Q1 2022 Quanta Services Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the Quanta services first quarter 2022 earnings conference call.
All lines have been placed on a listen only mode and the floor will be opened for questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press star zero on your telephone keypad to reach a live operator.
At this time it is my pleasure to turn the floor over to your host.
Chip Brown.
Didn't investor relations. Thank you one moment.
Thank you and welcome everyone to the Quanta services first quarter 2022 earnings conference call.
This morning, we issued a press release announcing our first quarter 2022 results, which can be found in the Investor Relations section of our website at Quanta services Dot com along with the summary of our 2022 outlook and commentary we will be discussing this morning.
Additionally, we will use a slide presentation to accompany our prepared remarks, which is available through the call's webcast and is also available on the Investor Relations section of the Quanta services website.
Please remember that information reported on this call speaks only as of today may five 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 established by the private Securities Litigation Reform Act of 1995.
These include all statements, reflecting clients' expectations intentions assumptions or beliefs about future events or performance or 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 Qantas control and actual results may differ materially from those expressed or implied.
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 Companys periodic reports and other documents filed with the Securities and Exchange Commission, which are available on Qantas or the SEC's 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 our forecasted non-GAAP financial measures in today's call, including adjusted diluted EPS backlog EBITDA and free cash flow reconcile a 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 Quanta Services' Dot Com. We also encourage investors and others interested in our company to follow Quanta IR and Quanta services on the social media channels listed on our website.
With that I would now like to turn the call over to Mr. Duke Austin, Qantas, President and CEO Duke.
Thanks, Kip good morning, everyone and welcome to Quanta services first quarter 2022 earnings conference call on the call today, I will provide operational and strategic commentary and we will then turn it over to Derrick Jensen <unk>, Chief Financial Officer, who will provide a review of our first quarter results and full year 2022 financial.
Expectations following derek's comments, we welcome your questions.
Our first quarter results show that quanta is off to a great start this year with quarterly revenues up $4 billion. Each segment generated strong revenue growth during the quarter, despite the impact of normal seasonality.
GAAP and adjusted diluted EPS of <unk> 57.
A record $1 37.
Respectfully.
Additionally.
Total backlog at the quarter end exceeded $20 billion for the first time, which continues to support our 2022 financial expectations.
We continue to see opportunities across our service lines driven by our collaborative solution based approach to growth of programmatic spending with existing and new customers and a favorable mega trends that we discussed at our recent Investor day.
Which provides strong visibility into near and long term growth.
Our electric power infrastructure solutions operations continued to perform well during the quarter.
Driven by broad based business strength from ongoing utility grid modernization and system hardening initiatives and solid execution.
Additionally, our communications operations are moving in the right direction and performed well during the quarter.
Yes.
Our electric power outlook remains strong driven primarily by increasing service line opportunities and market share gains on our base business.
We continue to actively pursue large new master service agreements or Msas that are designed to modernize the grid and to support growing electric vehicle penetration and other new technology adoption.
To harden our system to be more resilient to wildfire.
Severe weather events.
We believe these trends provide opportunity for materially greater backlog levels. This year.
Our conversations about 400, EV charging program management solutions continues to advance with companies throughout the electric vehicle ecosystem.
Our revenues from EV charging infrastructure work are relatively small but are expected to increase significantly this year and beyond.
We believe EV charging infrastructure opportunities are on the cusp of accelerating not only just beginning.
Additionally, we believe the need to modernize and enhance the power grid to enable higher levels of load growth and continuous power demand caused by growing EV penetration.
It creates significant opportunity for quanta.
Our renewable energy infrastructure solutions segment performed well during the quarter.
Many of the macroeconomic uncertainties, we are managing through today, we're known unknowns.
Now that takes into acquired last year and September of 2021, and we've prudently taken these risks into consideration for our full year 2022 guidance.
We also believe Qantas and blattner, its market, leading position scope and scale and technology and geographic diversity positions the company to manage through times of uncertainty.
That said, we reiterate that we did not acquire blattner for 2022.
The addition of Black energy utility scale renewable generation solutions to quantity existing holistic grid solutions transforms our ability to collaborate early with our customers on to our energy transmission strategies over the coming decades, which we believe creates a value proposition unique to the industry.
We are increasingly confident in our strategy to position quanta as the infrastructure solutions leader in the energy transition.
We are pleased with the performance of our underground utility and infrastructure solutions segment, which delivered strong revenue growth and profitability in the quarter in particular, our industrial services operations executed well and are experiencing strong demand as the global economy.
<unk> continues to recover and two years of pent up demand from deferred maintenance and capital spending resumes.
We also continue to experience solid demand for our gas utility and pipeline integrity services.
Sorry, driven by regulated spend to modernize systems reduce methane emissions and sure environmental compliance and improve safety and reliability.
Looking into the coming years, we continue to see emerging opportunities for Qantas underground utilities and infrastructure solutions operations planning.
Involving an increasing role with customers as they increasingly pursue strategies to reduce their carbon footprint and diversify their operations and assets towards greener business opportunities.
As we discussed in detail in months ago. During our 2022 Investor Day in New York City Quanta is successfully executing our strategic initiatives to drive operational excellence kudos comparable leases for our clients and profitable growth and value for our stakeholders.
Our strategic initiatives uniquely positions us to not only capitalize on the mega trends, but also enhance our close customer relationships and market positioning.
As a result, we were able to collaborate with our clients to execute their capital deployment plans, even during challenging conditions like the ones, we face today, including supply chain in place since COVID-19, and regulatory uncertainties.
