Centuri - Q4 2025
February 25, 2026
Transcript
Operator (participant)
Welcome to Centuri's Fourth Quarter 2025 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, Nate Tetlow, Vice President, Investor Relations. Please, you may begin.
Nate Tetlow (VP of Investor Relations)
Thank you, Angeline. Hello, everyone. This morning, we issued and posted to Centuri Holdings website our year-end 2025 earnings press release and investor presentation. 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 and based on management's assumptions and are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions and regulatory approvals. A cautionary note, as well as a note regarding non-GAAP measures, is included in today's press release, in the investor presentation, and in our filings with the Securities and Exchange Commission, which we encourage you to review.
Also provided are reconciliations of our non-GAAP measures to related GAAP measures. 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. We assume no obligation to update any such statement except as required by law. 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 Chris Brown, President and Chief Executive Officer, and Greg Izenstark, Chief Financial Officer. I'll now turn the call over to Chris.
Chris Brown (President and CEO)
Thank you, Nate. Hello to all, thank you for joining our call today. In 2025, we delivered $3 billion of revenue, a record for Centuri. We improved our base profitability and produced adjusted net income of $39 million, which was a 49% increase over the prior year. As a reminder, when speaking of base revenue and base gross profit, we are referring to the measures that exclude the impact of storm restoration services. We believe that base results provide our stakeholders with information that is helpful in evaluating fundamental business performance and provide relevant period-over-period comparisons. In 2025, base revenue increased by 18%, and our base gross profit increased by 35% year-over-year.
This exceeded expectations and reflects the strength of our company, the dedication of our teams across the U.S. and Canada, and their unwavering commitment to safety, productivity, and delivering exceptional customer service. I'll start with a commercial update. Coming into 2025, we set a goal to achieve a 1.1x book-to-bill ratio. We didn't just exceed our goal, we shattered it, delivering a 1.5x book-to-bill for the year. In total, our bookings surpassed $4.5 billion. The mix of bookings included 34% of bid work, 21% of new or expanded scopes of work on our MSAs, and 45% MSA renewals. Our strong emphasis on business growth was evident, with more than half of the bookings representing true incremental accretive work to our business.
We maintained our 100% MSA renewal rate and are actively working to secure new customers and add new work scopes and geographies with existing customers. In 2025, we added new MSAs across Texas, Oklahoma, Arizona, Georgia, Indiana, Wisconsin, and several other states. On the new bid work, we secured over 600 awards, with an average size of approximately $2.4 million. A few notable bid awards included a significant natural steel gas pipe replacement project, major substation upgrade work to strengthen grid reliability and increase capacity, a mechanical vapor recompression system for an ethanol plant, construction of a renewable natural gas facility, several projects to rebuild and construct utility-scale transmission lines, several data center awards with varying scopes of work.
Additional scopes of work that include substations, transmission work, heat pump installation, compressor work, HVAC removals and installs, plus many others. We anticipate continued strong bookings due to the multi-year tailwinds within our end markets and our $13 billion opportunity pipeline. Our renewal success and our consistent win rates support our desire for growth. Through February 20th, we have booked approximately $1.1 billion, which includes approximately $800 million of MSA renewals, nearly $150 million of new MSAs, and more than $150 million of bid work. We are off to a very good start in 2026. For the year, we are targeting a book-to-bill ratio of 1.1x-1.2x.
Our opportunity pipeline includes about 590 bid opportunities, which collectively amount to $6.7 billion, or just over half of our current opportunity pipeline. At year-end, we had $2.8 billion of near-term opportunities, which are active proposals with award decisions expected by the end of the second quarter. These include about two-thirds of new bid work and one-third MSAs, with over 75% within our electrical segments and the remainder in gas. If we consider our year-to-date bookings, remaining active proposals and prospects we've submitted in the new year, the current near-term opportunity sits around $1.3 billion. On data centers, we are actively executing several scopes of work at several data center sites. In our opportunity pipeline, we have more than 20 opportunities with an aggregate value of approximately $1.4 billion.
We also have dozens of prospects that are not yet included in our pipeline figures because they are early in the evaluation process. We believe the total value of these prospects could reach as high as $2 billion. Data center opportunities offer a variety of work scopes for Centuri, including power delivery services, like simple cycle turbines, substation, compressors, or metering stations, plus core electric work like switchgear, transformers, UPS units, and generators. On the mechanical side, we handle chiller and HVAC system install. Additionally, we will bid on traditional infrastructure work like gas, sewer, water lines, plus telecom and fiber conduit. Moving over to the backlog. At year end, our backlog was approximately $5.9 billion, an increase of $2.2 billion or 59% from last year.
