Q2 2020 Quanta Services Inc Earnings Call
Greetings welcome to Quanta Services' second quarter 2020 earnings conference call.
At this time, all participants are in listen only mode.
A brief question answer session will follow the formal presentation.
If anyone should the core operate assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
So I'll turn the conference over to Kip Rupp, Vice President Investor Relations Mr. up you may now begin.
Great. Thank you and welcome everyone to the Quanta Services' second quarter 2020 earnings Conference call. This morning, we issued a press release announcing our second quarter results, which can be found in the Investor Relations section of our web site at Quanta services Dot com, along with a summary of our 2020 outlook and commentary that we will discuss this morning addition.
Lastly, we use a slide presentation. This morning to accompany our prepared remarks, which is Guild war through the Paul's webcast and is also available on the Investor Relations section of the Quanta services Web site. Please.
Please remember the information reported on this call speaks only as of today August six 2020, and therefore, you're advised at any time sensitive information may no longer be accurate as if 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 at night.
95.
These include all statements, reflecting quantities expectations intentions assumptions or beliefs about future events or performance that did not solely relate to historical or current facts.
Forward looking statements involve certain risks uncertainties and assumptions that are difficult to predict or beyond quantus control and actual results may differ materially from those expressed or implied.
For additional information concerning some of these risks uncertainties assumptions. Please refer to the cautionary language included in today's press release, along with the company's periodic reports and other documents filed with Securities Exchange Commission, which are available on quanta is where the Fccs web site.
Should not place undue reliance on forward looking statements in quantity does not undertake any obligation to update such statements and disclaims any written or oral statements made by any third party regarding this subject matter of this call.
Please also note that we will present certain historical and forecasted non-GAAP financial measures in today's call, including adjusted diluted EPS backlog EBITDA and free cash flow reconciliations of these measures to their most directly comparable GAAP financial measures are included in our earnings release Lastly, if you would likely be notified when kwan.
Publishes news releases and other information please sign up for email alerts through the Investor Relations section of Quanta services Dotcom, we also encourage investors and others interest in our Comping Apollo Quanta, IR and Quanta services on the social media channels listed on our website.
With that I would like to now turn call over to Mr. do Boston quite as President and CEO did.
Thanks, Good good morning, everyone welcome to Quanta Services' second quarter 2020 earnings conference call on the call today, I will provide operational and strategic commentary and will then turn it over to Derrick Jensen honest Chief Financial Officer, who will provide a review of our second quarter results and full year 2020 financial expectations.
Following doug's comments, we welcome your questions.
This morning, we reported solid second quarter results, our electric power margins were exceptional due to broad base execution.
Pipeline in industrial segment margins adjusted EBITDA and earnings per share, we're all better than we expected.
We continue to see opportunity record backlog and earnings as evidenced by the signing of women energy contract.
Cash flow is robust and we ended the quarter with a strong balance sheet and ample liquidity all of which we believe demonstrates the resiliency of our business and the operational excellence about people during extraordinary economic and operating conditions.
We believe our resilient business model and strong financial position provides us the opportunity to not only navigate through tough times of uncertainty, but to emerge better position.
Our pandemic health and safety procedures in the field, a mature and we have reliable access to personal protective equipment for our crews.
We continue to actively communicate with our customers and believe we have adopted effectively to the unprecedented economic environment caused by covered 19.
We recognize the strain that the pandemic is placing on our country and I again want to recognize and thank our incredible employees for all their hard work and let our customers know we value our collaborative relationships with them.
Our electric power operations performed well in the second quarter with solid profitability driven by our focus on cost management and operational excellence.
Demand for electric power services remains strong with utilities actively deploying capital into their systems to modernize harden expand and adapt to current and future needs.
We are actively performing infrastructure work related to renewables and are seeing incremental opportunity driven by renewable power generation associated with onshore and offshore wind and solar development, including Substations transmission Interconnects and battery projects.
These renewable energy developments are enabled by backbone transmission.
Which are also providing larger transmission project opportunities, which we are well positioned for.
In June we announced that the Alema energy.
Joint venture between <unk> and Canadian Utilities limited an ACO company was selected by the Puerto Rico Public private partnership authority, where a 15 year operation and maintenance agreement with the Puerto Rico Electric power Authority.
Or <unk> to operate maintain and modernize crop is more than 18000 mile electric transmission and distribution system in Puerto Rico.
Women's efforts under the agreement are intended to deliver long term, social and economic benefits to the people of Puerto Rico.
We believe this opportunity is transformative for quanta and supports our ongoing strategy of providing sophisticated and valuable solutions to the utility industry that benefit consumers.
Following a transition period, which is expected to last approximately one year. This arrangement is anticipated to provide a visible repeatable and sustainable long term earnings and cash flow stream to quantify with upside opportunity, while requiring no additional capital investment from quanta or limit.
Further we believe there is opportunity for quanta to compete for electric power and communications work and Puerto Rico associated with its electric TNT system modernization efforts that are separate from quantities ownership interest and limit.
