Operator:

Greetings, and welcome to the Quanta Services Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kip Rupp, Vice President of Investor Relations. Thank you, sir. You may begin.

Duke Austin:

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services second quarter 2024 earnings conference call. Quanta's first half of the year is off to a good start. Our second quarter results highlighted by another quarter of double-digit growth in revenue, adjusted EBITDA, and adjusted earnings per share, a record total backlog of $31.3 billion, and strong cash flow. We believe our results reflect the power of our portfolio, sound execution, and continued demand for our services, driven by our customers' multiyear programs to build the renewable generation and power grid infrastructure necessary to support North America's energy transition, load growth security, and reliability. We recently completed the acquisition of Cupertino Electric or CEI, which provides a platform of new service lines and a dynamic customer base, which includes technology companies driving load growth and demand for renewable energy. CEI brings an exceptional management team and a premier craft-skilled workforce that complements Quanta's culture and will create a comprehensive self-performed electric infrastructure solution offering for renewable developers, utilities, and large power consumers from electron generation to transmission to consumption. Utilities across the United States are experiencing and forecasting meaningful increases in power demand for the first time in many years, driven by the adoption of new technologies and related infrastructure, including artificial intelligence and data centers, as well as federal and state policies designed to accelerate the energy transition and policies intended to strategically reinforce the domestic manufacturing and supply-chain resources. There is momentum building across our portfolio of solutions with the complexities of the energy transition, its impact on the power grid, and the significant upgrades and enhancements required to facilitate load growth, our collaborative solution-based approach is valued by our clients more than ever. We continue to look forward to the realization of our multiyear strategic initiatives and the goals we expect to achieve in the coming years. We are positioning Quanta for decades of expected necessary infrastructure investment and believe our service line diversity creates platforms for growth that expand our total addressable market. Our portfolio approach and focus on craft skill labor is strategic. Advance -- is a strategic advantage that we believe provides us the ability to manage risk and shift resources across service lines and geographies, which is increasingly important as the energy transition and new technology add complexity to infrastructure programs. We believe our diversity and portfolio approach has also improved our cash-flow and returns profile and positions us well to allocate resources to the opportunities we find the most economically attractive and to achieve operational efficiencies and consistent financial results. I will now turn the call over to Jayshree Desai, Quanta's CFO, to provide a few remarks about our results and 2024 guidance and then we'll take our questions. Jayshree?

Operator:

[Operator Instructions] Thank you. Our first question comes from the line of Justin Hauke with Baird. Please proceed with your question.

Duke Austin:

Yes. Thanks, Justin. I think we've said all along that we run a portfolio and we look at it as a portfolio. So the portfolio is performing as expected and I expect it to continue. When we think through just the pushes and pulls that for the most part, the business is performing well better than what we anticipated in many cases. But I do think you see some delineation between segments where you can have a segment that's a little off here or there. I would point out that our UIs, when we forecasted the outlook on it, certainly there's mix and shift of work there. Utilities, when you think about their CapEx budgets as they look at their own budgets, especially ones that have gas and electric, many of them are ahead of their leak replacements or don't have the capital there. So they need the capital over into an underground distribution, transmission, whatever it may be, and it offsets into another segment for us. So that shift of work there, there's larger projects that move back and forth. We like the Underground business. It's healthy. It will continue. We will certainly take a conservative approach to how we look at that segment, starts and stops on our large-diameter pipe, things of that nature. We've always said, we guide to $500 million, and we don't need it to make it. So I stand by that. We don't need it to make the midpoint of the range. The midpoint of the range is $860 million and it's also 15% organic growth at the midpoint of EPS. So I'll say that again, 15% organic growth at the midpoint.

Jayshree Desai:

Yes. We had a little bit of a drag continue from one of those projects into the second. You'll see in the Q, it's around $20 million, but the overall segment performed very well better than we expected, overcame those challenges from the projects you mentioned in the first quarter. So we're pleased at where that segment is heading.

Justin Hauke:

Yes. No, the margins were strong. So it sounds like $20 million was still kind of the same source of pressure in the segment. So, okay, great.

Jayshree Desai:

Yes. Going forward, that's baked into our expectations. That's what you're seeing with the back-half strength, and we feel like we've got the execution on those things under control and we're confident in our back-half expectations on renewable.

Operator:

Our next question comes from the line of Sangita Jain with KeyBanc Capital Markets. Please proceed with your question.

Duke Austin:

Yes. I mean, I think when you look at our transmission distribution as a service line and not as a segment, we're up 9% for the year. So we haven't seen too much of a drag, whether it be T or D, we're able to shift from one to the other. So you get some segmentation delineation as we said last time, they were up 9% if you just look at the work itself. So that said, yes, there's movements around utilities and whether they're at T or D, we have great deal of EV penetration out West. And so you're seeing some distribution spend there come into the budgets because of the penetration. And like we've said before, 70% of EV sales are in California in the States. And so that's pushing. I will say that you can see the push on the distribution system, and it validates what we've been saying as that push, I can't tell you the pace of it. If it slows down, certainly it will slow down. But nevertheless, as it pushes through, it certainly impacts our distribution systems as you're seeing in California, where the load is substantial, there's a rebuild ongoing out there and I think that will continue as you push into EV. So it doesn't -- you have storm hardening in areas, which are coming into play. We're strengthening. Certainly, in the back half, you can see it in the numbers, and we like where we sit and we're able to -- the portfolio has allowed us to go through the transition. There is ups and downs with different utilities, regulatory impacts, things of that nature. We're ahead of those things. We know what's coming. So the company has done a really nice job of putting ourselves in great positions to take advantage of our portfolio as we move through the year.

Jayshree Desai:

Yes, for sure, the SunZia burn has an impact on that burn, but we are booking work. In fact, as we pointed out, we're booking additional work past the quarter. But we are held to a higher comp because of that SunZia impact from last year, no doubt about it. But work is coming. We still feel very good about the year, and we continue to book work in that segment.

Sangita Jain:

Great. Thank you so much.

Sangita Jain:

Helpful. Thank you.

Brian Brophy:

Yes, thanks. Good morning, everybody. Just wanted to stick with renewable energy here. Obviously, there's some trade uncertainty out there, election uncertainty out there. Are you guys seeing any impact from this from customers? Are customers pulling back away at all as we await some clarity? Just curious what you're hearing and seeing there? Thanks.

Brian Brophy:

That's helpful. Thanks. And then I just want to ask about TS Conductor. Can you talk about details on that investment? What was the rationale there? And just broadly, how are you thinking about opportunities in the manufacturing space? This is now the second deal you guys have done with the manufacturer here in the last year. Thanks.

Brian Brophy:

Appreciate it. I'll pass it on. Thank you.

Jamie Cook:

Hi, good morning. My first question just on underground and utility. I think in the quarter, you mentioned a mix issue. If you could elaborate on that. And I think you lowered your margin target. Just why? And I'm wondering how stronghold this performing given some -- you're hearing industrial weakness in other parts of the industrial landscape? And then my second question, Duke, it is for you just strategically. You've had some pretty good success recently with M&A and some of the questions I get from investors are, is it going to be harder for Quanta to continue to grow organically just because of the law large number starts to work against them. And with your success in acquisitions, I'm just wondering going forward should we expect greater balance or even potentially more growth or the portfolio driven by M&A versus organic growth if the mix shifts more to M&A versus organic growth for those reasons? Thank you.

Jamie Cook:

Thank you.

Operator:

Our next question comes from the line of Michael Dudas with Vertical Research Partners. Please proceed with your question.

Jayshree Desai:

Good morning.

Michael Dudas:

So maybe update us on the communications business. You highlighted $900 million or so revenue this year. What's the tone of that business? It seems like you're probably targeting more value on the margin side relative to growth. And do you see some visibility as we move out the next couple of years, any trends or client discussions that could give it some improved traction going forward?

Michael Dudas:

Got it. That's great. Thanks, Duke.

Alex Rygiel:

Thank you. Good morning, Duke. A lot of tailwinds here driving your business. Any chance you could rank which ones might have the greatest impact on your business over the next three years?

Alex Rygiel:

And then with sort of this new big backdrop of technology driving your business, are you going to market and selling a broader portfolio of services in a different way today than maybe you did in the past?

Alex Rygiel:

Thank you.

Steven Fisher:

Thanks. Good morning. Just a question on cash-flow related to the Canadian receivables. It sounds like you're still pretty confident in the position that you have there. Maybe if you could just give us a little more color on the timing of collection and thoughts around the guidance raise or the guidance maintaining there against the general guidance raise. And how tied is your deleveraging post CEI to the collection of that Canadian receivables?

Jayshree Desai:

Yes. I mean, we'll be under 2 times. Our expectation is under 2 times the leverage by the end of the year. And even without for whatever reason, we weren't able to collect, which again, we don't expect that. But to answer your question, we'd still be below 2 times.

Duke Austin:

I think we really understand craft skill and how they think and how we think about it and how we respect that trade. So we have a workforce development, we have training that we've invested a significant amount in across craft. And I truly believe it doesn't matter what craft it is. So if it's inside electric, it gives us a whole new craft skill workforce because the high voltage and low voltage, the transferability between the two is not bail, I mean, you have to be trained on both sides of that. And so you can't move them across a little bit you can, some can but it's not as easy as it sounds. So there is extra training required on both sides of that movement. So I do believe that the voltage workforce gives us the whole new venue there. And then the things that we can do to meet customer demand across that from a craft standpoint are there. We like the front side of our business as we've discussed before, we need to get basically more scale-out of the front side of the business. And so we'll continue to try to either organically grow that or make acquisitions in that side of the business. So we're not afraid to make acquisitions that makes sense. I think we try to be prudent about that and we're patient. We're not. There's nothing imminent ever. We talked to Cupertino probably over seven or eight years and it happens when it happens. And I think we're patient. And I want to make world-class companies and I think we have the very best in the business and graph. So we want to lead the way there and we'll be patient until we see the right kind of opportunities to add to the comprehensive solutions that we already have.

Duke Austin:

Sure.

Neil Mehta:

Yes, good morning, Duke and Jayshree. First question is more of a big-picture --

Neil Mehta:

Good morning, Jayshree. Big picture question around the regulatory environment. There is no doubt there is an enormous demand for your services and the need for utility CapEx to upgrade the grid. But as we've seen in some tough regulatory outcomes, including in places like Illinois, sometimes questions about the commitment of the regulator to push those capital increases through. And so I just love your perspective on the regulatory environment and the juxtaposition of the enormous need for the services relative to the constraints from a regulatory perspective.

Neil Mehta:

Yes. Thanks, Duke. And then the follow-up is Cupertino really built on your data center platform. But as you think about what data center focused opportunities could look like five years from now, how could you envision Quanta really scaling that business and what could success look like to capture the 15% type of growth in CAGR that you alluded to in your slides?

Neil Mehta:

Thank you, Duke.

Chad Dillard:

Hi, good morning, everyone.

Chad Dillard:

So a couple of questions for you on the implied second-half guidance. So first on your Electric business. It seems like the second half, there's going to be a pretty significant ramp in revenues half-over-half or year-on-year, even if you factor out the recent acquisition. So I was hoping you could help us bridge that and get comfortable with that. And then secondly, in the renewable business, at least like based on the guide again, like excluding CEI, it looks like growth starts to flatten out as we exit the year. So I just want to get some color on how confident you feel about the reacceleration of that growth in that business.

Duke Austin:

Yes, try to stick a little color to you on that. I would say that as we see it, it's difficult to build big solar. But one of the reasons that we felt like we needed to lean into Blattner and give us the very best-in the business was we're concerned with building big solar projects. It's not easy. It looks easy, it's just not. And so I think that is something we have a lot of -- a great deal of confidence in. So does the client base. So the need for renewables to support the tech growth gives you what we believe is visibility for the long haul here and continue. I'm not saying they won't build gas, I'm not saying it will be a new plant there, but you're backstopping renewables and you want redundancy in their system. So if they don't build at day one, they'll build at day two. They're pushing renewables into the system eventually. So I do believe that will continue. We like what we see going forward under any administration. Yes, I think we've taken a prudent approach to guidance and Jayshree is right. I mean, we are starting programs that give us a lot of visibility into the back half on the electric segment as well as the renewable segment. So we feel confident. We just need to execute through here.

Duke Austin:

I mean it's regional. You have some movements in there. I didn't say our electric business was moving one-way or the other, by the way. Just said, we have the ability to move them around as necessary. I feel like our distribution on the electric side is fine. There is some push in certain regions, but it's growing in others. So I'm not too concerned there. The gas side of the business moving some capital off-gas into electric, where you're caught up in some gas things and nothing releases, things like that. So they're moving over into electric for the year. Just it happens able to move budgets around, we're able to accommodate. So there is some movement, there are always movement though. I'll say always. We're always moving into substations or transmission distribution, it doesn't matter. We're fungible, our skill-sets are fungible, they can move them around. That's part of that solution that we provide to the client and gives it the ultimate what I consider flexibility. And our job is to provide that flexibility to the client and that solution, we can give it to them.

Operator:

Our next question comes from the line of Andy Kaplowitz with Citi. Please proceed with your question.

Jayshree Desai:

Hi, Andy.

Duke Austin:

Yes, I think what we saw when I said low, I just think it's you reset a bit in this transition, we'll continue to see that. Now I'm looking at their capital budgets and you're talking about 15 gigs of solar, wind or of the load for that matter. You're going to see some movements across the segments consistently. I do think everyone's maintaining their capital budgets. We continue to point to it. And they're going up because the load is going up. You can't deny the fact that if you're going to add 15 gigs, 10 gigs, seven gigs of generation, load is going up, capital is going up. How you do it, whether it's gas fire, whether it's renewables, it's still moving up. If we build gas fire across the systems, it stabilizes renewables and it actually makes renewables faster and better. So I wouldn't get to -- I mean, you'll see some of those movements across these capital spends move. We just got to be flexible with how we look at it. So I think transmission is something that's extremely important. We saw PGM yesterday on Go Out and you can see the pricing at the capacity market. I just and you can say, okay, it's one-time, but the fact is demand is far outseeing supply. It's 101 economics. And it just is there, it's been there, it's been coming. We need transmission in this country and we got to build it.

Duke Austin:

I mean, it's certainly getting better. The macro market is getting better. We expect the second half to be increasingly better quarter-over-quarter and into '25 because the market is getting better. Canada is always a particular market it has higher highs and low lows. And so you move along with it, but we were able to move a lot of the resources into the States, still are in the States, helping in supporting some of the growth in the States. And as we see Canada come back, we'll push into Canada more and Australia is a nice business as well. It's been very, very nicely. So we like the business long-term. It's -- we just got to -- we right sized kind of the backside of it and we'll grow off that again and just be cautious about how we look at that on a go-forward basis. But I do think in the next year, we see, we book the work and see where that will allow us and bring the margins up very close to parity with the rest of the segment throughout the year. It's incremental though. It's not all at once.

Duke Austin:

Sure.

Duke Austin:

Yes. So we appreciate the 58,000 plus employees and their dedication to the clients and what they go through every day with the heat and rain and they work 16 hour days, 20 days in a row. And it doesn't go unnoticed, it doesn't go unnoticed from management team and clients will appreciate you. And we'd like to thank all you for participating in the conference call. We appreciate your questions, your ongoing interest in Quanta Services. Thank you. This concludes our call.

Operator:

Greetings and welcome to the Quanta Services First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

Kip Rupp:

Thank you and welcome, everyone, to the Quanta Services First Quarter 2024 Earnings Conference Call. This morning, we issued a press release announcing our first quarter 2024 results, which can be found in the Investor Relations section of our website at quantaservices.com.

Earl Austin:

Thanks, Kip. Good morning, everyone, and welcome to Quanta Services First Quarter 2024 Earnings Conference Call. This morning, we reported our first quarter 2024 results, which included double-digit growth in revenue, adjusted EBITDA, adjusted earnings per share and strong cash flow, demonstrating an overall good start to the year.

Jayshree Desai:

Thanks, Duke, and good morning, everyone. This morning, we reported first quarter revenues of $5 billion, net income attributable to common stock of $118.4 million or $0.79 per diluted share and adjusted diluted earnings per share of $1.41. Adjusted EBITDA was $387.3 million or 7.7% of revenue. Of note, we generated healthy cash flows in the first quarter with cash flow from operations of $238 million and free cash flow of $181.2 million, both setting first quarter records.

Jamie Cook:

Congrats on the quarter. I guess just 2 questions, one shorter term, one longer term. Jayshree, could you just talk a little bit about the renewable margins? I think they fell a little short relative to expectations. And how -- any color, I guess, behind that?

Earl Austin:

Thanks, Jamie. Welcome back. I'll take the margin question. I think from our standpoint, when we look at the segment -- renewables segment, we had some series of projects there that -- a series of work, call it, 5% of the portfolio on the solar/wind side. They just didn't perform, didn't execute to where we should have executed that and what we expect from ourselves and what our customers expect. So yes -- look, it's a small piece. We grew the business, I can make tons of excuses, I am not. We own it. We didn't execute like we should. And the rest of the portfolio really is -- the majority -- the vast majority of the jobs, of the projects, of everything we're doing there is exceeding our expectations. We expect that to continue.

Operator:

Our next question comes from the line of Andy Kaplowitz with Citi.

Earl Austin:

Sure. So a little bit, I think this is something we've talked about the portfolio and combining electric power and renewables together, and so I want to go through that a little bit.

Andrew Kaplowitz:

Very helpful. And maybe just to follow up on your commentary, last quarter, you mentioned sort of the better visibility around large transmission projects. You just talked about MSAs in answering my question. So just the conviction level in sort of the backlog increase again, I know it doesn't happen in the quarters over the year. But is it more base business you think that grows or larger project business that grows in '24? Is it both?

Operator:

Our next question comes from the line of Neil Mehta with Goldman Sachs.

Earl Austin:

We acquired Sherman+Reilly, which was blocks and pullers. If you're in the business, you're in the craft, you grew up with Sherman+Reilly as part of the ecosystem, it's been in business since 1927. It's something that I think from our standpoint, our people in the field, they deserve the product that's safe, the training that they have, what they do with the pullers and tensioners and the things that they have, the R&Ds they put into it, coupled with what we're trying to accomplish. It was compelling for us. There's a lot of wire talk about being pulled. There's new conductors out. There's lots of technology that we believe we can bring to market here.

