Centuri Holding - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue rose 7.8% year over year to $717.1M, GAAP diluted EPS was $0.12, and adjusted diluted EPS was $0.21; adjusted EBITDA was $70.7M (9.9% margin), with net debt/TTM adjusted EBITDA improving to 3.6x.
• Segment mix: Non-Union Electric surged on storm work (+49.7% revenue YoY), Union Electric profitability improved despite offshore wind wind-down; U.S. Gas margins compressed on unfavorable mix.
• Backlog exited Q4 at $3.7B (≈90% MSA), and management initiated FY2025 outlook: revenue $2.60–$2.80B, adjusted EBITDA $240–$275M, net capex $65–$80M.
• Narrative catalysts: record storm restoration levels, rising crew counts in core non-union electric, CEO-led sales/process overhaul, and expected book-to-bill >1.1x in the next 12 months; offshore wind de-emphasized near term.
• Comparison to Street estimates was unavailable at time of request; S&P Global consensus could not be retrieved due to system limits.

What Went Well and What Went Wrong

What Went Well

• Strong storm restoration contributed $40.4M in Non-Union Electric revenue in the quarter (none prior year), lifting segment margins to 15.3%; Union Electric storm revenue increased to $9.3M vs $3.0M YoY.
• Adjusted EBITDA margin improved to 9.9% (+130 bps YoY), supported by higher-margin storm work and improved project mix in Union Electric.
• Pipeline and go-to-market sharpened under new CEO: “implemented a company-wide review of business development… structured approach to market positioning, cross selling… building our sales pipeline”. Management expects “book to bill in excess of 1.1x” over the next 12 months.

What Went Wrong

• U.S. Gas gross margin fell to 6.2% (from 7.8%), driven by unfavorable work mix and lower-margin Northeast work; management aims to normalize gas gross margins to 7–7.5% in 2025 after renegotiations/exits of underperforming contracts.
• Offshore wind revenue declined $43.0M YoY within Union Electric as projects wind down; management removed offshore wind from near-term pipeline assumptions.
• Quarter-over-quarter adjusted EBITDA declined to $70.7M from $78.8M in Q3 as storm normalization and mix offset core improvements.

Transcript

Operator (participant)

Greetings and welcome to Centuri's fourth quarter and full year 2024 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Wilcock, Centuri's Chief Legal and Administrative Officer and Corporate Secretary. Please, you may begin.

Jason Wilcock (Chief Legal and Administrative Officer and Corporate Secretary)

Thank you, Joelle, and hello, everyone. We appreciate you joining our call. This morning, we issued and posted on the Centuri Holdings' website our fourth quarter 2024 earnings release. The slides accompanying today's call are also available on Centuri Holdings' website. Please note that on today's call, we will address certain factors that may impact this year's earnings and provide some longer-term guidance. Some of the information that will be discussed today contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are, as of today's date, based on management's assumptions on what the future holds, but are subject to several risks and uncertainties, including uncertainties surrounding the impacts, future economic conditions, and regulatory approvals.

This cautionary note, as well as a note regarding Non-GAAP measures, is included on slides 2 and 16 of this presentation, today's press release, and our filings with the Securities and Exchange Commission, which we encourage you to review. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements, and we assume no obligation to update any such statement. Today's call is also being webcast live and will be available for replay in the investor relations section of our website shortly after the completion of this call. On today's call, we have from Centuri Holdings the following members of the leadership team: Chris Brown, President and Chief Executive Officer; Greg Izenstark, Chief Financial Officer. I'll now turn the call over to Chris.

Christian Brown (President and CEO)

Thank you, Jason. Good day, everybody. Thank you for joining us for our fourth quarter and full year 2024 earnings call. My first as President and CEO of Centuri. It is an honor to lead this organization, and I deeply appreciate the warm welcome I've received since joining in early December. Thank you to all my colleagues. Long before officially joining Centuri, over a number of years, I had the opportunity to observe how Centuri has built its scale, reach, and capability, and admire how it operates and services its clients. Moreover, during seven months of recruitment process, I was able to further strengthen my knowledge from inside the organization. Now, after over three months, I've engaged with many of our employees, our customers, routinely visited all of our primary operating locations, and visited many sites across North America.

