Q3 2021 Quanta Services Inc Earnings Call
Hello, and welcome to the Qantas services third quarter 2021 earnings calling webcast at this time, all participants already listen only mode.
Sure and answer session will follow the formal presentation.
If anyone should require operator assistance. Please press stars zero on your telephone keypad. As a reminder, this conference is being recorded it's now my pleasure to turn the whole over to keep her up Investor Relations for Qantas services. Please go ahead.
Thank you and welcome everyone to the Qantas services third quarter of 2021 earnings Conference call. This morning, we issued a press release announcing our third quarter results, which can be found in the Investor Relations section of our website at Qantas services Dot com.
Along with the summary of our 2021 outlook and commentary we'll discuss this morning.
Additionally, we will use a slide presentation. This morning to accompany our prepared remarks, which is viewable through that caused webcast is also available on the Investor Relations section of the Qantas services Web site.
Please remember that information reported is on this call speaks only as of today November 4th 2021, and therefore, you were advised that any time sensitive information may no longer be accurate as of any replay of this call.
Paul will include forward looking statements intended to qualify under the safe Harbor from liability established by the private Securities Litigation Reform Act 1995. Please include all statements, reflecting quantities expectations intentions assumptions or beliefs about future events or performance, but that do not totally relate to historical or current facts.
Forward looking statements involve certain risks uncertainties and assumptions that are difficult to predict or beyond clients control and actual results may differ materially from those expressed or implied.
For additional information concerning some of these risks uncertainties and assumptions. Please for the cautionary language included in today's press release, along with the company's periodic reports and other documents filed with the Securities and Exchange Commission, which are available on Qantas or the SEC website.
You should not place undue reliance on forward looking statements and quantum does not undertake any obligation to update such statements and disclaims any written or oral statements made by any third party regarding the subject matter of this call. Please also note that we will present certain historical and forecast that non-GAAP financial measures in today's call, including adjusted diluted EPS.
Backlog EBITDA and free Cashflow reconciliation of these measures to their most directly comparable GAAP financial measures are included our earnings release.
Lastly, if you would like to be notified when quantum publishes news releases and other information. Please sign up for E mail or through the Investor Relations section of Qantas services Dot com.
Also encourage investors and others interested in our company to follow up wants a I R and quantum services on the social media channels listed on our website.
With that I would like to now turn the call over to Mister, Duke Austin quite as President and CEO Duke.
Thanks, Good good morning, everyone and welcome to the quantum services third quarter of 2021 earnings conference call on the call today, I will provide operational and strategic commentary and will then turn it over to Derek judgment on as Chief Financial Officer.
Who will provide a review of our third quarter results in full year 2021 financial expectations.
Following derek's comments, we welcome your questions.
This morning, we reported solid third quarter results, which included a number of record financial metrics, including revenues adjusted EBITDA and earnings per share.
Additionally, total backlog of $17 billion at the end of the quarter was also a record which we believe reflects the benefits of our collaborative approach with the customers.
Favorable and market dynamics and continued advancement of a long term growth strategies.
As many of you are aware several weeks ago, we completed the previously announced acquisition of Blattner, which is it premiere utility scale renewable energy infrastructure solutions provider in North America the.
With decades of experience as a strong safety culture.
We believe the energy to transition into North America is on the cusp of a significant acceleration and moving to a carbon neutral economy will require sizeable and decades long investment in renewable generation and related infrastructure we.
We believe this transaction puts quanta in a unique position to enable the energy infrastructure for North America's energy transition.
Since announcing our intention to acquire blattner in early September customer reactions and conversations across our customer base have been overwhelmingly positive and supportive.
[noise] further we previously commented about how remarkably similar quanta and blood and are operationally and culturally which has become increasingly apparent through working with the blattner management team on integration.
We were all excited about our combined growth opportunities when we first announced the transaction and I can tell you that today, we were even more excited and increasingly confident and the value proposition innovative solutions and gross synergy opportunities iguana and butner are positioned to provide existing and new customers.
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Now turning to cause they're operating results.
Our electric power solutions operations continue to perform well with record revenues and strong margins driven by robust demand for our services solid and safe execution.
[noise] utilization of our resources and operational excellence.
We are proud of our execution and confident that are strong market position will allow us to capitalize on future opportunities created by a favorable long term trends driving utility investment and demand for our comprehensive solutions.
Demand for grid modernization system, heartening, and renewable energy interconnection services remain active and discussions around opportunities for our electric vehicle infrastructure installation and program management capabilities continued to advance.
Our electric power backlog remains strong driven primarily by significant multiyear master service agreements with utilities, which adds to the substantial MSA backlog growth we generated in the first half of this year.
During the quarter Hurricane auto made landfall over Louisiana, What's ultimately left 1.2 million customers across eight states without power, including 1 million outages in Louisiana alone.