Earl Austin:

No, SunZia is doing great. We're doing well. I think the team had a great plan. We put it together. All I see is good things coming out of that. We're progressing nicely. No issues on [ permanent ]. I don't think there would be, but there's no issues there.

Operator:

And our next question comes from the line of Brian Brophy with Stifel.

Earl Austin:

Yes. Again, it's more utilization and returns for us when you start looking at pricing. When we think about it, we need to execute. We need to execute double-digit platforms that we've talked about over time. And I think it's more of that than it is some kind of pricing pressure. But I do think what we see it's so unique and tech really, really wants it now, they got money, they want to pay for it. It's just regulatory, the -- how do you set rates that are fair for everyone else. And it's starting to get -- you can see, it's starting to get figured out across the country of how to accommodate loads that we're seeing. But it's not going to happen overnight.

Earl Austin:

It's incrementally helpful, especially out west. But still state policies, state regulations, PUCs, commissions, we've got to get around the fact that load is significantly higher. And we've got an investment grid. It's -- we're late already, we're behind, I believe. And so we need to catch up and we need to make sure that this transition doesn't -- it's like sitting on a track and the train come at you.

Operator:

Our next question comes from the line of Marc Bianchi with TD Cowen.

Earl Austin:

I mean I do think gas generation is going to play a role in that and to some degree here in this transition. They still want renewables. Data centers want renewables. You're going to have to balance the load. Values aren't coming fast enough -- so you're going to have to balance a little of natural gas.

Earl Austin:

That's it.

Jayshree Desai:

Yes. Thanks for the question. Yes, we are seeing that progression. We do believe that as these projects progress across some various risks and contingencies, we'll be able to release some of that in the back half. You got to -- the segment is more than just solar/wind. There's a lot of transmission substation work. All of that is going to see a big acceleration, we believe, in the back half. And so that will fall in the margins as better cost absorption, and contingency releases can be obtained.

Operator:

Our next question comes from the line of Justin Hauke with Baird.

Jayshree Desai:

Yes. Justin, so I would say the revenue -- inorganic revenue contribution from the deals we did in the second half of last year as well as the announcements this year contributes around $500 million to $600 million. I'd tell you the 2 recent acquisitions, the revenue contribution there pretty much is offset by the divestiture of the oil and gas business. So we're still around $500 million to $600 million and EPS contribution around $0.15 to $0.20.

Jayshree Desai:

Well, that is, we had the sale of an investment in a pipeline, the gain on that. So which we did adjust out of EBITDA and adjusted EPS. So that's the biggest factor in that $25 million. We also had some gains on our deferred comp, but that gets offset in SG&A. So the real impact is around that gain around the pipeline investment, which we backed out in adjusted EPS and EBITDA.

Auguste Richard:

When I think about the data centers, typically, chip companies run their road map until they hit wall. Typically, the scale of the infrastructure or a power constraint in the chip. And AI is about to have a huge shift from training, which is very power-intensive to inference, which basically reduces the power consumption by 10%. I've seen this over the last 30 years where these guys changed their minds like they change their stocks. And I'm just kind of wondering, maybe I'm wrong, but if all of a sudden, the load demand from AI drops significantly and these guys change their plans, what happens?

Earl Austin:

Yes. I mean look, we've reconductored my career. And the new high-density wires, they run hot. They work in certain areas. It's helpful. But what I would say is -- what makes it easier, better, you're still -- it's still a rebuild, basically. You're just in the corridors that exists today. So yes, we can. We can even do it in energized state. We're doing 250 miles now energized while the line is hot and reconducting, which is -- we're specializing in it, we're training in it. So it's certainly an advantage to the company. We've spent tons of R&D here. We like the conductor. We certainly have installed plenty of the other high-density conductor, and we like it.

Alexander Rygiel:

Very nice quarter. First question here, cash flow in the quarter was very strong, yet I don't believe you changed your full year guide. Are you incrementally more confident with the high end of your range now? And has your view on uses of free cash flow changed at all? And I have a follow-up.

Earl Austin:

Alex, too, I would say the business itself we set out to change some of the cash flow profiles of the business. I think we've done a nice job from an internal-invested capital. When you look at the returns, the way we calculate them, certainly moving up in the business. Even when the margins are a little softer, the returns are fantastic.

Earl Austin:

We even bought the environmental solutions, it's sitting in really nicely. We really like the synergies we're picking up there on the industrial side. In fact the business is performing well. Telecom had a nice quarter. We got parity to the electric segment a little better. I mean we also added some backlog there. I like the business long term.

Operator:

Our next question comes from the line of Sangita Jain with KeyBanc Capital Markets.

Earl Austin:

Yes. I mean we talk to them all the time. I do think there's opportunities to help and collaborate with them. Look, our job, we support our clients and our clients are talking to them as well. So it's just a -- it's something that we balance between the grid, what their demands are, try to help on both sides of that.

Earl Austin:

I don't feel like it's slow. I feel like we're doing great. It's a little bouncy on the distribution system, as we said in the past. Like I said, we're up 5.3% on transmission, distribution and substations, if you look at still look at the delineations of the segments as a whole. So I feel like we're starting nicely.

Operator:

Our next question comes from the line of Michael Dudas with Vertical Research Partners.

Earl Austin:

Yes. Mike, I think the company has done a nice job investing in craft certainly, which is what we're known for and core to us. I do think when you -- we saw some of it show up in the solar business in the quarter, where we had some growth and significant growth. And so it does, at times, that growth, you're investing in growth, you want to make sure that you can maintain the productivities and if you move geographies that you can maintain the type of productivities that we expect. And we expect high levels, and we've got to make sure we're looking back in the operations and helping make the young ones and the young people that are in the business go forward as far as -- and we are, and we have great programs and we get them to the field.

Operator:

Our next question comes from the line of Chad Dillard with Bernstein.

Charles Albert Dillard:

Got it. That's helpful. And I want to go back to the 2 comments you made. So earlier in the Q&A, you talked about it seems to have a really strong uptick on the data center side in January through March. And then you just talked about what you do today began 12 months ago. So just trying to think through like when we start seeing a lot of the work tied to data centers, to kind of work through -- do you think you can provide us with like an expected cadence on that?

Brett Castelli:

I just wanted to ask within renewables. Can you parse out your expectations for new orders between wind and solar for the full year 2024? And any thoughts relative to 2023 between the technologies there?

Operator:

Our next question comes from the line of Avi Jaroslawicz with UBS.

Earl Austin:

I want to make sure I understand the question, and it's a little spotty on my side here. As far as permitting, I mean, I think state permitting, in general, is fine. It's more about the regulatory process is a permit, in my mind. I don't think I caught the rest of the question here. Did you hear it?

Avinatan Jaroslawicz:

Yes, I was just asking like...

Operator:

Our next question comes from the line of Kevin Gainey with Thompson Davis & Company.

Jayshree Desai:

Yes. The increase there was primarily driven by our Puerto Rican entity, our JV with LUMA. There was a favorable tax ruling that allowed for us to be able to -- the tax rate has dropped significantly. And so you're seeing around a $6 million improvement over the year as a result of that ruling.

Jean Paul Ramirez:

This is Jean for Brent Thielman. I wanted to ask a question about the underground gas utility portion of the segment. Are you guys seeing any utilities pull back at all on network investments and reliability upgrades?

Operator:

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to management for any closing comments.

Operator:

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator:

Greetings and welcome to Quanta Services' Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Kip Rupp, Vice President, Investor Relations. Thank you. You may begin.

Duke Austin:

Thanks Kip. Good morning everyone and welcome to the Quanta Services fourth quarter and full year 2023 earnings conference call. This morning, we reported fourth quarter and full year 2023 results, which included double-digit growth in revenues and earnings and included a number of record financial metrics, which we believe reflects robust demand for our services and solid execution. Total backlog at year-end was $30.1 billion, which we believe reflects the value of our collaborative client relationships, and evidences the momentum we see for 2024. Of note, Quanta has delivered record revenue six of the last seven years. Six consecutive years of record adjusted EBITDA and seven consecutive years of record adjusted diluted earnings per share. These results were built off an industry-leading operational and financial platform, and made possible by our more than 50,000 dedicated Quanta employees, whom we believe are the very best in our industry. As outlined in our operational and financial commentary, 2023 was a significant year for Quanta strategically, operationally, and financially. And though we are proud of our many accomplishments during the year, we continue to look forward with excitement towards the multiyear strategic initiatives, we are working on and the goals we expect to achieve in this and the coming years. We are positioning Quanta for decades of expected necessary infrastructure investment and believe our service line diversity creates platforms for growth that expand our total addressable market. Our portfolio approach and focus on craft skill labor is strategic advantage that provides us the ability to manage risk and ship resources across service lines and geographies. Which we believe will become increasingly important, as the energy transition accelerates. We believe our portfolio approach positions us well to allocate resources to the opportunities we find the most economically attractive and to achieve operating efficiencies and consistent financial results. I will now turn the call over to Jayshree Desai, Quanta's CFO, to provide a few remarks about our results and 2024 guidance, and then we will take your questions. Jayshree?

Operator:

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.

Duke Austin:

Good morning.

Chad Dillard:

So, I want to spend some time on margins, particularly in Electric Power. So, I think in some of the prepared remarks or it sounds like there is some pressure happening in Canada. So, I just wanted to know whether you plan to right-size the business? Or is there no future work out there to continue at the current footprint? Just trying to think through how you think about the trade-off there?

Chad Dillard:

Okay, that's helpful. And so in your prepared commentary, you mentioned that visibility of high-voltage transmission projects is improving. Can you give a little more on this, what's changed? And how much more visibility do you have?

Chad Dillard:

Great. Thanks. I'll leave it there.

Ati Modak:

Hi, good morning team. Thank you for taking my questions. I just wanted to touch on the acquisitions. You previously talked about your thought process there. I think it was mostly trying to internally source your capabilities. But maybe if you can touch about -- touch on the two acquisitions you've made and the thought process around the industrial solutions side, in particular, as you go forward from here?

Ati Modak:

Thanks for that. And then I think there has been a lot of market concerns around how your customers are thinking of projects. And I know you've mentioned the requirement around transmission and guide came in a lot better than what I think a lot of the Street was expecting. But maybe you can touch on how your customers are thinking of this year and the sensitivity around this potential regulatory changes, anything that's latest in your conversations?

Ati Modak:

All right. Appreciate the answers. Thank you. I'll turn it over.

Durgesh Chopra:

Hey good morning team. Thanks for giving me time. Duke, I'm actually going to flip the last question. So, we've seen your utility customers kind of raise CapEx in high teens. Even Illinois companies came out with their latest CapEx guidance, double-digit increases. What is factored into your 2024 guidance? Should we assume that the forward-looking capital plan increases are factored in? Or are you still learning them? And I guess what I'm asking is what kind of conservatism are you baking into 2024 guidance, as you've seen a pretty significant step up, quite frankly, a step change in utility CapEx plans?

Durgesh Chopra:

Got it. That is very clear. Thank you. And then maybe could you just address risks related to the SunZia project, and I'm not sure if you can, but can you quantify what are you modeling is, is EBITDA for those projects?

Durgesh Chopra:

Thank you very much. Appreciate the time guys.

Steven Fisher:

Thanks. Good morning and congrats on a nice 2023. Just curious how we should think about that 20% growth in the renewables segment in 2024? Clearly, there's SunZia, I think there's maybe a piece of PTT, that you are allocating into that segment. So, how should we think about the growth rate of the renewables business separately from those couple of pieces? And really just trying to think about the big picture here about renewables. I mean SunZia is kind of a unique project. But at a higher level, to what extent do we think like this is the year where Renewables kind of breaks that out from a more restrained 2022 and 2023 from some of the various uncertainties that have been going on in the marketplace?

Steven Fisher:

Great, that's very helpful. And then when you think Duke about the portfolio approach that you've been implementing, where do you think that's going to have the biggest benefit impact in 2024? Curious where the kind of the directional flow is mostly going to be? Is it still sort of underground work moving to Electric segment, Canada to the U.S.? Anything else to note about how to think about the portfolio approach in 2024?

Steven Fisher:

Very good. Thanks so much.

Michael Dudas:

Morning Jayshree, Kip, Duke.

Duke Austin:

Hi Mike.

Duke Austin:

I think on the transition side of the business, we're seeing a significant amount of ramp there in areas. It's spotty. No, we're not anywhere near capacity from my standpoint. I think we've got a lot of room. We've not seen anything that would back us off, to say that we're concerned with labor at this point. We're in good shape. Look, we have a good look at it, a good five-year look at what we see, very close to the business, very close to our clients. We work with them quite a bit on long-term natures and programs and what's going on, when you go from West to East and the coverage that we have, you're able to see the things that we know are going to happen, they start in the West like when you start to see vehicle penetration in the West, you know it's going to move across the country. And we're starting to see those impacts. I think Edison had a good report on kind of how their grid is changing. And I think it gets -- it gets worse, not better. I think capital goes up even from what they're seeing. And I think you'll continue to see that, as you see the total cost impacts of energy really require the grid to be robust to create the environment that you want, which is the customer builds going down, you have to build this infrastructure out to get the total cost of energy down. It's happened in Europe, you'll start to see more and more of that getting fed, which is really important for us to get in front of the necessary capital at the local level, at the state levels, so they understand in order to get the cost down and you've got to get the infrastructure. And it's also security for the country, is to get the grid where we need it to be. And you're going to see that with loads going up in places, no one expected load to go up like this. The areas that you're seeing a load, they did not expect data cities to come in and take, call it, 3 gigs, 5 gigs and they don't want -- they want secure power. So sometimes that requires multiple lines. And when you look at all this and you look at what's coming at you, you're backed up by this. The technology that's coming into the world that requires our services, across the board, in the utilities rooting growth business, they're growing. And it's necessary for them to spend capital, it's just a matter of getting it through from a federal push into the state regulators. And we kind of said that all along that this is necessary, it's going to come to a head, and you're seeing it. This transition will be noisy. It will be things that you'll see, it's not straight up every day. It's going to have CAGR look to it at times, in parts of the business. That's why I like the portfolio so much, as we can move around and kind of get through this transition here and continue to what I believe perform at a high level and deliver the results we have.

Operator:

Our next question comes from the line of Gus Richard with Northland Capital. Please proceed with your question.

Duke Austin:

I think so. When you look at our communications business, I mean, we've done nicely, we're growing double-digits. It's not something that we're investing a lot of capital in, but I do see it. I do see technology itself needing -- you're going to strip some of the fiber capacity, are stripping some of the fiber capacity out there. And especially when you start putting big data in different parts of the country, it's much easier to build a telecom line and get telecom service, than it is transmission. So, sometimes in my mind, you'll see data centers start to locate, where the power is, almost. And right now, if you can't get power to the East and you can't get it to the West, you start to see the Midwest build. And then if you can't get it there, you start to see the South build. So, everywhere that you can get affordable power today or in the next 24 months, you'll start to see data centers go up. Even if there's not fiber, so you're going to get fiber going to them, at some point, nodes. Certainly, some of it is getting alleviated with satellites, things like that, but still you need the fiber on the ground. So, I do believe they'll push it, and yes, there's opportunity.

Duke Austin:

It's $500 million to $600 million in the guidance, it will be $500 million to $600 million, next year, in the next year and the next year. We don't -- we're not going to -- that's why we moved off long-haul pipe and big pipe. We just can't -- we can't build the business around it. It's certainly something, we'll take every bit of opportunity we can. We did $1 billion plus in big pipe last year. So, you're seeing some offset in the top line because of that because we guided $500 million to $600 million. Is there opportunities for $1 billion plus? Sure. But the government regulations and difficulty in building a large diameter pipe, anywhere in the country, but Canada is -- a little better opportunities in Canada. But we're just -- we can't take that and build it in guidance and give you any kind of firmness to our numbers. So, I -- look, I think there's opportunities. But it doesn't -- LNG, if everything goes and it doesn't go, it doesn't matter to the guide we've given you. It doesn't matter.

Operator:

Our next question comes from the line of Brian Brophy with Stifel. Please proceed with your question.

Jayshree Desai:

Yes. As we've talked about in the Investor Day, and as you've seen in the fourth quarter last year, the renewable business with the way those contracts are set up, has a very favorable cash flow profile and the working capital profile is very good. And so, as revenue and renewable side pushes up, you'll see better conversion just as we saw in 2023. Going into 2024, we did take that into consideration, but we did range it. There's a range for a reason. As I just said, renewables can push us in the higher end of that range of 45% to 55% that we talked about at Investor Day. But if you've got -- if it's more growth coming from our electric and underground segments, it can push the other way, right? And so we've given you what we think is a good prudent look at where free cash flow will be. But having said that, if the mix of work between renewables and electric and utility underground changes, you will see outside of that range or either a high end of that range or the low end of the range. The one-time cash flow impact of the large Canadian Renewable project, we do believe we will collect next year. We -- excuse me, in 2024. We -- as we talked about the last several quarters, as construction winds down, which we expect in the next several months, a couple of months. Conversations with the customer continues to go very well. So, we're optimistic we'll be able to collect all of that as well this year. But on an ongoing basis, I think you would be good to look at a range of between 45% to 55% conversion.

Duke Austin:

Sure. We'll be opportunistic in how we look at it like we have in the past, no different. We are below some of our targets. It allows us flexibility, which I like a lot. Certainly, there's things that we can be opportunistic in. But the strategies won't change. We've laid out a good strategy plan. Can we get -- can we go faster, as we delever, things like that, sure. So, I think ultimately, we're moving faster across the five-year plan. As we said last quarter and continue to say, we're moving faster through it. We'll be opportunistic with the balance sheet. But again, with the conservative nature of the company and -- we'll -- we have opportunities, across multiple fronts, and we'll take advantage of all of them.

Operator:

Our next question comes from the line of Martin Malloy with Johnson Rice. Please proceed with your question.

