Q4 2021 Quanta Services Inc Earnings Call
Greetings and welcome to the Quanta services fourth quarter and full year 2021 earnings conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If you would like to ask a question. Please press star one on your telephone keypad.
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As a reminder, this conference is being recorded it is now my pleasure to introduce your host kept Brooks Vice President Investor Relations. Thank you. Please go ahead.
Thank you and welcome everyone to the Quanta services fourth quarter and full year 2021 earnings Conference call. This morning, we issued a press release announcing our fourth quarter and full year 2021 results, which can be found in the Investor Relations section of our website Quanta services Dot com along with a summary of our 2022 outlook and commentary that we do.
I'll discuss this morning.
Additionally, we will use a slide presentation. This morning to accompany our prepared remarks, which is viewable through the call's webcast and is also available on the Investor Relations section of the Quanta services website.
Please remember that information reported on this call speaks only as of today February 24, 2022, and therefore, you're advised that any time sensitive information may no longer be accurate as of any replay of this call. This call will include forward looking statements intended to qualify under the safe harbor from liability and satisfy the private securities.
Litigation Reform Act of 1095.
These include all statements, reflecting <unk> expectations intentions assumptions or beliefs about future events or performance that do not solely 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.
For additional information concerning some of these risks uncertainties and 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 the Securities and Exchange Commission, which are available on quantity or the SEC's website.
You should not place undue reliance on forward looking statements and quanta does not undertake any obligation to update such statements and disclaims any written or oral statements made about any third party by any third party regarding the subject matter of this call. Please also note that we will present certain historical and forecasted non-GAAP financial measures in today's.
Call.
<unk> 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 like to be notified when quanta publishes news releases and other information. Please sign up for E Mail alerts through the Investor Relations section of Qantas.
Services Dot com.
We also encourage investors and others interested in our company to follow Quanta IR and quiet services on the social media channels listed on our website with that I'd like to now turn the call over to Mr. Duke Austin, <unk>, President and CEO Duke.
Thanks, Kip good morning, everyone and welcome to the pharma services fourth quarter and full year 2021 earnings conference call on the call today, I will provide operational and strategic commentary and we'll then turn it over to Derrick Jensen <unk> Chief Financial Officer.
We will provide a review of our fourth quarter results and full year 2022 financial expectations.
Following <unk> comments, we welcome your questions.
This morning, we reported strong fourth quarter results, which complete another year of solid sales execution profitable growth.
These results were built off a strong operational and financial platform and we believe demonstrates the dedication of the best employees in the industry.
Our portfolio of companies diversity of service lines and field leadership has allowed us to enter the uncertainties and challenges presented by the global pandemic over the past couple of years, while still delivering four consecutive years of record adjusted EBITDA and five consecutive years of record adjusted earnings per share.
We accomplished a great deal in 2021 through the successful implementation of our strategic initiatives and our past success positions us well for the future.
We remain focused on continuing to provide collaborative solutions to our customers and business partners to help them achieve their goals and to capitalize on opportunities to enable the energy transition that is unfolding.
There are some of our accomplishments in 2021.
We continue to advance our front end solution strategy, both organically and through acquisitions, which is focused on strengthening our design engineering permitting environmental and program management capabilities.
This strategy allows us to expand our solutions to our customers enhances risk management and increases our total addressable market.
We expanded our emergency response capabilities and generated another year of record revenues by supporting our customers' efforts to restore power to millions of people adversely impacted by several severe weather events during the year.
Our ability to quickly mobilize significant resources to support our customers in times of need is unmatched in our industry.
And then my energy our joint venture with <unk> successfully transitioned to managing Puerto Rico's more than 18000 mile electric transmission and distribution system.
So many years of challenges and work remain Linda has made significant progress in improving customer service response times customer communication and system reliability we.
We continue to believe this opportunity is transformative for quanta and the people of Puerto Rico and remain committed to supporting women's mission to provide reliable electricity, while building, a modern and sustainable transmission and distribution system.
And support.
Our commitment to the people of Puerto Rico.
Along with that co funded and commenced the Luna colleagues for technical training in Puerto Rico, and the first class of electric utility line workers graduated in October .
Since opening the college, which is supported by northwest lineman College.
ZIP markers from Lima, and received additional training with the support of Quanta.
Our out of our commitment to the advancement of craft skilled workforce and Puerto Rico.
We grew our communication services revenue by approximately 25% and ended the year with record communications total backlog of approximately $1 3 billion.
We also developed and rolled out wireless infrastructure solutions to strengthen our opportunities to capitalize on <unk> network deployment and ongoing enhancement of <unk> wireless networks.
We expect to profitably grow the business and our booking incremental wireless revenue.
We completed the acquisition of Blattner and Premier utility scale renewable energy infrastructure solutions provider in North America with decades of experience and strong safety culture. This is Claus largest acquisition to date and we believe this positions quantity.
A leader in the energy transition and transforms our ability to collaborate early with our customers and our energy transition strategy.
The integration of <unk> is going well and we have increasing confidence in our ability to create meaningful growth and cost synergies together over time.
We made meaningful progress in our initiative to apply certain skill sets and expertise from operations, but then the underground utility and infrastructure solutions segment to perform certain aspects of electric power in telecom related work.
We believe the resource expansion and operating leverage leverage we gained through this initiative is a significant opportunity for quanta to reinforce our self perform capabilities improve operating efficiency and profitability and demonstrates the strength of our portfolio approach.
In addition to the acquisition of <unk>, we invested approximately $350 million in strategic acquisitions.