One of deployed significant resources to support utility customers, who is electric power infrastructure was damaged or destroyed by the hurricane including more than 2500, Mineworkers and front and support services and engineering staff.
A comprehensive response resulted in record emergency restoration revenue and highlights our ability to quickly mobilized substantial resources to support our customers in times of need.
Our customers continue to advance our efforts to achieve carbon neutrality over the coming decades, which is planned to be achieved.
In large part through increasing renewable generation investment.
We believe public policy and the positive general cinema supporting a greener environment will drive North America's power generation mix increasingly towards renewables over the near and longer term.
Bottlers utility scale renewable generation solutions, coupled with quantum's complimentary and holistic good solutions.
It's a unique value proposition and opportunity to collaborate with our customers to shape their energy transition initiatives.
For example, lattner is currently constructing more than 30 utility skills renewable energy projects across the country and another Quanta company is currently working on the largest solar powered battery storage project in North America.
Additionally, we are seeing accelerated demand for our services that enable renewable generation, including transmission interconnections and substations.
We continued to scale, our communication operations and progress our strategy. For example, we have developed our wireless capabilities and are expanding our wireless services into certain markets.
Communications revenues grew significantly in the third quarter as compared to last year.
Although we incurred higher costs in certain jobs due to <unk> of certain contract and project Closeouts, which impact impacted profitability for these operations.
These issues were not meaningful to the overall electric power segment or quanta as a whole.
Nevertheless demand for our communication services remains hot and the majority of our communication operations are performing at or near our double digit margin targets.
Our underground utility and infrastructure solutions segment.
Performed well in the quarter, despite being impacted by work disruptions along the Gulf coast due to hurricane Ida and work inefficiencies associated with the recent surge of the COVID-19 Delta variance in certain areas.
We continue to experienced solid demand for our gas utility and pipeline integrity services, which are driven by regulated spend to modernize systems.
Reduce methane emissions ensure environmental compliance and improve safety and reliability.
We expect our industrial services to strengthen through next year, along with the continued recovery of the global economy and demand for refined products.
As well as the return of our customer maintenance and capital spending that was previously deferred due to the effects of COVID-19 on the downstream market.
Looking to the coming years, we believe the opportunity quanta has with customers in this segment as.
As they increasingly pursue strategies to reduce their carbon footprint and diversify their operations and assets towards greener business opportunities may be underestimated.
Here are several examples of such initiatives and project opportunities.
Gas utilities are implementing system modernization initiatives that position them to blend hydrogen into their natural gas flow to that in quanta is working with several gas utility customers on hydrogen pilot programs.
Certain refiners or building renewable and bio fuel processing facilities, which could create opportunities for an industrial services.
Natural gas Powerplants are also exploring blending hydrogen with natural gas as a fuel source to powder their turbines, which could create opportunities for our pipeline infrastructure services.
Lastly, we are actively pursuing carbon sequestration projects and the United States, which could utilize our engineering and pipeline construction services.
In Canada permanent pipeline Mtc energy have proposed a plan to jointly developed a carbon transportation and sequester Asian system called the Alberta carbon grid, which is envision to serve as the backbone of albertus carbon capture utilization and storage industry and could include participation by other pipeline comes.
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The initiative with Leverages existing pipelines requires new pipeline facility investment.
Which one fully constructed would be capable of transporting more than 20 million tons of carbon dioxide annually.
The North American energy transition is just that a transition process.
The role our electric power infrastructure solutions play in the energy transition is clear.
However, we believe quantity underground utility infrastructure solutions operations could play in an evolving an increasing role.
And this transition in support of our customers customers carbon reduction initiatives.
Progress continues in Washington, DC towards enacting the bipartisan infrastructure bill and to build back better plan.
As commented on protocols are positive multiyear outlook and strategic plan are not reliant on either of these packages but.
But if either or both enacted they could provide incremental opportunity for quanta over both the near and longer term.
These packages include funding and policies to encourage new infrastructure development and modernization and several of our core markets.
In particular to build back better plan currently contains policy and incentives representing the largest clean energy legislative package in American history.
While additional political steps are still required we are encouraged by what we've seen recently.
We have probably grown accompanying and executed well this year and expecting.
To continue to do so.
We are confident in the strategic initiatives, we are executing on the competitive position we have in the marketplace and are positive multiyear outlook.
We also believe that our business and opportunities for profitable growth in 2022 are gaining momentum driven by our solution based approach the growth of programmatic spending with existing and new customers up opportunities for larger electric transmission projects.
The addition of blattner as renewable generation solutions and the opportunity for recovery to a certain portions of our business that have been affected by the global pandemic.
Looking to the medium and longer term as energy transition and carbon reduction initiatives are increasingly implemented in addition to the primary drivers of our business. Currently we believe our visibility could increase in our growth opportunities could expand and accelerate.
We believe the infrastructure investment and renewable generation necessary to support these initiatives are still in the early stages of deployment and that this is arguably the most exciting time and Qantas history.