In doing so, I've been truly impressed by the strength of our organization and the dedication of our people and our teams. Our leaders are deeply connected with their customers, possess a strong understanding of our organization, and consistently ensure that we deliver the safe, high-quality service that defines our organization and our culture. Against this backdrop, I'm incredibly enthusiastic to speak with the investment community for the first time today and in the weeks and months ahead. Centuri is a leading utility infrastructure services company and has a platform that we can build from, growing our end markets in a more focused, structured, and significant way. We believe we're incredibly well positioned in both our primary end markets. With respect to electric, we are able to capitalize on the evolving energy demands and infrastructure expansion.

The need to upgrade an aging grid, enhance its reliability, and expand its capacity due to the growth we are seeing from data centers, advanced manufacturing, electrification, and renewables presents significant opportunity for us. At the same time, natural gas remains a vital part of our mix of solutions that will be required to meet future end demands, and there is an improving and healthy demand for our services to expand and replace systems, pipelines, and infrastructure across North America. It is my job to ensure the growth we're seeing in the market is reflected in the company's growth and subsequent returns. This is where I intend to lean on my past experiences leading solid companies to structured, profitable growth. With the exciting prospects ahead, we are actively instilling a proactive growth mindset in our culture, one that maximizes capabilities across the entire enterprise and actively drives our expansion.

This means growing with our existing customers, adding new customers, and continuously looking for opportunities. Our leaders are being challenged to not just deliver services under contract, but to actively look for opportunities to do more. Achieving this requires having the best positioning, the best people, the best tools, and a culture to deliver greater value and services to all our existing and our new customers. As we complete the transition from being a subsidiary of a utility company to maturing as a standalone service provider, we will further our focus on the following areas in the coming months. Firstly, we'll create a structured company-wide approach to business development focused on high-growth development of our pipeline, more focused market positioning, business-winning strategies, and securing of new awards beyond our existing MSAs.

Our organizational obligation is to not only simply execute the services we are contracted to provide, but to grow and to bring further value to our customers. Secondly, we'll focus on improving capital efficiency with a focus on increasing returns across our asset base, which will include, one, growing the fleet size by reducing balance sheet funding and maximizing other efficient sources of funding, including leasing and rental, and two, a greater focus on reducing working capital by optimizing invoicing and our collections, and thirdly, improving our financial performance through tighter performance management, which includes exiting and renegotiating any of the contracts that we feel are underperforming. The implementation of these plans across these three focus areas is well underway, and we anticipate seeing tangible and quantifiable benefits over the coming months and quarterly reporting periods.

In the second half of 2025, we intend to build further on this work by conducting a more long-term view of our end markets and seek to quantify actions and plans needed to drive greater growth and sustainability into our business into the future. Before we turn to specific trends in our business, it's worth commenting about the changed political dynamic and evolving energy policy in the United States and how that impacts Centuri. Our view is that our core end markets across the entire value chain will remain strong. We are seeing capital investment levels continue to grow into the double digits, driven by the need for energy resiliency, demand, and growth.

We are positioning and have positioned our pipeline and future opportunity such that we are not relying upon new offshore wind and other unfunded major projects to deliver the growth expectations that we all have. Fortunately, Centuri has the capability, people, expertise, and a scaled platform to be able to meet infrastructure needs across the energy and utility value chain. Turning to business trends for the fourth quarter and today, starting with our gas business. During Q4, revenues and volumes under our MSA and our gas segment largely normalized. While rate cases are a constant factor in our industry, for 2025, we have not identified any that pose significant concerns regarding their potential impact on our 2025 operations. In December, we were pleased to see several of our gas clients allocate remaining funds in their 2024 budgets to complete capital investments, which positively impacted our top line.