These dynamics are not easy to navigate but we expect to continue to successfully manage through them.
It is during these times the quantity illustrates this resilience, which we believe shows the strength of our operations portfolio strategic initiatives and platform of solutions.
Furthermore, we are developing new solutions throughout the supply chain, which we believe will be a differentiator and we will expand our customer base. We believe the glass is half full.
These challenges as opportunities for us to take strategic actions to further differentiate our solutions and mitigate risk for our company and our customers.
Yeah.
Well it is a portfolio of exceptional companies with geographic and service line diversity.
We are anchored by our commitment to craft skilled labor and our self perform capabilities and remain dedicated to growing and enhancing our portfolio of services.
<unk> strengthens our ability to capture more of our customers' large programmatic spending programs and to operate in a responsible and sustainable way, while maintaining a strong financial profile.
Looking to the medium and long term as the energy transition and carbon reduction initiatives accelerate.
We believe the infrastructure investments and renewable generation necessary to support these initiatives are still in early stages of deployment and that this is arguably the most exciting time and Qantas history.
We are profitably growing the company and executed well and expect to continue to do so demand for our services is robust across our portfolio and driven by long term visible and resilient Brasilia energy transition in technology enablement Mega trends.
We are confident in the strategic initiatives, we are executing on the competitive position, we have in the marketplace and our position positive multiyear outlook.
As a result, we believe quanta has built a platform with the opportunity to deliver a 10% organic adjusted earnings per share CAGR and a strategy with the opportunity to deliver a 15% or better adjusted EPS CAGR through 2026.
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 upon its base business and leadership position in the industry and provide innovative solutions to our customers.
We believe quanta is diversity unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long term value for our stakeholders.
Okay.
I will now turn the call over to Derrick Jensen, our CFO for his review of our first quarter results and 2022 expectations Derrick.
Thanks, Duke and good morning, everyone today, we announced record first quarter revenues of $4 billion.
Net income attributable to common stock was $85 million or <unk> 57 per diluted share and adjusted diluted earnings per share a non-GAAP measure was a record for the first quarter at $1 37.
Our electric power revenues were $2 $1 billion, a quarterly record and a 28% increase when compared to the first quarter of 2021.
This increase was primarily due to growth in spending by our utility customers on grid modernization, resulting in increased demand for our electric power services as well as approximately $75 million in revenues attributable to acquired businesses.
Electric segment operating income margins Q1'twenty, two where 95% a 30 basis point improvement compared to nine 2% in <unk> 'twenty one.
However margins were slightly impacted during the quarter for certain Canadian projects due to substantial cover delays that said our U S. Electric operations continued to perform well delivering another double digit quarter.
Also included within our electric segment are our communications operations, which delivered mid single digit margins during the quarter and remain on track for upper single digit margins for the year.
Renewable energy infrastructure segment revenues for <unk> 22 for $876 million.
A substantial increase from <unk> 21, primarily due to $470 million in revenue is attributable to the acquired businesses.
Operating income margins in <unk> were 8% in line with our expectations for the quarter, but lower than the 11, 8% and <unk> 21 due to the change in the mix of work as a result of the acquisitions and due to normal project variability.
Underground utility and infrastructure segment revenues were $951 million for the quarter, 48% higher than 121, reflecting increased levels of activity across all of our segment operations.
Operating income margins for the segment were five 1% 370 basis points higher than <unk> 'twenty one.
The margin improvement was largely due to the increase in revenues and improved performance from our industrial operations with Covid related headwinds previously impacting these operations largely absent in this segment for 122.
One below the line item I want to mention is our <unk> 'twenty to other income and expense.
As I mentioned last quarter, we hold an investment in a fixed wireless broadband technology provider than the March 2022 became Star Group Holdings, Inc. A publicly traded company at which point our interest became a common equity interest in a publicly traded company.
We re measured the fair value of this investment based on the market price of a publicly traded company stock as of March 31, 2022, which resulted in the recognition of an unrealized loss of $8 $4 million during the quarter.
The value of this investment must be marked to market at each quarter and as long as this investment is held.
On a non-GAAP adjusted earnings per share and adjusted EBITDA basis, which removes the non the.
The unrealized loss associated with this investment for the quarter and plan to continue adjusting our non-GAAP measures for mark to market volatility in future periods.
Our total backlog was a record $25 billion at the end of the first quarter.
Additionally, 12 month backlog of $11 5 billion also represents a quarterly record.
The backlog includes some nice project awards during the first quarter, our backlog growth continues to be driven primarily by multi year MSA programs with North American utilities, which we believe reinforces the repeatable and sustainable nature of the largest portion of our revenues and earnings.
As expected for the first quarter of 2022, we had negative free cash flow, a non-GAAP measure of $16 million.
Baird to $49 million of positive free cash flow in <unk> 'twenty one.
Net cash provided by operating activities during the first quarter of 2022 was lower due to higher revenues and corresponding increases in working capital demands compared to <unk> 21.
Days sales outstanding or DSO measured 80 days for the first quarter of 2022, a decrease of nine days compared to the first quarter of 2021 and the same as year end.
The decrease from <unk> 21 was primarily due to the favorable impact of the acquisition of Blattner was has traditionally had a 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 large Canadian transmission projects driving an increase in contract assets, which we've discussed in prior quarters.
Both projects were incrementally impacted by Covid during the first quarter, increasing our change order positions.