Duke Austin:

The tax rate, the PTC and ITCs and those things, they're in place. I've not seen them come off at this point, whether it's IRA or PTC, how it moves in or ITCs, how it moves in, I think it's the same. Now, if it was repealed, I do -- you could see some issues there. I do not believe that will be the case going forward. That's something that gives certainty to the industry. So, I continue to believe that how you get them and our customers have been able to get in front of this. And I think our customer base is -- these things kind of figured out. The IRA has some different things, you can get more, not less. So, I actually think we're in early stages of the IRA, which should give it's going forward, not less. So, I see it as more opportunities. We should check the box on from a standpoint of U.S.-type apprenticeship programs, U.S. type materials, things of that nature, even internally. So, we really set ourselves up to take advantage of that for the customer. So, I feel good about it. I'm not seeing it slow down from that standpoint. I mean, everyone's watching from our customer viewpoint, they got it figured out and tax credit figured out.

Duke Austin:

I think -- I mean, I think I understand what you're saying. But from a tax rate standpoint, I don't know if it does much, but from a combination, it actually expands many of the projects that we've built in the past are adding storage to it. Our, storage business is growing nicely, and our battery business is growing nicely. So, I like that. We continue to add that capability and get more refine there, as we move forward across geographies. So, when you ask that, I think it's just more opportunity to increase the size and scope of these projects.

Operator:

Our next question comes from the line of Adam Thalhimer with Thompson Davis & Company. Please proceed with your question.

Duke Austin:

I mean, SunZia is a nice project that's on the wind side. We're seeing more opportunities repower. I think you'll see a lot of repower work going forward. You're in early stages of the cycle coming back from wind. So, we're starting to see more and more in the outer years of wind coming into the portfolio. I don't think it's going to be any like large windfall in 2024 by any means, but I do think 2025, 2026, it starts to move up significantly as we move out in the outer years, the curves get, where wind makes a lot more sense in areas. So, you'll start -- transmission needs to be built, too. Like we've got to get the transmission built before you can get wind out. And that's the other piece of this is you need long-haul transmission to move wind out of those sources into load centers. So, it's very taking out the egg sometimes, and I do think both are coming into play. And the Wind business gets better from, call it, 2024 on.

Duke Austin:

We continue to expand capacity there. There's a lot of things that we can do internally to expand. We're expanding like the business ever more so today than we did -- today looked at it. So, it gets better the opportunities and synergies, the things that we can do for the clients with PTT, U.S. base, Union in Pennsylvania, a great place to invest and we're lacking that business a lot.

Operator:

Our next question comes from the line of Sangita Jain with KeyBanc Capital Markets. Please proceed with your question.

Jayshree Desai:

No, I think it's mostly seasonality typical of what we run. We did -- as Duke talked about, there's a little bit of Canadian pressure in the first half of the year. But it's just normal seasonality. And we do expect with the additional SunZia work and some other projects, more back half weighted, but again, nothing more unusual than that.

Jayshree Desai:

The customers we work with, have been planning for the tariff situation for a while now. So, I think we're -- our customers have been planning this moratorium being lifted in June. So, it's -- I don't know -- I can't answer directly, if we're seeing some pull forward, I just know that the customers we've been working with for years, now planned for this very well. They know how to work this. They've been prudent about how they think about their panel procurement, and we continue to see good growth in our renewable segment as a result.

Duke Austin:

Thank you.

Duke Austin:

Yes. Thank you. I want to thank the 50,000-plus men and women, in the field, they're the best in the business. They allow us to have these kind of calls and give this kind of profile for the company, so, we thank them. And I want to thank you for participating in the conference call. We appreciate your questions and your ongoing interest in Quanta Services. This concludes our call.

Operator:

Greetings, and welcome to the Quanta Services Third Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kip Rupp, Vice President and Investor Relations. Thank you, Kip. You may begin.

Duke Austin:

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services third quarter 2023 earnings conference call. On the call today, I will provide operational and strategic commentary and we’ll then turn it over to Jayshree Desai, Quanta CFO, to provide a review of our third quarter results and full year 2023 financial expectations. Following Jayshree’s comments, we welcome your questions. This morning, we reported our third quarter results, which included strong double-digit revenue growth and a number of record financial metrics, which we believe reflects robust demand for our services and solid execution. Of note, our Electric Power Infrastructure Solutions and Renewable Energy Infrastructure Solutions segments drove our revenue and profit growth, reflecting ongoing capital deployment into grid modernization and hardening. Power grid expansion and construction of new renewable generation and other necessary investments needed for North America’s emerging energy transition. Total backlog at quarter end was $30.1 billion, an all-time record high, which we believe reflects value of our collaborative client relationships and indicates momentum for 2024. We are positioning Quanta for decades of expected necessary infrastructure investment and continue to believe our operational portfolio is a strategic advantage that provides us the ability to manage risk and shift resources across service lines and geographies, which we believe will become increasingly important as the energy transition accelerates. We believe our portfolio approach positions us well to allocate resources to the opportunities we find most economically attractive and to achieve operating efficiencies and consistent financial results. Our Electric Power Operations are performing well. Demand for our Electric Power Infrastructure Solutions is robust driven by broad-based business activity from utility grid modernization, grid security and system hardening initiatives as well as our reputation for consistent and safe execution. This is further evidenced by the meaningful increase in backlog for the segment in the third quarter. Accordingly, we continue to invest in resources ahead of the anticipated start-up of multiple multiyear utility programs and projects. We believe Quanta Solutions offering and ability to safely and consistently execute as industry-leading, and we are uniquely positioned to collaborate with our clients on their multiyear grid programs. Additionally, our communications operations continue to execute well with double-digit revenue growth and margins. We believe these results reflect our focus on being selective with the risk and margin profile of the work we pursued as well as solid execution. Renewable Infrastructure Solutions segment revenues increased significantly in the third quarter as construction of renewable generation projects ramped up, including solar, wind and battery storage. High voltage electric transmission and substation work also remained active. Segment total backlog reached a record $7.9 billion at quarter end, driven by the addition of a portion of the SunZia Wind contract and various renewable generation, transmission and substation projects. We have mobilized resources for the SunZia project and are performing early stages – stage construction activities. Though the vast majority of the work is expected to be performed in 2024 and 2025. We believe the infrastructure solutions we provide to the renewable industry are gaining momentum as the energy transition gains pace. We are continuing to make the necessary investments to scale our resources and capacity to handle large-scale multiyear renewable programs that we expect will yield record levels of renewable generation over the coming decade, driven by the IRA and the acceleration of North America’s energy transition. Additionally, we are pursuing billions of dollars of high-voltage transmission projects that are designed to support connectivity of current and future renewable generation capacity growth and overall system reliability. In this morning’s earnings release, we also announced a strategic acquisition of Pennsylvania Transformer Technology or PTT, led by an experienced management team with dedicated employees. PTT is an established and reliable domestic manufacturer of power transformers and components for the investor-owned utility – electric utility, renewable energy, municipal power and industrial markets. Transformers are a critical path of power grid – of the power grid that facilitate the safe and efficient transmission of electricity from generators to end users. North America’s energy transition and other megatrends that are driving current and anticipated future demand for our electric power and renewable energy solutions are also driving significant demand and growth for the transformer market. As a result, lead times are extended and demand and supply imbalances are only expected to intensify as energy-intensive sectors such as electric vehicles, renewable energy, data centers and manufacturing challenge power infrastructure capacity. As we have discussed previously, several years ago, Quanta began developing its strategy to create supply chain solutions that are designed to help our clients navigate equipment shortages and delays, reduce cost, improve availability and enhanced capital deployment efficiency, all of which can ultimately benefit the consumer. For Quanta, the addition of PTT should allow us to better manage the availability of certain critical grid components, which in turn should help us better manage our work schedules and productivity. We believe PTT provides Quanta and our clients an important, secure and domestic supply chain solution that is consistent with our strategy. The strong and visible demand dynamics for transformer market provide a favorable long-term profitable growth opportunity for PTT. The company also possesses intellectual property for certain grid [ph] components, not currently in its production, but that are also in high demand by the utility industry. As a part of Quanta, we believe there are opportunities to enhance and expand PTT’s capacity and product offering, which could accelerate PTT’s growth and provide incremental growth synergies for Quanta’s Electric Power and Renewable Energy Infrastructure Solutions. The Underground Utility and Infrastructure Solutions segment continues to deliver with double-digit revenue growth and solid profitability. Our industrial services operation executed well and we had strong demand for our gas utility and pipeline integrity operations, driven by regulated spend to modernize systems, reduce methane emissions, ensure environmental compliance, and improve safety and reliability. Additionally, we are increasingly leveraging our underground resources and capabilities to perform underground electric work. While that work is recognized in our electric power segment, it evidences the value and flexibility of our solutions portfolio. The transition towards a reduced carbon economy continues to progress, and we believe is gaining momentum. We believe we are in the early stages of capitalizing on significant opportunities across our service lines and geographies, driven by our collaborative solution-based approach designed to ultimately benefit consumers. Additionally, the growth of programmatic spending with existing and new customers as well as increased renewable generation activity and favorable megatrends provide greater visibility into our near- and long-term growth outlook. We are currently pacing ahead of long-term financial targets articulated at our Investor Day last year and are increasingly comfortable with our ability to achieve them. This belief is driven by the long-term programmatic spend customers and favorable long-term megatrend opportunities across our portfolio of services, which we believe are in the beginning stages of a multi-decade process. Quanta is investing in the future to meet the needs of our customers and take advantage of the visible opportunities ahead of us, which we believe positions us well for double-digit EPS growth in 2024 and beyond. We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best-in-class build leadership. We will pursue opportunities to enhance Quanta’s base business and leadership position in the industry and provide innovative solutions to our customers. We believe Quanta’s diversity, unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for all our stakeholders. I will now turn the call over to Jayshree Desai, our CFO, for her review of our third quarter results and 2023 expectations. Jayshree?

Operator:

Thank you. [Operator Instructions] Our first question comes from Michael Dudas with Vertical Research Partners. Please proceed with your question.

Duke Austin:

Morning.

Michael Dudas:

Duke as you might have noticed, there’s been a lot of noise, a lot of difficult news flow around the utility sector the last four weeks to six weeks and competitors and concerns about renewable energy pace, et cetera. Maybe you can kind of share your observations on that relative to what your customers are engaging with you, especially as you’re looking into the planning budgets for 2024 and beyond and how that differs or is confirming of those expectations, again, given your position in the – with the lens that you look through with your electric utility and development customers?

Michael Dudas:

Appreciate that, Duke. My follow-up is with regard to your PTT acquisition. Obviously, you see a tightness in the marketplace and you expect revenue growth from the company. Do they have the capacity to meet the needs now and there a lot of investment required given certainly the demand for their products and how you’re going to be able to leverage that through your customer base?

Michael Dudas:

Thank you, Duke.

Justin Hauke:

Yes, good morning everyone. I guess, I just wanted to piggyback on the renewables, I guess, question. And you guys took up your revenue guidance there. I’m just curious how much of that is coming through, I guess, maybe projects that you’re procuring and the costs are going up. And so there’s more of like a CFM pass-through that is driving the revenue higher and maybe you don’t pick up margin on that versus how much is like volume. So I know it’s hard to think about volume price in this business, but any context around that would be helpful.

Jayshree Desai:

Yes. Justin, and the margins are improving in that segment. We have been able to absorb some of the fixed costs that we had built in earlier in the year, ramping up for the significant growth that we had this quarter and continue to see. So it’s moving in the right direction. There are some material components to the segment, no doubt that’s higher than our electric segment. But overall, we’re seeing margins moving in line with what we had said to you all in the Investor Day in that 9% to 10% range. We did have a little bit of pressure this quarter because of our expectation on some contingency releases that didn’t materialize. Those projects still are performing quite well. It just didn’t knock it out of the park, which we had thought we could have in the second quarter. It’s – it’s really some of that. And then at the same time, you have the significant ramp in renewables, that new project dynamic as it comes in, they’d come in at a lower margin because you need to execute the contingencies before we can raise those margins. And so that is providing – that is creating some dilutive pressure, and that’s what you’re seeing in the third quarter. There is no – there is no other dynamic around the business itself that’s causing anything. It will get better and it is continuing to get better.

Duke Austin:

The company itself, the revenue size is over $100 million. We’re not going to disclose purchase price. I’m sure you can find it in the K. So – but in general, it’s really not about the manufacturing capacity. It’s what we can do with it, the synergies we can get with it with the client. We can add some production fairly quickly. It’s an underinvested facility. We will put some money in it. I don’t see our capital structure changing at all. And next year, we don’t need to do a lot to the facility. So I feel good about the capital deployment in there and the productivity lines and things like that, the things that we can do with the manufacturing facility. So I like that part of it. It is booked pretty good in 2024, 2025. And so it will be about us getting more productivity out of it and really working with our clients on what capacity looks like in the future. So that’s what we’ll be working on and putting that into the way that we provide the solution to the client.

Operator:

Thank you. Our next question comes from Neil Mehta with Goldman Sachs. Please proceed with your question.

Duke Austin:

Thanks, Neil. When we look at our customer base, we’ve said all along. We work for the top 10 developers as well as the utilities and the world for that matter. So I feel good about where they’re at. I feel good about where they’re going all of basically the trends and what we see from backlog as well as opportunities continue to grow, both with the utility business as well as developer business. I go back and say, we look at our portfolio that we put together, we’ve derisked it and then we’ve also said we could stack on to it. The company has grown in 2021. We’ve grown 16% in 2022. We grew 30%. This year, we’re expected to grow 18%. So I don’t think we have a problem with the customer base. I think we are doing really nicely. We are working on margins, as Jayshree said. But that said, sequentially, when you look at quarter-over-quarter, we said there were some cadence issues in our renewables or some cadence issues in the jobs. It’s not a margin issue, it’s a cadence issue. And every single quarter, we’ll get better. We expect to operate in double digits next year.

Duke Austin:

I think when we look at it, we still feel comfortable with kind of the model that we put together. It’s way too early to give guidance on exactly what that will look like. It would be a disservice to you and us. But I do expect us over time, had the opportunity to operate above double digits on the EPS line at times, and I feel comfortable with the opportunity next year to operate in double digits.

Operator:

Thank you. Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.

Jayshree Desai:

Good morning.

Duke Austin:

It’s – I see when we look at the market, it’s the best it’s been in our career, and it’s all about the macro market demands. People are underestimating data centers and the loads on data centers, they’re underestimating EV. You’re up to about 7% of new car sales into EV globally. That’s a big number for everyone. Your interconnections, you’re even on batteries just to make the batteries and the demand on the power cycle there. So I think all those things are underestimated when you start looking at where the business is going. And so for us, the long-term nature and the megatrends that we see continue to compound, you can delay some things. It’s really – for us, it’s really worrying about the ultimate customer and affordability at the ultimate customer level and how do we help our clients and help the ultimate customer get a cost price that makes sense. And as you see, as you get leverage across what you’re building with more demand, what you’re seeing 3% demand almost every single place has at least some demand growth, load growth, that load growth itself is really, really enhancing what a utility can spend on capital. Obviously, the market’s a little constrained there on the capital markets, but the demand is outfitting supply. So it’s some timing in places. But like I’ve never seen where we see so many things at once coming at you from a macro market. So we’re real proud to be in this business. And look, I get up every day and happy about me in here and trying to execute on the work that we have. I think that’s the big thing is just execution at this point.

Duke Austin:

Yes. Thanks for the question. We’re very deliberate about no boats, no water. So we’ve been there, done that. We’re not involved in anything offshore other than onshore approaches and some we will help others onshore to fab or whatever it may be offshore, but we’re not in the water at all and have no exposure really to offshore wind other than transmission that may be built onshore.

Operator:

Thank you. Our next question comes from Marc Bianchi with TD Cowen. Please proceed with your question.

Duke Austin:

I do think you can push some things out. I mean you can – EV penetration is not there so you cannot plan and have interconnections at the distribution level. We’re seeing some where our crews, for example, are working 60, 70 hours, you’re working 50 hours, but you’re not losing crews, you’re just working less hours and you’re seeing some of that in the fourth quarter where we have crews that are just working 40. And that’s fine, but we’re adding crews as well. So really, as you move into 2024, they move capital budgets up, things look better. I do think load growth will exceed what most people think, it really helps with higher interest and costs. So I think we can get through that as an industry. The only thing is if you had like crazy interest, and I don’t see that coming. I do believe we’ve kind of stabilized there and utilities either. You see some that are selling assets to put it back in the regulated business. But look, you have a duty to serve and you’ve seen in California where they have like 120 days to make interconnections now by law. That’s going to come – it’s going to be prevalent across the country. And I just don’t believe that you can delay interconnections nor can you delay queue and the queue is coming out of everyone, and we’ve got – as an industry, we got a plan a little better. We’ve got to do some things, and we’ve got to get in front of this. And then you can’t be selective in urgency here. We’ve got to get the planning done and the work done for the next couple of decades. So we feel confident, yes, you can have some bounces along the way, but we’ve always said that there’ll be starts and stops a bit, but the CAGR itself will continue to drive the market for long term any kind of delay you have just means it’s pent-up demand, it’s coming at you. So we feel good. We feel good with our customers and our conversations have been. You may not see them grow capital 20%, they just grew at 15% or from upward levels, but I don’t – I’m not seeing much pullback at all. In fact, I’m seeing more growth to capital with our clients.

Duke Austin:

Yes. We’re not giving guidance. So I’ve given the buzz all I’m going to give. And so we’ve talked about the opportunity to grow double digits. I think that’s there. We can stack on at times. It’s too early to say. The models that are out there, I don’t know what’s in their Kip or Jayshree can go look at it, but I didn’t look at it, I just feel comfortable in the double-digit, talking about double-digit margin growth at this point opportunity for that as well.

Duke Austin:

EPS growth. Thanks.

Operator:

Thank you. Our next question comes from Chad Dillard with Bernstein. Please proceed with your question.

Duke Austin:

Can you say that again? I’m sorry, you broke up.

Duke Austin:

I think they’re both growing, and we stand by the state of margins to operate in double digits. We certainly have the opportunity to operate in double digits in the renewable segment as well as the Electric segment at upper singles in the UUI [ph] business, very much like we started – we’ll be prudent about how we guide. So you can expect us to guide prudently in 2024. I do – we do see growth to 2024. So the same approach we’ve taken for the last eight years, seven years will be taken going forward. As far as the mix, it’s still running mid 80%, 85% base business, something like that. And I believe that will be there. But the large project dynamic certainly there, we’re seeing multiple fronts of large projects. It will be early, but we do believe that is starting to stack a bit.

