Centuri Holdings Inc

Previous wording

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

Current wording

We use a 52/53-week fiscal year that ends on the Sunday closest to the end of the calendar year. Unless otherwise stated, references to months and years throughout relate to fiscal months and years rather than calendar months and years. The first fiscal nine months of 2024 and 2023 ended on September 29, 2024 and October 1, 2023, respectively, and each period had 39 weeks. The third fiscal quarters of 2024 and 2023 each had 13 weeks.

Previous wording

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

Current wording

As of and prior to December 31, 2023, we reported our results under the following two reportable segments: Gas Utility Services and Electric Utility Services. In January 2024, we appointed a new Chief Executive Officer, who we determined to be our chief operating decision maker (“CODM”). Following this appointment, we underwent an internal personnel reorganization, causing us to re-evaluate our reportable segments based on the information reviewed by the new CODM. We determined that it was appropriate to re-align our reporting structure from the following two reportable segments: (i) Gas Utility Services; and (ii) Electric Utility Services, to the following four reportable segments: (i) U.S. Gas Utility Services (“U.S. Gas”); (ii) Canadian Gas Utility Services (“Canadian Gas”); (iii) Union Electric Utility Services (“Union Electric”); and (iv) Non-Union Electric Utility Services (“Non-Union Electric”). The U.S. Gas and Canadian Gas businesses have historically been part of our Gas Utility Services segment, and the Union Electric and Non-Union Electric businesses have historically been part of our Electric Utility Services segment. All prior year segment financial information has been recast to reflect the new segment structure. Effective July 31, 2024, we appointed an interim Chief Executive Officer who currently acts as the Company’s CODM. However, there has been no change in the information reviewed by the CODM.

Previous wording

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

Current wording

Our operations are affected by increases in prices, whether caused by inflation, rising interest rates or other economic factors. We attempt to recover anticipated increases in the cost of labor, equipment, fuel and materials through price escalation provisions that allow us to adjust billing rates for certain major contracts annually; by considering the estimated effect of such increases when bidding or pricing new work; or by entering into back-to-back contracts with suppliers and subcontractors. However, the annual adjustment provided by certain contracts is typically subject to a cap and there can be an extended period of time between the impact of inflation on our costs and when billing rates are adjusted. Our actual costs at times can exceed the contractual caps, and therefore negatively impact our operations. Additionally, rising interest rates on our variable-rate debt could have a negative effect on our business, financial condition and results of operations. Overall, the third quarter of 2024 was not significantly impacted by inflation when compared to the same quarter in the prior year, as we have begun to see slower growth in prices in recent periods.

Previous wording

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

Current wording

Backlog represents estimates of revenue to be realized under long-term master service agreements (“MSAs”) and bid agreements. Backlog differs from remaining performance obligations disclosed in “Note 3 — Revenue and Related Balance Sheet Accounts” to the condensed consolidated financial statements, as remaining performance obligations are limited to contractually obligated revenue on our contracts that exceed one year, which is typically only bid projects, whereas backlog is inclusive of all contracts regardless of length and includes estimated future work under MSAs. Generally, customers are not contractually committed to specific volumes of work under MSAs, and MSAs may be terminated by either party upon notice. Revenue estimates for MSAs are based on historical customer trends. Projects included in backlog can be subject to delays or cancellation as a result of regulatory requirements, adverse weather conditions, customer requirements and other factors that could cause actual revenue to differ significantly from the estimates, or cause revenue to be realized in periods other than originally expected. Backlog as of September 29, 2024 was approximately $4.3 billion, approximately 87% of which related to MSAs, and backlog as of December 31, 2023 was approximately $5.1 billion, approximately 90% of which related to MSAs.

Previous wording

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

Current wording

Our results of operations, on a consolidated basis and by segment, for the fiscal three and nine months ended September 29, 2024 and October 1, 2023 are set forth below.

Previous wording

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

Current wording

The following table summarizes our consolidated results of operations for the fiscal three months ended September 29, 2024, and October 1, 2023 including as a percentage of revenue, as well as the dollar and percentage change from the prior year period.

Previous wording

•Revenue from our Canadian Gas segment totaled $75.6 million, reflecting a decrease of $11.7 million, or 13.4%, compared to the prior year period. This decrease was primarily due to a reduction in net volumes under existing MSAs. As a percentage of revenue, gross profit increased to 19.7% in the current period as compared to 13.8% in the prior year period primarily due to favorable changes in mix of work.