This year-end backlog forecast is to provide over 85% of our 2026 base revenue guidance. More details on bookings, backlog, and the opportunity pipeline are on slides eight and nine in the investor presentation, which we've posted today. Now moving to margins. In 2025, we reported a base gross margin of 8%, an increase of approximately 100 basis points over 2024, and we have several initiatives underway focused on further margin improvement. First, we've initiated a plan to address the first quarter seasonality in our gas business. The focus is expanding the volume of work in warmer geographies and securing more indoor work. Our goal is to fully address the seasonality over three years, with 2026 being year one. Halfway through this current quarter, we are on track to deliver year-over-year improvement, a good first step towards our three-year goal.
Second, we're working to improve fleet efficiency through enhanced supplier pricing, improved utilization rates, and optimized allocation across our business units. Through these efforts, we're aiming for at least 20% improvement in the efficiency of our fleet. Third, we are driving improved crew efficiency in our Non-Union Electric segment, which has delivered significant growth over the last 12 months. As crews gain experience and jobs mature, we expect improved productivity. Base margin in this segment were up in the fourth quarter, and we expect to see more progress throughout 2026. Finally, given the growing number of bid opportunities and our current win rates, we expect our average weighted bid margin to expand over the very near term. Higher bid margins are the first part of the equation, and we will continue to drive operational execution to capture this favorable market dynamic and drive further margin growth.
Beyond the commercial and financial success, 2025 also included several important milestones. In September, we became fully separated from our former parent after completing four successful follow-on offerings. In November, we closed the acquisition of Connect Atlantic Utility Services, giving us a Canadian electric service platform for which we can grow and expand our customer relationships. We also made significant strides reducing our leverage, ending the year end with net debt to adjusted EBITDA at 2.5x. We are not only driving significant growth in our business, we are doing so on the foundation of a stronger balance sheet and our ownership base. We are extremely well positioned to execute in 2026 and look forward to delivering for our shareholders. Now over to Greg to discuss the results.
Gregory Izenstark (CFO)
Thank you, Chris, and thank you everyone for joining us today. I'll start with the fourth quarter, which included another company record for revenue and overall strong financial results. Revenues totaled $859 million, a 20% increase from the same quarter last year. Base revenue was $855 million, which was 28% higher than the fourth quarter of 2024. Gross profit for the quarter was $80 million, compared to $71 million last year, and the gross profit margin was 9.4%. Base gross profit was $80 million, which was a 50% increase year-over-year. Net income attributable to common stock in the quarter was $30 million, or $0.32 per share, compared to $10 million or $0.12 on a per-share basis last year.
Fourth quarter net income was impacted by a $23.7 million income tax benefit related to deferred tax asset allocations from our former parent. Adjusted net income in the fourth quarter was $16 million, or $0.17 on a per-share basis, compared to $18 million or $0.21 per share in the same quarter last year. Adjusted EBITDA for the quarter was $78 million, which compares to $71 million last year. Our cash flow from operations was $84 million, and free cash flow for the quarter was $106 million. The remainder of my comments will focus on full-year results. Revenues totaled $3 billion, a record for Centuri, and was a 13% increase from 2024.
Gross profit was $247 million, compared to $221 million last year. Gross profit margin was 8.3% in 2025. Base revenues was $2.9 billion, or 18% higher year-over-year. Base gross profit was $234 million, up 35% compared to 2024. Base gross profit margin was 8% in 2025, versus 6.9% last year. Net income attributable to common stock in 2025 was $23 million or $0.25 per share, compared to a loss of $7 million or an $0.08 loss on a per-share basis in 2024.
Adjusted net income in 2025 was $39 million or $0.43 on a per-share basis, compared to $26 million or $0.32 per share in 2024. Finally, adjusted EBITDA for the year was $249 million, which compares to $238 million last year. Now to our segments. U.S. Gas revenue was $1.3 billion, an increase of 5% compared to 2024. This reflects solid growth in MSA volumes and bid projects, demonstrating the underlying strength of our customer relationships and market position. Gross profit margin was 5.4% in 2025, consistent with prior year. We continue to focus on expanding MSA work and the seasonality initiative that Chris mentioned earlier. Canadian operations revenue was $247 million, up 25% over 2024.