Nine high quality companies.
Which primarily support our electric power and front end service solutions.
We believe the acquired companies are additive to our base business and advance our strategic initiatives and enhanced our self perform capabilities, which typically accounts for approximately 80% of our work and are key to providing cost certainty for our customers.
We maintained our investment grade credit rating, while issuing $1 5 billion of senior notes and expanded our credit facility to fund the <unk> acquisition, which we believe points to the merits of the transaction a strong financial profile, the resiliency and sustainability of our business model and positive multi year outlook.
We demonstrated our commitment to stockholder value and our confidence in quantity financial strength and continued growth opportunities through the repurchase of approximately $64 million of common stock and a 20% increase of our dividend.
And finally, we continue to increase our efforts and dedicate resources toward implementing sustainable business practices throughout the organization and to improve the data we capture to manage our operations and sustainability.
And better communicate our ESG impact and initiatives to our stakeholders.
It is easy to take for granted the reliability of the power grid.
First to abundant resource sort of sources of <unk>.
Portable energy and Internet connectivity for Commerce and entertainment.
The impact of the Hurricane Winter storm wildfire other events in the set top power affects our ability to heat or cool, our homes and disrupts our quality of life quit.
Quickly changes this perspective and highlights how critical is the infrastructure that we design build and maintain it as to our everyday will be.
The solutions Quanta provides supporting our customers' efforts to increase reliability safety efficiency and connectivity all of which had a favorable environmental and social impact.
Additionally, our services are the forefront of providing the infrastructure solutions.
Necessary to enable the energy transition and the adoption of new technology.
As a result, we believe our business is levered to favorable and sustainable long term trends.
Okay.
Demand for grid modernization system hardening electric vehicle charging infrastructure and renewable energy interconnection services is robust and we believe will remain so for the foreseeable future.
This activity drove our electric power results and backlog strength during 2021, primarily through <unk>.
Significant multi year Master service agreements with utilities.
Further we believe we are in the early stages of utilities underground in transmission and distribution lines to protect them from the effects of severe weather events and wildfires.
For example, several utilities in the Western United States are planning to invest tens of billions of dollars in the aggregate to underground thousands of miles of electric power lines in high fire threat areas.
Electric utilities and other areas of the country are pursuing initiatives to underground critical infrastructure.
Examples include electric transmission projects in the northeast distribution circuits, along the coast lines in electric transmission line projects for offshore wind generation.
Many of these initiatives are part of a large scale multi year system partnering programs.
We also believe North America is that an inflection point for significant investment in electric vehicle related infrastructure, including charging infrastructure and the electric distribution system upgrades necessary to support the anticipated increase in the adoption of electric cars trucks and commercial fleet vehicles in the coming.
Years.
While it continues its work with multiple leading electrical vehicle charging companies and utilities to build our infrastructure necessary to make fast affordable charging hospital in numerous states across the country.
One is presently working on the rollout of one hundreds of charging stations and many of these locations quantity serving as the program manager, providing a full suite of engineering development and construction services.
With our scope and scale and turnkey program management capabilities, we are pursuing additional EV charging program management opportunities with other charging infrastructure companies automakers and utilities.
Our communications operations, which are within the electric power segment grew revenues and backlog nicely in 2021, but our profitability levels did not achieve our goals. We are working constructively with customers on certain items that have impacted profitability and believe these initiatives are approaching resolution.
So with the exception of these issues the remainder of the communications operations are operating close to our target margin profile for the year.
The demand for communication services remains high and we expect double digit revenue growth and a return to upper single digit operating income margins for our communications operations in 2022.
Yeah.
With the addition of blattner to our portfolio, we have begun reporting through three segments by adding a new renewable energy infrastructure solutions segment.
This platform consists of services and solutions for infrastructure supporting the delivery of renewable energy, including renewable generation electric transmission, Substations and battery storage with <unk>.
<unk> operations are is that representing the majority of those solutions.
We are strategically positioned to collaborate with our customers to lead North America's energy transition and capitalize on the growing and significant amount of expenditures expected to be invested in renewable generation and related infrastructure as part of these efforts.
Renewable developers and utilities are leading the effort to reduce carbon emissions.
Many with carbon neutral commitments through aggressive efforts to expand our renewable generation portfolios and implement new technologies for current and future needs.
It's evening their goals will also require substantial incremental investment in transmission and substation infrastructure to interconnect new renewed.
Renewable generation facilities to the power grid and to ensure grid reliability due to the significant increase of intermittent power added to the system.
For example, we highlighted in our earnings release. This morning, our recent selection to build more than 400 miles of high voltage electric transmission across several states for our customer in the western United States.
<unk> is designed to improve operational flexibility in conjunction with future generation resources, including renewable energy.
To meet the load growth and provide increased reliability.
Also of note. This is the largest electric transmission line contract ever awarded to Quanta in the United States.
Over the near and longer term, we believe substantial load growth public policy and the overall positive sentiment supporting a greener environment will continue to drive North America's power generation mix.
Recently towards renewables.
Partners utility scale renewable generation solutions, coupled with Qantas existing holistic grid solutions.
That's a unique value proposition and the opportunity to collaborate with our customers to shape their energy transition initiatives.
We are increasingly confident in the gross synergy opportunities we have with the addition of platinum and do that and believe we have only scratched the surface on what is possible.
Our underground utility and infrastructure solutions segment faced challenges last year, primarily due to circumstances outside of our control such as impacts from the global pandemic breakfast restaurants, along the Gulf coast due to hurricane and impact on results from a customer bankruptcy.