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 fill leadership.
We will pursue opportunities to enhance quantum space business and leadership position in the industry and provide innovative solutions to our customers. We believe Qantas diversity unique operating model and entrepreneurial mindset formed the foundation that will allow us to continue to generate long term value for our stakeholders.
I will now turn the call over to Derek Jensen, our CFO for his review of our third quarter results and 2021 expectations Derek.
Thanks, Duke and good morning, everyone say, we announced record third quarter of 2021 revenues to $3 $4 billion.
Net income attributable to common stock was $174 million or one dollar and 21 cents per diluted share and adjusted diluted earnings per share a non-GAAP measure was one dollar and 48 cents.
Our electric power revenues or $2.3 billion, a quarterly record and a 10% increase when compared to the third quarter of 2020.
This increase was driven by continued favorable dynamics across our core utility and communications markets and associated demand for our services.
Also contributing to the increase revenues from required businesses are approximately $55 million.
Electric segment operating income margins, and three 221, or 12, 4% slightly lower than 12.7% in three to 20, but better than our initial expectations.
Operating margins benefited from record emergency restoration revenues of approximately $230 million, which typically present opportunities for higher margins than our normal based business activities due to higher utilization as well as overall solid execution across our electric operations.
Additionally segment margins benefited from approximately $10 million of income associated with our limit joint venture.
Otherwise a slight reduction in operating margin versus prior year was attributable to normal job variability and mix of work and our communications operations, which delivered mid single digit margins during the quarter.
As a reminder, last year third quarter electric power results also included.
At the time, a record level of emergency restoration revenues.
Underground utility and infrastructure segment revenues were $1.2 billion for the quarter, 12% higher than 32, 20, due primarily to increased revenues from gas distribution and industrial services.
So our operations experienced increased activity year over year current quarter revenues and margins in our industrial operations or negatively impacted by disruptions along the coast Gulf Coast attributable to Hurricane Ida and both our industrial and non U S market. Within this segment remained pressured by COVID-19 dynamics.
Third quarter operating income margins for the segment, where six 7% 170 basis points lower than three through 20, but generally in line with our expectations.
Margins for the year marks and for the third quarter of 2020 benefited from favorable adjustment on certain larger pipeline projects with both scope changes and favorable closeouts in the quarter.
Our total backlog was $17 billion at the end of the third quarter, the fifth consecutive quarter, we posted record total backlog. Additionally.
Additionally, 12 month backlog of nine $8 billion also represents a quarterly record.
Our backlog growth continues to be driven primarily by multiyear MSA programs with North American utilities, which we believe reinforces the repeatable sustainable nature of the largest portion of our revenues and earn.
The Blattner acquisition occurred after September 30th and accordingly, their backlog is not included in our current recorded red levels How're.
However, the total backlog from blattner and the other four Q acquisitions is approximately $1.8 billion.
So the third quarter of 2021, we generate a negative free cash flow Ah non-GAAP measure of $40 million compared to $70 million a positive free cash flow and three Q20.
Net cash provided by operating activities during the third quarter of 2021, although largely in line with our expectations was down due to higher revenues and corresponding increases in working capital demands compared to prior year, which benefitted from lower revenues and a corresponding lower use of working capital.
Also three 220 benefited from the deferral of $41 million payroll taxes in accordance with the cares Act, 50% of which are due by December 31, 2021, but the remainder due by December 31 2022.
Partially offsetting these dynamics was a favourable impact of increased earnings as compared to 320.
Days sales outstanding are DSO measured 89 days for the third quarter of 2021, an increase of seven days compared to the third quarter of 2020, and an increase of six days compared to December 31 2020.
The increase was primarily due to elevated working capital requirements associated with two large Canadian transmission projects driving an increase in contract assets.
Specific to the Canadian projects, both continue to encounter work stoppage protocols in Canada associated with Covid mitigation as well as delays attributable to among other things wildfires impacting access to work sites.
These dynamics create a substantial inefficiencies in production delays, resulting in increased project costs.
We are in active discussions with both customers regarding change orders associated with these increased costs some of which have already been approved with the remaining amount is being pursued in the normal course.
In addition, normal variability in work production and associated payment cycles across our operations contributed to slightly higher DSO in the court.
As Duke discussed and as we previously announced we closed on the acquisition and Blattner on October 13th.
Prior to the closing in September 2021, we issued $1.5 billion aggregate principal amount of senior notes with a weighted average interest rate of 2.12% receiving net proceeds of $148 billion.
Accordingly, as a quarter and we had approximately $1.7 billion of cash.
Subsequent to the quarter, we amended our credit agreement to among other things provided term loan facility of $750 million, which was fully drawn and combined with the net proceeds from the senior notes offering to fund a substantial majority of the cash consideration payable to the blattner shareholders at closing.
I'll highlight that our financial strategy and consistent performance have allowed us to maintain investment grade ratings subsequent to these financing transactions.