Puerto Rico Electric DSD system is a critical and at a critical juncture after the destruction caused by Hurricanes Maria and Irma.
As a result, the government of Puerto Rico has embarked on a plan to rebuild modernize pardon enable a green power grid. The majority of which is expected to be funded by U.S. federal disaster relief agencies and managed by limit.
The P. three authority in Puerto Rico estimates that more than $18 billion of electric TNT capital investment could be required through 2028, but this initiative.
Our communications infrastructure services operation, which are included in our electric power segment continued to perform well, we see ample opportunities for growth in the near and longer term driven by strong demand for fiber justification to reach homes and businesses and the early stages of Fiveg deployments.
And our press release. This morning, we highlighted our recent acquisition of the Chicago based company that is a leader in providing engineering design permitting and utility locating services to electric utilities gas utilities and communication services companies across the United States.
This acquisition meaningfully enhances quanis proven engineering and programmatic delivery capabilities in our core utility markets.
Additionally, engineering complexity is greater for Fiveg deployments as compared to previous wireless technologies, and we believe the increase communications engineering and design capabilities. This acquisition brings will allow us to capture and execute on more fiber and fiveg deployments.
Our Latin American operations, which we are exiting.
I've been hardest hit back over 19.
As a result during the quarter, we accelerated our efforts to exit the Latin American region, which included terminating various contracts.
These factors resulted and in a greater than expected loss in the quarter, while uncertainties and challenges remain we believe the most significant risk of ceasing our lat am operations have been addressed by our actions and continue to believe our exit will largely be complete by the year end.
Turning to our pipeline in industrial segment.
As we anticipated portions of this segment experienced significant disruptions due to the pandemic and the second quarter.
However segment profitability was better than expected due to a rapid adjustment of resources to changing market conditions.
The effective cost management and operational excellence.
Early in the quarter, our gas utility our operations were shut down and several metro market as shelter in place orders and work restrictions were implemented.
Those restrictions began began to live and our activity and utilization rates recover better than expected through the balance of the quarter.
As a result, our full year profit expectations for our gas utility operation remains largely unchanged, despite or an expectation that some customers work is now likely to ship into 2021.
Utilities remain in the early stages, a multi decade modernization programs to replace aging gas distribution infrastructure in order to meet regulatory requirements aimed at improving reliability and safety.
And expect an improved environment next year.
Demand for our pipeline integrity services remained solid during the quarter and did not experience meaningful impact from cobot 19.
Regulatory requirements continue to encourage our customers to test inspection repair for maintenance and replace pipeline infrastructure to ensure the safe reliable and environmentally friendly delivery of energy.
Further permitting challenges for building new pipelines make existing pipeline infrastructure more valuable increasing pipeline owners desire to extend the useful life of existing pipeline assets through integrity initiatives.
Due to these dynamics, we expect demand for our pipeline integrity services will continue to grow.
Our industrial services offering is diverse.
Which benefited us during a challenging quarter demand for our countless services and tank maintenance remains solid in the quarter. However, due to the negative influence of cobot 19 on the demand for refined products.
Customers restricted onsite activity.
For our our other services and deferred maintenance in certain turnaround in capital projects to later this year or 2021.
Because this work is necessary for the operation of these facilities. We are confident the delayed work return and the future as economic and market conditions improve.
Thus far our industrial operations are performing consistent with our expectations and we continue to believe there is opportunity for stability during the balance of the year and improvement in 2021.
For the remainder of the segment portions of our midstream ancillary services operations experienced experienced softness in the quarter as expected.
However, these operations did a good job managing costs to the market environment.
And finally larger pipeline projects continue to face permitting challenges the Atlantic Coast pipeline for example.
Our larger pipeline project activity. This year is not significant.
However, we continue to pursue opportunities for 2020, m. beyond that would be at additive to the segment and our outlook.
For the last several years, we've been focused on increasing gaining scale in the base business at the segment and diversifying the services and geographies of the segment to create a more sustainable and consistent operation to that end. The three primary service lines, we have been focused on our gas utility services.
Pipeline integrity services, and industrial services, which account for more than 70% of the segment estimated 2020 revenues.
Other based business revenues are estimated to account for nearly 90% of the segment revenues this year.
Going forward, we expect to continue our focus on growing the base gas utility pipeline integrity and industrial services business consistent with our strategy over the last five years and.
And continue to believe a post cobot operating environment will offer opportunity for increased margins and returns for the overall segment.
We have increased our financial expert expectations for the year and taking a prudent approach to our outlook.
Additionally, we continue to pursue opportunities in the marketplace theyre not incorporated into our expectations and remain positive and confident about quantus multiyear growth opportunities.
Over the past five years, we have executed on our strategy and remain dedicated to growing and enhancing our portfolio of services.
But strengthens our ability to capture more of our customers large programmatic spending programs.
These efforts are designed to mitigate risk inherent in our business and prepare for unexpected events through diversification and by maintaining a strong financial profile.