Despite these challenges our operations persevere and our gas utility and pipeline integrity operations performed well.
We believe the recovery of certain of our markets and operations has begun.
In particular, we expect our industrial services Canadian and the Australian operations to meaningfully improve this year both in revenue and margins. We expect to continue our focus on growing our gas utility pipeline integrity and industrial services businesses consistent with our strategy of the last five years.
Due to the favorable long term trends driven by safety reliability and environmental regulations.
Looking to the coming years, we believe quanta has meaningful opportunities with customers in this segment as they increasingly pursue strategies to reduce their carbon footprint and transitioned our operations and assets towards greener business opportunities for.
For example, gas utilities are implementing system modernization initiatives to reduce methane emissions.
And that positions <unk> to blend hydrogen instead of natural gas flows and certain refiners utilities and developers are building renewable natural gas and biofuel processing facilities.
We are also actively pursuing sizable carbon sequestration projects.
In our earnings release. This morning, we provided our 2022 guidance, which we believe demonstrates the strength and sustainability of our business and long term strategy favorable end market trends, our ability to safely execute and are strong and strengthening our competitive position in the marketplace.
Further our ongoing investment.
And commitments to workforce training continues to positively impact our performance.
And positions us well to capitalize on future opportunities.
Our expectations call for another year of meaningful growth record revenues, adjusted EBITDA and earnings per share and improved profit margins.
Additionally, we see opportunity to achieve new record levels of backlog in 2022.
Derrick will provide additional detail about our guidance in his commentary.
In summary, the strong performance of our electric power and renewable energy infrastructure solutions operations and the contribution of acquisitions during the year yield yielded record results in 2021 and has given us a leading platform to collaborate with our customers to shape the energy transition.
We believe our strategic position in the marketplace remains strong.
Has been further enhanced by the acquisition of Blattner and that we are all well positioned for continued profitable growth over the near and longer term.
We continue to make meaningful meaningful progress on growing our portfolio of services within each of our units to further leverage our operating results.
Recent promotional revenue, perhaps to chief operating officer is intended to support and promote this strategy and we look forward to continuing to work with him on this important initiative.
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 strategic investments and dividends, we believe quanta will continue to generate meaningful value for our stakeholders going forward.
We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best in class build leadership, we will pursue opportunities to enhance Qantas base business and leadership position in the industry and provide innovative solutions to our customers. We believe Qantas diversity unique operating model and.
Entrepreneurial mindset form the foundation that will allow us to continue to generate long term value for our stakeholders.
I will now turn the call over to Derrick Jensen, our CFO for his review of our fourth quarter and full year results and 2022 expectations Derrick.
Thanks, Duke and good morning, everyone today, we announced record quarterly revenues of $3 9 billion for the fourth quarter of 2021.
Net income attributable to common stock was $104 8 million or <unk> 71 per diluted share and adjusted diluted earnings per share a non-GAAP measure was a record $1 54.
Overall, the fourth quarter closed out another exceptional year of operational performance for quanta.
Our fourth quarter results include the introduction of our renewable energy infrastructure solutions segment, largely due to the inclusion of blattner in our operating results beginning in October .
At a high level. This segment, primarily represents the solutions, we're providing associated with interconnection substation and generation infrastructure directly supporting the delivery of renewable electricity.
Historically these activities were included within our electric segment. However, at the same market forces driving <unk> growth will drive growth in these related areas, which included the aggregation of these services provided incremental clarity to the investment community.
Our reported results exceeded our expectations for the fourth quarter in numerous areas, including revenues adjusted EBITDA EPS and adjusted EPS with revenues and adjusted EBITDA delivering significant growth as compared to last year.
I'll cover a few items impacting the quarter.
Revenues continued to show significant growth compared to last year in part due to record emergency storm response revenues, although only slightly above last year's IRS revenues.
Additionally, revenues from acquired businesses were approximately $500 million <unk> 'twenty, one the majority of which was attributable to bladder.
Operating margins in the quarter benefited from continued strong execution across our electric operations with margins exceeding 12%.
Also contributing were the operating results of our integral unconsolidated affiliates. This primarily relates to the luma joint venture, but also includes contributions from our business that provide specialty site preparation and access solutions in which we acquired a 44% interest during the quarter as we commented on in our third quarter earnings release and <unk>.
They performed quite well during the quarter.
Partially offsetting those dynamics, where our communications operations, which had negative margins during the quarter due to the challenges experienced in certain regions.
Specifically, one customer reduce the previously expected scope of work in certain markets, while our requirements to evidenced the completion of the work had been subject to multiple changes.
Due to the elimination of future scope and associated construction activities, we were required to recognize in the quarter the full cost necessary for preparation and submission of the modified closeout packages for.
For two other contracts with another customer we recognized losses due to the ongoing permitting delays, which were substantially hindering production as well as increased cost to meet scheduled covenant that these two projects.
<unk> are near completion.
Importantly, our remaining aggregate communications operations are operating in the upper single digit range, giving us the confidence that our longer term margin profiles are achievable.
Our previous guidance included expected contributions from transactions made in <unk> 'twenty, one and for 2021 through the date of our November earnings release of between $40 million and $60 million of adjusted EBITDA, a non-GAAP measure ultimately our fourth quarter results included contributions towards the higher end of this range.
We recognized an incremental $8 $1 million provision for credit loss or <unk> <unk> per diluted share related to outstanding receivables owed by line three refining that declared bankruptcy in July 2021, as we do not anticipate the receipt of any funds through the bankruptcy proceeding.