Operational performance in this segment remains strong against a solid demand backdrop. Gross profit margin was 18.6%, which compares to 15.9% in the previous year. Union Electric base revenue was $800 million, an increase of 21% year-over-year, and base gross profit margin was 8.7% for the year, an increase of 110 basis points over the prior year. Growth has been fueled by robust activity in projects serving industrial end user segments, particularly substation infrastructure and data center-related work. Our Non-Union Electric segment had base revenue in 2025 of $569 million, an increase of 51% over 2024. This growth reflects a significant expansion in MSA activity.
Base gross profit margin was 8.5%, compared to 5.9% in the prior year. As Chris mentioned, in 2026, we're focused on performance management and improving crew efficiency. Turning to fleet investments in CapEx. In 2025, we began shifting away from the historic practice of purchasing all fleet equipment to a balanced approach that targets 50/50 buy versus lease. The new funding mix drives better free cash flow generation and more balance sheet flexibility. In 2025, we invested a total of $135 million in fleet assets, and funded the investments through $55 million of operating leases, $38 million of sale leasebacks, and $42 million of net CapEx.
For 2026, we forecast fleet investments of $150 million-$180 million, with funding expected to be approximately 50/50 buy versus lease. Moving to the balance sheet. In November, we executed an underwritten equity offering and concurrent private placement, raising net proceeds of approximately $251 million. We used $58 million of proceeds to fund the Connect acquisition, with the remainder used for net debt reduction. We ended the year with a net debt to adjusted EBITDA ratio of 2.5x, down from 3.6x at year-end 2024. In 2026, we plan to further delever and forecast net debt to adjusted EBITDA of around 2x by year-end. Last month, we repriced our Term Loan B, securing a 25 basis point rate reduction.
Based on our current debt level and lower interest rates, we expect 2026 interest expense to be about 30% lower than it was in 2025. Finally, turning to our outlook. Today, we initiated full year 2026 financial guidance. As we've talked about, base revenue and base gross profit exclude impacts from storm restoration services. For 2026, we expect base revenue of $3.15 billion-$3.45 billion and base gross profit of $255 million-$285 million. Revenue, adjusted EBITDA, and adjusted net income are measures that include storm restoration services. Guidance to these measures includes storm restoration services using a three-year average of $88 million in revenue and $28 million in gross profit.
For 2026, we expect revenue of $3.24 billion-$3.54 billion, adjusted EBITDA of $280 million-$310 million, adjusted net income of $55 million-$75 million, lastly, net CapEx is expected to be between $75 million and $90 million. I will now turn it back to Chris to wrap up our prepared remarks. Chris?
Chris Brown (President and CEO)
Thank you, Greg. 2025 was a pivotal year for Centuri. We demonstrated our ability to identify opportunities, to secure substantial bookings, to expand our footprint and capabilities, to deliver earnings growth, to grow base margins, and to strengthen the balance sheet. The hard work of 2025 has positioned Centuri for continued success going into 2026. The market backdrop remains very strong across multiple years, with our end markets showing no sign of slowing. Centuri offers top-tier growth while maintaining the low-risk profile you expect from us. Our growth has come and will continue to come by focusing on our core capabilities, delivering for our customers, and staying disciplined to who we are. We have a diverse, high quality, large utility customer base across gas and electric, union and Non-union, and supported by a high percentage of long-term MSA contracts.
In 2025, 70% of our revenue was generated under MSA contracts, and our year-end backlog included 82% MSA work. Whilst we absolutely expect bid work revenue to grow at a faster rate than MSA revenue over the next few years, it's important to note that the scope of work on the bid projects is consistent with the services that we deliver under MSAs. It's the same capabilities, only executed under a different type of agreement. Our bid work portfolio is also well diversified, with 285 different projects and an average remaining project value of $3.8 million. For further context, the largest 25 bid projects in the pipeline are expected to contribute about 15% of our total 2026 base revenue.
We believe Centuri represents a compelling investment opportunity, carrying high growth in strong end markets with a notably low risk profile, with further potential to drive margin expansion and capital efficiency through solid execution. In closing, I want to commend our workforce who are executing day in and day out. Your dedication to operational excellence, to safety, and customer service is what earns our reputation as a leading provider of high-quality infrastructure services. I thank you all. We appreciate everybody's time and interest today. I'll hand to the operator so we can start Q&A.
Operator (participant)
Thank you. In a moment, we will open the call to questions. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press number two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Kindly limit your question for one question and one follow-up only. One moment, please, while we poll for questions. The first question comes from Sangita Jain with KeyBanc Capital Markets. Please go ahead.
