares of our common stock from us to cover over-allotments

We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to 1,860,000 additional shares of our common stock from us at the initial public offering price less the underwriting discounts and commissions to cover over-allotments. See “Underwriting (Conflicts of Interest).”

 

Common stock offered by us in the concurrent private placement

The Icahn Investors have agreed to purchase in a concurrent private placement 2,591,929 shares of our common stock at a price per share equal to the initial public offering price in this offering. The sale of such shares will not be registered under the Securities Act, and such shares will be subject to a lock-up agreement with the underwriters for a period of 180 days after the date of this prospectus, subject to certain exceptions. See “Underwriting” for a description of the lock-up agreements applicable to our shares. The concurrent private placement is expected to close immediately following the closing of this offering and is subject to customary closing conditions, including the completion of this offering. The closing of this offering is not conditioned upon the closing of the concurrent private placement.

 

Common stock to be outstanding upon completion of this offering and the concurrent private placement

86,657,521 shares (or 88,517,521 shares if the underwriters exercise their option to purchase additional shares of our common stock from us in full).

 

Use of proceeds

We estimate that the net proceeds to us from this offering and the concurrent private placement will be approximately $292.6 million (or approximately $329.3 million if the underwriters exercise their option to purchase additional shares of our common stock from us in full), after deducting the underwriting discounts and commissions, estimated offering expenses payable directly by us and offering expenses paid by Southwest Gas Holdings and reimbursable by us pursuant to the terms of the Separation Agreement.

 

 

We intend to use $150.0 million of the net proceeds from this offering and the concurrent private placement to repay amounts outstanding under our existing revolving credit facility and to repay $132.6 million under our existing term loan and the remainder of the net proceeds of this offering and the concurrent private placement,

 

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including any proceeds we will receive as a result of any exercise of the underwriters’ option to purchase additional shares, for general corporate and working capital purposes. See “Use of Proceeds.”

 

Conflicts of Interest

Affiliates of certain of the underwriters are lenders under our revolving credit agreement and term loan and will receive 5% or more of the net proceeds of this offering in connection with the repayment of such debt. See “Use of Proceeds.” Accordingly, such underwriters are deemed to have a conflict of interest within the meaning of FINRA Rule 5121. This rule requires, among other things, that a “qualified independent underwriter” has participated in the preparation of, and has exercised the usual standards of “due diligence” with respect to, the registration statement. UBS Securities LLC has agreed to act as qualified independent underwriter for this offering. UBS Securities LLC will not receive any additional fees for serving as qualified independent underwriter in connection with this offering. Pursuant to FINRA Rule 5121, any underwriter with a conflict of interest will not confirm sales of the shares to any account over which it exercises discretionary authority without the prior written approval of the customer. See “Underwriting (Conflicts of Interest).”

 

Dividend policy

We have not yet determined the extent to which we will pay any dividends on our common stock or if we will pay dividends at all. The payment of any dividends in the future, and the timing and amount thereof, is within the sole discretion of our Board. The Board’s decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our then-existing debt agreements, industry practice, legal requirements and other factors that our Board deems relevant. See “Dividend Policy.”

 

Controlled company status

Upon completion of this offering and the concurrent private placement, Southwest Gas Holdings will continue to own approximately 82.7% of our outstanding common stock (or approximately 81.0% if the underwriters exercise their option to purchase additional shares of our common stock from us in full). As a result, we will be a “controlled company” as defined under the corporate governance rules of the NYSE and we intend to avail ourselves of exemptions from certain corporate governance requirements of the NYSE. See “Management—Controlled Company Status.”

 

  As a result, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

 

 

As long as Southwest Gas Holdings beneficially owns a majority of the voting power of our outstanding shares of common stock, Southwest Gas Holdings will generally be able to control the outcome of matters submitted to our stockholders for approval, including the election of

 

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directors, without the approval of our other stockholders. Following the completion of this offering and the concurrent private placement, Southwest Gas Holdings will continue to control the direction of our business, and the concentrated ownership of our common stock may prevent you and other stockholders from influencing significant decisions. See “Description of Capital Stock.”

 

Reserved Share Program

At our request, an affiliate of BofA Securities, Inc., a participating underwriter, has reserved for sale, at the initial public offering price, up to 5% of the shares offered by this prospectus for sale to some of our directors, officers and employees and Southwest Gas Holdings’ directors, officers and employees. If these persons purchase reserved shares it will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus. See “Underwriting (Conflicts of interest)—Reserved Share Program.”

 

Proposed listing and symbol

We have been approved to list our shares of common stock on the NYSE under the symbol “CTRI”.

 

Risk factors

You should read the section of this prospectus entitled “Risk Factors” beginning on page 24 for a discussion of factors you should consider carefully before making an investment decision to purchase shares of our common stock.

Unless otherwise indicated or the context otherwise requires, references to the number and percentage of shares of our common stock to be outstanding upon completion of this offering and the concurrent private placement are based on 86,657,521 shares of our common stock outstanding upon completion of this offering and the concurrent private placement.

Unless otherwise indicated, the information presented in this prospectus:

 

   

gives effect to the transactions described under “The Separation Transactions—The Separation”;

 

   

gives effect to our amended and restated certificate of incorporation and our amended and restated bylaws, which will be in effect prior to the completion of this offering and forms of which have been filed as exhibits to the registration statement of which this prospectus is a part;

 

   

assumes no exercise of the underwriters’ option to purchase additional shares of our common stock from us;

 

   

assumes the issuance and sale by us of 2,591,929 shares of our common stock to the Icahn Investors upon the closing of the concurrent private placement;

 

   

excludes 6,932,602 shares of our common stock (representing 8% of our outstanding shares of common stock upon completion of this offering assuming no exercise of the underwriters’ option to purchase additional shares) that we expect to reserve for issuance under our proposed equity incentive plan (the “Centuri Omnibus Incentive Plan”); and

 

   

excludes an aggregate of $4.0 million in restricted stock units to be granted under the Centuri Omnibus Incentive Plan upon completion of this offering to our Chief Executive Officer at a price per share equal to the initial public offering price per share, which represents 190,476 shares of common stock underlying such restricted stock units.

 

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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

We derived the summary historical and pro forma consolidated statement of operations data for the fiscal years ended December 31, 2023, January 1, 2023 and January 2, 2022, and consolidated balance sheet data as of December 31, 2023 and January 1, 2023, as set forth below, from our historical audited consolidated financial statements, which are included elsewhere in this prospectus, and from our unaudited consolidated pro forma financial statements included in the “Unaudited Pro Forma Condensed Consolidated Financial Information” section of this prospectus. Our underlying financial records were derived from the financial records of Southwest Gas Holdings for the periods reflected herein. Our historical results may not necessarily reflect our results of operations, financial position and cash flows for future periods or what they would have been had we been a separate, publicly traded company during the periods presented.

The summary unaudited pro forma consolidated financial data presented has been prepared to reflect certain transactions associated with this offering, the concurrent private placement and the Separation, which are described in “Unaudited Pro Forma Condensed Consolidated Financial Information.” The unaudited pro forma consolidated statement of operations data presented reflects our financial results as if this offering, the concurrent private placement and the Separation occurred on January 2, 2023, which was the first day of fiscal 2023. The unaudited pro forma consolidated balance sheet data reflects our financial position as if this offering, the concurrent private placement and the Separation occurred on December 31, 2023, the last day of fiscal 2023. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information.

The summary unaudited pro forma consolidated financial data is not necessarily indicative of our results of operations or financial condition had the Separation been completed on the dates assumed. Also, they may not reflect the results of operations or financial condition that would have resulted had we been operating as a separate, publicly traded company during such periods. In addition, they are not necessarily indicative of our future results of operations, financial position or cash flows.

 

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This summary historical and pro forma consolidated financial data should be reviewed in combination with “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere in this prospectus.

 

     Unaudited Pro
Forma
    Historical  
     Fiscal Year     Fiscal Year  
(in thousands, except per share data)    2023     2023     2022     2021  

Total revenue

   $ 2,899,276     $ 2,899,276     $ 2,760,327     $ 2,158,661  

Gross profit

     273,442       273,442       214,612       207,768  

Operating (loss) income

     (78,897     (77,564     (101,430     85,551  

(Loss) income before income taxes

     (156,940     (174,976     (163,688     65,619  

Net (loss) income attributable to common stock

     (172,649     (186,176     (168,145     40,514  

(Loss) earnings per share attributable to common stock:

        

Basic and diluted

   $ (1.99   $ (1,798,454   $ (1,624,276   $ 391,364  

 

Balance Sheet Data    Unaudited
Pro Forma
     Historical  
(in thousands)    As of
December 31,
2023
     As of
December 31,
2023
     As of
January 1,
2023
 

Cash and cash equivalents

   $ 42,422      $ 33,407      $ 63,966  

Total assets

     2,198,923        2,189,908        2,453,856  

Long-term debt, net of current portion (including finance leases)

     852,355        1,132,629        1,186,241  

Total liabilities

     1,583,396        1,864,655        1,910,201  

Temporary equity (redeemable noncontrolling interests)

     99,262        99,262        156,902  

Total equity

     516,265        225,991        386,753  

Total liabilities, temporary equity and equity

     2,198,923        2,189,908        2,453,856  

 

     Historical  
     Fiscal Year  

(in thousands)

   2023      2022      2021  

Non-GAAP financial measures(1)

        

Adjusted EBITDA

   $ 291,182      $ 237,826      $ 220,644  

Adjusted net income

   $ 51,592      $ 36,184      $ 73,694  

 

(1)

In addition to our operating results, calculated in accordance with GAAP, we use, and plan to continue using, non-GAAP financial measures when monitoring and evaluating operating performance. The non-GAAP financial measures presented in this prospectus are supplemental measures of our performance that we believe help investors understand our financial condition and operating results and assess our future prospects. We believe that these non-GAAP financial measures, in addition to the corresponding GAAP financial measures, are important supplemental measures which exclude non-cash or other items that may not be indicative of or are unrelated to our core operating results. For more information about our non-GAAP financial measures as well as a reconciliation to the most directly comparable GAAP financial measure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

 

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RISK FACTORS

You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this prospectus, in evaluating Centuri and our common stock. The occurrence of any of the following risks could materially and adversely affect our business, financial condition, prospects, results of operations and cash flows. In such case, the trading price of our common stock could decline and you could lose all or part of your investment.

The risks and uncertainties described below are those that we have identified as material but are not the only risks and uncertainties facing us. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, financial condition, prospects, results of operations and cash flows.

Risks Related to Our Business and Industry

Risks Related to Our Operations

The loss of, or reduction in business from, certain significant customers could have a material adverse effect on our business.

Certain customers have in the past and may in the future account for a significant portion of our revenues. For example, during fiscal 2023, approximately half of our revenues were generated collectively from our top ten customers and approximately 71% of our revenues were generated collectively from our top 20 customers. This customer concentration could adversely affect operating results if construction work slowed or halted with one or more of these customers, if competition for work increased, or if existing contracts were terminated or not replaced or extended. Although we have long-standing relationships with many of our significant customers, a significant customer may unilaterally reduce or discontinue business with us at any time or merge or be acquired by a company that decides to reduce or discontinue business with us. If a significant customer were to file for bankruptcy protection or cease operations, it could result in reduced or discontinued business with us. The loss of business from one or more of our significant customers could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our financial and operating results may vary significantly from quarter-to-quarter and year-to-year. A variety of factors could adversely affect the timing or profitability of our projects, which may result in additional costs to us, reductions or delays in revenues, the payment of liquidated damages or project termination.

Our business is subject to seasonal and annual fluctuations, and certain projects are subject to risks of delay or cancellation. Some of the quarterly variation is the result of weather events that adversely affect our ability to provide utility companies with contracted-for trenching, installation, and replacement of underground pipes, as well as maintenance services for energy distribution systems. Generally, our revenues are lowest during the first quarter of the year due to less favorable winter weather conditions in colder areas such as the Northeastern and Midwestern U.S. and Canada. These conditions also require certain areas to scale back their workforce at times during the winter season, presenting challenges associated with maintaining an adequately skilled labor force when it comes time to re-staff work crews following the winter layoffs. Furthermore, we have a formalized service offering of emergency utility system restoration services to bring customers’ above-ground utility infrastructure back online following regional storms or other extreme weather events. As a result, our period-to-period revenue can vary depending on the volume of work related to extreme weather events, which are inherently unpredictable. In addition, some of the annual variation is the result of construction projects, which fluctuate based on customer timing, project duration, weather, and general economic conditions. Annual and quarterly results may also be adversely affected by:

 

   

changes in our mix of customers, projects, contracts and business;

 

   

regional or national and/or general economic conditions and demand for our services;

 

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inability to meet project schedule requirements or achieve guaranteed performance or quality standards for a project, resulting in increased costs through rework, replacement or otherwise, or the payment of liquidated damages to the customer or contract termination, based on the terms of the contract;

 

   

variations and changes in the margins of projects performed during any particular quarter;

 

   

failure to accurately estimate project costs or accurately establish the scope of our services or make judgments in accordance with applicable professional standards (e.g., engineering standards);

 

   

unforeseen circumstances or project modifications not included in our cost estimates or covered by the terms of our contract for the project for which we cannot obtain adequate compensation, including concealed or unknown environmental, geological or geographical site conditions and technical problems such as design or engineering issues;

 

   

the termination or expiration of existing agreements or contracts;

 

   

the budgetary spending patterns of customers;

 

   

changes in the cost or availability of equipment, commodities, materials or labor that we may be unable to pass through to our customers;

 

   

cost or schedule overruns on fixed- or unit-price contracts or MSAs, including delays in the delivery or management of design or engineering information, equipment or materials;

 

   

our or a customer’s failure to manage a project, including the inability to timely obtain permits or rights of way or meet other permitting, regulatory or environmental requirements or conditions;

 

   

labor shortages, due to disputes with labor unions or other impacts;

 

   

inability to negotiate reasonable agreements or contracts with subcontractors, vendors, or other suppliers;

 

   

our suppliers or subcontractors failure to perform;

 

   

changes in laws or permitting and regulatory requirements during the course of our work;

 

   

natural disasters or emergencies, including wildfires and earthquakes, as well as significant weather events (e.g., hurricanes, tropical storms, tornadoes, floods, droughts, blizzards and extreme temperatures) and adverse weather conditions (e.g., prolonged rainfall or snowfall, or early thaw in Canada and the northern U.S.);

 

   

difficult terrain and site conditions where delivery of materials and availability of labor are impacted or where there is exposure to harsh and hazardous conditions;

 

   

changes in bonding requirements and bonding availability for existing and new agreements;

 

   

the need and availability of letters of credit;

 

   

costs we incur to support growth, whether organic or through acquisitions;

 

   

protests, legal challenges or other political activity or opposition to a project;

 

   

other factors such as terrorism, military action and public health crises (e.g., the COVID-19 pandemic, the Israel-Hamas War, the ongoing war in Ukraine and associated sanctions severely limiting Russian natural gas or other exports);

 

   

the timing and volume of work under contract; and

 

   

losses experienced in our operations.

The timing of or failure to obtain contracts, delays in start dates for, or completion of, projects and the cancellation of projects can result in significant periodic fluctuations in our business, financial condition, results

 

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of operations and cash flows. Many of our projects involve challenging engineering, permitting, procurement and construction phases that can occur over extended time periods, and we have encountered, and may in the future continue to encounter, project delays, additional costs or project performance challenges.

Many of these difficulties and delays are beyond our control and can negatively impact our ability to complete the project in accordance with the required delivery schedule or achieve our anticipated margin on the project. Delays and additional costs associated with delays may be substantial and not recoverable from third parties, and in some cases, we may be required to compensate the customer for such delays, including in circumstances where we have guaranteed project completion or performance by a scheduled date, and may incur liquidated damages if we do not meet such schedule.

To the extent our costs on a project exceed our revenues, we will incur a loss. Additionally, performance difficulties can result in project cancellation by a customer and damage to our reputation or relationship with a customer, which can adversely affect our ability to secure new contracts. As a result, our operating results in any particular quarter may not be indicative of the operating results expected for any other quarter, or for an entire year. It may be difficult to predict our financial results from quarter-to-quarter or year-to-year because of these factors.

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.

During fiscal 2023, approximately 82% of our total revenue was generated from long-term MSAs. Generally, our MSAs do not require our customers to purchase a minimum amount of services. The majority of these contracts may be cancelled by our customers for convenience upon minimal notice (typically 30 days), regardless of whether we are in default. In situations where a customer determines it has cause to terminate a contract, even shorter notice is generally required (48 hours to 10 days). In addition, many of these contracts permit cancellation of particular purchase orders or statements of work without any notice or limited notice (anywhere from 48 hours to 30 days).

These agreements typically do not require our customers to assign a specific amount of work to us until a purchase order or statement of work is signed. Consequently, projected expenditures by customers are not assured to generate revenue until a definitive purchase order or statement of work is placed with us and the work is completed. Furthermore, our customers generally require competitive bidding of these contracts. As a result, we could be underbid by our competitors or be required to lower the prices charged under a contract being rebid. The loss of work obtained through MSAs and long-term contracts or the reduced profitability of such work, could materially and adversely affect our business or results of operations.

Backlog may not be realized or may not result in revenue or profit.

Backlog is measured and defined differently by companies within our industry. We refer to “backlog” as our expected revenue from existing contracts and work in progress as of the end of the applicable reporting period. Backlog is not a comprehensive indicator of future revenue and is not a measure of profitability. Many contracts may be terminated by our customers on short notice. Reductions in backlog due to cancellation by a customer, or for other reasons, could significantly reduce the revenue that we actually receive from contracts in backlog. In the event of a project cancellation, we are typically reimbursed for all of our costs through a specific date, as well as all reasonable costs associated with demobilizing from the jobsite, but we typically have no contractual right to the total revenue reflected in our backlog. Projects may remain in backlog for extended periods of time. While backlog includes estimated MSA revenue, customers generally are not contractually obligated to purchase a certain amount of services under our MSAs.

Given these factors, our backlog at any point in time may not accurately represent the revenue that we will realize during any period, and our backlog as of the end of a fiscal year may not be indicative of the revenue we

 

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expect to earn in the following fiscal year. Inability to realize revenue from our backlog could have an adverse effect on our business.

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.

We currently generate, and expect to continue to generate, a significant portion of our revenue and profit under unit- and fixed-price contracts. During fiscal 2023, approximately 77% of our revenue was derived from unit- and fixed-price contracts. In general, we must estimate the costs of completing a specific project to bid these types of contracts. The actual cost of a project may be higher than the costs we estimate at the commencement of the agreement, and we may not be successful in recouping additional costs from our customers. These variations may cause gross profit for a project to differ from those we originally estimated. Reduced profitability or losses on projects could occur due to changes in a variety of factors such as:

 

   

project modifications not reimbursed by the customer creating unanticipated costs;

 

   

changes in the costs of equipment, materials, labor or subcontractors;

 

   

our suppliers’ or subcontractors’ failure to perform;

 

   

changes in local laws and regulations; and

 

   

delays caused by weather conditions.

As projects grow in size and complexity, multiple factors may contribute to reduced profit or possible losses, and depending on the size of the particular project, negative variations from the estimated contract costs could have a material adverse effect on our business.

Fixed-price and unit-price contracts are subject to potential losses that could adversely affect our results of operations.

We enter into a variety of types of contracts customary in the utility infrastructure services industry. These contracts include unit-priced contracts (including unit-priced contracts with revenue caps), T&M (cost plus) contracts, and fixed-price (lump sum) contracts. Contracts with revenue caps and fixed-price arrangements can be susceptible to constrained profits, or even losses, especially those contracts that cover an extended-duration performance period. This is due, in part, to the necessity of estimating costs at the inception of a bid process, which is far in advance of the completion date (at bid inception) of a particular project. Unforeseen inflation, operating efficiencies due to weather-related or workmanship issues or other costs unanticipated at inception, can detrimentally impact profitability for these types of contracts, which could have an adverse impact on our financial condition, results of operations and cash flows.

Under our customer T&M contracts, we are paid for labor at negotiated hourly billing rates and for certain other allowable expenses, subject to, in most cases, a specified maximum contract value. Profitability on these contracts is driven by billable headcount and cost control. Under our customer T&M contracts, some of which are subject to contract ceiling amounts, we are reimbursed for allowable costs and fees, which may be fixed or performance based. If our costs exceed the contract ceiling or are not allowable under the provisions of the contract or any applicable regulations, we may not be able to obtain reimbursement for all of the costs we incur, which could have an adverse impact on our financial condition, results of operations and cash flows.

Further, in our fixed- and unit-price contracts, we may provide a project completion date, and in some of our projects we may commit that the project will achieve specific performance standards. Failure to complete the project as scheduled or at the contracted performance standards could result in additional costs or penalties, including liquidated damages, and such amounts could exceed expected project profit, which could have a material adverse impact on our financial condition, results of operations and cash flows.

 

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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.

Our operations are reliant on skilled personnel who are trained and qualified to install utility infrastructure under established safety protocols and operator qualification programs, and in conformance with customer-mandated engineering design specifications. Lapses in judgment or failure to follow protocol could lead to warranty and indemnification liabilities or catastrophic accidents, causing property damage or personal injury. Such incidents could result in severe business disruptions, significant decreases in revenues, reputational harm, significant additional costs to us and/or the termination of certain customer agreements. Any such incident could have an adverse effect on our results of operations, financial condition, earnings, and cash flows. In addition, any of these or similar events could result in legal claims against us, cause environmental pollution, personal injury or death claims, damage to our properties or the properties of others, or loss of revenue by us or others.

Further, we perform our work under a variety of conditions, including, but not limited to, areas impacted by extreme weather events, difficult and hard to reach terrain, challenging site conditions, and busy urban centers, where delivery of materials and availability of labor may be impacted. Performing work under these conditions can slow our progress, potentially causing us to be contractually liable to our customers. These difficult conditions may also cause us to incur additional, unanticipated costs that we might not be able to pass on to our customers, which could have a material adverse effect on our results of operations and financial condition, earnings, and cash flows.

We operate in a highly competitive industry, and competitive pressures could materially and adversely affect our business, which is largely dependent on the competitive bidding process.

We cannot be certain that we will maintain or enhance our competitive position or maintain our current customer base. The specialty contracting business is served by numerous companies, from small, owner-operated private companies to large multi-national, public companies. Relatively few barriers prevent entry into some areas of our business, and as a result, any organization that has adequate financial resources and access to technical expertise may become one of our competitors. In addition, some of our competitors have significant financial, technical and marketing resources, and may have or develop expertise, experience and resources to provide services that are superior in either or both price and quality. Certain of our competitors may also have lower overhead cost structures, and therefore may be able to provide services at lower pricing than us.

We also face competition from the in-house service organizations of our existing or prospective customers, which are capable of performing, or acquiring businesses that perform some of the same types of services we provide. These customers may also face pressure or be compelled by regulatory or other requirements to self-perform an increasing amount of the services we currently perform for them, thereby reducing the services they outsource to us in the future. We also subcontract a minor portion of our services, including pursuant to customer and regulatory requirements, such as supplier diversity requirements, and certain of these subcontractors may develop into a competitor to us on prime contracts with our customers.

Furthermore, a portion of our revenues is directly or indirectly dependent upon obtaining new contracts, which is highly competitive, unpredictable and often involves complex and lengthy negotiations and bidding processes that are impacted by a wide variety of factors, including, among other things, price, governmental approvals, financing contingencies, commodity prices, environmental conditions, overall market and economic conditions, and a potential customer’s perception of our ability to perform the work or the technological advantages held by our competitors. We compete with other general and specialty contractors, both regional and national, as well as small local contractors. The strong competition in our markets requires maintaining skilled personnel and investing in technology, and puts pressure on profit margins. We do not obtain contracts from all of our bids and our inability to win bids at acceptable profit margins would adversely affect our results of operations. The competitive environment in which we operate can also affect the timing of contract awards and the commencement or progress of work under awarded contracts. For example, based on rapidly changing competition dynamics, we have recently experienced,

 

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and may in the future experience, more competitive pricing for smaller scale projects. Additionally, changing competitive pressures present difficulties in matching workforce size with available contract awards. As a result, changes in the competitive environment in which we operate could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Any deterioration in the quality or reputation of our brands, which can be exacerbated by the effect of social media or significant media coverage, could have a material adverse impact on our business.

Much of our growth has been driven by acquisitions of companies that had significant brand recognition in various regions of the U.S. and Canada. In most cases, our subsidiaries continue to operate under the same brand names they operated under before we acquired them. Our brands and our reputation are among our most important assets, and our ability to attract and retain customers depends on brand recognition and reputation in the markets in which we operate. Such dependence makes our business susceptible to reputational damage and to competition from other companies. A variety of events could result in damage to our reputation or brands, some of which are outside of our control, including:

 

   

acts or omissions that adversely affect our business such as a crime, scandal, cyber-related incidents, litigation or other negative publicity;

 

   

failure to successfully perform, or negative publicity related to, a high-profile project;

 

   

actual or potential involvement in a catastrophic fire, explosion or similar event; or

 

   

actual or perceived responsibility for a serious accident or injury.

Intensifying media coverage, including the considerable expansion in the use of social media, has increased the volume and speed with which negative publicity arising from events can be generated and spread, and we may be unable to respond timely to, correct any inaccuracies in, or adequately address negative perceptions arising from such media coverage. If the reputation or perceived quality of our brands decline or customers lose confidence in us, our business, financial condition, results of operations, or cash flows could be materially and adversely affected.

We are 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.

We maintain insurance policies with respect to automobile liability, general liability, employer’s liability, workers’ compensation and other type of coverages. These policies are subject to high deductibles or self-insured retention amounts. For example, we maintain liability insurance that covers the Company for some, but not all, risks associated with the utility infrastructure services we provide. In connection with this liability insurance policy, we are responsible for an initial deductible or self-insured retention amount per incident, after which the insurance carrier would be responsible for amounts up to the policy limit. Our currently effective liability insurance policies require us to be responsible for the first $750,000 (self-insured deductible) of each incident. We cannot predict the likelihood that any future event will occur which could result in a claim exceeding these amounts; however, a large claim for which we were deemed liable could reduce our earnings up to and including the self-insurance maximum.

We are effectively self-insured for substantially all claims because most claims against us do not exceed the deductibles under our insurance policies and there can be no assurance that our insurance coverages will be sufficient or effective under all circumstances, or against all claims or liabilities 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. In addition, insurance liabilities are difficult to assess and estimate due to many factors, the effects of which are often unknown or difficult to estimate, including the severity of an injury, the determination of our liability in proportion to other parties’ liability, the number of

 

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incidents not immediately reported and the effectiveness of our safety programs. If our insurance costs exceed our estimates of insurance liabilities, or if our insurance claims increase, or if our insurance coverage proves to be inadequate or becomes unavailable, we could experience increased exposure to risk and/or a decline in profitability and liquidity.

We may be unsuccessful at generating internal growth, which may materially and adversely affect our ability to expand our operations or grow our business.

Our ability to generate internal growth may be adversely affected if, among other factors, we are unable to:

 

   

attract new customers;

 

   

increase the number of projects or amount of work performed for existing customers;

 

   

hire and retain qualified personnel;

 

   

secure appropriate levels of construction equipment;

 

   

successfully bid for new projects; or

 

   

adapt the range of services we offer to address our customers’ evolving needs.

In addition, our customers may reduce the number or size of projects available to us due to their inability to obtain capital. Our customers may also reduce projects in response to economic conditions.

Furthermore, part of our growth strategy is to expand into high-growth service lines. We intend to seek additional clean energy projects that include renewable natural gas, 5G datacom, wind and solar connections, and electric vehicle charging and battery storage related infrastructure. We may not be successful in obtaining new contracts to do this work, and we may expend significant resources exploring opportunities to do so and to prove our capabilities.

Many of the factors affecting our ability to generate internal growth are beyond our control, and we cannot be certain that our strategies will be successful or that we will be able to generate cash flow sufficient to fund our operations and to support internal growth. If we are unsuccessful, we may not be able to achieve internal growth, expand our operations or grow our business which could have a material adverse effect on our financial condition, results of operations and cash flows.

Changes to renewable portfolio standards and decreased demand for renewable energy projects could materially and adversely impact our future results of operations, financial condition, cash flows and liquidity.

We intend to seek to expand further into the clean energy infrastructure market. Our revenue from offshore wind is project driven which could be more volatile than the recurring maintenance and repair work we do for our utility customers. For example, we currently have an established framework agreement with notices to proceed for tier 1 supply of advance components to support offshore wind projects in the Northeast and Mid-Atlantic regions of the United States. We expect to recognize significant revenue from work under the framework agreement through 2024, but we can provide no assurances that we will continue to work under the contract beyond that time. While we expect the work under the framework agreement will provide us with opportunities to support the offshore wind build out in North America, the work we provide under this agreement is not part of our core business, and we can provide no assurances that we will achieve long-term benefits from this agreement beyond the work we are currently contracted to perform. In the fourth quarter of fiscal 2023, we received notice that a customer canceled an offshore wind project under the framework agreement, which contributed to us recognizing a $214.0 million goodwill impairment in fiscal 2023. We can provide no assurances that there will not be future cancellations of existing offshore wind projects. Further expansion into the clean energy infrastructure market has required, and will continue to require, additional capital expenditures or raise our operating costs. Currently, the development of offshore wind energy and other renewable energy facilities is

 

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dependent on the existence of renewable portfolio standards and other state incentives and requirements. Renewable portfolio standards are state-specific statutory provisions requiring or encouraging that electric utilities generate a certain amount of electricity from renewable energy sources. These standards have initiated significant growth in the renewable energy industry and potential demand for renewable energy infrastructure construction services. Elimination of, or changes to, existing renewable portfolio standards, tax credits or environmental policies may negatively affect future demand for our services, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may pursue acquisitions, which may not be successful and may divert financial and management resources. If we fail to integrate acquisitions successfully, we may experience operational challenges and risks which may have a material adverse effect on our business.