We no longer have any exposure related to receivables owed from this customer.
Operating margin of <unk> 21 was negatively impacted by $146 million associated with amortization deal costs and fair market value adjustments to earn out liabilities, a combined 370 basis points impact compared to $28 million of comparable costs and approximately 100 basis point impact in <unk> 'twenty.
Yeah.
Also of note the tax expense and effective rate for the fourth quarter and full year of 2021 were significantly lower than our previous guidance. This reduction was largely driven by the favorable IRS clarification on per diem deductions for 2021, and the reversal of certain reserves for uncertain tax positions upon expiration of certain statutes.
Limitations.
Our total backlog was $19 3 billion at the end of the fourth quarter another record level.
$1 6 billion of the backlog is attributable to fourth quarter acquisitions, the majority of which was from blattner, but excluding those contributions total backlog were still up over $600 million compared to <unk> 21.
12 month backlog of $11 3 billion.
<unk> close to one $5 billion of acquired backlog, but excluding those contributions still represents record 12 month backlog on an organic basis.
We believe these increases continue to reinforce the repeatable and sustainable nature of the largest portion of our revenues and earnings and the demand for our industry leading infrastructure solutions.
For the fourth quarter of 2021, we generated free cash flow, a non-GAAP measure of $111 million, resulting in $246 million of free cash flow for the year.
Our previous expectations of $350 million to $500 million of free cash flow for the year excluded significant change of control related disbursements associated with the acquired liabilities during the quarter associated with the blattner transaction, which aggregated to $72 million and.
And are required to be treated as operating cash outflow items in our GAAP calculation.
We also took the opportunity in the fourth quarter of 2021 to accelerate the opportunistic and strategic procurement of around $50 million of equipment give.
Given the ongoing supply chain challenges in equipment and vehicle markets. We felt it was the right long term actions to take to support the ongoing needs of our operations.
Days sales outstanding or DSO measured 80 days for the fourth quarter, which is a reduction of nine days compared to the third quarter of 2021, and three days compared to the fourth quarter of 2020.
The decreases were primarily due to the favorable impact of the acquisition of Blattner, which typically has lower DSO within certain of our other larger operating companies.
This positive impact was partially offset by continued elevated working capital requirements associated with two larger Canadian transmission projects driving an increase in contract assets, which we've discussed in prior quarters.
Both projects have been impacted by work stoppage protocols in Canada associated with Covid mitigation as well as delays attributable to among other things wildfires impacting access to work sites.
Discussions with both customers regarding change orders associated with these increased costs are ongoing with multiple change orders already approved.
The remaining amounts are being pursued in the normal course.
We had total liquidity of $2 1 billion at year end and a debt to EBITDA ratio of two three as calculated under our credit agreement.
While our leverage profile remains above our target range due to the acquisition financing as we stated in prior calls we expect to efficiently delever over the following quarters, while continuing to create shareholder value through our dividend and repurchase programs as well as strategic acquisitions.
To that end during the fourth quarter. In addition to the three transactions we announced during our last earnings release, we acquired four additional businesses for total combined consideration of approximately $230 million.
These four acquisitions all close late in December and other than incremental deal costs were immaterial to our <unk> results.
Turning to guidance first forecasting and providing specific commentary on the classification of uncommitted revenues between electric power versus renewables can be challenging okay.
Accordingly, it is possible that as we progressed through the year and gain more visibility into the nature of the work will be performing there could be movements outside these initial segment ranges simply due to the type of infrastructure our activities will be supporting <unk>.
As Duke commented, we deliver our portfolio of services and we are comfortable with our aggregate expectations.
Additionally, by following seasonality commentary addresses our expectations for 2022 as compared to a recast quarterly results for 2021, which aligned prior reported numbers to our new segmentation and these 2021 recast that segment numbers have been included in today's earnings release.
As it relates to the electric power segment, specifically, we see 2022 revenues ranging between eight 2% and $8 3 billion.
Our base business continues to continues to lead the growth in the segment driven primarily by North American utilities outsourcing activities required to replace rebuild and upgrade existing infrastructure.
Notably these growth expectations are tempered by reduced store revenues $250 million of which are included in our current expectations compared to over $450 million in 2021.
Additionally, revenue contributions from larger electric projects are forecasted to be around $200 million lower than 2022, as we expect to reach substantial completion on one of our larger Canadian projects in the first quarter.
Included within the segment, our communications operations, which we expect to grow double digits over 2021 levels to around $750 million of revenue in 2022.
While we expect 2022 operating margins for the electric power segment to range between 10, seven and 11, 3%, which includes the contributions of between 45 and $50 million of earnings from our integral unconsolidated affiliates, the largest portion of which relates to the lunar joint venture in Puerto Rico.
2021 represented another exceptional year for our electric operations and our margin profile was again above our historical norms and our original expectations due in part to the record emergency restoration service revenues.
Our 2022 expectations for margins for the segment remain elevated on a more consistent with historical averages and our tempered by normalized storm revenues as well as our communications operations, which are expected to operate in the upper single digits in 2022.
As is typically the case, we expect that first quarter operating margins will be the lowest for the year likely around 10% with margins increasing in the second and third quarters, and then slightly declining in the fourth quarter.
The renewable energy infrastructure solutions segment full year revenues are expected to range between three eight and $4 billion.
But the largest portion of the growth due to the acquisition of <unk>.
As it relates to blattner, we remain confident in the initial range of expectations for 2022 included in the September deal announcement.