Sangita Jain (Senior Equity Research Analyst)
Good morning, Chris, Greg. Thank you for taking my question. For the first question, I wanna find out, you're including a three-year average storm revenue in your guidance. How much of that was, already kinda realized in the January storm?
Gregory Izenstark (CFO)
Good morning. We did, when you, when you refer to adjusted EBITDA, and total revenue include, you know, some level of storm. The storm impact thus far this year, has been, you know, pretty minor. It's largely in line with what we did last year. No, nothing unexpected or nothing significant.
Sangita Jain (Senior Equity Research Analyst)
Oh, you mean in the January storm, Winter Storm Fern was what I was referring to?
Gregory Izenstark (CFO)
Yeah. Yeah.
Sangita Jain (Senior Equity Research Analyst)
Okay
Gregory Izenstark (CFO)
That the storm activities that we've done thus far, you know, are largely in line with last year. Nothing of a significant nature. Last year been a quiet year, Sangita.
Sangita Jain (Senior Equity Research Analyst)
Okay, got it. Thank you. Then on the guidance, if I look at the core guidance, if I exclude storms for a minute, then the gross margin seems to be lower versus this year. Am I reading too much into that? Is there a mix impact that I'm misinterpreting? Can you help me understand?
Gregory Izenstark (CFO)
No, the gross profit margin would be, you know, largely in line with this year. Up a little bit on an annualized basis.
Sangita Jain (Senior Equity Research Analyst)
I got it. Thank you.
Operator (participant)
Thank you. The next question comes from Justin Hauke with Robert W. Baird. Please go ahead.
Justin Hauke (Senior Research Analyst)
Oh, great. First of all, I guess thanks for all the color on the awards and the new disclosure. It's helpful for understanding things, so thank you for that. I wanted to, I guess, follow up on the margin expectations and the guidance, and maybe you could talk a little bit about the seasonality. I know one of the things, you know, you've talked about as initiative is, you know, reducing that seasonality for the gas segment. I think you said you were expecting margins to be up year-over-year in O1. I guess I'm just curious how much of a gap you're narrowing. I mean, last year there was a little bit of a loss.
Are we more like to break even this year, or what's kind of the expectation for how to think about the seasonality as we go through the year?
Chris Brown (President and CEO)
Justin, I'll answer the question and then pass over to Greg for any additional commentary. Look, we are striving to be predictable and consistent and then build continual improvement, and that should be reflected in everything that you've seen of us over the last few weeks and few months. When it comes to sort of margins, you know, it's like our confidence flow. We feel very good about being able to deliver it. It reflects the current backlog. It doesn't assume that we've got lots of things to do to get to that margin. There's an element of conservatism just to be consistent that we have in our margins. I'll go specifically to the initiatives to improve margin. Where's the margin improvement gonna come from?
The seasonality, which you've just mentioned on the gas business and where are we with that? You know, it's only one month in, but we see many positive signs in our ability to find work, to win work in the gas business and push that through to the, to the revenue and the income lines, to the P&L. It's only January numbers. We're, we're really just getting into February numbers now, but I think we're gonna make a big dent in that three-year program to actually make the seasonality in the gas business nonexistent across the four quarters. I can't give you much more than that at the moment for obvious reasons, but we are pleased as we closed out the January results, and we're pleased with the volume of work that we're tracking.
The big work, which drives the margins upwards, you know, we are very selective now in opportunities and the margin that those opportunities can deliver to us, and that's institutionalized across all of our individual businesses that are tendering work every day. There is, as you see in the slides, we've got very good backlog, very good coverage to deliver our budget as well as the guidance this year. There's an opportunity, therefore, with any additional awards to drive margin improvement. The third thing, which will take a little bit longer, is the efficiency through our fleet and the indirect costs associated with it. We've mobilized the resources we need.
Our priority was to get the funding of our fleet aligned with better industry practices so that we could generate more free cash flow to invest in the business. We've done that last year, and that's followed further into 2026. The focus of the team now is to actually figure out better ways to get more return on the existing asset fleet we've got across all of the businesses operators on Centuri. I guess the last bit, the last comment, we did allude to it in the comments, is on the Non-Union Electric side. We had a massive growth year-over-year with pretty much negligible amount of storms. There was a massive mobilization in the second quarter. The third quarter, we saw, as we signaled to everybody, an improvement in margin. Those margins continued into Q4.
The workforce now is really stable and functioning very efficiently, and I suspect we'll see further improvement across the Non-Union Electric as we close out the first quarter all the way through 2026.