This pattern aligns with historical behaviors where clients set annual budgets to ensure they spend allocated funds by the end of the year to maximize their returns. Gas margins during 2024 were below our expectations, driven by rate case approvals, competitive forces, and the need to realign resources and improve utilization rates. When some of our customers slowed down given rate case outcomes, we lacked near-term sales opportunities and should have optimized our crew counts faster. The work to exit poor-performing contracts and restructure the gas group now has largely been completed, and we anticipate gross margins to normalize during 2025 to their historical averages of between 7% and 7.5%. We will, of course, closely monitor customer dynamics and make adjustments as necessary and remain attentive to gas margin improvement.

In our electric business, we saw steady improvement in our core operations throughout the second half of 2024 into the year end, with a continued recovery in crew counts, especially in our non-union segment, which has continued into 2025. As with the gas business, we've also benefited from some customers spending remaining budget dollars prior to the year end. Additionally, our core union electric business experienced a significant pickup in activity, as well as a significant LNG award received in the fourth quarter. Our electric results were bolstered by a record year for storm restoration work, with revenues exceeding 80% of the recent historical average. As mentioned on our last call, we have strategically built a highly skilled workforce, both union and non-union, that is ready to respond as and when needed.

Our storm response success is a result of purposeful efforts in the training, positioning, and strengthening of our customer relationships. Furthermore, it serves as an entry point for longer-term opportunities with new customers. Pivoting to business development activity, during the quarter, we secured $221 million in new awards, including $99 million in MSA awards and $122 million in strategic bid awards. This was and was expected to be a quiet quarter for new awards and bookings. Backlog at the year end stood at $3.7 billion, with 90% related to work performed under MSA. Looking ahead, we anticipate that with our increased focus on business development, we will deliver a step change in bookings and will exceed a book-to-bill of 1.1 during 2025.

[uncertain] market has increased our pipeline by over 30% during the second half of 2024, and we have approximately $1.5 billion of late-stage bids and the potential for over $2 billion in new revenue based upon MSA renewals during 2025. Before turning the call over to our CFO, Greg Izenstark, I'd like to share a few high-level thoughts on our 2025 outlook. The guidance we are introducing today includes a range of revenue, Adjusted EBITDA, and net capital expenditures. Informing these targets, we anticipate double-digit EBITDA growth with our core business year over year, which includes the rundown of our offshore wind projects and no new awards in this end market. We also assume revenue from storm restoration services at recent historical levels, which is approximately $60 million less than we secured and delivered in 2024. I'll now turn over, Greg, to elaborate on our results and our 2025 outlook.

Greg Izenstark (EVP and CFO)

Thanks, Chris, and good morning to everyone joining us. Fourth quarter 2024 consolidated revenues increased 7.8%. The consolidated gross profit was 32% higher compared to the prior year period. Gross profit margin of 9.9% in the fourth quarter of 2024 was well above the 8.1% we reported in the fourth quarter of 2023. For the year, 2024 revenues of $2.64 billion came in ahead of the midpoint of the guidance range we provided in July of $2.5-$2.7 billion. On a GAAP basis, net income attributable to common stock in the fourth quarter was $10.3 million, or diluted earnings per share of $0.12, up from a net loss attributable to common stock of $210.7 million, or diluted loss per share of $2.94 in the same period last year. As a reminder, the fourth quarter of 2023 results included a $209 million after-tax impairment on goodwill.