Current wording

•Revenue from our Canadian Gas segment totaled $50.4 million, reflecting a decrease of $4.2 million, or 7.8%, compared to the prior year period. This decrease was primarily due to a reduction in net volumes under existing

Previous wording

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

Current wording

MSAs. As a percentage of revenue, gross profit increased to 23.4% in the current period as compared to 18.4% in the same period from the prior year primarily due to favorable changes in mix of work.

Previous wording

•Revenue from our Union Electric segment totaled $328.1 million, reflecting a decrease of $95.8 million, or 22.6%, compared to the prior year period. This decrease was driven by a decline in offshore wind revenue of $33.4 million due to timing of projects, as well as a reduction in net volumes under existing customer MSAs, which was partially due to unfavorable weather. Storm restoration services revenue for the Union Electric segment was $13.6 million for the current period compared to $13.4 million for the prior year period. As a percentage of revenue, gross profit decreased to 7.1% in the current period as compared to 7.6% in the prior year period primarily due to changes in the mix of work.

Current wording

•Revenue from our Union Electric segment totaled $171.7 million, reflecting a decrease of $32.5 million, or 15.9%, compared to the prior year period. This decrease was driven by a decline in offshore wind revenue of $38.0 million due to timing of projects, partially offset by increased revenue on bid projects. Storm restoration services revenue for the Union Electric segment was $6.7 million for the current period compared to $10.8 million for the prior year period. As a percentage of revenue, gross profit increased to 9.0% in the current period as compared to 5.7% in the prior year period as the segment experienced higher margins on their increased bid volumes.

Previous wording

•Revenue from non-reportable segments decreased due to timing of bid projects, and profitability was negatively impacted by performance issues on certain bid projects.

Current wording

•Revenue from non-reportable segments decreased due to timing of bid projects.

Previous wording

The decrease in interest expense, net in the current period compared to the prior year period was primarily due to a reduction in average debt balance as we paid down $156.0 million of debt under our revolving credit facility and $160.0 million of debt under our term loan facility with proceeds from our IPO and private placement on April 22, 2024.

Current wording

The decrease in interest expense, net in the current period compared to the prior year period was primarily due to a reduction in average debt balance as we paid down $156.0 million of debt under our revolving credit facility and $160.0 million of debt under our term loan facility with proceeds from our IPO and private placement on April 22, 2024. This decrease was partially offset by $1.7 million recorded in interest expense in the current quarter related to a write-off of debt issuance costs associated with our term loan which was partially paid down using proceeds from the Securitization Facility.

Previous wording

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

Current wording

The following tables and discussion summarize our consolidated results of operations for the fiscal nine months ended September 29, 2024, and October 1, 2023 including as a percentage of revenue, as well as the dollar and percentage change between fiscal quarters.

Previous wording

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

Current wording

•Revenue from our U.S. Gas segment totaled $933.3 million, reflecting a decrease of $113.6 million, or 10.9%, compared to the prior year period. This decrease was largely due to a reduction in net volumes under existing customer MSAs stemming primarily from delayed or unfavorable regulatory decisions faced by key customers and timing of bid projects, as the prior year benefited from the commencement of a large project that was substantially complete in the third quarter of 2023. As a percentage of revenue, gross profit decreased to 5.3% in the current period from 9.5% in the prior year period. Profitability was negatively affected by lower margins on bid work as well as higher costs of insurance claims. Additionally, the prior year period reflected higher utilization of fixed costs due to increased volumes on both MSA and bid projects. Revenue from Southwest Gas Corporation totaled $79.2 million for the current period compared to $88.4 million in the prior year period.

Previous wording

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

Current wording

•Revenue from our Union Electric segment totaled $499.7 million, reflecting a decrease of $128.3 million, or 20.4%, compared to the prior year period. This decrease was driven by a decline in offshore wind revenue of $71.4 million due to timing of projects, as well as a reduction in net volumes under existing customer MSAs. Storm restoration services revenue for the Union Electric segment was $20.3 million for the current period compared to $24.2 million for the prior year period. As a percentage of revenue, gross profit increased to 7.8% in the current period as compared to 7.0% in the prior year period primarily due to changes in the mix of work and in part from cost savings realized due to restructuring activities which occurred in the prior period.