In total the announced being pursued are currently impacting dsos by as much as four to five days. However, one of those projects reached substantial completion during the first quarter and we expect those contract assets to be built and collected over the remainder of the year.
As of March 31, 2022, we had total liquidity of approximately $2 billion and a debt to EBITDA ratio of two three as calculated under our credit agreement.
We expect continued earnings growth and cash generation to support our ability to efficiently delever over the following quarters, while continuing to create shareholder value through our dividend and repurchase programs as well as strategic acquisitions.
Through the date of this earnings release, we've acquired approximately $21 million worth of stock since the beginning of the year as part of our repurchase program and we continue to evaluate potential acquisitions that fit our strategic objectives.
Turning to guidance.
I'm pleased with the start to our year and had little change to our overall expectations for 2022.
We now expect electric power revenues to range between eight 3% and $8 4 billion.
With margin expectations unchanged, ranging between 10, 7% or 11, 3%.
Similarly, we're increasing our underground revenue expectations to range between $4 1 billion and $4 3 billion with margins expected to range between six 5% and seven 5% consistent with our previous expectations.
Our <unk> segment revenue expectations are unchanged, however, with the uncertainty on project timing attributable to potential supply chain disruptions, we have widened our operating margin range a bit to eight 5% to 9%.
We believe these dynamics are short term in nature, and the opportunity to overcome them and deliver margins at our original 9% level and above continues to exist.
Additionally, higher interest rates on our variable rate debt are resulting in increased interest expense for the year, which we now expect to range between a $113 million and $117 million for the year.
In the aggregate our consolidated expectations for adjusted EPS, and adjusted EBITDA remain unchanged for the year, reflecting the strength of our portfolio.
For additional information please refer to our outlet summary, which can be found in the financial info section of our IR website at Quanta services Dot com.
From a long term perspective, as we laid out in April at our Investor day, the tailwind behind our end markets and our industry, leading solutions present management with the opportunity to deliver significant shareholder value through organic growth and strategic capital deployment through 2026 and beyond.
And speaking of management as we disclosed in today's additional release I am pleased to announce by planned transition from the role of Chief Financial Officer to the new role of executive Vice President of business operations.
Transitioning into the role of Chief Financial Officer, Jason redesign J Treaty has been a valuable partner to me and Duke and all of our leadership team since he joined the organization in 2020, and she is well suited to guide our financial organization going forward.
It has been the highlight of my career to serve as <unk> Chief Financial Officer over the last 10 years as long standing employee of Quanta I spent almost half of my life, helping to lead our financial organization and support our World class operating leadership.
I am incredibly excited to continue supporting our strategic growth in the different capacity going forward.
I'll now turn the call back over to <unk> for closing remarks.
Thanks, Derrick the FERC.
Turning to Q&A I wanted to thank and recognize Derek for his many years of continued dedication to quanta and for his partnership.
This is a part purposeful transition and is a role that will enhance our ability to reach our targets.
I am grateful Derek embraced and lead this transition and look forward to driving operations together.
It is congratulations today, but maybe condolences later.
I also want to congratulate J tree on her new role as CFO . She has been a great addition to our senior leadership team.
I am excited about <unk> future and look forward to working closely with Derek and treasury in their new roles with that I'll turn the call back to the operator for Q&A.
Thank you the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad to reach alive.
So I wanted to ask a question we ask that you ask one question one follow up question and then re queue. Our first question comes from Ian Macpherson from Piper Sandler go ahead Ian.
Thanks, Good morning team congratulations Derek <unk> on your new postings and.
I guess, Duke what I wanted to ask.
First was I thought the mix of your backlog was pretty interesting here for the quarter.
<unk>.
Accelerated growth in backlog for renewables and for underground.
And I wanted to get your perspective on maybe what the drivers were there in Q1 and what your outlook is for relative growth across your year three verticals over the foreseeable timeframe this year.
Yes. Thank you.
When we look at the business, we do look at it as a portfolio we saw broad based growth across all segments.
Some comments on the backlog within our segments lumpy.
But the continued MSA growth.
From our base business on both gas electric telecom as well as renewables continues and I don't see that stopping and we continue to see.
Inbound calls.
Daily on capital spend and how can we help on a programmatic way. So the company is in really good position and I do believe backlog will grow continue to grow and we've talked about the growth of the company.
Okay.
Yes basis, so we standby.
That's fine I mean, I think we probably a little bit at the analyst day.
Maybe the sensitivities for.
<unk> bookings this year, given tariff uncertainty and you'd spoke to the flexibility of the large operators across.
Their portfolios as well in terms of developing.
Solar wind and storage sort of flexible cadences maybe.
And I guess the tariff issue is still.
Very much up in the air but have you seen.
Is it more of a surge in.
Rotating some capex towards the wind side in the front half of this year or is that maybe a misperception on my part.
The tariff commentary is valid and it's out there so let's address it.
When we talked about <unk>, we talked about the acquisition, we talked about megawatts gigawatts.
It's still the same it's megawatt gigawatts that we can change with our customers. It's much like msas in our larger customers. We can flex to land, we can flex the solar we can flex the batteries. The segment is much bigger than just blattner. It does have some of our larger transmission projects in it as well.
I really like our positioning in these type of markets. It allows us to collaborate and provide solutions to decline, which ultimately puts us in a different position than others with the scale of the company, so and saying that with times.
Q.
We've been through a pandemic we've been through many many things to this company's existence.
We continue to provide those solutions back to the client collaborate.
We are at two <unk>.
We continue to be positive incrementally positive about the markets that said.
