Centuri (CTRI) Q4 2025 earnings review
Core Growth Accelerates, but Margins Lag the Top Line
Centuri delivered a record $858.6M in Q4 revenue (+20% YoY), fueled by an impressive 28% surge in its core 'Base Revenue' that completely overcame a massive $46M YoY drop in high-margin storm restoration work. The company exits 2025 fundamentally stronger: it has fully separated from Southwest Gas, expanded its backlog by 59% to $5.9B, and crushed its leverage down to 2.5x. However, the bottom line tells a more complicated story. While reported Net Income tripled due to a $23.7M one-time tax benefit, Adjusted Net Income actually fell 13% YoY. Rapid scaling costs, particularly in the Non-Union Electric segment, are severely compressing margins and preventing the top-line boom from translating to proportionate earnings growth.
🐂 Bull Case
The company secured $4.5B in total 2025 bookings, resulting in a record $5.9B backlog (up 59% YoY). With approximately $1.1B in early 2026 bookings already secured, management has line of sight to over 85% of their 2026 Base Revenue guidance.
Net debt to Adjusted EBITDA collapsed from a risky 3.8x in Q3 to a healthy 2.5x at year-end. This was achieved through a potent combination of $105.7M in Q4 Free Cash Flow and a timely $250.9M equity raise.
🐻 Bear Case
Adjusted Net Income fell 13% YoY to $15.9M in Q4, despite total revenue growing 20%. Higher SG&A expenses and scaling costs dragged down core profitability.
The Non-Union Electric segment suffered a severe 29.5% YoY drop in Gross Profit despite 17% revenue growth. Ramping costs for newly won Master Service Agreements (MSAs) remain a stubborn headwind to operating leverage.
⚖️ Verdict: ⚪
Neutral. The commercial execution and balance sheet cleanup are stellar, completely de-risking the standalone Centuri story. But until management proves they can rein in MSA ramp costs and translate 20%+ top-line growth into actual earnings per share growth, the upside is capped.
Key Themes
Surging Backlog Provides Unparalleled Baseline
Centuri's shift toward multi-year Master Service Agreements (MSAs) is paying massive dividends. Backlog grew to $5.9B, up 59% from $3.7B a year ago. In Q4 alone, the company booked $814M, with a staggering 93% coming from new awards rather than just renewals. This provides exceptionally high revenue visibility entering 2026.
Severe Margin Squeeze in Non-Union Electric
A massive red flag: Non-Union Electric Gross Profit plunged 29.5% YoY (from $21.4M to $15.1M) while revenue grew 17%. The segment's gross margin collapsed from 15.3% a year ago to just 9.2%. Management previously flagged that mobilizing massive headcount increases for new MSAs causes margin lag, but the depth of this Q4 contraction suggests significant ongoing operational friction.
Dramatic Deleveraging Completed
Leverage was a lingering concern throughout 2025, peaking at 3.8x in Q3 due to working capital drag. The company forcefully reversed this in Q4, driving Net Debt to Adjusted EBITDA down to 2.5x. This was accomplished by generating $105.7M in Q4 Free Cash Flow and raising $250.9M in fresh equity, clearing the path for strategic M&A without balance sheet anxiety.
Financial Separation & Tax Windfall
Centuri officially completed its separation from former parent Southwest Gas. A resulting revision to Southwest Gas's 2025 taxable income estimates triggered a $23.7M deferred tax asset allocation benefit for Centuri in Q4. While this wildly inflated reported Net Income ($30.4M vs $10.3M YoY), investors must strip this out to see the true underlying earnings decay (Adjusted Net Income fell 13%).
Storm Revenue Disappears, Validating 'Base' Metric
Storm restoration revenue plummeted from $49.7M in 24Q4 to just $3.5M in 25Q4. Management's recent pivot to emphasizing 'Base Revenue' and 'Base Gross Profit' metrics was timely—without these adjustments, the underlying 28% core revenue growth and 50% core gross profit growth would have been obscured by the uncontrollable weather comps.
Other KPIs
A massive reversal. After generating negative free cash flow earlier in the year due to acute working capital builds (accounts receivable tied to rapid revenue growth), the company collected aggressively in Q4. Full-year FCF ended at $35.7M, completely backloaded to the final quarter.
Accelerating. Up 16.5% YoY, completely shaking off the Q1 winter weather disruptions that plagued the segment earlier in the year. Importantly, Gross Profit surged 37.4%, proving the company can drive operating leverage in its oldest core segment.
Guidance
Accelerating slightly. The midpoint ($3.39B) implies 13.6% YoY growth over 2025's $2.98B, matching the strong 13.1% growth delivered in 2025. It assumes normalization of $88M in storm revenues.
Stable double-digit growth. Midpoint ($3.30B) implies 12.1% YoY growth, heavily de-risked by the $5.9B backlog and management's claim that 85% of this target is already covered by backlog and Q1 bookings.
Accelerating. The midpoint of $295M implies 18.5% YoY growth, significantly outpacing the 13.6% implied revenue growth. If achieved, this indicates management expects to resolve the current margin compression issues and deliver meaningful operating leverage.
Key Questions
Non-Union Electric Margins
Gross profit in Non-Union Electric fell nearly 30% this quarter despite 17% top-line growth. Exactly how much of this was driven by upfront MSA mobilization costs, and at what specific point in 2026 do you expect these newly ramped crews to reach corporate-average margins?
U.S. Gas Q1 Seasonality
Last year, Q1 U.S. Gas operations presented a $15 million drag on EBITDA due to weather and seasonality. What specific geographic shifts or contract structures have been implemented to ensure we don't see a repeat of this drag in Q1 2026?
Capital Allocation Framework
With leverage drastically reduced to 2.5x and the Connect Atlantic acquisition closed, what is the priority for the $105M in quarterly free cash flow? Should investors expect aggressive M&A, debt paydown, or returns of capital?