Duke Austin:

Yes. Grows at the same rate.

Duke Austin:

Look, we’ve always said we can get leverage out of the UUI margins. Our industrial business is probably a record year this year. We still like the industrial business a lot. So the margins have picked up. We have got levers. We do move back and forth. But I caution everyone again that this is a portfolio. This portfolio moves around, and you’ve got to look at it as a portfolio. It derisks you down at the bottom. That’s why you’re not seeing the blips at the bottom. Now you’re seeing double-digit growth. And again, I’d caution that if we get into this segment discussion, it’s these crews go from electric to gas to telecom and we should perform well in all of them. And our goal is to make sure that the company itself grows and our margin profile stays sustained over time. And that’s the portfolio we’ve built to derisk the investor as well as provide opportunities for beyond double-digit growth. And look, we’ll talk about the segments, but I go back and I point to 18% top line growth, still performing at high margins across the segments, and we’re delivering double-digit EPS.

Operator:

Thank you. Our next question comes from Steven Fisher with UBS. Please proceed with your question.

Duke Austin:

Yes. I think it’s where you started on all your renewables. We kind of started early in the year and late last year with multiple large projects there. So as those – and we booked all the way through, still booking. So you’re getting a better cadence in the larger project dynamics. So some of them are finishing up and so that allows us to obviously look at contingent releases, things like that in the fourth quarter in the renewable segment. So that’s what you’re seeing. And you’re also getting scale out of that business as well. As you go into 2024, same thing, the cadence, you are starting some larger line projects on transmission there. And so it will have a little bit of effect, but you don’t have Canada coming in, things like that. And I can let Jayshree to comment on the rest.

Duke Austin:

Yes, Steven, I would also add that we talked about 3,000 add last quarter, we added roughly 4,000 in this quarter. So we’re up to 56,000 employees adding 3,000 on cadence per quarter is not easy, and it does press a bit. So I’d just caution some of that’s in there. And as you start working through that and you get good cadence with it, we can absorb a lot.

Duke Austin:

Yes. We’re operating really well in the electric segment. I mean, over time, I’ve always said double digits, 10%, 10.5% with into 11%, between 10% and 11% is our comfort spot and we’re operating at those levels. Canada is a drag. We’ve addressed a lot of things there. I think in the next year, we won’t have the drag this year. So pretty optimistic with some of that. We are getting some utilizations in the Lower 48 with some Canadian influence. But in general, we can do a lot of things on the front-end engineering. We can do a lot of things from our Canadian assets in Lower 48. So we will be utilizing them here in those assets. So I’m comfortable with where we sit in the next year. We do expect and we’re still negotiating some, but I feel confident that the larger project dynamic will start stacking in 2024, albeit early, but you’ll start to see some stocking in 2024.

Operator:

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for closing remarks.

Operator:

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator:

Greetings, and welcome to the Quanta Services Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kip Rupp, Vice President of Investor Relations. Please go ahead.

Earl Austin:

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services Second Quarter 2023 Earnings Conference Call. On the call today, I will provide operational and strategic commentary, and we'll then turn it over to Jayshree Desai, Quanta's CFO, to provide a review of our second quarter results and full-year 2023 financial expectations. Following Jayshree's comments, we welcome your questions. Our second quarter results continue our solid start to the year with strong double-digit revenue growth that resulted in record quarterly revenues exceeding $5 billion for the first time in our history as well as a record total backlog of $27.2 billion. We added approximately 3,000 employees during the second quarter due to the building momentum and increasing demand for our infrastructure solutions. We are investing in safety and training programs for our employees expanding various service lines and advancing our supply chain and other solutions. We are positioning Quanta for decades of necessary infrastructure investment and continue to believe our operational portfolio is a strategic advantage that provides us the ability to manage risk and shift resources across service lines and geographies, which we believe will become increasingly important as the energy transition accelerates. We believe our portfolio approach positions us well to allocate resources to the opportunities we find the most economically attractive and to achieve operating efficiencies and consistent financial results. Our Electric Power Operations are performing well overall, though segment margin experienced some pressure from lower utilizations in Canada. Demand for our Electric Power Infrastructure Solutions is strong. driven by broad-based business activity from utility grid modernization, grid security and system hardening initiatives as well as our reputation for consistent and safe execution. Accordingly, we are investing in resources ahead of the anticipated start-up of multiple multiyear utility programs and projects. Additionally, our communications operations continue to execute well from both a revenue and margin perspective. Going forward, our utility customers' multiyear CapEx plans remain strong and we are having discussions with a number of them about capital plans and programs looking out in years. North America's power grid continues to be challenged by a number of demands, including the need to increase the pace of modernization and increase the grid's resiliency and reliability through system hardening, enabling new technologies, facilitating higher levels of electric vehicle penetration, meeting growing power load demand and capitalizing on favorable federal and state policies designed to accelerate the energy transition. We believe Quanta Solutions offering and ability to safely consistently execute is industry-leading. We are uniquely positioned to collaborate with our clients on their multiyear grid operations. Renewable Infrastructure Solutions segment revenues increased significantly in the quarter as construction of renewable generation projects within the multiyear programs ramped up and high-voltage electric transmission and substation work remained active. Segment total backlog reached a record $7 billion at quarter end, driven by the addition of SunZia transmission and HPDC converter station contracts and various renewable generation, transmission and substation projects. We believe the momentum in this segment will continue, and we are making the necessary investments to scale our resources and capacity to handle multiyear renewable programs that we expect will yield record levels of new renewable generation over the coming decade, driven by the RA and acceleration of North America's energy transition. Additionally, we are pursuing billions of dollars of high-voltage transmission projects that are designed to support current and future renewable generation capacity growth and overall system reliability. As we have discussed on prior earnings calls and reported more recently in the media, federal and state policies designed to accelerate the energy transition and the electrification of everything, are expected to significantly increase load demand and are already pressuring the power grid. At the same time, there are significant challenges to getting regional transmission infrastructure built in a timely manner, primarily due to obtaining necessary environmental permits and regulatory approvals. The need for collaboration at all levels to ensure great reliability while minimizing cost impacts to the ratepayer remains the industry's greatest challenge. We remain pleased with the performance of our Underground Utility and Infrastructure Solutions segment, which delivered double-digit revenue growth and record second quarter profitability, demonstrating solid execution across our operations in this segment. Our Industrial Services Operations executed well, and we had strong demand for our gas utility and pipeline integrity operations, driven by regulated spend to modernize systems, reduced methane emissions, ensured environmental compliance and improved safety and reliability. We believe we are in the early stages of capitalizing on significant opportunities across our service lines and geographies, which are driven by our collaborative solution-based approach that is designed to ultimately benefit consumers. Additionally, the growth of programmatic spending, with existing and new customers, increased renewable generation activity and favorable megatrends provide greater visibility into our near- and long-term growth outlook. As a result of these dynamics and our solid year-to-date financial performance, we have increased our full-year 2023 financial expectations for revenues, adjusted EBITDA and adjusted EPS. The energy transition towards a reduced carbon economy continues to progress, and we believe is gaining pace. Quanta is successfully executing on our strategic initiatives to drive sustainable and resilient operational excellence, total cost solutions for our clients and consistent profitable growth. We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best-in-class build leadership. We will pursue opportunities to enhance Quanta's base business and leadership position in the industry and provide innovative solutions to our customers. We believe Quanta's diversity, unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for our stakeholders. I will now turn the call over to Jayshree Desai, our CFO, for her review of the second quarter results and 2023 expectations. Jayshree?

Operator:

Thank you. [Operator Instructions] Our first question comes from the line of Brent Thielman with D.A. Davidson. Please proceed.

Earl Austin:

Thank you. Good morning. We're seeing what we thought would happen with the solar supply chain slashing in general, I think we are operating through those issues, and we had six months really where the industry stopped. And as we move forward, we thought there would be cadence to the segment to solar in general. That cadence is playing out like we thought. We're certainly increasing guidance due to some of that. And I think as you go through '23 and you operate through '24, you'll get a more balanced quarter-over-quarter type margin profile, but the margin pickups and the opportunities that we see on the other side of the year -- second half of the year into '24, '25 and beyond are certainly what we thought are greater.

Earl Austin:

No. We're still negotiating a third contract there on the wind side of the business. So that will be -- we believe we'll have that finished up here in the second half of the year, third quarter, fourth quarter, somewhere in there.

Michael Dudas:

Good morning, Kip, Duke, Jayshree.

Michael Dudas:

Duke, I want to follow-up on your prepared remarks, you talked about the challenges that the customers, utilities and regulators are facing. Have -- I assume to date, they've been overcome? Are there -- do you anticipate or given your discussions with your utility clients that there's going to be much more coming ahead like in the next 12 to 18 months? Or is it sooner? And is that impacting any of the mix of what type of either wind or solar development or what -- from regulators and customer base are looking at as you pace out your backlog opportunities?

Michael Dudas:

So I guess from a -- the industry has been growing base load electricity at very slow rates. And are your customers seeing that going to be accelerating in the next five years? And again, are the plans there to that you have the ability to capacity given your three to five year outlook to execute on that?

Operator:

Your next question comes from the line of Steven Fisher with UBS. Please proceed.

Earl Austin:

Yes, Steve, I think when you look at the quarter, we added from around 3,000 employees. We normally add about a 1,000. So when you start thinking through that, it does pressure where the company is capable of training, doing all the things that we need to do, the investments are already made. It's just pressure, there's four or five things that we could call out that's pressuring inflation, and you can call out whether we can make all kinds of excuses about it. Really, we can operate much better in Canada than we have been operating. The transition is a little bit behind in Canada, where we can operate Canada at normalized margins. We've been through the pandemic there. We've made different levels of, I would say, balance from G&A to training, to indirect and all those kind of things in Canada. As we move out of '23 into '24, you'll get into more normalized Canadian execution, and I think you'll see much better results that we can absorb just about anything. The portfolio that we put together in the segments, which should allow us to train, to put people in place for the foreseeable future. And still even in outward growth years, produce the type of margins that we produced in the past. I see no reason why we can. And I do believe we can operate the renewable segment in double-digits. I'll stand by it.

Earl Austin:

Yes, Steve. We're starting quite a few large transmission projects in the segment. We're also starting thousands of renewable-type utility scale solar win. So when we look at that and where we're at, the cadence itself, we thought it would be back end loaded. So the start to the jobs as we operate through those contingencies, I think you'll see a more normalized margin profile into '24. We have to operate in double-digits in the second half or you won't get to the numbers that you -- what you see. I do think there's opportunities all the way through for us, we took a prudent approach to it. We tried to hit it down the middle. That's what we've done here. And I do think there's opportunities into '24 to get on a more normalized cadence.

Andrew Kaplowitz:

Good morning, everyone.

Andrew Kaplowitz:

Would backlogs continue to rise in your underground utility business and revenue has actually continued to pick up. I know last quarter, you were modestly concerned. You did raise the forecast there for the year. for this year. So what are you seeing on the ground there? And how are you thinking about the business moving forward? Could it end up being more resilient even into '24 than you expected?

Andrew Kaplowitz:

Duke, maybe if I could follow-up on that. You did 8.6 in that UI segment, which is basically as high as we've seen Quanta deliver but it's maybe the consistency over the last few quarters that's been interesting in that segment. So based on your comments, scale, balancing of the businesses there, could you continue to see more consistent and higher margin in that segment moving forward?

Operator:

The next question comes from the line of Justin Hauke with Baird. Please proceed.

Earl Austin:

LUMA is performing as expected, there are some investments that we have in other businesses there that are off on the first half. We expect those to pick up in the '23 and into '24. But Jayshree, you can comment.

Justin Hauke:

Okay. And then maybe following up on Andy's question on just the margins in underground. Obviously, they were quite strong. Usually, you would have more margin in the second half than you do in 2Q, but your guidance would imply a little bit softer than it was in 2Q. But is there anything unusual like project closeout or something like that, anything quantifiable that was in the quarter that made those margins unexpectedly high?

Earl Austin:

No. I mean we said our Industrial business performed really well in the quarter as well. So that certainly was strength in the quarter. And I do think when you start to look out, you do not have great visibility in the fourth quarter in the Industrial business. So that said, the prudent guidance would be to pull it down a bit in the fourth quarter. And that's kind of what you're seeing show up.

Operator:

Our next question comes from the line of Neil Mehta with Goldman Sachs. Please proceed.

Earl Austin:

Yes. M&A, we have a strategy. We have a five-year strategy to provide solutions to our customers. We see opportunities across the board really to add-on, bolt-on, provide solutions, do some things that we talked about our front-end services. There's no shortage of opportunities out there. We're picky about how we go about it, and we'll follow the strategy. We're watching our cash generation. We're making sure we can absorb what we have, and we'll be prudent about how we go forward. And anything that we're doing is following the five-year plan, the strategy we laid out to our investors and we're ahead of those plans significantly. And I feel like the company is in a great position to provide those solutions that are necessary to keep the company moving forward at the pace that we've seen in the past. And we have good visibility into the next decade. And we're known for execution. We have to keep executing in the field, while looking at the strategy to add on and deploy capital in the proper manner for our stakeholders.

Earl Austin:

I think when you look at our guidance at the EPS level, which is what we're measured upon, we're ahead of the 10% guide now on a growth basis this year, relatively 13% or better. So when I think about it, we're already doing that as we sit here today. And I do think we set all levers of the balance sheet, the opportunities that we see going forward. We'll continue to, we hear a lot of big numbers and those kind of things. We're executing at the local level. We're executing across the strategy and doing the things we need to do to drive EPS. And it's not just the top line, it's the quality of earnings. We're constantly talking about quality of earnings. If you look at our returns on return on invested capital and all of our returns, they are moving in the right direction as we go forward.

Martin Malloy:

Good morning. Congratulations on the quarter. My first question, I wanted to ask about the outlook for CO2 pipelines related to the carbon capture and sequestration. And just following on Exxon's acquisition of Denbury in part related to Exxon wanting to get larger in terms of the CO2 pipeline infrastructure. And just kind of curious what you're seeing out there in terms of outlook for potential building on those kind of pipelines?

Martin Malloy:

Okay. And then for my follow-up question, I wanted to ask about undergrounding of transmission distribution lines. And it seems like it's appearing more in the press and utility company commentary about these multiyear programs to underground electric lines. Can you maybe talk a little bit about what your thing out there from a customer perspective, is that -- is it investment in those type of programs? Is it picking up meaningfully?

Operator:

The next question comes from the line of Chad Dillard with Bernstein. Please proceed.

Earl Austin:

Yes. I don't look at it. We don't look at it like that from our standpoint. It's really utilizations. The utilizations are great on all segments. You'll see bigger work. If you want to talk about a project, it will be more in your Renewables at this point. Your bigger programs, your multi-year programs will be more in Electric. It's just the deployment of capital, same crews, same people, cross and segments. So we're cognizant of that. The utilizations on both sides will be at high levels. What I will say is the company itself, no matter what segment you're in, the project starts are significant, and the cadence will start to stack versus just being a starting -- on the starting line. And right now, we're kind of in the early stages of a lot of large projects and programs. So those early stages will as you move in out of '23 into '24, into '25, you'll start to stack on top of that, and you'll get a normalized cadence where you'll see it as we operate through them contingencies move out, things of that nature as long as we execute like we have the last 25 years. We'll be in good shape, and we'll see those contingencies flow into future earnings.

Earl Austin:

We recruit just internally across the Board, Northwest certainly is our some -- there's a lot of curriculum work, a lot of work that's necessary to be able to scale. It's one thing to add -- it's another thing to add 3,000 every quarter or 1,000 every quarter. And also while we're not totally pleased with the Electric margins, it's down 25 basis points or whatever it is on the guide. There's opportunities to operate at the same level we thought. That said, it's not as easy as we make it sound. They are certainly contributing to our ability to put the people in the field and execute very quickly and as we get absorption and things of that nature, that's only -- will only scale. And I do think we've invested in those colleges. We've invested in those curriculums, and we're not having issues with cross-skilled labor or front-end engineering. Could we use more? Yes. But we're able to meet the demands and the foreseeable demands on any type of curve we're looking at. We hope that supply chain catches up with us.

Jamie Cook:

[Technical Difficulty].

Jamie Cook:

Right. Hold on. Can you hear me now?

Jamie Cook:

Okay. Sorry. So my first question, if I think about your guide for 2023 and the back half earnings trajectory, it's $2.10 a quarter or so, which implies if we just annualize that earnings of, let's say, a base of $8.40 million and that's without SunZia. So I'm just trying to think about the back half of earnings in the setup and what that implies for 2024 is like can we think of an $8 base for 2024 without SunZia and that would imply upside to that? And then my second question is more to you, strategically. I understand you're fairly comfortable with your ability to ramp labor in this environment and capitalize on the growth opportunities. But to what degree do you get concerned just with projects like the size of SunZia that you want to limit the number of big projects you want to take on just in terms of more from a risk management perspective? Thank you.

Operator:

Our next question comes from the line of Adam Thalhimer with Thompson Davis & Company. Please proceed.

Earl Austin:

Good question. We see a good market in Canada. We have some awards already that we anticipate starting on by the end of the year. We have some great clients partnering in Puerto Rico. So -- and a lot of customers in Canada, we are able to move resources, engineering capacity. Some of the things that we do in Canada over in the Lower 48. I wish it was easier. I wish the border was easier. It would certainly help us from a skillset standpoint. But that said, the company has done a nice job moving resources and doing some things in Canada. In general, when I look and step back at it, COVID played a big impact much more than we had here in the Lower 48, and we forget about it a lot. And we think, oh, well, it was nothing. It was significant. And we were in camps, we were doing some things there that were different. If we don't see the market will downsize the market, but we do see that -- what we see right now is the transition happening there as well. We're seeing more -- we're seeing wind, solar, some hydro different things in Canada to decarbonize as well. We're right in the middle of those things. It's just a little bit behind the Lower 48. And as we catch up, I think you'll see more normalized margins in Canada and a great market.