In the fourth quarter of 2024, total company Adjusted EBITDA, a non-GAAP figure, was $70.7 million, or 22.9% higher than the prior year quarter's $57.5 million. Adjusted EBITDA margin was 9.9% for the quarter, an improvement from the 8.6% reported in the fourth quarter of 2023. For full year 2024, our Adjusted EBITDA margin of 9% was in line with the guidance range provided with our mid-year results. Non-GAAP Adjusted Net Income in the fourth quarter came in at $18.4 million, or an Adjusted Diluted Earnings Per Share of $0.21, up from $4.9 million, or an Adjusted Diluted Earnings Per Share of $0.07 in the prior year period. The $8.1 million difference between our GAAP and non-GAAP Adjusted Net Income primarily includes the impact of amortization of intangible assets, as well as CEO transition costs, non-cash stock-based compensation, and severance costs. Now to each reportable segment.

Revenue from our U.S. Gas segment totaled $327.2 million, reflecting a year-over-year increase of 5.4%. We benefited late in the quarter from customer spending planned 2024 budget dollars to complete projects, which drove an improvement in volumes. Gross profit margins decreased to 6.2% in the fourth quarter of 2024 from 7.8% in the prior year period. This decline was due to changes in the mix of work and closeout of certain bid projects. We are taking steps to structurally improve our contracts and cost structure in this segment, as margins were under pressure throughout 2024. Revenue from our Canadian Gas segment totaled $56.8 million, effectively flat with the fourth quarter of 2023. We experienced an uptick in volumes under MSA, but bid work was down due to the timing of projects. Favorable mix drove an improvement in gross profit margin to 18% from the prior year's period's 17.1%.

In our Union Electric segment, revenue was $193.8 million, a decline of 5.5% year over year. Within the segment, offshore wind revenues were down 75%, or $43 million, due to the expected wind-down of project work. However, our core Union Electric segment experienced a 17.5% growth year over year, driven by increased bid volumes, particularly in industrial work around substation infrastructure. Union storm restoration revenues also showed improvement, with revenues of $9.3 million, up from $3 million in the prior year quarter. Although these crews are Northeast-focused, we mobilized crews to the Southeast to support our non-union efforts, which I will touch on momentarily. Gross profit in the Union Electric segment increased to 9.9% in the fourth quarter of 2024, compared to 6.7% in the fourth quarter of 2023.

This improvement was due to several factors, including an increase in higher margin storm work and improved margins on bid work during Non-Union Electric segment revenue in the fourth quarter of 2024 was $139.3 million, a 49.7% increase year over year. This increase was primarily due to revenue from storm restoration services performed early in the quarter in response to Hurricane Helene and Milton, which accounted for $40.4 million of the segment's revenues. Improved productivity, driven by the additional crews and higher work hours for existing crews, also contributed to year-on-year growth in our core non-union electric business. Segment gross profit increased to 15.3% in the current period, compared to 6.8% in the prior year period, reflecting the contribution from the more profitable storm restoration work and higher work hours. Chris referenced the strength of our restoration services efforts in 2024.

We generated revenues of $137 million from emerging storm restoration work, well above the prior three-year average of approximately $75 million. Throughout our territories, we dispatched more than 3,200 employees to respond to severe weather events. We take pride in our ability to quickly mobilize and restore power to those affected during these challenging times. One thing to take note of: while we report storm revenues and profitability, there is some offset whereby those crews would have been working with their core customers at lower revenue and profitability levels. For the full year, net Capex was $89.4 million, down from $94.9 million in Free Cash Flow was $69 million, down slightly from $73 million in 2023. Note we Free Cash Flow as cash flow provided by or used in operations, less net capital expenditures. Moving to balance sheet highlights.

On a trailing 12-month basis, our net debt-to-Adjusted EBITDA ratio improved to 3.6 times in December 2024 from 4 times in December 2023, and was lower sequentially from the end of the third quarter, consistent with expectations previously disclosed. We ended the year with $49 million in cash equivalents on the balance sheet. Growing our business in a capital-efficient manner remains a core strategic priority. We will continue to Free Cash Flow and strengthening our balance sheet throughout 2025 by reducing our working capital needs and being more disciplined in our capital allocation. Finally, turning to our 2025 outlook, which is outlined on slide 13 of our earnings presentation. For revenues, we expect to deliver between $2.6 and $2.8 billion. For Adjusted EBITDA, we expect to deliver between $240 and $275 million.