Justin Hauke (Senior Research Analyst)
Okay. Thank you. Thank you for that. I guess my second question before I turn it over, would just be on the award front. you know.
Chris Brown (President and CEO)
Yeah
Justin Hauke (Senior Research Analyst)
I think data center, something obviously you guys highlighted as kind of newer or tangential to what you were doing, last quarter. You know, you won $140 million, you know, in 2025. You talked about this pipeline, $1.4 billion. I think that's actually up a little bit for the data center versus what you called out last quarter. I know that you had a fair amount of.
Chris Brown (President and CEO)
Yeah
Justin Hauke (Senior Research Analyst)
Work that was currently out for bid at the time. I guess I'm just curious on the status of, you know, kind of the win rates and how those have come in Q4 and year-to-date, and you know, the expectation for that pipeline, when those awards will come in over the next couple of quarters.
Chris Brown (President and CEO)
Just fair question. I don't typically look at the win rates just on a quarterly basis. It's more of a trend. Our win rates actually have continued to go up all the way through to where we sit today going into February. If you go back to 13 months, that we've been really driving performance through our sales pipeline, we have seen continual improvement. I think the win rates, we're happy where they are. Specifically to data centers, your observations are quite right.
I think I had spoken about $2 billion-$2 billion of opportunity that we could see, of which we're very disciplined on what we will assume in our forecasting, what we really put capital behind to go win and resources to go win, because you can chase a lot of work that actually doesn't conclude with an award that can pay the bills. The overall focus on data centers remains very much targeted on those customers that we know have capital, that we know are going to award contracts, and that can deliver our returns and our margins.
The wins in data centers so far this year are a little slower than expected, but we have a number, without getting into commercial sensitivities, awards that are in our near-term pipeline of about $1 billion-$1.6 billion currently, that we are negotiating or tendering now.
Joseph O'Dea (Managing Director)
Thank you.
Operator (participant)
Thank you. The next question comes from Joe O'Dea with Wells Fargo. Please go ahead.
Joseph O'Dea (Managing Director)
Hi, good morning. In the release, you talk about how the organization has sort of proven its ability to identify and secure growth opportunities over the course of 2025, and, you know, certainly see it in terms of the backlog growth. Can you just outline, I mean, this happened pretty quickly, and can you outline some of the key changes that were implemented in the business in 2025 to drive this, and how you think about the room and opportunity to further advance those in 2026? Any specific initiatives underway?
Chris Brown (President and CEO)
Joe, thank you for your question, and I kind of take you all back to the beginning of 2025, and I talked about the block and tackling that was needed in the business. The block and tackling was we needed to get a very effective sales pipeline to predict, in a more thoughtful way, what work was in the pipeline, what wasn't in the pipeline, where we needed to find more work so that we could drive growth into the business. The interaction around the pipeline, the institutional of the sales pipeline across all of the offers on a consistent basis, is now part, kind of what we do day to day without any hesitation.
We speak about that daily, weekly, monthly, and that will continue, and that's driven the predictability in our revenue growth, it's driven the predictability on margins, and it's driven the predictability on when we speak about forecasting as a business. The second thing we implemented was really tight, block and tackling oversight in the business on a weekly and monthly basis, and that's allowed us to not only drive accountability, it's also allowed us to identify opportunities to do better and create more returns. They've been the two operational things which will continue into perpetuity with tweaks along the way. The third thing was capital efficiency. You know, we were funding our fleet with all balance sheet cash year over year. We were cash negative, I think, four out of prior six years.
As you've seen from this year's results, we've managed to fund growth in the fleet, but using leasing and still being able to improve margins in the base business. Those three block and tackling items have just become institutionalized in the last 12 months and will continue to drive growth. Looking forward, I think if you look at slide nine, actually, in the deck, we've given more color around backlog pending awards. You, you can see the shift in the amount of work we've got coming into the fiscal 2026 year, and that's continued to grow. You, you can add the blocks up. We were $2 billion of backlog going into 2025, and we're now over $3 billion going into 2026.
Our drive now is to capture these market tailwinds in our pipeline, to build up more backlog, to not only do more this year, but build a bigger backlog going into 2027. The block and tackling is fundamental to being a predictable service provider, which is our desire and our commitment, and then using the pipeline to continue driving growth across all of our businesses, such that we have a greater backlog going into 2027. We've committed to double-digit growth year-over-year, and we still stand by that. We believe the pipeline affords that opportunity without relying upon things we can't control, like storm, and we will continue to drive the businesses to at least meet that obligation commitment.