Earl Austin:

I think we can continue to grow the business in the Renewable segment. We said it when we purchased Blattner kind of the cadence of that, and you're coming off of a year where the outward, what I think pullback was primarily due to the solar panel discussions. And when that cleaned up, there was pent-up demand, but I also see a great future in a future market. You're going to see quite a bit of wind repowering coming up as well as wind projects. And I don't even think you're seeing that yet. And when you start to see the programmatic spends of the wind repower on that as well, the company is positioned nicely for those things, and we'll take advantage of that. That was what led us to the Blattner acquisition, and I think that strategy is playing out. And we see decades of renewable switching, you have load growth as well that will go towards a renewable state. So as you see load growth double and you start to say, okay, well, how much the carbon are we going to take out of the system, while you're getting the load growth, it's significant. EV penetration, all those things are starting to hit the electrification of everything. And then you have the security issue of North America where you're onshoring. All these things are happening at once, and I see really, really good markets for a long time. Can you have some blips in the radar, of course, but on a CAGR basis over time, we like what we see, and we'll continue to execute in the field, which is our main concern is to make sure that we execute, build projects on time, on budget that are at cost that's what we feel economic to the consumer.

Auguste Richard:

Yes, thanks for taking the question. In terms of energy storage. Are you starting to see an increase in demand for that in the renewables segment, if so on what regions and as storage is incentivized at residential, does that have any impact on transmission and distribution?

Operator:

Our next question comes from the line of Sean Eastman with KeyBanc Capital Markets. Please proceed.

Earl Austin:

I think, Sean, it's just a great example of what we've tried to say for a long period of time that we're able to scale the business. And a lot of people can talk about it and a lot of people can talk about scaling it. I want to see somebody at 3,000 and put the projects in there and execute at the levels we're executing. So I think we put the infrastructure in place to be able to do this, not one quarter, but over time, and it surprised me a bit from a seasonality standpoint, we added quite a bit in Renewable segment. And their ability to scale their business to these utility scale projects as many reasons why we acquired Blattner and we have the resources that we have internally. I just can't say enough about what we do from an execution level in the field every day to put the numbers up we put up. And they're just doing a really, really nice job. And we have great curriculum, great people. We'll continue to build upon what we have. It's exponential the way I see it in the curriculum and the things that we're doing from technology and training and things of that nature. We're certainly in the forefront. I look forward to us continuing down the path that we're on.

Marc Bianchi:

Hi, thank you. I wanted to ask about the renewable power growth and kind of as it relates to the CAGR that you outlined at the Analyst Day last year of 10% to 12%. It would seem like you're well above that rate here, exceptional year in '23. But how should we be thinking about that 10% to 12% now? Is there upside to that? And how much of a bottleneck is interconnection? Thank you.

Operator:

The next question comes from the line of Alex Rygiel with B. Riley Securities. Please proceed.

Earl Austin:

Yes. I'll say a little bit. We're acquiring more materials and things of that nature, Alex, so it's helping us a bit on some of those projects from a DSO standpoint, but I think that's the bigger piece of what you see from a term standpoint. We need to be able to order outward and you've seen some inventories. Our inventories move up a little bit here or there on some of those things. But that said, I think that's the better terms. And Jayshree, you can comment on the DSOs.

Operator:

Thank you. Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the call back to management for closing remarks.

Operator:

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Kip Rupp:

Thank you, and welcome, everyone, to the Quanta Services First Quarter 2023 Earnings Conference Call. This morning, we issued a press release announcing our first quarter 2023 results which can be found in the Investor Relations section of our website at quantaservices.com, along with a summary of our 2023 outlook and commentary that we will discuss this morning. Additionally, we will use a slide presentation this morning to accompany our prepared remarks which is viewable through the call's webcast and is also available on the Investor Relations section of the Quanta Services website. Please remember that information reported on this call speaks only as of today, May 4, 2023, and therefore, you had advised that any time-sensitive information may no longer be accurate as of any replay of this call. This call will include forward-looking statements intended to qualify under the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 and including all statements reflecting expectations, intentions, assumptions or beliefs about future events or performance or that do not solely relate to historical recurrent facts. You should not place undue reliance on these statements as they involve certain risks, uncertainties and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expressed or implied. We'll also present certain historical and forecasted non-GAAP financial measures. Reconciliations of those financial measures to their most directly comparable GAAP financial measures are included in our earnings release and slide presentation. Please see Slide 2 and the appendix of the slide presentation for additional information regarding our forward-looking statements and non-GAAP financial measures. Lastly, if you would like to be notified when Quanta publishes news releases and other information, please sign up for e-mail alerts through the Investor Relations section of quantaservices.com. We also encourage investors and others interested in our company to follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would like to now turn the call over to Mr. Duke Austin, Quanta's President and CEO. Duke?

Jayshree Desai:

Thanks, Duke, and good morning, everyone. Today, we announced record first quarter revenues of $4.4 billion. Net income attributable to common stock was $95 million or $0.64 per diluted share and adjusted diluted earnings per share was $1.24. Our first quarter electric power revenues were $2.3 billion, and operating income margins were 9.2% and consistent with the directional views provided on last quarter's call and reflecting successful execution across the segment. Our base business continues to lead the way for the segment as utility investments in hardening and modernization initiatives create growing demand for our comprehensive solutions. Renewable Energy Infrastructure segment revenues for first quarter '23 were $1 billion with operating income margins of 3.5%. Revenues in the quarter were better than expected due to the acceleration of construction activities as our renewable customers move forward with projects. As we mentioned on our last call, we anticipated first quarter renewable revenues to be the segment's lowest of the year and the lower volumes would create fixed cost absorption pressure on segment margins. In light of that expected pressure from a margin perspective, we are pleased with the results from the bulk of our project activities. The overall segment margin was affected, however, by the large renewable transmission project in Canada, which we've discussed on prior calls. With over 90% of the project complete as of March 31, construction activities were quite successful during the quarter, and we believe we are positioned to achieve substantial completion after the next winter build season. Yet despite the significant progress, access delays, logistics and other issues outside of our control, increased our cost on the project negatively impacting quarter margins by approximately 120 basis points. We are working collaboratively with the customer to recover the financial impacts associated with these and other issues and are confident in an equitable outcome. Underground Utility and Infrastructure segment revenues were $1.1 billion for the quarter and operating income margins were 5.7%. Continued strength from our base business operations drove the performance with margins exceeding expectations, benefiting from improved fixed cost absorption on higher than anticipated revenue levels. For additional commentary comparing first quarter '23 to first quarter '22, please refer to the slides accompanying this call. With regard to backlog, we continue to achieve record levels. At March 31, 2023, backlog was $25.3 billion, an increase of $1.2 billion compared to December 31 and did not include amounts related to SunZia, which we announced this morning and was awarded subsequent to the quarter end. Our 12-month backlog is also at a record level of $14.6 billion which we believe is another indicator of the steady growing demand for our base business solutions. Our end markets remain robust with opportunities that can lead to new record levels of backlog in subsequent quarters. For the first quarter of 2023, as expected, we had negative free cash flow of $31 million, driven by working capital demands from the aforementioned Canadian renewables project as well as a ramp-up of work activities following the holidays, which is typical for the first quarter. DSO measured 77 days for the first quarter of 2023, lower than our historical average, aided by favorable billing arrangements associated with certain awards during the quarter. Regarding the Canadian renewable transmission project, the contract asset balance grew during first quarter '23 and continues to pressure DSO. Positive discussions with the customer regarding portions of the balance are ongoing, which represents approximately 5 to 6 days of DSO as of March 31, and we are increasingly confident in our position. As of March 31, 2023, we had total liquidity of approximately $1.8 billion and a debt-to-EBITDA ratio of 2.5x as calculated under our credit agreement. The decrease in liquidity and increased leverage profile is due to roughly $450 million of capital deployed on acquisitions in the first quarter. We expect continued earnings growth and cash generation to support our ability to efficiently delever over the coming quarters while continuing to create stockholder value through incremental capital deployment. Turning to our guidance. We had a nice start to the year with record first quarter revenues and strong performance in the field. Given that strength, we are raising our revenue expectations for the year by $200 million, while our expectations for full year adjusted diluted earnings per share attributable to common stock are unchanged, ranging between $6.75 and $7.25. From a segment perspective, we continue to see Electric segment revenues between $10 billion and $10.1 billion for the year, with full year margins between 10.7% and 11.3%. We expect segment margins to be somewhat pressured in the second quarter due to challenging weather conditions throughout the northern and western parts of North America. Regarding our Renewable segment, given the strength of the first quarter and increased project awards, we are raising our full year revenue expectations for the segment by $200 million, ranking between $4.5 billion and $4.7 billion. We continue to expect margins around 8.5% for the year, with second quarter margins in the upper single digits. The increase in renewables is being offset by a reduction in our Underground segment due to a shift in the expected portfolio mix. Our segment revenue expectations are unchanged, but we now expect full year margins to range between 7% and 7.5%. We slightly modified other aspects of our guidance, the details of which are included in our outlook summary, which can be found in the Financial Information section of our IR website at quantaservices.com. Looking ahead, our end markets continue to strengthen, led by utilities, modernizing their infrastructure to support increased load driven by electrification trends and most importantly, to support North America's transition to a reduced carbon future. We believe we are uniquely positioned to deliver comprehensive solutions to the markets we serve and to create significant shareholder value through organic growth and strategic capital investment. I'll now turn it back to the operator for Q&A. Operator?

Andy Kaplowitz:

Good morning, everyone.

Andy Kaplowitz:

Duke, your backlog has been accelerating over the last few quarters. It seems like you are announcing more large projects are you just generally seeing an acceleration in these types of projects? And would you expect their frequency to continue? And then I know you talked about backlog continue to increase, does the higher backlog in your view raised the probability that Quanta could deliver at higher end? I think you had told us at the Analyst Day like 15% plus term EPS growth that you discussed.

Andy Kaplowitz:

Are we at least trending towards your higher-end target that you talked about last year?

Andy Kaplowitz:

Appreciate it.

Adam Thalhimer:

Hey. Good morning, guys. Congrats on a strong start to the year. Duke at a high level, where do things stand with renewable - with the renewable supply chain?

Jayshree Desai:

No, I have nothing more to add. That's right. I think it is opening up. We're seeing the supply chain, the panel manufacturers make -- do a better job of ensuring that they're meeting their requirements under the -- under the tariff provisions. But yes, if there is any sort of regulation, any sort of anti-China sentiment that continues to push through, that can obviously affect the supply chain again.

Operator:

The next question is from the line of Alex Rygiel with B. Riley. Please proceed with your question.

Duke Austin:

Yes. Thanks, Alex. I think in general, we're about 85% still. I think that remains the work mix for us. If it's more material concentric, we'll make some comment on it. Today, it's the same for about 85% of the business is still self-performed. We like that. We like that mix. I think it will continue. We certainly to have certainty in our projects and to the client on delivery times and on for our ability to provide earnings power, we need to be able to self-perform about that mix. And the constraints that we have, no one understands those and we have to make sure that we can operate through any kind of issue. So that's about the mix you'll see.

Duke Austin:

Yes. Honestly, I don't have any idea. I know we had a great collaboration with the client. It was a collaborative effort. And I believe it shows what the Blattner acquisition did for us. When you put both of us together what we can do together, what we can do for the client, the synergies that we can create for a client in a project like this. I would say it's proof of concept, it's proof of what can be done with the client to ultimate consumer and I don't think there is anyone that can do what we can do with these type of projects based upon history based upon what we're able to really think through for early in construction we can certainly create impacts and solutions to both sides of this transition, unlike any other.

Operator:

Our next question is from the line of Justin Hauke with Robert W. Baird. Please proceed with your question.

Duke Austin:

Yes. We have some revenue in our guidance this year from it. It was in our uncommitted prior to the award. But that said, it's minimal. And I don't -- we don't see a pullback or a path where it doesn't go. So there's a lot of commitments being made here. We feel like the project is a go project, it's a great project, patterns of long time customer, Blattner and IRA for that matter. So we're confident, and we've worked hard with the client to make sure that this project is a showcase for them and us and the industry, what can be done through hard work. And yes, it's a long, long project. It took a long time. It shouldn't take this long in America to build infrastructure. So certainly, it's -- we're glad to get it across the finish line for everyone.

Duke Austin:

Yes, a little bit on the project. That's the way to think about it, but a little bit on that project, just so we can discuss it a bit -- it's a project that we did through the pandemic. And it's a project no one's done in northern climes like this, where we've taken people off fuel and putting them on renewable power I think it's significant in the way you think about the northern climes and what can be done. Our people work through a pandemic and built this. And so that said, no one's ever done that. No one's ever -- so the way that we're thinking through it, we've taken a prudent approach taking a prudent approach the way we've looked at it. All I can say is we can build things in northern climes better than anyone in the world. I'm confident in our position. I think it's much better than what we have, but we took a prudent approach to it. We'll continue to do so. I don't think you'll see any more fluctuations unless it goes the other way. I feel confident in where we're at, and it was our decision really to make sure we derisk the rest of the year and the rest of the job with the approach that we've taken. So we're extremely happy with our people, this build was significant for us in a code-free environment of what's possible. Our productivity rates and everything else were off the chart. So real pleased with how we finished up, and I do believe it will pay dividends in the long term.

Operator:

Our next question is from the line of Steven Fisher with UBS. Please proceed with your question.

Duke Austin:

Thanks, Steve. SunZia is right down the middle for us, both from -- we just got off a wind project, with pattern did really nicely. We built line across that part of the world, many, many times, not concerned. What I can't control is a pandemic, so if our project has a 24-month pandemic in it, I don't know how to address that yet. I'll let you know when we get done with all the settlements on the claim. But the one in Canada, we work through a 24-month pandemic in a camp in the most northern territory in North America. So - and by the way, like every other project up there is off the rails. So look at coastal gas, look at Trans Mountain what they did compared to what we've done. I like our chances. So I know - we know we're doing on large projects, and this one is right on the middle. I expect many more of them to come.

Operator:

The next question is from the line of Chad Dillard with Bernstein. Please proceed with your question.

Duke Austin:

I think when you look at it, it's about the same between 80%, 85% base business, the why we've laid it out. Large projects will grow significantly. Our base business will grow significantly. We're signing much larger MSA type programmatic expense than the projects that you're seeing. It's just there over multiyears. This -- SunZia is over -- I think we get done in '26, end of '26, the line goes a little faster, '25. But that said, we have multiyear type MSAs type agreements with our current customers that are longer in nature that are much bigger. So we continue to see both the base as well as these larger projects, as we've talked about the stacking effect due to the transition and all the things that we're able to accomplish there on the company is in front of it. And I do believe the outlook looks good. And certainly, our strategies are 5 years out. And I like where we're at. And I think we're right on track, maybe a little better.

Duke Austin:

Yes. When we look at the Navistar contract, I think it's just how we relate with our -- not only us, but our suppliers we collaborate. And that collaboration leads to other things that we can do together such as try to create the safest truck in the industry, which I think is where the start was trying to create the safest truck what can we do with automated driving, what can we do with other things. And then it led to -- well, what can we do together to build the infrastructure necessary to go to electric vehicles. That said, if you think about Navistar's -- their amount of market share in school buses, in every school district across North America, it's significant. Many of the school districts load once you put buses and you go to an EV type bus, it will pull more load at the bus depot than the town. So when you start thinking through that and you're struggling in all the school districts that are out there, I think it's a significant build. It's meaningful for the company. And if we work together, we work with our utility clients and municipalities on the front end of this, we can certainly do it cost effective and create an environment that allows everyone to move towards carbon free.

Operator:

Our next question is from the line of Jamie Cook with Credit Suisse. Please proceed with your question.

Duke Austin:

Good morning, Jamie. So I do think when you think about that we're on call it, 25 renewable projects today. All those have interconnections. The discussions with the customer are usually when we didn't have Blattner, you weren't combining that. You were really -- we were doing a lot of the interconnections for the utilities or for the developers. Some are going towards a combined approach I think the more we show the economics around it, the more we think through it, the bigger the projects, certainly, the more economical it is for us to think through both wind solar and interconnection with the client, and we do that quite a bit. As far as -- there's a significant amount of projects out there that are ongoing or from utilities driving win towards the West on the East Coast coming down from Canada, where you're absolutely bringing load wind, whether we're on the wind side or not. Usually, we're on both sides of it. If they combine it is better. I think it's our job to show the client the economics around that and how we see it. And is that the ultimate is that the ultimate project for the consumer at the end. Can we do it cheaper and more efficient. So I do think I like our chances. SunZia is certainly a highlight of what can be done. And I think it -- when you collaborate early, you get those kind of results and everyone wins. As far as the margins on renewables, I think a lot of that was the Canadian project pulling it down a bit. I do believe when you start to scale the way we're scaling, what happened in the renewable business across the board, you had a stop 6 months, 9 months where no one did much because of all the regulations in '22. And that -- and also the IRA coming in. As the IRA comes in, you're going to get on more of a run rate base rate that you can see and you'll stock on top of that as you grow, I don't think you'll have this cadence that you have where you're growing from the first quarter significantly into the second, into the third and the fourth. And you get more -- obviously we have to perform on the back side much better than we did on front. And I believe everything in historical, nothing on the back side outside of any historical margins. In fact, it's right down the middle for us on the backside of this. And I think that should create -- you'll have some seasonality in the first quarter, but your fourth quarter is going to obviously grow you have some impacts in the second due to our -- the way that we're mobilizing on projects and things of that user, but it should smooth on out into '24 and beyond.

Jamie Cook:

Well, not to push you, I'm just wondering if the back half margin implied double-digit if that's a new run rate going forward given just what you're seeing in the market?

Jamie Cook:

Okay. Thank you.

Marc Bianchi:

Thank you. How much should SunZia contribute to backlog here in the, I guess, second and third quarter? And then how is your - how does that constrained, if at all, your bandwidth to take on additional work? Is there a level where backlog gets filled up and you're probably just going to continue to work on that level for several quarters?

Marc Bianchi:

Okay. Thank you.

Neil Mehta:

Good morning, Duke and team. And I guess my first question is just around the cash flow, free cash flow progression over the course of the year and how we should be thinking about the $750 million to $1 billion guidance and whether you're on track and whether you're targeting where -- within that band you see yourself being.

Neil Mehta:

Okay. That's really helpful. And then the follow-up is just on one of the core competencies and capabilities of your organization has been around making strategic acquisitions, not just large ones like Blattner, but also smaller bolt-on ones as well. What's the opportunity set in the M&A market for tuck-ins, recognizing big strategic points are probably less likely as you are working to integrate Blattner right now?