As part of our growth strategy, we have and may continue to acquire companies that expand, complement or diversify our business. For example, we acquired Riggs Distler in 2021, Linetec in 2018 and Neuco in 2017. We may be unsuccessful in completing acquisition opportunities that we pursue, which would cause us to incur pursuit costs without the commensurate benefit of completing the acquisition. Our competitors may be more effective than us in executing and closing acquisitions in competitive auctions. Our ability to enter into and complete acquisitions may be restricted by, or subject to, various approvals under U.S., Canadian or other applicable law or may not otherwise be possible, may result in a possible dilutive issuance of our securities, or may require us to seek additional financing. Our ability to pursue certain acquisition transactions may be limited through the end of the two-year period following the Distribution, if effected, in order to help preserve tax-free treatment of such Distribution to Southwest Gas Holdings. The ability to pursue certain acquisitions will also be limited by Southwest Gas Holdings’ approval rights under the Separation Agreement, which could result in us not pursuing one or more acquisitions that we believe are accretive to our business. Furthermore, completed acquisitions may expose us to operational challenges and risks, including, among others:

 

   

the diversion of management’s attention from the day-to-day operations of the combined company;

 

   

managing a larger company than before completion of an acquisition;

 

   

the assimilation of new employees and the integration of business cultures;

 

   

training and facilitating our internal control processes within the acquired organization;

 

   

retaining key personnel;

 

   

the integration of information, accounting, finance, sales, billing, payroll and regulatory compliance systems;

 

   

challenges in keeping existing customers and obtaining new customers;

 

   

challenges in combining service offerings and sales and marketing activities;

 

   

the assumption of liabilities of the acquired business for which there are inadequate reserves;

 

   

the potential impairment of acquired goodwill and intangible assets; and

 

   

the inability to enforce covenants not to compete.

Failure to effectively manage the acquisition pursuit and integration process could materially and adversely affect our business, financial condition, results of operations and cash flows.

Technological advancements and other market developments could materially and adversely affect our business.

Technological advancements, market developments and other factors may increase our costs or alter our customers’ existing operating models or the services they require, which could result in reduced demand for our

 

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services. For example, a reduction in demand for natural gas or an increase in demand for renewable energy sources could negatively impact certain of our customers and reduce demand for certain of our services. Additionally, a transition to a decentralized electric power grid, which relies on more dispersed and smaller-scale renewable energy sources, could reduce the need for large infrastructure projects and significant maintenance and rehabilitation programs, thereby reducing demand for, or profitability of, our services. Our future success will depend, in part, on our ability to anticipate and adapt to these and other potential changes in a cost-effective manner and to offer services that meet customer demands and evolving industry standards. If we fail to do so or incur significant expenditures in adapting to such change, our businesses, financial condition, results of operations and cash flows could be materially and adversely affected.

Furthermore, we view our portfolio of energized services tools and techniques, as well as our other process and design technologies, as competitive strengths, which we believe differentiate our service offerings. If our work processes become obsolete, through technological advancements or otherwise, we may not be able to differentiate our service offerings and some of our competitors may be able to offer more attractive services to our customers, which could materially and adversely affect our business, financial condition, results of operations and cash flows.

Systems and information technology interruptions and/or data security breaches could materially and adversely affect our operating results and ability to operate, and could result in harm to our reputation.

We are heavily reliant on information and communications technology, computer and other related systems in order to operate. We also rely, in part, on third-party software and information technology to run certain of our critical accounting, project management and financial information systems. From time to time, we experience system interruptions and delays. In certain cases, our information technology systems are also integrated with those of our customers, which exposes us to the additional risk of a third-party breach of the customers’ systems outside of our control. Our operations could be interrupted or delayed, or our data security could be breached, if we are unable to deploy software and hardware, gain access to, or effectively maintain and upgrade, our systems and network infrastructure and/or take other steps to improve and otherwise protect our systems. In addition, our information technology and communications systems, including those associated with acquired businesses, and our operations could be damaged or interrupted by cyber attacks and/or physical security risks. These risks include natural disasters, power loss, telecommunications failures, intentional or inadvertent user misuse or error, failures of information technology solutions, computer viruses, phishing attacks, social engineering schemes, malicious code, ransomware attacks, acts of terrorism and physical or electronic security breaches, including breaches by computer hackers, cyber-terrorists and/or unauthorized access to, or disclosure of, our and/or our employees’ or customers’ data. Furthermore, such unauthorized access or cyber attacks could go unnoticed for some period of time.

These events, among others, could cause system interruptions, delays and/or the loss or release of critical or sensitive data, including the unintentional disclosure of customer, employee, or our information, and could delay or prevent operations, including the processing of transactions and reporting of financial results or cause processing inefficiency or downtime, all of which could have a material adverse effect on our business, results of operations and financial condition, and could materially harm our reputation and/or result in significant costs, fines or litigation. Similar risks could adversely affect our customers, subcontractors or suppliers, indirectly affecting us.

While we have security, internal control and technology measures in place to protect our systems and network, if these measures fail as a result of a cyber attack, other third-party action, employee error, malfeasance or other security failure, and someone obtains unauthorized access to our or our employees’ or customers’ information, our reputation could be damaged, our business may suffer and we could incur significant liability, or, in some cases, we may lose access to our business data or systems, incur significant remediation costs or be subject to demands to pay ransom. In the ordinary course of business, we have been targeted by malicious cyber attacks. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and

 

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are increasingly sophisticated, and generally are not identified until they are launched against a target, our current or future defenses may not be adequate to protect against new or enhanced techniques. As a result, we may be required to expend significant resources to protect against the threat of system disruptions and security breaches or to investigate and mitigate problems caused by these disruptions and breaches. Any of these events could materially damage our reputation and have a material adverse effect on our business, results of operations, financial condition and cash flows. Furthermore, while we maintain insurance policies that we consider to be adequate, our coverage may not specifically cover all types of losses or claims that may arise, which could result in significant uninsured or undetermined losses.

In addition, the unauthorized disclosure of confidential information and current and future laws and regulations, or changes to such laws or regulations, governing data privacy may pose complex compliance challenges and/or result in additional costs. Failure to comply with such laws and regulations could result in penalties, fines and/or legal liabilities and/or harm our reputation. The continuing and evolving threat of cyber-attacks has also resulted in increased regulatory focus on risk management and prevention. New cyber-related regulations or other requirements could require significant additional resources and/or cause us to incur significant costs, which could have an adverse effect on our results of operations and cash flows.

We regularly evaluate the need to upgrade, enhance and/or replace our systems and network infrastructure to protect our information technology environment, to stay current on vendor supported products and to improve the efficiency and scope of our systems and information technology capabilities. The implementation of new systems and information technology could adversely impact our operations by requiring substantial capital expenditures, diverting management’s attention, and/or causing delays or difficulties in transitioning to new systems. In addition, our system implementations may not result in productivity improvements at the levels anticipated. System implementation and/or information technology disruptions could have a material adverse effect on our business, and remediation of any such disruptions, and the technological implementations themselves, could result in significant costs.

Risks Related to Our Supply Chain, Equipment, Subcontractors and Other Parties

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.

Due to increased demand across a range of industries, the global supply market for certain customer-provided components, including, but not limited to, electric transformers and gas risers needed to complete our customer projects, has experienced isolated performance constraint and disruption in recent periods in support of a few customers. This constrained supply environment has adversely affected, and could further affect, customer-provided component availability, lead times and cost, and could increase the likelihood of unexpected cancellations or delays of supply of key components to customers, thereby leading to delays and our inability to timely deliver projects to customers. In an effort to mitigate these risks, we have redirected efforts to projects whereby the customer has provided necessary materials, but delays in materials and the costs associated with mobilizing/demobilizing workforces can lead to inefficiencies in absorption of fixed costs, higher labor costs for teams waiting to be deployed, and delays in pivoting to projects where necessary materials are available. Our efforts to adapt quickly or redeploy to other projects may fail to reduce the effects of these adverse supply chain conditions on our business.

Despite these mitigation efforts, the constrained supply conditions may materially and adversely impact our business, financial condition, results of operations and cash flows. Inflationary pressure, labor market, and conflict in Ukraine have also contributed to and exacerbated this strain within and outside the U.S., and there can be no assurance that these impacts on the supply chain will not continue, or worsen, in the future, negatively impacting any of our operating business lines and their results. The current supply chain challenges could also result in increased use of cash, engineering design changes, and delays in the completion of projects, each of

 

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which could adversely impact our business and results of operations. In the event these supply chain challenges persist for the foreseeable future, these conditions could materially and adversely impact our results of operations and financial condition over an extended period.

We are subject to the risk of changes in fuel costs, which could have a material adverse effect on our results of operations and cash flows.

The cost of fuel is an appreciable operating expense of our business. Significant increases in fuel prices for extended periods of time, such as the recent increases and volatility arising from the effects of the Russia-Ukraine conflict and the impacts of inflation, will cause our operating expenses to fluctuate. An increase in cost with partial or no corresponding compensation from customers would lead to lower margins which could have an adverse effect on our results of operations. While we believe we can increase our prices to adjust for some price increases in fuel, there can be no assurance that price increases of fuel, if they were to occur, would be recoverable from customers.

An increase in the prices or availability of certain customer-provided materials and commodities used in our business could materially and adversely affect our results of operations and cash flows.

Generally, our contracts provide that the customer is responsible for providing the materials for a given project, exposing them to market risk of increases in certain commodity prices of materials, such as copper and steel, which are supplies or materials components utilized in all of our operations. We and our customers are also exposed to the availability of these materials which have been impacted by the supply-chain disruption from the COVID-19 pandemic, inflationary pressures, and regulatory slowdowns. In addition, our customers’ capital budgets may be impacted by the prices of certain materials, and reduced customer spending could lead to fewer project awards and more competition. These prices could be materially impacted by general market conditions, inflationary pressures, and other factors, including U.S. trade relationships with other countries or the imposition of tariffs. Additionally, some of our fixed- and unit-price contracts do not allow us to adjust our prices and, as a result, increases in material or fuel costs could reduce our profitability with respect to such projects.

We may incur higher costs to lease, acquire and maintain equipment necessary for our operations, which could have a material adverse effect on our business, results of operations and cash flows.

A significant portion of our contracts are built utilizing our own construction equipment rather than rented equipment. To the extent that we are unable to buy or lease equipment necessary for a project, either due to a lack of available funding, or equipment shortages in the marketplace, we may be forced to rent equipment on a short-term basis, or to find alternative ways to perform the work without the benefit of equipment ideally suited for the job, which could increase the costs of completing the project. We sometimes bid for work knowing that we will have to rent equipment on a short-term basis, in which case we include the equipment rental rates in our bid. If market rates for rental equipment increase between the time of bid submission and project execution, our margins for the project may be reduced. In addition, our equipment requires continuous maintenance. If we are unable to continue to maintain the equipment in our fleet, we may be forced to obtain additional third-party repair services at a higher cost or be unable to bid on contracts, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our dependence on suppliers, subcontractors and equipment manufacturers could expose us to the risk of loss in our operations, which could have a material adverse effect on our business, results of operations and cash flows.

On certain projects, we rely on suppliers to obtain the necessary materials and subcontractors to perform portions of our services. We also rely on equipment manufacturers to provide us with the equipment required to conduct our operations. Although we are not dependent on any single supplier, subcontractor or equipment manufacturer, any substantial limitation on the availability of required suppliers, subcontractors or equipment

 

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manufacturers could negatively impact our operations. The risk of a lack of available suppliers, subcontractors or equipment manufacturers may be heightened as a result of market, regulatory and economic conditions. Availability of suppliers and manufacturers may also be limited by U.S. trade and other foreign policies that restrict business relationships with certain suppliers and manufacturers. We may experience difficulties in acquiring equipment or materials due to supply chain interruptions, including as a result of natural disasters, weather, labor disputes, pandemic outbreak of disease, fire or explosions, power outages and similar events. To the extent we cannot engage subcontractors or acquire equipment or materials, we could experience delays and losses in the performance of our operations.

Successful completion of our contracts may depend on whether our subcontractors successfully fulfill their contractual obligations. We subcontract approximately 19% of our services. If our subcontractors fail to perform their contractual obligations as a result of financial or other difficulties, or if our subcontractors fail to meet the expected completion dates or quality standards, we may be required to incur additional costs or provide additional services in order to make up such shortfall and we may suffer damage to our reputation.

Project performance issues, including those caused by third parties, or certain contractual obligations may result in additional costs to us, reductions or delays in revenues or the payment of penalties, including liquidated damages.

Many projects involve challenging engineering, procurement and construction phases that may occur over several years. We may encounter difficulties that adversely affect our ability to complete the project in accordance with the original delivery schedule. These difficulties may be the result of delays:

 

   

in designs;

 

   

in engineering information or materials provided by the customer or a third party;

 

   

in equipment and material delivery;

 

   

due to schedule changes;

 

   

from our customer’s failure to timely obtain permits, rights-of-way or to meet other regulatory requirements;

 

   

due to weather-related issues;

 

   

caused by difficult worksite environments;

 

   

caused by inefficiencies and not achieving expected labor performance and other factors, some of which are beyond our control; and

 

   

due to local opposition, which may include injunctive actions as well as public protests, to the siting of electric transmission lines, renewable energy projects, or other facilities.

Any delay or failure by suppliers or by third-party subcontractors in the completion of their portion of the project may result in delays in the overall progress of the project or may cause us to incur additional costs, or both. We may not be able to recover the costs we incur that are caused by delays. Certain contracts have guarantee or bonus provisions regarding project completion by a scheduled acceptance date or achievement of certain acceptance and performance testing levels. Failure to meet any of our schedules or performance requirements could also result in additional costs or penalties, including liquidated damages, loss of revenue related to milestone achievement, and such amounts could reduce project profit. In extreme cases, the above-mentioned factors could cause project cancellations. Delays or cancellations may impact our reputation or relationships with customers and adversely affect our ability to secure new contracts. Larger projects present additional performance risks due to complexity of the work and duration of the project.

Our customers may change or delay various elements of the project after its commencement. The design, engineering information, equipment or materials that are to be provided by the customer or other parties may be

 

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deficient or delivered later than required by the project schedule, resulting in additional direct or indirect costs. Under these circumstances, we generally negotiate with the customer with respect to the amount of additional time required and the compensation to be paid to us. We are subject to the risk that we may be unable to obtain, through negotiation, arbitration, litigation or otherwise, adequate amounts to compensate us for the additional work or expenses incurred by us due to change orders or failure by others to timely deliver items, such as engineering drawings or materials.

We have in the past brought, and may in the future bring, claims against our customers related to, among other things, the payment terms of our contracts and change orders relating to our contracts. These types of claims occur due to, among other things, customer-caused delays or changes in project scope, either of which may result in additional cost, which may not be recovered until the claim is resolved or at all. Additionally, if any of our customers do not proceed with the completion of projects or default on their payment obligations, or if we encounter disputes with our customers with respect to the adequacy of billing support, we may face difficulties in collecting payment of amounts due to us for the costs previously incurred. In some instances, these claims can be the subject of lengthy legal proceedings, and it is difficult to accurately predict when or if they will be fully resolved. A failure to promptly recover on these types of claims in the future could have a negative impact on our business, financial condition, results of operations and cash flows. Additionally, any such claims may harm our future relationships with our customers and could negatively impact our brand.

Our business could be negatively affected as a result of actions of activist stockholders.

In October 2021, the Icahn Group initiated a tender offer to purchase shares of Southwest Gas Holdings common stock and threatened a proxy contest with respect to the election of directors at the Southwest Gas Holdings 2022 Annual Meeting of Stockholders. As of the date of this prospectus, the Icahn Group beneficially owns approximately 15.4% of the outstanding shares of Southwest Gas Holdings common stock and may acquire a pro rata amount, or other percentage portion, of our common stock in connection with any Distribution or any other disposition of our common stock by Southwest Gas Holdings. We are also subject to certain corporate governance restrictions for a period of time pursuant to the terms of the Amended and Restated Cooperation Agreement, dated as of November 21, 2023 (the “Amended Cooperation Agreement”), between the Icahn Group and Southwest Gas Holdings, related to our Board and the conduct of our first annual meeting of stockholders. See “Description of Capital Stock—Amended Cooperation Agreement.” There can be no assurances that the Icahn Group will not pursue similar actions with respect to us following the completion of this offering, the concurrent private placement and the Separation.

Responding to actions by activist stockholders could be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees. Perceived uncertainties among current and potential customers, employees, and other parties as to our future direction could result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These actions could also cause our stock price to experience periods of volatility, which could disrupt our ability to access the capital markets for financing purposes.

Risks Related to Labor

We depend on key personnel and we may not be able to operate and grow our business effectively if we lose the services of any of our key persons or are unable to attract and retain qualified and skilled personnel in the future.

We are dependent upon the efforts of our key personnel, and our ability to retain them and hire other qualified employees. The loss of any of our executive officers, or other key personnel, such as our operations managers and the executive leadership teams of any of our operating subsidiaries, among other senior management members, could affect our ability to run our business effectively. Competition for senior management is intense, and we may not be able to adequately incentivize or retain our personnel. For example, we recently underwent an extensive search for a new Chief Executive Officer, who was appointed in January 2024, and a new Chief Financial Officer, who was appointed in February 2024.

 

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The loss of any key person requires the remaining key personnel to divert immediate and substantial attention to seeking a replacement, as well as to performing the departed person’s responsibilities until a replacement is found. If we fail to find a suitable replacement for any departing executive or senior officer on a timely basis, such departure could materially and adversely affect our ability to operate and grow our business.

The successful transition to our new Chief Executive Officer and new Chief Financial Officer will be critical to our success. We can provide no assurances that any associated organizational changes or changes in business strategy will be beneficial or have the desired impact on the Company.

On January 12, 2024, William J. Fehrman assumed the position of Chief Executive Officer of Centuri. Executive leadership transition periods can often be difficult and may result in changes in leadership strategy and style. In connection with Mr. Fehrman assuming the role of Chief Executive Officer, the Company underwent an internal personnel reorganization, causing the Company to reevaluate its reportable segments. We will begin reporting under the new segment reporting structure beginning with our financial statements as of and for the fiscal three months ending March 31, 2024. There may be additional organizational changes or changes in business strategy in connection with the Chief Executive Officer transition, and we can provide no assurances that any such changes will be beneficial or will have the desired impact on the Company. In addition, in February 2024 Gregory A. Izenstark was appointed as our Chief Financial Officer. Mr. Izenstark’s successful transition from Chief Accounting Officer to Chief Financial Officer is key to our success.

Failure to attract and retain an appropriately qualified employee workforce could materially and adversely affect our collective operations.

Our business is labor intensive and our ability to implement our business strategy and serve our customers is dependent upon our continuing ability to attract and retain talented professionals and a technically skilled workforce, which in turn affects our ability to transfer the knowledge and expertise of our workforce to new employees as our aging employees retire. Failure to attract, hire, and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to the new employees, or the future availability and cost of contract labor could materially and adversely affect our ability to manage and operate our business.

In particular, the productivity of our labor force and its ongoing relationship with clients is largely dependent on those serving in foreman, general foreman, construction crew supervisor, superintendent, general superintendent, regional, and executive level management positions. The ability to retain these individuals, due in large part to the competitive nature of the utility infrastructure service business, is necessary for our ongoing success and growth. Further, the competitive environment within which we perform work creates pricing pressures, specifically when our unionized businesses are bidding against non-union competitors. This workforce competition, including that which exists for resources across our businesses, could materially and adversely impact our business, financial condition, results of operations, and cash flows.

We may not be able to maintain an adequately skilled labor force necessary to operate efficiently and to support our growth strategy. We have from time-to-time experienced, and may in the future experience, shortages of certain types of qualified personnel. For example, periodically there are shortages of project managers, field supervisors, linemen, operators, welders, fusers, laborers and other skilled workers capable of working on and supervising the construction and maintenance of electric and natural gas utilities and infrastructure, as well as providing engineering services. The supply of experienced project managers, field supervisors, linemen, operators, welders, fusers, laborers and other skilled workers may not be sufficient to meet current or expected demand. The beginning of new, large-scale infrastructure projects, or increased competition for workers currently available to us, could affect our business, even if we are not awarded such projects. Labor shortages, or increased labor costs could impair our ability to maintain our business or grow our revenue. If we are unable to hire employees with the requisite skills, we may also be forced to incur significant training expenses.

 

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Our unionized workforce and related obligations could materially and adversely affect our operations, lead to work stoppages or impact our ability to complete certain acquisitions.

As of December 31, 2023, approximately 72% of our workforce was covered by collective bargaining agreements with labor unions, which is typical of the utility infrastructure services industry. Of the 215 collective bargaining agreements to which we currently are a party, 12 expire during 2024 and 16 expire during 2025 and require renegotiation. The terms of these agreements limit our discretion in the management of covered employees and our ability to nimbly implement changes to meet business needs. For example, under certain of our collective bargaining agreements we owe unionized employees “show up pay” for up to a full day’s work on days when weather conditions make it impossible to safely undertake regular outdoor construction operations if we do not alert them by a specified cut off time on the prior day. Although the majority of these agreements prohibit strikes and work stoppages, we cannot be certain that strikes or work stoppages will not occur in the future. In the current inflationary environment, negotiations over union wage rates or increases in benefits may slow or derail contract renegotiations, which may lead to potential strikes or work stoppages. Strikes or work stoppages could adversely impact relationships with our customers and could cause us to lose business and have a material adverse effect on our business and results of operations and cash flows.

Our ability to complete future acquisitions could be adversely affected because of our union status for a variety of reasons. For instance, our union agreements may be incompatible with the union agreements of a business we want to acquire, and some acquisition targets may decline to become affiliated with a union-based company. Moreover, certain of our customers, where permissible by law, may require or prefer a non-union workforce, and they may reduce the amount of work assigned to us if our non-union labor crews become unionized, which could materially and adversely affect our financial condition, results of operations and cash flows.

We participate in multi-employer pension plans which could create additional obligations and payment liabilities.

We contribute to multi-employer defined benefit pension plans under the terms of collective bargaining agreements that cover certain unionized employee groups in the U.S. The risks of participating in multi-employer pension plans differ from single employer-sponsored plans and such plans are subject to regulation under the Pension Protection Act (the “PPA”). Additionally, changes in regulations covering these plans could increase our costs and/or potential withdrawal liability.

Multi-employer pension plans are cost-sharing plans subject to collective-bargaining agreements. Contributions to a multi-employer plan by one employer are not specifically earmarked for its employees and may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligations of the plan are borne by the remaining participating employers. In addition, if a multi-employer plan is determined to be underfunded based on the criteria established by the PPA, the plan may be required to implement a financial improvement plan or rehabilitation plan that may require additional contributions or surcharges by participating employers.

In addition to the contributions discussed above, we could again become obligated to pay additional amounts, known as withdrawal liabilities, upon decrease or cessation of participation in a multi-employer pension plan. Although an employer may obtain an estimate of such liability, the final calculation of the withdrawal liability may not be able to be determined for an extended period of time. Generally, the cash obligation of such withdrawal liability is payable over a 20-year period. If, in the future, we choose to withdraw from a multi-employer pension plan, we will likely need to record significant withdrawal liabilities, which could adversely impact our financial conditions and results of operations.

 

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Risks Related to Our Indebtedness and Additional Capital

Our existing indebtedness or ability to incur additional indebtedness could materially and adversely affect our businesses and our ability to meet our obligations and pay dividends.

Upon completion of the Separation, this offering and the concurrent private placement and the application of the net proceeds from this offering and the concurrent private placement as described in the section of this prospectus entitled “Use of Proceeds,” we expect to have outstanding indebtedness of approximately $1.04 billion, including finance lease liabilities, and have the ability to incur an additional $251.9 million of indebtedness under our existing revolving credit agreement. See “Description of Certain Indebtedness.” This debt could have important, adverse consequences to us and our investors, including:

 

   

requiring a substantial portion of our cash flow from operations to make interest payments;

 

   

making it more difficult to satisfy other obligations;

 

   

increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;

 

   

increasing our vulnerability to general adverse economic and industry conditions;

 

   

reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our businesses;

 

   

limiting our ability to pay dividends;

 

   

limiting our flexibility in planning for, or reacting to, changes in our businesses and industries; and

 

   

limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase shares of our common stock.

The instruments governing our outstanding debt contain certain restrictive covenants that will limit our ability to engage in activities that may be in our long-term interest, including for example EBITDA-based leverage and interest coverage ratios. If we breach any of these restrictions and cannot obtain a waiver from the lenders on favorable terms, subject to applicable cure periods, our outstanding indebtedness (and any other indebtedness with cross-default provisions) could be declared immediately due and payable, which would adversely affect our liquidity and financial statements. In addition, any failure to obtain and maintain credit ratings from independent rating agencies would adversely affect our cost of funds and could adversely affect our liquidity and access to the capital markets. If we add new debt, the risks described above could increase. For additional information regarding our debt, please refer to the section entitled “Description of Certain Indebtedness.”

The risks described above will increase with the amount of indebtedness we incur, and in the future, we may incur significant indebtedness in addition to the indebtedness described above. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to service our outstanding debt or to repay the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to service or refinance our debt.

Our business is capital intensive, and if we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital, and some of these activities could have terms that are unfavorable or could be highly dilutive. Our ability to obtain additional financing or to refinance our existing indebtedness will depend on the capital markets and our financial condition at such time. Any of the above factors could materially and adversely affect our results of operations, cash flows and liquidity.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and

 

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to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of material assets or operations, alter our dividend policy (if we pay dividends), seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The instruments that will govern our indebtedness may restrict our ability to dispose of assets and may restrict the use of proceeds from those dispositions. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet debt service obligations when due. Our ability to engage in additional equity fundraising may be limited through the end of the two-year period following the Distribution, if effected, in order to help preserve tax-free treatment of such Distribution to Southwest Gas Holdings. Additionally, our ability to engage in equity fundraising will be limited by Southwest Gas Holdings’ approval rights under the Separation Agreement, which may extend beyond two years.

In addition, we conduct our operations through our subsidiaries. Accordingly, repayment of our indebtedness will depend on the generation of cash flow by our subsidiaries, including certain international subsidiaries, and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make adequate distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal, tax and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, may materially and adversely affect our business, financial condition and results of operations and our ability to satisfy our obligations under our indebtedness or pay dividends on our common stock.

Our variable rate indebtedness subjects us to interest rate risk and could have a material adverse effect on us.

Borrowings under our credit facility are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even if the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Our weighted average interest rate on our variable rate debt during fiscal 2023 was 7.73%. The annual effect on our pretax earnings of a hypothetical 50 basis point increase or decrease in variable interest rates would be approximately $5.4 million based on our December 31, 2023 balance of variable rate debt.

We may need additional capital in the future for working capital, capital expenditures or acquisitions, and we may not be able to access capital on favorable terms, or at all, which would impair our ability to operate our business or achieve our growth objectives.

Our ability to generate cash is essential for the funding of our operations and the servicing of our debt. If existing cash balances together with the borrowing capacity under our credit facility were not sufficient to make future investments, make acquisitions or provide needed working capital, we may require financing from other sources. Our ability to obtain such additional financing in the future will depend on a number of factors including prevailing capital market conditions, conditions in our industry, and our operating results. These factors may

 

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affect our ability to arrange additional financing on terms that are acceptable to us. If additional funds were not available on acceptable terms, we may not be able to make future investments, take advantage of acquisitions or pursue other opportunities.

We may not be able to compete for, or work on, certain projects if we are not able to obtain necessary bonds, letters of credit, bank guarantees or other financial assurances.

Some of our contracts require that we provide security to our customers for the performance of their projects in the form of bonds, letters of credit, bank guarantees or other financial assurances. Current or future market conditions, including losses incurred in the construction industry or as a result of large corporate bankruptcies, as well as changes in our sureties’ assessment of our operating and financial risk, could cause our surety providers and lenders to decline to issue or renew, or substantially reduce the amount of, bid, advance payment or performance bonds for our work and could increase our costs associated with collateral. These actions could be taken on short notice. If our surety providers or lenders were to limit or eliminate our access to bonding, letters of credit or guarantees, our alternatives would include seeking capacity from other sureties and lenders, finding more business that does not require bonds or allows for other forms of collateral for project performance. We may be unable to secure these alternatives in a timely manner, on acceptable terms, or at all, which could affect our ability to bid for or work on future projects requiring financial assurances.

We have also granted security interests in various assets to collateralize our obligations to our sureties and lenders. Furthermore, under standard terms in the surety market, sureties issue or continue bonds on a project-by-project basis and can decline to issue bonds at any time or require the posting of additional collateral as a condition to issuing or renewing any bonds. If we were to experience an interruption or reduction in the availability of bonding capacity as a result of these or any other reasons, we may be unable to compete for or work on certain projects that would require bonding.

A downgrade in our debt rating could restrict our ability to access the capital markets.

The terms of our financings are, in part, dependent on the credit ratings assigned to our debt by independent credit rating agencies. We cannot provide assurance that our current credit rating will remain in effect for any given period of time or that it will not be lowered or withdrawn entirely by a rating agency. Factors that may impact our credit rating include, among other things, our debt levels and liquidity, capital structure, financial performance, planned asset purchases or sales, near-and long-term growth opportunities, customer base and market position, geographic diversity, regulatory environment, project performance and risk profile. A downgrade in our credit rating could limit our ability to access the debt capital markets or refinance our existing debt, or cause us to refinance or issue debt with less favorable terms and conditions. An increase in the level of our indebtedness and related interest costs may increase our vulnerability to adverse general economic and industry conditions and may affect our ability to obtain additional financing, as well as have a material adverse effect on our business, financial condition, results of operations and cash flows.

Risks Related to Accounting Estimates, Judgments, Timing and Impacts Related to Taxation

Our financial results are based upon estimates and assumptions that may differ from actual results.

In preparing our historical and pro forma financial information included in this prospectus, in conformity with GAAP, many estimates and assumptions are used in determining the reported revenue, costs and expenses recognized during the periods presented, and disclosures of contingent assets and liabilities known to exist as of the date of the financial statements. These estimates and assumptions must be made because certain information that is used in the preparation of our historical and pro forma financials cannot be calculated with a high degree of precision from available data, is dependent on future events, or is not capable of being readily calculated based on generally accepted methodologies. Often, these estimates are particularly difficult to determine, and we must exercise significant judgment. Estimates may be used in our assessments of the allowance for doubtful accounts,

 

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useful lives of property and equipment, fair value assumptions in analyzing goodwill and long-lived asset impairments, self-insured claims liabilities, accounting for revenue recognized over time, and provisions for income taxes. As a result, actual results could differ materially from the estimates and assumptions that we used. See “Note 2—Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated financial statements.