Joseph O'Dea (Managing Director)
That's great color, and maybe sticking with that last point, when you talk about 2025 backlog and the bookings you've had to date this year represent 85% of the 2026 base revenue. When you think about how the organization is sized today, you know, relative to that 2026 base revenue, what kind of investments are you making? If the demand backdrop supports something better than the base revenue guide, are you sized for that today, or what kind of additional investments will be required?
Chris Brown (President and CEO)
I think we've got. If you look at slide nine again and refer back to it, we're not sized to capacity. We've got more capacity that we build, we find, we add to the organization every day of every week. I mean, what probably goes unsaid is the work that our resourcing teams across the nation do every year. We added over 12%, in fact, it's nearly 15% headcount in the last 13 months. Our desire is to continue to hire at that rate or better. That's apprentices, that's veterans coming into our veterans program, it's resourcing from parts of the country where we can see people coming out of other adjacent industries, it's cross-training, cross-developing.
In terms of capacity, we will commit in our guidance, a conservative level of performance that we know we can meet based upon the backlog we have, the resources we can see and have. Things we can control. We are constantly seeking to add capacity so that we can drive better margins and more volume through the business. There is upward potential there as our teams continue to build capacity, mainly on the people side. I am less worried about fleet. We can add fleet as much as we need, and we can fund it efficiently so that we're still able to generate positive cash.
On the people side is our focus, and we're doing a number of things, some of which I alluded to on the last call, to operate as one Centuri and not as individual OpCos, meaning that we can have a more longer-range plan, more wholesome one Centuri approach to resourcing across the entire continent. We think we can do therefore better in terms of hiring more than 12%-15% more headcount per year.
Joseph O'Dea (Managing Director)
Thank you. Helpful detail.
Operator (participant)
Thank you. The next question comes from Manish Somaiya with Cantor. Please go ahead.
Manish Somaiya (Managing Director and Senior Equity)
Good morning, Chris, Greg, Nate. Thank you for getting me in the queue. Greg, I had a question for you on guidance. I just want to be very, very clear on this, that I understand this right. On the base guidance that you've given, the midpoint of the gross margin is 8.2%. I guess, including the storm, you have an EBITDA range, and I was hoping maybe if you can just kind of help us with apples to apples comparisons and maybe just tell us, you know, what that gross margin would be with storms, just like the way you showed it for the base guidance. Just to help us out, please.
Gregory Izenstark (CFO)
Yeah. We said in our earnings release that the gross profit we are assuming is about 28% or is $28 million of storm on storm revenue of about $88 million. When you factor that in. When you factor that in on our midpoint, you know, you'd get something higher than 8.2%. I don't have that number.
Manish Somaiya (Managing Director and Senior Equity)
Okay. Okay.
Chris Brown (President and CEO)
We'll give you the calculation offline. It's not meant to be cryptic in where we are. We've given margins on storm. We've given the revenues on storm based upon historical averages. We've given the bit margins. We can very quickly just do the calculation and send that.
Manish Somaiya (Managing Director and Senior Equity)
Okay. No, I appreciate that.
Gregory Izenstark (CFO)
At the midpoint, it at the midpoint, it's about 8.8%. Yeah. Shy.
Manish Somaiya (Managing Director and Senior Equity)
Okay. Okay, that's super helpful. That's the number I was sort of guesstimating. I just wanted to confirm that. I appreciate that.
Gregory Izenstark (CFO)
Yeah.
Manish Somaiya (Managing Director and Senior Equity)
The other question, maybe for Chris is, obviously, you know, we talked about this huge opportunity, I think $13 billion of opportunities, I think is a fairly big number, through the end of the second quarter, I think $2 billion+, closer to $3 billion. I know, Chris, you don't talk about win rates, but how should we think about what's kind of baked into the full year guidance, when you look at these opportunities, when you look at this funnel? Thank you so much.
Chris Brown (President and CEO)
Manish, I could be probably a little bit more direct. If you look at the slide nine, you'll see we told you within the slide there, the amount of backlog we have, and then there is a component of the, in addition to that, in the histogram of anticipated MSA renewals in 2026. If you add the three blocks up, that takes you to, we don't put the exact scale on it, but it takes you to about $3.2 billion of backlogs for this year across the three categories. That's exactly where we sit today. How do we do more than the $3.2 billion of backlog? That's secure backlog. It's very predictable.