Previous wording

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

Current wording

•Revenue from our Non-Union Electric segment totaled $346.0 million, reflecting a decrease of $34.9 million, or 9.2%, compared to the prior year period. This decrease was primarily driven by a decrease in volumes under existing MSAs, partially offset by an increase in storm restoration services revenue of $7.5 million (which was $66.7 million for the first nine months of 2024 compared to $59.2 million for the same period in 2023). As a percentage of revenue, gross profit decreased to 11.7% in the current period, compared to 13.6% in the same period from the prior year. Profitability was negatively affected by unfavorable changes in mix of work and underutilization of fixed costs stemming from lower work hours.

Previous wording

Selling, general and administrative costs decreased by $9.4 million, or 31.2%, in the current period compared to the same period in the prior year primarily due to lower incentive compensation during the current period and reductions in corporate salary and benefit costs.

Current wording

Selling, general and administrative costs decreased by $5.2 million, or 6.3%, in the current period compared to the same period in the prior year primarily due to lower incentive compensation during the current period and reductions in corporate salary and benefit costs stemming in part from the restructuring activities that have taken place, partially offset by $1.4 million in transaction fees incurred in association with the Company’s Securitization Facility.

Previous wording

Interest expense, net decreased by $0.2 million between periods due to a reduction in average debt balance, partially offset by higher interest rates on outstanding variable-rate borrowings.

Current wording

Interest expense, net decreased by $2.4 million between periods due to a reduction in average debt balance, partially offset by higher interest rates on outstanding variable-rate borrowings and $1.7 million recorded in interest expense related to a write-off of debt issuance costs associated with our term loan which was partially paid down using proceeds from the Securitization Facility.

Previous wording

The Company’s effective tax rate for the fiscal three months ended June 30, 2024 and July 2, 2023 were (4.2%) and 37.3%, respectively. The effective tax rate in the current periods is being substantially impacted by the disproportionate amount of non-deductible expenses in relation to income before income taxes. Additionally, differences in pre-tax income/loss by jurisdiction caused fluctuations in the effective tax rate when comparing periods.

Current wording

The Company’s effective tax rate for the fiscal nine months ended September 29, 2024 and October 1, 2023 was (3.1)% and 37.3%, respectively. The effective tax rate for the current period was impacted by the disproportionate amount of non-deductible expenses in relation to income before income taxes as well our use of the actual effective tax rate instead of the estimated annual effective tax rate method used in prior interim periods (refer to “Note 12 — Income Taxes” to the condensed consolidated financial statements for further discussion).

Previous wording

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

Current wording

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

Previous wording

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) strategic review costs, and (iii) severance costs. Adjusted EBITDA Margin is defined as the percentage derived from dividing Adjusted EBITDA by revenue.

Current wording

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) strategic review costs, (iii) severance costs, (iv) securitization facility transaction fees, (v) CEO transition costs. Adjusted EBITDA Margin is defined as the percentage derived from dividing Adjusted EBITDA by revenue.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

Using EBITDA as a performance measure has material limitations as compared to net (loss) 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 revenue, depreciation and amortization are necessary elements of our costs and ability to generate revenue. Finally, EBITDA excludes income taxes; however, as we are organized as a corporation, the payment of taxes is a necessary element of our operations. As a result of these exclusions from EBITDA, any measure that excludes interest expense net of interest income, depreciation and amortization and income taxes has material limitations as compared to net income (loss). When using EBITDA as a performance measure, management compensates for these limitations by comparing EBITDA to net income/loss in each period, to allow for the comparison of the performance of the underlying core operations with the overall performance of the Company on a full-cost, after-tax basis.

Previous wording

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

Current wording

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) strategic review and related costs incurred in connection with the separation and stand up of Centuri as its own public company are non-recurring; (iii) severance costs relate to non-recurring restructuring activities, (iv) securitization facility transaction fees represent legal and other professional fees incurred to establish our Securitization Facility, (v) CEO transition costs represent incremental costs incurred to find and hire a replacement CEO, and (vi) loss on debt extinguishment relates to the write-off of debt issuance costs on the Company’s term loan. Because EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income, as defined, exclude some, but not all, items that affect net (loss) income, such measures may not be comparable to similarly titled measures of other companies. The most comparable GAAP financial measure, net (loss) income, and information reconciling the GAAP and non-GAAP financial measures, are set forth below.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

