Centuri Third Quarter 2026 Earnings Call - CENTURI HOLDINGS INC

Hello, everyone. Thank you for joining us, and welcome to the Century Third Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 2 again. I will now hand the conference over to Nathan Tetlow, Vice President, Investor Relations. Nathan, please go ahead. Thank you, and good morning, everyone. Today, we issued and posted to Century Holdings' website our third quarter earnings 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, and we assume no obligation to update any such statement except as required by law also given the increased scale of our business over the last year and in order to simplify reporting we are no longer presenting the non-gap measures of base revenue and base gross profit which were measures that adjusted for storm restoration work today's call is 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 kelly youngblood chief financial officer i'll now turn the call over to chris thank you ned and thank you everyone for joining our first quarter earnings call we're extremely proud to have delivered record quarterly revenue of 1.2 billion and record quarterly gross profit of 113 million adjusted net income for the quarter was 42 million more than double the 17 million were reported a year ago this is remarkable top line and growth and profit growth and reflects the dedication of our teams across the us and canada let's start with our third quarter operating performance which i believe demonstrates the progress we've made across the organization and the benefits of the investments we made earlier in this year as we transitioned during the first half of 2026 we invested to build greater scale and capacity across the business including meaningful additions to our workforce we expected those investments to begin translating into stronger productivity and improved operating efficiency as those employees became fully integrated into our operations which is exactly what happened in the third quarter in addition to leveraging the benefits of scale and capacity we've been focused on driving contract pricing to reflect market cost escalation including fuel and the cost of fleet this effort began earlier in the year with new bid work, new MSAs, and MSA renewals, all reflecting updated pricing and market conditions. In addition, all $4.8 billion of outstanding bids, including $2 billion of expected renewals by year-end, reflect updated pricing. By this time next year, we expect the vast majority of our backlog to reflect the updated market pricing. In terms of results, we delivered record quarterly revenue while at the same time driving meaningful improvement in profitability, which led to record quarterly gross profit. Our gross profit margin increased to 9.5% in the third quarter, up from 7.2% in the second quarter. The progress was particularly evident in U.S. gas, where our workforce expansion was the most significant. profit margin in U.S. gas increased to 8.2 percent from 4.2 in the second quarter. In terms of incremental margins, we achieved a 10.4 percent incremental gross profit margin on a 342 million year-over-year revenue increase. Gross profit margin, U. S. gas gross profit margin, and incremental gross market margin all exceeded expectations and prior external communications we've been focused on building a more scalable and sustainable operating platform that can support the level of demand we see across our rent markets and allow us to grow the business while continuing to improve profitability there is more work ahead but the third quarter represents an important step towards and gives us increased confidence in the earnings power of our business as we continue executing our vision one century strategy our focus remains on translating strong customer demand and revenue growth into higher productivity greater operating efficiency and ultimately stronger margins and cash flow over time and now for the commercial update q3 was an exceptionally active quarter across our core and adjacent end markets third quarter bookings were approximately 730 million bringing our year to date bookings to approximately 2.9 billion and our outstanding bids more than doubled in the quarter to 4.8 billion this is up from 2.5 billion at the end of the second quarter 2026. the majority of these bids as expected are within our electrical segment And even so far in the fourth quarter, we've booked approximately $275 million, split evenly between bid work and MSAs. We booked nearly $100 million in MSA renewals and approximately $185 million between new MSAs and growth from existing MSAs, the mix being about 60% from the electric and market customers and 40% from our gas customers. Demand for our core MSA work, including expanded scopes of work, remains extremely strong. In terms of bid work, we booked approximately $445 million during the quarter, which included the third phase of a natural gas infrastructure project and several electric transmission awards, each in the $10 to $20 million project size range. Our backlog was up 5% from prior year and now stands at approximately $6.2 billion. And even more notable is that our opportunity pipeline continues to expand and now sits at approximately $19 billion, up 46% from last year, demonstrating the additional strength of our rent markets and our ability to position Century for future profitable growth. Included within our £4.8 billion of outstanding