For fixed-price contracts where we can reasonably estimate total contract value, we recognize revenue over time as work is completed because of the continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). Accounting for long-term contracts involves the use of various techniques to estimate total transaction price and costs. For long-term contracts, transaction price, estimated cost at completion and total costs incurred to date are used to calculate revenue earned. Unforeseen events and circumstances can alter the estimate of costs and potential profit associated with a particular contract. Total estimated costs, and thus contract revenue and income, can be impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing materials, permits and approvals, labor availability, governmental regulation and politics may affect the progress of a project’s completion, and thus the timing of revenue recognition. Actual results could differ from estimated amounts and could result in a reduction or elimination of previously recognized earnings. In certain circumstances, it is possible that such adjustments could be significant and could have a material adverse effect on our business.

Our goodwill and other assets have been subject to impairment and may continue to be subject to impairment in the future.

As discussed elsewhere in this prospectus, we incurred impairment charges of approximately $214.0 million during fiscal 2023 and $177.1 million during fiscal 2022 related to the write-down of goodwill acquired in connection with our August 2021 acquisition of Riggs Distler. We cannot predict the amount and timing of future impairments, if any. We may experience such charges in connection with past or future acquisitions, particularly if business performance declines or expected growth is not realized or the applicable discount rate changes adversely. It is possible that material changes in our business, market conditions, or market assumptions could occur over time. Any future impairment of our other intangible assets could have a material adverse effect on results of operations, as well as the trading price of our common stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Goodwill and Long-Lived Assets” for additional information.

Changes in applicable tax laws and regulations could adversely affect our business.

We are currently subject to income and other taxes (including sales, excise, and value-added) in the U.S. and Canada. Thus, the tax treatment of our company is subject to changes in tax laws or regulations, tax treaties, or positions by the relevant authority regarding the application, administration, or interpretation of these tax laws and regulations. These factors, together with the ambiguity of tax laws and regulations, the subjectivity of factual interpretations, and uncertainties regarding the geographic mix of earnings in any period, can affect our estimates of our effective tax rate and income tax assets and liabilities, result in changes in our estimates and accruals, and have a material adverse effect on our business results, cash flows, or financial condition. We are unable to predict what tax reforms may be proposed or enacted in the future or what effect such changes would have on our business, but such changes could potentially result in higher tax expense and payments, along with increasing the complexity, burden, and cost of compliance.

Our tax burden could increase as a result of ongoing or future tax audits.

We are subject to periodic tax audits by tax authorities. Tax authorities may not agree with our interpretation of applicable tax laws and regulations. As a result, such tax authorities may assess additional tax, interest, and

 

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penalties. We regularly assess the likely outcomes of these audits and other tax disputes to determine the appropriateness of our tax provision and establish reserves for material, known tax exposures. However, the calculation of such tax exposures involves the application of complex tax laws and regulations in many jurisdictions. Therefore, there can be no assurance that we will accurately predict the outcomes of any tax audit or other tax dispute or that issues raised by tax authorities will be resolved at a financial cost that does not exceed our related reserves. As such, the actual outcomes of these disputes and other tax audits could have a material adverse effect on our business results or financial position.

Financial, Economic, Environmental and Market Risks

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.

Throughout 2023 and into 2024, the consumer price index increased substantially and may continue to remain at elevated levels for an extended period of time. Federal policies and recent global events, such as the volatility in prices of oil and natural gas, and the conflict between Russia and Ukraine, may have exacerbated, and may continue to exacerbate, increases in the consumer price index. In addition, during periods of rising inflation, variable interest rates and the interest rates of any newly issued debt securities will likely be higher than those incurred in connection with previous debt issuances, which will further tend to reduce returns to our stockholders. A sustained or further increase in inflation could have a material adverse impact on our operating expenses incurred in connection with, among others, the cost of fuel, labor, equipment/equipment-related, and materials costs, as well as general administrative expenses.

Additionally, inflationary pricing has had and may continue to have a negative effect on the construction costs necessary for us to complete projects, particularly with respect to fuel, labor, and subcontractor costs discussed above. We have and continue to experience pressures on fuel, materials, and certain labor costs as a result of the inflationary environment and current general labor shortage, which has resulted in increased competition for skilled labor and wage inflation. We have not been able to (except in limited circumstances), and may not be able to, fully adjust contract pricing to compensate for these cost increases, which has adversely affected, and may continue to adversely affect, our profitability and cash flows. Inflationary pressures and related recessionary concerns in light of governmental and central bank efforts to mitigate inflation could also cause uncertainty for our customers and affect the level of their project activity, which could also adversely affect our profitability and cash flows.

As inflation persists, the Board of Governors of the United States Federal Reserve Bank (the “Federal Reserve”) has raised during 2023 and may potentially to continue to raise benchmark interest rates during 2024, which likely will cause our borrowing costs to increase over time. As a result of the inflationary factors discussed above affecting the Company, our business, financial condition, results of operations, cash flows, and liquidity could be materially and adversely affected over time.

Utility infrastructure segment customers’ budgetary constraints, regulatory support or decisions, and financial condition could materially and adversely impact work awarded.

The majority of our customers are regulated utilities, whose capital budgets are influenced significantly by the various public utility commissions. As a result, the timing and volume of work performed by us is largely dependent on the regulatory environment in our operating areas and related client capital constraints. If budgets of our clients are reduced, regulatory support for capital projects and programs is diminished, or risk tolerances that limit how much business a utility may retain with a single service provider are changed, it could have a material adverse effect on our business, results of operations, and cash flows. Additionally, the impact of new regulatory and compliance requirements could result in productivity inefficiencies and have a material adverse effect on our results of operations and cash flows, or timing delays in their realization.

 

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Unfavorable economic, market or regulatory conditions affecting the financial services industry or capital investment could reduce capital expenditures in the industries we serve or could otherwise materially and adversely affect our customers, which could result in decreased demand for our services.

Demand for our services has been, and will likely continue to be, seasonal in nature and vulnerable to general downturns in the U.S. economy and the economies of the countries in which we operate. Unfavorable market conditions, including from inflation or supply chain disruptions, market uncertainty, the ongoing war in Ukraine, the Israel-Hamas War, health outbreaks such as the COVID-19 pandemic, and/or economic downturns could have a negative effect on demand for, or the profitability of, our customers’ services. We continually monitor our customers and their relative economic health compared to the economy as a whole. Our customers may not have the ability to fund capital expenditures for infrastructure or may have difficulty obtaining financing for planned projects during economic downturns. Uncertain or adverse economic or political conditions, the lack of availability of debt or equity financing and/or higher interest rates could reduce our customers’ capital spending and/or cause project cancellations or deferrals. On November 15, 2021, the IIJA was signed into law. While the IIJA provides for funding in many of the markets in which we operate, timing of the awards for projects funded by the IIJA is uncertain. We may not be able to obtain the expected benefits from the IIJA or any other infrastructure or stimulus spending. Any of these conditions could materially and adversely affect our results of operations, cash flows and liquidity, and could add uncertainty to our backlog determinations.

The natural gas market has historically been and is likely to continue to be volatile. Natural gas prices are subject to large fluctuations in response to changes in supply and demand, including from disruptions in global economic activity such as the COVID-19 pandemic, climate change initiatives and demand for alternative energy sources, legislative and regulatory changes, as well as market and political uncertainty, including from unrest and/or military actions involving natural gas-producing nations, such as the ongoing war in Ukraine and associated sanctions severely limiting Russian natural gas or other exports, and a variety of other factors that are beyond our control. Such market volatility can affect our customers’ investment decisions and subject us to project cancellations, deferrals or unexpected changes in the timing of project work. Economic factors, including economic downturns, can also negatively affect demand in our other business segments. Our customers in the power delivery, clean energy and infrastructure and communications segments could be negatively affected if projects or services are ordered at a reduced rate, or not at all, which in turn, could adversely affect demand for our services. A decrease in demand for the services we provide from any of the above factors, among others, could materially and adversely affect our results of operations, cash flows and liquidity.

More recently, the closures of Silicon Valley Bank and Signature Bank and their placement into receivership with the Federal Deposit Insurance Corporation (“FDIC”) created bank-specific and broader financial institution liquidity risk and concerns. Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at Silicon Valley Bank and Signature Bank would have access to their funds, even those in excess of the standard FDIC insurance limits, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages. The failure of any bank in which our customers deposit their funds could reduce the amount of cash they have available for their operations or delay access to such funds. Any such failure may increase the possibility of a sustained deterioration of financial market liquidity, or illiquidity at clearing, cash management and/or custodial financial institutions. In the event our customers have a commercial relationship with a bank that has failed or is otherwise distressed, they may experience delays or other issues in meeting their financial obligations, including those owed to us, which could in turn have a material adverse effect on our results of operations cash flows and liquidity.

We are subject to risks associated with climate change, and weather conditions in our operating areas can materially and adversely affect operations, financial position, and cash flows.

Climate change related events could negatively affect our business, financial condition and results of operations. The potential effects of climate change are highly uncertain, and climate change could result in,

 

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among other things, an increase in extreme weather events, such as floods, hurricanes and wildfires, as well as changes in rainfall patterns, storm patterns and intensities, temperature levels, rising sea levels and limitations on water availability and quality. While we have formalized a service offering for emergency utility system restoration services to bring customers’ above-ground utility infrastructure back online following regional storms and other extreme weather events, our results of operations, financial position, and cash flows can be significantly impacted by changes in weather that affect our ability to provide utility companies with these services, as well as contracted-for trenching, installation, and replacement of underground pipes, in addition to maintenance services for energy distribution systems in general. Our ability to perform work and meet customer schedules can be affected by weather conditions such as snow, ice, frost, rain, and named storms. Weather may affect our ability to work efficiently and can cause project delays and additional costs. Our ability to negotiate change orders for the impact of weather on a project could impact our profitability. Generally, our revenues are lowest during the first quarter of the year due to less favorable winter weather conditions. These conditions also require certain areas to scale back their workforce at times during the winter season, presenting challenges associated with maintaining an adequately skilled labor force when it comes time to re-staffing work crews following the winter layoffs.

Weather extremes such as drought and high temperature variations are common occurrences in the southwest U.S. and could impact our growth and results of operations. Deviations from normal weather conditions, even those occurring outside of our service territories, as well as the seasonal nature of our businesses can create fluctuations in our short-term cash flows and earnings.

Risks associated with operating in the Canadian market could restrict our ability to expand and materially harm our business and prospects.

There are numerous inherent risks in conducting our business in a different country including, but not limited to, potential instability in markets, political, economic or social conditions, and difficult or additional legal and regulatory requirements applicable to our operations. Limits on our ability to repatriate earnings, exchange controls, and complex U.S. and Canadian laws and treaties including laws related to the U.S. Foreign Corrupt Practices Act and similar laws could also adversely impact our operations. Changes in the value of the Canadian dollar could increase or decrease the U.S. dollar value of our profits earned or assets held in Canada or potentially limit our ability to reinvest earnings from our operations in Canada to fund the financing requirements of our operations in the U.S. We also are exposed to currency risks relating to the translation of certain monetary transactions, assets and liabilities. These risks could restrict our ability to provide services to Canadian customers or to operate our Canadian business profitably and could have a material adverse effect on our results.

Regulatory, Legislative and Legal Risks

In the ordinary course of our business, we may become subject to lawsuits, indemnity or other claims, which could materially and adversely affect our business, results of operations and cash flows.

From time to time, we are subject to various claims, lawsuits and other legal proceedings brought or threatened against us in the ordinary course of our business. These actions and proceedings may seek, among other things, compensation for alleged personal injury, workers’ compensation, employment discrimination and other employment-related damages, breach of contract, property damage, environmental liabilities, liquidated damages, consequential damages, punitive damages and civil penalties or other losses, or injunctive or declaratory relief. We may also be subject to litigation in the normal course of business involving allegations of violations of the Fair Labor Standards Act and state wage and hour laws. In addition, we generally indemnify our customers for claims related to the services we provide and actions we and others take under our contracts, and, in some instances, we may be allocated risk through our contract terms for actions by our joint venture partners, equity investments, customers or other third parties.

Claimants may seek large damage awards and defending claims can involve significant costs. When appropriate, we establish accruals for litigation and contingencies that we believe to be adequate in light of

 

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current information, legal advice and our indemnity insurance coverages. We reassess our potential liability for litigation and contingencies as additional information becomes available, and adjust our accruals as necessary. We could experience a reduction in our profitability and liquidity if we do not properly estimate the amount of required accruals for litigation or contingencies, or if our insurance coverage proves to be inadequate or becomes unavailable, or if our self-insurance liabilities are higher than expected. The outcome of litigation is difficult to assess or quantify, as plaintiffs may seek recovery of very large or indeterminate amounts and the magnitude of the potential loss may remain unknown for substantial periods of time. Furthermore, because litigation is inherently uncertain, the ultimate resolution of any such claim, lawsuit or proceeding through settlement, mediation, or court judgment could have a material adverse effect on our business, financial condition or results of operations. In addition, claims, lawsuits and proceedings may harm our reputation or divert management’s attention from our business or divert resources away from operating our business and cause us to incur significant expenses, any of which could have a material adverse effect on our business, results of operations or financial condition.

Our failure to recover adequately on claims against project owners, subcontractors or suppliers for payment or performance could have a material adverse effect on our financial results.

We occasionally bring claims against project owners for additional costs that exceed the contract price or for amounts not included in the original contract price. Similarly, we present change orders and claims to our subcontractors and suppliers. We could experience reduced profits, cost overruns or project losses if we fail to properly document the nature of change orders or claims or are otherwise unsuccessful in negotiating an expected settlement. These types of claims can often occur due to matters such as owner-caused delays or changes from the initial project scope, which result in additional costs, both direct and indirect, or from project or contract terminations. From time to time, these claims can be the subject of lengthy and costly proceedings, and it is often difficult to accurately predict when these claims will be fully resolved. When these types of events occur and unresolved claims are pending, we may invest significant working capital in projects to cover cost overruns pending the resolution of the relevant claims. A failure to promptly recover on these types of claims could have a material adverse effect on our liquidity and financial results.

The nature of our business exposes us to potential liability for warranty claims and faulty engineering, which may reduce our profitability.

Our customer contracts typically include a warranty for the services that we provide against certain defects in workmanship and material. Additionally, materials used in construction are often provided by the customer or are warranted against defects from the supplier. Certain projects have longer warranty periods and include facility performance warranties that may be broader than the warranties we generally provide. If warranty claims occurred, it could require us to re-perform the services or to repair or replace the warranted item, at a cost to us, and could also result in other damages if we are not able to adequately satisfy our warranty obligations. In addition, we may be required under contractual arrangements with our customers to warrant any defects or failures in materials we provide that we purchase from third parties. While we generally require suppliers to provide us warranties that are consistent with those we provide to the customers, if any of these suppliers default on their warranty obligations to us, we may incur costs to repair or replace the defective materials for which we are not reimbursed. Warranty claims have historically not been material, but such claims could potentially increase. The costs associated with such warranties, including any warranty-related legal proceedings, could have a material adverse effect on our results of operations, cash flows and liquidity.

Our business involves professional judgments regarding the planning, design, development, construction, operations and management of electric power transmission and commercial construction. Because our projects are often technically complex, our failure to make judgments and recommendations in accordance with applicable professional standards could result in damages. A significantly adverse or catastrophic event at one of our project sites or completed projects resulting from the services we have performed could result in significant warranty or other claims against us as well as reputational harm, especially if public safety is impacted. These

 

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liabilities could exceed our insurance limits or could impact our ability to obtain affordable insurance in the future. In addition, customers, subcontractors or suppliers who have agreed to indemnify us against any such liabilities or losses might refuse or be unable to pay us. An uninsured or underinsured claim could have an adverse impact on our business, financial condition, results of operations and cash flows.

Many of our customers are regulated by federal and state government agencies and the addition of new regulations or changes to existing regulations may adversely impact demand for our services and the profitability of those services.

Many of our customers are regulated by various government agencies, including the FERC, and the state public utility commissions. In addition, other agencies, such as the Department of Transportation, including PHMSA, also make regulations impacting our customers. These agencies could change their regulations or the way in which they interpret current regulations and may impose additional regulations or restrictions, or alter the recoverability of services we provide to our customers. These changes could have an adverse effect on our customers and the profitability of the services they provide or recoverability of projects they undertake, which could reduce demand for our services or delay our ability to complete projects. Additionally, our failure to comply with applicable regulations could result in substantial fines or revocation of our operating licenses, as well as give rise to termination or cancellation rights under our contracts, or disqualify us from future bidding opportunities.

Legislative or regulatory actions relating to natural gas and electricity transmission and distribution may impact demand for our services.

Current and potential legislative or regulatory actions may impact demand for our services, requiring utilities to meet reliability standards, and encourage installation of new electric transmission and distribution and renewable energy generation facilities. However, it is unclear whether these initiatives will create sufficient incentives for projects or result in increased demand for our services.

Because most of our transmission and distribution revenue is derived from natural gas and electric transmission and distribution industries, regulatory and environmental requirements affecting those industries could adversely affect our business, financial condition, results of operations and cash flows. Customers in the industries we serve overall face stringent regulatory and environmental requirements, as well as permitting processes, as they implement plans for their projects, which may result in delays, reductions and cancellations of some of their projects. These regulatory factors have resulted in decreased demand for our services in the past, and they may do so in the future, potentially impacting our operations and our ability to grow at historical levels, or at all.

In addition, while many states have mandates in place that require specified percentages of electricity to be generated from renewable sources, states could reduce those mandates or make them optional, which could reduce, delay or eliminate renewable energy development in the affected states. Additionally, renewable energy is generally more expensive to produce and may require additional power generation sources as backup. The locations of renewable energy projects are often remote and may not be viable unless new or expanded transmission infrastructure to transport the electricity to demand centers is economically feasible. Furthermore, funding for renewable energy initiatives may not be available. These factors could result in fewer renewable energy projects and a delay in the construction of these projects and the related infrastructure, which could have a material adverse effect on our business.

Compliance with the regulations of the U.S. Occupational Safety and Health Administration (“OSHA”) can be costly, and non-compliance with such requirements may result in potentially significant monetary penalties, operational delays or shutdowns, negative publicity and materially and adversely affect our financial condition.

Our operations are subject to regulation under OSHA and other state and local laws and regulations. OSHA establishes certain employer responsibilities, including maintenance of a workplace free of

 

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recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the applicable regulatory authorities and various recordkeeping, disclosure and procedural requirements. Changes to OSHA requirements, or stricter interpretation or enforcement of existing laws or regulations, could result in increased costs. If we fail to comply with applicable OSHA regulations, even if no work-related serious injury or death occurs, we may be subject to civil or criminal enforcement and be required to pay substantial penalties, incur significant capital expenditures or suspend, terminate or limit operations. Any such accidents, citations, violations, injuries or failure to comply with industry best practices may subject us to adverse publicity, damage our reputation and competitive position, impact our ability to maintain and secure new work with customers and have a material adverse effect on our business.

We have incurred, and we will continue to incur, capital and operating expenditures and other costs in the ordinary course of business in complying with OSHA and other state, local and foreign laws and regulations. While we have invested, and we will continue to invest, substantial resources in worker health and safety programs, there can be no assurance that we will avoid significant liability exposure. Personal injury claims for damages, including for bodily injury or loss of life, could result in substantial costs and liabilities, which could materially and adversely affect our financial condition, results of operations or cash flows. In addition, if our safety record were to substantially deteriorate, or if we suffered substantial penalties or criminal prosecution for violation of health and safety regulations, business customers could cancel existing contracts and not award future business to us, which could materially and adversely affect our liquidity, cash flows and results of operations.

Our failure to comply with environmental and other laws and regulations could result in significant liabilities.

Our past, current and future operations are subject to numerous environmental and other laws and regulations governing our operations, including the use, transport and disposal of non-hazardous and hazardous substances and waste, as well as emissions and discharges into the environment, including discharges to air, surface water, groundwater and soil. We also are subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous substances into the environment, including asbestos and mercury, and employee exposure to such hazardous substances and wastes. We cannot predict future changes to environmental regulations and policies, nor can we predict the effects that any such changes would have on our business, but such effects could be significant.

Under certain of these laws and regulations, such liabilities can be imposed for cleanup of previously owned or operated properties, or properties to which hazardous substances or wastes were discharged by current or former operations at our facilities, regardless of whether we directly caused the contamination or violated any law at the time of discharge or disposal. The presence of contamination from such substances or wastes could interfere with ongoing operations or adversely affect our ability to sell, lease or otherwise use our properties in ways such as collateral for possible financing. We could also be held liable for significant penalties and damages under certain environmental laws and regulations, which could materially and adversely affect our business, financial condition, results of operations and cash flows. Generally, under our contracts we are responsible for any non-hazardous or hazardous substances and wastes we bring on to a jobsite or that we generate secondary to the work we perform, which liabilities could arise from violations of environmental laws and regulations as a result of human error, equipment failure or other causes.

In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or leaks, or the imposition of new permitting or cleanup requirements could require us to incur significant costs or become the basis for new or increased liabilities that could harm our business, financial condition, results of operations and cash flows. In certain instances, we have obtained indemnification or covenants from third parties (including our predecessor owners or lessors) for some or all of such cleanup and other obligations and liabilities. However, such third-party indemnities or covenants may not cover all of our costs, which could have a material adverse effect on our business, results of operations and cash flows.

 

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Legislative and regulatory proposals to address greenhouse gas emissions could result in a variety of regulatory programs, additional charges to fund energy efficiency activities, or other regulatory actions. Any of these actions could result in increased costs associated with our operations and impact the prices we charge our customers. If new regulations are adopted regulating greenhouse gas emissions from mobile sources such as cars and trucks, we could experience a significant increase in environmental compliance costs due to our large fleet. In addition, if our operations are perceived to result in high greenhouse gas emissions, our reputation could suffer.

We are also subject to laws and regulations protecting endangered species, artifacts and archaeological sites. We may incur work stoppages to avoid violating these laws and regulations, or we may risk fines or other sanctions for accidentally or willfully violating these laws and regulations. We are also subject to immigration laws and regulations, for which noncompliance could materially and adversely affect our business, financial condition, results of operations and cash flows.

Risks Related to the Separation, the Distribution and Alternative Disposition Transactions and our Relationship With Southwest Gas Holdings

Until the completion of the Distribution, if effected, or certain other alternative dispositions, Southwest Gas Holdings will control the direction of our business, and the concentrated ownership of our outstanding common stock will prevent you and other stockholders from influencing significant decisions.

Upon completion of this offering and the concurrent private placement, Southwest Gas Holdings, Inc. will continue to own approximately 82.7% of our outstanding common stock (or approximately 81.0% if the underwriters exercise their option to purchase additional shares of our common stock from us in full). As long as Southwest Gas Holdings controls a majority of the voting power of our outstanding common stock with respect to a particular matter, it will generally be able to determine the outcome of all corporate actions requiring stockholder approval, including the election and removal of directors. Even if Southwest Gas Holdings were to control less than a majority of the voting power of our outstanding common stock, it may be able to influence the outcome of such corporate actions so long as it owns a significant portion of our common stock. If Southwest Gas Holdings does not complete the Distribution or otherwise dispose of its ownership of our equity interests, it could remain our controlling stockholder for an extended period of time or indefinitely. In such a case, the concentration of Southwest Gas Holdings’ ownership of our company may delay or prevent any acquisition or delay or discourage takeover attempts that stockholders may consider to be favorable, or make it more difficult or impossible for a third-party to acquire control of our company or effect a change in the Board and management, any of which may cause the market price of our common stock to decline. Any delay or prevention of a change of control transaction could deter potential acquirors or prevent the completion of a transaction in which our stockholders could receive a premium over the then-current market price for their common stock.

Moreover, pursuant to the Separation Agreement entered into by us and Southwest Gas Holdings in connection with this offering, for so long as Southwest Gas Holdings beneficially owns a majority of the total voting power of our outstanding common stock with respect to the election of directors, Southwest Gas Holdings has the right, but not the obligation, to designate for nomination a majority of the directors (including the Chair of our Board). In addition, unless Southwest Gas Holdings otherwise consents, any committee of the Board, and any subcommittee thereof, shall be composed of a number of Southwest Gas Holdings designees such that the number of Southwest Gas Holdings designees serving thereon is proportional to the number of Southwest Gas Holdings designees serving on our Board as compared to the total number of directors serving on our Board, subject to compliance with committee independence requirements taking into consideration applicable controlled company exemptions. In addition, Southwest Gas Holdings has the right, but not the obligation, to nominate (i) 85.7% of our directors, as long as it beneficially owns more than 70% of the combined voting power of our outstanding common stock, (ii) 71.4% of our directors, as long as it beneficially owns more than 60%, but less than or equal to 70% of the combined voting power of our outstanding common stock, (iii) 57.1% of our directors, as long as it beneficially owns more than 50%, but less than or equal to 60% of the combined voting power of our outstanding common stock, (iv) 42.9% of our directors, as long as it beneficially owns more than 30%, but less than or equal to 50% of the combined voting power of our outstanding common stock, (v) 28.6% of

 

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our directors, as long as it beneficially owns more than 20%, but less than or equal to 30% of the combined voting power of our outstanding common stock, and (vi) 14.3% of our directors, as long as it beneficially owns more than 5%, but less than or equal to 20% of the combined voting power of our outstanding common stock. See “Certain Relationships and Related Person Transactions—Agreements between Southwest Gas Holdings and Our Company—Separation Agreement.”

Southwest Gas Holdings’ interests may not be the same as, or may conflict with, the interests of our other stockholders. Investors in this offering will not be able to affect the outcome of any stockholder vote while Southwest Gas Holdings controls the majority of the voting power of our outstanding common stock, except where Delaware law requires that a matter be determined by a majority of the votes cast by minority stockholders and excludes Southwest Gas Holdings from the minority for that purpose. As a result, Southwest Gas Holdings will generally be able to control, whether directly or indirectly through its ability to remove and elect directors, and subject to applicable law, substantially all matters affecting us, including:

 

   

any determination with respect to our business direction and policies, including the election and removal of directors and the appointment and removal of officers;

 

   

any determinations with respect to mergers, amalgamations, business combinations or dispositions of assets;

 

   

our financing and dividend policy, and the payment of dividends on our common stock, if any;

 

   

compensation and benefit programs and other human resources policy decisions;

 

   

changes to any other agreements that may adversely affect us; and

 

   

determinations with respect to our tax returns and other tax matters.

In addition, pursuant to the Separation Agreement entered into by us and Southwest Gas Holdings in connection with this offering, until Southwest Gas Holdings ceases to hold 50% of the total voting power of our outstanding share capital entitled to vote in the election of our directors, we will not be permitted, without Southwest Gas Holdings’ prior written consent, (or, in certain circumstances, the approval of the Southwest Gas Holdings Board of Directors), to take certain significant actions. Further, prior to the termination of the Separation Agreement, with respect to the amendment of certain provisions in our Charter and Bylaws relating to the Separation Agreement or the Tax Matters Agreement, Southwest Gas Holdings and any and all successors to Southwest Gas Holdings by way of merger, consolidation or sale of all or substantially all of its assets or equity (“SWX”) will be entitled to a number of votes (which may be a fraction) for each share of common stock held of record by SWX on the record date for determining stockholders entitled to vote on such proposal that is equal to the greater of (A) one and (B) the quotient of (i) the sum of (y) the aggregate votes entitled to be cast by all holders of our capital stock (including common stock and preferred stock) other than SWX on such proposal plus (z) one divided by (ii) the number of shares of common stock held of record by SWX on the record date for determining stockholders entitled to vote on such proposal. As a result, our ability to take such actions may be delayed or prevented, including actions that our other stockholders, including you, may consider favorable. We will not be able to terminate or amend the Separation Agreement, except in accordance with its terms. See “Certain Relationships and Related Person Transactions—Relationship with Southwest Gas Holdings.”

We may not be able to resolve any potential conflicts with Southwest Gas Holdings, and even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated third party. While we are controlled by Southwest Gas Holdings, we may not have the leverage to negotiate amendments to our various agreements with Southwest Gas Holdings (if any are required) on terms as favorable to us as those we would negotiate with an unaffiliated third party. Because Southwest Gas Holdings’ interests may differ from ours or from those of our other stockholders, actions that Southwest Gas Holdings takes with respect to us, as our controlling stockholder and pursuant to its rights under the Separation Agreement, may not be favorable to us or our other stockholders.

 

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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.

If the Distribution is effectuated, it is currently intended that the Distribution will qualify as a tax-free transaction to Southwest Gas Holdings and to holders of Southwest Gas Holdings common stock, except with respect to any cash received in lieu of fractional shares. If the Distribution fails to qualify for the intended tax treatment or is taxable to Southwest Gas Holdings due to a breach by us (or any of our subsidiaries) of any covenant or representation made by us in the Tax Matters Agreement that we will enter into with Southwest Gas Holdings, we will generally be required to indemnify Southwest Gas Holdings for all tax-related losses suffered by Southwest Gas Holdings. We will not control the resolution of any tax contest relating to taxes suffered by Southwest Gas Holdings in connection with the Distribution, and we may not control the resolution of tax contests relating to any other taxes for which we may ultimately have an indemnity obligation under the Tax Matters Agreement. In the event that Southwest Gas Holdings suffers tax-related losses in connection with the Distribution that must be indemnified by us under the Tax Matters Agreement, the indemnification liability, or the payment thereof, could have a material adverse effect on us. See “Certain Relationships and Related Person Transactions—Agreements between Southwest Gas Holdings and Our Company—Tax Matters Agreement.”

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.