As of September 29, 2024 and December 31, 2023, cash and cash equivalents were $52.5 million and $33.4 million, respectively. Historically, our primary sources of liquidity have been cash flows from operations and debt financing. As discussed in “Note 1 — Description of Business” to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, and “The Offering” within the IPO Prospectus, the Centuri IPO and concurrent private placement have led to changes in our capital structure and sources of liquidity. As part of the Centuri IPO and concurrent private placement which closed on April 22, 2024, we received total net proceeds of $328.0 million in exchange for 16,851,929 shares of our common stock, with $316.0 million of the proceeds being used to pay down our existing debt. In September 2024, we entered into our Securitization Facility with PNC Bank, National Association ("PNC") to improve cash flows from trade accounts receivable and used a majority of the proceeds to pay down our existing debt. Under the Securitization Facility, certain designated subsidiaries of the Company have sold and/or contributed, and will continue to sell and/or contribute, their accounts receivable and contract assets generated in the ordinary course of their business and certain related assets to an indirect wholly owned bankruptcy-remote Special Purpose Entity (“SPE”) of the Company created specifically for this purpose. The SPE transfers ownership and control of accounts receivable to PNC for payments as set forth in the agreement. The Company accounts for accounts receivable sold to the banking counterparty as a sale of financial assets and has derecognized the accounts receivable from the condensed consolidated balance sheet for the current period. The total outstanding balance of accounts receivable that have been sold and derecognized is $125.0 million as of September 29, 2024. As of September 29, 2024, we had no available capacity under the Securitization Facility. We believe our capital resources, including existing cash balances, together with our operating cash flows and borrowings under our credit facilities, are sufficient to meet our financial obligations for at least the next 12 months.

Previous wording

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

Current wording

Net cash provided by operating activities for the fiscal nine months ended September 29, 2024 was $97.2 million, compared to $61.8 million for the fiscal nine months ended October 1, 2023, representing an increase in operating cash flows of $35.4 million, primarily due to $125.0 million cash received as part of our Securitization Facility, net of other changes in net working capital and reductions in net income.

Previous wording

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

Current wording

Net cash used in investing activities was $59.3 million in the period ended September 29, 2024 compared to $71.9 million for October 1, 2023, a decrease of $12.6 million.

Previous wording

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

Current wording

The construction industry is capital intensive, and we expect to continue to incur capital expenditures to meet anticipated needs for our services. For the fiscal nine months ended September 29, 2024 and October 1, 2023, we had capital expenditures of $66.1 million and $79.6 million, respectively.

Previous wording

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

Current wording

These items were partially offset by proceeds from the sale of property and equipment of $6.8 million and $7.7 million for the fiscal nine months ended September 29, 2024 and October 1, 2023, respectively.

Previous wording

Net cash provided by financing activities increased by $92.3 million during the fiscal six months ended June 30, 2024 compared to the fiscal six months ended July 2, 2023, as net proceeds from the Centuri IPO and private placement of $330.3 million (excluding the impact of offering costs accrued as of June 30, 2024) combined with proceeds from line of credit borrowings, exceeded our financing uses of cash, including the $160.0 million payment on our term loan and $156.0 million payment on our revolving credit facility with IPO proceeds, and our redemption of redeemable noncontrolling interest for $92.8 million.

Current wording

Net cash used in financing activities increased by $2.7 million during the fiscal nine months ended September 29, 2024 compared to the fiscal nine months ended October 1, 2023. Significant changes in financing activities during the current fiscal year include cash inflows from net proceeds from the Centuri IPO and private placement of $328.0 million, and cash flow outflows for the $160.0 million payment on our term loan and $156.0 million payment on our revolving credit facility with IPO proceeds, $100.0 million payment on our term loan with proceeds from the Securitization Facility, and our redemption of redeemable noncontrolling interest for $92.8 million.

Previous wording

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

Current wording

While we primarily operate in the United States, we also have operations in Canada. Therefore, changes in the value of Canadian dollars affect our financial statements when translated into U.S. dollars. The revenue from our Canadian operations was approximately 7% and 8% of total revenue, for the fiscal nine months ended September 29, 2024, and October 1, 2023, respectively. At times, we also enter into transactions in foreign currencies, primarily in Canadian dollars, that subject us to currency risks. We regularly monitor our foreign currency exposure to determine the most effective foreign currency risk mitigation strategies. Currently, we are not party to any foreign currency exchange contracts.