bids is approximately £2 billion of MSA renewals which we expect to renew by the end of the year. This is higher than our previous expectation as discussions with customers are leading to increased scope to work and longer contract periods. When we add in the projected bid work awards, we also see our book-to-bill ratio for 2026 of at least 1.3 times, which is exceeding the target earlier communicated at 1.2 times. Looking ahead, we now have over 3.7 billion of revenue coverage for 2027, which combined with our pipeline gives us visibility to mid-teens percentage revenue growth for next year, 2027. Our outlook is supported by durable investment across North American utility infrastructure markets. U.S. investor-owned electric utilities are expected to invest approximately $1.4 trillion from 2026 through 2030, of which over 50% is dedicated to modernization, resiliency, reliability, and grid harmony. This end market is our core electric business. At the same time, replacement of aging gas infrastructure remains a long-term, safety-driven priority, with approximately 45% of the gas distribution made in service lines being over 35 years old or of unknown origin. AGA estimates that natural gas utilities are about $37 billion each year to enhance the safety of distribution and transmission lines. Together, increasing power demand, grid modernization, population migration, and the continued replacement of aging infrastructure are supporting sustained investment across centuries core electric and gas markets. As we further build upon our efficient one century delivery model our business remains strong regardless of the political environment and we continue to grow our business and capabilities to serve our customers and deliver affordable solutions. Before turning the call over to Kelly I'd like to briefly discuss data centers particularly given the significant amount of market attention data centers are As Century, as we've said many times before, we've taken a disciplined approach to what we include in our opportunity pipeline and within our forecasts. Any data centre project opportunity must have a defined scope of work with a clear estimate of the contract value and margin, and we must have solid understanding of the customer and the project must have committed funding. to data centers by the time we enter the active bidding stage the projects are generally well advanced and fully permitted with design and engineering substantially complete and in many cases initial civil work complete and construction already underway in short the data center projects that we evaluate are largely de-risked by the times we start investing time or resources into formerly bidding for the opportunity data centers remain an attractive opportunity per century allowing us to deploy our existing capabilities into a growing end market today though we have booked approximately 370 million of data center work in aggregate with approximately 200 million remaining in backlog whilst meaningful we continue to believe that data center work will not exceed the 10 of our overall annual revenue i'll now turn over to kelly to discuss the financial results kelly thank you chris and thank you everyone for joining the call today third quarter 2026 consolidated revenues totaled 1.2 billion a new quarterly record and was 40 a 40 increase compared to q3 of 2025. consolidated gross profit was 113 million also being a quarterly record, a gross margin was 9.5% in the quarter. The incremental gross profit margin compared to last year was 10.4% for the quarter, net income attributable to common stock in the third quarter was 27 million or 27 cents per share compared to net income attributable common stock of 2 million or 2 cents on a per share basis in the same period last year. In the third quarter, adjusted EBIT was $73 million, 79% higher year-over-year, and adjusted EBITAW was $108 million, a 44% increase over the same period last year. Adjusted net income in the third corner came in at $42 million, or $0.42 on a per-share basis, compared to $17 million, or $.19 per share, in the prior year period. Now to our segments. U.S. gas revenue was $576 million, an increase of 40% compared to the prior year. This growth was driven by increased bid work in MSA volumes, demonstrating the underlying strength of our customer relationships and market position. Gross profit margin was 8.2% in the quarter, up from 7.7% last year, and an increase of 400 basis points sequentially compared to last quarter. As previously mentioned, the improvement in third quarter margins for U.S. gas was primarily driven by the scale and capacity investments made earlier in the year, which translated into higher productivity along with the initial benefits of our contract pricing initiatives. Canadian operations revenues, $98 million, up nearly 33% from prior year period, primarily from the inclusion of the Connect acquisition. Operational performance in this segment remains strong against the backdrop of sustained favorable demand as evidenced by the 19.6% gross profit margin in the quarter. Union electric revenues, 354 million, an increase of 65% year-over-year, driven by strong growth within our electric and industrial projects in addition to the inclusion of J.J. White, which joined Century at the end of July 2026. Gross profit margin for the union electric segment was 8.9 percent in the third quarter. Non-union electric revenue