From a capital allocation perspective, blattner represents the largest acquisition and Qantas history, and a strategic opportunity to expand the solutions, we deliver to support North America transitioned carbon neutral energy infrastructure.
Capital deployment for strategic acquisitions has always been a key part of our strategy, but as we've discussed in the past our first priority for capital allocation remains supporting the working capital and equipment needs of our existing operations.
While the debt issued to support the Blattner acquisition moved our leverage profile above our target range. It remains well below the financial covenant requirements in a credit facility and we believe we can efficiently delever, while continuing to create shareholder value through our dividend and repurchase programs as well as strategic acquisition.
Through the date of its earnings release, we've acquired approximately $64 million worth of stock since the beginning of the year is part of our repurchase program and will continue to evaluate potential acquisitions that fit our strategic objectives.
To that end during the third quarter and through the date of the earnings release. In addition to Blattner, we acquired three additional businesses and made a minority investment another for total total combined consideration of approximately $110 million.
These incremental transactions further enhance our ability to deliver comprehensive infrastructure solutions to our north American utility and communications customers.
Turning to our guidance.
Our outlook for the remainder of the year reflects the strength of our core utility backed operation, which continued to deliver solid results with robust year over year growth.
However, the result of companies acquired during and subsequent to the third quarter, including Blattner operations will be included in our consolidated financial statements, which makes comparability to our previous expectations challenge.
It should be noted that we are in the very early stages of established in blattner specific opening balance sheet, which includes assessing the positions of ongoing projects as of the closing and valuing the tangible and intangible assets acquired.
The result of those ongoing efforts will have a meaningful impact on blattner fourth quarter contribution, which we've attempted to address in the range of our fourth quarter expectations for the acquired businesses.
That said, excluding the expected contributions from a recently acquired companies. We now expect full year revenues from our legacy operations to range between 12, one five and $12 $35 billion.
Due to the strength of our consolidated performance for the first nine months of the year, we are increasing our expectations for the contribution of our legacy operations to adjusted EBITDA to range between 117 and $1.2 billion with the midpoint of the reins representing an increase over our previous guidance and 13% growth when.
Compared to 20 twenties record adjusted EBITDA.
As it relates to our current reportable segments, while we continue to evaluate how these change may change with the addition of Blattner I wanted to provide some color on our current expectations compared to our previous commentary again, excluding contributions from a recently acquired businesses.
We continue to expect full year revenues to range between eight seven and eight $8 billion for our legacy electric segment operation. However.
However, based on the strong performance through the first nine months of the year and continued confidence in our ability to execute on the opportunities across the segment. We've increased our full year margin range for this segment of 2021 operating margins expected to come in slightly above 11%.
A full year expectations for the underground utility and infrastructure. So there's some segment however have slightly moderated due primarily to lower third quarter revenue levels than previously expected.
Accordingly, we are reducing our full your expectations for the segment with revenues now expected to range between 34535 5 billion.
While segment margins are now expected to range between four five and 5% which includes the $23.6 million provision for credit laws recognized in the second quarter, nearly 70 basis point negative impact on a full year basis.
With regard to the recently acquired companies operation I spoke of earlier, including Blattner, We expect post closing revenue contributions for the year the range between 400 $500 million and adjusted EBITDA, a non-GAAP measure ranging between $40 million and 60 million.
Accordingly, including the expected contributions from the recently acquired companies. We now expect our consolidated full year revenues to range between $12.55 billion and 12, eight $5 billion and adjusted EBITDA non-GAAP measure of between $1 21, and one dollar one.
Two one and $126 billion.
Corporate unallocated costs will increase significantly primarily due to the acquired the companies.
We currently estimate amortization expense for the full year will be between 149 and $159 million with $60 million to $70 million attributable to the recently acquired companies.
Stock compensation expense for the full year is now expected to be approximately $89 million with approximately 2 million attributable to restricted stock units issue to employee to the acquired company.
Acquisition and integration costs are expected to be approximately $26 million for the fourth quarter, resulting in approximately $36 million for the year.
This includes approximately $10.5 million of expenses associated with the change of control payments of water to certain employees blattner by the selling shareholders, which require expensive counting as they have a one year service period requirement.
We expect a comparable dollar amount will be accrued each quarter post closing until the one year anniversary of the transaction at which time the payments will be made to the employee.
We intend to include this amount as an adjustment to arrive at our adjusted EPS and adjusted EBITDA, both non-GAAP measures.
Below the line, we expect interest expense for the year to be around $67 million, which includes approximately $16 million of incremental interest expense associated with debt financing used to fund the cash portion of the blattner acquisition.
Additionally, we now expect our full year tax rate to be around 24%, reflecting a slight reduction from our prior expectation due primarily to a favorable shift and it makes of earnings between various taxing jurisdictions.
As a result, our expectation for full year diluted earnings per share attributable to common stock is now between $3 and $2003 40.