Previous wording

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

Current wording

We have a senior secured revolving credit and term loan multi-currency facility. The line of credit portion comprises $400 million, and associated amounts borrowed and repaid are available to be re-borrowed. The term loan facility portion provided approximately $1.145 billion in financing as of August 27, 2021. The term loan facility expires on August 27, 2028, and the revolving credit facility expires on August 27, 2026. This multi-currency facility allows us to request loan advances in either Canadian dollars or U.S. dollars. The obligations under the credit agreement are secured by present and future ownership interests in substantially all of our direct and indirect subsidiaries, substantially all of our tangible and intangible personal property, and all products, profits and proceeds of the foregoing. Assets securing the facility totaled $2.0 billion as of September 29, 2024 and $2.1 billion as of December 31, 2023. During the fiscal nine month period ended September 29, 2024, the maximum amount outstanding on the combined facility was $1.117 billion, at which point $991.4 million was outstanding on the term loan portion of the facility. As of September 29, 2024 and December 31, 2023, $116.4 million and $77.1 million, respectively, was outstanding on the revolving credit facility, in addition to $731.4 million and $994.2 million, respectively, that was outstanding on the term loan portion of the facility. Also as of September 29, 2024 and December 31, 2023, there was approximately $218.4 million and $246.5 million, respectively, net of outstanding letters of credit, of unused capacity under the line of credit. We had $59.8 million and $48.6 million of unused letters of credit available as of September 29, 2024 and December 31, 2023, respectively.

Previous wording

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

Current wording

On March 22, 2024, we amended the financial covenants of the revolving credit facility (the “2024 Credit Facility Amendment”) to increase the maximum net leverage ratio. The terms of the amended revolving credit facility required us to maintain certain net leverage ratios, which have since been superseded as noted in the paragraph below.

Previous wording

With the proceeds obtained from the Centuri IPO, we paid down $156.0 million of debt under our revolving credit facility and $160.0 million of debt under our term loan facility. Pursuant to the terms of our 2024 Credit Facility Amendment, completion of the Qualified IPO resulted in a change to the maximum net leverage ratio based on the amount of proceeds received. We are now required to maintain a net leverage ratio of less than a maximum of 5.00 to 1.00 from April 18, 2024 through June 30, 2024, 4.75 to 1.00 from July 1, 2024 through September 29, 2024, and 4.00 to 1.00 on September 30, 2024 and thereafter.

Current wording

With the proceeds obtained from the Centuri IPO, we paid down $156.0 million of debt under our revolving credit facility and $160.0 million of debt under our term loan facility. Pursuant to the terms of our 2024 Credit Facility Amendment, completion of the Qualified IPO resulted in a change to the maximum net leverage ratio based on the amount of proceeds received. We are now required to maintain a net leverage ratio of less than a maximum of 5.25 to 1.00 from April 18, 2024 through June 30, 2024, 5.00 to 1.00 from July 1, 2024 through September 29, 2024, and 4.25 to 1.00 from September 30, 2024 through December 29, 2024, and 4.00 to 1.00 thereafter.

Previous wording

As a result of the payments on our term loan and revolving credit facility with IPO proceeds, our contractually obligated principal payments on long-term debt over are now as follows (dollars in thousands):

Current wording

As a result of the prepayments on our term loan and revolving credit facility, our contractually obligated principal payments on long-term debt over are now as follows (dollars in thousands):

Previous wording

Based on the weighted average interest rate on the term loan facility of 7.96% as of June 30, 2024, the prepayment of our term loan with IPO proceeds reduces our contractually obligated interest payments on our term loan by approximately

Current wording

Based on the weighted average interest rate on the term loan facility of 7.87% as of September 29, 2024, the prepayment of our term loan with proceeds from the IPO reduces our contractually obligated interest payments on our term loan by approximately $3.1 million throughout the remainder of 2024, $22.0 million between 2025 and 2026, and $15.8 million between 2027 and 2028.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

This discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires the use of estimates and assumptions. A summary of our critical accounting policies and estimates is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the IPO Prospectus. We are required to make estimates and judgments in the preparation of our condensed consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in the estimates and assumptions we use could have a material impact on our financial results. During the fiscal nine months ended September 29, 2024, there were no material changes in our critical accounting estimates or policies.