During the period beginning upon the completion of the Separation and ending two years after the date of the Distribution, if effected (or, if earlier, the date that Southwest Gas Holdings determines to no longer pursue the Distribution or determines it is no longer possible to implement the Distribution on a basis that is tax-free to both Southwest Gas Holdings and its stockholders), the Tax Matters Agreement generally will prohibit us from taking certain actions that could cause the Distribution and certain related transactions to fail to qualify as tax-free transactions, including:

 

   

we may not dissolve or liquidate ourself;

 

   

we may not discontinue the active conduct of our business (within the meaning of Section 355(b)(2) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”));

 

   

we may not sell or otherwise issue our common stock in certain circumstances;

 

   

we may not redeem or otherwise acquire any of our common stock, other than pursuant to certain open market repurchases of less than 20% of our common stock (in the aggregate);

 

   

we may not amend our certificate of incorporation (or other organizational documents) or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of our common stock;

 

   

we may not sell, transfer or dispose of more than 20% of our assets to a third-party except for ordinary course asset sales, or in the case of our cash, cash paid to acquire assets in arm’s length transactions or to satisfy mandatory or optional repayment of indebtedness; and

 

   

more generally, we may not take any action that could reasonably be expected to cause the Distribution and certain related transactions to fail to qualify as tax-free transactions for U.S. federal income tax purposes. For example, until the Distribution has been implemented or abandoned, this restriction generally will prevent us from issuing shares that could reasonably be expected to cause Southwest Gas Holdings to own less than 80% of our outstanding stock.

In some instances, we may be permitted to take an otherwise restricted action if we obtain an Internal Revenue Service ruling or tax opinion regarding the expected impact on the tax treatment of the Distribution. If we take any of the actions above (whether or not we obtain such a ruling or tax opinion) and such actions result

 

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in tax-related losses to Southwest Gas Holdings, we generally will be required to indemnify Southwest Gas Holdings for such tax-related losses. Due to these restrictions and related indemnification obligations, while these restrictions remain in effect we may be materially limited in our ability to pursue strategic transactions, equity or convertible debt financings or other transactions that may otherwise be in our best interests. Also, our potential indemnity obligation to Southwest Gas Holdings might discourage, delay or prevent a change of control that our stockholders may consider favorable.

Southwest Gas Holdings has not yet decided which, if any, alternative disposition transactions to pursue.

Southwest Gas Holdings will have no obligation to complete the Distribution or any other alternative disposition transaction. Whether Southwest Gas Holdings proceeds with the Distribution or any other alternative disposition transaction is within Southwest Gas Holdings’ sole discretion. If the Distribution or any other alternative disposition transaction is delayed, restructured or not completed, the market price of our common stock may be adversely affected.

See “Risk Factors—Risks Related to this Offering and Ownership of our Common Stock.”

If Southwest Gas Holdings sells or otherwise disposes of a controlling interest in our company to a third party in a private transaction, you may not realize any change-of-control premium on your shares of common stock and we may become subject to the control of a presently unknown third party.

Following the completion of this offering and the concurrent private placement, Southwest Gas Holdings will continue to own a significant equity interest in our company. For so long as Southwest Gas Holdings owns at least 25% of the total voting power of our common stock, it will have significant influence over our plans and strategies, including strategies relating to marketing and growth. Southwest Gas Holdings will have the ability, should it choose to do so, to sell or otherwise dispose of some or all of our common stock that it owns in a privately negotiated transaction, which, if sufficient in size, could result in a change of control of our company.

The ability of Southwest Gas Holdings to privately sell or otherwise dispose of the shares of common stock it owns, with no requirement for a concurrent offer to be made to acquire all of our common stock that will be publicly traded hereafter, could prevent you from realizing any change-of-control premium on your shares that may otherwise accrue to Southwest Gas Holdings on its private sale of our common stock. Additionally, if Southwest Gas Holdings privately sells or otherwise disposes of its significant equity interests in our company, we may become subject to the control of a presently unknown third party. Such third party may have interests that conflict with those of other stockholders and may attempt to cause us to revise or change our plans and strategies, as well as the agreements between Southwest Gas Holdings and us, described in this prospectus.

Southwest Gas Holdings’ ability to control our Board may make it difficult for us to recruit independent directors.

Pursuant to the Separation Agreement, for so long as Southwest Gas Holdings beneficially owns a majority of the total voting power of our outstanding common stock with respect to the election of directors, Southwest Gas Holdings has the right, but not the obligation, to designate for nomination a majority of the directors (including the Chair of our Board). In addition, unless Southwest Gas Holdings otherwise consents, any committee of the Board, and any subcommittee thereof, shall be composed of a number of Southwest Gas Holdings designees such that the number of Southwest Gas Holdings designees serving thereon is proportional to the number of Southwest Gas Holdings designees serving on our Board as compared to the total number of directors serving on our Board, subject to compliance with committee independence requirements taking into consideration applicable controlled company exemptions. In addition, Southwest Gas Holdings has the right, but not the obligation, to nominate (i) 85.7% of our directors, as long as it beneficially owns more than 70% of the combined voting power of our outstanding common stock, (ii) 71.4% of our directors, as long as it beneficially owns more than 60%, but less than or equal to 70% of the combined voting power of our outstanding common stock, (iii) 57.1% of our directors, as long as it beneficially owns more than 50%, but less than or equal to 60% of the combined voting power of our outstanding common stock, (iv) 42.9% of our directors, as long as it

 

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beneficially owns more than 30%, but less than or equal to 50% of the combined voting power of our outstanding common stock, (v) 28.6% of our directors, as long as it beneficially owns more than 20%, but less than or equal to 30% of the combined voting power of our outstanding common stock, and (vi) 14.3% of our directors, as long as it beneficially owns more than 5%, but less than or equal to 20% of the combined voting power of our outstanding common stock. The Separation Agreement also provides Southwest Gas Holdings with certain approval rights with respect to the composition of the committees of our Board. See “Certain Relationships and Related Person Transactions—Agreements between Southwest Gas Holdings and Our Company—Separation Agreement.” Under these circumstances, qualified and experienced persons who might otherwise accept an invitation to join our Board may decline, which means that we would not be able to benefit from their qualifications and expertise in service as members of our Board.

We may be subject to certain contingent tax liabilities of Southwest Gas Holdings following the Distribution or an alternative disposition.

Under the Code and the related rules and regulations, each corporation that was a member of the Southwest Gas Holdings consolidated group during any part of the consolidated return year is severally liable for the U.S. federal income tax liability of the entire Southwest Gas Holdings consolidated group for that year. Consequently, if Southwest Gas Holdings is unable to pay the consolidated U.S. federal income tax liability for a prior period, we could be required to pay the entire amount of such tax, which could be substantial and in excess of the amount that would be allocated to us under the Tax Matters Agreement.

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.

The historical information about us in this prospectus refers to our businesses as operated by and integrated with Southwest Gas Holdings. Our historical and pro forma financial information included in this prospectus is derived from the consolidated financial statements and accounting records of Southwest Gas Holdings. The assumptions used in preparing the pro forma financial information may not prove to be accurate and other factors may affect our financial condition and results of operations. Accordingly, the historical and pro forma financial information included in this prospectus does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future primarily as a result of the factors described below:

 

   

prior to the Separation and this offering, our businesses have been operated by Southwest Gas Holdings as part of its broader corporate organization, rather than as a separate, publicly traded company. Our historical and pro forma financial results reflect allocations of corporate expenses from Southwest Gas Holdings for such functions and are likely to be less than the expenses we would have incurred had we operated as a separate publicly traded company. Following the Separation and this offering, our costs related to such functions previously performed by Southwest Gas Holdings may therefore increase;

 

   

currently, our businesses are integrated with the other businesses of Southwest Gas Holdings. Although we will enter into transition agreements with Southwest Gas Holdings, these arrangements may not fully capture the benefits that we have enjoyed as a result of being integrated with Southwest Gas Holdings and may result in us paying higher charges than in the past for certain services. This could have an adverse effect on our results of operations and financial condition following the completion of this offering;

 

   

generally, our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, have historically been partially satisfied as part of the corporate-wide cash management policies of Southwest Gas Holdings. Following the completion of this offering and the concurrent private placement, we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements; and

 

   

after the completion of the Separation and this offering, the cost of capital for our businesses may be higher than Southwest Gas Holdings’ cost of capital prior to the Separation.

 

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Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from Southwest Gas Holdings. For additional information about the past financial performance of our businesses and the basis of presentation of the historical financial statements and the unaudited pro forma condensed consolidated financial statements of our businesses, please refer to the sections entitled “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere in this prospectus.

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.

Upon completion of the Separation, this offering and the concurrent private placement, Southwest Gas Holdings will continue to own approximately 82.7% of our outstanding common stock (or approximately 81.0% if the underwriters exercise their option to purchase additional shares of our common stock from us in full). As a result, we will be a “controlled company” as defined under the corporate governance rules of the NYSE and, therefore, will qualify for exemptions from certain corporate governance requirements of the NYSE, including:

 

   

the requirement that the Board be composed of a majority of independent directors;

 

   

the requirement that the Nominating and Corporate Governance Committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities or, if no such committee exists, that our director nominees be selected or recommended by independent directors constituting a majority of the Board’s independent directors in a vote in which only independent directors participate;

 

   

the requirement that the Compensation Committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement for an annual performance evaluation of the Nominating and Corporate Governance Committee and the Compensation Committee.

We intend to elect to take advantage of one or more of these exemptions from time to time in the future. As a result, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

Southwest Gas Holdings will not be restricted from competing with us under our amended and restated certificate of incorporation.

Our amended and restated certificate of incorporation (the “Charter”) will provide that Southwest Gas Holdings and its directors and officers will have no obligation to refrain from engaging in the same or similar business activities or lines of business as we do, doing business with any of our clients, customers or vendors or employing or otherwise engaging any of our directors, officers or employees. As such, neither Southwest Gas Holdings nor any officer or director of Southwest Gas Holdings will be liable to us or to our stockholders for breach of any fiduciary duty by reason of any of these activities.

Our customers, prospective customers, suppliers or other companies with whom we conduct business may conclude that our financial stability as a separate, publicly traded company is insufficient to satisfy their requirements for doing or continuing to do business with them.

Some of our customers, prospective customers, suppliers or other companies with whom we conduct business may conclude that our financial stability as a separate, publicly traded company is insufficient to satisfy their requirements for doing or continuing to do business with them, or may require us to provide additional credit support, such as letters of credit or other financial guarantees. Any failure of parties to be satisfied with our

 

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financial stability could cause such parties to decrease the amount of work we do for them or to elect not to work with us, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Potential indemnification liabilities to Southwest Gas Holdings pursuant to the Separation Agreement could materially and adversely affect our businesses, financial condition, results of operations and cash flows.

The Separation Agreement and certain other agreements with Southwest Gas Holdings provide for indemnification obligations (for uncapped amounts) designed to make us financially responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the Separation. If we are required to indemnify Southwest Gas Holdings under the circumstances set forth in the Separation Agreement, we may be subject to substantial liabilities. See “Certain Relationships and Related Person Transactions—Agreements between Southwest Gas Holdings and our Company.”

In connection with our separation from Southwest Gas Holdings, Southwest Gas Holdings will indemnify us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that Southwest Gas Holdings’ ability to satisfy its indemnification obligation will not be impaired in the future.

Pursuant to the Separation Agreement and certain other agreements with Southwest Gas Holdings, Southwest Gas Holdings will agree to indemnify us for certain liabilities as discussed further in “Certain Relationships and Related Person Transactions.” However, third parties could also seek to hold us responsible for any of the liabilities that Southwest Gas Holdings has agreed to retain, and there can be no assurance that the indemnity from Southwest Gas Holdings will be sufficient to protect us against the full amount of such liabilities, or that Southwest Gas Holdings will be able to fully satisfy its indemnification obligations. In addition, Southwest Gas Holdings’ insurance will not necessarily be available to us for liabilities associated with occurrences of indemnified liabilities prior to the Separation, and in any event Southwest Gas Holdings’ insurers may deny coverage to us for liabilities associated with certain occurrences of indemnified liabilities prior to the Separation. Moreover, even if we ultimately succeed in recovering from Southwest Gas Holdings or such insurance providers any amounts for which we are held liable, we may be temporarily required to bear these losses. Each of these risks could have a material adverse effect on our businesses, financial position, results of operations and cash flows.

The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business.

Following the completion of this offering, we will be required to comply with various regulatory and reporting requirements, including those required by the Securities and Exchange Commission (“SEC”). Complying with these reporting and other regulatory requirements will be time consuming and will result in increased costs to us, which could have a material adverse effect on our business, financial condition and results of operations.

As an independent public company, we will separately become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the Dodd-Frank Wall Street Reform and Protection Act (“Dodd-Frank Act”) , as well as the listing requirements of the NYSE. These reporting and other obligations may place significant demands on our management and on administrative and operational resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business, financial condition and results of operations. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. Moreover, to comply with these requirements, we anticipate that we will need to implement additional financial and management controls, reporting systems and procedures, and may need to hire additional accounting and finance staff. We expect to incur additional annual expenses related to these requirements. If we are unable to upgrade our financial and management controls, reporting systems, information

 

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technology and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. We also expect to incur additional expenses in order to obtain new director and officer liability insurance.

Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as an independent publicly traded company. As such, our historical financial data may not be indicative of our future performance as an independent, publicly traded company. For additional information about our past financial performance and the basis of presentation of our financial statements, see our historical consolidated financial statements and the notes thereto included in the section entitled “Index to Consolidated Financial Statements” elsewhere in this prospectus.

We may not achieve some or all of the expected benefits of the Separation, and the Separation may adversely affect our businesses.

We may not be able to achieve the full strategic and financial benefits expected to result from the Separation, or such benefits may be delayed or not realized at all. The Separation is expected to provide the following benefits, among others:

 

   

the Separation will allow investors to separately value Southwest Gas Holdings and us based on our distinct investment identities. The Separation will enable investors to evaluate the merits, performance and future prospects of each company’s respective businesses and to invest in each company separately based on their distinct characteristics;

 

   

the Separation will allow us and Southwest Gas Holdings to more effectively pursue our and Southwest Gas Holdings’ distinct operating priorities and strategies and enable management of both companies to focus on unique opportunities for long-term growth and profitability. For example, while our management will be enabled to focus exclusively on our businesses, the management of Southwest Gas Holdings will be able to grow its businesses. Our and Southwest Gas Holdings’ separate management teams will also be able to focus on executing the companies’ differing strategic plans without diverting attention to other businesses;

 

   

the Separation will permit each company to concentrate its financial resources solely on its own operations without having to compete with each other for investment capital. This will provide each company with greater flexibility to invest capital in its businesses in a time and manner appropriate for its distinct strategy and business needs;

 

   

the Separation will create an independent equity structure that will afford us direct access to the capital markets and facilitate our ability to capitalize on our unique growth opportunities; and

 

   

the Separation will facilitate incentive compensation arrangements for employees more directly tied to the performance of the relevant company’s businesses, and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.

We may not achieve these and other anticipated benefits for a variety of reasons, including, among others:

 

   

we may incur costs for certain functions previously performed by Southwest Gas Holdings, such as tax and other general administrative functions that are higher than the amounts reflected in our historical financial statements, which could cause our profitability to decrease;

 

   

the actions required to separate our and Southwest Gas Holdings’ respective businesses could disrupt our and Southwest Gas Holdings’ operations;

 

   

certain costs and liabilities that were otherwise less significant to Southwest Gas Holdings as a whole will be more significant for us and Southwest Gas Holdings as separate companies, after the Separation;

 

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we (and prior to the Separation, Southwest Gas Holdings) will incur costs in connection with the transition to being a separate, publicly traded company that may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring or reassigning our personnel, costs related to establishing a new brand identity in the marketplace and costs to separate information systems;

 

   

we may not achieve the anticipated benefits of the Separation for a variety of reasons, including, among others: (i) the Separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our businesses; (ii) following the Separation, we may be more susceptible to market fluctuations and other adverse events than if it were still a part of Southwest Gas Holdings; and (iii) following the Separation, our businesses will be less diversified than Southwest Gas Holdings’ businesses prior to the Separation; and

 

   

to help preserve the ability of Southwest Gas Holdings to effectuate the Distribution in a manner that is tax-free to both Southwest Gas Holdings and its stockholders, we generally will be restricted under the Tax Matters Agreement from taking any action that prevents such Distribution from qualifying for tax-free status for U.S. federal income tax purposes. During the period these restrictions remain in effect, they may materially limit our ability to pursue certain strategic transactions or engage in other transactions that might increase the value of our businesses.

If we fail to achieve some or all of the benefits expected to result from the Separation, or if such benefits are delayed, our businesses, operating results and financial condition could be materially and adversely affected.

We may have received better terms from arms-length negotiations with unaffiliated third parties in another form of transaction than the terms we will receive in our agreements with Southwest Gas Holdings.

The agreements we will enter into with Southwest Gas Holdings in connection with the Separation and this offering, including the Separation Agreement and the Tax Matters Agreement, were prepared in the context of our separation from Southwest Gas Holdings while we were still a wholly owned subsidiary of Southwest Gas Holdings. Accordingly, during the period in which the terms of those agreements were prepared, we did not have a separate or independent board of directors that was separate from or independent of Southwest Gas Holdings. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. Arm’s-length negotiations between Southwest Gas Holdings and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party. For more information, please refer to the section entitled “Certain Relationships and Related Person Transactions.”

We or Southwest Gas Holdings may fail to perform under various transaction agreements that will be executed as part of the Separation, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.

The Separation Agreement and other agreements to be entered into in connection with the Separation will determine the allocation of assets and liabilities between the companies following the Separation for those respective areas and will include any necessary indemnifications related to liabilities and obligations. We will rely on Southwest Gas Holdings after the Separation to satisfy its performance obligations under these agreements. If Southwest Gas Holdings is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses. If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services once certain transaction agreements expire, we may not be able to operate our businesses effectively and our profitability may decline. We are in the process of creating our own, or engaging third parties to provide, systems and services to replace the minor number of systems and services that Southwest Gas Holdings currently provides to us. However, we may not be successful in implementing these systems and services or in transitioning data from Southwest Gas Holdings’ systems to us.

 

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In addition, we expect this process to be complex, time-consuming, and costly. We are also establishing or expanding our own tax, internal audit, investor relations, corporate governance and listed company compliance and other corporate functions. We expect to incur one-time costs to replicate, or outsource from other providers, these corporate functions to replace the corporate services that Southwest Gas Holdings historically provided us prior to the Separation. Any failure or significant downtime in our own financial, administrative or other support systems or in the Southwest Gas Holdings financial, administrative or other support systems during the transitional period during which Southwest Gas Holdings provides us with support could negatively impact our results of operations or prevent us from paying our suppliers and employees, executing business combinations and foreign currency transactions or performing administrative or other services on a timely basis, which could have a material adverse effect on our results of operations.

Transfer or assignment to us of a minor number of contracts and other assets will require the consent of a third party. If such consent is not given, we may not be entitled to the benefit of such contracts, investments, and other assets in the future.

Transfer or assignment of a minor number of the contracts and other assets in connection with the Separation may require the consent of a third party to the transfer or assignment. While we anticipate that most of these contract assignments and new agreements will be obtained prior to the Separation, we may not be able to obtain all required consents or enter into all such new agreements, as applicable, until after the Distribution date. In addition, where we do not intend to obtain consent from third-party counterparties based on our belief that no consent is required, the third-party counterparties may challenge the transaction on the basis that the terms of the applicable commercial arrangements require their consent. We may incur substantial litigation and other costs in connection with any such claims and, if we do not prevail, our ability to use these assets could be materially and adversely impacted.

We cannot provide assurance that all such required third-party consents and new agreements will be procured or put in place, as applicable, prior to the Distribution date. Consequently, we may not realize certain of the benefits that are intended to be allocated to us as part of the Separation.

Risks Related to this Offering and Ownership of Our Common Stock

We cannot be certain that an active trading market for our common stock will develop or be sustained after the Separation, and following the Separation, the stock price of our common stock may fluctuate significantly.

Prior to the completion of this offering, there has been no public market for our common stock. We cannot guarantee that an active trading market will develop or be sustained for our common stock after this offering. If an active trading market does not develop, you may have difficulty selling your shares of our common stock at an attractive price, or at all. In addition, we cannot predict the prices at which shares of our common stock may trade after this offering.

The market price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:

 

   

our quarterly or annual earnings, or those of other companies in our industry;

 

   

the failure of securities analysts to cover our common stock after the Separation;

 

   

actual or anticipated fluctuations in our operating results;

 

   

changes in earnings estimated by securities analysts or our ability to meet those estimates;

 

   

the operating and stock price performance of other comparable companies;

 

   

changes to the regulatory and legal environment in which we operate;

 

   

overall market fluctuations and domestic and worldwide economic conditions; and

 

   

other factors described in these “Risk Factors” and elsewhere in this prospectus.

 

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Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock.

If we are unable to implement and maintain effective internal controls over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock may be materially and adversely affected and we may suffer harm to our reputation.

As a public company, we will be required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. In addition, beginning with our second annual report on Form 10-K, we expect we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act. Our independent registered public accounting firm will also be required to express an opinion as to the effectiveness of our internal control over financial reporting. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating.

The process of designing, implementing and testing the internal control over financial reporting required to comply with this obligation is time consuming, costly and complicated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, our reputation with investors could be harmed, the market price of our common stock could be materially and adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

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.

Upon completion of the Separation, this offering and the concurrent private placement, Southwest Gas Holdings will continue to own approximately 82.7% of our outstanding common stock (or approximately 81.0% if the underwriters exercise their option to purchase additional shares of our common stock from us in full). These shares will be “restricted securities” as that term is defined in Rule 144 (“Rule 144”) under the Securities Act. Subject to the lock-up agreements described in the paragraph below, Southwest Gas Holdings will be entitled to sell or otherwise dispose of these shares in the public market only if the sale of such shares is registered with the SEC or if the sale of such shares qualifies for an exemption from registration under Rule 144 or any other applicable exemption under the Securities Act. As described under the section titled “Shares Eligible for Future Sale—Lock-Up Arrangements,” we have agreed to give certain registration rights to Southwest Gas Holdings and the Icahn Investors, and we are unable to predict with certainty whether or when Southwest Gas Holdings or the Icahn Investors will dispose of a substantial number of shares of our common stock. The sale by Southwest Gas Holdings of a substantial number of shares of our common stock following the completion of this offering, or a perception that such a sale could occur, could significantly reduce the prevailing market price of shares of our common stock. Upon completion of this offering, except as otherwise described in this prospectus, all of the shares of our common stock to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act, assuming they are not held by our affiliates.

In connection with this offering, we, our executive officers, our directors Southwest Gas Holdings and the Icahn Investors have agreed with the underwriters that, except with the prior written consent of UBS Securities LLC, we and they will not, subject to certain exceptions, during the period beginning on the date of this

 

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prospectus and continuing through the date that is 180 days after the date of this prospectus (such period, the “restricted period,” except that if (i) at least 120 days have elapsed from the date of this prospectus and (ii) the restricted period is scheduled to expire during a broadly applicable and regularly scheduled period during which trading in the Company’s securities would not be permitted under the Company’s insider trading policy (a “Blackout Period”) or within five trading days prior to a Blackout Period, the restricted period will end 10 trading days prior to the start of the Blackout Period), offer, sell, contract to sell, pledge or otherwise dispose of or hedge, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock. UBS Securities LLC may, in its sole discretion and at any time without notice, release all or any portion of the shares of our common stock subject to lock-up agreements. When the lock-up period expires, we and our stockholders subject to lock-up agreements will be able to sell shares of our common stock in the public market. Sales of a substantial number of shares of our common stock upon expiration of the lock-up agreements, the perception that these sales may occur or early release of these lock-up agreements could cause the market price of shares of our common stock to decline or make it more difficult for you to sell your shares of our common stock at a time and price that you deem appropriate.

Immediately following this offering and the concurrent private placement, we intend to file a registration statement on Form S-8 registering under the Securities Act the shares of our common stock reserved for issuance under the Centuri Omnibus Incentive Plan. If equity securities granted under the Centuri Omnibus Incentive Plan are sold or it is perceived that they will be sold in the public market, the trading price of our common stock could decline substantially. These sales also could impede our ability to raise future capital.

The market price of shares of our common stock may be volatile, which could cause the value of your investment to decline, potentially significantly.

Even if a trading market develops, the market price of our common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our common stock regardless of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to stockholders, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and in response the market price of shares of our common stock could decrease significantly.

In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

We cannot guarantee the payment of dividends on our common stock, or the timing or amount of any such dividends.

We have not yet determined whether or the extent to which we will pay any dividends on our common stock. The payment of any dividends in the future, and the timing and amount thereof, to our stockholders will fall within the discretion of the Board. The Board’s decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive

 

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covenants in our then existing debt agreements, industry practice, legal requirements and other factors that the Board deems relevant. For more information, please refer to the section entitled “Dividend Policy.” Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if we commence paying dividends.

You will experience immediate and substantial dilution following the completion of this offering and the concurrent private placement, and your percentage ownership in us may be further diluted in the future.

The initial public offering price per share of our common stock will be substantially higher than our pro forma net tangible book value (deficit) per share of our common stock upon completion of this offering and the concurrent private placement. As a result, you will pay a price per share of our common stock that substantially exceeds the per share book value of our tangible assets after subtracting our liabilities. After deducting the underwriting discounts and commissions and estimated offering expenses payable by us, you will incur immediate and substantial dilution in pro forma net tangible book value (deficit) in an amount of $23.64 per share of our common stock.

In the future, your percentage ownership in us may be further diluted if we issue additional shares of our common stock or convertible debt securities in connection with acquisitions, capital market transactions or other corporate purposes, including equity awards that we may grant to our directors, officers and employees. In connection with this offering, we intend to file a registration statement on Form S-8 to register the shares of our common stock that we expect to reserve for issuance under our the Centuri Omnibus Incentive Plan. It is anticipated that additional equity awards will be granted to our employees and directors following the completion of this offering, from time to time, under the Centuri Omnibus Incentive Plan. We cannot predict with certainty the size of future issuances of shares of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of shares of our common stock. Any such issuance could result in substantial dilution to our existing stockholders.

In addition, following the completion of the Distribution, if effected, our employees could have rights to purchase or receive shares of our common stock if their Southwest Gas Holdings restricted share units are converted into Centuri restricted share units or performance share units. As of the date of this prospectus, treatment of the Southwest Gas Holdings awards in connection with the Distribution, if effected, has not been determined. Consequently, we do not know if any Southwest Gas Holdings awards would be converted into Centuri awards or, if they are converted, the terms of the conversion or the number of shares of our common stock that would be subject to the converted equity awards, and, therefore, it is not possible to determine if your percentage ownership in us could be diluted as a result of a conversion. Subject to certain approval rights of Southwest Gas Holdings under the Separation Agreement, it is anticipated that the Compensation Committee of the Board will grant additional equity awards to our employees and directors after this offering, from time to time, under our employee benefits plans. These additional awards will have a dilutive effect on our earnings per share, which could materially and adversely affect the market price of our common stock.

Subject to Southwest Gas Holdings’ consent rights, the Board will be authorized, without further vote or action by our stockholders, to provide for the issuance from time to time of shares of our preferred stock in series and, as to each series, to fix the designation; the dividend rate and the preferences, if any, which dividends on that series will have compared to any other class or series of our capital stock; the voting rights, if any; the liquidation preferences, if any; the conversion privileges, if any, and the redemption price or prices and the other terms of redemption, if any, applicable to that series. The terms of one or more series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of our preferred stock rights to elect directors in all events or on the occurrence of specified events or the right to veto specified transactions. In addition, the repurchase or redemption rights or liquidation preferences that we could assign to holders of our preferred stock could affect the residual value of our common stock. See “Description of Capital Stock—Preferred Stock.”

 

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Your percentage ownership in us may be diluted in the future.

Subject to Southwest Gas Holdings’ consent rights, we are not restricted from issuing additional common stock. Our Charter provides that we may issue up to a total of 850,000,000 shares of common stock, of which 86,657,521 shares will be outstanding following the completion of this offering and the concurrent private placement. We intend to grow our business organically as well as through acquisitions. Occasionally, we may issue shares of common stock as consideration in our acquisitions, and we may have the option to issue shares of our common stock instead of cash as consideration for future earn-out obligations. The issuance of additional shares of our common stock in connection with future acquisitions, financing transactions, stock-based payment awards or other issuances of our common stock will dilute the ownership interest of our common stockholders. Sales of a substantial number of shares of our common stock or other equity-linked securities in the public market could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock.

In addition, our Charter will authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as the Board generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the occurrence of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences that we could assign to holders of preferred stock could affect the residual value of the common stock. See “Description of Capital Stock.”

Certain provisions in our Charter and Bylaws, and of Delaware law, may prevent or delay an acquisition of us, which could have a material adverse effect on the trading price of our common stock.

Our Charter and amended and restated bylaws (the “Bylaws”) will contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids and to encourage prospective acquirers to negotiate with the Board rather than to attempt an unsolicited takeover not approved by the Board. These provisions include, among others:

 

   

the inability of our stockholders to call a special meeting;

 

   

after Southwest Gas Holdings no longer beneficially owns 50% of the total voting power of our outstanding shares, the inability of our stockholders to act by written consent;

 

   

rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

 

   

the right of the Board to issue preferred stock without stockholder approval;

 

   

the ability of our directors, and not stockholders (other than Southwest Gas Holdings, which has a right to fill certain vacancies), to fill vacancies (including those resulting from an enlargement of the Board) on the Board; and

 

   

the requirement that the affirmative vote of stockholders holding at least two-thirds of our voting stock is required to amend certain provisions in our Bylaws and certain provisions in our Charter.

We will “opt out” of Section 203 of the Delaware General Corporation Law (the “DGCL”). Our Charter will include a “Dominant Stockholder” (defined as any individual, corporation, partnership or other person (other than the Company and any current or future direct or indirect majority-owned subsidiary of the Company) which, together with its affiliates, owns 15% or more of the total voting power of the Company’s outstanding common stock) provision pursuant to which a “Business Combination” of us with a Dominant Stockholder will require

 

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approval by 662/3% of the outstanding shares, subject to certain exceptions requiring super-majority (65% or 85%) approval by the Board. The “Dominant Stockholder” provision in our Charter, while similar to the provision in the Southwest Gas charter, differs in certain respects, including as it relates to the proposed spin-off and distributions of shares of our capital stock by Southwest Gas Holdings.