And our increased expectation for adjusted diluted earnings per share attributable to common stock a non-GAAP measure is now between $4 62 and $4.87.
On a consolidated basis, we now expect free cash flow for the year to range between 350 and $500 million.
A slight decrease is primarily due to potential timing of payments associated with emergency restoration efforts as well as the likelihood that the dynamics impacting the larger Canadian projects continued to press for DSO in the fourth quarter.
Additionally, while we expect blattner will be meaningfully accretive to our cash flow profile on an annual basis, we expect certain favorable billing positions at the time of acquisition could unwind is blattner incurs costs in the fourth quarter. The finished project for which they've already received payments.
This dynamic could minimize blattner cash contribution during the quarter, which we factored into a range of expectation.
As we stated in prior quarters are quarterly free cash flow is subject to sizeable movements due to various customer and project dynamics that can occur in the normal course of operations.
For additional information please refer to our outlook summary, which can be found in a financial info section of our our website at Qantas services Dot com.
Overall, we continue to believe we are in the early stages of a significant infrastructure investment cycle and the acquisition of Blattner further differentiates us in the markets looser and expand our ability to deliver solutions to support north America's transition to carbon neutral energy infrastructure.
We remain confident in our ability to execute against the opportunities in front of us while maintaining the financial flexibility to opportunistically deploy capital to deliver long term shareholder value.
This concludes our formal presentation and will now open the line for Q&A.
Operator.
Thank you and that became ducking a question and answer session. We ask you. Please ask one question and one follow up Tim returned to the queue, if you'd like to be placed in the question can you. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the <unk>.
<unk>.
For participants using speaker equipment, it may be necessary to pick up the handset before pressing star one.
One moment, please when we pull for questions and as a reminder, that's one question one follow up and please return to the queue.
Our first question today from Chad delivered from birth Senior line is now alive.
Hi, good morning, guys.
Alright, one.
So I just wanted to narrow in on some of the.
The area of the business that underperform expectation south of the quarter so far.
First of all like on the communication side, you guys talked about some some higher costing jobs impacting margins. So first of all can you quantify that.
And then do you see that coming back on track as we go into the fourth quarter and 22.
And then on the industrial services side.
I think you talked about some storms issues impacting our results is that business, so profitable or what that does is properly in the third quarter and just lastly on the Canadian project and you called out.
Just want to confirm whether there were charges taken or was this just.
A a working capital swinging and Windows DSA was normalized.
Hi, good morning.
So I think when we look at the telecom business, we did call it out a bit.
Or operating commit single digits instead of upper upper single double digits. When we looked at it. So it's not performing terrible, it's not where we want it to be the macro market is very good and robust the closeouts on a few projects are very difficult, but the large majority of the vast majority of the businesses performing in those double digit mark.
Greens in offsetting anything there is minimal as we said on the call from the charge standpoint are really just.
Cost standpoint, when when we close things out so.
We'll go from there, but I do think we added backlog we continue to build backlog in the segment, we see a long runway there and we did start up some wireless capabilities. It has some cost and so in general and incidental to the company incidentally the segment, we'd like to market longterm, we will get into double digits there over time.
Canada, when we looked at Canada, I think in general for projects and form of well, we still see some COVID-19 effects there to the delta Bury it on some of those projects. So there is some.
Delays in getting Bill Bill billing cycle billing.
[noise] points there as we run through a project I think so that it's more of a billing issue of when can we get things build versus any problems with the project or charges, we did not take charges on Canadian projects.
We performed very well.
And the storm storm, yes. It did have a positive effect to the electric segment. It does it does when we get storms like that it was.
A little bit bigger than last year from the from the standpoint, so a fairly large stone for us I think it shows are collaborative effect with the client how we've got in and worked our front and services were still working storm for our client. So it just shows the longevity of the company and what we've done on the front.
Side of the business to collaborate with the client to get things up faster to do a nice job there for them and I think.
We performed very well, they're offset by it did have some impact on some of our underground segment as it always does when it comes in so you get some offset and you also come awesome larger work to go pick up storm, so those things offset some in.
In the quarter.
That's helpful. And then just make my second question is a little bit longer term and has to do with with flavor. So so.
So there's a lot of work coming down the pipe to Decarbonize. The U S and I know you guys have the northwest lineman college, but just trying to understand just.
Your your strategy for scaling labor, maybe you could start off with you know how much throughput do you have into.
Into your ranks from northwest lineman College, and then how can you scale that program to meet the future labor needs.
And then lastly.
Maybe you can talk about whatever our innovations and technology you have minimized.
Minimized or actually improved labor productivity of your workers in your business.
Thanks, Scott I think if you just now trying to skilled labor your long ways behind.
Spent about $150 million over the last five years and we're way ahead of that so in my mind, we've done that we've proven that we've proven that we can grow the company. That's who we are as those craft skilled labor and that labor. So in my mind, we self perform about 85% 90% of our business for a reason.