And lastly, on capital expenditures, we are forecasting our net spend to be between $65-$80 million. Chris alluded to some of these factors behind our forecasting. Those include a continued improvement in our electric business that began in the second half of 2024, with growing crew counts and increased work hours, and a return to modest growth in our gas business and improved margins as we exit and/or renegotiate underperforming contracts. These positives are partially offset by the additional wind-down of offshore wind work and our assumption that storm restoration services will return to normalized levels. With that said, let me turn it back to Chris for some closing thoughts. Chris.

Christian Brown (President and CEO)

Thank you, Greg. To close out my prepared remarks, I want to reiterate the themes discussed earlier. My first few months as President and CEO have been both enlightening and also inspiring.

Centuri is dedicated to increasing long-term growth opportunities by implementing strategies that drive profitable growth. We are committed to fostering greater predictability in our business through robust forecasting, comprehensive business reviews, and strategic growth prioritization. Through a highly structured approach to business development, driven by a dynamic pipeline model and a growth mindset, we can ensure optimized decision-making. We are enhancing capital efficiency by refining our capital equipment resourcing and fleet management and reducing working capital levels through improved AR and DSO management. Lastly, we are highly committed to margin improvement, with our gas business being a key focus area, and have taken early steps to deliver improved performance. We thank you so much for your continued support and confidence in our vision and look forward to achieving new milestones. Operator, you can start our Q&A session.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.

Should you have a question, please press star, followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. We request that our callers limit their questions to one main question and one follow-up. One moment, please, for your first question. Your first question comes from Sangita Jain with KeyBanc. Your line is now open.

Sangita Jain (Senior Equity Research Analys)

Great. Thank you so much for taking my questions. Good morning. So first, can I ask one on the strategic review that you talked about, and when we can expect to hear the outcome of that, and what should we expect when that's concluded?

Christian Brown (President and CEO)

Thank you, Jain. It's Chris. I'll answer the question.

I think the next sort of three to six is the last three months is really prioritizing the business winning, the business development, organic sales to determine how large our near-term pipeline is and what signs have been good. How do we build on the revenues we get from our core MSAs and really understand more data around our ability to grow the business organically, and as everybody's observed, the past has been probably flat from a growth standpoint, and I think once we have a good handle on all of the near-term opportunities, we will conduct a more thorough, longer-term look at the end markets, where the opportunities reside, look at our differentiation in the long-term market growth, and then start making some prioritization around where we want to deploy capital, which new customers, which end markets we want to further grow from.

So basically, the first three to six months is focused on driving growth in our core business with our customers, with our core customers in our core markets and our core locations, get a very good handle on how we can drive growth. And then the longer term will be more focused on how do we accelerate that growth in the next three to five years. I think we'll end up being in a position towards the end of the year, Sangita, to actually sort of roll out a more cogent three- to five-year strategy, not before then. Our priority at the moment is the block and tackling and really driving growth in the core business as it is today.

Sangita Jain (Senior Equity Research Analys)

Understood. That's super helpful.

And then maybe for Greg, the guidance that you've given us for this year, can you help us understand what's in the low end and what we should expect for you to reach the high end of that guidance range?

Greg Izenstark (EVP and CFO)

Yeah. Good morning. So on the high end, the upside of that, we talked about a number of crew growth opportunities. Obviously, the timing of onboarding those crews could influence the range. Using the sales work and the business development work that Chris just mentioned, getting some greater bid opportunities and activity can obviously influence the top end of the range. And then obviously, storm is a little bit of a wild card. On the downside, project delays or any cancellations that might come out of any of the other news that's in the world could contribute to it. But that would probably be the biggest one.

Sangita Jain (Senior Equity Research Analys)

Understood.

Appreciate your responses. Thank you.

Christian Brown (President and CEO)

Thank you, Sangita.