We've got a good handle on that forecast, so I think I would argue that's as safe and secure as any backlog could ever be. Where's the upside potential? The upside potential is gonna come from winning new bids, and we've added within that histogram the work that we have currently bidded in addition to all of that in the first quarter. What is not in there are other opportunities that will flow through the pipeline and into the bidding during the course of the remaining 10 months of this year.
Manish Somaiya (Managing Director and Senior Equity)
Okay. Thank you, guys. Thank you. That's super helpful. Chris, thank you.
Operator (participant)
Thank you. The next question comes from Sherif El-Sabbahy with Bank of America. Please go ahead.
Sherif El-Sabbahy (Vice President and Equity Research Analyst)
Hi, good morning. I just wanted to turn to free cash flow for a moment. Understand your attempt to be more capital efficient with your fleet, but what parts of working capital are limiting cash from operations flow through currently? How do you plan to improve them? Where do you think cash from ops can go in 2026 as a percent of sales?
Chris Brown (President and CEO)
you know, good morning. From a free cash flow perspective, I mean, we've done a number of things to improve in 2025, from the fleet efficiency to the refinancing of the debt. We are still hyper-focused as a team on reducing our DSO, and working with our customers to bill our revenue quicker and get collected quicker. That is the primary focus of 2026 from a free cash flow perspective, beyond the capital efficiency work that we've already discussed.
Sherif El-Sabbahy (Vice President and Equity Research Analyst)
Mm-hmm.
Chris Brown (President and CEO)
We think we can make some pretty meaningful progress and improvement in that, on that front.
Sherif El-Sabbahy (Vice President and Equity Research Analyst)
Conversion. Sorry.
Chris Brown (President and CEO)
From a conversion perspective, you know, we look at it on a free cash flow conversion of adjusted EBITDA, and we look about where our peers are, and we think on a longer-term basis, you know, 50% conversion is where we can target.
Sherif El-Sabbahy (Vice President and Equity Research Analyst)
Thank you.
Operator (participant)
Thank you. The next question comes from Avi Jaroslawicz with UBS. Please go ahead.
Avi Jaroslawicz (Director and Equity Research Analyst)
Hey, good morning. Thank you. I saw that you highlighted a fiber project for data center in the slides. Can you just remind us what the base of communications is for your business, and just kind of what type of growth you're expecting to see from communications this year?
Chris Brown (President and CEO)
Avi, thank you for the question. I think we've tried to sort of demonstrate in the illustrative diagrams in the deck, and then maybe some of the talking points, that we're not actually bidding very much standalone fiber or telecoms work. There's a little bit, actually, north of the border in Canada. What we're finding is that as part of the data center scopes of work, they're rolling in the customers a number of discipline types of work, including fiber, gas connections, electrical connections, and all of the other scopes of work you see in the illustrative. We're not, we're not building out a telecoms business with it, within Centuri at all. It's mainly complementary to what we already do for those customers.
Avi Jaroslawicz (Director and Equity Research Analyst)
Okay, understood. Appreciate that. Just as we think about the bid work awards that you're thinking of for this year, would you expect it to have a similar revenue burn kind of phasing, as the bid work that you were awarded last year, or could we see that timing differ materially this year?
Chris Brown (President and CEO)
That's been a very good question. I think it'll be exactly the same profile or very similar. Why is that? You know, the average contract size is not changing. The size of the pipeline is remaining very solid. Our teams are very much focused on booking through the four quarters and taking away booking seasonality. I think the profile will look very similar to last year. I don't see any of the underlying inputs will change it materially at all. You know, you've got a couple of, you know, on the MSAs, they're slightly different, but not the bid work. I think we closed out the year, 30% of the bid work went to the revenue line.
Actually go back and look at the third quarter numbers, so really nine months of the year, it was a higher number. Clearly, we're booking work earlier in the year. We absolutely burn it. The bid contracts we book in the fourth quarter typically are really for 2026 or for the following year, which is why the percentage went down from 45%-30%.
Avi Jaroslawicz (Director and Equity Research Analyst)
Right. Okay, makes sense. Okay, appreciate it. Thank you.
Operator (participant)
Thank you. The next question comes from Chris Ellinghaus with the Siebert Williams Shank. Please go ahead.
Chris Ellinghaus (Managing Director)
Hey, good morning, guys.
Chris Brown (President and CEO)
Morning, Chris.
Chris Ellinghaus (Managing Director)
Chris, when you talk about reducing the Q1 seasonality, are you trying to get smoother across the year? In general, you know, is the goal to make Q1 look a lot more like a traditional Q2?