It is this reason when you get tight labor markets. We can perform we could perform on time on budget and give our client what they are asking for which is certainty and we're doing that on a daily basis. That's why we're collaborate and thats why youre seeing expansion.
As for as far as productivity.
I'll put our margins up against it and show the growth of the company the growth of our internal Labor Force.
35000 that we add every year to up to that Labor force is proof that we can do it we can scale. It we are scaling it and their productivity speaks for itself and the margins.
Thanks, I'll hop back in.
Thank you. Our next question today is coming from Alex Rygiel from B Riley. Your line is now live.
Okay.
Thank you gentlemen.
As it relates to higher Dsos did that caused some delays on the two Canadian electrical transmission projects can you address your confidence in collecting on these and what the likely timing of that'll be.
Okay.
Okay.
Yes, so on the deal.
So is there in Canada, and our likelihood Canada has traditionally had larger dsos of projects are bigger some of the timeframes and the way that milestone billings go in so it's typically been this way we have a high degree of confidence probability and collecting I'll, let derrick comment on the Dsos, yes exactly.
Comment on that from a timing perspective, right now I think <unk> post year end, which is reflected in our cash flow commentary I think it is probably going to be more in the first quarter and second quarter of next year.
Both both both projects with long standing clients, we have great relationships with that I believe.
Ultimately.
We're in very good shape quite comfort.
Thank you. Our next question is coming from Sean Eastman from Keybanc. Your line is now live.
Hi, gentlemen, thanks for taking my questions.
I feel like coming through earnings here, just a lot of concerns around the renewables supply chain.
You guys, obviously just completed.
Big acquisition.
Tied to renewables development into next year. So I guess just in light of what Youre seeing in the supply chain could you maybe update us on how much cushion you think you have in that 2022 blattner outlook that you've framed back in September.
Do you think that outlets bias to the upside or is that looking increasingly sort of realistic at this point.
You said two five to 270 standby, we stand out today, we standby.
We know more about the company today than we did when we talked about it before we feel highly confident in those numbers.
And I would just say in general yes, there is some supply chain.
<unk>.
Noise is what I would call it and I think.
Just having the breadth of quanta the breath of Blattner is only.
From my standpoint helps us it adds to who we are it adds to how we can go execute and I want to also say like when we think about blattner. When we think about this long term, we're looking 20 years and we've given guidance out so not only do we stand by the $2 $6 7 million that we've given we saw.
Also gave 2025 guidance of $3 six we standby that even more today.
Okay.
Okay.
Okay fair enough. Thanks, Thanks for that and maybe you could comment on how Luna is trending relative to what they need to be doing to capture those performance incentives could that be upside in the fourth quarter I'm just not exactly sure how that works and obviously a lot of noise in the headlines still so great.
Great to get an update there.
Yes, so what.
We expect the noise in the headlines I think we said that from the start.
As you transition into these large term.
Large transitions on an island. It is it does have some noise to it we're performing very well underneath the governor Governor the government is very much behind it. The what we're doing is the right thing we will transition that onto a modern system.
Doing so every single day, you can't get the payments on the <unk>.
On the upside of those payments until we get into a full contract which doesn't go into a full contract until bankruptcies declared out of bankruptcy and then it goes into a 15 year contract.
But as we stand today, we're in a contract to just knock has not started on the 15 years until they come out of bankruptcy. There was some favorable rulings on the bankruptcy proceedings.
And the last week or so I believe so.
Really good stuff going on underneath a little noisy on the top and primarily around the generation, which we don't control. So I feel confident in our ability to perform there and what we're doing for the people that island.
Okay. Thanks, a lot Jake I'll turn it over.
Thank you. Our next question today is coming from Neil Mehta from Goldman Sachs. Your line is now live.
Okay. Good morning team I want to spend.
A lot of time on transmission and there was a recent use of the whole thing of that any CEC transmission project in <unk>.
If we foresee some risks electric power topline growth in the future due to regulatory concerns around large project activity in transmission and in any of the current projects that youre working on facing similar risks that we should be aware of.
Yeah.
I kind of look at it like this.
I'm in most of our clients either add to their $20 billion of backlog over time of what theyre going to build on our capex and opex over the quarter. Almost every single one of them attitude. What they are doing trying to do from an energy transition.
The large projects make good headlines and people want to talk about them.
We're right around the edges on every one of them. They are additive to anything we said the 85% of our business is still exist today.
The MSA work those capital spend is underground.
Energy said yesterday on <unk>.
Storm hardening, those kind of things and with the tight labor supply so any headline youre reading or what you read into something on large projects.
It's not affecting the underlying business and our growth trajectories.
We are giving good.
Guidance on that the 85% mid to upper single digits, you can look at our track record over the last five to six years and see what it looks like I expect that going forward.