The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the Board, including discouraging attempts that might result in a premium over the market price for the shares of our common stock held by our stockholders.

Our Charter will designate the Court of Chancery of the State of Delaware or, if the Court of Chancery of the State of Delaware determines that it does not have subject matter jurisdiction, another state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware) as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders. Our Charter will further designate the federal district courts of the U.S. as the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. These forum selection provisions could discourage lawsuits against us and our directors, officers, employees and stockholders.

Our Charter will provide that, unless we consent otherwise, the Court of Chancery of the State of Delaware or, if the Court of Chancery of the State of Delaware determines that it does not have subject matter jurisdiction, another state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware), will be the sole and exclusive forum for any (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee or stockholder of Centuri in such capacity to Centuri or to Centuri stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, (iii) any action asserting a claim against us or any current or former director or officer or other employee or stockholder of Centuri in such capacity arising pursuant to any provision of the DGCL or our Charter or Bylaws, (iv) any action asserting a claim relating to or involving Centuri governed by the internal affairs doctrine, or (v) any action asserting an “internal corporate claim” as such term is defined in Section 115 of the DGCL.

Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our Charter will further provide that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and as a result, the exclusive forum provision does not apply to actions arising under the Exchange Act or the rules and regulations thereunder. While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our federal forum provision described above. Our stockholders will not be deemed to have waived compliance with the federal securities laws and the rules and regulations thereunder.

This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with Centuri or our directors or officers, which may discourage such lawsuits against Centuri and our directors and officers. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect our business, results of operations and financial condition.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements included in this prospectus are “forward-looking statements” within the meaning of the U.S. federal securities laws. All statements other than historical factual information are forward-looking statements, including without limitation statements regarding: our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of regulation and the economy, generally and our preliminary estimated operating results for the fiscal three months ended March 31, 2024. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results may differ materially as a result of a number of factors, including, among other things, customer timing, project duration, weather, and general economic conditions; results of bid work, differences between actual and originally expected outcomes of bid or other fixed-price construction agreements, outcomes from contract and change order negotiations, our ability to successfully procure new work and impacts from work awarded or failing to be awarded work from significant customers, the mix of work awarded, the amount of work awarded to us following work stoppages or reduction; the results of productivity inefficiencies from regulatory requirements, customer supply chain challenges, or otherwise, delays in commissioning individual projects, the ability of management to successfully finance, close on and assimilate any acquired businesses, changes in our mix of customers, projects, contracts and business; regional or national and/or general economic conditions and demand for our services; price, volatility, and expectations of future prices of natural gas and electricity; increases in the costs to perform services caused by changing conditions; the termination, or expiration of existing agreements or contracts; decisions of our customers as to whether to pursue capital projects due to economic impacts resulting from a pandemic or otherwise; the budgetary spending patterns of customers; inflation and other increases in construction costs that we may be unable to pass through to our customers; cost or schedule overruns on fixed-price contracts; availability of qualified labor for specific projects; the need and availability of letters of credit or other security; costs we incur to support growth, whether organic or through acquisitions; the timing and volume of work under contract; losses experienced in our operations; the results of the review of prior period accounting on certain projects and the impact of adjustments to accounting estimates; developments in governmental investigations and/or inquiries; intense competition in the industries in which we operate; failure to obtain favorable results in existing or future litigation or regulatory proceedings, dispute resolution proceedings or claims, including claims for additional costs; failure of our partners, suppliers or subcontractors to perform their obligations; cyber-security breaches; failure to maintain safe worksites; risks or uncertainties associated with events outside of our control, including severe weather conditions, public health crises and pandemics (such as COVID-19), political crises or other catastrophic events, such as the ongoing war in Ukraine; the Israel-Hamas War; adverse developments affecting specific financial institutions or the broader financial services industry, including liquidity shortages or bank failures; client delays or defaults in making payments; the cost and availability of credit and restrictions imposed by our credit facility; the impact of credit rating actions and conditions in the capital markets on financing costs; changes in construction expenditures and financing; levels of or changes in operations and maintenance expenses; our ability to continue to remain within the ratios and other limits in our debt covenants, failure to implement strategic and operational initiatives; risks or uncertainties associated with acquisitions, dispositions and investments; possible information technology interruptions or inability to protect intellectual property; the Company’s failure, or the failure of our agents or partners, to comply with laws; the Company’s ability to secure appropriate insurance, licenses or permits; new or changing legal requirements, including those relating to environmental, health, licensing and safety matters; the loss of one or more clients that account for a significant portion of the Company’s revenues; asset impairments; and risks arising from the inability to successfully integrate acquired businesses. Terminology such as “believe,” “anticipate,” “will,” “should,” “could,” “intend,” “plan,” “expect,” “estimate,” “project,” “target,” “may,” “possible,” “potential,” “forecast,” “positioned” and similar references to future periods are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words. Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including but not limited to the risks and uncertainties set forth under “Risk Factors.”

 

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Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Forward-looking statements speak only as of the date of the prospectus, document, press release, webcast, call, materials or other communication in which they are made. Except to the extent required by applicable law, we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering and the concurrent private placement will be approximately $292.6 million (or approximately $329.3 million if the underwriters exercise their option to purchase additional shares of our common stock from us in full), after deducting the underwriting discounts and commissions, estimated offering expenses payable directly by us and offering expenses paid by Southwest Gas Holdings and reimbursable by us pursuant to the terms of the Separation Agreement.

We intend to use $150.0 million of the net proceeds from this offering and the concurrent private placement to repay amounts outstanding under our existing revolving credit facility and to repay $132.6 million under our existing term loan and the remainder of the net proceeds of this offering and the concurrent private placement, including any proceeds we will receive as a result of any exercise of the underwriters’ option to purchase additional shares to pay transaction expenses and, for general corporate and working capital purposes.

As of December 31, 2023, there was $77.1 million outstanding under our existing revolving credit facility and $994.2 million outstanding under our existing term loan. Our existing revolving credit facility matures on August 27, 2026 and our existing term loan matures on August 27, 2028. Interest rates for our existing revolving credit facility are based on a “base rate,” a Secured Overnight Financing Rate (“SOFR”) or the Canadian Dealer Offered Rate, plus an applicable margin in each case. Interest rates for our existing term loan are based on either a “base rate” or the SOFR plus 250 basis points. For a complete description of our existing revolving credit facility and the existing term loan, see “Description of Certain Indebtedness.”

The foregoing represents our current intentions with respect to the allocation and use of the net proceeds of this offering and the concurrent private placement. Pursuant to the Separation Agreement, Southwest Gas Holdings will have the sole and absolute discretion to determine the terms of, and whether to proceed with, this offering and the concurrent private placement. See “Certain Relationships and Related Person Transactions—Agreements between Southwest Gas Holdings and Our Company— Separation Agreement.” A change in Southwest Gas Holdings’ present plans or the occurrence of unforeseen events or changed business conditions could result in application of the net proceeds of this offering and the concurrent private placement in a manner other than as described in this prospectus.

 

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DIVIDEND POLICY

We do not currently intend to pay any dividends on our common stock and have yet to determine if we will pay dividends at all. The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of the Board. The Board’s decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our then existing debt agreements, industry practice, the provisions of Delaware law affecting the payment of dividends and distributions to stockholders and other factors that our Board deems relevant. Our ability to pay future dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if we commence paying dividends. See “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—We cannot guarantee the payment of dividends on our common stock, or the timing or amount of any such dividends.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2023:

 

   

on a historical basis; and

 

   

on a pro forma basis to give effect to (1) the Separation and (2) the sale by us of 14,991,929 shares of our common stock in this offering and the concurrent private placement and the application of the net proceeds from this offering and the concurrent private placement as described in the section of this prospectus entitled “Use of Proceeds,” after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

The information below may not necessarily reflect what our cash and cash equivalents and capitalization would have been had this offering and the concurrent private placement been completed as of December 31, 2023. In addition, it may not necessarily reflect our future cash and cash equivalents and capitalization.

The pro forma information set forth in the table below is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering and the concurrent private placement determined at pricing.

The following table should be read in conjunction with the sections of this prospectus entitled “Summary Historical and Pro Forma Consolidated Financial Data,” “Use of Proceeds,” “Unaudited Pro Forma Condensed Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as our historical consolidated financial statements included elsewhere in this prospectus.

 

     As of December 31, 2023  
($ in thousands, except share and per share data)    Historical      Pro Forma
(unaudited)
 

Cash and cash equivalents

   $ 33,407      $ 42,422  
  

 

 

    

 

 

 

Capitalization:

     

Debt:

     

Short-term borrowings

   $ 42,552      $ 42,552  

Long-term debt

     1,108,295        828,021  

Finance lease liabilities

     35,704        35,704  
  

 

 

    

 

 

 

Total debt

     1,186,551        906,277  

Redeemable noncontrolling interests

     99,262        99,262  

Equity:

     

Common stock—par value $0.01 per share (1,000 authorized shares; 1,000 issued shares, actual) (850,000,000 authorized shares; 86,657,521 issued shares, as adjusted)

     —         867  

Additional paid-in capital

     374,124        521,704  

Accumulated other comprehensive loss

     (4,025      (4,025

Accumulated deficit

     (144,108      (2,281
  

 

 

    

 

 

 

Total equity

     225,991        516,265  
  

 

 

    

 

 

 

Total capitalization

   $ 1,511,804      $ 1,521,804  
  

 

 

    

 

 

 

 

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DILUTION

If you invest in shares of our common stock in this offering, you will experience immediate and substantial dilution in the net tangible book value (deficit) per share of our common stock upon the completion of this offering and the concurrent private placement. Dilution results from the fact that the per-share offering price of the shares of our common stock is substantially in excess of pro forma net tangible book value (deficit) per share after the completion of this offering and the concurrent private placement.

Our historical net tangible book value (deficit) as of December 31, 2023 was $(518.9) million. Pro forma net tangible book value (deficit) per share of our common stock represents:

 

   

pro forma total assets less goodwill and other intangible assets after giving effect to the Separation, this offering and the concurrent private placement; and

 

   

divided by the number of shares of our common stock outstanding after giving effect to the Separation, this offering and the concurrent private placement.

As of December 31, 2023, after giving effect to the Separation, this offering and the concurrent private placement, our pro forma net tangible book value (deficit) was approximately $(228.7) million, or $(2.64) per share of our common stock based on 71,665,592 shares of our common stock outstanding immediately prior to the completion of this offering and the concurrent private placement and the issuance of 14,991,929 shares of common stock in this offering and the concurrent private placement. This represents an immediate dilution of $23.64 per share of our common stock to new investors purchasing shares of our common stock in this offering and the concurrent private placement. The following table illustrates this dilution per share of our common stock after deducting the underwriting discounts and commissions and estimated offering expenses payable by us:

 

The initial public offering price per share of our common stock

      $ 21.00  

Pro forma net tangible book value (deficit) per share of our common stock after giving effect to the Separation

   $ (7.24   

Increase in pro forma net tangible book value (deficit) per share of our common stock attributable to new investors purchasing shares of our common stock in this offering and the concurrent private placement

     4.60     

Pro forma net tangible book value (deficit) per share of our common stock after giving effect to the Separation, this offering and the concurrent private placement

        (2.64
     

 

 

 

Dilution in pro forma net tangible book deficit per share of our common stock to new investors purchasing shares of our common stock in this offering and the concurrent private placement

      $ 23.64  
     

 

 

 

If the underwriters exercise their option to purchase additional shares of our common stock from us in full, the pro forma net tangible book value (deficit) per share of our common stock would be $(2.18), and the dilution in pro forma net tangible book value (deficit) per share of our common stock to new investors purchasing shares of our common stock in this offering and the concurrent private placement would be $23.18.

 

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The following table summarizes, as of immediately following the completion of this offering and the concurrent private placement, the difference between our existing stockholder and new investors purchasing shares of our common stock in this offering and the concurrent private placement with respect to the aggregate number of shares of our common stock purchased from us, the total consideration and the average price per share of our common stock paid to us.

 

     Shares Purchased     Total Consideration     Average
Price Per
Share
 
     Number      Percent     Amount      Percent  

Existing stockholder(1)

     71,665,592        83   $ 225,991        42   $ 3.15  

New investors

     12,400,000        14     260,400        48     21.00  

Investor in concurrent private placement

     2,591,929        3     54,431        10     21.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     86,657,521        100   $ 540,822        100   $ 6.24  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

Total consideration represents the pro forma book value of the net assets being transferred to us by Southwest Gas Holdings in connection with the Separation.

If the underwriters’ option to purchase additional shares of our common stock is exercised in full, Southwest Gas Holdings would own approximately 81.0% of the total number of shares of our common stock outstanding upon the completion of this offering and the concurrent private placement and our new investors, including the investors in our concurrent private placement, would own approximately 19.0% of the total number of shares of our common stock outstanding upon the completion of this offering and the concurrent private placement.

The above discussion and tables are based on an assumed number of shares of our common stock outstanding upon completion of this offering and the concurrent private placement. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent additional capital is raised through the sale of equity or convertible debt securities, or if new awards are issued under our Centuri Omnibus Incentive Plan to be entered into in connection with this offering (in each case with an exercise or purchase price that is less than the price per share paid by new investors in this offering and the concurrent private placement), new investors in this offering and the concurrent private placement will experience further dilution.

 

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THE SEPARATION TRANSACTIONS

The Separation

On December 15, 2022, Southwest Gas Holdings announced its intention to separate Centuri into an independent publicly traded entity. The Holding Company was incorporated in Delaware in June 2023 and was formed to ultimately hold Centuri’s assets in connection with the Separation. As part of the plan to separate Centuri from the remainder of Southwest Gas Holdings’ businesses, in connection with this offering, we intend to enter into the Separation Agreement and a number of other agreements with Southwest Gas Holdings for the purpose of accomplishing the Separation and setting forth various matters governing our relationship with Southwest Gas Holdings after the completion of the Separation and this offering. The agreements also provide for the allocation of liabilities and obligations attributable or related to periods or events prior to and in connection with this offering. We have negotiated the terms of these agreements with Southwest Gas Holdings while we are still a wholly owned subsidiary of Southwest Gas Holdings and certain terms of these agreements are not necessarily the same as could have been obtained from unaffiliated third parties. We expect that the Separation will be completed concurrently with the completion of this offering and that the various separation related agreements, as outlined below, will be entered into at such time. See “Certain Relationships and Related Person Transactions—Relationship with Southwest Gas Holdings,” as well as “Risk Factors—Risks Related to the Separation, the Distribution and Other Alternative Disposition Transactions and our Relationship with Southwest Gas Holdings.”

We expect the following to occur in connection with the Separation:

 

   

Southwest Gas Holdings has agreed to transfer to us the entities, assets, liabilities and obligations that we will hold following the separation of our business from Southwest Gas Holdings’ other businesses. Such internal reorganization may take the form of asset transfers, dividends, contributions and similar transactions, and may involve the formation of new subsidiaries in U.S. and non-U.S. jurisdictions to own and operate Centuri’s business in such jurisdictions. Certain shared contracts may need to be assigned, in part to us or applicable subsidiaries or be appropriately amended. Among other things and subject to limited exceptions, such internal reorganization is expected to result in us owning, directly or indirectly, the operations comprising, and the entities that conduct, Centuri’s business.

 

   

We will enter into the Separation Agreement (as defined below) and a number of other agreements with Southwest Gas Holdings for the purpose of accomplishing the Separation and setting forth various matters governing our relationship with Southwest Gas Holdings after the completion of the Separation and this offering. See “Certain Relationships and Related Person Transactions” for additional discussion.

 

   

Separation Agreement—We and Southwest Gas Holdings will enter into the Separation Agreement, referred to herein as the “Separation Agreement,” which will set forth our agreements with Southwest Gas Holdings regarding the principal actions to be taken in connection with the Separation and govern, among other matters, (1) the allocation of assets and liabilities to us and Southwest Gas Holdings (including our indemnification obligations, for potentially uncapped amounts, for certain liabilities relating to our business activities), (2) certain matters with respect to this offering and subsequent disposition transactions by Southwest Gas Holdings, and (3) certain covenants, as described below, regarding Southwest Gas Holdings’ right to (x) designate members to our Board, (y) approve certain company actions, and (z) receive information and access rights.

 

   

Tax Matters Agreement—We and Southwest Gas Holdings will enter into a tax matters agreement that will govern our and Southwest Gas Holdings’ respective rights, responsibilities and obligations with respect to all tax matters, including tax liabilities (including responsibility and potential indemnification obligations for taxes attributable to our business and taxes arising, under certain circumstances, in connection with the Separation and the Distribution, if effected), tax attributes, tax contests and tax returns (including our continued inclusion in the U.S. federal consolidated group tax return, and certain other combined or similar group tax returns, with Southwest Gas Holdings for

 

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applicable tax periods following the Separation, and our continuing joint and several liability with Southwest Gas Holdings for such tax returns).

 

   

Registration Rights Agreement—We and Southwest Gas Holdings will enter into a registration rights agreement, pursuant to which we will grant to Southwest Gas Holdings certain registration rights with respect to the shares of our common stock owned by Southwest Gas Holdings following the completion of this offering.

See “Certain Relationships and Related Person Transactions—Agreements between Southwest Gas Holdings and Our Company” for a more detailed discussion of the agreements described above. These agreements will collectively govern various interim and ongoing relationships between us and Southwest Gas Holdings following the completion of the Separation and this offering. All of the agreements relating to the Separation will be made in the context of a parent-subsidiary relationship and will be entered into in the overall context of our separation from Southwest Gas Holdings. The terms of these agreements may be more or less favorable to us than if they had been negotiated with unaffiliated third parties. See “Risk Factors—Risks Related to our Relationship with Southwest Gas Holdings—We may have received better terms from arms-length negotiations with unaffiliated third parties in another form of transaction than the terms we will receive in our agreements with Southwest Gas Holdings.”

Potential Disposition Transactions

Southwest Gas Holdings has informed us that, following the completion of this offering, its current intent is to effect a disposition of all or a portion of its remaining indirect equity interest in us through periodic sales of our common stock following the expiration of the lock-up period in effect following the completion of this offering. However, Southwest Gas Holdings may complete such dispositions through one or more other methods, including by way of the Distribution, one or more other distributions in exchange for Southwest Gas Holdings shares or other securities, or any combination of the foregoing. To facilitate the disposal of shares by Southwest Gas Holdings, among other things, we have entered into the Separation Agreement with Southwest Gas Holdings, which sets out certain representations, warranties and covenants of the parties, together with certain rights of termination.

Southwest Gas Holdings has no obligation to pursue or consummate any further dispositions of its ownership interest in us by any specified date or at all and it may retain its ownership interest in us indefinitely or dispose of all or a portion of its ownership interest in us. The Separation Agreement provides that Southwest Gas Holdings may, in its sole discretion, determine: (i) whether to proceed with any disposition transaction; and (ii) all terms of any disposition transaction, including the form, structure and terms of any such disposition transaction and the timing of and conditions to the consummation of such disposition transaction. In addition, the Separation Agreement provides that in the event that Southwest Gas Holdings determines to proceed with any disposition transaction, Southwest Gas Holdings may at any time and from time to time until the completion of such disposition transaction abandon, modify or change any or all of the terms of such disposition transaction, including by accelerating or delaying the timing of the consummation of all or part of such disposition transaction. The Separation Agreement also provides that upon Southwest Gas Holdings’ request, in addition to any obligations under the Registration Rights Agreement, we will cooperate with Southwest Gas Holdings in all respects to accomplish any disposition transaction and will, at Southwest Gas Holdings’ direction, promptly take any and all actions necessary or desirable to effect any disposition transaction, including (i) registering under the Securities Act the offering of our common stock on an appropriate registration form or forms to be designated by Southwest Gas Holdings and the filing of any necessary documents pursuant to the Exchange Act, (ii) providing information regarding our business as Southwest Gas Holdings reasonably requests, (iii) cooperating with any reasonable due diligence investigation to be undertaken in connection with such disposition transaction by any transferee in such disposition transaction that executes a confidentiality agreement, (iv) taking corporate actions reasonably requested by Southwest Gas Holdings to permit the consummation of such disposition transaction, (v) delivering customary comfort letters and legal opinions requited in connection with such disposition transaction, (vi) cooperating in connection with any governmental filings to be made in connection with such disposition transaction, (vii) sending appropriate officers to attend any “road shows” scheduled in connection with such disposition transaction, (viii) providing any transfer agent, exchange agent or registrar with share certificates, book-entry authorizations, forms, legal opinions, agreements, documents or any other information required to

 

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consummate such disposition transaction, (ix) executing such agreements and taking such other actions as Southwest Gas Holdings may reasonably request to consummate such disposition transaction and (x) otherwise cooperating to facilitate the timely satisfaction of all conditions precedent to consummating such disposition transaction that are within our control. Southwest Gas Holdings currently expects that any distribution transaction will be effected in accordance with the terms of the Separation Agreement and other related agreements, including the Registration Rights Agreement, which are described in more detail under “—Agreements between Southwest Gas Holdings and our Company.” We will be bound by the terms and conditions of the Separation Agreement, including an obligation to implement any disposition transaction in accordance with the terms of the Separation Agreement, in each case as the Separation Agreement may be amended from time to time in accordance with its terms. A copy of the Separation Agreement has been filed as an exhibit to the registration statement of which this prospectus forms a part.

Southwest Gas Holdings has agreed not to effect any disposition transaction for a period of 180 days after the date of this prospectus (such period, the “restricted period,” except that, if (i) at least 120 days have elapsed from the date of this prospectus and (ii) the restricted period is scheduled to expire during a broadly applicable and regularly scheduled period during which trading in the Company’s securities would not be permitted under the Company’s insider trading policy (a “Blackout Period”) or within five trading days prior to a Blackout Period, the restricted period will end 10 trading days prior to the start of the Blackout Period), without the consent of UBS Securities LLC, subject to earlier release under certain conditions. See “Underwriting (Conflicts of Interest).”

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial information consists of the pro forma condensed consolidated balance sheet as of December 31, 2023 and the unaudited pro forma condensed consolidated statements of operations for the fiscal year ended December 31, 2023, which have been derived from our historical consolidated financial statements included elsewhere in this prospectus.

The unaudited pro forma condensed consolidated balance sheet gives effect to the Separation, this offering and the concurrent private placement as if they had occurred on December 31, 2023. The unaudited pro forma condensed consolidated statement of operations gives effect to the Separation, this offering and the concurrent private placement as if they had occurred on January 2, 2023, the beginning of the most recent fiscal year for which audited financial statements are available. The pro forma adjustments are based on information available as of the date of this prospectus and assumptions that management believes are reasonable given the information available as of the date of this prospectus. The adjustments in the unaudited pro forma condensed consolidated financial information have been identified and presented to provide relevant information in accordance with GAAP necessary for an illustrative understanding upon consummation of the Separation, this offering and the concurrent private placement.

The unaudited pro forma condensed consolidated financial information illustrates the effects of the following transactions:

 

   

the issuance of 71,664,592 shares of our common stock to Southwest Gas Holdings as consideration for the transfer of assets and assumption of liabilities of Centuri Group;

 

   

the anticipated post-Separation capital structure, including the sale of shares of our common stock in this offering and the concurrent private placement and the application of the net proceeds from this offering and the concurrent private placement as described in “Use of Proceeds” elsewhere in this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us;

 

   

other adjustments as described in the accompanying notes to the unaudited pro forma condensed consolidated financial information; and

 

   

the impact of the aforementioned adjustments on our income tax expense.

The unaudited pro forma condensed consolidated financial information was prepared in accordance with Article 11 of Regulation S-X as amended by Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” The unaudited pro forma condensed consolidated financial information is subject to assumptions and adjustments described in the accompanying notes. The unaudited pro forma condensed consolidated financial information is not intended to represent what our financial position and results of operations actually would have been had this offering, the concurrent private placement and the Separation occurred on the dates indicated, or to project our financial performance for any future period. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

The unaudited pro forma condensed consolidated financial information should be read in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical consolidated financial statements and the corresponding notes included elsewhere in this prospectus. The unaudited pro forma consolidated financial information constitutes forward-looking information and is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this prospectus.

 

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Unaudited Pro Forma Condensed Consolidated Balance Sheet As of December 31, 2023

(In thousands)

 

            Transaction Accounting
Adjustments
       
     Historical      Separation     Offering     Pro Forma  

Current assets

         

Cash and cash equivalents

   $ 33,407        $ 9,015  (b), (c)    $ 42,422  

Accounts receivable, net

     335,196            335,196  

Accounts receivable, related party, net

     12,258            12,258  

Contract assets

     266,600            266,600  

Contract assets, related party

     3,208            3,208  

Prepaid expenses and other current assets

     32,258            32,258  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     682,927        —        9,015       691,942  

Property and equipment, net

     545,442            545,442  

Intangible assets, net

     369,048            369,048  

Goodwill, net

     375,892            375,892  

Right-of-use assets under finance leases

     43,525            43,525  

Right-of-use assets under operating leases

     118,448            118,448  

Other assets

     54,626            54,626  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 2,189,908      $ —      $ 9,015     $ 2,198,923  
  

 

 

    

 

 

   

 

 

   

 

 

 

Current Liabilities

         

Current portion of long-term debt, including finance lease liabilities

   $ 53,922          $ 53,922  

Current portion of operating lease liabilities

     19,363            19,363  

Accounts payable

     116,583            116,583  

Accrued expenses and other current liabilities

     187,050          (985 ) (c)      186,065  

Contract liabilities

     43,694            43,694  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     420,612        —        (985     419,627  

Long-term debt, including line of credit and finance lease liabilities

     1,132,629          (280,274 ) (c)      852,355  

Operating lease liabilities, net of current portion

     105,215            105,215  

Deferred income taxes

     135,123            135,123  

Other long-term liabilities

     71,076            71,076  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities

     1,864,655        —        (281,259     1,583,396  

Redeemable noncontrolling interests

     99,262            99,262  

Total equity

     225,991        —  (a)      290,274  (b), (c)      516,265  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable noncontrolling interests and equity

   $ 2,189,908      $ —      $ 9,015     $ 2,198,923  
  

 

 

    

 

 

   

 

 

   

 

 

 

 

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Unaudited Pro Forma Condensed Consolidated Statement of Operations Fiscal Year Ended December 31, 2023

(In thousands, except per share information)

 

     Historical     Transaction
Accounting
Adjustments
         Pro
Forma
 

Revenue, net

   $ 2,782,845     $             $ 2,782,845  

Revenue, related party

     116,431            116,431  
  

 

 

        

 

 

 

Total revenue

     2,899,276       —           2,899,276  
  

 

 

   

 

 

      

 

 

 

Cost of revenue (including depreciation)

     2,520,420            2,520,420  

Cost of revenue, related party (including depreciation)

     105,414            105,414  
  

 

 

        

 

 

 

Total cost of revenue

     2,625,834       —           2,625,834  
  

 

 

   

 

 

      

 

 

 

Gross profit

     273,442            273,442  

Selling, general and administrative expenses

     110,344       1,333     (d)      111,677  

Amortization of intangible assets

     26,670            26,670  

Goodwill impairment

     213,992            213,992  
  

 

 

        

 

 

 

Operating loss

     (77,564     (1,333        (78,897

Interest expense, net

     97,476       (19,369   (e)      78,107  

Other (income) expense, net

     (64          (64
  

 

 

        

 

 

 

Loss before income taxes

     (174,976     18,036          (156,940

Income tax expense

     9,530       4,509     (f)      14,039  
  

 

 

   

 

 

      

 

 

 

Net loss

     (184,506     13,527          (170,979

Net income attributable to noncontrolling interests

     1,670            1,670  
  

 

 

        

 

 

 

Net loss attributable to common stock

   $ (186,176   $ 13,527        $ (172,649
  

 

 

   

 

 

      

 

 

 

Loss per share attributable to common stock:

         

Basic

   $ (1,798,454        $ (1.99
  

 

 

        

 

 

 

Diluted

   $ (1,798,454        $ (1.99
  

 

 

        

 

 

 

Shares used in computing earnings per share:

         

Weighted average basic shares outstanding

     0.1       86,657     (g)      86,657  
  

 

 

   

 

 

      

 

 

 

Weighted average diluted shares outstanding

     0.1       86,657     (g)      86,657  
  

 

 

   

 

 

      

 

 

 

 

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Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

Note 1. Basis of Presentation

The operating expenses reported in our historical consolidated statements of operations includes allocations of certain Southwest Gas Holdings costs that benefit us, including corporate governance, internal audit, tax compliance and other general and administrative costs.

As we have historically operated as a standalone business, we will not require any transition services from Southwest Gas Holdings. As a result, any pro forma adjustments to reflect our operations and financial position as an autonomous entity under Regulation S-X are not expected to be material. Accordingly, we have not presented autonomous entity pro forma adjustments.

We expect to incur additional separate public company costs in excess of the costs that have been historically allocated to us. Certain factors could impact the nature and amount of these separate public company costs, including the finalization of our staffing needs. We have not adjusted the accompanying unaudited pro forma condensed consolidated financial information for any of these costs as they are projected amounts based on estimates.

Southwest Gas Holdings has incurred and is expected to incur certain nonrecurring costs to effectuate this offering that are not reimbursable by us under the terms of the Separation Agreement. All such costs have been, or will be, incurred entirely by Southwest Gas Holdings, and we do not anticipate such costs will have an impact on our consolidated financial statements.

Note 2. Transaction Accounting Adjustments

 

  (a)

Reflects the issuance of 71,664,592 shares of our common stock, with a par value of $0.01 per share, to Southwest Gas Holdings as consideration for the transfer of assets and assumption of liabilities of Centuri Group and the reclassification of Centuri Group’s historical equity balances to additional paid-in capital (in thousands):

 

     As of
December 31,
2023
 

Common stock

   $ 717  

Additional paid-in capital

     (144,825

Accumulated deficit

     144,108  
  

 

 

 

Adjustment to equity

   $ —   
  

 

 

 

 

  (b)

Reflects the receipt of approximately $292.6 million of net proceeds associated with the sale of shares of our common stock in this offering and the concurrent private placement after deducting underwriting discounts and commissions of $15.6 million and estimated offering expenses payable by us of $6.7 million.