in the third quarter was $175 billion, an increase of 18 percent year over year. This growth was driven by higher storm work in the current year and increased MSA activity. Gross profit margin in the non-union electric segment was 8.7% in the correct period compared to 7.1% in the prior year period. Now turning to our cash flow and balance sheet. Net cash used in operating activities during the third quarter was $28 million and free cash flow was a negative 30 million. We expect cash collections to accelerate in the fourth quarter as we begin converting the recent revenue growth into cash. Our current full-year free cash flow expectation is between 25 to 50 million, down from our prior estimate and driven by the higher working capital requirements as revenue growth has consistently exceeded forecast. However, it's noteworthy to clarify that any shortfall in free cash flow this year is simply a timing issue and will translate into higher cash flow generation for 2027. We ended the quarter with a net debt to adjusted EBITDA ratio of 2.6 times, which was down from the 3.8 times a year ago. We forecast net debt to adjusted EBITD to be in the low two times range by year end. Finally, turning to our outlook, As outlined in today's earnings release, we have updated our full year 2026 guidance, including revenue expected to range between $3.8 and $390 billion, adjusted gross profit of $305 to $315 billion, Adjusted EBITDA of $290 to $300 million, Adjusting Net Income of $80 to $90 million and net capex of 60 to 70 million of note the guidance assumes no contributions for storm work in the fourth quarter looking ahead and as chris highlighted our revenue coverage for 2027 outstanding bids and opportunity pipeline gives us confidence in the mid-teens revenue growth for 20 2027, which is expected to put us above $4.4 billion in revenue in 2027. In addition, we expect the top-line growth to be accompanied by continued margin expansion. We are aiming to achieve an overall gross profit margin of 8.5% to 9% in 2026, which is aligned with our near-term target incremental gross profit margins of 12% to 15%. percent relative to the 2029 targets established earlier this year our preliminary 2027 outlook has us outpacing on both revenue and gross profit growth i'll now turn it back to chris to wrap up our prepared remarks chris thank you kelly as we close i want to reiterate our confidence in the opportunities ahead of us our core business remains anchored by long-term MSA agreements supporting our utility customer sustainable capital programs beyond the continued improvement in the business we remain focused on executing against the margin expansion opportunity we've consistently outlined reducing seasonality increased pricing to reflect cost escalation growing the mix of bid work and advancing operational excellence particularly within our us gas business we are making tangible progress across each of these areas we are pursuing and securing higher margin work achieving in pricing improvements to reflect the market across our portfolio driving additional activity into warmer geographies to improve seasonality and using new operational tools to identify margin opportunities at the customer scope of work and geographic levels we're encouraged by the progress we have seen across the organization and remain confident in our ability to drive margins higher as we move into 2027 and beyond we appreciate everybody everybody's time we appreciate everybody's times and interest today operator let's begin the q a we will now begin the question and answer session please limit yourself to one question and one follow-up if you would like to ask a question please press star one to raise your hand to withdraw your question press star 1 again we ask that you pick up your handset when asking a question to allow for optimal sound quality if you're muted locally please remember to unmute your device please stand by while we compile the q a roster your first question is from the line of manesh somya from canter fitzgerald your line is now open please go ahead uh thank you congrats uh chris kelly nate good job a couple of questions uh one um chris you mentioned uh that the incremental in the quarter was 10.4 percent I was hoping to get that incremental excluding diesel fuel cost pass-throughs. Yeah, this is Kelly. I'll take the first part of this, and Chris can certainly chime in. Listen, we had guided on the last phone call that the quarterly impact, the net impact of fuel would be approximately $5 million, and that's almost exactly where we ended up for the quarter. and, you know, we've been pushing through the additional cost of fuel, additional cost related to our fleet transition to more leasing. All of these items, we have been very successful in pushing that cost into our pricing with customers. You know, as Chris pointed out in the prepared remarks, there's even another $2 billion worth of contracts being renegotiated before the end of the year. Those will all be incorporating the higher cost that we've had from fuel and other items and so um you know as far as the incrementals you know we're really going to stop quantifying i think at this point the absolute you know dollar value of fuel we've incorporated that into our guidance going forward you know the 10.4 we had this quarter very much stronger than what we had in q2 and if you look at our implied guidance for 2027 uh that shows