Yes, that's really clear thank you for saying that so so as a follow up it is around the budget reconciliation package.
Spending from both the budget reconciliation package, depending on what form it takes and the bipartisan infrastructure Bill directly drive project activity that client that could be involved in and thats over and above the base case growth that you talk about.
No I think youre going through the energy transition as we said.
I think the sentiment around that.
North America and around what we're hearing and even in Canada, you're seeing more and more transition as you go into Evs as you go into.
Youre renewables coming on and Youre also doubling load over time.
That's the unknown is people don't understand that youre, doubling load and youre going to a carbon free.
Fuel source. So as you do those things youre going to need hydrogen youre going to need.
Tons of renewables.
In order to do that you've got to have transmission and we're sitting in very very good spaces in all these areas and it allows us through policy.
Without policy, you'll continue to see that sentiment move forward.
That's what we see I do think when both the.
Five and plan the plans that we've seen are additive to anything we've said.
Thanks, Steve.
Absolutely.
Thank you. Our next question is coming from Jamie Cook from Credit Suisse. Your line is now live.
Hi, good morning.
Two questions, one sort of short term one sort of longer term.
First Derrick can you help us understand.
<unk> business are strong haul business.
What is implied for the revenue and EBIT, if any contribution in your 2021 guidance.
Yes, just the opportunity for that business to be more accretive to margins and earnings as we look to 2022 and then my second question just longer term is as we think about.
The long term secular trends you have blattner.
Infrastructure et cetera could you sort of help us reframe, how youre thinking about electric.
Electric power margins.
Over the longer term and is there sort of more of an upward bias versus.
How you thought about margins historically, thank you.
Hey, good morning, Jamie I'll take a little bit strong I'll, let derrick comment on the numbers, but in general what we see is we see an increase.
And that business in the fourth quarter, a bit I would say you have a higher higher oil price there will be reluctant to do much.
In this environment, but as we go into next year, we see a real strong turnaround year. We believe the business is coming back meaningfully so I feel confident into next year on the business, but I'll, let derrick comment on the fourth quarter.
Yes, I mean as it relates to your desk.
Go ahead, Jim Yeah, Sorry go ahead go ahead Eric.
Just going to say relative to the fourth quarter Muni I think it will be slightly profitable, which is kind of what we've said that it would be back and returning it to a degree of profitability overall that group is slightly north of $500 million for.
'twenty, one going into 'twenty two.
I think we see it having the ability to start to return to the degree of normalcy that we've talked about in the past.
Those numbers have been north of.
Like a $700 million number I don't know quite yet too early to comment as to whether it will get into those type levels, but I think you definitely see an increase.
And we would see that it would be largely returning to some of the historical profitability again wanted to see how this fourth quarter plays out though.
And sorry can you remind me how youre thinking about historic profitability for shareholders.
Yes, historically, they were double digit EBITDA.
Okay. So there is potential for that in 2022.
I do believe is defensible, Florida still.
Okay, we will be okay that would be treated with <unk> guidance. So.
We'll see how it starts to perform but yes, I think in the range of the guidance Youll see that.
As far as the electric power segment, I think when we put stronghold in when we put stronghold in I mean, we see.
Double digit margin company and as we look at it going forward.
And I believe the segment will perform in those areas. Obviously as we go into 'twenty two we'll be prudent about how we guide as we always are.
Got to get through whether we have minimum and performing in the field and I think in general.
When we think about it the business is healthy it's a good secular macro environment. So we really like where we sit we think we're doing great things collaboratively and anything that blattner houses additive to us and again their culture and what we're doing internally as far as melding together and looking for opportunity.
Only say that.
Feel stronger about it today than I did October 3rd.
But I guess my question is do you see longer term an upward bias is it more profit dollar growth versus margin is that the way to think about it.
I think it's more from my standpoint, we're trying to deliver cash to the bottom line returns.
As far as capital those kind of things.
We will operate in the same kind of profile we have in the past on the electric segment <unk> is additive from a standpoint from a capex standpoint on a return basis. So they are accretive.
Thank you. Our next question is coming from Marc Bianchi from Cowen. Your line is now live.
Hey, thanks.
I wanted to talk about.
The acquired businesses and what's implied for fourth quarter and try to understand that in the context of the bladder guidance for 'twenty, one 'twenty two excuse me so.
I think the.
I take this fourth quarter revenue from the acquired businesses, it's like a run rate of $1 $8 billion annually.
And the Blattner Guide I think you said earlier, it's two five to $2 7 million for 'twenty. Two so is there just a lot of seasonality in that business are there some projects moving around or perhaps it's just conservatism I'm curious if you could help us understand that progression a little better.
Yes, sure so partly it's only a partial quarter contribution that we did not acquire the company.
Exactly at the quarter, so theres only a poor part of October so that's a component of it too.