We believe quanta has a long runway ahead of us for generating repeatable and sustainable earnings as we execute on our strategic initiatives.
Considering our organic growth opportunities and the levers available to us to allocate future cash flow generation and to value, creating opportunities such as stock repurchases acquisitions and strategic investments in dividends. We believe quanta has the opportunity to generate meaningful stockholder value overtime.
To that end this year, we have repurchased $200 million of our common stock and this morning, we announced the corners Board of directors has authorized the company to repurchase up to $500 million and stairs of its outstanding common stock.
Through June 30, 2023 under a new stock repurchase program.
I would also note that over the past six years, we have repurchased approximately $2.4 billion of common stock, which equates to the retirement of more than 40% of the shares outstanding at the start of those repurchases.
We believe these actions demonstrate our confidence in quanta and our commitment to generating value for our stockholders.
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 Bill leadership.
We will pursue opportunities to enhance quantus base business and leadership position in the industry and provide innovative solutions to our customers.
We believe Quantus diversity unique operating model, an 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 Derrick Jensen, our CFO for his review of our second quarter results in 2020 expectations there.
Thanks, Duke and good morning, everyone.
Today, we announced second quarter 2020 revenues of $2.5 billion net income attributable to common stock was $74 million or 52 cents per diluted share and adjusted diluted earnings per share a non-GAAP measure was 74 cents.
As expected our results for the second quarter were affected by the unprecedented economic environment caused by the cobot 19, pandemic and as compounding impact on the challenging energy market.
We experienced significant challenges in certain of our operations that were disrupted by stay at home orders or Jobsite access restrictions as well as customers pulling back capital deployment amidst all the uncertainty.
However, we were able to successfully execute across the majority of our operations and deliver results that exceeded our estimates.
Our electric power revenues, excluding Latin America, or $1.8 billion at 2% increase when compared to the second quarter of 2019.
This increase was primarily driven by continued growth from our communications operations, which are included within the electric power segment, delivering a 50% increase compared to the second quarter of 2019.
Revenues from our electric operations were in line with 2019 levels, a meaningful accomplishment given the covert 19 related disruptions and reduced levels of West coast fire hardening activities, which we still expect will accelerate in the second half of 2020.
Electric segment margins in Twoq, you, 20, or 10.3% and excluding our Latin American operations segment margins improved 130 basis points to 11.1% versus 9.8% into Q 19.
The operating margins reflect strong execution across our operations and improved performance from our Canadian operation due to increased revenue levels and asset utilization.
In addition communications margins continue to improve both against last year and sequentially. Despite the cobot related headwinds.
As David mentioned, we continue to take actions to expedite the wind down an exit of our Latin American operations.
The challenges in Latin America have been exacerbated by stringent cobot 19 stay at home orders across the region, but particularly in Peru, which is our largest operation.
This exceedingly uncertain environment caused us to purposely accelerate early termination the various contracts to prudently aboard increasing losses due to the lack of customer activity.
Additionally, certain MSP contracts had incurred costs to support their multiyear operations that upon contract termination, we're no longer recoverable.
Of note. We currently receive no tax benefit for losses in Latin America, So the $15 million and losses impacted the quarter by approximately 11 cents eight cents more than we anticipated.
We expected most of the negative impacts from covert 19, and the challenging energy market to be experienced by our pipeline and industrial segment and that proved to be the case.
Revenues for the segment were $713 million, 35% lower than Twoq to 19.
In addition revenues were also lower compared to last year due to the reduction in contributions from larger pipeline projects.
Partially offsetting these declines were increased levels of gas distribution revenues, including approximately $55 million from acquired companies.
We expected to these headwinds would challenge PNR segment profitability potentially resulting in a loss for the second quarter.
However, we successfully operated through the challenging conditions and deliberate segment margins of 3% lower than QQ 19, but a significant accomplishment given the circumstances based across the segment.
This performance was led by solid execution across our base business activities and proactive cost management activities in the field for those operations with significant revenue headwinds.
Our total backlog was $13.9 billion at the end of the second quarter, approximately $1.2 billion or 9% higher than Twoq you 19.
12 month backlog of $7.7 billion as a slight increase from both the second quarter of 2019, and the first quarter of 2020.
Total backlog decreased from the first quarter largely due to the removal of the remaining portion of our expected revenues associated with the Atlantic Coast pipeline project.
Subsequent to June 32020 project owners Dominion Energy, Inc., and Duke Energy Corporation announced their intention to forego completion of the pipeline.
Although the joint venture in which Quanta is participating has not received a notice of termination based on the announcement. We have concluded that the revenues related to the original remaining performance obligation associated with the contract are no longer probable and therefore are excluded from remaining performance obligations and backlog as of June 32020.
As Dick mentioned, we continue to have robust conversations with our customers on multiyear spend programs extensions of existing multiyear arrangements and new larger project opportunities in both the electric and Pmnine sector.
We expect that has challenges associated with customer engagement normalize those discussions will finalize and drive the opportunity for record backlog.