 

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  (c)

Reflects the partial repayment of amounts outstanding under our existing credit facility using a portion of the net proceeds from this offering and the concurrent private placement (in thousands):

 

     As of
December 31,
2023
 

Partial repayment of borrowings outstanding under revolving line of credit

   $ 150,000  

Partial repayment of term loan

     132,555  

Accrued interest payment

     985  
  

 

 

 

Adjustment to cash and cash equivalents

     283,540  

Write-off of unamortized debt issuance costs and discounts associated with partial repayment of outstanding debt

     (2,281

Less: accrued interest included in accrued expenses and other current liabilities

     (985
  

 

 

 

Net adjustment to long-term debt, including line of credit and finance lease liabilities

   $ 280,274  
  

 

 

 

 

  (d)

Reflects stock-based compensation expense of approximately $1.3 million related to restricted stock units that will be awarded to our Chief Executive Officer upon the completion of this offering. The estimated grant date fair value of these stock awards will be recognized ratably over a three-year service period. 190,476 shares of our common stock are expected to be issuable upon the vesting of such restricted stock units. Actual results may differ from these estimates and such differences may be material.

 

  (e)

Reflects changes to interest expense, net as if the partial repayment of amounts outstanding under our existing credit facility had occurred on January 2, 2023, including the impact on amortization of deferred issuance costs and original issuance discount (in thousands):

 

     Fiscal Year
Ended
December 31,
2023
 

Elimination of interest expense associated with partial repayment of outstanding debt

   $ (21,650

Loss on extinguishment of outstanding debt

     2,281  
  

 

 

 

Adjustment to interest expense, net

   $ (19,369
  

 

 

 

 

  (f)

Reflects the income tax effects of the transaction accounting adjustments at the applicable combined state and federal statutory tax rate of 25%.

 

  (g)

Pro forma loss per share attributable to common stock and pro forma common shares outstanding is based on the number of shares of our common stock expected to be outstanding upon the completion of this offering and the concurrent private placement, which includes 1,000 shares of common stock held by Southwest Gas Holdings prior to giving effect to this offering, the issuance of 71,664,592 shares of common stock to Southwest Gas Holdings as consideration for the transfer of assets and assumption of liabilities of Centuri Group, and the sale of 14,991,929 shares of our common stock in this offering and the concurrent private placement. Restricted stock units to be awarded to our Chief Executive Officer upon the completion of this offering were determined to be anti-dilutive and were excluded from the computation of pro forma diluted shares outstanding. The calculation of pro forma shares outstanding does not include any impact for the conversion, if any, of Southwest Gas Holdings equity awards held by our employees as the number of dilutive shares of our common stock underlying equity awards issued in connection with the conversion will not be determined until Southwest Gas Holdings’ disposition of its interest in Centuri.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and corresponding notes, the unaudited pro forma consolidated financial information and corresponding notes, and other financial information included elsewhere in this prospectus. 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 below and elsewhere in this prospectus, particularly in the section titled “Risk Factors.” Actual results may differ materially from these expectations. See “Cautionary Note Regarding Forward-Looking Statements.”

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 years throughout relate to fiscal months and years rather than calendar months and years. Fiscal years 2023, 2022 and 2021 ended on December 31, 2023, January 1, 2023 and January 2, 2022, respectively, and each year had 52 weeks.

Overview

Company Overview

Centuri is 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 are a leader in utility infrastructure services and 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 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 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, Centuri’s more than 12,500 employees enable our customers to safely and reliably deliver electricity and natural gas and achieve their goals for environmental sustainability.

Separation from Southwest Gas Holdings

In December 2022, Southwest Gas Holdings, our parent company, announced its intention to pursue a separation of Centuri to form a new independent publicly traded company. We were incorporated in Delaware on June 9, 2023, and were formed to ultimately hold, directly or indirectly, and conduct certain operational activities in anticipation of the planned separation of Centuri. 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 will 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.”

Relationship with Southwest Gas Holdings

In connection with the Separation and prior to the completion of this offering and the concurrent private placement, we will enter into the Separation Agreement and certain other agreements with Southwest Gas Holdings for the purpose of effecting the Separation and to facilitate one or more future disposition transactions. These agreements will provide a framework for our relationship with Southwest Gas Holdings and govern various interim and ongoing relationships between us and Southwest Gas Holdings following the completion of this offering that will remain in place so long as Southwest

 

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Gas Holdings owns a significant portion of our common stock. These agreements with Southwest Gas Holdings are described in the section of this prospectus entitled “Certain Relationships and Related Person Transactions—Agreements between Southwest Gas Holdings and Our Company.”

How We Generate Revenue

We derive revenue primarily from installation, replacement, repair and maintenance of utility infrastructure. Our primary focus is system modernization through the maintenance, retrofitting and installation of electric and natural gas distribution networks to meet current and future demands and preparing systems for energy transition. Our focus is on maintenance-oriented, smaller-sized projects rather than larger, cross-country transmission projects. Our service offerings have grown to include emergency utility system restoration, which is aimed at returning critical utility infrastructure back to working order after weather-related disruptions. This work encompasses disruptions caused by named storms as well as smaller weather events that occur across the continent throughout the year. We seek to build long-term relationships with customers to meet their needs across geographies and across both gas and electric infrastructure.

We generally have two types of agreements with our customers: master services agreements (“MSAs”) and bid contracts. Over the last four years, a significant portion of our revenues have been derived from MSAs. Specifically, in fiscal years 2023, 2022, 2021 and 2020, respectively, 82%, 85%, 77% and 76% of our revenues came from MSAs. Our MSA contract terms with customers generally specify unit-price or time-and-materials (“T&M”) terms. Unit-price contracts establish prices for all of the various services to be performed during the applicable contract period. These contracts often have annual pricing reviews that provide an opportunity to reflect anticipated increases in labor costs. A bid contract is typically a one-time agreement for a specific project that has all necessary terms defining each party’s respective rights and obligations. Our MSAs generally have terms of between three and seven years, with a current weighted average remaining contract length of approximately three years.

During fiscal 2023 and fiscal 2022, approximately 77% and 82%, respectively of our consolidated revenue was generated under unit-price and T&M contracts. Storm restoration services are often contracted under T&M rates and generally involve a higher number of hours worked per day given the emergency response nature of the work performed.

We maintain an average customer relationship tenure of more than 20 years, supported by our unwavering commitments to safety, quality, community engagement and workforce development.

Segment Information

As of and prior to December 31, 2023, we reported our results under two reportable segments: Gas Utility Services and Electric Utility Services.

The Gas Utility Services segment provided comprehensive services, including maintenance, repair and installation for local natural gas distribution utilities (“LDCs”) focused on the modernization of our customers’ infrastructure. The work performed within this segment included solutions for all stages of utility work and is performed primarily within the scope of distribution, urban transmission and end-user infrastructure work rather than large-scale, project-based, cross-country transmission. We are able to cater to the needs of our gas utility services customers by serving union markets (through our NPL and NPL Canada subsidiaries) and non-union markets (through our Neuco and Canyon Pipeline subsidiaries).

The Electric Utility Services segment provided a comprehensive set of electric utility services encompassing maintenance, repair, upgrade and expansion services for urban transmission and local distribution infrastructure. Our work is focused almost exclusively on recurring local distribution and urban transmission services under MSAs as opposed to large-scale, project-based, cross-country transmission. We serve utility customers in both union markets (through our Riggs Distler and National subsidiaries) and non-union markets (through our Linetec subsidiary), primarily performing our services on their infrastructure between the substation and end-user meter.

 

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In January 2024, the Company appointed a new Chief Executive Officer. Following the appointment of the Company’s new Chief Executive Officer, the Company underwent an internal personnel reorganization, causing the Company to re-evaluate its reportable segments. The Company determined that it was appropriate to re-align our reporting structure from two reportable segments consisting of (i) Gas Utility Services and (ii) Electric Utility Services, to the following four reportable segments: (i) U.S. Gas, (ii) Canadian Gas (iii) Union Electric and (iv) 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. We will begin reporting under the new segment reporting structure beginning with our financial statements as of and for the fiscal three months ending March 31, 2024. The historical financial information presented in this prospectus is presented on the basis of the segment reporting structure that was in place as of December 31, 2023, and it does not reflect the new segment reporting structure.

Acquisitions

On August 27, 2021, we completed the acquisition of a privately held regional infrastructure services business, Drum Parent LLC (“Drum”), including Drum’s most significant operating subsidiary, Riggs Distler, for $822.2 million in cash consideration, net of $1.9 million of cash acquired, and also assumed a long-term financing lease obligation. In November 2021, certain members of Riggs Distler management acquired a 1.42% interest in Drum. See “Note 7—Noncontrolling Interests” to the annual consolidated financial statements for additional information.

This acquisition extended our utility services operations in the Northeastern region of the U.S. and provides additional opportunities for expansion of our key service offerings. Funding for the acquisition was provided by borrowings under our term loan facility. Riggs Distler is part of our Electric Utility Services segment.

Factors Affecting Our Results of Operations

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.

Market Developments

North America relies on electric and gas delivery infrastructure to maintain its dynamic economy, but existing infrastructure is subject to degradation and is often decades old. Governments have increased regulatory stringency and enacted legislation to support the necessary infrastructure investments in the sector, aimed at preventing disruption, enhancing safety and readying to meet current and future demands. Additionally, labor market constraints and a changing utility workforce have led utilities to become increasingly reliant on external outsourced utility service providers, creating an overall growing market well positioned for consolidation. We believe these trends represent a significant challenge for utilities, but also an opportunity for outsourced utility infrastructure services companies to build and maintain more efficient, sustainable infrastructure that can meet the energy needs of future generations.

Rising fuel, labor and material costs have had, and could continue to have, a negative effect on our results of operations, to the extent we cannot pass these costs through to our customers. While we actively monitor economic, industry and market factors that could adversely impact our business, we cannot predict the effect that changes in such factors could have on our future results of operations, financial position and cash flows.

Generally, our contracts provide that the customer is responsible for supplying the materials for their projects. Fluctuations in the price or availability of materials and equipment that we or our customers utilize

 

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could impact (positively or negatively, as applicable) costs to complete projects or result in the postponement of projects. Although certain of our customers have experienced recent disruptions in their supply chain for certain project materials, most of our customers have generally been able to procure the necessary materials in a timely manner.

Our operations also depend on the availability of certain equipment to perform services. We believe we have taken steps to secure delivery of a sufficient amount of equipment and do not anticipate any significant disruptions with respect to our fleet in the near-term.

Demand for Services

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 revenues 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.

Fluctuations in market prices for oil, gas and other energy sources can impact demand for our services. Such fluctuations can affect the level of activity in energy generation projects as well as pipeline construction projects. The availability of transportation and transmission capacity can also impact demand for our services, including energy generation, electric grid and pipeline construction projects. These fluctuations, as well as the highly competitive nature of our industry, can result in changes in the levels of activity, project mix and moreover the profitability of the services we provide.

Utilities continue to implement or modify system integrity management programs to enhance safety pursuant to federal and state mandates. These programs have resulted in multi-year utility system replacement programs throughout the U.S., and we believe that we are well positioned to serve the increased demand resulting from these programs.

Our services support customers’ environmental goals, such as reducing methane emissions from pipeline leaks through pipe repair and replacement, hardening electric infrastructure to prevent damage from storms or otherwise, and assisting gas and electric customers with their renewable and sustainable energy infrastructure initiatives. We believe that we are well positioned to support growing customer attention in achieving environmental objectives through infrastructure construction and maintenance. Additionally, our acquisition of Riggs Distler in 2021 positions us to benefit from the necessary development of onshore infrastructure to support offshore wind and power development. We believe we are particularly well positioned to capture incremental demand in the offshore wind space given the rapid and continuing expansion of projects in our core geographies, as North America looks to renewable energy sources that can sustain all-time high grid demands.

Project Variability

Margins for our projects may vary from period to period due to changes in the volume or type of work performed and the pricing structure of our projects. Additionally, factors such as site conditions, project location, labor shortages, weather events, environmental restrictions, regulatory delays, protests, political activity, legal challenges, or the performance of third parties may adversely impact our project performance.

In certain circumstances, such as with large bid contracts (especially those of a longer duration), or unit-price contracts with revenue caps, results may be impacted by differences between costs incurred and those anticipated when the work was originally bid. Work awarded, or failing to be awarded, by individual large customers can impact our results of operations.

 

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Seasonality and Severe Weather Events

Generally, our revenues are lowest during the first quarter of the year due to less favorable winter weather and related working conditions. Revenues typically improve 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.

Inflation

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.

Other Information

Outlook

We continue to look for opportunities to further expand our capabilities and effectively allocate capital, while managing our operating costs. We believe our experienced management team, track record of customer service and operational strengths will enable us to grow our network and provide the flexibility to successfully execute our strategy.

We believe we are uniquely positioned to support electric and gas utility customers’ carbon-neutral goals through system modernization and resiliency, as well as construction of renewable energy infrastructure. Every day we help our customers enhance the safety, reliability, cost effectiveness and environmental sustainability of the electric and natural gas networks consumers rely upon to meet their changing energy needs. To satisfy the growing demand for energy and meet regulatory stringency, we believe utilities will need to maintain or increase investments in their infrastructure to increase capacity, improve reliability and connect to clean energy sources. As a result, we anticipate increased activity on large utility infrastructure projects going forward.

Our performance may be impacted by, among other things, fluctuations in the price of materials and equipment, labor availability and costs, fuel costs, weather conditions, foreign exchange rates, inflation, interest rates, regulatory actions and the actions of our customers. We strive to mitigate potential unfavorable impacts through productivity improvements and contractual price adjustments, but we cannot always predict the effect that changes in such factors could have on our future results of operations, financial position and cash flows. Additionally, our revenue from offshore wind is project driven which could be more volatile than the recurring maintenance and repair work we do for our utility customers. For example, we expect to recognize revenue related to the supply of advance components to support offshore wind projects in the Northeast and Mid-Atlantic regions of the United States through 2024. However, we can provide no assurances that we will continue to see similar levels of revenues associated with offshore wind projects in future periods after the work we are currently contracted to perform under the framework agreement is completed.

 

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Following the Separation, we will become subject to the requirements of the federal and state securities laws and stock exchange requirements. We will be required to establish additional procedures and practices as a stand-alone public company. As a result, we will incur additional costs related to external reporting, internal audit, tax compliance, investor relations, corporate governance, a board of directors and certain officers, as well as stock administration.

Backlog

Backlog represents estimates of revenue to be realized under long-term 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 which 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 December 31, 2023 and January 1, 2023 was approximately $5.1 billion and $5.4 billion, respectively.

Results of Operations

Our results of operations, on a consolidated basis and by segment, for fiscal years 2023, 2022 and 2021 are set forth below.

Consolidated Results

The following table summarizes our annual consolidated results of operations, including as a percentage of revenue, as well as the dollar and percentage change from the prior fiscal year:

 

     Fiscal Year Ended     Change  
     2023     2022     $     %  

Revenue

   $ 2,899,276       100.0   $ 2,760,327       100.0   $ 138,949       5.0

Cost of revenue (including depreciation)

     2,625,834       90.6     2,545,715       92.2     80,119       3.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Gross profit

     273,442       9.4     214,612       7.8     58,830       27.4

Selling, general and administrative expenses

     110,344       3.8     109,197       4.0     1,147       1.1

Amortization of intangible assets

     26,670       0.9     29,759       1.1     (3,089     (10.4 %) 

Goodwill impairment

     213,992       7.4     177,086       6.4     36,906       20.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Operating loss

     (77,564     (2.7 %)      (101,430     (3.7 %)      23,866       (23.5 %) 

Interest expense, net

     97,476       3.3     61,371       2.2     36,105       58.8

Other (income) expense, net

     (64     0.0     887       0.0     (951     (107.2 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Loss before income taxes

     (174,976     (6.0 %)      (163,688     (5.9 %)      (11,288     6.9

Income tax expense

     9,530       0.4     1,298       0.1     8,232       634.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net loss

     (184,506     (6.4 %)      (164,986     (6.0 %)      (19,520     11.8

Net income attributable to noncontrolling interests

     1,670       0.0     3,159       0.1     (1,489     (47.1 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net loss attributable to common stock

   $ (186,176     (6.4 %)    $ (168,145     (6.1 %)    $ (18,031     10.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

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     Fiscal Years Ended      Change  
(dollars in thousands)    2022     2021      $     %  

Revenue, net

   $ 2,760,327       100.0   $ 2,158,661       100.0    $ 601,666       27.9

Cost of revenue (including depreciation)

     2,545,715       92.2     1,950,893       90.4      594,822       30.5
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

Gross profit

     214,612       7.8     207,768       9.6      6,844       3.3

Selling, general and administrative expenses

     109,197       4.0     104,901       4.9      4,296       4.1

Amortization of intangible assets

     29,759       1.1     17,316       0.7      12,443       71.9

Goodwill impairment

     177,086       6.4     —        0.0      177,086       NM  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

Operating (loss) income

     (101,430     (3.7 )%      85,551       4.0      (186,981     (218.6 )% 

Interest expense, net

     61,371       2.2     20,999       1.0      40,372       192.3

Other expense (income), net

     887       0.0     (1,067     0.0      1,954       (183.1 )% 
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

(Loss) income before income taxes

     (163,688     (5.9 )%      65,619       3.0      (229,307     (349.5 )% 

Income tax expense

     1,298       0.1     18,682       0.8      (17,384     (93.1 )% 
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

Net (loss) income

     (164,986     (6.0 )%      46,937       2.2      (211,923     (451.5 )% 

Net income attributable to noncontrolling interests

     3,159       0.1     6,423       0.3      (3,264     (50.8 )% 
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

Net (loss) income attributable to common stock

   $ (168,145     (6.1 )%    $ 40,514       1.9    $ (208,659     (515.0 )% 
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

NM – Percentage is not meaningful

Revenue

 

     Fiscal Year Ended     Change  
(dollars in thousands)    2023     2022     $     %  

Gas Utility Services

   $ 1,549,152        53.4   $ 1,630,911        59.1   $ (81,759     (5.0 )% 

Electric Utility Services

     1,307,033        45.1     1,095,350        39.7     211,683       19.3

Other

     43,091        1.5     34,066        1.2     9,025       26.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Consolidated revenue, net

   $ 2,899,276        100.0   $ 2,760,327        100.0   $ 138,949       5.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

     Fiscal Year Ended     Change  
(dollars in thousands)    2022     2021     $     %  

Gas Utility Services

   $ 1,630,911        59.1   $ 1,511,326        70.0   $ 119,585       7.9

Electric Utility Services

     1,095,350        39.7     581,939        27.0     513,411       88.2

Other

     34,066        1.2     65,396        3.0     (31,330     (47.9 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Consolidated revenue, net

   $ 2,760,327        100.0   $ 2,158,661        100.0   $ 601,666       27.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

2023 vs. 2022

Revenue from our Gas Utility Services segment decreased by $81.8 million ($94.2 million reduction in Canadian Gas and $12.4 million increase in U.S. Gas), or 5.0%, in 2023 compared to the prior year. This decrease was driven primarily by a net decrease in volumes, largely in Canada, under existing customer master service agreements. This decrease was partially offset by incremental bid revenue of $87.3 million with a Gas Utility Services customer in the United States. Revenue from contracts with Southwest Gas Corporation totaled $116.4 million in 2023 and $134.7 million in 2022.

Revenue from our Electric Utility Services segment increased $211.7 million ($195.9 million increase from Union Electric and $15.8 million increase from Non-Union Electric), or 19.3%, in 2023 compared to the prior

 

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year. This increase was primarily attributable to growth with new and existing customers, as well as a $120.4 million increase in offshore wind revenue stemming from several multi-year projects under a framework agreement that began in 2022, pursuant to which Riggs Distler provided materials, subcontracted manufacturing, fabrication and assembly of secondary steel components onshore, with delivery at a port facility for the offshore projects. Revenue from the Electric Utility Services segment also included $86.4 million from emergency restoration services following storm damage to customers’ above-ground utility infrastructure in and around the Gulf Coast and eastern regions of the U.S., compared to $69.7 million in the prior year. Revenue derived from storm-related services varies from period to period due to the unpredictable nature of weather-related events, and when this type of work is performed, it typically generates a higher profit margin than core infrastructure services projects due to higher contractual hourly rates given the nature of services provided and improved operating efficiencies related to equipment utilization and absorption of fixed costs.

Other revenue increased by $9.0 million, or 26.5%, in 2023 compared to the prior year primarily due to work on a large industrial construction project, which began in the latter half of 2022. Our industrial construction projects vary from period to period due to levels of project activity and mix of work.

2022 vs. 2021

Revenue from our Gas Utility Services segment increased by $119.6 million ($81.8 million increase in Canadian Gas and $37.8 million increase in U.S. Gas), or 7.9%, in 2022 compared to the prior year. This increase was the result of continued growth with Gas Utility Services customers under MSAs, which increased $208.3 million, which was partially offset by a decrease under bid agreements of $88.7 million. Revenue from contracts with Southwest Gas Corporation totaled $134.7 million in 2022 and $102.3 million in 2021.

Revenue from our Electric Utility Services segment increased $513.4 million ($424.0 million increase in Union Electric and $89.4 million increase in Non-Union Electric), or 88.2%, in 2022 compared to the prior year, of which $440.2 million was associated with Riggs Distler, which was acquired in August 2021. Included in our fiscal 2022 revenue attributable to Riggs Distler is $94.2 million of offshore wind revenue stemming from two multi-year projects. Revenue from the Electric Utility Services segment also includes $69.7 million from emergency restoration services performed in 2022 following storm damage to customers’ above-ground utility infrastructure in and around the Gulf Coast and eastern regions of the U.S. and Canada, compared to $65.3 million in the prior year. Revenue derived from storm-related services varies from period to period due to the unpredictable nature of weather-related events, and when this type of work is performed, it typically generates a higher profit margin than core infrastructure services projects due to higher contractual hourly rates given the nature of services provided and improved operating efficiencies related to equipment utilization and absorption of fixed costs.

Other revenue decreased by $31.3 million in 2022 compared to the prior year primarily due to a large industrial construction project that was substantially completed during 2021 that did not reoccur in 2022. Our industrial construction projects vary from period to period due to levels of project activity and mix of work.

Gross Profit

 

     Fiscal Year Ended     Change  
(dollars in thousands)    2023     2022     $      %  

Gas Utility Services

   $ 155,529        10.0   $ 127,617        7.8   $ 27,912        21.9

Electric Utility Services

     115,971        8.9     86,921        7.9     29,050        33.4

Other

     1,942        4.5     74        0.2     1,868        NM  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Consolidated gross profit

   $ 273,442        9.4   $ 214,612        7.8   $ 58,830        27.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

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NM — Percentage is not meaningful

 

     Fiscal Year Ended     Change  
(dollars in thousands)    2022     2021     $     %  

Gas Utility Services

   $ 127,617        7.8   $ 125,792        8.3   $ 1,825       1.5

Electric Utility Services

     86,921        7.9     80,809        13.9     6,112       7.6

Other

     74        0.2     1,167        1.8     (1,093     (93.7 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Consolidated gross profit

   $ 214,612        7.8   $ 207,768        9.6   $ 6,844       3.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

2023 vs. 2022

Gross profit from our Gas Utility Services segment increased by $27.9 million ($37.0 million increase in U.S. Gas offset by $9.1 million decrease in Canadian Gas), or 21.9%, in 2023 compared to the prior year. As a percentage of revenue, gross profit increased to 10.0% in 2023 as compared to 7.8% in the prior year. The increase in gross profit as a percentage of revenue was primarily due to changes in the mix of work and the easing of inflation, with fuel costs alone decreasing $10.3 million, or 20.9%, between periods. Additionally, during 2022, the Gas Utility Services segment incurred a loss of $7.5 million related to higher-than-anticipated costs and scheduling delays on a bid project that was substantially completed in 2022.

Gross profit from our Electric Utility Services increased by $29.1 million ($20.3 million increase at Union Electric and $8.8 million at Non-Union Electric), or 33.4%, in 2023 compared to the prior year, and as a percentage of revenue increased to 8.9% in 2023 as compared to 7.9% in the prior year. The increase in gross profit as a percentage of revenue was attributable to the easing of inflation and improved operating efficiencies related to equipment utilization and absorption of fixed costs as the segment experienced significant revenue growth during the period. Additionally, the Electric Utility Services segment performed an incremental $16.7 million in storm revenue during 2023 compared to the prior year, with storm work typically providing higher margins than the segment’s other services.

2022 vs. 2021

Gross profit from our Gas Utility Services segment increased by $1.8 million ($5.5 million increase in Canadian Gas and $3.7 million decrease in U.S. Gas), or 1.5%, in 2022 compared to 2021, and as a percentage of revenue decreased to 7.8% in 2022 as compared to 8.3% in 2021. The increase in gas utility services revenue was offset by incremental costs related to the higher volume of work as well as a loss of $7.5 million related to higher than anticipated costs and scheduling delays on a bid project. Fuel costs alone increased $15.2 million, or 49.8%, in 2022 due to significant and extended increases in fuel prices arising from the effects of the ongoing Russia-Ukraine conflict and the impacts of inflation. We also recognized a $5.4 million gain on the sale of equipment in 2022 compared to a gain of $7.1 million recognized in 2021.

Gross profit from our Electric Utility Services segment increased by $6.1 million ($10.6 million increase in Union Electric and $4.5 million decrease in Non-Union Electric), or 7.6%, in 2022 compared to 2021, and as a percentage of revenue decreased to 7.9% in 2022 as compared to 13.9% in 2021. Of the total increase in gross profit, $19.6 million was attributable to Riggs Distler subsequent to the acquisition in August 2021. Changes in the mix of work caused, in part, by customers’ supply chain challenges, as well as inflation, led to higher input costs in 2022, including fuel and subcontractor expenses, as well as increased project-related travel and equipment rental costs incurred to fulfill electric infrastructure services. Fuel costs alone increased $17.6 million, or 129.8%, in 2022, including $7.3 million related to Riggs Distler.

Selling, General and Administrative Expenses

Selling, general and administrative costs increased by $1.1 million, or 1.1%, in 2023 compared to 2022 primarily due to increased strategic review costs of $1.5 million.

 

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Selling, general and administrative costs increased by $4.3 million, or 4.1%, in 2022 compared to 2021, primarily due to higher costs incurred by Riggs Distler of $7.0 million subsequent to the acquisition in August 2021, $6.1 million of strategic review and severance costs as well as other administrative costs related to continued growth in our business. These were partially offset by lower incentive compensation costs in 2022 and $14.0 million of non-recurring professional fees incurred in 2021 related to the acquisition of Riggs Distler.

Amortization of Intangible Assets

The decrease in amortization expense in 2023 compared to 2022 was due to Riggs Distler’s backlog intangible asset becoming fully amortized in 2022.

The increase in amortization expense in 2022 compared to 2021 was due a full year of incremental amortization expense recorded on the recently acquired Riggs Distler intangible assets, other than goodwill.

Goodwill Impairment

We recognized goodwill impairments at our Riggs Distler reporting unit of $214.0 million and $177.1 million in 2023 and 2022, respectively. Refer to “Note 8—Goodwill and Intangible Assets” to our consolidated financial statements included elsewhere in this prospectus for additional information.

Interest Expense, Net

The increase in interest expense, net in 2023 compared to 2022 was primarily due to higher interest rates on outstanding variable-rate borrowings. The increases in interest expense, net in 2022 compared to 2021 was due to the incremental interest from outstanding borrowings under our $1.545 billion amended and restated secured revolving credit and term loan facility used to fund the acquisition of Riggs Distler in 2021. Interest expense in 2022 was also impacted by higher interest rates on outstanding variable-rate borrowings.

Other (Income) Expense, Net

Other (income) expense, net decreased by $1.0 million in 2023 compared to 2022.

Other (income) expense, net increased by $2.0 million in 2022 compared to 2021 primarily due to proceeds from life insurance policies of $1.8 million recognized as income in 2021, which did not recur in 2022.

Income Tax

The increase in income tax expense in 2023 compared to 2022 was primarily due to increased profitability.

The decrease in income tax expense in 2022 compared to 2021 was primarily due to reduced profitability in those years. Certain costs related to the Riggs Distler acquisition were non-deductible for U.S. federal income tax purposes, which impacted the recorded income tax expense in 2021.

 

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Selected Quarterly Financial Data (unaudited)

The following tables set forth a summary of selected quarterly financial data. The information for each quarter has been prepared on a basis consistent with our audited financial statements included in this prospectus and reflects, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair depiction of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected for the full year or any other period in the future. The following quarterly financial information should be read in conjunction with our audited financial statements and related notes included elsewhere in this prospectus.

 

    Fiscal Year 2023     Fiscal Year 2022  
(dollars in thousands)   Q4     Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Total revenue

  $ 665,315     $ 774,889     $ 805,779     $ 653,293     $ 771,894     $ 758,466     $ 706,090     $ 523,877  

Gross profit

    53,908       87,613       89,972       41,949       73,945       69,668       56,503       14,496  

Operating (loss) income

    (195,459     52,950       53,202       11,743       (144,017     38,520       21,034       (16,967

Net (loss) income attributable to common stock

    (210,660     16,182       17,146       (8,844     (166,478     11,888       4,402       (17,957

Basic (loss) earnings per share

    (2,034,969     156,318       165,630       (85,433     (1,608,175     114,838       42,523       (173,462

Diluted (loss) earnings per share)

    (2,034,969     156,318       165,630       (85,433     (1,608,175     114,838       42,523       (173,462

Non-GAAP Financial Measures

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, 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.

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for (i) non-cash stock-based compensation expense, (ii) acquisition costs, (iii) strategic review costs, (iv) severance costs, (v) goodwill impairment charges and (vi) other non-recurring or non-cash gains or losses. Adjusted EBITDA Margin is defined as the percentage derived from dividing Adjusted EBITDA by revenue.