Look.
Yes.
The seller is up in the air due to the tariff and I do think we've got incrementally positive news as this NIM continue to come out we believe that ultimately the energy transition is happening. So it will be a big piece of that as well as land in batteries. So that said long term there.
Demand is outpaces anything in any kind of movement, you would have and seller would go into 'twenty three 'twenty four bill so.
We standby our 'twenty two guidance that we've given on the latter $2 5 billion and standby continued standby with a tariff without a tariff.
In the.
Features just continues to get better.
Okay.
Alright, well. Thank you very much appreciate that perspective.
Sure.
And our next question comes from Sean Eastman from Keybanc Capital markets go ahead, Sean.
Hi team Thanks for taking my question.
So a nice start to the year.
It does appear that you guys are running ahead of schedule relative to that more or less intact full year guidance. So.
I know you guys are going to hit this one, but but what should we takeaway from that is that the balance of the year is now softer or more more variable or is it dead.
Can.
We can kind of consider the rest of the year, having more question. After this strong first quarter, how would you frame that.
Yes.
Sean.
I think we take a prudent approach to our guidance.
Three months into the year with certainly some.
Tori impacts and things of that nature that we see so that supply chain and everything else.
We didn't feel like it's prudent to step into less raised guidance, let's get out there on this we took a prudent approach to it headed down the metal can can we beat it should we beat it.
Striving to beat it yes, but that said there.
These factors out of our control that are out there that we wouldn't be prudent about it and I do believe we can hit the guidance number and what we thought for the year right down the middle and opportunities to beat it as well and there's a range in there that we stood by so like when we said I do think it's nice to come out and have a strong first quarter, but again you had some pull out a bit.
Second as.
As well as strength of the later half so we've got to deliver on the back side of it to third and fourth quarter always our biggest quarter. So that's where the bulk of the earnings power is and we need to make sure that over the next three or four months, it's escalated shouldn't I believe it will.
Okay. Thanks for that.
And clearly there is some noise around solar development pipelines.
<unk>, there, but I'm just curious as you look out over the balance of this year and into next year.
What youre seeing from.
Sort of a capex toggling perspective are you seeing evidence that those capital dollars that would've gone into solar over the next 12 to 24 months are kind.
Kind of actively.
Pivoting to T&D wind battery.
Are you seeing there even just anecdotally that'd be interesting.
I mean, I think if they fit into any of those markets. We're in a great place.
Those tenants allow us to be extremely flexible with the client and it's as much about who we are and what we continue to say is our scale and scope and flexibility along megawatts gigawatts in renewables as well as our T&D infrastructure is why we believe that the blattner acquisition really puts us in the forefront of this energy transition exactly.
Your commentary in the portfolio that we've built as a company and allows the growth and the growth platform even in an environment like this as I've said in the script. The glass is half full for us and we just need to deliver the solutions to decline.
Okay. Thanks, Steve I will turn it over there I appreciate it.
Thank you and our next question comes from Andy.
Cap Louise <unk> from Citigroup go ahead Andy.
Good morning, everyone, Congratulations J shoen Derrick.
Thanks.
Can you give us more color into the drivers of your electric power organic growth in the quarter in the low 20% range. It seemed like a material step up from where you've been I know you mentioned just more general spend on grid modernization, but did you see that large U S transmission project, one last quarter start to ramp up or is this really just a pick up in sort of the year.
<unk> spend that all of your customers or within their existing contracts increasing their level of spend given the environment.
I mean, the larger projects, we discussed last quarter is in our renewable segment. So it's not a part of the electric segment. The overall company. If you look at the organic growth basis is up 23% year over year. So I do think we're doing the right things do I think thats sustainable no and we've talked about the growth rates that we believe are possible within the <unk>.
Company.
Look we've got a good head start on growth rates.
20, 23% organic growth.
We still will be treated about how we talked about the growth we have done some things that allow us to organically grow this company meaningfully.
Our colleges and in a way that we put.
As in the field young ones in the field and I do think our safety records the way we.
Work with the client on the capital spends and collaborate will ultimately allow us to get those growth rates. We just.
<unk>.
I think you can see it in the electric segment to the MSA is arguably bigger we talked about the mega trends that are out there around EV.
On the hardening and in the West It continues up and down.
The West Coast.
As well as.
<unk>.
Nora prone areas. So we're in a good spot and we continue to try to work with a client on their capital budgets.
Duke you only had a modest change in renewables margin that you mentioned $2 five to nine from 9% it doesn't seem like a big change in the context of what seems like a pretty difficult supply chain environment for your customers. So maybe just talk about sort of the confidence level I know that you've talked about <unk> being sort of best in class and maybe thats sort of what.
<unk> keeps you at high levels of margin, but just talking about the confidence level to achieve those margins this year.
I mean, I think we stand by the numbers.
Eight five to nine was really Florida gave you more variable.
Honestly, we're shooting for the top end of that and the Companys size to beat those margins and believe we can operate in double digits over time and we will.
So that said I do believe we're in unprecedented times and round.
Supply chains, and tariffs and wars Pandemics that we're still working through but ultimately as we work with supply chains. It makes us a better company and understand the vertical verticals.
Total cost of a project so that said I do believe as I said the glass is half full and we're working with our clients on supply chain.
Two.
Sequence work differently do things differently than we ever have but.
That's who we are that's what we're trying to do with the client to make sure that the.
<unk> project is a success for us and the customer so we're doing those things I like where we sit.
I appreciate it.