Chris Brown (President and CEO)
The answer to the question, Chris, is yes. Our desire is to deliver 7+ gross profit, 7% gross profit margin in our gas business for four quarters of the year. We're currently doing it in 3 quarters.
Chris Ellinghaus (Managing Director)
Right
Chris Brown (President and CEO)
That's the driver. We absolutely, we've had some successes on the bookings. You've seen them, we've announced them. We just need to do more. You can't do it all in the sort of six to seven months that we've been working at it. The desire is, as you stay, is to get rid of seasonality across our gas business and deliver 7%+ gross profit each quarter for four quarters of the year. That's the commitment.
Chris Ellinghaus (Managing Director)
Gotcha. What are you guys seeing? You did the acquisition, towards the end of the year. What are you seeing in general in M&A, and, you know, what sort of aspirations for tuck-ins do you have at this point?
Chris Brown (President and CEO)
Again, I'll be pretty consistent with what you've heard from me in the past. I think we really like our platform with where we are. We've got good scale, we've got good ability to grow organically, so we're not short of scale in the business. Tuck-in acquisitions to which you refer, again, I'll be consistent. I think we've got some white space in the Midwest. I think we could do with more capability there, and that lends itself to a possible acquisition. I think on the electrical transmission and to a lesser degree, the distribution, I think we do need a little bit more of a geographic presence in that end market, so that lends itself to some tuck-in acquisitions.
Our focus would be on finding acquisitions that could sit into those two needs that support the business.
Chris Ellinghaus (Managing Director)
Okay, great. Vis-a-vis the data center potential, you know, what's in your pipeline? Have you got much visibility into timing, and do you expect to have some more tangible, you know, bookings throughout 2026?
Chris Brown (President and CEO)
Yeah. Chris, I will tell you, I need to be a bit crisper in my commentary. You know what? We're very disciplined on what we put into our sales pipeline. That forms the basis of our forecasting. When it comes to data centers, we're hyper disciplined because there are so many opportunities around that really don't have funding, are just developers who are trying to create an option that may never lead to anything. When I talk about data centers and the discipline, the only thing that goes into the pipeline that we follow are those data centers where we have got dialogue going with dialogue engaged with the developer or with the end user who has capital and is gonna deploy capital, and it's a real project.
Where we can't get that confidence, doesn't mean to say we walk away from it. It just remains as a lead within our sales pipeline with no value against it. There's two numbers I've given out, well, three numbers, actually. There's about $2 billion of opportunity we see in the pipeline, where we feel there's a high probability that will get funded, and there will be real projects which will allow us to generate revenue and good, solid, higher profits from it. Of the $2 billion, $1.3 billion is real today, where we've got comfortable. Client has funded, all the permits are in place, and it's a real contract.
We are tendering that $1.3 billion as we speak. We'd expect our fair share of bookings from that $1.3 billion in the first six months of the year.
Chris Ellinghaus (Managing Director)
That helps a lot. Lastly, in the guidance for potential storm work, you know, that's kind of the historical norm, but you've scaled the Non-union side, you know, significantly. Should there be a, you know, a really good storm season in some year, is the way to think about it, the potential for storm revenues has increased proportionately with your capacity, or are you just gonna try to stay within some kind of range?
Chris Brown (President and CEO)
Chris, again, it's a, it's a good question, if you just go back to the principles of how we're, how we're explaining our business and how we are driving our business. We can't, we can't control the weather, we can control our base business and the work we do for our customers 365 days a year. The Non-union business has increased by over 50% year-over-year. The majority of those resources, almost all year, work on system, doing the day-to-day work for our customers. The fact that we have increased that headcount in the Non-union business, doing the day-to-day services on system for our T&D customers, if there is a weather event, that gives us, that gives us more upside potential for the business to generate higher margins and higher revenue from storm. Yes.
Chris Ellinghaus (Managing Director)
Okay, that definitely is clear. All right, I appreciate it. Thanks for the details, guys.
Chris Brown (President and CEO)
Thank you, Chris.
Operator (participant)
Thank you. We have reached the end of the question and answer session. I will now turn the call over to Nate Tetlow for closing remarks. Please go ahead.
Nate Tetlow (VP of Investor Relations)
Thank you all for joining us today and for your interest in Centuri. Please feel free to reach out to me with any follow-up questions. This concludes today's call.
Operator (participant)
Thank you. Ladies and gentlemen, this is now the operator. Today's conference is scheduled. You may now disconnect the call. Thank you.