Neil Mehta:

Thanks.

Sean Eastman:

Hi, team. So it's great to see the later kind of revenue synergy story coming together with this big SunZia win. Duke, you had alluded to the economics to the customer being better when you guys kind of come to market with this combined transmission generation solution. Could you give us a little more color on that and kind of what the go-to-market pitch is? And what the benefit to the customer is here?

Sean Eastman:

Okay. Interesting. And then a little bit more granular. We haven't hit on the Underground segment. The first quarter margin performance was quite a bit better than we expected. And then I think the guidance for the full year has come down. So I just want to understand what's happening under the hood around that mix shift you described.

Sean Eastman:

Okay, interesting. Thanks. I'll turn it over.

Michael Dudas:

Good morning, Kip, Duke and Jayshree.

Michael Dudas:

Following up on, you mentioned telecom. Maybe you could share it seems like your revenue expectations remain what they have been. What are some of the trends you're seeing, anything that's been more beneficial Quanta? And could you - there any visibility into, say, 2024 on some of the programs and where you guys can get involved?

Michael Dudas:

Thanks, Duke.

Brent Thielman:

Hey. Thanks for taking the question. Duke, curious the outlook for sort of other new wind bookings opportunities. It seems like solar is kind of in the hot market last few years. Wondering if you're seeing RFP is picking up and wind and maybe that's another significant lever, I guess, beyond some from bookings in the coming quarters and years. And I guess, of that, too, are the economics of those projects more attractive than solar? Because it seems like it would be a less saturated sort of competitive environment given the technical necessities there.

Jayshree Desai:

And the only thing I'd add to Duke's comment is wind is starting to get some momentum. I still think -- and we're still seeing that it's more back-half weighted as projects have to get through the permitting and interconnection cues. And for all the reasons Duke mentioned about the complexities of moving that wind power to where the load is, it just -- it's harder and it takes more time. And you have the IRA coming in as well, which will allow for more wind and have wind be as competitive solar. But again, the projects have to move through the development cycle to be ready to be built. But in terms of economics, no, I think we are comfortable with both. Blattner especially has a strong history in building wind and now solar and they've proven themselves to be successful in both.

Operator:

Thank you. Our final question this morning will be from the line of Marc Bianchi with TD Cowen. Please proceed with your question.

Duke Austin:

Yes, I think it's not material, if anything, on the back half. It's in the '22 a bit. So I think when you look at '22, it's down a bit and it won't - Canadian has been an impact in that segment. So there's not as much Canadian content in the back half of our year. And so we're confident in the historical performance of both sides of the business to be able to perform double digits in the back side of this - of the year.

Operator:

Thank you. At this time, we've reached the end of our question-and-answer session. And I'll turn the floor over to management for closing remarks.

Operator:

Thank you. You may now disconnect your lines at this time. Thank you for your participation.

Operator:

Greetings, and welcome to the Quanta Services Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. And it is now my pleasure to introduce to you, Kip Rupp, Vice President of Investor Relations. Thank you, Kip. You may begin.

Duke Austin:

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services fourth quarter and full year 2022 earnings conference call. On the call today, I will provide operational and strategic commentary, and we'll then turn it over to Jayshree Desai, Quanta CFO, to provide a review of our financial results and full year 2023 financial expectations. Following Jayshree's comments, we welcome your questions. This morning, we reported strong fourth quarter and full year results, which were built off an industry-leading operational and financial platform that delivered another year of solid, safe execution and profitable growth. Additionally, total backlog of $24.1 billion at year-end was a record, and that does not include several notable recent project awards. Driven by the dedication and operational excellence of our world-class employees and the culture of collaboration throughout Quanta, we believe our '22 -- 2022 results also demonstrate the benefit of our diversified portfolio of solutions, our repeatable and sustainable model and the successful execution of our strategic initiatives to drive operational excellence and total cost solutions for our clients and ultimately, the consumer. Our portfolio of companies, diversity of service lines, geographic coverage, outstanding field leadership and deep, long-standing and collaborative relationships with our clients have allowed us to successfully navigate through the challenges presented by a global pandemic, and manage ongoing macroeconomic uncertainty and supply chain constraints, while still delivering five consecutive years of record adjusted EBITDA and six consecutive years of record earnings per share. We accomplished a great deal in 2022 through the successful implementation of our strategic initiatives and our past success positions us well for the future. Our innovative approach to our infrastructure solutions, our portfolio of services and our passion for working collaboratively with our clients to support their success, positions us to be a critical partner in enabling the energy transition for years to come. Here are some of our accomplishments in 2022. We continue to successfully advance our front-end solution strategy, both organically and through acquisitions and strategic investments. Our focus is on strengthening our design, engineering, permitting, environmental, logistics and program management capabilities. This strategy allows us to expand our customers and provide them with greater certainty around cost, time to market and quality, which ultimately benefits consumers. It also enhances our risk management capabilities and increases our total addressable market. Electric Power Infrastructure Solutions segment revenues achieved record levels, maintain margins and increase market share despite some work delays caused by ongoing supply chain challenges. We further expanded our emergency response capabilities and supported our customers' efforts to restore power to millions of people adversely impacted by several severe weather events during the year. Our ability to quickly mobilize significant resources to support our customers in times of need is unmatched in our industry. LUMA Energy, our joint venture with ATCO, which is managing Puerto Rico's more than 18,000-mile electric transmission and distribution system, continue to improve its customer service, response times, customer communication and workforce safety as well as overall system reliability. Additionally, LUMA restored power to more than 90% of its customers in less than two weeks following Hurricane Fiona, which was much faster than previous storm responses by the prior grid operator and was comparable to, if not better, than restoration times following major hurricanes in the mainland United States. Though many years of challenges and work remain, we continue to believe this opportunity is transformative for Quanta and the people of Puerto Rico and remain committed to supporting LUMA's mission to provide reliable electricity while building a modern and sustainable transmission and distribution system. We continue to grow our communication services business and increased revenues by approximately 30%. Contributing to the growth was further development of our wireless infrastructure solutions, which expand our opportunities to capitalize on 5G network deployment and ongoing enhancement of 4G wireless networks. We continue to make meaningful progress on growing our portfolio of services within each of our operating companies to further enhance our operating results. For example, we are leveraging our gas utility assets to perform certain aspects of underground electric power and telecom-related work. We believe the resource expansion and operating leverage we gained through these initiatives is significant opportunity for Quanta to reinforce our self-perform capabilities, improve operating efficiency and profitability and demonstrates the strength of our portfolio approach. Quanta's Capacity Model was recognized by the National Safety Council as a finalist for its prestigious Green Cross for Safety Award, which recognizes outstanding projects in organizations working to support the National Safety Council's mission to save lives and prevent injuries from workplace to any place. The Capacity Model is revolutionary because it only creates a work environment that focuses on preventing an incident but also builds the capacity to fell safely. We demonstrated our commitment to stockholder value and our confidence in Quanta's financial strength and continue to growth opportunities through the repurchase of approximately $128 million of our common stock and a 17% increase of our dividend while also increasing our liquidity. And finally, we continue to increase our efforts and dedicate resources towards implementing sustainable business practices throughout the organization. We made significant progress in our 2021 Sustainability Report, which discusses the company's accomplishments during that year and marks a key milestone for Quanta as we published our first consolidated sustainability metrics, including our Scope 1 and 2 emissions. We also highlighted and discussed the important positive impact Quanta has on society and enabling the energy transition and technological development. Demand is robust for our solutions that support our customers, efforts to modernize and harden the grid and prepare it for the impact of increased electric vehicle penetration. This activity drove our Electric Power segment results and backlog strength during 2022, primarily due to significant multiyear master service agreements and gains through our service line expansion with utilities. Further, we continue to believe we are in the early stages of utilities undergrounding transmission and distribution lines to protect them from the effects of severe weather events and wildfires. We see this activity increasing in the Western United States and high-fire threat areas, but these initiatives are active in other areas of the country. Examples include electric transmission projects in the Northeast, distribution circuits along the coast lines and electric transmission line projects for offshore wind generation. Many of these initiatives are part of a large-scale multiyear system modernization and hardening programs. Our utility and renewable developer customers who accounted for the majority of our 2022 revenues are leaders in the effort to reduce carbon emissions, increased electrification and lead the energy transition with aggressive plans to expand and modernize the power grid and grow their renewable generation portfolios. Achieving these goals will require substantial incremental investment in transmission, substation and renewable generation facilities to produce and transport clean power to ensure grid reliability due to the growth of intermittent power added to the system. For example, in December of last year, we announced Quanta's selection by Xcel Energy as its prime constructor to manage all construction activities for Colorado's Power Pathway high-voltage electric transmission project in Colorado. The approximately 610-mile high-voltage electric transmission line project is designed to increase the reliabilities of the state's power grid and enable future renewable energy development in Colorado including approximately 5,500 megawatts of new wind, solar and other resources that Xcel Energy plans to add through 2030. While the supply chain and regulatory hurdles created challenges for the renewable industry during 2022, there is significant demand for our power grid and renewable generation solutions. Number of solar projects that were delayed in 2022 are beginning to move forward in '23. Regulatory hurdles are easing and the implementation of the Inflation Reduction Act or IRA which is considered by many to be the nation's most ambitious legislative action ever taken on climate is expected to have meaningful positive effect on a number of our end markets, which would be additive to our strategy for at least the next decade. Our underground utility and infrastructure solutions segment consistently performed at a high level through the year. Revenues grew strongly and margins significantly improved, after navigating through tough operating conditions caused by the global pandemic over the prior two years. Importantly, we continue to invest in our people and strategies during those challenging times and emerge as a stronger and better company, which is reflected in our solid 2022 results. We expect to continue our focus on growing our gas utility, pipeline integrity and industrial services businesses consistent with our strategy over the last five years, which are executing well and driven by regulatory spend to modernize systems, reduce methane emissions, ensure environmental compliance and improve safety and reliability. Looking to the coming years, we continue to believe Quanta has any meaningful opportunities with customers in this segment as they increasingly pursue strategies to reduce their carbon footprint and diversify their operations and assets toward greener business opportunities. Further, the IRA includes incentives to support certain energy transition technologies to further encourage a broader set of current and potential traditional energy and industrial customers to accelerate their pursuit of opportunities around these technologies. In our earnings release this morning, we provided our 2023 guidance, which we believe demonstrates the strength and sustainability of our portfolio approach to this and long-term strategy, favorable end market trends, our ability to safely execute our strong and strengthening competitive position in the marketplace. Further, our ongoing investment in and commitment to workforce training continues to positively impact our performance and allow us to capitalize on future opportunities. Our expectations caught for another year of meaningful growth in record revenues, improved margins and opportunity for double-digit growth in adjusted EBITDA, cash flow and earnings per share. Additionally, we see opportunity to achieve record levels of backlog in 2023. Jayshree will provide additional detail about our guidance in her commentary. Quanta's management team recently had the privilege of ringing the closing bell at the New York Stock Exchange to commemorate our 25-year anniversary of trading on the prestigious exchange. Standing on that balcony and reflecting on what we have built over the last 25 years and where we are heading in the future was [ogling] and I couldn't be prouder. Quanta's infrastructure solutions are at the tip of the spear of the energy transition in North America. At our Investor Day last year, we laid out a five-year financial goals we expect to achieve through 2026, which provided an organic growth strategy to generate a 10% adjusted earnings per share CAGR and when considering the levers available to us to allocate future cash flow generation into value-creating opportunities, a platform with opportunity to deliver more than a 15% CAGR in adjusted earnings per share. With the strong results we delivered last year, our outlook for 2023 and the momentum we see building for the coming years, we are increasingly confident in our ability to meet or exceed those goals we laid out. We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best-in-class field leadership. We will pursue opportunities to enhance Quanta's base business and leadership position in the industry and provide innovative solutions to our customers. We believe Quanta's diversity, unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for our stakeholders. I will now turn the call over to Jayshree Desai, our CFO, for her review of our fourth quarter and full year results and 2023 expectations. Jayshree?

Operator:

[Operator Instructions] And our first question comes from the line of Alex Rygiel with B. Riley.

Duke Austin :

Thanks, Alex. The backlog is really not material when you look at the acquisitions, so take that out. I think we had broad-based backlog growth within the company. And as we look forward, I think you'll continue to see that throughout '23. The dynamic of the stacking of larger projects along with what we see at our MSA levels continue to be robust. And I think it will be broad-based on our Renewables as well as our Electric Power and even in U&I segment. So we see robust markets there. As we look at the bid pipeline, I think both the renewable side, you see more of elongation out where it was just 12 months, you're seeing 24-month, 36-month type things within our backlog. So that's creating that growth as well there. But the pipeline itself, larger projects are certainly in there. But our MSA business, base business is robust as well. So just a broad-based kind of look at the business at this point.

Alex Rygiel :

Fair enough. And then secondly, you referenced ongoing supply chain challenges. There's a couple kind of thought on that topic. And one is supply chain challenges to hold back your ability to obviously acquire equipment to execute on projects. But also kind of when you layer into that Quanta's historical achievements in managing difficult labor supply chain challenges and educating and training internally. Can you talk about how those supply chain challenges have allowed Quanta to gain market share kind of in this current environment right now and moving forward? .

Operator:

[Operator Instructions] Our next question comes from the line of Neil Mehta with Goldman Sachs.

Duke Austin :

Yes. With the Renewables segment, when we look out the IRA, certainly it's additive to anything we've talked about to get your hands around it and what it actually means. I don't think we see anything at this point that has the consequences thereof. It does give us certainty over the next 10 years within that. But as our backlog as we're having the conversations today, it's certainly about U.S. content, how we look at labor, all those kind of things within the IRA bill. That's something the company has done a nice job of getting in front of and we're proud of that. I'll let Jayshree comment on the rest of it.

Operator:

And the next question comes from the line of Justin Hauke with Robert W. Baird.

Jayshree Desai :

Yes, the revenue contribution is around $600 million for those three deals. And I would just say that from an EPS contribution, they contribute around $0.15 to $0.20.

Operator:

And the next question comes from the line of Jamie Cook with Credit Suisse.

Duke Austin :

Yes. Thanks, Jamie. When we think about the renewable segment is primarily around utilization and how quickly you're going to get absorption early on. And as we move on to the projects that are stated, certainly, you get absorption in the back half. You're a little light, and you saw it in the fourth quarter, you'll see it in the first quarter. We know the projects that we're on, we talked about $3 billion that we have started. The back half, when we look at the back half, certainly, there's opportunities there. We were prudent about how we looked at it. We felt like with the way that the supply chain work this year, especially on the panels and things of that nature and how the IRA comes in and how quickly it comes in. We take the same approach to guidance every year, which is prudent, and I believe we did the same this year. It's exactly the same way.

Noelle Dilts :

I know there's been a fair amount of discussion around supply chain. But I have heard that the transformer issue remains fairly challenging with extremely long lead times. So -- and we've talked about that before. So I was actually just curious to what extent you think that's getting better? Are things getting a little bit more predictable as it relates to some of these components that have been in short supply, specifically as it relates to electric T&D?

Operator:

And the next question comes from the line of Steven Fisher with UBS.

Duke Austin :

Thanks. Here's what we see. We see North America is load growing as we look at it across our segments. So the growth of generation in North America, you have that going on, you have renewables and the way that we're looking at penetration through transmission, you have EV penetration ongoing. So all those things are coming in to these CapEx. I hear that and I hear well, you've seen something different. All I've seen is our customers moved our CapEx budgets up primarily in distribution on the outer end because of penetration of EV and then all your transmission that needs to be interconnected. The way that you think about it, you think about all the things that are necessary to make this work, yes, you can delay a bit. You can do some things. But we're already behind on just in general, if you stay flat on carbon today, you can't -- we're struggling to serve the load at the customer level on the coastlines. And that's our duty to this industry's duty to the consumer is to have load and if you have wells that are offshore, if you have things that don't allow us to build generation that's necessary to get to a carbon-free environment, we have to have more transmission. So either way you look at this on any level, the capital necessary to transform and to make sure that these countries have as a resilient grid, will require a significant amount of capital.

Adam Thalhimer :

Great quarter. Great outlook. A quick question on electrical margins. So the guidance range for margins this year, 10.7% to 11.3%. It's the same guidance we started last year with and we ended up at the low end, 10.7%. So my question would be, what factors drive you to the low end last year and what could drive you to the high end of this year?

Operator:

And the next question comes from the line of Chad Dillard with Bernstein.

Duke Austin :

When we look at the market, if you take it all, it's 30% or so of total addressable market within our client base. And I -- we continue to build that out because what was happening, and it made us less efficient and also the client less efficient. And I believe from a construction standpoint, how we approach it, how we approach the front end, we can give a lot more certainty to any project. So it was necessary, in my mind, for us to get in that business. And yes, the customer is happy with it. The projects that we have done, the programs that we are ongoing are certainly something that we'll continue to build off as we move into the future. And that market is there. It makes us more efficient on the backside of a lot of reasons for us to like that piece of business. And we'll continue to invest.

Duke Austin :

As far as the supply chain what we see today, what we've seen over the past quarters is how we looked at it going forward. If it gets better, certainly, we'll come back and we'll talk about it, but we see intermittence in the supply chain on utility side for the year, basically, I do think the renewable segment, supply chain is better in the second half, and we've certainly looked at that as well. But how much better? I'm not sure. And if it does, if it creates, there is some conservatism in the renewables segment due to that. We've baked all that in, and I feel like hit it down the middle with prudent guidance. As far as the revenue, I'll let Jayshree talk about.

Operator:

[Operator Instructions] Our next question comes from the line of Michael Dudas with Vertical Research.

Duke Austin :

Yes. Thanks, Michael. We talked about the stacking effect of the projects, the larger projects they stack on the base. I think when we went through CREZ seven, eight years ago, the company got off the base. I would tell you today, we're highly focused on our base business roughly 85%, 90% of that resilient business that we have. We'll continue to focus on that. We're being every project the same. We did the risk. We're not going to win them all. We're just not. And I've watched one recently look at -- we know our cost, we know what we're doing. We're not going to take risk. It's not something we're going to gamble on. If we're just not, and it's not Vegas, we're going to get ourselves in a good position to make sure that we execute on these projects. And we don't need to necessarily take the larger projects. We can build our base. But we do see an incremental amount of larger projects coming in, in '23, '24 and beyond.