And our next question comes from Adam Palmer from Thomas Davis Go ahead Adam.
Hey, good morning, guys, Derek sorry to see you go enjoyed working with you Congratulations Jay Shri.
Thank you Hey, one of the things that stood out to me in the first quarter was the high operating margin and underground can you comment on that.
And was there any thought to raising the margin guidance for the year for underground.
Yes, the first quarter I mean, we had anticipated we were going to see an uptick right. I mean, the biggest portion of pressure on underground over the last few years has been a COVID-19 related in the industrial caution of and as we came into 2002, we anticipated we were going to be largely past that.
Seeing that.
Typically the underground.
All of our segments typically have lower margins in the first quarter and mostly most specifically in the underground group, but combination of coming on the other side of that industrial on a nice quarter and then we did do some larger pipeline work as well contributing so.
Good strong performance.
Think about the margins there and we're continuing to feel comfortable we can see that up in the seven.
The 7% range for 2022.
Longer term continued to see improve in our minds more towards that.
Other upper single digits.
Steve I wanted to also say Jack is not going anywhere, but that being said.
Well it will be on the call.
Okay.
No.
Yeah.
We've worked together a long time, so I would say it will be around.
That said.
The portfolio of the company, we've talked about and commented on it many times.
Said that.
If we start doing more underground will get operating leverage you're starting to see that come through on some of the gas margins because of your operating leverage on electric in your offices in the field and Youll continue to see that too.
And those upper single digits, that's what we're striving for.
Great and then.
Oh, it definitely struggling with zero acquisitions in the quarter I'm not sure I've ever seen that can you just talk about your M&A outlook.
I think we've always said.
You have quarters that are we had five I believe in the fourth quarter. So it probably.
And again, we are inquisitive, we look at the company's family businesses. All the time, we see the right wounds will lean in.
There's nothing to think about it we're not out looking but we do have holes in the regions. We do have things, we would like to do as a company will either organically grow it.
Look at acquisitions not to signal the thing. It's the same process. We've used for the last six years and we will continue to do so.
Thanks, guys.
And our next question comes from Michael Dudas from vertical Research go ahead Michael.
Good morning, Kip, Duke and well done there.
Yes.
Duke.
Just two first one.
Lot of activity, certainly given high natural gas prices here and abroad.
Any observations on what the activity in the Gulf coast from the LNG opportunities in and what your customers want additional side or.
Are they feeling much better and they move them through that deferred maintenance.
Look pretty quickly and then on the communications side.
It seems like things were working on it.
And there are the opportunities and some of the workflow against you should start to accelerate some of the <unk> issues, we've been reading about start to alleviate.
Yes, Thanks, Mike.
In the industrial base, we talked about it before.
That was back in <unk> nine and it came out of it 11, 12, 13 was really kind of robust I think you'll see that those type of numbers come through here.
There is some capital projects for you.
Youre plastics coming in online big capital projects, along the Gulf Coast as well as LNG and while this may provide opportunities.
For us around.
Really every one of our service lines on the industrial side. So we're excited about this and I do think we've said all along we have a great management team that really understands markets and position us quite well to take advantage of these opportunities as the market changes to lack our positioning as always we we stayed with it.
We really work Italian.
When it causes a little bit of Margaret.
<unk> degradation we.
We keep our people we work through and make sure that we are.
Wayne as well as skin and capture the opportunities that we see for it in the industrial space, which we do as far as communications, it's a robust market and technology changes daily I do believe we see more carriers working together around fiber around.
Hi, Ben.
High bandwidth type.
Scenarios and so I do think that will ultimately drive the macro market for the foreseeable future certainly around our wireless capabilities. We've invested there and we are working.
That article as well as many others. So we sit nicely we talked about 700 million plus this year and telecom stand by that and the margins are improving.
<unk> got a nice start here for the year, we last month alone.
Thank you.
And our next question comes from Brent Thielman from D. A Davidson go ahead Brian .
Okay, great. Thank you all the best as well Derrick.
I guess first question just on the underground business looked like it looked to me like a big jump in the total backlog just first the 12 month backlog quarter over quarter. Just wondering what was driving that did you pick up some sort of longer term capital projects anything to read into that.
No.
Some opportunities in Canada, we took advantage that we've talked about that before.
The large buy side and some of that came through as well as just in general our backlog there on the MSA and I do think it will continue to grow and our industrial base has moved upward and we will continue to do so in that segment.
Okay I appreciate that.
The slide deck mentioned, it seems like utilities or <unk>.
Talking more and more about it at least at the hydrogen blending just among gas utilities and what kinds of opportunities could come from that for quant that how do you play a role in terms of.
Thank you Matt.
I mean, I think we're right in the middle of that in front of and in fact, we see unique opportunities. There. It's early but there is some blending going on we're seeing some you know one of our partners in Canada saw an announcement yesterday on some hydrogen blending there on your around buses and other things that are out there. So.
Are you starting to see that as a fuel source Youll continue I believe continue to see that as part of the solution on the transition.
Right in front of that so I like where we sit.
Okay. Thank you.
Thank you.
And our next question comes from Alex <unk> from B Riley go ahead Alex.
Thank you and very nice quarter, gentlemen, couple of quick questions first as it relates to EV charging stations can you quantify the annual revenue opportunity of this business either over the next year over the next couple of years.
And what the margin profile that could look like.
It's difficult for us to say exactly what.
The way, we see that working out because couple of things one is.
We want to participate on a larger scale or high voltage charging.
One of your larger scale charging station so.