the incremental margins are going to be definitely within that 12 to 15% range that we talked about on the phone call. So I think, you know, just, I think that's really the recap, Chris. I don't know if you have anything else to add. No, I'm talking about that, Kelly. Yeah, I mean, listen, the performance obviously is very strong, no doubt about that. But I just wanted to sort of understand that math, but I appreciate it. I guess maybe, Kelly, you might have alluded to this, that some of the 29 targets you're running ahead of the margin expectations. Maybe a question for Chris as to, you know, clearly we're seeing momentum in U.S. gas. Perhaps if you can just kind of frame that logic for us for 27, and I guess when would you feel comfortable updating your 29 targets, since obviously you've gathered momentum and execution seems to be on track? Thank you. Manish, thanks for your question. Look, we, as you know, we've put a lot of effort into defining, again, real-time data of what work we have in backlog, what we have, you know, pipeline and accuracy around the forecasting. So as I look to next year, we're trending. We've currently got $3.7 billion, as we've said in our scripted notes, of backlog coverage for next year. We think we're trended towards $4 billion by the end of the year. And that's really what's giving us the confidence around the 4.4, 4.5 billion we've alluded to within our commentary. I think as we look at the revenue, we've got a very, very good handle on our pricing and our margin in our system now, so we feel very good about giving you a range of 8.5% to 9% on the margin, which if I look to what we committed to within the 2029 targets, uh we're about 10 12 ahead on the revenue of where we thought we would be and we're a little bit ahead on where we are on where said we would on the margin so that that's really put in the context of where are against the 29 targets we rolled out in in may to your final question manish is you know when are we going to refresh the targets i think it'll be commensurate as we close out the budget and the planning for next year and issue next year's guidance info That's probably where we would look to give an update on the 2029 targets. I do expect the 20 29, 20 29 targets to be higher, not lower than what we've already communicated just based on the market opportunity within our core markets and our drive to drive margin expansion in the business. Wonderful. I'll get back in the queue. Thank you so much, guys. Thanks, Manish. Appreciate it. Thank you. Your next question comes from the line of Justin Hawk from Baird. Your line is now open. Please go ahead. Justin Hawk, Bair, Oh, great. So thanks for all the color on the call and the details on the award and the outlook and everything. I wanted to ask a little bit about the guidance implied for the fourth quarter. And it looks like your EBITDA guidance, at least, you kind of narrowed the midpoint and you're implying a little bit lower margin than you had previously. The third quarter was kind of ahead of plan. So I don't know if that's just a reflection of lack of storm, or maybe you could just talk a little about the moving pieces in that. Thank you. You know, great point. yeah q3 obviously a big b compared to consensus and while we even our own internal budgeting q4 looks a little bit like compared to consensus but if you look at the full second half of the year we have a beat pretty much across the board we may be a little bit light on even all margins to your point and i think that's really more an effect of our change in kind of leasing methodology or having lower capex so you're not getting the benefit of that depreciation and if you look the way we're forecasting that just to give you a number if you looked at full year 26 versus 25 just this change in methodology is about a 90 basis point impact to our EBITDA margins uh but again when you look at uh you know whether revenue gp you know even all absolute dollars uh all the profitability metrics for the full second half of the year you know we were above consensus above what our budget uh was internally so we're very happy with that and then as we've mentioned you know the 27 guidance on top of what we just provided as kind of an end of year for 2026 is going to take us over a 4.4 billion mark which is above the uh the 2029 expectations that we had laid out earlier in the year okay um thank you for that and i guess my second question here um i i guess chris for you but your uh your pipeline you're talking about you know 40 plus data centers now and the aggregate values like almost 5 billion and last year it was for last year last quarter it was 25 and 2 billion so i appreciate your comments on on the election impact but i guess uh maybe you could just give give a little bit more context of what markets is that coming from? It just is the increase sequentially. Where are you seeing kind of the bulk of that activity? Thank you. Yeah, I mean, the pipeline has increased to 19 billion. I'll give you some headline mix on that. 12 billion of that is on the electric side of which 10 billion is distribution and transmission so core businesses seven of the 19 billion sits on the gas side of the business so that's the overall mix between the two the two end markets we serve um when it comes to data centers i i think we we've only got one data center that we are looking at within within my home state here in texas