Brent Thielman :

Duke, expectation for reduction in large pipeline work in '23 versus '22, is that just a function of sort of project sequencing for your business? Because your backlog is up pretty nicely in undergrads that just sort of reflective of the environment we're in. And I also just be curious there's opportunities to still fill that void you're sort of talking about for the underground business late in the year.

Operator:

[Operator Instructions] At this time, I'm not seeing any questions coming in. I'd like to pass it back over to the Quanta management team for any closing comments.

Operator:

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

Operator:

Greetings and welcome to the Quanta Services Third Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kip Rupp, Vice President of Investor Relations. Thank you. Please go ahead.

Duke Austin:

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services Third Quarter 2022 Earnings Conference Call. On the call today, I will provide operational and strategic commentary, and we'll then turn it over to Jayshree Desai, Quanta's CFO, to provide a review of our third quarter results and full year 2022 financial expectations. Following Jayshree's comments, we welcome your questions. This morning, we reported our third quarter results, which continue to reflect strong demand for our services and solid execution. We believe the results highlight the benefits of our diverse, repeatable and sustainable earnings streams and our ability to successfully leverage our portfolio approach in managing our service lines. Our third quarter results include a number of record financial metrics, including revenues, adjusted EBITDA and adjusted earnings per share. Additionally, total backlog of $20.9 billion was a record and is considerably higher than the same period last year. Notably, we also see the opportunity to significantly increase backlog as we move into 2023. Our Electric Power Infrastructure Solutions segment continued to perform well with record revenues and solid margins. We achieved these results despite some delays caused by ongoing supply chain challenges that led to resource imbalances and utilization inefficiencies. As we commented on our second quarter earnings call, these supply chain challenges are not causing meaningful delays in our overall utility capital spending that we are seeing, and we believe these dynamics are shorter term conditions that should be resolved over the coming quarters. Demand for our services continues to be driven by broad-based business strength from utility grid modernization and system hardening initiatives, as well as our reputation for solid and safe execution. Overall, our electric power outlook remains strong, driven primarily by increasing service line opportunities and market share gains for our base business. Quanta deployed emergency response resources to utility customers for 2 hurricanes late in the third quarter. Hurricane Fiona made landfall in Puerto Rico and damaged 50% of the island's distribution feeders, 30% of its transmission lines and submerged 7 substations. Quanta sent more than 200 skilled line workers to the island to support LUMA's restoration efforts and has strategically prepositioned a fleet of trucks and equipment on the island prior to the storm, which allowed us to quickly respond when the hurricane hit. While the fragile state of the island's existing power grid and the heavy rain and flooding from the hurricane made restoration efforts more challenging, LUMA still managed to return power to more than 90% of its customers in less than 2 weeks. We are proud of the way LUMA responded to this event, which was much faster than previous storm responses by prior grid operators and comparable to, if not better, than restoration times following major hurricanes in the mainland United States. At the end of the third quarter, Hurricane Ian made landfall in Florida as a large and destructive category 4 hurricane, which left more than 3 million customers across the Southeast United States without power. Quanta deployed significant resources to support utility customers whose electrical power infrastructure was damaged or destroyed by the hurricane, including more than 3,500 line workers and front-end support services staff from 18 different Quanta operating companies. Although restoration efforts for Hurricane Ian were largely a fourth quarter event, we believe our industry-leading, comprehensive emergency restoration capabilities highlights our ability to rapidly mobilize substantial resources to support our customers in times of need. Importantly, the system hardening investments that Florida utilities have made over the past 10 years proved beneficial during Hurricane Ian and enhanced the ability to restore power to many customers after the first full day of restoration efforts. We believe Florida's leading role in system hardening and its demonstrated benefits will serve as a model for utilities and regulators throughout the country as they plan and implement their own hardening programs. It was a little more than a year ago that we closed the acquisition of Blattner, and I can tell you that we are more excited about the key drivers of the transaction now than we were then, including the value proposition to our customers, the multiyear growth opportunities available to us and the strong operational and cultural fit between the organizations. Since closing, we have largely completed integration. Our teams are working collaboratively. We have enhanced existing customer relationships and created new ones. We are jointly pursuing project opportunities that leverage our expertise and industry-leading position. We have accomplished a great deal with Blattner over the last year, but more importantly, we believe we are just getting started. Our Renewable Infrastructure Solutions segment performed well overall during the third quarter, led by solid performance on high voltage transmission, substation and interconnection work. The utility-scale solar industry faced increased levels of supply chain delays during the third quarter, which impacted our revenues, but our operations managed through these dynamics. We are optimistic that these conditions are shorter term in duration and will resolve themselves over the coming quarters. We continue to collaborate closely with our customers on our renewable build plans for 2023 and beyond. While still early in the process, we are beginning to see a more normalized cadence with respect to limited notices to proceed for renewable projects moving to contract in 2023 as well as forward movement on projects that were delayed in 2022 that are now slated to be built in 2023. According to the Federal Energy Regulatory Commission, or FERC, there are approximately 1,400 gigawatts of proposed generation, mostly wind and solar, and energy storage projects that are actively seeking interconnection to the U.S. power grid. These create both opportunities and challenges for our customers, and demand for Quanta's comprehensive solutions and collaborative delivery model is increasing as a result. Further, there are several large renewable energy-related high-voltage electric transmission project opportunities that we are pursuing, which we believe we are well positioned for and could be awarded over the coming months. Furthermore, this past August, the Inflation Reduction Act, or IRA, was signed into law. It includes nearly $400 billion of tax incentives and financial support designed to accelerate the country's energy transition to a low-carbon economy. This legislation is considered by many to be the nation's most ambitious legislative action ever taken on climate, which we believe should have a meaningful positive effect on a number of our end markets for at least the next decade. In particular, we believe the IRA will drive investment in the development and construction of utility-scale renewable generation facilities and the transmission and substation infrastructure required to support them. Additionally, there are attractive financial incentives in the IRA to expand domestic manufacturing of key renewable energy components such as solar panels. This could reduce the country's reliance on overseas manufacturers and, in turn, reduce supply chain risk by ensuring domestic product availability to meet the growing demand for renewable generation development in the United States. These are just some of the dynamics that give us a high degree of confidence in our ability to meet or exceed long-term growth and earnings targets. Our Underground and Utility Infrastructure Solutions segment continues to perform at a high level. Revenues grew strongly, and margins demonstrate solid execution across our operations in the segment. Our industrial services operation continue to execute very well and experienced robust demand as capital spending resumed and pent-up activity from 2 years of deferred maintenance moved forward. We also continue to experience solid demand for our gas utility and pipeline integrity operations, which are executing well and are driven by regulated spend to modernize systems, reduce methane emissions, ensure environmental compliance and improve safety and reliability. For several quarters on our earnings calls, we have discussed our views about the emerging opportunities within the segment that center around the evolving and increasing efforts of our customers' strategies to reduce their carbon footprint and diversify their operations and assets toward greener business opportunities. To that end, the IRA includes incentives that are designed to support and accelerate certain technologies as part of the energy transition for the traditional energy and industrial industries. For example, there are significant production tax credits for clean hydrogen that can make the energy source cost competitive today, which is expected to accelerate interest and investment in hydrogen technology as another tool to produce clean power and reduce carbon emissions. The IRA also includes incentives to invest in carbon capture projects and technology. Prior to the passage of this legislation, we had been supporting several customers as they pursued hydrogen and/or carbon capture projects and believe the IRA will further encourage a broader set of current and potential customers to accelerate their pursuit of opportunities around these technologies. As we discussed at our Investor Day earlier this year and as I hope you take away from our comments today, demand for our services is robust across our portfolio and driven by what we believe are long-term, visible and resilient megatrends. We are successfully executing on our strategic initiatives to drive operational excellence, total cost solutions for our clients and value for our stakeholders. We have profitably grown the company and executed well this year and expect to continue to do so. Our strategic initiatives are designed to uniquely position us to not only capitalize on the megatrends of our end markets, but also to enhance our customer relationships and market positioning. Quanta's infrastructure solutions bite the tip of the spear of the energy transition in North America. Our customers are leading the effort to transition towards a lower carbon economy, which industry experts believe could require trillions of dollars of investment in renewable generation, energy storage and great investment, all areas where Quanta is an industry leader. In order to meet the needs of our customers and capitalize on the large and visible opportunities ahead of us, Quanta is investing in resources necessary to do so. We are innovative with our safety, training and recruiting efforts to ensure we have a world-class workforce and adding to and enhancing our operations leadership and management. We are also making and evaluating value-creating acquisitions that further our strategic initiatives and investing capital in equipment and facilities to support organic growth. As a result of our solid year-to-date financial results and continued overall favorable end market drivers, we remain confident in our 2022 consolidated financial expectations. We also believe that our business and opportunities for profitable growth in 2023 are gaining momentum, driven by our solutions-based approach, the growth of programmatic spending with existing and new customers, growing renewable generation activity and opportunities for larger electric transmission projects. We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best-in-class build leadership. We will pursue opportunities to enhance Quanta's base business and leadership position in the industry and provide innovative solutions to our customers. We believe Quanta's diversity, unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for our stakeholders. I will now turn the call over to Jayshree Desai, our CFO, for her review of the third quarter results and 2022 expectations. Jayshree?

Operator:

[Operator Instructions] The first question today is coming from Andy Kaplowitz of Citigroup.

Duke Austin:

Thanks. When we look at it, when we look at the business long term, we stand by our adjusted 10% EPS growth using all levers of the balance sheet. We still remain confident on that. What I would say is based on what we see today, we believe those metrics move in, we see more business quicker. We continue to see all aspects, all macro markets, kind of the megatrends that we talked about in our Investor Day coming to fruition here. And when we look at backlog, when we look at what's in front of us, we see significant growth. I don't know how else to say it. It's significant. And I think it will continue, and our backlog will continue to set records. So that's what we see. We see it long term. We're looking into '24, '25. The company has great visibility against these macro markets and trends.

Duke Austin:

Yes. I'll give you a little bit on renewables, and Jayshree will follow up. But I think what we see is clarity against the long-term PTC with the IRA. That said, as you see it today, you're still trying to get clarity against what it means. So while you see it long term, there's still interactions ongoing with your panels basically. And so as those panels -- or you're getting manufacturing capacity, you get clarity long term, your developers get clarity long term and you get longer-term PPAs. So it causes some issues. I would say, as we sit today, we would -- I would give you an example. We have 6 projects that we're waiting on panels. Everything else is done. And so it just causes some intermittency in the supply chain and in the work from a production standpoint. That said, we think that plays out fairly quickly here as we move into '23, but I'll let Jayshree comment on the rest.

Operator:

Our next question is coming from Adam Thalhimer of Thompson, Davis.

Duke Austin:

Yes. I mean we're in discussions constantly on carbon capture or hydrogen. It's very difficult on those type projects when you're crossing linear construction, you get permitting. And while we're talking about it, honestly, I really don't think about them. If they come, I believe those are those kind of plus 10% type things we talked about as megatrends. We'll view them as that. But the customer base that's building that is a very good customer base. So we have very good contacts with -- and we're certainly right in the middle of every one of those projects at the very front end. So we took a very long approach to hydrogen, long approach to carbon capture. We built carbon capture lines before. It's not -- it's the same in my mind as it is anything else. When you building pipe, you're building pipe, So whether it's water or carbon, whatever it may be, gas, we can build it. And I think our ability to do so efficiently and work collaboratively with the developers and our carriers make sense, and we'll continue to do that.

Justin Hauke:

I guess I wanted to ask just on the underground segment because it's been so strong in the last couple of quarters, at least kind of relative to your expectations. I know you talked about an earnout there. And I guess I was just hoping to clarify that and maybe just -- maybe level set. So as we think about '23 and the margin expectations or potential for that segment, just how material was that in the quarter?

Jayshree Desai:

No, I'm not sure what you're referring to on the earnout. But -- go ahead.

Justin Hauke:

Okay. Yes, that was what I was referring to. I guess my second question, so obviously, it was good to see the free cash flow come in, and I know you guys talked about that. The AR that's tied up on the remaining Canadian renewable project that you guys are seeing is probably a '23 resolution. How material is that? Or how big is the collections associated with that? And is that project done? Or is that going to continue to progressively build until that's resolved next year?

Jayshree Desai:

Yes. I think we talked about this in the last quarter's call that the impact of the Canadian project is affecting our DSOs around 5 to 6 days. That's still what we're seeing today. And as Duke talked about, we baked that into our forecast for the year, and we believe that going forward, we'll be working through that for the rest of the year, and we'll be able to make some progress around that as the project commences.

Operator:

The next question is coming from Alex Rygiel of B. Riley.

Duke Austin:

I would say, in general, the economic slowdown always impacts your new builds, your kind of new construction. Small piece of the business at this point, when you look at what's happening to modernize the grids and infrastructure, it doesn't rely so much on your economics. Again, it does from an interest standpoint at times, you could see some areas of constraint. But the way that carbon capture, batteries, EV, the way that, that's coming to market, it's different than it's ever been in the utility industry as well as all the renewable industries. If we're moving at a pace that we're moving towards a carbon-free footprint, your manufacturers of vehicles, chip manufacturing, the load growth that you're seeing will not allow a stop at this point unless there's significant change in the way we view carbon. And I don't see that happening. We have long-term outlooks. I mean we're looking at '24 or '25. While it might slow down a little bit, the offsets are much, much greater than any kind of economic offset at this point.

Duke Austin:

Yes. I do think it helps. But what really -- the impacts are supply chain driven, such as transformers, for example, very difficult year for transformers, and that manufacturing capacity needs to move up. So we're seeing some of that come in. It's those kind of things that -- where work can get sequenced and normal cadence, it gives us more problems than any kind of inflationary impact. So I do believe we're starting to see those things get past us. I do think in '23, we'll work through the transformer supply issues. Your large AC/DC transformers are also an issue long term as you see the queues move up. I think the bigger clients, our bigger customers have it under control. The smaller ones are working through it. So just -- those kind of things, where your production and your -- we're growing over 1,000 employees a quarter at this point. That growth against not a normal cadence in supply chain does give you a little bit of issues at times. And the company has done a phenomenal job. Our guys and men and women in the field has done phenomenal working through any of those issues and stayed in a collaborative manner with the client.

Noelle Dilts:

Kind of piggybacking off of that, Alex' second question. I'm curious if you've been able to make an estimate or sort of quantify how much you think the supply chain disruption has impacted margins this year. Basically trying to get a sense of how to think about how some of that might reverse as we get into '23 and the opportunity for margin expansion.

Noelle Dilts:

Okay. And then quickly, I think last call, we discussed how much you're -- what you're looking at in terms of wage rate increases. I think it was kind of mid-single digits for 2023. Is that still looking like the right level?

Operator:

The next question is coming from Sean Eastman of KeyBanc.

Duke Austin:

Not willing to give '23 guidance at this point. But what I would tell you is that what we see is a long-term robust market. We talked about Blattner having $3.5 billion in 2026. I believe that's pulled in. The exact timing on it, I'm not confident at this point. I got 4, 5 months here to get my head around '23. So I'm going to take every bit of it. That said, I would say the inbound calls, what we see, our pipelines, our growth trajectory across that segment, not just Blattner, is robust, probably the best I've seen in my time frame, in my career on a macro market. It's there. We're in early stages of an energy transition. We're sitting at the tip of the spear. And when you're there and you see it, you see it every day, the growth -- we're in '24 or 25. And we're not used to being out that far with our clients, trying to make sure that we can meet the demand of the industry. And I do believe we're doing a nice job of doing so. Once you get through the cadence on how quickly panels can get to the U.S. or how quickly the panel issue can get resolved in a meaningful way, not just American may, but in a meaningful way, and we have a good cadence on that, it's certainly much, much easier to give you commentary against it. So while the macro market's there and we could say outsized growth -- I don't know what the IRA and the way that it's interpreted at this point -- going forward in '23, I don't know yet. So until I can figure that out, I can't really give you good guidance on it other than to say it's robust. It's just a matter of how much plus-plus.

Duke Austin:

I mean I think it's a couple of things ongoing. You have a storm year-over-year going on that's -- we're probably at $300 million versus $500-something million, $600-something million year-over-year. So you're down $200 million plus-plus, give or take, year-over-year as we have guided, which it does -- when you have those large storms in multiyears, it does give you some utilizations and things like that, which increases. That's one thing. The second thing is, as I've discussed earlier, when you're building people and you have 1,000 people per quarter you're training and you're putting out in the field, that against the supply chain disruptions doesn't allow you to be as efficient. And so you're having some disruption, but it's not -- to me, we're building out long-term relationships with clients, and we're not going to nickel and dime our clients against that growth. So yes, there is some pullback on that type of dynamic, but I do believe we're starting to see those things normalize as we move forward into next year.

Jamie Cook:

Nice quarter. I guess 2 questions. One, in the context of -- you guys like to talk about base earnings. If I look at your implied earnings in the back half of the year, like just the run rate, it's like $170 million a quarter, which implies -- you multiply that by 4, $680 million is a good base to think about. I'm just wondering if that's a good base to think about earnings, the base of earnings for 2023, just given the run rate off of the back half of the year and that it's -- you don't have a lot of big, large projects that are rolling off or anything. So that's my first question, just trying to frame 2023. My second question, Duke, on Blattner, just trying to understand where you are in terms of potentially diversifying the customer base and/or as you're aligning -- as you're talking to customers more, shifting that business model from a less of a CapEx one-off project to more of a -- your aligning with their sort of longer-term CapEx plans, where we are on that basis.

Jamie Cook:

But my math isn't totally off?

Jamie Cook:

Because I was a math major in college. So that's good.

Operator:

The next question is coming from Steven Fisher of UBS.

Duke Austin:

I can't give you exact timing. It's just we see it. It's there. It's coming. We're not going to pin ourselves down on exactly when, but I would say we see the significant growth throughout '23 as well as earlier. Some of the things that we're looking at now are earlier rather than later, but we also see things that are later as well. So I just think overall, when I said significant, we have significant projects, significant MSAs that are imminent for us in the first half of '23. So -- or the fourth quarter. I can't -- I'm not going to pin it down, but I can see it. I'm willing to say significant and talk about it, and that's not normal, obviously.