To say what that number is not I'd be remiss at this point.
It's not.
It will drive the business is not something that is a $1 billion type number I don't believe so we'll see.
That said, what's behind it on the grid is.
I believe probably one of the bigger drivers that we'll ever see and will ultimately change this grid almost rebuild it in many ways on the distribution networks as well as when you start moving back in that merger distribution networks Youre also loading back on your transmission and throughout so I do believe that incremental fact.
As we see more so, but we will take advantage of the of.
Our partnerships with Oems as well as the batteries is the way, we can scale and our programmatic spend and capture as much investment as we can but it does set us up to do other things as well besides charging in a programmatic way in which we like a lot.
And then as it relates to the telecom business, how has the backlog changed over the last quarter or so and how do you think backlog could change between now and year end.
We faced the backlog I mean its up.
Quarter over quarter.
It continues to look better the markets are better we've been prudent about how we.
We've taken backlog and what kind of backlog we have on a go forward basis due to the fact that when we started and we've got some larger projects that obviously weighed down a bit and we.
We've said before I'll say it again, we need to get ourselves up in that upper single digit margins to double digit margins at parity with the electric segment and we can and will so that said, we will take advantage of those opportunities in the cities that we are dense and as well as some of the wireless capabilities that we have now.
Obviously, our investment in star in that technology, and we're excited about and how we look at that in a programmatic way.
Against the year end backlogs relatively flat, it's about $1 2 billion.
<unk> continued to grow.
Yes, Ralph from a year ago into today.
Thank you.
And our next question comes from Jamie Cook from Credit Suisse Go ahead Jamie.
Hi, good morning, congrats on quarter and promotions.
I guess my first question.
The margins in electric power.
Were a little lighter I know you talked about you know the projects in Canada, but any way you can quantify that and then it also struck me you maintained your margin guidance. Despite that that was the underlying business the profitability trending better than your expectation and then second underground and utilities had better margins than I expected.
Does it usually happen I understand a lot of that strong hog, but any way you can parse out what's wrong.
With that how that profitability of the rest of the business is trending thank you.
Yes, Jamie so we.
Dissipated at a lower margin in the electric power in this quarter I think when we talked about being around 10% of our original guidance came in about that night and have overall.
That is largely influenced by the Canadian work U S margins were effectively double digit telecom did quite well, although slightly dilutive overall, but still well.
But it's just that Copa dynamic that we leaned into those two projects. We're trying to take conservative approach, we feel like we have every reason to.
Believe me ever comparability, there, but that Canadian weather type dynamic they've trusted you saw Canada and kind of almost a clearly a low single digit to even breakeven type dynamic associated with those two projects.
Largely driven by those two projects.
Yes.
Quarterly only it doesn't relate to any about the overall profitability for the year continues to be quite confident in our ability to execute through the rest of the electric power from here.
Given us confidence that actually like you said reiterate that the overall margin guidance for electric power.
Underground.
We had commented explicitly that we thought that coming out of the COVID-19 environment at the underground group would be able to be back into our margin profile closer to that 7% type range for the year.
And it's really that lower first quarter dynamic that we've always seen in the underground associated with the seasonality, but that second third and fourth quarter continues to see the ability to have a higher margin profile.
Average against a getting it getting it into that annual.
Margin perspective.
Industrial was a nice contributor to the first quarter, but honestly across.
Across the board we saw.
Solid margins for the first quarter for the remainder of the group as well.
On the electric side, a little bit too.
Onboarding quite a few people and I do think you're Onboarding and also re sequencing some some work.
It certainly has a bit but we don't see that on a go forward basis and that yourselves.
For the rest of the year.
Okay. Thank you congrats again.
Yeah.
And our next question comes from Neil Mehta from Goldman Sachs Go ahead Neil.
Good morning team and congrats on the promotions in the quarter here.
First question was related to the current labor market conditions.
As it pertains to Qantas ability to scale up for higher activity over the next couple of years.
As labor market tightness start to wane, a bit or is it still an elevated headwind to the industry broadly and then how do you think about your own competitive advantage as you have.
You have.
And advantaged capability as it relates to labor relative to some of your competitors.
I mean, we were up 9000.
Year over year employees. So I do think we have the ability to scale that significantly with the colleges with what we've done and what we've invested in craft skilled labor, which is the core of this business.
And it really allows us to.
Not only trained but getting the field faster and.
We like a tight labor market in many ways. It separates us from the investments that we do put into our safety and our training. So I can't we're in good shape and I do think we can grow with the market as we see them and work with our clients on their capital spend.
The follow up is just around blattner, it's been a couple months now since that's been brought into the portfolio. We spent some time talking about the uncertainty on solar development, but could you talk about cultural integration, how youre feeling about <unk>.
<unk> ability around targets as well from a financial perspective and hesitant.
It impacted your ability in your go to market to your customers to have a more comprehensive platform.
I think when you look at the pandemic the war.
Everything that you hear and maybe you are.
And you see where we're at in our results and how we're moving forward and reiterating guidance on bladder as well as the company.
We sit at the very forefront of this energy transition Wagner made us better.
How's us to have a different conversation around the transition on a go forward basis for many many years to come.
I think they made as part of their culturally they very much you could take a mirror and look and you would see quanta.
Plant renewable solar.
At megawatts Gigawatts MSA type dialogue with our clients flexibility scale, everything you'd want and our ability to think differently and differentiate in markets today.
In many ways.
From supply chain as well as regulatory effects. We can we can certainly be flexible so that's.