From a revenue seasonality perspective in 2022, we expect segment revenues to be between 900 $950 million in the first quarter, then growing sequentially into the third quarter with a slight decline in the fourth quarter.
We expect 2022 operating margins for the renewable energy segment to be around 9% for the year translating into double digit EBITDA margins, which is what we would expect from the segment.
Due to the slightly higher project oriented nature of this segment margins will be more variable on a quarterly basis.
As it stands today similar to our other segments, we expect margins for the first quarter to be the lowest for the year likely around 8%.
Margins, therefore have the opportunity to strengthen in subsequent quarters as volumes increase and we successfully execute through individual project contingency throughout the year.
The underground utility and infrastructure solutions segment has been heavily impacted by the uncertainties in the energy market and economy caused by COVID-19, However, we expect far fewer headwinds in 2022.
We are currently anticipating double digit revenue growth off of 2020 off a 2021 with full year revenue is expected to range between $4 and $4 2 billion.
This growth is expected to be led by our industrial Canadian and Australian operations, each of which has dealt with significant challenges associated with COVID-19 related impacts for the last two years.
Additionally, our gas utility business continues to see nice year over year growth opportunities.
Operating margins are expected to improve meaningfully in 2022.
We see segment margins ranging between six 5% and seven 5% led primarily by recovery from our industrial and Canadian operations.
Consistent with years past, our first quarter traditionally has lower activity in this segment due to weather seasonality, which impacts our revenues and pressures margins to slightly below mid single digits.
However, we expect solid improvement into the second and third quarters with the seasonal decline in the fourth quarter.
The number and size of acquisitions in 2021 will significantly change the magnitude of amortization acquisition and integration costs and certain other corporate and unallocated costs as well as the quarter to quarter timing of these items.
We've included some additional information on these as well as further segment seasonality comments and other guidance items in the outlook summary that was posted in connection with the earnings release and can be found on our IR website at Quanta services Dot com.
One incremental items for 2022.
Early last year quantitate, a $90 million minority investment in a private company that provides broadband technology the.
The company has entered into an agreement with a special purpose acquisition company and pursuant to the transaction is expected to emerge as a publicly traded company in the first half of the year.
Once effective our current interest would become common equity and would be subject to mark to market accounting with changes in value recorded in other income.
We expect to adjust for these changes in value when reporting adjusted EBITDA and adjusted EPS, but have not forecasted any valuation movements Kirk.
These segment operating ranges support our expectation for 2022 annual consolidated revenues of $16 to $16 5 billion and.
And adjusted EBITDA of between $1 $5, nine and $1 7 billion.
This represents another record level of adjusted EBITDA and full year adjusted EBITDA margins over 10% with.
With these operating results, we estimate our range of GAAP diluted earnings per share attributable to common stock for 2022 to be between $3 56, and $4 six and.
And anticipate non-GAAP adjusted diluted earnings per share to be between $6 and $6 50.
Turning to cash flow the contract assets I spoke of earlier associated with the Canadian transmission projects impacted our operating cash flows in 2021, but are expected to represent inflows of cash in 2022 as components for each resolution.
These positive effects will be partially offset by the payment of approximately $46 million of.
A change of control related payments associated with the bladder acquisition and the payment of $54 million of previously deferred payroll taxes in accordance with the cares Act in 2020.
As such we currently expect 2022 free cash flow to range between 650, and $850 million with capital expenditures of around $400 million.
As we cost in every year quarterly free cash flow is subject to sizable movements due to various customer and project dynamics that occur in the normal course of operations.
Reflecting on our 2021 performance, we delivered another exceptional year led by solid execution in the field and highlighted by the transformational acquisition of blattner during the fourth quarter.
We ended the year with approximately $1 3 billion of adjusted EBITDA, a record for QUADRA, which represents a nearly 16, 8% CAGR since 2016.
More importantly, our record adjusted EPS of $4 92.
Represents a 26, 6% CAGR since 2016.
Looking forward, we continue to see the opportunity to deliver adjusted EPS growth that outpaces, our adjusted EBITDA growth led by margin expansion and operating leverage in the field coupled with strategic capital deployment is focused on delivering long term returns to our stockholders.
Over the last five years, we have deployed approximately $3 9 billion in cash for M&A and strategic investments $827 million for stock repurchases and $86 million on dividends.
Against this backdrop, our financial strategy and consistent performance had been acknowledged by our rating agencies, which reiterated our investment grade ratings subsequent to the debt raised to fund the <unk> acquisition.
Going into 2022, we have significant liquidity available and approximately $473 million of availability remaining on our current stock repurchase program.
That we are focused on de levering in the near term, we remain committed to delivering shareholder value through strategic acquisitions and opportunistic repurchase activity.
Overall, we continue to believe we are in the early stages of a significant infrastructure investment cycle and that we are uniquely positioned in the markets. We serve to deliver comprehensive end to end solutions to support north America's transition to carbon neutral energy infrastructure.
This concludes our formal presentation and we'll now open the line for Q&A.
Operator.
Thank you the floor is now open for your questions. If you would like to register a question. Please press star one on your telephone keypad at this time.
Information tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
In the interest of time, we do ask that you. Please limit yourself to one question and then re queue for any additional questions and once again that is star one if you would like to register a question at this time.
Our first question is coming from Michael Dudas of vertical research. Please go ahead.
Good morning, Kipp Derek Duke.
One of them.
Do you see in your prepared remarks, I was quite intrigued about talked about.
Standing service offerings.
Several operating units.