Duke Austin:

I see broad-based growth.

Duke Austin:

It's not about like the projects. It's not the LNTPs. It's not the verbal awards. It's not the awards. It's clarity against the IRA. And what does it say, what exactly does it mean on panels, that clarity needs to happen. And you have just a backlog of panel deliveries, things of that nature on the solar side that has caused some disruption. And I think when you look at that against the backdrop of the jobs, the market, it's -- we can't give you clarity until we have it. So we need the clarity on the IRA and what that means against our developers' backlogs. And that said, the work and the jobs and our ability to perform them are there. So we're just basically waiting to get those kind -- that kind of clarity long term. But once we get it, I do think I said it in the call, there's some backlog that didn't happen in '23 from '22 that will go in '23. And then the outsized demand in '23 will come in. And so I do think it -- you have some in the first half, but the back half will be robust into '24 and '25.

Michael Dudas:

Duke, you highlighted in your prepared remarks about some -- seems like good progress on the telecommunications side. Can you maybe elaborate, as we look into 2023, what are some of the puts and takes that you guys are seeing? Is the industry getting cadence and spending moving forward? And the targets that you put out generally, are they still appropriate for what we're looking at over the next couple of years to get that business to where you want it to be?

Michael Dudas:

And on the margin side and utilization?

Operator:

The next question is coming from Gus Richard of Northland.

Duke Austin:

I mean I think when you look at the gas market, LNG market across the globe, you see tremendous amount of demand, not only war driven, but in Europe and things like that. So I do believe you'll start to see some pipe to feed LNG. Also I think your carbon capture pipe will be there. That's certainly something that's new. Your hydrogen, there's a lot of money in the IRA against hydrogen, the development thereof. So that's there as well. It's still difficult to get permit, a piece of pipe. It just is. And the company has been in that many, many times. And I would say all that would be upside for us. We're thinking about it. We're on it. We're in front of it. Can I guide to it? No.

Duke Austin:

We saw some maintenance early in the year, a lot of replacements, things of that nature. I do believe that you'll start to see that same kind of sequence in the first half of next year. You'll see some maintenance and things of that nature start to happen. They're going to run them as long as they can in high markets, and they'll see a bunch of maintenance. But I do believe the view there is longer than people think. Your 20, 30 years of refining capacity that you still are going to have to think about. So I don't think it's short term in nature. I think it's longer term. And we will see the plants that are in existence run longer. That said, they'll take more maintenance.

Duke Austin:

Yes. I want to thank our men and women in the field, a couple of storms, tough environments, they performed really, really well, safety. And what they give for us every day, families -- being away from their families doesn't go unnoticed to us management team. I want to thank Jayshree for her first call, and I'm sure the stock is going through the roof. That said, I want to thank you for your participation. This concludes the call.

Operator:

Greetings, and welcome to the Quanta Services Second Quarter 2022 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kip Rupp, Vice President, Investor Relations. Thank you, Kip. You may begin.

Earl Austin:

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services Second Quarter 2022 Earnings Conference Call. On the call today, I will provide operational and strategic commentary, and we'll then turn it over to Derrick Jensen, who as Kip said, is making a current call appearance, filling in for Jayshree today. He will provide a review of our second quarter results and full year 2022 financial expectations. Following Derrick's comments, we welcome your questions. Our second quarter results continue our solid start to the year. with record quarterly revenues exceeding $4 billion for the first time in our history as well as record quarterly adjusted EBITDA and adjusted earnings per share. We also believe momentum is building for a continued profitable growth next year, and we continue to see opportunities for multiyear expansion across our service lines, driven by our collaborative solutions-based approach. The growth of programmatic spending with existing and new customers and favorable megatrends. We are negotiating several large master service agreement or MSA renewals with utilities. As significant levels of limited notices to proceed for projects across our segments, and we are actively pursuing numerous larger transmission projects. As a result, we believe there is opportunity to achieve record backlog levels again in the coming quarters. Our Electric Power Infrastructure Solutions segment performed well overall during the quarter, despite some supply chain challenges causing delays and resource utilization and efficiencies. The impact on our business has been relatively limited, and these challenges are not causing meaningful delays in our overall utility capital spending. We also believe these are shorter-term conditions that have resulted in mostly short-term delays in the timing of certain electric transmission work. and we continue to collaborate and partner with our customers to manage through these dynamics and work on potential mitigation solutions, which we believe will further enhance our relationships going forward. Demand for our services continue to be driven by broad-based business strength from utility grid modernization and system hardening initiatives as well as our reputation for solid and safe execution. Additionally, our communications operations continue to execute well from both a revenue and margin perspective and remain on track for improved performance this year. Overall, our electric power outlook remains strong, driven primarily by increasing service line opportunities and market share gains on our base business. Incrementally, we continue to actively pursue large utility programs that are designed to modernize the grid, support growing electric vehicle penetration and on other new technology adoption, and hardened systems to be more resilient to wildfire and severe weather events. To that end, in our earnings release this morning, we highlighted an MSA we secured in July to provide turnkey engineering construction and program management solutions in support of the deployment of a national electric vehicle direct current, fast charging network. This program brings together 1 of the largest auto manufacturers, North America's largest operator of travel centers and the nation's largest public fast charging network for electric vehicles. These companies are collaborating on a fast-charging network that is expected to include as many as 2,000 DC charging stalls at hundreds of travel locations across the United States. We expect to begin engineering work on this program this year, with construction expected to begin in 2023. This is just 1 example of several large electric vehicle charging deployment programs that we have been pursuing. Additionally, we believe the need to modernize and enhance the power grid to enable higher levels of load growth and continuous power demand caused by growing electric vehicle penetration will create significant opportunity for Quanta. Renewable developers and utilities are leading the effort to reduce carbon emissions, many with significant carbon reduction commitments through aggressive efforts to expand our renewable generation portfolios. Achieving their goals will also require substantial incremental investment in transmission and substation infrastructure to interconnect new renewable generation facilities to the power grid and to ensure grid reliability due to the significant increase of intermittent power added to the system. Over the near and longer term, we believe substantial load growth favorable public policy and overall positive sentiment supporting a greener environment will continue to drive North America's power generation mix, increasingly towards renewables. Our Renewable Energy Infrastructure Solutions segment performed well during the quarter and successfully managed through general supply chain challenges and solar project in disruption caused by the Department of Commerce's investigation into solar panel manufacturers in several Southeast Asian countries, the impact of which has since been mitigated through an executive order by President Biden. While the first 6 months of 2022 presented challenges to the renewable industry, we are on track and expect to build momentum through the rest of this year. Interestingly, due to the initial solar industry uncertainty and project delays caused by the Department of Commerce investigation, a number of renewable developers and utilities have them for projects in their wind portfolios to be built over the next several years. We believe this incremental wind activity could create a stacking effect in future years on top of existing industry expectations for accelerated solar and battery storage project investment. To that end, we are actively collaborating with existing and potential renewable generation customers on their multiyear programs with some discussions in planning extending out to 2026. Additionally, we are pursuing several large, high-voltage electric transmission projects designed to support renewable generation and overall system reliability. And these projects have made meaningful progress with permitting and approvals. We are the leading high-voltage electric transmission infrastructure solutions provider in North America and believe we are well positioned to be selected for these projects. As we have commented previously about both proposed and enacted federal infrastructure legislation, our positive month a year outlook is not dependent on them. However, we view the current climate related components of the proposed inflation reduction act as incremental positive for the renewable industry. We believe the passage of these provisions could accelerate renewable generation and related infrastructure investment over the coming years and provide Quanta with greater visibility into future opportunities for growth. We are particularly pleased with the performance of our underground utility and Infrastructure Solutions segment in the second quarter. Our industrial services operations continue to execute very well and experienced strong demand as capital spending resumes and pent-up activity from 2 years of deferred maintenance in this part. We also continue to experience solid demand for our gas utility and pipeline integrity operations, which are executing well and driven by regulated spend to modernize systems, reduce methane emissions, ensure environmental compliance and improved safety and reliability. Looking to the coming years. We also continue to see emerging opportunities for Quanta's, underground utility and infrastructure solutions operations to play an evolving and increasing role with customers as they move forward with strategies to reduce their carbon footprint and diversify their operations and assets towards greener business opportunities. Quanta is successfully executing on our strategic initiatives to drive operational excellence, total cost solutions for our clients, profitable growth for the and value for our stakeholders. Our strategic initiatives are designed to uniquely position us not only to capitalize on the mega trends of our end markets, but also enhance our customer relationships and market positioning. As a result, we are able to collaborate with our clients to execute their capital deployment plans, even during challenging conditions like the ones we face today for supply chain inflation, COVID-19, regulatory and economic uncertainties. These dynamics are not easy to navigate, but we expect to continue to successfully manage through them. We believe we have taken a prudent approach to our guidance for the remainder of the year to incorporate these factors. It is during these times that Quanta demonstrates its resilience which we believe shows the strength of our operations portfolio and platform of solutions. As I hope you gather from my remarks this morning, demand for our services is robust across our portfolio and driven by long-term visible and resilient megatrends. As a result of our solid first half financial results, greater visibility and continued overall favorable end-market drivers, we remain confident in our 2022 consolidated financial expectations. More importantly, as we look to the medium and long term, we are incrementally more positive as energy transition and carbon reduction initiatives accelerate. We believe the infrastructure investment and renewable generation necessary to support these initiatives are still in the early stages of deployment. We have profitably grown the company and executed well in the past and expect to continue to do so. We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best-in-class build leadership. We will pursue opportunities to enhance Quanta's base business and leadership position in the industry and provide innovative solutions to our customers. We believe Quanta's diversity, unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for our stakeholders. I will now turn the call over to Derrick Jensen for his review of our second quarter results and 2022 expectations. Derrick?

Operator:

[Operator Instructions]. Our first question comes from Jamie Cook with Credit Suisse.

Earl Austin:

Yes. Thank you, Jamie. I think when we look at supply chain, as we're building crew counts and things of that nature, there is some small impacts on mono material throughout the utility system. And it does create some inefficiencies with our crews especially when we're building. So those impacts, coupled with some inflationary pressures on consumables, it does pressure a bit. I do not think that's something that given the guidance, we took all that into account if it does levelize or if it does get better throughout the quarter by the end of the year, certainly, it will move upwards. It's utilization and the buildup for future years and working with the client in a collaborative manner, which is what the company has done in the past and we'll continue to do on a go-forward basis, all for really the outer years. And I think it's really important for us to make sure that we're building these crews while working with the client on these modern material issues throughout the system. So we don't really see the impact. It's not the solar we talked extensively about that last quarter and work through that and like I probably would. So really nothing there to speak of. So all in all, really good from our standpoint, macro markets are strong, not seeing large supply chain issues. And the ones that we are, I think it's opportunities for us to work with the client. And I'll just say a little bit on the margin, and I'll give it to Derrick. We've said all along that we view the company as a portfolio and that we get to double-digit EBITDA -- adjusted EBITDA margins and through the portfolio. And I think it's prevalent. It resonates. We continue to see the portfolio rise throughout. And it's really whether it's industrial, Canada or whatever, the whole portfolio continues to move forward and upward. But I'll let Derrick comment.

Operator:

Our next question is from Steven Fisher with UBS.

Earl Austin:

Yes. Thanks, Steve. The renewable backlog when we look at it and the amount of inbound calls, it's probably one of the most robust times that we've had at the company from that standpoint. I believe the backlog will build substantially throughout the year in the renewable segment. Timing, the LNTPs are really more so when you say limited notice to proceed, we did not put those in backlog. And as that becomes contract, then we'll put them in. I just -- the amount of LNTPs to contract that time has elongated a bit through the cycle, just primarily around the solar impact as well as some of the land portfolio moving up. I just -- we see that growing throughout the year, timing of which it could be the fourth quarter, it could be the third quarter, maybe early next year. But again, we reiterated where we think the segment, where we thought flatting would be and continue to be more confident about where that renewable segment is going today than I've ever been.

Steven Fisher:

Okay. Just a follow-up. Can you give us a sense of the size of that EV charging MSA? And I think you have -- you mentioned a bunch of other MSAs you have in the works. How many of those are completely new types of arrangements versus renewables -- renewals of what you already have?

Operator:

Our next question is from Chad Dillard with Bernstein.

Earl Austin:

I don't think the issue is systemic. I don't think it's elongated. We're building crews. Normally, the company runs right through it. We did increase headcount around 1,000 in the quarter. it does create some pressure, the material -- mono-material delays with that with some inflationary pressure on consumables altogether. Look, it does impact still a little bit. I do not think it's we're going to work with our clients long term. We're a company that really collaborates. So I don't see us getting any recovery on it. We'll work through it. It will be a long term for us over the next 10 years. The gains today for the next -- the future. So in my mind, a little bit of margin pressure, not bad. We'll work through it. I'm not also when we look outward against what we've seen in the past, if you think about storm, our guidance is like $100-plus million and last year, we did $400 million in the last 2 quarters. So we're not baking any of that in. It will depend on utilization and we get prudent guidance, and I believe there's upside potential to the backside given where we sit, if we get supply chain coming through or any kind of major storm event.

Earl Austin:

I think the business itself, we continue to be pleased with what we said. We're making good progress on synergies. We constantly are in contact with our clients about both in solar, not only on utilities or developers, but also our UI segment. All of our customers are really looking towards the carbon-free footprint. And when we think through it, we thought that we could sit at the tip of the sphere on energy transition, we think we're at the tip of the sphere on energy transition with Blattner and certainly believe that every bit today as we did before and we're proving it out every day.

Justin Hauke:

Derrick, I guess last time we'll talk this way on these calls. But I guess I had a question on the guidance with the upside from the JV contribution from LUMA, I guess it implies the base segment margins are a little bit lower, but I was more interested in kind of where the upside is coming from that. I know there was opportunity for earnouts and some additional project pickup. So I guess I'm wondering if it's from that or is this the base contract expanded and there still is more opportunity from those other items?

Earl Austin:

I do think we're seeing some fame funding coming through now on the island. And I do think there'll be opportunities for us in 2023 to actually perform some construction that's outside the contract.

Justin Hauke:

Okay. And I guess my second question is just going back to Blattner again. So the revenue contribution for the segment at least from M&A, $490 million, that's kind of comparable to what it was in 1Q. I guess we would have thought there would have been maybe a little bit more tick up. You guys have been pretty upfront about the challenges from the tariffs on the renewables business here in the first half. But I'm just curious with your outlook for that business, are you still thinking $2.5 billion of revenue contribution? Or is that a little bit different this year than maybe what was originally claimed?

Operator:

Our next question is from Noelle Dilts with Stifel.

Earl Austin:

Thanks, Noelle. The costs certainly have increased, but typically, we're able to work through those, do scale through collaborating with the client. We are building crews. And I do think the build is really what's causing most of our issues as well as the inefficiencies of the supply chain. It's not necessarily the fuel or the inflation. We can usually work through those kind of pressures and have -- we work with the client on that. And I do think it's just the culmination of all 3 kind of in a quarter, you see a little bit of pressure. Actually, internally, we're on kind of where we thought we would be from a margin standpoint. If the guide going forward that we've prudent on and I believe in my mind, special the overall segment margin is not where we sit in the first 6 months. Can we operate through that in the latter half? Maybe. We certainly take a prudent approach to guidance. We thought we should at least acknowledge that there is some pressure, but we're not seeing the pressure that -- and we're not going to talk about fuel and crew counts and those things on a daily basis. We can work through those through on the way that we get cost recovery as well as get more efficient as a company in scale.

Earl Austin:

No, I think when you look at the company, that's our core, is across scale labor and our ability to work with unions as well as all of our trade associations, I think, are really important. And the way that we set our apology is the way that we've done our training for the last 6, 7 years, the amount that we put into this in my mind, we're really helping and collaborating with the client and talking through any kind of escalations in the future. We've worked really nicely to collaborate on these things, even the inflationary bill that has some of the language in it. We've worked through all that. So we sit in a really good position there and all, and I think we've got those cover going forward.

Michael Dudas:

Duke, can you maybe share some thoughts on the opportunities that you're seeing? I'm sure they're quite broad on the high-voltage transmission projects, the larger ones. And given your -- where your base businesses, how selective do you plan on being? What kind of room do you think you have on the EP side for those types of projects? And then even on the pipeline side, there's been quite a bit of news lately from Washington about certain pipelines and certain opportunities and changing some regulatory aspects. You just share your appetite on both sides has it changed much in the last 6, 12 months? Or given the cash flow issues at a you may be seeing out of Canada, how selective you might be given the base business seems to be doing quite well?

Operator:

Our next question is from Adam Thalhimer with Thompson, Davis.

Earl Austin:

They're all different, but I would say we typically have some escalations, labor escalations for sure, which is typically around 60%, 70% of the project. So normally, that's in there and some of the consumables would be in there, again, feels about 2% of cost. And so it's really the buildup, your training, all the things that are necessary to put new people in the field, which we've done a nice job through the colleges and the pre-apprentices. But that, coupled with some of the inflationary pressures, certainly in the quarter, I would say we just took a prudent approach in the future on guidance. We're really on target the way I see it for the quarter.

Earl Austin:

I think it's both. But what I would tell you is it's 100x more meaningful on the back side than it is on the station itself or the bay itself. And the reason is the load is at really at the distribution level, particularly. And so as that happens, to get the low to the distribution level is substantial, both in -- from a generation standpoint through the sub down through into the distribution side of the business. It's like big -- I don't know I'll explain a big pipe going into a little fiat doesn't have any room. So you need bigger pipe all the way through. So in my mind, it's just a lot on the system that needs to be modernized, and we're in the early stages of starting that distribution bill across North America.

Alexander Rygiel:

You've been through many different economic cycles. Can you talk to us a little bit about your experiences at the beginning or an inflection point of an economic cycle? And how many we might want to think about sort of the next 12 to 18 months as to how that kind of might impact your core electrical power business?

Alexander Rygiel:

And then sorry if I missed this, but what is your backlog within the Telecom segment? And what is this backlog telling you about organic growth kind of on a go-forward 12-month basis? Is it accelerating? Can we see double-digit organic growth out of that segment?