the remainder of the data centers are actually uh are in the north and as i said in my uh as i set in my earlier scripts um we don't assume any data center in our financial forecasts unless it's got funding unless it got permitting unless it has got uh all of the execution plan defined we know the customers got capital in place so um i would say most of the data centers are emanating up in the mid-atlantic midwest area of the us we won't actually just sit in texas that's helpful thank you thanks for your question your next question is from the line of sanjita jain from key bank capital markets your line is now open please go ahead uh good morning thank you for taking my questions one is on the fall cube glide kelly you mentioned that there's no storm included in that guide, so I'm wondering if you did any work for Hurricane Isaias and if so, is that going to be on top of the guide that you've given us? Hi Sangeeta, I'll probably answer that first question and then Kelly will know that maybe add something to it. The answer to your question is yes, we did do storm work at the beginning of october and yes that would be additive to what we've communicated within our overall full year guidance so that's correct and specifically around q4 q4 is is a difficult time in many ways to be absolutely accurate in one's forecast that's why we often take a conservative approach and why is it difficult it's hard to determine exactly what customers have got budget exhaustion as we get towards the end of the year it's also hard to determine which customers have surplus budget they want us to actually uh expand and deliver services for so we kind of don't get a good view on that until probably november mid-november even coming back after thanksgiving so that's why you see sort of a conservative approach of what we believe we will secure for q4 it doesn't include storm and yes we've had a little bit of storm at the early part of october I'm not sure what we have this week, but certainly the beginning of October. And if customers, as they did last year, choose to allocate more work because they've got surplus budget coming into the year, we'll absolutely help them deliver on those services. That's very helpful. Thank you. And then one more on gas margins have obviously done very well, and you've talked about improvements in the operations there. Can you tell us what tools you're putting together to get your electric margins to the same strong levels? Thank you, Tarek, I think we've spoke about it at great length and, you know, there's an element of three or four components to driving the gas margins up. There is the seasonality, as you know last year and the prior year, and historically we've had a massive rundown in work that we execute, starting about Thanksgiving, running all the way through to spring break, all the Way through the first quarter. We've repositioned the business. We've got more leadership south of the Mason-Dixon line and actually cross-selling more work into those customers that spend around the year. And as you saw last year, we've cut the $16 million loss down to six, and we believe looking into 27, we will be profitable in the gas business in the first quarter of the year so that's one tool if you would like to use which is dra we refer to which is driving performance uh through the business development and sales secondly is we we've now sort of standardized around the way we capture the cost across all of our businesses and that's allowed us to fundamentally see where as areas of opportunity um to reflect new pricing that reflects current cost of fleet and fuel and other items insurances have all gone up into the business into the cost of the business so we're able to see where our pricing a real granular level a specific call off is below where it should be for the current market conditions so we now have that and we've had that for probably a quarter and then finally operational excellence which which often takes a lot longer you know we We were a roll-up of a number of businesses that really operated as an operating company into a whole core structure. We're now fully integrated in the way we approach the market. We're becoming fully integrated and how we benchmark and drive performance into the business so we can see how parts of the gas business perform against other parts of the organization because we've now got tools around specific leading indicators and specific absolute productivity against task level across all 80-something line items within the P&L. So, that's the margin improvement productivity tool I referred to on previous calls. That's now effective. Okay. Thanks so much for the color, Chris. Thanks, Aguita. Your next question comes from the line of Zachary Schechtman from Wells Fargo. Your line is now open. Please go ahead. Hey, good morning, guys. Thanks for taking my question. I'm just wondering that your next phase of growth, obviously, mid-teens revenue growth next year is very good. Can this next phase of growth avoid another labor ramp headwinds? Just wondering how fast you can go without having to reaccelerate headcount growth again. Thanks for your question, Zach. Yeah, I don't believe adding 1,800 to the headcount in the first half year is likely. I think we'll continue to find new business that needs more resources. But as we get rid of seasonality in the business and we become more linear across the 12 months the year i