Are you seeing you've made quite a few acquisitions to expand especially in your front end work in advisory.
Can you share a bit more what you're what's going on and how thats going to benefit.
Strategically because.
Add to your clients, but I would also maybe a mix or margin or financial aspects. So I hope that would be something.
To get more clarity.
Yeah. Thanks, Mike we've talked about it quite a bit about the company being a portfolio.
I truly believe we operate in that manner as we think about the region Audi and how how we said we've what we've what we've done is.
Our segments are utilized segments, you continue to see us.
Look at underground electric look at underground.
Underground telecom it doesn't matter to us what median or wet service were providing the equipment is very similar that people are very similar. So we believe we can expand those offerings as well as on the front end services across the board really at a regional level and so the segmentation may look one way, but how well.
Operating in the field to get the leverage at the unit, which will ultimately produce the margins that youre, saying and enhance the margins.
Hey.
We'll allow that leverage at that level. So that's just for our from our standpoint, that's the way that we will continue to operate the company and offer various service lines to the customer.
Really what's driving that is our customer demand.
On the local level for expanded services that we can offer so really it's us trying to make sure that we're leveraging that at the fit very fill level, which will ultimately increase margins.
Thanks, Steve.
Okay.
Thank you. Our next question is coming from.
Justin Hockey of Baird. Please go ahead.
Great Hi.
I guess I.
Two questions.
I'll start with kind of maybe maybe the bigger one and then I've got just a quick technical one but just.
Maybe just a little more details on the Las Vegas project.
EPC I'm just wondering are you do you have partners on this project or is that all of you.
Just any comments on kind of the risk terms or how it would be different and then you talked about it being the largest U S contract you've ever had I think the Canadian ones. You had works just over 1 billion of revenue so would that be a good benchmark to kind of think about maybe the size of this project.
Yes, so the project we discussed to the west.
<unk> not Las Vegas, but in general what I would say is where we're performing that holistically internally, probably self performed 90% of it we're proud of the project.
Florida Mall projects. So in our mind. The example of US stacking onto our art existing base business there in the Western region.
They all have partners and there is not necessary for us to have partners given the size of the company. So again, we're trying to really work on this energy transition and work on it in a holistic fashion. This is something where we had several operating years come together and we're able to fund the whole project for the client and give them the best service offering at our minds, so real proud of the <unk>.
To the west.
Again, it's just an example of where the company is going way up I believe its in the renewable segment as we discussed and I do think you'll see more of this movie moving renewables to the west and so those type of projects will definitely stock orientated.
Our existing base business, we're proud of it.
As far as the size of it nearly comp we talked about it being the largest in.
As the business in North America in the lower 48 so.
Ultimately a large project for us, we're not going to get into the size of it yes will only frame it by saying that had been awarded prior to year end, our total backlog would've exceeded $20 billion.
Okay. That's helpful.
I guess Derek maybe the other question so on.
The equity income this quarter.
Jumping to $22 million.
You guys called out the minority investments that you did it sounds like maybe that's part of it I'm. Just curious was there anything that was like that was associated with Luna being in full transition that we should think in kind of a run rate for that because it looks like the implied guidance for 'twenty two.
Running at a much lower rate than what it was in the quarter.
Yes actually the majority of the difference was the joint venture type dynamic guys added very nice fourth quarter. There is a little bit of an uptick in the fourth quarter are associated with Luna, which is just has to do with the timing of.
That's kind of internal administrative costs, rather than anything associated with fixed fee itself on a go forward basis I would tell you that it's.
In that range that I provided 45% to 50 is a little bit of the income associated with the <unk>.
Joining venture contribution and fairly close to our original expectations for the remaining amendment.
Great. Thank you very much guys I appreciate it.
Thank you. Our next question is coming from Sean Eastman of Keybanc capital markets. Please go ahead.
Hi team thanks for taking my questions.
I just wanted to hone in on on the new renewables segment.
It sounded like the underlying outlet for blattner embedded in there is consistent with what you guys communicated before but it would be helpful.
Since we only really had historically on a.
On an EBITDA level for blattner.
It would be great to just kind of walk through the.
Sort of normative or targeted margin profile, we should be thinking about for this new segment. Since it includes some other stuff as well.
Yes, China's steel in general a lot of thing.
In our mind, it's double digit EBITDA, even some uplift in margins. If we can operate through some contingencies on the way through it so.
We are proud of this segment, we think it highlights where the company's at certainly bladder is the.
A big piece of that segment, we've stated the guidance there.
Before around series six so that's where we stand on that and I do think Youll see those type of margins that are previously stated with blattner and that segment. So we've got a nice business before we talked about a lot how we're enabling the infrastructure with substations and interconnections.
Long transmission lines or do you think that segment will continue to build.
Continue to see.
Nice work nice backlog it is not beer then.
What you would consider our base business, but it's just timing Dave.
Dave's timing not years timing in my mind. So I do think it is fairly predictable at this point, we're giving good guidance on <unk>.
Blattner out to 25, so I do think we're able to not only shows the power of what we can do in that sector, but also give you some visibility and I'll, let Derrick comment Yeah, I think Steve said it fine.
The only thing I'd add additional color I think all went back to when we did the original deal announcement.
For.
The largest portion of a decade, Latin who has been able to operate at a double digit EBITDA they've had some very good performance within the last few years kind of pressing that number up a little bit, but we look to kind of those historical dynamics to think about our multiyear expectations. So consistent with 22 and in the outer years, we think the continued operating at double digit EBITDA.