More importantly, Dick mentioned, the second quarter announcement of our Luma energy joint venture to operate maintain and modernize Puerto Rico's electric transmission and distribution grid over the next 15 years.
While this doesnt show up in backlog to the extent that we successfully moved through the transition phase to commencement.
Our expected portion of Lumos award would represent the largest cumulative contract value ever awarded to quantify.
If you assume our historical electric segment margin profile of 10%. The 15 year award would imply a backlog equivalent of over $6 billion.
It is important to appreciate what this ward award represents as are predictable sustainable contribution to our future earnings and cash flows as well as the potential opportunities that can arise as limit successfully execute against this award.
For the second quarter of 2020, we generated free cash flow, a non-GAAP measure a $457 million.
Our strong cash flow into Q2 thousand was partly attributable to reduced levels of working capital requirements, resulting from the sequential quarterly decline in revenues.
Cash flow levels were also positively impacted by a reduction and day sales outstanding our DSO, which measured 82 days for the second quarter.
A decrease of nine days compared to the second quarter of 2019, and a sequential decline of three days compared to one Q 20.
The DSO in Twoq 2000 is more in line with our historical average as compared to DSL last year, which were impacted by higher retain as balances due to project timing as well as billing process changes for certain customers that press for Dsos throughout 2019.
We also benefited from the deferral of $89 million of tax payments permitted by the cares Act $58 million of which was paid in July and the remainder do an equal amount at the end of 21 and 22.
We had $530 million of cash at the end of the quarter.
As of June 32020, we had total liquidity of approximately $2.1 billion and a debt to EBITDA ratio as calculated under our senior secured credit agreement of approximately 1.3 times slightly below our preferred range of 1.5 to two times.
Turning to our guidance similar to what we found ourselves last quarter, we are still dealing with some level of uncertainty as we assess the near term prospects of our operation, particularly those that are susceptible to local stay at home orders operate and in closed facilities or depend upon project teams, having access to local permitting offices as well.
Over 19 cases continued to spread we've approached our guidance with our typical prudent and a cost this expectation what for what the remainder of the year will deliver.
Our full year revenue expectations for the electric power segment are unchanged expecting to range between 7.5 billion a $7.7 billion.
However, we are increasing full year operating margin expectation to between 9.39, 0.6% with Latin America, contributing operating losses of $40 million to $45 million.
Thanks, Excluding Latin America losses margins are now expected to be around 10%, which reflects continued successful project execution plus the incremental impact of the lumen joint venture.
The limit joint venture is accounted for as an equity method investment and therefore will not contribute to revenues. However, we are including our equity in earnings of Luminant within operating income since luma is operationally integral to our operations under accounting guidance as compared to most of our other equity investments that are more passive in nature.
No as results are presented after tax and are anticipated to positively contribute to operating income in 2020 by approximately $10 million or six to seven cents per share.
We also anticipate Lumens earnings could be accretive to diluted earnings per share attributable to common stock by approximately 25 cents annually. After the approximately one year transition period with upside opportunity from performance based incentives.
The PXI segment continues to be impacted by covert 19, and the challenge energy market conditions and accordingly, we are reducing our full year revenue expectations to range between 3.5 and $3.7 billion.
Customers have continued to evaluate this environment and have reduced spend expectations for certain smaller capital projects and gas distribution activities.
In addition, certain larger pipeline project opportunities have been delayed and we now expect they will contribute more meaningfully to 2021 results.
We have increased our full year operating margin guidance for the Pmnine segment, which is now expected to range between 4.75 and 5.25%.
Of note with regard to the cancellation of HCP, we have yet to receive a formal termination notice and we are working with the customers to determine how the project will close out.
Although we believe potential upside associated with termination fees and other contract accounting exists. The final contract closed that will not be determined until the timing a project wind down is known any close out scopes of work are defined by CP, and then agreed and allocated by the joint venture to quantify.
Relative to seasonality for both the electric and PNR segments, and our current environment, we do not expect significant variability in revenue or operating margins across the third and fourth quarters.
As noted in our earnings release. This morning, we have increased our full year earnings per share expectation and now expect GAAP diluted earnings per share of between $2.33 and $2.64 and adjusted diluted earnings per share a non-GAAP measure of between $3 in 18 cents and $3.48.
These earnings per share expectations include a loss per share of between 28 cents and 31 cents from our Latin American operation.
Turning to cash flow, we're raising our free cash flow guidance for the year to range between 600 $800 million.
The counter cyclical nature of our cash flow was further validated by the strong cash flow for the first half of the year with aggregate trailing 12 month free cash flow of $1.2 billion.
However, we expect a ramp of revenues in the third quarter, two increased working capital requirements and drive cash outflows for the quarter followed by a recovery in the fourth quarter as is typically the case.
While we have experiment and while we've experienced minimal payment delays related to covert 19 through the second quarter, we remain cautious about the third and fourth quarters and have raised our DSO expectations through the rest of the year to account for capital preservation actions that may be taken by certain portions of our customer base, if economic conditions deteriorate.