don't foresee that we will have such large ramp ups in any quarter or any half of the year i think we added about 300 people in the last quarter give or take which um is significantly less than the 1800 we added in the first half of a year so i think were a little bit more normalized that around mobilization purely driven by not just the tools we have in place across the broader group now but more importantly about the size and scale in the organization and our efforts to mitigate the seasonality and the sudden shot dancing of people driven by the weather in thanksgiving through to spring break so i don't think you're going to see that in the future got it thank you and then one follow-up just on data center um i know it's not not your main area focus but looks like the pipeline um that growth from 16 last quarter 19 this quarter i think that was all driven by the data center pipeline looks like 70 million of awards was picked up in 3q just kind of wondering like how quickly those rewards turn to revenue and you know given the the strength and the pipeline build should we expect a decent acceleration from that 70. and we're going to continue zach to be really cautious with data sensors and not not just because of all the headlines you read in the news at the end of the day we've got a very diligent approach with all of our customers to be sure that if we're good in work it needs to be funded we need clarity on scope um we need quality that it is funded and that we're not going to put resources that ultimately slow down or need to be demobilized we want consistency stability in the business so specifically to the data centers I think most of the data center work the 200 million that remains in backlog will burn off next year I think I think that's I think that's accurate I doubt much of it will go into 2028 so it's it's less than sort of five or so percent of what we think revenue will be next year um when it comes to other data sensors i mean clearly the political environment during the course of this year didn't just start yesterday it started long before that so we've we've always been extremely cautious on where we would put capital and even though they've gone into the pipeline now and we've got vision on exactly whether they funded and whether they're permitted we'll continue to be very cautious on which contracts we actually do sign we do book and that caution will be all around are they funded is there any risk to the permit and if there is we we will take a very steady approach about what we put into our forecasts so i i can answer you know a call like this exactly when those things will when those bids and opportunities will convert i just can't but what i what i would say to you if data center a has some risk to it then um maybe that's not a piece of that's not a scope of work that we will continue to follow but if it's got funding and we can see it's going to be permitted we possibly will but there are lots of other adjacent end markets that we service and i remind everybody on the call the people that deliver our services to data centers are the same skills same capabilities same contract form that we deliver to other adjacent markets where we see a lot of other activity so if data centers are not a strong component to deliver margin expansion there are other markets that will understood thank you guys thanks sir your next question is from the line of kevin gainey from thompson davis your line is now open please go ahead good morning chris kelly nate great quarter guys I think I wanted to take a look at the acquisition of JJ. You've got about three months, and it looks like it's meaningfully contributing. How's the integration going there, and how do you feel about the targets you set out with for them? And then maybe if you could talk about if you've ran into some cross-selling opportunities thus far. So it's Chris, and I'll answer the question and see whether Kelly's got anything to add here. I think JJY, as with the Connect acquisitions in prior year, has exceeded all of our expectations. I think you'll recall the intention was the operational component of JJY was very complementary our existing union business um and we folded that within the uh within the union electric business that that that's led by steve zematitis and our and riggs distler um a lot of the integration has already been done we've we've been able to integrate a lot the operational people the back office i think is more or less through its integration we are actively out in the market together as a as a what as what as a one company approach um there's a number of uh opportunities in the pipeline that we think will convert in the near term i referred in the script earlier we've got four and a half 4.8 billion of opportunity that we are currently outstanding and are negotiating that's up from the two and a hal billion in the first quarter there's uh there's there's four five hundred million of that that actually is jj white related renewals that we expect to win so i would say jj why you know i think we closed july 20 has delivered everything we expected it to deliver the team is great the leadership is great the operationals are exceptional customer feedback has been fantastic i think everybody will recall we um we paid about 62 and a half million with the usual adjustment due to working capital on the basis of 20 million gross profit during the year i think so far we've