Your next question comes from Justin Hauke with Robert W. Baird. Your line is now open.

Justin Hauke (Senior Research Analyst)

Oh, great. Thank you. Good morning. I guess my first question here, I wanted to understand a little bit more the modifications you're seeking on some of your gas MSAs and just, I guess, what gives you confidence that the terms will improve to kind of meet what your new standards are and maybe just an update on how those negotiations are going on the $2 billion that you kind of outlined as opportunities here, I guess, $1.5 billion that was better in final negotiations?

Christian Brown (President and CEO)

Justin, I'll ask Greg to answer the initial response on the gas margins, and then I'll talk a little bit about what we're seeing in the near-term pipeline.

From the gas side, we've already taken - we're well on our way and taking steps to either exit areas that are underperforming or renegotiating underperforming contracts. This is both from an MSA perspective as well as new bid work as it comes up for - as new bids come up, we're repricing them accordingly. From an MSA perspective, we have virtually 100% renewal in all our MSAs. We've already started to experience certain renewals of some key MSAs, and those will continue throughout the end of the year. As we've talked in the past, when new renewals come up, it gives us an opportunity to look at the pricing and the scope of work that we expect and look to kind of improve both volumes and the price kind of above and beyond that normal annual cost of the annual escalator that's in the contracts.

So those are all kind of well on the way and give us optimism as we head into 2025. Okay. That's helpful. On the market, Justin, I would say the following: we're not concerned at all with the end market opportunity that fits with our capability, our reach, our locations so that we can grow beyond the core MSAs. So there's no concern about market opportunity. We're seeing about a 30% growth in near-term pipeline opportunities. While we're cautious after recent events, we think we'll have a positive book-to-bill this year of about $1.1. And the late stage you mentioned that we mentioned in the result, as well as you mentioned here, we are actively negotiating to convert. We've had a good start to the year.

My takeaway would be no concern at all on the ability to identify opportunities for the near-term pipeline to drive the growth. We've got some work to do internally to be more structured and focused and deliberate in driving sales. I think once we are efficient at that, we should see a greater improvement in our book-to-bill over the coming weeks and months.

Justin Hauke (Senior Research Analyst)

Okay. I guess my second one. I guess it's a two-parter, but just on maybe the cadence or the seasonality of 2025. The first half of 2024 kind of started slow. I guess, should we be thinking that the growth contribution is kind of higher in the first half versus maybe a seasonally abnormally low last year, or just kind of how that works through? Then the last one for that question would just also be on the offshore wind.

Is there anything in backlog for 2026 at this point, or is the $40 million for 2025 kind of everything that you have left on the offshore wind as it stands right now? Thank you.

Christian Brown (President and CEO)

Yeah. So on the seasonality, I would expect first quarter to be consistent with last year. Obviously, weather and other factors and just the seasonal nature of many of the territories in which we operate will drive that. And then see some of that increase start in the second quarter and then accelerate in the back half of the year. From an offshore wind perspective, I think we alluded to we have about $40 million in backlog for 2025. We have about $25 million remaining on the existing backlog or existing projects in 2026. And we have nothing else in our pipeline related to that at this point.

Greg Izenstark (EVP and CFO)

Yeah.

We've stripped everything out of the near-term pipeline, partly driven by changing administration, but also the unpredictability on when those projects get sanctioned. So in the near term, you won't hear too many words about offshore wind as we come on our calls. It's not in the forecast. It's not in our near term. We're not committing a lot of sales results to it at all. And if the future brings it back into focus with capital allocation, we'll be ready. But at the moment, we don't see that as a driver at all in our business. It's pretty immaterial.

Justin Hauke (Senior Research Analyst)

Yep. Got it. Okay. Thank you.

Operator (participant)

Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Chris Ellinghaus with Siebert Williams Shank. Your line is now open.

Chris Ellinghaus (Managing Director and Senior Electric and Natural Gas Utilities and Alternative Energy Equity Analyst)

Hey, guys. How are you?