Aggregate for this segment, we think we've tried to be prudent in how to think about that in 'twenty. Two when you think about it at the operating level at that 9%.
And I think that between the bladder execution as well as our own.
As we execute to contingencies clearly that gives us the ability to see a margin expansion Duke made reference to it in our prepared remarks, we do believe that there is a bit more variability that youll see within this segment. There is a smaller number of overall projects as compared to as an example.
The larger remaining electric power group as a whole, which can create a bit of variability in the timing of the work, but largely very confident in our ability to execute.
Okay. That's helpful and the underground segment looks like no changes to the segment reporting there that the revenue and margins came in a little better than I was expecting in terms of the outlook. So just.
Just a bit of a flavor on what type of operating environment and.
Underlying assumptions for the bigger buckets in there, namely.
Industrial and LDC business would be helpful. As we think about what bridges us to this 2022 outlook for that segment.
Yes, John I think you've seen the rebound in some of the oil pricing and things of that nature or the industrial business seems really uplift we thought it would be anyway. So I think it will stack onto the current demand that we're seeing on the industrial side. So we're confident in that business in 'twenty two as it stands.
That's certainly something that we're watching very closely but we feel good about it our Canadian business is also rebounding, we like where we stand there. So all in all I would say incrementally we're more positive on the underground segment and we have been but.
We've stated before we're running it as a portfolio the LDC business, we may be doing telecom, we may begin with electric.
Some of that business will be blended with vantage of electric segment Telecom segment in the field as a portfolio. So I wouldn't get too caught up in the segmentation. The overall business will continue to rise and we're producing double digit margins double digit growth those kind of things at the bottom and so what I'm really looking at is that by the number of it continues to.
So we're proud of it.
Okay excellent thanks, guys I'll turn it over there.
Thank you, ladies and gentlemen, we do remind you that in the interest of time and to allow as many callers as possible to please limit yourself to one question before re queuing for any additional questions. Our next question is coming from Jamie Cook of Credit Suisse. Please go ahead.
Hey, good morning, guys nice quarter.
I guess my question is on <unk>.
Lattner understanding the revenue guide.
<unk> for Blattner is unchanged.
Can you talk about what they're seeing on supply chain side any different than what youre expecting solar versus wind or perhaps you know revenue synergies are starting to come through so just an update on what flattened everything thank you.
Good morning, Jamie So in general I would say we are confident in blood and are confident in the guidance.
Obviously, we get an outward year guidance as well as the demand on renewable business balance of plant is certainly there across the board both solar land, we have really nice high end high demand clients that come.
Customers that we believe really have at the supply chain figured out for the most part not to say there is not some.
Small areas, where youre seeing things happen, but in general we took all that into account when we gave guidance. Originally we've taken into account now we believe we can execute through that certain things may show up a little later, but we've done a really nice job I think what I would tell you is I think it's an advantage for quanta when there is a supply chain disruptions.
It allows us to show the breadth of the company and be able to move.
Our panel may be delayed a little bit, but we can build everything up to the panel and move to where the panels are just new.
Around so it shows the scale and scope of the company of how we operate and it doesn't affect us which allows us to collaborate with the client. So I mean, I think we're using it to our advantage honestly, we like where we sit in the market.
Congratulations thank you.
Thank you.
Thank you. Our next question is coming from Neil Mehta of Goldman Sachs. Please go ahead.
Good morning team yeah, its strong quarter as well here for my first question is about the supply chain can you talk about how supply chain issues can affect wanted 2022 is there a risk around project delays this year and how it's quant that been able to scale its labor force in conjunction with revenue.
<unk> amid a relatively tight labor market.
I think the company in the past over the past.
Six seven years is really focused on labor, our craft skilled labor and instead of just the core of the business and really invested in it. So that investment is certainly pays off in tight labor markets and I think when we look at it.
It's to our advantage, we continue to grow that business nicely.
Work on how we perform our labor.
There, we were able to train and get people to the field faster safer. So those things are something that we've worked on quite a bit and believe it's core to us. So yes, we like where we sit and we like how we're performing the supply chain with the breadth of the company and the scale that we have we're able to move pretty nimble through it through this and I think yes.
There is some supply chain issues in certain areas, but in general we're able to work with the client.
Well before Theres, a problem or an issue and new projects project or or help them become more nimble as well. So I do think it's us working with a client knowing that we'd see some supply chain because supply chain constraints and.
Make sure that we're operating properly and we've done that in the past you can see the margins in the fourth quarter. We've operated through we believe in 'twenty two.
Same thing we have leaned into some of the issues on fleet.
In the third or fourth largest fleet in North America, we're able to really stretch ourselves there and make sure that we have the fleet necessary.
Get in front of some of those issues. So we've done a nice job across the board of mitigating the risk of supply chain and not to say that it's not out there.
Thank you David.
The follow up is just on the high voltage project award that debt.
Announced in January can you talk about the opportunity set for additional high voltage transmission projects of similar scale through this year and beyond and could you see additional opportunities this year.
As you talk about that maybe talk about the regulatory environment, because they're not in my backyard syndrome is certainly something that has affected the rollout of these transmission lines.
Yes, I think when you look at the company, we've stated before the base business to 80% to 85% in the electric side and underground given blattner guidance. So if you think about it those projects will stack. There is a multitude of projects out there the list is long.
I do think we've talked about where the company sits in those type of projects and we've always said, we would be around the edges and locker chances. We continue to refine how we deliver to the client.
Programmatic spends a decline or larger.