delivered about 8 million of gross profit out of the business so it's a little better than we thought and we're very pleased with the business and i would expect some some conversion of new awards uh beyond what we've already discovered in the coming weeks and months so that's a good Sounds good on that. And then I just wanted to maybe highlight the $2 billion of MSA renewals you talked about. Maybe you could talk about whether it's existing customers and how the pricing flow through that you guys mentioned is working for that. I don't want to get into pricing on a call specific about renewals, but they're all renewals which means they're all existing customers. They're all multi-years. It's $2 billion, clearly not $2 million out of the 4.8. And negotiations with the customers are progressing as we expect them to progress. Customers typically recognize there's been a lot of cost inflation driven by fuel and fleet. And we're trying to get that aligned with our overall pricing for the services we offer. I would say the discussions are going very well. Thank you for the questions. Your next question comes from the line of Lauren Sullivan from UBS. Your line is now open. Please go ahead. Hey, good morning. This is Lauren on for Steve Fisher. First, just wanted to ask how you're thinking about the election impact on utility spending and planning and if that's affecting your own planning at all. Thank you for the question. Look, our business has been around for 150 years and it's not driven by data center capital programs. Our business is driven by long-term, multi-year MSAs and relationships with public utilities. We're focused on services and projects that support reliability, resiliency, grid hardening, integrity management, modernization on both gas networks as well as the grid. So the critical mass of the work we execute is non-data center related. It was all there long before the data center search became the thing that we all wanted to talk about. It doesn't matter who's in the governor's mansion or in the White House. Our services will be needed to deliver on those requirements of reliability, resiliency, good having, as well as integrity management across the gas systems. We do drive a focus on opportunity, margin opportunity, and in the adjacent end markets and data centers are one of them. But as you see, we've only got $200 million of backlog in data centers, and we've maintained that it would never be above the 10%. In fact, I think it'll be less than the 10% of our revenue going forward. So I think the political environment that has changed recently, but has slowly been moving in a certain direction during the course of the year will have little to no impact upon us because our business and the services we offer are needed by the ultimate customer. demand it doesn't matter whether it's a blue or a red leading out leading our political environment got it thank you um and then just my second question is on uh if you're seeing any more interesting from customers and consolidating their contractor base um and if that creates any opportunity for a century to take a larger share thank you i i think um i don't know how customers really really look at it but what i see as a service provider to our customers is affordability is absolutely crucial particularly on the gas side and that affords us an opportunity with our size and scale as you've seen in our gas margins um and it also translates over to the electric side where it's more about building our capacity to be able to service customer needs um but i i would say that the more scale we can add through people through fleet and resources allows us to cross sell the broader century it allows us to bring more value to our customers reduce their costs driving affordability to the consumer and allows us be able to deliver better return to our shareholders and the strategy we laid out is is within our vision one century and we'll continue to do more of that and more so we announced during the quarter which seems to get forgotten is we brought in a new head of greek development and his mission in life is to do exactly that which is to cross-sell our business gas electric union non-union behind the meter power energy transition services to our customers so that we can deliver more drive affordability into our customer and and drive better returns for our shareholders your next question comes from the line of sharif al-sabahi from bank of america your line is now open please go ahead hi good morning um thank you for the comments on free cash flow it seems like conversions similar to last year at about 13 at the midpoint of guide understand you're expecting an improvement in 2027 but does that improvement get you back to the historical conversion rates of 25 to 30 percent or how should we be considering that improvement next year yeah yeah this is kelly i will take that one um listen we're still you know i know we said that it could be a timing issue of cash going into 27 we are pushing you know we're kind of a full court press right now trying to get collections in this year so that we get closer back to what we had originally got into on the cash for the year but so we'll see where we end up you know the last couple of the months and you know i'm new to the company but i've looked over the last a couple of years the trend of the company has been to get a lot of the cash collections during the month of november