That's a different discussion it's something that we can provide to the client that separates quanta.
Even better than the quarter before.
Thanks, Tim.
And our next question comes from Noelle Dilts from Stifel Go ahead Noelle.
Okay.
Hi, Thanks for taking my question.
First just wanted to go back to labor a little bit maybe.
Last question from a slightly different perspective, but I know that given your majority Union labor.
Particularly on the electrical side do you have visibility into wage increases.
But I'm just curious if you could comment sort of on what youre seeing from a trend perspective.
In terms of wages within TMT.
And that and again, if you could revisit the visibility you have in Taiwan into those increases.
Okay.
Usually runs three years to 5% so I would say the upper end of that at this point Youre seeing 5% type increases across the board some more in certain areas, but that's.
That's relative to what we see and what we planned for as well and I do think.
When we look at it.
In many ways for us to see that to see it coming a long time ago I'm allows a different conversation, we do have resources Canadian resources.
Are there ways that we can.
Look at labor so.
How we go about it how we think that will work and work plans that will matter on a go forward basis. It separates quanta our ability in the field to think differently and differentiate.
These markets are something that we like.
Okay, Great and then kind of recognizing here with all of your commentary already on our plattner.
I was just I'm, just trying to get a better sense of how to think about if we're seeing delays yet as Tom.
MYR group came out and kind of talked about the amount of work that they've seen that pushed a little bit to the right. I don't know if you could comment on if youre seeing today.
I guess, what I'm trying to think about it is if we do see some project kind of put on pause does that hit more in the third quarter and the fourth quarter because a lot of the channels for the projects that are happening now have already been sourced could you just talk about the timing and sort of what youre looking for.
As you think about the range of potential outcomes. This year. Thanks.
I think the differences I've said this before as we're doing at $30 $40 50 type projects.
Utilities scale projects on any given day, so where are we couldnt really think.
Had a certain amount of customers that we work with we can certainly broaden our customer base out and provide the same type of.
Service that we have two of our other customers.
Inbound calls are certainly.
Exponential with.
Had any gaps so.
We feel good about the guidance, we feel good about where we have the ability to go win solar battery or.
Largely that segments made up of much more than just when solar battery and we have long haul transmission interconnections, all kinds of things and as a portfolio.
To believe we're in a really good spot for this transition and it has not impacted blattner nor upon at this point.
Okay got it thanks.
And our next question comes from Justin Hauke from Bard go ahead Justin.
Yes, hi, good morning.
Second we're all congratulating Derik I'll ask a question here for you.
I was just.
Curious you talked about the unapproved change orders on the Canadian jobs.
The balance last quarter is $370 million and Thats up from it had been pretty steady at 150. So I guess I'm just curious what's the balance as of today and then how much of your $650 million to $850 million guidance for the year, it's kind of conditional on getting those cleared this year.
Yes, so the ballast, making reference to the 10-Q disclosure, which includes more than just the change orders associated with these projects that's an aggregate disclosure.
That number is going to grow a little bit will exceed $400 million at this stage in the game as an aggregate disclosure I made reference to the specifics of these.
Unique to these two projects being about four to five day impact that the DSO. So it is the majority of those balances but.
It is not all of those balances.
And then I would tell you that we do believe that one of the physicians is something that we'll be looking to build that project has reached substantial completion will be looking to build on some of that within 2022.
The other project will actually continue on into 'twenty three.
24 of that.
So I think youll see some of that cash flow dripped into there relative to the overall cash flow guidance for the year. The one that we as I commented to you that we look to be building. This year that is included as part of the 22 cash flow guidance.
This is Duke I would say on the Canadian projects.
When we think about it.
Long standing customers on both projects, we are working with them many of the things that we're anticipating that the stars such as.
Pandemics.
The way that we build a way to.
Billing milestones all those different things the pandemic certainly impacted us.
As well so we're working on the client now on cash flows and things of that nature, we do not see any issues with that and we will continue to collaborate narrative to get paid and ultimately I believe that will be good projects.
Okay. Okay.
Okay. That's helpful.
I guess the other one I have here.
And I know this is kind of a moving target but of the $3 billion the renewable segment backlog.
Can you quantify.
Quantify how much of that is solar projects, how much wind damage is battery.
Any color you can give on kind of the breakdown of that as it stands today.
I can but I'm not.
So one thing about that what I would say as you are.
Youre LNC PS like Youre limit notice proceed.
I think we're stacking the LNG piece a bit too on a go forward basis because of the unknowns in many areas of commodities as well as Sarah So I do believe your backlog will be always be a little bit lumpier, but youre seeing exponential so our exponential negotiation verbal awards in the LNG piece.
It's much larger than it has been.
Over many years. So you will see that come come in and if it doesn't go into 'twenty. Two is going to go into 'twenty three 'twenty four so just building in many ways and we still reiterate 22 reiterated guidance, we took a prudent approach to start with our dialogues with the customers is fantastic power working with supply chain dollar working with.
And mine sequencing variability our ability to move and scale I think is there and it's more about how do we do all the work in 'twenty three 'twenty four.
More so than worrying about 'twenty two at this point, that's the way we see it.
Okay fair enough. Thanks, a lot.
Okay.
And our next question comes from Steven Fisher from UBS go ahead Stephen.
Thanks.
Add my congratulations on the role changes just to continue this discussion on the.
The renewable side I mean, it seems very clear that you think you could change your mix fairly seamlessly within black or to the extent it's needed.
I guess I'm curious, how do you factor the supply chain.