And our ability to execute on time on budget was 85% to 90% self perform has given us advantages across the board and we like where we sit in that in that spectrum. So.
As those projects.
<unk>.
Come to market that good Friday, we.
We get approvals not to say there is not.
Normal problems around permitting because there is it's getting better but there are still issues.
Many of these projects have been on the books for decades.
When I look back we had looked at it 10 years ago.
Just now coming to market. So we're.
We're not going to get chase shiny objects, all the time, but we are there and the edges and we will I believe have a great service offering to the client windows come available in a stack on top of what you already see in the growth rates Juicy and below so we're excited about where we sit and obviously that project to the west is this at all.
In mind something that as it comes available we like our chances to win those type projects.
Thanks, Steve.
Sure.
Thank you. Our next question is coming from Adam Palmyra, Scott Thalheimer of Thompson Davis. Please go ahead.
Hey, good morning, guys.
<expletive> I wanted to ask two questions. Both on Blattner number one are you seeing any revenue synergies yet and then number two.
Can you talk about why do you see and how youre thinking about any kind of long term service opportunity in the renewables business.
Yeah, I think when you look about look at bladder really in many ways transform where we set in the energy transition. It certainly puts us in front of a client across the board both sides from energy all the way to utilities to developers. So it allows us a broad spectrum at a very early stage within our.
Jack <unk> ability their self perform capabilities, how they take was much like us on the transmission distribution side of the utility business. So when we put our heads together, there's not a day that goes by we don't think of the synergy or something that we believe was transitional to the market. So we're in front of US we think a lot of like.
Enjoy the management team and our ability to collaborate has been exceptional so the opportunities that not only what we would call renewal, but also clean energy and how we think about how blattner helps us transition ourselves as quanta to really lead the way in that transition as much more than one.
Just wanted to in my mind, it will really allow us to.
Help our client which is ultimately both companies were focused on decline and I'll say it over and over again.
Very much aligned on that so we really want to get in there and help to help the client and move forward.
Early stage and it allows a lot of benefits to both sides on the back side of this you see type markets like this when both of US are in there with our existing clients. We are able to really produce a nice project for the client.
Low cost debt and in my mind that it does.
And escalate or we're not having the issues that others may have because we self perform so in my mind, we de risk a lot of things that are normal enc does not.
<unk> said that many many times and the resiliency of the company shows with bladder and where we're at where we sit in the energy transition.
Thanks, Steve Congrats on the quarter.
Thanks.
Thank you again, ladies and gentlemen, we are asking that you. Please limit yourself to one question. So that we can accommodate as many callers as possible.
Our next question is coming from Ian Macpherson of Piper Sandler. Please go ahead.
Good morning, gentlemen, congratulations this was sort of already been passed a little bit bye bye, Jamie and others, but I wanted to revisit if we if we look at.
The tape with renewables and we see the negative sentiment in the market regarding the impact of rising interest rates and political gridlock in Washington, and supply chain cost risk that's impacting utility scale development.
There is implied fear I think with respect to the blattner order momentum throughout this year and I know you're not guiding on.
On the orders and backlog, but Duke would you refute that negative sentiment regarding an air pocket in renewables order activity for this year. Despite those factors.
We've had a robust market over the last few years and you continue to have one.
You're talking days months, if you're moving things.
So I'll just giving an example.
Its solar panels are delayed.
The last thing, we're really accomplishing solar bill would be putting the panels. One so if we build everything else and put the panels on at the end, it's not a big deal.
Does it does it disrupt a little bit yes can we get through it yes. So it is not.
The things that you are seeing the disruptions.
Disruptions you may see.
Got something that sensor mountable, nor do we believe it has affected.
Our ability to capture work or the way that blattner looks.
Long term short term when you gave guidance with that in mind that there would be some balance and some.
Yeah.
I would say lumpiness in the market we felt like it was there. That's why we gave the guidance. We gave we also gave guidance into 2025 to $3 6 billion. So.
The market, the overall, where that where we're going with the energy transition I don't believe that change I believe all the clients that we have set the same so we really were going to a greener environment.
Load growth is going up there's no doubt about it and the carbon free the way that we're going to deliver energy will be much different than we're sitting at the very front of that transition over the next decade, and we're just getting started so we really like what we said.
Okay.
Good results good answer thanks, Duke.
Yes.
Thank you. Our next question is coming from Steven Fisher of UBS. Please go ahead.
Thanks, Good morning, and you may have really just answered this but wanted to ask you again about the renewable segment margin.
Because you do have a decline there.
Assumed and I'm just wondering is that for what you just talked about you're baking in is it declining because you're now baking in some more of these kind of timing issues, where you add the panels on.
Later, and then I guess.
The follow on to that would be whats the potential for that business segment margin to start growing again as we look beyond 2022.
Yeah. If you look at the renewable segment I think if you look back we've recast last year, 13% I believe is what it looked like a little bit over that obviously, we've guided differently with the partner acquisition took a couple of things.
I assure you had some contingency releases things like that.
Recast as well as when you go forward, we talked about double digit EBITDA at <unk>.
As we said can we operate through do we get there. We think we have given prudent guidance and in our renewable section.
Segment, yes.
We'll be prudent about it we thought about it we thought about the guidance that we've given and our ability to grow we've talked about bladder go into three six.
It's a segment that we believe will grow certainly that with both companies during the things that we're doing.
On the backlog and things of that nature in this segment similar to the project that we announced.
Today, I believe that will go into backlog in the first quarter.
So you'll continue to see the growth there in my mind on these on these products.