Christian Brown (President and CEO)

Good morning. Hi, Chris.

Chris Ellinghaus (Managing Director and Senior Electric and Natural Gas Utilities and Alternative Energy Equity Analyst)

Chris, as you've sort of looked at the business from an outsider's perspective, margins historically have been materially higher. Question one, sometimes double digits. Do you see that as a realistic goal going forward? And two, you talked about some of the MSAs underperforming. Is that some lag that remains from inflationary periods?

Christian Brown (President and CEO)

Let me cover it from that perspective, and then I'm sure Greg may have a couple of supplementary inputs. I don't believe our focus at the moment is going to be on, other than what we've said, on gas margin improvement. Our challenge today is not about cost efficiency and getting margins up. It's about getting the organization turned into becoming an organization that's not only focused on delivering the services we're contracted to deliver, but do more for our existing customers.

So I think there's a blocking and tackling focus on getting more volume into the business, selling more and maintaining margins versus growing margins. I'm not overly concerned about where the margins are, the caveat being the improvement we do expect from the gas business going into 2025. Our focus is about driving profitable growth consistent with our existing margins. On the gas side, Bill and his team have done a great job in the latter stages of 2024 to sort of renegotiate those underperforming contracts. I think reallocate resources so we're more productive. Early signs turning into 2025 as you look at the seasonality effect. They look like they're getting better. So I think we've done all the work we need to do. We've maybe one contract still to go.

So, I think the gas margins is now down to performance and making sure that we maintain the right levels of productivity within those contracts.

Chris Ellinghaus (Managing Director and Senior Electric and Natural Gas Utilities and Alternative Energy Equity Analyst)

Okay. And you're using a three-year average for storm restoration revenues. Is that a period that you see as normal? And given climate change issues, is that something that you expect off of that kind of base to have some upside to it over time?

Christian Brown (President and CEO)

Chris, I'm going to give you a—we can jump to the specifics with Greg's tenure with our business. Just chasing storm revenues won't allow us to grow our core business. So our push into the budgeting process, our capital allocation, and our resources has all been focused on driving more core business and not setting an expectation in our base budget to get an abnormal or even a sort of slightly greater revenue from storm.

So we've set a cautious approach in what we believe we will get from storm coming into 2025 because it's just not predictable, as we all observe. And we've driven a discipline into the business that we want growth from doing the day-to-day services that come from the utility sector that are not predicated on storm events. So we felt the trailing three-year average was kind of a cautious approach to drive our organization into building more capability and doing more work for our customers in our core business.

Chris Ellinghaus (Managing Director and Senior Electric and Natural Gas Utilities and Alternative Energy Equity Analyst)

Okay. That's fair. One last question. You sort of alluded to some of the gas customers having some sort of catch-up on their CapEx towards the end of the year. Does some of that carry forward into the first half or just the year for this year?

Christian Brown (President and CEO)

There might be a pocket here or there, but generally speaking, our gas customers, we're looking at what they had spent as of the end of the third quarter, where their budget was for the full year, and trying to spend the dollars that they had budgeted for the most part.

Chris Ellinghaus (Managing Director and Senior Electric and Natural Gas Utilities and Alternative Energy Equity Analyst)

Got it.

Greg Izenstark (EVP and CFO)

But I would add, Chris, if you dissect the pipeline day to day at the moment as the wider organization, if you look at the near-term pipeline opportunities that we will tender and hopefully win, there's a significant component in gas. It's well over 50% of our pipeline today. We have more than ample opportunities there. We've just got to win them and convert. Okay.

Chris Ellinghaus (Managing Director and Senior Electric and Natural Gas Utilities and Alternative Energy Equity Analyst)

Thank you. Appreciate the details.

Christian Brown (President and CEO)

Thanks, Chris.

Operator (participant)

There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today.

We thank you for participating and ask that you please disconnect your lines.