Exactly it's unfair to annualize a given quarter much like it is on a quarter I mean, we have a degree of seasonality you can't take any given quarter and annualized that there are movements of projects and seasonality that is the case as well for blattner in any of the companies that we acquire.
So.
We still feel very comfortable with the two 5% to $2 seven original guidance irrespective of this quarter contribution.
And then lastly, yes, there is a bit of just timings starts the starts and stops of projects.
Affecting the number and then probably the last point that you raised is that we have been trying to be a bit prudent with the contribution because of the fact that we have.
<unk> closed the transaction, we've got an opening balance sheet work to do and they're looking at how some of that opening balance sheet will lay out to the rest of those contracts. So four or five different factors there, but net net we feel very comfortable still with 2527 annual 22 contribution.
Okay, Okay Super Thanks for that.
Looking longer term, Duke you mentioned.
<unk> and hydrogen pipeline opportunity work that down the road.
How how big could that business be for you maybe on a percentage of what you do today or maybe what the dollar addressable market might look like and how does that differ from the work. We do today right on a per mile basis, or however, you want to talk about it is it.
Much larger in terms of toll or total dollars per per mile of pipeline or whatever the scope of the work is.
No I don't think so when we look at it I mean, we're really just we're.
Thinking about it as part of this segment and much like you would think about LNG, when youre, moving LNG or Youre doing things.
Really what Youre seeing is a transition of infrastructure, where our role is in this business infrastructure transition as we move into the future.
We just sit right in the middle of it on anything you can think about as that transition so whether they need they're going to need pipe to move it and theyre also going to need pipe to move hydrogen into blend into natural gas and I think when you start blend in that.
You have different infrastructure. So all of these different things that we're bringing into the market as batteries EV.
Renewables technology with <unk> all of those things are certainly where we sit and as we said in the nucleus of that and we think about it as we think about blattner and where they sit in all this that transition is something that quanta is really focused on from a labor standpoint a technique.
<unk> standpoint, and how we help and collaborate with our clients not only from where they're at today, but how they transition. So at the very front end of that is where we're playing in its early and hydrogen I do think theres going to be.
A significant amount of opportunity.
Going forward, we're already seeing where turbines and power plants on gas are starting to blend and even spec hydrogen to some degree so it's going to be a piece of the nucleus of how you regulate and keep the grid balanced the bigger issue with the grid is to balance it.
Son, Nguyen and then the balance thereof, so hydrogen will play a part of it.
Okay. Thanks very much.
Sure.
Thank you. Our next question today is coming from Noelle Dilts from Stifel. Your line is now live.
Yes.
Hi, guys.
So I wouldn't want to go.
I just wanted to touch on.
Very high level, and maybe how we should think about the timing or cadence of work in 2022. So two questions related to that the first is the higher steel raw material costs are impacting timing at all.
And kind of any projects pushed to the right.
And then second if you could touch on how we should think about blattner kind of typical seasonality would be helpful. Thanks.
Yes, I'll comment on on the as far as the commodities, we are seeing some escalation in commodity pricing.
It has not affected the business does not material I think our scale our ability to move from project to project, while one may delay others are coming in I just.
The amount of the macro environment. There that's part of the reason you want scale and then in our renewable business or any business that we're in we won't scale scale allows us flexibility allows us flexibility with the client and I'll start buying power I mean, when you look at fleet and how will we manage through fleet theres constraints to others with fleet and.
Our ability to really work with the client work with with our customers and our suppliers on that has given us really what I think a competitive advantage going forward.
Let derrick comment on the risk, yes, and one other point I guess is that to the extent that that anything for fluctuations in the timing of blattner I mean any of that would be from a supply perspective could lead to projects pushing to the right at any given point in time not necessarily.
Our minds impacting our profitability type dynamic, but could push things around but having said that from an overall seasonality I think I'd, probably say, it's reasonably similar to our overall electric power operations, probably related a little bit lower in the first ryzen and the second stronger and a third and the fourth being either comparable to or having a slight decline depending upon.
Have any of the supply type dynamics, but largely I think I'd say similar to our historic electric power patterns.
I would say our commentary on button their own numbers that we've given you based upon us and wherever going into next year on that any supply chain issues, we're highly confident in those numbers.
Okay, Okay, great that's really helpful.
And then second I, just wanted to kind of clarify one point with an underground utility and infrastructure on the LDC business. I know you said, you're still seeing strong demand there.
You mentioned the Covid impact to margins is that mostly at stronghold or did you also see that.
And the LDC business and if you could comment on.
Where margins are kind of running today or this year versus where you expect them to be over the next couple of years. Thanks.
Yeah actually some of the other Cobra dynamics were a little bit in Canada, London, Australia, and then yes, and some of the industrial side.
Crushing and not really so much on the LDC side I think we're seeing normal operations for the most part on the LDC side.
From a margins perspective, we are continuing to see that.
Comparable to what we've been speaking to training towards.
Into that upper single digits overall as we go forward.
Feel confident in our ability to.