and december so we will see where that ends up but to you know more specific to your question on the conversion ratio you know we've outlined that through 2029 we're targeting to get to a 40 to 50 conversion and there is uh nothing at this point that you know makes me believe that you're going to need to back off on that at all we're going to continue to progress and uh and increase the percentage kind of stair step it up every year between now and 2029. understood and looking at the bid work project sizes it looks like they're up about 38 percent from third quarter of last year is this more of a function of pursuing bigger projects or is it just that the projects in the pipeline are structurally larger given what utilities are trying to accomplish should we thank again thanks for the question it goes back to the basic um strategy we laid out with everybody in may which is we want to continue to grow our MSAs, but if we want to have margin expansion and we want to deliver on 15% revenue growth with higher margins, we will need to do more bid work. So the dynamic in the revenue and the dynamic in the margin is all driven by that mix. It really is as simple as that. Understood. Thank you. Your last question comes from the line of Manesh Somaya from Cantor Fitzgerald. Your line is now open. Please go ahead. Thank you again. Chris, obviously, the organic growth is quite strong. I was hoping to get some clarity on how you guys are thinking about inorganic growth. you know, what are sort of the potential opportunities that you are seeing out there that could make sense and which of the segments would those fit in? And then secondly, you know with obviously the share markets in dislocation, your own shares at a very sort of attractive level one would say, how do you guys think about share buybacks? How is the board thinking about capital allocation, if you can also give us some sense of how those discussions are being thought about. Thank you. Benish, I'll cover the M&A market, then I'll ask Kelly to jump in on the share buyback and capital allocation priorities. our focus on M&A, we look at M& A in support of our vision one strategy which we've consistently rolled out and we look we are looking to invest in businesses that are mainly tuck-in acquisitions that unlock more growth potential on the electric distribution transmission side of our business with a heavy t less of a d and we are looking at opportunities all the time you'd expect us to do to identify more opportunities that look like connect and jj white that will untap uh positioning in the market with customers to drive the electric transmission and distribution you can find a situation and again i'll repeat what i've said on prior on prior calls with many um you know you could find opportunities on the on in the south of the organized in the south of the country that has got both gas and electric that wouldn't be very willing to look at if it unlocks opportunity with customers to deal with seasonality as well as gives us a position with customers, to push more on the transmission and distribution side, recognizing the entry point maybe through gas. So that's what I would say on M&A. Capital allocation. Yeah, in terms of capital allocation, I think we've said this at recent conferences, our primary focus right now is de-levering the balance sheet you know supporting the organic growth opportunities that we have you know chris just talked about you know evaluating tuck in m a opportunities which we will continue to do uh but specific to buybacks or dividends you know i think it you know our priority right now is just to focus on the organic wealth we have and funding that and getting our leverage ratio lower you know we uh talked about in our guidance we think we'll be in the low twos ideally we'd like to get that leverage ratio below two times um you know that may uh periodically go back to above two depending on m a opportunities but you know it will always want to see a track record of that kind of you know heading back down below two so that's really the priorities for the moment uh you know give us some more time let us get the leverage ratio down and then uh then maybe we'll have that discussion but the the right now the timing's just not right for us And just, Kelly, as a follow-up, as you think about leverage, what do you think is the ideal target leverage for the company? When you say less than two times, is it one and a half? One? Well, listen, I'm a conservative accountant, conservative CFO, the lower the better, right? but but definitely below two times i think if we were ranging between one and a half to two times that's a very healthy place to be uh for our company and as i said you know we may periodically go above that with m a that we're doing uh but we would always like to see that path back to a more normalized you know less than two but uh but uh yeah that's kind of the range we're thinking about the lower the better but i think that's that's kinda the way we're thinking about it okay great thank you so much guys thank you manish we've reached the end of the q a session i will now turn the call back to nathan for closing remarks thank you everyone for joining today and thank you for your interest in century please feel free to follow up with me with any questions and that concludes today's call thank you Thank you for attending. 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