I'll close my guidance commentary reiterating the challenge that the combination of Coburn 19, and the volatile energy market conditions present for our near term outlook.
Excluding our Latin America operations, we continue to estimate that at least 70% of the change in our 2020 expectations from the beginning of the year can be attributed to covert 19 related disruptions with the remaining 30% largely associated with the residual effects that low oil prices have in our pipeline and industrial customers capital but.
Yes.
Overall, we're pleased with the resilient second quarter performance and are excited about the long term prospects of our business, particularly what the luma opportunity with Puerto Rico represents for Quantus future and for the people of Puerto Rico.
We continue to maintain a strong balance sheet with the flexibility to pursue opportunistic deployment of capital for M&A and investments as well as returns of capital.
Our efforts to return capital to stockholders are further enhanced by the new 500 million dollar share repurchase authorization, which coupled with the $87 million remaining under our previous program represents $587 million of aggregate authorizations.
We believe the long term repeatable sustainable nature of the majority of our earnings streams provides stability to all of our stakeholders and ensures we have the foundation to deliver long term shareholder value.
This concludes our formal presentation and we'll now open the line for Q an operator.
Thank you at this time will be conducting a question and answer session.
If you like to ask a question today. Please press star one on your telephone keypad and the confirmation total indicate your line is in the question Q.
You mean first start to if you like to remove your question from the Q.
Just considering seeker equipment, and maybe necessary to pick after handset before pressing the star Keith.
So that we may address questions from as many participants as possible. We ask you limit yourself to one question and one follow up.
If you have additional questions you may recall and time permitting those questions will be addressed one moment. Please what we pull for questions.
Thank you.
Our first question comes from the line of Noelle Dilts with Stifel. Please proceed with your question.
Hi, guys. Good morning, and congratulations on good performance in a tough environment.
Good morning, Thank you.
Morning, So just.
Given a lot of what's going on in 2020 Cove Ed.
Blends associated with Latin America.
I was hoping you could just kind of give us some thoughts on how you're starting to think about 21 and getting out to what extent some that these headwinds, particularly on the oil side oil related side of the business, how you're thinking about whether to the degree to which they will or won't continue into next year.
If you could just give us some sort of initial thoughts on how you're thinking about 21 that would be helpful.
Yes, Thanks, No I think when we talked about Latin America early on we talked about.
Exiting this year, we're doing that in a prudent manner, we're trying to get that behind us cobot certainly came in.
Cost rose, we did some things with contracts to exit earlier, so I do think that the majority of that we'll be out and weve guided for that in 2020 as we look forward.
We've talked about the base business being robust being able to grow it were largely intact on the electric segment throughout the year, even pretty cobot. So.
Our strategy is working on the PNR outside.
We saw the lights, which affect some cities down after that were largely intact everybody's back to work for the most part we do have some shift where we're a customer interface thing with utility. So we're going in People's homes that work has somewhat shift to next year and beyond so thats, a little bit a drag on there and some Canadian Tonight.
And were pushed out into next year, but all in all 90%. The based work Baseload work, obviously, we added Puerto Rico, which I believe this transformational for the company in a lots of opportunity there and the 2021. So in my mind that company has gotten stronger through this our industrial segment.
You can't you don't know where the economy is going to go so the demand on the industrial segment is certainly their long term, but it'll be predicated around the economy and we'll we'll continue to evaluate that but sometimes in these these areas of lows.
We're able to gain market share and we have a really good management team down there I really like our chances to gain market share come out this way stronger on the other side.
Okay. That's that's helpful. Thank you and then just given the $500 million stock repurchase.
Authorization announcement and the acquisition in the quarter could you just kind of give us some thoughts on how you're thinking about the prioritization of capital deployment, given where your stock is trading today and then what I would think might be some opportunities too.
Maybe potentially some attractive opportunities to pick up players that may be struggling a little bit more India downturn. Thanks.
You know we've never been a company to acquire companies are struggling so I think when we look at it we buy ins and the strength into into our strategy. Our strategy has not changed over the last five years and the way we've deployed capital everything's against our our stock price and our strategy. So when we look at things when.
Looking at companies there its strength to our region to a strategy.
Chicago Company that we bought this will allow us to get on the front end of programmatic spends are ongoing within our service lines as we expand so that was very strategic to us we like the company. It's an old historic company that will give us a lot of flexibility on the programmatic spend.
That being said everything is valued against our stock price.
We continue to believe our earning streams and our earnings power is much greater than its value today, it's more consistent more resilient and we'll continue to lean into it and drive EPS growth.
Okay.
Thank you.
Our next question comes from the line of Michael Dudas with vertical research. So just with your question.
Yes, good morning, everyone.
Good morning, good morning.
Do you know as as you can best with your relations with your electric power customers and gas power customers.
As things get to normalize our.
There are there any thoughts of acceleration in certain parts of the Capex spend that's anticipated that's going to be in your sweet spot.
Relative to what you would they are you would have thought say 12 months ago.
As.