Adjusted Net Income is defined as net income adjusted for (i) acquisition costs, (ii) strategic review costs, (iii) severance costs, (iv) amortization of intangible assets, (v) non-cash stock-based compensation expense, (vi) goodwill impairment charges, (vii) other non-recuring or non-cash gains or losses, and (viii) the income tax impact of adjustments that are subject to tax is determined using the incremental statutory tax rates of the jurisdictions to which each adjustment relates for the respective periods.

Using EBITDA as a performance measure has material limitations as compared to net income, 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 revenues, 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

 

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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 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.

As to certain of the items related to Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income: (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) acquisition costs vary from period to period depending on the level of our acquisition activity; (iii) strategic review and related costs incurred in connection with the separation and stand up of Centuri as its own public company are non-recurring; (iv) severance costs relate to non-recurring restructuring activities; and (v) goodwill impairment charges can vary from period to period depending on economic and other factors. Because EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income, as defined, exclude some, but not all, items that affect net income, such measures may not be comparable to similarly titled measures of other companies. The most comparable GAAP financial measure, net income, and information reconciling the GAAP and non-GAAP financial measures, are set forth below.

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin

The following tables present a reconciliations of net (loss) income to EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin (dollars in thousands) for the specified periods:

 

     Fiscal Year 2023     Fiscal Year 2022  
     Q4     Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Net (loss) income

   $ (212,846   $ 16,918     $ 18,527     $ (7,105   $ (165,876   $ 12,879     $ 4,896     $ (16,885

Interest expense, net

     24,444       26,131       24,525       22,376       21,034       16,608       12,599       11,130  

Income tax (benefit) expense

     (7,305     10,010       11,033       (4,208     681       8,923       3,392       (11,698

Depreciation expense

     27,801       29,582       30,190       31,203       32,403       32,377       31,044       29,770  

Amortization of intangible assets

     6,663       6,670       6,670       6,667       6,664       7,434       7,819       7,842  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     (161,243     89,311       90,945       48,933       (105,094     78,221       59,750       20,159  

Non-cash stock-based compensation

     (298     1,316       689       144       469       (484     1,018       649  

Strategic review costs

     1,588       549       1,137       91       243       (638     2,248       —   

Severance costs

     3,461       335       163       69       4,199       —        —        —   

Goodwill impairment

     213,992       —        —        —        177,086       —        —        —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 57,500     $ 91,511     $ 92,934     $ 49,237     $ 76,903     $ 77,099     $ 63,016     $ 20,808  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA Margin (% of revenue)

     8.6     11.8     11.5     7.5     10.0     10.2     8.9     4.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Fiscal Year Ended  
     2023     2022     2021  

Net (loss) income

   $ (184,506   $ (164,986   $ 46,937  

Interest expense, net

     97,476       61,371       20,999  

Income tax expense

     9,530       1,298       18,682  

Depreciation expense

     118,776       125,594       100,327  

Amortization of intangible assets

     26,670       29,759       17,316  
  

 

 

   

 

 

   

 

 

 

EBITDA

     67,946       53,036       204,261  

Non-cash stock-based compensation

     1,851       1,652       1,732  

Acquisition costs

     —        —        13,978  

Strategic review costs

     3,365       1,853       —   

Severance costs

     4,028       4,199       —   

Goodwill impairment

     213,992       177,086       —   

Other

     —        —        673  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 291,182     $ 237,826     $ 220,644  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA Margin (% of revenue)

     10.0     8.6     10.2
  

 

 

   

 

 

   

 

 

 

Adjusted Net Income

The following tables present reconciliations of net (loss) income to adjusted net income (in thousands) for the specified periods:

 

     Fiscal Year Ended  
     2023      2022      2021  

Net (loss) income

   $ (184,506    $ (164,986    $ 46,937  

Acquisition costs

     —         —         13,978  

Strategic review costs

     3,365        1,853        —   

Severance costs

     4,028        4,199        —   

Amortization of intangible assets

     26,670        29,759        17,316  

Non-cash stock-based compensation

     1,851        1,652        1,732  

Goodwill impairment

     213,992        177,086        —   

Other

     —         —         1,128  

Income tax impact of adjustments(1)

     (13,808      (13,379      (7,127
  

 

 

    

 

 

    

 

 

 

Adjusted net income

   $ 51,592      $ 36,184      $ 73,964  
  

 

 

    

 

 

    

 

 

 

 

(1)

Calculated based on a blended statutory tax rate of approximately 25%, adjusted for certain costs that were non-deductible, which resulted in adjusted tax rates of 6%, 6% and 21% for 2023, 2022 and 2021, respectively. The tax rates for 2023 and 2022 reflect the impact of goodwill impairment, most of which was non-deductible for tax purposes, and the tax rate for 2021 reflects the impact of certain acquisition costs that were non-deductible for tax purposes.

Liquidity and Capital Resources

Sources and Uses of Liquidity

Our primary liquidity needs have historically related to supporting working capital requirements, funding capital expenditures and servicing our debt. After the Separation, we will no longer have financial support from Southwest Gas Holdings, and we will no longer provide dividends to Southwest Gas Holdings.

As of December 31, 2023 and January 1, 2023, cash and cash equivalents were $33.4 million and $64.0 million, respectively. Our primary sources of liquidity are cash flows from operations and debt financing. We believe our capital resources, including existing cash balances, together with our operating cash flows and

 

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borrowings under our credit facilities, are sufficient to meet our financial obligations for at least the next 12 months.

We evaluate our working capital requirements on a regular basis and regularly monitor financial markets and assess general economic conditions for possible impacts to our financial position. Our capital requirements may change to the extent we identify acquisition opportunities, if we experience difficulties collecting amounts due from customers, increase our working capital in connection with new or existing customer programs or repay certain credit facilities.

Following the Separation, we expect to periodically review our operations and evaluate potential strategic transactions to increase stockholder value. However, we cannot predict whether or when we may enter into acquisitions, joint ventures or dispositions, or what impacts any such transactions could have on our results of operations, cash flows or financial condition. Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section titled “Risk Factors” elsewhere in this prospectus.

On March 25, 2024, we entered into an agreement to purchase the remaining 10% interest in Linetec from the previous owner of Linetec for a purchase price of approximately $92 million. The purchase is expected to close in April 2024, and as a result, we will own all of the outstanding interests in Linetec.

Cash Flows

The following tables present a summary of our cash flows (in thousands):

 

     Fiscal Years Ended  
     2023      2022      2021  

Net cash provided by operating activities

   $ 167,465      $ 94,626      $ 109,480  

Net cash used in investing activities

     (94,850      (117,061      (916,580

Net cash (used in) provided by financing activities

     (103,447      (27,451      883,536  

Operating Activities

Cash flows provided by operating activities are impacted by changes in the timing of demand for our services and related operating margins but can also be affected by working capital needs. Working capital is primarily affected by changes in accounts receivable, contract assets, prepaid expenses and other assets, accounts payable, accrued expenses, contract liabilities, and income tax accounts, which are primarily related to increases in revenue and related costs of revenue. These working capital balances are affected by changes in revenue resulting from the timing and volume of work performed, variability in the timing of customer billings and collections of receivables, as well as settlement of payables and other liabilities.

Net cash provided by operating activities for fiscal 2023 was $167.5 million compared to $94.6 million for 2022, an increase of $72.8 million, or 77.0%, due to increased revenue and the impact of working capital changes.

Net cash provided by operating activities for fiscal 2022 was $94.6 million compared to $109.5 million for 2021, a decrease of $14.9 million, or 13.6%, due to decreased net income and the impact of working capital changes.

Investing Activities

Net cash used in investing activities was $94.9 million in fiscal 2023 compared to $117.1 million for 2022, a decrease of $22.2 million, or 19.0%. The decrease was attributable to lower capital expenditures.

 

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Net cash used in investing activities was $117.1 million in fiscal 2022 compared to $916.6 million in 2021, a decrease of $799.5 million. The decrease was primarily attributable to the acquisition of Riggs Distler in August 2021.

The construction industry is capital intensive, and we expect to continue to incur capital expenditures to meet anticipated needs for our services. In fiscal years 2023, 2022 and 2021, we had capital expenditures of $106.7 million, $129.6 million and $110.4 million, respectively. In addition, we expect to continue to pursue strategic acquisitions and investments, although we cannot predict the timing or amount of necessary capital resources.

These items were partially offset by proceeds from the sale of property and equipment of $11.8 million, $12.5 million and $16.0 million in fiscal years 2023, 2022 and 2021, respectively.

Financing Activities

Net cash used in financing activities increased by $76.0 million in fiscal 2023 compared to 2022, while net cash used in financing activities increased by $911.0 million in fiscal 2022 compared to fiscal 2021.

In 2023 and 2022, under the terms of the purchase agreement pursuant to which we initially acquired a majority interest in Linetec, we purchased an additional 5% equity interest in Linetec that had been initially retained by the previous owner for $39.9 million and $39.6 million, respectively. Southwest Gas Holdings contributed capital to Centuri to fund the 2022 purchase. The remaining balance of redeemable noncontrolling interest continuing to be redeemable as of December 31, 2023 was 10% under the terms of the original agreement. During 2022, we also received an additional $50.0 million equity contribution from Southwest Gas Holdings.

In 2021, we entered into an amended and restated credit agreement providing for a $1.145 billion secured term loan facility and a $400 million secured revolving credit facility, which, in addition to funding the Riggs Distler acquisition, refinanced our previous $590 million loan facility.

Foreign Operations

While we primarily operate in the U.S., we also have operations in Canada. Therefore, changes in the value of Canadian dollars affect our financial statements when translated into U.S. dollars. In fiscal 2023, revenue from our Canadian operations was approximately 8% of total revenue, and in each of fiscal years 2022 and 2021, was approximately 12% 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.

Credit Facilities

Term Loan and Revolving Credit Facility

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

 

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and indirect subsidiaries, and all products, profits and proceeds of the foregoing. Assets securing the facility as of December 31, 2023 and January 1, 2023 totaled $2.1 billion and $2.3 billion, respectively. The maximum amount outstanding on the combined facility during 2023 was $1.184 billion, which occurred in the second quarter, at which point $1.000 billion was outstanding on the term loan facility. For 2022, the maximum amount outstanding on the combined facility was $1.221 billion, which occurred in the first quarter, at which point $1.117 billion was outstanding on the term loan facility. As of December 31, 2023 and January 1, 2023, $77.1 million and $82 million, respectively, was outstanding on the revolving credit facility, in addition to $994.2 million and $1.009 billion, respectively, that was outstanding on the term loan portion of the facility. Also as of December 31, 2023 and January 1, 2023, there was approximately $246.5 million and $253.8 million, respectively, net of letters of credit, available for borrowing under the line of credit. We had $48.6 million and $60.8 million of unused letters of credit available as of December 31, 2023 and January 1, 2023, respectively.

On May 31, 2023, we entered into an amendment to the term loan facility (the “Term Loan Facility Amendment”) to transition the interest rate benchmark for the term loan facility from London Interbank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“SOFR”) benchmarks. The applicable margins for the term loan facility remained 1.50% for base rate loans and are 2.5% for SOFR loans. The Term Loan Facility Amendment did not modify any terms of the revolving credit facility. Furthermore, the Company’s Canadian entities may borrow under the revolving credit facility with interest rates based on either a “base rate” or the Canadian Dealer Offered Rate (“CDOR”) plus the applicable margin, at the borrower’s option. The weighted average interest rate on the term loan facility was 7.97% and 7.21% as of December 31, 2023 and January 1, 2023, respectively.

On November 4, 2022, the Company amended the financial covenants of the revolving credit facility (the “2022 Credit Facility Amendment”) to increase the maximum total net leverage ratio during the period from December 31, 2022 through December 31, 2023. The 2022 Credit Facility Amendment also transitioned the interest rate benchmark for the revolving credit facility from LIBOR to SOFR benchmarks. The applicable margin for the revolving credit facility now ranges from 1.0% to 2.5% for SOFR loans and from 0.0% to 1.5% for CDOR and “base rate” loans, depending on the Company’s total net leverage ratio. Further, the 2022 Credit Facility Amendment increases a letter of credit sub-facility from $100 million to $125 million. The Company is also required to pay a commitment fee on the unused portion of the commitments. The commitment fee ranges from 0.15% to 0.35% per annum. The 2022 Credit Facility Amendment did not modify any terms of the term loan facility. The weighted-average interest rate on the revolving credit facility was 7.66% and 7.35% as of December 31, 2023 and January 1, 2023, respectively.

On November 13, 2023, the Company amended the financial covenants of the revolving credit facility (the “2023 Credit Facility Amendment”) to decrease the minimum interest coverage ratio during the fiscal quarters ending March 31, 2024 through December 31, 2024 to 2.00 to 1.00. The 2023 Credit Facility Amendment also increases the maximum net leverage ratio financial covenant for the fiscal quarters ending March 31, 2024 through September 30, 2024 to 5.50 to 1.00 and for the fiscal quarter ending December 31, 2024 to 5.00 to 1.00. In addition, the 2023 Credit Facility Amendment provides that, in the event that a “Qualified IPO” (as defined therein), such as the offering described herein, is consummated prior to March 31, 2025, the maximum net leverage ratio financial covenant will be reduced based on the amount of net proceeds received from such Qualified IPO. The 2023 Credit Facility Amendment did not modify any terms of the term loan facility.

On March 22, 2024, the Company amended the financial covenants of the revolving credit facility (the “2024 Credit Facility Amendment”) to increase the maximum total net leverage ratio. Under the terms of the amended revolving credit facility, the Company is required to maintain a total 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 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 total net leverage ratio financial covenants, which are applicable in the event that a Qualified IPO is consummated, for each of the fiscal quarters ended March 31, 2024, June 30, 2024 and

 

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September 30, 2024. The provision within the 2023 Credit Facility Amendment providing that, in the event that a Qualified IPO is consummated prior to March 31, 2025, the maximum net leverage ratio financial covenant will be reduced based on the amount of net proceeds received from such Qualified IPO remains unchanged under the terms of the 2024 Credit Facility Amendment. The 2024 Credit Facility Amendment did not modify any terms of the term loan facility.

After giving effect to the repayment of $150.0 million and $132.6 million of amounts outstanding under the revolving credit facility and the term loan, respectively, with net proceeds from this offering and the concurrent private placement we expect to have $78.2 million and $858.8 million outstanding under the revolving credit facility and the term loan, respectively, and $251.9 million of capacity under the revolving credit facility. See “Use of Proceeds.”

Equipment Term Loans

In 2022, we entered into four term loans with initial amounts totaling approximately $100 million. The loans are serviced in U.S. dollars and are collateralized by certain owned equipment. The loans have fixed interest rates between 2.96% and 3.51% and have maturity dates in March 2027. The loans have prepayment penalties for the first three years of the agreements. We did not incur any prepayment penalties during the fiscal years 2023, 2022 or 2021 on any of our equipment loans.

Financial Covenants

Certain of our debt instruments have leverage ratio caps and interest coverage ratio requirements. As of December 31, 2023 and January 1, 2023, we were in compliance with all of our debt covenants. Under the most restrictive of the covenants, as of December 31, 2023 and January 1, 2023, we could have issued approximately $108 million and $222 million, respectively, in additional debt and met the leverage ratio requirement. As of December 31, 2023 and January 1, 2023, we had approximately $15 million and $33 million, respectively, of cushion relating to the minimum interest coverage ratio requirement. Our revolving credit and term loan facilities are secured by our assets. Cash dividends are limited to a calculated available amount, generally defined as 50% of our rolling twelve-month consolidated net income adjusted for certain items, such as parent contributions, Linetec redeemable noncontrolling interest payments or dividend payments, among other adjustments, as applicable.

Credit Ratings

Credit ratings apply to debt securities such as notes payable and other debt instruments and do not apply to equity securities such as common stock. Borrowing costs and the ability to raise funds are directly impacted by the credit ratings of the Company. Credit ratings issued by nationally recognized ratings agencies (Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services (“Standard & Poor’s”)) provide a method for determining the creditworthiness of an issuer. Credit ratings are important because long-term debt constitutes a significant portion of total capitalization. These credit ratings are a factor considered by lenders when determining the cost of current and future debt for each debt obligor (i.e., generally the better the rating, the lower the cost to borrow funds).

 

    

Moody’s(1)

  

Standard & Poor’s(2)

Issuer rating

   Ba3    B+

Outlook

  

Negative

   CreditWatch Developing

Last reaffirmed

   December 2023    October 2023

 

(1)

Moody’s debt ratings range from Aaa (highest rating possible) to C (lowest quality, usually in default). A numerical modifier of 1 (high end of the category) through 3 (low end of the category) is included with the rating to indicate the approximate rank of a company within the range.

 

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(2)

Standard & Poor’s (“S&P”) debt ratings range from AAA (highest rating possible) to D (obligation is in default). The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus “+” or minus “-” sign to show relative standing within the major rating categories.

A credit rating, including the foregoing, is not a recommendation to buy, sell or hold a debt security, but is intended to provide an estimation of the relative level of credit risk of debt securities, and is subject to change or withdrawal at any time by the rating agency. Numerous factors, including many that are not within management’s control, are considered by the ratings agencies in connection with the assigning of credit ratings.

Contractual Obligations

As of December 31, 2023, we had $1.108 billion and $42.6 million of long-term and short-term debt, respectively, outstanding.

The following table presents a summary of our contractual obligations as of December 31, 2023 (in thousands):

 

     Total      Fiscal Years  
     2024      2025-2026      2027-2028      Thereafter  

Long-term debt

   $ 1,167,958      $ 42,552      $ 158,226      $ 967,180      $ —   

Interest on long-term debt(1)

     329,857        80,228        154,439        95,190        —   

Operating leases(2)

     148,993        24,930        40,835        34,108        49,120  

Finance leases(2)

     38,806        12,674        17,893        7,491        748  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,685,614      $ 160,384      $ 371,393      $ 1,103,969      $ 49,868  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Fixed-rate interest payments assume that principal payments are made as originally scheduled. Estimated interest payments on variable-rate debt is based on the interest rates in effect as of December 31, 2023.

(2)

Includes related interest. Certain leases require property tax payments, insurance and maintenance costs that have been excluded from the above table as they are variable in nature.

The above table does not include potential obligations under multiemployer pension plans in which some of our employees participate. The multiemployer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on an annual basis), and contributions are made to the plans on a “pay-as-you-go” basis based on our union employee payrolls. Obligations for future periods cannot be determined because we cannot predict the number of employees that we will employ at any given time nor the plans in which they may participate. We may also have additional liabilities imposed by law as a result of our participation in multiemployer defined benefit pension plans. The amount of additional funds, if any, that we may be obligated to contribute to these plans in the future cannot be estimated due to uncertainty of the future levels of work that require the specific use of union employees covered by these plans, as well as the future contribution levels and possible surcharges on contributions applicable to these plans.

The liability for unrecognized tax benefits for uncertain tax positions was approximately $0.5 million and $0.4 million as of December 31, 2023 and January 1, 2023, respectively, and is included in other liabilities on the consolidated balance sheets included elsewhere in this prospectus. These amounts have been excluded from the above table as we are unable to reasonably estimate the timing of the resolution of the underlying tax positions with the relevant tax authorities.

We have various other noncancellable obligations consisting primarily of software licensing fees and consulting and other outsourced services.

Recently Issued Accounting Pronouncements

Refer to “Note 2—Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated financial statements for a discussion of recent accounting standards and pronouncements.

 

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Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various forms of market risk, including interest rate risk and foreign currency exchange rate risk. Historically, we have not been parties to any derivative instruments and did not have any derivative financial instruments during fiscal years 2023, 2022 or 2021.

For a discussion of our concentration of credit risk, refer to “Note 17—Commitments and Contingencies to our consolidated financial statements.

Interest Rate Risk

We are exposed to interest rate risk with respect to our fixed-rate and variable-rate debt. Fluctuations in interest rates impact the fair value of our fixed-rate debt and expose us to the risk that we may need to refinance debt at higher rates at each instrument’s respective maturity date. Fluctuations in interest rates impact interest expense on our variable-rate debt.

The following table presents our variable rate debt as of the end of each period as well as a sensitivity analysis for a hypothetical 1% change in interest rates, assuming the outstanding balance of such debt remains constant over the next twelve months (in thousands):

 

Variable-Rate Debt             Change in Interest Expense  
As of             Fiscal Year Ended  
December 31,
   2023   
     January 1,
  2023  
     January 2,
  2022  
            December 31,
  2023  
     January 1,
  2023  
     January 2,
  2022  
 
$  1,071,359      $  1,090,505      $  1,220,446         $  10,714      $  10,905      $  12,205  

Foreign Currency Risk

We have foreign operations in Canada. Revenue generated from Canadian operations represented 8% of our total revenue during fiscal 2023, and 12% of our total revenue during fiscal 2022 and 2021. Revenue and expense related to our foreign operations are, for the most part, denominated in the functional currency of the foreign operation, which minimizes the impact that fluctuations in exchange rates would have on our results of operations.

Our exposure to fluctuations in foreign currency exchange rates could increase in the future if we continue to expand our operations outside of the U.S. and Canada. We seek to manage foreign currency exposure by minimizing our consolidated net asset and liability positions in currencies other than the functional currency, and in the future, we may enter into foreign currency derivative contracts to manage such exposure.

Historically, we have not had significant exposure to foreign currency risk.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments. Judgments regarding future events include the likelihood of success of particular projects, legal and regulatory challenges and the fair value of certain assets and liabilities. It is possible that materially different amounts could be recorded if these estimates and judgments change or if actual results differ from these estimates and judgments. These estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, we evaluate our estimates utilizing historical experience, consultation with experts and other methods we consider reasonable. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the information that gives rise to the revision becomes known. Actual results could materially differ from those that result from using the estimates under different assumptions or conditions.

 

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Our significant accounting policies are summarized in “Note 2—Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this prospectus. We identify our most critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain.

The following critical accounting estimates are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. Management’s estimates are based on the relevant information available at the end of each period.

Revenue Recognition

We generally have two types of agreements with our customers: MSAs and bid contracts. Our MSAs and bid contracts are characterized as either fixed-price, unit-price or T&M for revenue recognition purposes. Most of our contracts are considered to have a single performance obligation. Performance obligations related to fixed-price contracts are satisfied over time because our performance typically creates or enhances an asset that the customer controls. For fixed-price contracts, we recognize revenue as performance obligations are satisfied and control of the promised good and/or service is transferred to the customer by measuring the progress toward complete satisfaction of the performance obligation(s) using an input method. Input methods result in the recognition of revenue based on the entity’s effort to satisfy the performance obligation relative to the total expected effort to satisfy the performance obligation. Under the cost-to-cost method, costs incurred to-date are generally the best depiction of the transfer of control. For unit-price and time and materials contracts, an output method is used to measure progress towards satisfaction of a performance obligation.

Actual revenue and project costs can vary, sometimes substantially, from previous estimates due to changes in a variety of factors, including unforeseen circumstances not originally contemplated. These factors, along with other risks inherent in performing fixed-price contracts, may cause actual revenue and gross profit for a project to differ from previous estimates and could result in reduced profitability or losses on projects. Changes in these factors may result in revisions to estimates of costs and earnings. Revisions to estimates of costs and earnings during the course of work are reflected in the accounting period in which the facts requiring revision become known. At the time a loss on a contract becomes known or is anticipated, the entire amount of the estimated ultimate loss is recognized in the financial statements. Once identified, these types of conditions continue to be evaluated for each project throughout the project term and ongoing revisions in management’s estimates of contract value, contract cost and contract profit are recognized as necessary in the period determined.

Subsequent to the inception of a fixed-price contract, the contract price could change for various reasons, including the executed or estimated amount of change orders and unresolved contract modifications and claims to or from owners. Changes that are accounted for as an adjustment to existing performance obligations are allocated on the same basis as established at contract inception. Otherwise, changes are accounted for as a separate performance obligation(s) and the separate contract price is allocated as discussed above.

Contracts can have consideration that is variable. For MSAs, variable consideration is evaluated at the customer level as the terms creating variability in pricing are included within the MSA and are not specific to a work authorization. For multi-year MSAs, variable consideration items are typically determined for each year of the contract and not for the full contract term. For bid contracts, variable consideration is evaluated at the individual contract level. The expected value method or most likely amount method is used based on the nature of the variable consideration. Types of variable consideration include liquidated damages, delay penalties, performance incentives, safety bonuses, payment discounts and volume rebates. We typically estimate variable consideration and adjust financial information, as necessary.

Change orders involve a modification in scope, price, or both to the current contract, requiring approval by both parties. The existing terms of the contract continue to be accounted for under the current contract until such

 

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time as a change order is approved. Once approved, the change order is either treated as a separate contract or as part of the existing contract, as appropriate under the circumstances. When the scope is agreed upon in the change order but not the price, we estimate the change to the transaction price.

In all forms of contracts, we estimate the collectability of contract amounts at the same time that we estimate project costs. If we anticipate that there may be challenges associated with the collectability of the full amount calculated as the transaction price, we may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection.

Business Combinations

We account for business combinations using the acquisition method of accounting, which requires that the purchase price, including the fair value of contingent consideration, of the acquired entity to be allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. Any excess of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.

The determination of the fair value of assets acquired and liabilities assumed requires us to make subjective judgments as to projections of future operating performance, discount rates, and long-term growth rates, among other factors. The effect of these judgments then impacts the amount of the goodwill that is recorded and the amount of depreciation and amortization expense to be recognized in future periods related to tangible and intangible assets acquired.

GAAP provides a “measurement period” of up to one year in which to finalize all fair value estimates associated with the acquisition of a business. Most estimates are preliminary until the end of the measurement period. During the measurement period, adjustments to initial valuations and estimates that reflect newly discovered information that existed at the acquisition date are recorded. After the measurement date, any adjustments would be recorded as a current period gain or loss.

Goodwill and Long-Lived Assets

Goodwill

During fiscal year 2023, the Company changed its reporting units to align with changes in its organization structure, and as a result, the Company has three reporting units. Goodwill is tested for impairment annually in the fourth quarter of each fiscal year, or more frequently if events or circumstances arise which indicate that the fair value of a reporting unit with goodwill is below its carrying amount. We assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed for each reporting unit include, among other things, deterioration in macroeconomic conditions; declining financial performance; deterioration in the operational environment; a significant change in market, management, business strategy or business climate; a loss of a significant customer; increased competition; or a decrease in the estimated fair value of a reporting unit.

If we believe that, as a result of our qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded in the consolidated statement of operations.

2023

In connection with the annual goodwill assessment for 2023, we performed a qualitative impairment assessment for our reporting units. Other than the Riggs Distler reporting unit, the results of the qualitative

 

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assessment did not indicate that it was more likely than not that the fair value of each reporting unit analyzed was less than the carrying value including goodwill, and no impairment was recognized as a result of the annual assessment.

In the fourth quarter of fiscal 2023, we received notice that a customer canceled an offshore wind project, resulting in a reduction of Riggs Distler’s forecasted earnings. We determined this event, along with lower than expected earnings in 2023 resulted in a goodwill impairment. We performed a quantitative assessment as of the 2023 assessment date utilizing a weighted combination of the income approach (discounted cash flow method) and a market approach (guideline public company method). Under the discounted cash flow method, we determined fair value based on the estimated future cash flows of the reporting unit, discounted to present value using a risk-adjusted industry weighted average cost of capital, which reflects the overall level of inherent risk for the reporting unit and the rate of return an outside investor would expect to earn. Under the guideline public company method, we determine the estimated fair value by applying public company multiples to the reporting unit’s historical and projected results, including a reasonable control premium. The public company multiples are based on peer group multiples adjusted for size, volatility and risk.

The inputs used in the fair value measurement of the Riggs Distler reporting unit were the lowest level (Level 3) inputs. The key assumptions used to determine the fair value of the Riggs Distler reporting unit during the impairment assessment were: (a) expected cash flow for a period of five years based on our best estimate of revenue growth rates and projected operating margins; (b) a terminal value based upon terminal growth rates; (c) a discount rate based on our best estimate of the weighted average cost of capital adjusted for risks associated with the Riggs Distler reporting unit; (d) the selection of Riggs Distler’s peer group; and (e) an implied control premium based on our best estimate of the premium that would be appropriate to convert the reporting unit value to a controlling interest basis. Recent operating performance, along with key assumptions for specific customer and industry opportunities, were also utilized during the interim impairment assessment. The terminal growth rate used in the assessment was 3.0%. The discount rate used in the assessment was 12.5%, and the control premium supportable by market research and available data was 15.0%. The assessment resulted in the fair value of the Riggs Distler reporting unit being below its carrying value. As a result, we recognized an impairment charge of $214.0 million in the fourth quarter of fiscal 2023. The goodwill impairment charge did not affect our compliance with the financial covenants and conditions under our credit agreements.

2022

In connection with the annual goodwill assessment for fiscal 2022, we performed qualitative impairment assessments for our reporting units. Other than the Riggs Distler reporting unit, the results of the qualitative assessment did not indicate that it was more likely than not that the fair value of each reporting unit analyzed was less than the carrying value including goodwill, no goodwill impairment was recognized.

In 2022, we concluded that earnings shortfalls resulting from changes in the mix of work combined with inflation and higher fuel costs resulted in a goodwill impairment for the Riggs Distler reporting unit. We performed a quantitative assessment as of October 1, 2022 utilizing a weighted combination of the income approach (discounted cash flow method) and a market approach (guideline public company method). Under the discounted cash flow method, we determined fair value based on the estimated future cash flows of the reporting unit, discounted to present value using a risk-adjusted industry weighted average cost of capital, which reflects the overall level of inherent risk for the reporting unit and the rate of return an outside investor would expect to earn. Under the guideline public company method, we determine the estimated fair value by applying public company multiples to the reporting unit’s historical and projected results, including a reasonable control premium. The public company multiples are based on peer group multiples adjusted for size, volatility and risk.