Situation into that Seamlessness that gets you needed to shift to two.
To win.
Is there enough lead time with the supply chain to manage that.
Within 2022.
And then I guess related how varied as a response from your customer base in terms of when the solar impact might be is it more consistently. This is a 2022 uncertainty or is it maybe more twenty-three uncertainty.
Now, Steve you're primarily talking about panels. So theres a lot of different things you can do around that answer plant. Besides pounds. So some of them. It's re sequencing some of its moving with some of its repowering theres many things somewhat moving into T&D, we can do all kinds of different aspects of this transition within.
The energy space and even in the renewable segment so our concerns.
Work is to work with our clients to make sure anything that gets pushed into 'twenty. Two 'twenty three we have the ability to deliver and thats. The bigger concern is making sure that we have that capacity as well as what's ongoing in 2002, we felt comfortable when we gave guidance it was down a bit from the three plus.
It had been done with partner, we said that from the start we felt like the supply chain that pushed a bit on it and it did so that said it's reiterated.
We believe we have the ability to work through the supply chain aspects as well as the terror and every day the tariff gets a little bit clear.
And I do think that it's short term because of the way that the memos are coming out of things that we see are incrementally positive around personal lines and things of that nature I don't want to get into the weeds on it but I do believe that.
It's better than you can get to where you want to go in this transition without clearing these things up for the developer for ultimately the utility customer lists in many ways. Your energy your geopolitics around energy renewables certainly is a piece of that that was clear some of that up.
Got it and then it seems like there's some momentum building on the pipeline piece of the business just curious where you see the biggest opportunities forming based on your customer discussions is it.
More things in Canada, you mentioned that the big booking there earlier this year or is it the U S is it maybe traditional oil and gas or is it the carbon capture.
The biggest momentum building on the pipeline piece.
I think we're working with the client on theirs.
Hey that they view carbon free the way that they are transitioning to a cleaner fuels.
How we're going to use pipe through LNG.
All of those kind of different aspects of it so we're working with them quite a bit on.
What I would consider their profiles around the carbon environment. So youll see carbon sequestration, you'll see hydrogen blending you'll see LNG Pi we've.
Send it along will be around the edges on that our Canadian.
Business is doing well today I do think we're at 48 hours.
What I would consider opportunities and we'll stay on the front side of that but the portfolio itself, our LDC business, our industrial business.
The way that where movie.
What I would consider typical gas type.
Resources around electric is certainly something that we're doing and doing well. So we're pleased.
Great. Thank you.
And our last question comes from Chad Dillard from Bernstein go ahead Chad.
Hi, good morning, guys.
And Chad.
So I wanted to go back to your EV charging opportunities that you talked about earlier on the call.
So how differentiated the programmatic approach that you guys are taking versus your competition.
Just in terms of customer base that they imagine that.
A little bit beyond.
Until the customers that we service and just want to understand.
And go to market approach it Okay, and then lastly, just margins operating charging per person.
Electric power segment.
When you look at EV charging either from the OEM or from the from the.
Chargers themselves as a business.
Certainly early.
And I do think youre, starting to see battery manufacturing and Youre starting to see your Oems move all towards batteries and probably in <unk>.
My mind much quicker than anyone anticipated.
That said the <unk>.
<unk> stations are high voltage charging stations need to go quicker.
And as you start to move into bigger vehicles, such as your your chops, you or heavy duty trucks.
We've signed a partnership with GM to the last on batteries Silverado's, we've done a lot of things internally. So we are very close to the Oems on what they're doing and believe that charging is here, it's coming quicker than thought and our ability to work with the utilities on how we.
Build build out that infrastructure is something that.
We sit right on the front of and I do believe it provides.
Significant opportunity not only for the charging station itself, but also on the backside of your grid and which is what I've said before exponential in nature. So the opportunities are how they're smaller projects. So that you can go do a one off.
<unk> and <unk>.
Sydney.
So you need a program to really for us to really scale. It and I do think those programs are large in nature and when we have dense density around the country, we're able to do these.
Smaller type projects with the underground groups that we have lots of it makes sense for us and will take advantage of those markets.
Great and then just a second question just going back to two Canadian projects will change orders.
How big of a margin drag.
It's baked into your guidance for those projects.
I don't think when you see those projects, it's more cash drags.
It's just cash flows.
Obviously, Canada is lower than we took a prudent approach to it because we need to execute through contingencies, but.
That said I mean, it's a Canada is down from 148, a bit when you look at our margin profile.
It's always been that way and its not something thats new.
Yes.
The broader aspect of what we see from a candidate perspective versus what's happening in those margins.
Those projects those projects, but a little bit of margin pressure this quarter, because we dealt with some conservatism relative to the new COVID-19 impacts both the projects themselves are profitable at nice projects.
How are you able to push some of those resources in the lower 48 as well.
Okay.
Thank you.
Sure.
Thank you that does conclude our Q&A I would now like to turn it over to management for any closing remarks.
Yes, I want to thank Derek for.
It really standing by me as a partnership for about six years as CFO of <unk> with.
In his new role so I'm looking forward to working with Derek J series exceptional and she'll do a great job as CFO and as a team.
Solid management team.
The men and women in the field and what Theyre doing on a daily basis may quantify them. So we're excited about it we're excited where we're going and we appreciate what they do and I want to thank you all for participating in our conference call. We appreciate your questions and ongoing interest in Quanta services. Thank you. This concludes our call.
Thank you. This does conclude today's conference. We thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.