Some of the demand load factors and certainly coal plant closure and shutdowns and renewable drivers could certainly maybe impact some of that program expanding Aleppo.
Yes, I think when we when we talked about it the first part of the year and even beyond that youre seeing multiyear attendees spends on capex.
On a go forward basis, that's still there's still prevalent we're working with our customers and collaborating with them. When you start putting these electric vehicles that in order to enable that you have to have a very modern grid and so the modernization there other than the capex that it takes to get there is something that's ongoing on it on a distribution side of the business both gas and electric.
For stability.
As as you see more renewables.
The interconnections that are required in the amount of transmission and the redundancy within the grid. That's why you're seeing most of our clients have both renewable expansion on the generation side as well as your transmission expansion on the other side. So really in my mind, whether its renewables that we're in a.
Billing or just the stability of the grid for electric vehicles, either way, it's necessary to invest in for a long period of time people are talking about 2050 to be carbon free and things of that nature in order to do that the amount of transmission and distribution expenditures to this grid is exponential of what you.
See today, just to give you the flexibility to enable the able as enhancements.
That's very helpful and my follow up would be.
With with the success of your Puerto Rican joint venture or the the goods securing it and assuming going forward it will be successful.
Is that model able to be replicated elsewhere in the USA internationally of that could continue enhance that kind of that.
Earnings sustainable earnings flow on top of your normal base business going forward is that something you can see the next 12 18 or 24 months.
I think it with unique opportunity in Puerto Rico to collaborate with a great customer the code that we have a great relationship with and both the their strengths in our strength came together along with the I am our partner there.
It will allow us so unique opportunity in my mind, what we're able to do there is.
Strengthen the people of the island it's.
For me its is social thing because I think at the end of this we're going to modernize the grid, we're going to stabilize in the economy and people are going to benefit I mean like throughout every day there for a period of time.
And for Us.
And if we when we get through this I think we'll be able to look back and it will be so meaningful to quanta us.
ACO and also the whole industry of what we've done on Puerto Rico I know, we can do it we don't talk about things, we actually go out there and build things so it'll be unique and the opportunities on the other side of that is the FEMA money, that's coming in which is $18 billion or call. It 10 call. It 12, whatever it is meaningful on the other side of the.
Contract that I think we'll have an opportunity.
Like our chances on on work because we do it cost certain we do things right and economically for that for the consumer so as that as you see that's a huge expansion for us Theres other islands, there's other ways that we can participate.
And collaborate with a customer we're doing this all the time at different on different ways to enable technology to enable E. B to enable a grid that sustainable under renewables and things of that nature. So were around the edges. All the time of what you hear about I was sitting in a call the other.
Okay, and there were talking all the things on technology in order to get there everything that we're doing everything as a company that we're doing we're enabling all those things to happen. So in my mind, there will be all kinds of opportunities for us and we have a really nice base to grow off of.
Well well said do thanks very much.
Our next questions from the line of Steven Fisher with CBS. Please proceed with your question.
Thanks, Good morning.
Hi, good on the call over late so I'm not sure. If you addressed this or not so apologize, but wondering if you could talk about the strength in the margins in the electric segment, how much of that was something from the electric side.
Versus the communication side and to what extent.
If you're seeing.
Notable pickup in communication side, you think we're at an inflection point there on that business really kind of ramping up over the next handful of quarters.
Yes, thanks to the margins were impressive the guys in the field it really operating well under under extreme conditions.
I've said this before and I want to make sure I'll say it said again, the larger side of the business.
Operating double digits overtime, and we'll continue to say that we operate in 11. We've operated nine will operate in 12 at times and so I would just in my mind, we always think around double digit stats. That's the way to think about the electric segment. They did what we did have a nice quarter and I think we're setting up for.
Our nice year here. The telecom is certainly a part of this and we are making incremental progress there. The opportunities are out there. There are large we continue to build office build strength on we added some engineering capabilities in the quarter, which will only help us as we PC and we do work in cities in Metro pellet Metroplexes.
That was extremely important for us to to get the engineering in the front end ride on those things are not we've done that through an acquisition.
So I am proud of what we're out Im proud of what we said I will only get better as we move forward and telecom.
Okay.
And then if you could just talk a little bit about what's happening at.
Strong all of them the downstream side to talk about the flow of opportunities you're seeing there.
And how you think of that business position.
Slide of sort of the more challenging downstream conditions is the business right size.
For what you see going forward.
We have a great industrial business both on the both on the high voltage side as well as a strong O'connell aside that really is it gives us a good base to grow off of the management teams stronghold as well as our management team on the electric side their exceptional they'll take advantage these opportunities as we see them.
We certainly rightsize the business the June a aspects of it.
We had a record quarter in the first quarter and obviously fell off in the second but again, we're still profitable we're still doing well out there and I think will only come out the other side stronger.
Okay. Thank you.
Yes.
Our next question comes from the line of Jamie Cook with Credit Suisse. Please proceed with your question.
Hi, good morning, and nice quarter.
Yes, just to follow a couple of quick follow ups. One I'm also pipelining industrial margins were pretty good in the quarter just considering the revenue declines that you saw so maybe you can talk to you.
In that you're seeing there that's sort of an and structural improvement in margin now whether it's fair to assume margins continue to improve at a nice pace as we exit year into 2021, and then my follow up question and sort of on.
No what Noel ask a little more specifically Derek I think I asked you this last quarter, but it can take a basic 2020 add back now lot and you know you adjust for any Kobe disruption consider your share repurchase and now we have Puerto Rico.
Why $4 a reasonable number to think about Brooklyn, 21 on an adjusted basis.
Good morning, Jamie I would say in general that we've made incremental progress on the on the pipeline side pretty covert.
We were seven plus percent guidance.
On an early on and I think that progress is still there we've done the things right strategically to position the company X pipe to go forward.
Mid to high single digits.
And that's where it stands I think our goal is a portfolio double digit EBITDA, we're not there yet we're working on it you can see the electric margins pulling up I can think you'll continue to see the pipe and the resiliency of the pipe pipeline segment PNR segment.
Go forward in its utility back to its industrial basin as that goes far there you'll you'll continue to see those margins rise and then the returns get better there.
As far as I'll answer a little bit on the $4 I think when we talked about it last quarter. We stand by now the opportunities there is opportunity for more than $4. So I will that's where we're at its early spits its June.
And what's August now, but we're giving you numbers. So we're not going to give 2021 guidance, but everything you're saying and everything you're incurring we see the same thing the companies and very very good shape and we're working hard at margins.
Thank you very much great job.
Thanks.
Our next question is from the line of Adam Thalhimer with Thompson Davis. Please proceed with your question.
Hi, good morning, guys nice quarter.
Yes, Hey did I hear you say the telecom was up 50% in Q2, and if so was that new contracts or was that more work under existing contracts.
I don't know foster that are Derek said that but it's I think that's accurate it's under both and.
Our mind you know we talked about early on that we're having some.
When we thought about it we were doing a lot of front end engineering and as we went to the Phil things will get better revenues pick up and that's what you're seeing and we are starting to put people in the field our Canadian work strengthen some too in the quarter. So all those things kind of come together and well continue to see those kind of ramps in the big not 50% ramps, but it'll continue up as we go.
So to the fill the construction there is that there's a lot opportunity there we're growing the business quite nicely I'd like to things we're doing.
Yeah. It's Derek also keep in mind, we've talked about it now for quite some time, we saw the ability to have a faster ramp obviously and I've talked on the part of our business than than another components and we stand behind this year, so you're being able to see telecom revenues at or above 500 million.
And the acquisition that we talked about this morning, certainly enhances the front side of that and it gives us the ability to move quicker into the field.
Okay, and then just one more on telecom actually you mentioned five G, but how does quanta play in Fiveg and how does that opportunity ramp.
Hi, when we look at it I mean, it's somewhat pulled back the density I mean, fiveg is about seven components, but as you think about it when enables fiveg is your communication from your fiber to your cell towers and things of that nature. They need a lot of side on the cells. The small cells whatever it may be but the fiber backbone and Dan.
But on the edge all those things are a part of Fiveg every bit of that and.
By the way it takes quite a bit of power as well.
To enable those data centers and things of that nature. So we're around the edges on all of it and how we interface with our local electric utilities are in gas utilities, along with the telecom and collaborate there on on the middle ground to those things put us in a great position to enhance our ability to deploy fiveg.
Okay. Thanks, guys.
Our next question is from the line of Sean Eastman with Keybanc capital markets. Please proceed with your question.
Good morning, gentlemen, nice work this quarter.
Just wanted to start with a really high level one.
Going through utility.
Earnings releases this quarter lots to talk about hydrogen technologies.
Is there any discussion is quanta part of any of those discussions just curious if you know that is something interesting.
For you guys to be looking out over over the long term.
Yes, we talked him around all all those things I think in general hydrogen something we talked about batteries along time, we talked about solar long time. It continues to be part of carbon footprint that.
And environmentally friendly so those things are all part of it and I think were around the edges on all those kind of conversations whether we build any kind of.
[laughter] hydrogen plant or something that those natures.
It just depends on what it is what we're going to stay down the middle into the things that were very good added like we've done in the past and certainly we will collaborate on all those kind of opportunities.
Such as.
Hydrogen solar fiveg or whatever it may be we continue to talk to them and try to advance those technologies for through enabling the grid and also your infrastructure.
Got it and just as we think about the second half.
You know just seeing all utilities maintain their capital budgets I think I've seen a couple increase their budgets and accelerate some stuff.
Just trying to think about what that dynamic means for the second half just thought about this sort of prospective maybe getting some work accelerated so so those customers are able to.
Spend those budgets and.
What you guys have built in and around potential acceleration in the second half or catch up dynamic.
Yes, so I think when we looked at where.
Still many cities are within the coven environment or different kinds of.
Restrictions. So I think we took a prudent approach to guidance, we said the back half the far hardening in the back half. The electric segment was strengthened we still believe that I mean, we're on a storm now in the east coast and so under covered restrictions, where our guys are performing exceptional and so it's very difficult to say.
What the second half if theres upside to it I I think we took a nice prudent approach like we do all the time, but we do have some strength there and we continue to see opportunities with our clients and making sure that is our workforce is at home due to coded and so were backfilling and things of that nature or where it make.
Being sure that so their capital budgets and what they see in the future were able we're able to deliver on those on those capital plan. So lots of conversations going on all in all I think we get good prudent guidance as we move forward.
Got it.
Hi, guys nice work guys and thanks for that.
Thanks.
Our next question is from the line of Justin House with Robert W. Baird. Please proceed with your question.
Thank you good morning.
Two quick ones here first one just.
I guess level set on telecom as we think about 2021 I think the guidance originally for the year was that did that 500 million of revenue with margins getting close to the segment average. That's I just was kind of hoping to get an update year to date. What's the revenue is we're halfway through the year and where are those margins they can take it.
The second half and then also how we Comped next year.
That's my first question on the second question is just.
The extent theres any updates on the arbitration process in Peru, and if there's anything else that's as Youve exited these contracts any other legal items that have come up.
Related to those closures. Thank you.
I'll, let Derek take the margin questions and I'll jump back in on for yes from a telecom perspective, we're still looking at revenues, probably 500 to slightly above for 2020 very much intact.
On a year to date basis I'd tell you, we're probably about halfway there we know we're probably in that $250 million range on margins.
We've commented that margins are sequentially higher than the first and see it improvement over last year.
They're above.
The mid single digit range and continuing to improve we see very much as we exit al through the rest of the year a margin profile, that's increasing little bit of Cobra dynamic during the second so I think otherwise you would have seen margins creeping up say it even further more in the second but.
We still feel very confident our ability to be.
That upper single digit double digit about 10, we exit the year.
As far as triggers we physically handed over the network at this point, we've done the things administratively that we needed to do to preserve our our asset as well as are our lawsuit there weve incrementally more positive about where we're at to long process. We continue to make but I think is the right decisions going.
For that will allow us to recoup our our investment down there.
We'll see where it goes over the next 18 months.
Thank you. The next question is from the line of Andy capital its with Citi. Please proceed with your question.
Hey, good morning, guys nice quarter.
Thank you.
Do you think last quarter, you talked about expecting to book a number of I must say renewals as 2020 evolves.
Consequently book that your backlog seen any delays in this and needs and I'd say, it's coming to fruition and then you also talked pretty much every quarter about having billions of potential large transmission projects, how big it could be up do you see an opportunity to book alleged project in the second actually this year.
Got it we don't press timing on those things who they just again, we take our time, we're looking at them all the time, there's multiple opportunities out there depends on what you call larger not.
I think when you go back and you look at what we booked this quarter as Derek said in his commentary 6 billion is not too bad.
The way I see an earning streams that are off of it and we work on that for 18 months are better and I would you say, it's transformational his company what we did in the quarter do a pandemic and the guys in the teams that have done that and what will be able to do on an island is something that will go down is meaningful for not only us.
But.
Generations to come so that being said the opportunities are there they are larger the larger transmission opportunities remain robust.
We continue I will say this on pipe.
It doesn't matter large pipe doesn't matter to us it doesn't matter on this quarter and it doesn't matter going forward, it's only incremental to anything we talk about so the big pipe when I think about it it's incremental anything we say that Sarah will pick it up if it's not we won't and it's fine that's not what this company is built around on the fee.
Feature or today.
Hello.
You didn't get accelerating sort of getting out of Latin America itself as we sit here today do you think yeah. When you go into 21, you really should be out and the impact.
Okay.
Almost anything in 21.
Yes, I mean, I think for the majority of it you could have a little bit linger, but I'm.
We're hard pressed to get that done and we were able to negotiate contracts out the cost us a little money in the quarter, but it was a right answer for our shareholders right answer Quanta has to move through that and we were able to do a multitude of that within the quarter.
Again, we're preserving the asset there in Peru, we're working through the other areas, but in my mind more on the other side of that moving forward very quickly to get out.
And just talk this hey, Bob you mentioned the storm here the Tri State area.
So we know that you had your expectations for the year in terms of not being handled meeting again out that.
Okay, there's more work.
Okay around will slow so thanks anyway good quarter.
Thank you.
Thank you at this time I'll turn the floor back to management for closing remarks.
Yes, thanks, everyone on the mainly I want to thank our employees for the work that they've done in the storm environment I will say that.
Our business is inherently risky due to covert is it's even even more so I would say in general they've done a great job Weve collaborated great with a client here and hopefully we were all picking the life's back on a pretty rapid pace. So that being said industry has made a ton a ton of progress there and we're proud of that and proud of what our guys have done in the field.
We want to thank you. Thank our customers I appreciate your questions ongoing interest in Taiwan.
Thank you. This concludes today's conference you may disconnect. Your lines. This time, thank you for your participation.