The inputs used in the fair value measurement of the Riggs Distler reporting unit were the lowest level (Level 3) inputs. The key assumptions used to determine the fair value of the Riggs Distler reporting unit during the 2022 annual impairment assessment were: (a) expected cash flow for a period of five years based on our best

 

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estimate of revenue growth rates and projected operating margins; (b) a terminal value based upon terminal growth rates; (c) a discount rate based on our best estimate of the weighted average cost of capital adjusted for risks associated with the Riggs Distler reporting unit; (d) the selection of Riggs Distler’s peer group; and (e) an implied control premium based on our best estimate of the premium that would be appropriate to convert the reporting unit value to a controlling interest basis. Recent operating performance, along with key assumptions for specific customer and industry opportunities, were also utilized during the annual impairment assessment. The terminal growth rate used in the assessment was 3.0%. The discount rate used in the assessment was 14.0%, and the control premium supportable by market research and available data was 15.0%. The assessment resulted in the fair value of the Riggs Distler reporting unit being below its carrying value. As a result, we recognized an impairment charge of $177.1 million in fiscal 2022. The goodwill impairment charge did not affect our compliance with the financial covenants and conditions under our credit agreements.

2021

In connection with the annual goodwill assessment for fiscal 2021, we performed a qualitative impairment assessment of our reporting units, which indicated that the fair value of each reporting unit was greater than the carrying value including goodwill. Accordingly, a quantitative goodwill impairment test was not required, and no goodwill impairment was recognized in fiscal 2021.

Long-Lived Assets

We review the carrying value of our long-lived assets, including property and equipment and intangible assets with finite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Such circumstances may include a significant decrease in the market price of an asset, a significant adverse change in its physical condition or the manner in which the asset is being used or a history of operating or cash flow losses associated with the use of the asset.

Impairment losses could occur when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated as the excess of the asset’s carrying value over its estimated fair value. The estimate of future cash flows requires management to make assumptions and to apply judgments, including forecasting future sales and expenses and estimating useful lives of the assets. These estimates can be affected by a number of factors, including, among others, future results, demand for our services and economic conditions, many of which can be difficult to predict. Actual future prices, operating expenses and discount rates could vary from the assumptions used in our estimates and may have a material impact on the assessment of the fair value of the respective assets and ultimately, our results of operations.

Income Taxes

We file income tax returns in various states and in Canada. In the U.S. federal jurisdiction and certain states, we have historically filed income tax returns as part of a consolidated group with Southwest Gas Holdings. For purposes of our consolidated financial statements, we have adopted the separate return approach under the asset and liability method. The income tax provisions and related deferred tax assets and liabilities reflected in our consolidated financial statements have been estimated as if we were a separate taxpayer.

Our annual tax expense is based on our income, statutory tax rates and tax incentives available to us in the various jurisdictions in which we operate. Changes in existing tax laws or rates could significantly impact the estimate of our tax liabilities. Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted

 

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operating earnings and available tax planning strategies. These sources of income rely heavily on estimates, and we use our historical experience as well as our short-and long-range business forecasts to provide insight.

Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the relevant taxing authorities based on the technical merits of the position. Our policy is to adjust these reserves when facts and circumstances change, such as the settlement or effective settlement of positions with the relevant taxing authorities. We have provided for the amounts we believe will ultimately result from these changes; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. Such differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.

Management intends to continue to permanently reinvest any future foreign earnings in Canada. Distributions of cash to the U.S. as dividends generally will not be subject to U.S. federal income tax. The Company has not provided foreign withholding or state income taxes on the undistributed earnings of its foreign subsidiaries, over which the Company will have sufficient influence to control the distribution of such earnings and has determined that substantially all such earnings have been reinvested indefinitely. These earnings could become subject to foreign withholding tax if they are remitted as dividends. As of December 31, 2023 and January 1, 2023, the Company estimates that repatriation of these foreign earnings would generate withholding taxes and state income taxes of approximately $5.9 million and $4.7 million, respectively.

See “Note 13—Income Taxes” to the annual consolidated financial statements for further information on income taxes.

Litigation and Contingencies

Accruals for litigation and contingencies are based on our assessment, including advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings and/or the expected resolution of contingencies. Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount is reasonably estimable. Accruals are based on information available at the time of the assessment due to the uncertain nature of such matters. As additional information becomes available, we reassess potential liabilities related to pending claims and litigation and may revise our previous estimates, which could materially affect our results of operations in a given period.

 

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BUSINESS

Our Mission

Our mission is to be the leader in safe, sustainable utility infrastructure services, while fulfilling our roles as a values-driven employer of choice and a responsible corporate citizen in the communities in which we live and work.

Our Business

Centuri is a leading, pure-play North American utility infrastructure services company with over 110 years of operating history that partners with regulated utilities to maintain, upgrade and expand the energy network that powers millions of homes and businesses. We are a leader in utility infrastructure services and 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 that ensure safe, reliable and environmentally sustainable grid operations. Our service offerings primarily consist of the modernization of utility infrastructure through the maintenance, retrofitting and installation of electric and natural gas distribution networks to meet current and future demands while also preparing systems for the transition to clean energy sources. We also serve complementary, attractive and growing end markets such as renewable energy and 5G datacom. Guided by our values and our unwavering commitment to serve as long-term partners to customers and communities, our more than 12,500 employees enable our customers to safely and reliably deliver electricity and natural gas and achieve their goals for environmental sustainability.

North America relies on electric and gas delivery infrastructure for the basic energy needs of homes and businesses and generally to maintain its dynamic economy, but existing infrastructure is subject to degradation and is often decades old. Despite significant recent investment, much of the existing electric grid and, according to PHMSA, more than 409,000 miles of gas main lines are more than 50 years old (including pipelines of unknown vintage) and in need of significant upgrade or replacement as of August 2023. Federal, state and local governments have increased regulatory stringency and enacted legislation to support the necessary infrastructure investments in the sector, aimed at preventing disruption, enhancing safety and readying to meet current and future demands. Additionally, labor market constraints, the need for cost efficiency and a steadily declining utility workforce have led utilities to become increasingly reliant on outsourced utility service providers, creating an overall growing market well positioned for consolidation. We believe these trends represent a significant challenge for utilities, but also an opportunity for outsourced utility infrastructure services companies to build and maintain more efficient, sustainable infrastructure that can meet the needs of future generations.

We often serve as an extension of our diverse utility customer base’s workforce, which consists of more than 400 customers as of the date of this prospectus. Our customers are leading electric, gas and combination utility companies across North America, including American Electric Power, Enbridge, Entergy, Exelon, NiSource, National Grid, Sempra Energy and Southern Company, among others. We also contract with certain large-scale 5G datacom providers to support increased utilization of 5G and network expansion with the addition of C-band and small cells. Our top 10 and top 20 customers are almost exclusively investment grade utilities and represented 49% and 71% of our revenues, respectively, during fiscal 2023.

 

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We have over 110 years of industry operating experience and offer a wide range of services across the electric and gas utility value chain as depicted below.

 

 

LOGO

We believe our brand, scale, experience and fulsome service offerings compose the necessary profile to attract and retain the best talent and to competitively position ourselves among the largest providers in the sector, while prioritizing the safety of our employees, customers and other stakeholders. We place a strong emphasis on employee training and development and have implemented a robust safety program that strives to ensure all projects are executed with the highest level of safety and quality standards.

We operate through a family of integrated companies that work together across different geographies, allowing us to establish solid relationships and a strong reputation for a wide range of capabilities. Operating across the utility value chain allows us to address diverse customer initiatives, and our knowledge, expertise and resources enable us to deliver successful projects that meet these ever-evolving needs. Furthermore, the composition of our workforce, which includes both union and non-union field labor, enables us to access a wide range of opportunities across regions, customers and projects.

Our core operations are focused on modernizing utility infrastructure, which reduces risks of hazardous gas leaks, reduces methane emissions from natural gas pipelines, hardens electric infrastructure from weather events, thereby increasing electric grid and delivery infrastructure resiliency, and improving overall safety, reliability, and sustainability of North American energy networks. By helping enable utility infrastructure to deliver safer, more sustainable solutions to meet the needs of our customers and the communities we collectively serve, our services are ESG-focused in nature, improving and expanding positive and sustainable impacts across the energy network. We are committed to being an ESG leader through both our work to advance infrastructure for clean energy delivery, as well as our internal commitments for sustainability that guide our operations and vision for the future. A robust internal ESG framework aligns directly with our overall corporate strategy and long-term vision.

To accommodate incremental demands from the broader transition to clean energy sources supported by key U.S. legislation, including the IRA and the IIJA, numerous infrastructure replacements or upgrades are needed. We are strongly positioned to support this transition by providing the infrastructure needed to connect renewable energy to existing distribution systems as well as expanding electric grid capacity and modernizing electric and gas delivery infrastructure to support future demand. Examples of this work include supporting the infrastructure needed to transport renewable natural gas from dairy farms, enabling grid connectivity for wind and solar energy, and building out infrastructure for electric vehicle (“EV”) charging stations and battery storage facilities.

We currently operate across 87 locations in 43 U.S. states and two Canadian provinces, enabling us to support our customers across multiple geographies. The majority of our customer relationships are governed by long-term

 

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MSAs, comprising approximately 82% of our total revenue during fiscal 2023. Additionally, of the remaining 18% of our total revenue that was generated from bid contracts, 7% was generated from existing MSA customers. We predominantly perform smaller, lower-risk distribution projects for our customers. Our focus on MSA-driven work, long-term customer partnerships and recurring maintenance-oriented work orders provides us with a highly visible demand outlook.

Geographic Footprint

 

 

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The utility services industry is highly fragmented and is comprised of a range of providers, from small, regional providers to scaled companies like Centuri. 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. Brand, scale, geographic footprint and breadth of services are key differentiating characteristics in the industry, which allow scaled companies such as ours to position themselves to capture opportunities that arise from sector tailwinds, including increasingly large utility footprints.

We maintain a favorable mix of contracts, with 77% of our fiscal 2023 revenue generated from variable-priced contracts (54% of revenue from unit-priced contracts and 23% from time and materials (“T&M”) contracts.) We believe that our exposure to fixed-price contracts, which represent the remaining 23% of our fiscal 2023 revenue, is among the lowest in the industry and serves to minimize execution risk across our operations.

 

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Our History

The roots of our combined family of companies date back to the early 20th century, beginning in 1909 with the founding of Riggs Distler. As a long-term strategy for continued growth into new geographies and service markets, Centuri was created in 2014 as a holding company for NPL and NPL Canada. Since then, the Centuri family of companies has grown both organically and with the acquisitions of multiple natural gas and electric infrastructure services companies, including the acquisition of Neuco in 2017, the acquisition of Linetec in 2018 and the acquisition of Riggs Distler in 2021.

Our Business Lines

We operate two primary lines of business, Gas Utility Services and Electric Utility Services, which were also our reportable segments as of December 31, 2023. As described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment Information”, beginning with our financial statements for the quarter ending March 31, 2024, for financial reporting purposes, we will divide our Gas Utility Services segment into a U.S. Gas segment and a Canadian Gas segment, and we will divide our Electric Utility Services segment into a Union Electric segment (consisting of our Riggs Distler and National subsidiaries) and a Non-Union Electric segment (consisting of our Linetec subsidiary).

Gas Utility Services: We provide comprehensive services, including maintenance, repair, installation and replacement services for natural gas local distribution utility companies (“LDCs”) focused on the modernization of their infrastructure. The work performed within our gas business includes solutions for all stages of utility work and is performed primarily within the distribution, urban transmission and end-user infrastructure rather than large-scale, project-based, cross-country transmission, which we believe substantially limits our execution risk. We are able to cater to the needs of our gas utility services customers by serving union markets (through our NPL and NPL Canada subsidiaries) and non-union markets (through our Neuco and Canyon Pipeline subsidiaries). The average size of an MSA work order performed for gas utility services is less than $15,500 and we typically execute more than 83,000 gas MSA work orders per year.

As a result of the age and condition of natural gas distribution infrastructure, regulatory stringency and environmental protection, the demand for natural gas infrastructure modernization services has increased and, we believe, will continue to grow, with several decades of infrastructure modernization necessary for most utilities. As a strategic partner to gas utilities, we have been a key beneficiary of gas pipeline modernization spending. With increasing demands placed on the United States energy network to support consumption and economic growth, there remains a critical need to upgrade gas pipeline infrastructure across the country to ensure potential safety and environmental hazards from leak-prone pipelines are minimized. In 2011, following certain natural gas pipeline incidents, the Department of Transportation (“DOT”) and PHMSA, an agency under the DOT that oversees the country’s pipeline infrastructure, issued a “Call to Action” to accelerate the repair, rehabilitation and replacement of leak-prone or otherwise high-risk pipeline infrastructure. The guidelines focused primarily on the highest risk indicators, which are infrastructure age and material such as cast and wrought iron, uncoated steel and certain vintage plastics commonly used in older pipelines. Since that time, gas utilities have undertaken substantial investment initiatives to replace these legacy pipelines and ensure their operations remain in compliance and partnered with scaled infrastructure services companies such as Centuri on the implementation of these initiatives.

Despite significant recent investment, according to PHMSA, more than 409,000 miles of gas distribution main lines are more than 50 years old (including pipelines of unknown vintage) and in need of significant upgrade or replacement as of August 2023. Based on recent rates of replacement, several decades of highly visible infrastructure modernization demand remain. Given our leading scale, broad range of capabilities, strong reputation and long-standing customer partnerships, we remain well positioned to capitalize on the long-term modernization trends.

Electric Utility Services: We provide a comprehensive set of electric utility services encompassing design, maintenance and repair, upgrade and expansion services for transmission and distribution infrastructure. Our electric

 

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work is focused on recurring local distribution and transmission services under MSAs as opposed to mega-scale, project-based, cross-country transmission, which we believe substantially limits our execution risk. The average size of an MSA work order performed for electric utility services customers is less than $26,500 and we execute more than 42,000 electric MSA work orders per year. During fiscal 2023, we completed over 120,000 MSA work orders, based on management estimates. We serve utility customers in both union markets (through our Riggs Distler and National subsidiaries) and non-union markets (through our Linetec subsidiary), primarily performing our services on utility customers’ infrastructure between the substation and end-user meter.

Given the increased occurrence of extreme weather events across North America and our role as a trusted partner throughout the communities we serve, our service offerings have grown to include emergency utility system restoration of overhead and underground delivery infrastructure, which is aimed at returning critical utility infrastructure back to working order after weather-related disruptions. This includes disruptions caused by named storms as well as smaller weather events that occur across the U.S. and Canada throughout the year. Furthermore, our expansive geographic reach enables us to pull both electric and gas resources from unaffected areas to respond with scale when and where our customers and others need us.

As a result of aging electric utility infrastructure, a growing need for investment in grid and related delivery system hardening to withstand more frequent adverse weather events and to support the transition to renewable sources, we believe demand for electric utility services will continue to increase in the foreseeable future. According to the Department of Energy, almost 70% of electric infrastructure in North America is over 25 years old, and we expect continued growth in the demand for replacements and upgrades.

In addition to our services for regulated electric and gas utilities, we serve several complementary, attractive growth market adjacencies, such as renewable energy and 5G datacom. Our renewable energy service offerings include onshore assembly and fabrication of offshore wind farm components as well as grid integration of wind and solar facilities. We believe we are particularly well positioned to capture incremental demand in the offshore wind space given the continuing expansion of projects in our core geographies as North America looks to renewable energy sources that can sustain all-time high grid demands. 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%. Leveraging our geographic footprint, scale and relationships with utility customers, we were awarded a landmark offshore wind supply chain contract in New York and have since earned additional contract awards to support other offshore wind projects throughout the Northeastern U.S. Our professional workforce and reputation for safety and quality has gained us a strong foothold in the offshore wind space, supporting both development and grid integration. Our crews and equipment are focused on onshore fabrication only, and not offshore transportation or installation, as these services are outsourced by our customers to other specialized providers. We also support customers in the deployment of EV charging stations and related infrastructure, as well as battery energy storage systems.

Our 5G datacom work primarily consists of small-cell and C-band installation and maintenance, electrical pole installation and mono and lattice tower installation, with additional potential for cross-sell opportunities. Given the electric pole maintenance, replacement and installation work we perform for utilities, we have the capability and expertise to provide 5G datacom services – particularly when such work occurs in utility poles’ “electrified zone,” the supply space located in the uppermost area where electric distribution cables, transformers and capacitors are found. Work in these zones is required to be performed by trained electric linemen. As a result, we can continue to serve our utility customers while capturing additional opportunities with cellular service providers. We expect increased outsourced work in the 5G datacom space to continue, given the densification needs stemming from the widespread adoption of 5G, rapid growth in broadband consumption and network functionality expectations.

We achieved revenues of $2.9 billion during fiscal 2023 and had backlog of approximately $5.1 billion with respect to existing MSAs and contracted project work as of fiscal year-end. Backlog represents our expected revenue from existing contracts and work in progress as of the end of the applicable reporting period. During fiscal 2023, 53% of our total revenues came from Gas Utility Services (specifically, 37% gas replacement, 13% new gas

 

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activities and 3% pipeline integrity), 45% came from Electric Utility Services (specifically, 18% electric distribution services, 9% telecom and other electric services, 8% electric transmission services, 7% offshore wind and 3% storm response) and the remaining 2% of revenues came from our corporate and other activities. Of the 53% of total revenues that came from Gas Utility Services, 47% came from U.S. Gas Utility Services and 6% came from Canadian Gas Utility Services. Of the 45% of total revenues that came from Electric Utility Services, 29% came from Non-Union Electric Services and 16% came from Union Electric Services. The remaining 2% of revenue was from other activities. Over the same time period, 54%, 23% and 23% of our total revenues came from unit-price, T&M and fixed-price contracts, respectively, and overall, 82% of our total revenue came from MSAs. We derived 92% of our revenues in fiscal 2023 from the United States (specifically, 33% from the Northeast region, 21% from the Midwest region, 29% from the South region and 9% from the West region) and 8% from Canada. Additionally ,we derived 77% of our revenues from regulated utilities customers and the remaining 23% from a combination of clean energy providers, independent transmission companies, home builders, municipalities and industrial customers.

In January 2024, the Company appointed a new Chief Executive Officer. Following the appointment of the Company’s new Chief Executive Officer, the Company underwent an internal personnel reorganization, causing the Company to re-evaluate its reportable segments. The Company determined that it was appropriate to re-align our reporting structure from two reportable segments consisting of (i) Gas Utility Services and (ii) Electric Utility Services, to the following four reportable segments: (i) U.S. Gas, (ii) Canadian Gas, (iii) Union Electric and (iv) 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. We will begin reporting under the new segment reporting structure beginning with our financial statements as of and for the fiscal three months ending March 31, 2024. The historical financial information presented in this prospectus is presented on the basis of the segment reporting structure that was in place as of December 31, 2023, and it does not reflect the new segment reporting structure.

Our Industry

Our industry encompasses a range of companies at national, regional and local levels, all of which specialize in providing outsourced infrastructure services to electric, gas and combination utilities. The competitive landscape has been consolidating but remains regionally fragmented, with many smaller infrastructure service providers. 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.

Geographic footprint, size and breadth of services are key differentiating characteristics in the industry and allow us to uniquely position ourselves to capture opportunities that arise. We are one of the few pure-play utility infrastructure service providers that is maintenance-oriented, distribution-focused and has no exposure to cross-country pipeline projects. Furthermore, we often maintain multiple service agreements with our customers across the U.S. and Canada.

 

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The utility industry is characterized by consistent growth of highly predictable, non-discretionary, regulatory-driven investment, supporting resilience through to economic cycles and periods of economic disruption. Additionally, 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. According to the C Three Group, total North American utility infrastructure capex and total North American utility infrastructure outsourced capex is forecasted to grow at mid-single digits, as shown in the charts below:

 

 

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Infrastructure spend is expected to continue to be robust, driven by increased investments in resiliency, replacing antiquated infrastructure, digitization and clean energy transition. According to the C Three Group, over the next five years, the compounded annual growth for the outsourced infrastructure spend market is expected to be around 6%. The LDC and electric transmission industries are effectively fully outsourced, with distribution infrastructure being the fastest growing segment as more utilities increase the use of outside providers.

We believe the following utility industry dynamics will have a material impact on demand for our services:

Aging Utility Infrastructure. As utility infrastructure ages, safety risks may also increase. A focus on safety, resiliency and the environment has driven, and is continuing to drive, increased regulatory stringency, and thus, investment to maintain, repair and replace utility infrastructure. According to PHMSA, as of August 2023, there were more than 409,000 miles of gas main lines in the U.S. that are more than 50 years old (including pipelines of unknown vintage) and in need of significant upgrade or replacement. The need for pipeline upgrade and replacement also extends to pipelines installed in more recent periods as they exceed age-related safety thresholds over time, resulting in an ongoing, resilient need for our services. The U.S. Department of Energy estimates more than 70% of the nation’s grid transmission lines and power transformers are over 25 years old, creating vulnerability exacerbated by increasingly frequent seasonal storms and extreme weather events in regard to above-ground electric facilities; we have also witnessed and expect continued growth in the demand for replacements and upgrades in that end market. Many cities throughout North America are grappling with the consequences of using outdated systems, including electrical grids, vulnerable above-ground infrastructure and gas pipelines, which could lead to increased energy consumption, service disruptions and potential safety hazards. As the frequency of catastrophic climate events and the pivot to a clean energy economy persists, continued buildout, upgrades and replacement of aging distribution and transmission assets will need to continue to facilitate resiliency, energy availability, emission reduction and elimination goals, and moving wind and solar energy to population centers.

 

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Long Tail of Maintenance and Replacement Work for Utilities. Many of the electric powerlines and gas pipelines that are currently in use have been in operation for decades and are reaching the end of their useful lives. According to the American Society of Civil Engineers and the Pipeline and Hazardous Materials Safety Administration, the average age of the U.S. gas distribution pipelines is over 40 years old, while the average age of transmission lines for electricity is over 50 years old. Utilities, including many of our largest customers, have decades-long replacement needs, providing excellent visibility on future modernization investment. Based on regular dialogue with our utility customer base, we have learned that many have plans for multiple decades, of system upgrade work to keep up with infrastructure modernization demand aimed at ensuring safe and reliable delivery of electricity and gas to their customers. Our customer base is closely aligned with those companies with the largest backlogs of leak prone pipes, which require substantial leak survey and detection efforts in advance of replacement. According to C Three Group, the average number of years required to complete utilities’ replacement needs spans over 35 years, based on current replacement rates.

Focus on Sustainability, Decarbonization and the Transition to Renewable Energy. The focus on decarbonization and the transition to clean energy has become more acute across the globe and is driving significant pools of capital to new investments in sustainable technologies. According to the United Nations, reaching the Paris Agreement’s goal of limiting global warming to 1.5ºC will require an estimated $3-6 trillion of investment per year through 2050.

Notably, to help meet the Paris Agreement’s goals, the IRA provides a significant amount of funds for sustainability and renewable energy policies, and according to the White House, is the largest single action taken by the U.S. government to date in attempting to mitigate against the effects of climate change, by incentivizing investment in clean energy technologies.

As of September 2023, over 37 states in the United States have set ambitious renewable energy goals with clear targets and commitments to significantly increase reliance on renewable energy sources as early as 2033.

U.S. State Renewable Energy Targets

 

 

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As a result of the renewable energy targets states have set, we expect growing demand for offshore wind, utility scale solar, battery energy storage systems (“BESS”) and other renewable energy sources, all of which require incremental infrastructure investments. As an example, the U.S. offshore wind market is poised for

 

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significant growth through the remainder of the current decade along with other alternative sources of energy. 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%. To build that capacity, the DOE estimates spend of more than $12 billion per year through 2030, with an additional $11 billion needed to support infrastructure investments including marshaling ports, fabrication ports, and large installation vessels needed to support the manufacture, transport, and installation of major offshore wind energy components. Below are the expected offshore wind installations in the U.S. through 2030, courtesy of Wood Mackenzie.

 

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Continued Service Provider Consolidation Driven by Increasingly Large Utility Footprints. Over the past decade, there has been a wave of consolidation in the industry, as scaled providers are best positioned to address the increasingly complex needs of combination utilities and to offer consistent service across increasingly large utility footprints. North American utilities are consolidating their supply chains in an effort to streamline operations, lower costs, and support increasingly complex infrastructure. Scaled energy infrastructure service providers such as Centuri are better positioned to meet customers’ diverse and evolving needs by providing a wider breadth of services over a larger geographic footprint than that of smaller, regional providers. Moreover, scaled providers have a differentiated ability to invest in talent and can therefore offer superior and more consistent quality of services and availability of skilled craft labor.

Increasing Demand for Grid Capacity to Support Energy Transition and Overall Consumer Energy Use. As the world transitions towards cleaner sources of energy, including wind and solar power, the need for grid capacity is becoming increasingly important. The traditional electric energy infrastructure was built to support large, centralized power plants, but the rise of renewable energy sources leads to an increase in power generation distribution. This presents a new set of challenges for grid operators who must balance the variables related to the output of renewable sources with the constant demand for electricity. McKinsey forecasts that power consumption will triple by 2050, natural gas demand will increase 10% in the next decade, and renewables sources will account for 85% of global power generation by 2050. McKinsey further notes that wind and solar capacity in planning exceeds the existing capacity of the current electric grid. The need for grid capacity and system reliability to support increasing demand for energy, including those from intermittent renewable sources, presents a long-term runway of opportunity for us to support ongoing utility system modernization and the transition to a cleaner energy future.

Increasing Regulatory Stringency. The attention to safety and reliability of the grid over the past 20 years has culminated in increased investment in electric and gas infrastructure, which is expected to continue for the foreseeable future. This has led regulators throughout the United States to deploy significant efforts to set new initiatives in modernizing and improving the country’s electric and gas infrastructure while balancing reliable and affordable services for consumers and a timely recovery of costs for utilities. Governments and regulatory bodies are taking a closer look at these essential services industries, with the aim of improving safety, reducing emissions and ensuring fair pricing for consumers. Many countries have set ambitious emission targets for the energy sector and regulators are playing a key role.

The U.S. Energy Policy Act of 2005 established mandatory electric grid reliability standards and incentivized investments in transmission and distribution systems. PHMSA instituted Distribution Integrity Management Programs effective February 2010, which require operators of gas distribution pipelines to develop and implement

 

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integrity management programs to enhance safety by identifying and reducing pipeline integrity risks. FERC Order No. 1000, issued in July 2011, established transmission planning requirements to encourage development of electric transmission infrastructure projects. In 2020, PHMSA issued Part One of its “Mega Rule,” which included requirements for reconfirming transmission pipeline maximum allowable operating pressure and verification of pipeline materials, in addition to expanding assessments and requirements for work in moderate consequence areas, among other things. The U.S. government also enacted the Protecting Our Infrastructure of Pipelines and Enhance Safety Act in 2020 to address a variety of pipeline safety issues. Then in March 2022 and August 2022, PHMSA issued rules amending federal pipeline safety regulations applicable to valve installation and minimum rupture detection standards for transmission pipelines, and passing amendments applicable to transmission pipeline integrity management, effective in October 2022 and May 2023, respectively. Likewise, there has been significant attention placed on wildfire and outage mitigation as well as electric grid modernization, through state regulatory proceedings, national infrastructure legislation and other initiatives. The IRA includes a number of provisions to accelerate the deployment of clean energy technologies, including incentives for the buildout of necessary infrastructure and the allocation of $1 billion for pipeline modernization in under-resourced communities. The U.S. Department of Energy estimates more than 70% of the nation’s grid transmission lines and power transformers are over 25 years old, creating vulnerability exacerbated by increasingly frequent seasonal storms and extreme weather events, in regard to above-ground electric facilities.

Increased Investments in Grid Reliability and Hardening. As North America becomes ever more reliant on renewable power generation and severe weather events occur more frequently, the scrutiny of North American above-ground utility infrastructure increases. Utilities are being required to invest more in grid infrastructure hardening to prevent electric delivery disruptions and wildfires. 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. Additionally, according to a report published by the Edison Electric Institute 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 Edison Electric Institute, U.S. electric utilities are spending between 34-37% of their transmission and distribution capex on adaptation, hardening and resilience initiatives. We expect demand for system modernization and upgrades to continue well into the future for the purpose of enhancing electric grid and natural gas network reliability.

Total Public Investor-Owned U.S. Electric Utility Capital Expenditures (dollars, in billions)

 

 

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Declining Utility Workforce and Increased Reliance on External Providers. Increasing demand for utility infrastructure maintenance and replacement driven by regulatory stringency, aging utility infrastructure, widespread deployment of smart grid technologies and steady declines in the utility workforce alongside other industry trends have pushed utilities to rely on external service providers to meet these needs. According to the C Three Group, over the next five years, the compounded annual growth for the outsourced infrastructure spend market is expected to be around 6%. A declining utility workforce coupled with increasing infrastructure needs

 

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are driving utilities to become more reliant on external providers for innovative problem solving. 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. Additionally, according to the U.S. Department of Labor, a significant percentage of the remaining internal utility workforce is eligible to retire over the next six to eight years, with 23% of the utility workforce being at least 55 years old as of January 2024, further limiting in-house utility labor resources.

The majority of utilities, whether electric, gas or combination, outsource a substantial portion of their capital expenditure work to providers like us.

As evidence of this increasing reliance on external providers, between 2010 and 2022, LDC capital expenditures increased over 200%, while employment numbers have remained mostly flat over the same period, according to the C Three Group. To meet their needs, total outsourced spend by utilities with infrastructure service contractors for LDC work in 2022 was almost $19 billion, an increase of over 300% from 2010 levels, according to the C Three Group.

Total natural gas LDC spend is projected to grow by 20% through 2026. Regardless of the pace at which these expenditures grow, it is expected that utilities will require external providers to meet their capital expenditure needs.

Boosted Stimulus Spending. The U.S. grid consists of more than 7,300 power plants, 160,000 miles of high-voltage power lines and millions of low-voltage power lines. The U.S. government has created a number of policies aimed at stimulating the economy and providing the means to help reinforce the country’s infrastructure.

The IRA, signed into law in 2022 and which includes nearly $370 billion of investments, is aimed at supporting the antiquated infrastructure by incentivizing companies to invest in the areas of clean energy, transportation and environmental sustainability. Its goal is to achieve a 40% reduction of CO2 and menthane by 2030 and will have a direct impact on both the electric and gas industries. This act is the single largest action ever taken by the U.S. government in an attempt to address climate change. It includes several important provisions that will have a direct impact on utility infrastructure spend, including: