Q2 2022 Quanta Services Inc Earnings Call
Greetings and welcome to the Quanta services second quarter 2022 earnings conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
A reminder, courses being recorded it's now my pleasure to introduce your host Kip Rupp, Vice President Investor Relations. Thank you kept you may begin.
Thank you and welcome everyone to the first or second quarter of 2022 earnings Conference call. This morning, we issued a press release announcing our second quarter 2020 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.
He will discuss this morning. Additionally, really use a slide presentation. This morning to accompany our prepared remarks, which is beautiful.
It 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 August four 2022, and therefore, you're advised that any time sensitive information may no longer be accurate as of any replay of this call.
We will include forward looking statements intended to qualify under the safe Harbor from liability established by the Securities Litigation Reform Act of 1995.
All statements, reflecting clients' expectations intentions assumptions or beliefs about future events 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 <unk> 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 and the presentation.
Patient.
Along with the Companys periodic reports.
Documents filed with the Securities and Exchange Commission.
One is on the SEC website.
You should not place undue reliance for looking statements required 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.
Also note that we will present certain historical non.
non-GAAP financial measures in today's call, including adjusted EPS backlog, EBITDA and free cash flow.
Conciliations or these measures to directly comparable GAAP financial measures are included in our earnings release.
If you'd 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 encourage investors and others interested in our company to follow Quanta IR services on our social media channels were sitting on our website.
And lastly, one administrative note regarding today's call one as Chief Financial Officer Phase III design is recovering well from a plan, but slightly accelerated medical procedure last week and will not be participating in today's conference call, Eric Johnson Executive Vice President.
<unk>, former CFO will review and comment on the company's second.
Actual performance and full year guidance in her stead.
With that I would now like to turn the call over to Mr. Duke Austin, Qantas, President and CEO .
Thanks, Ken Good morning, everyone and welcome to the Quanta services second quarter 2022 earnings conference call on the call today, I will provide operational and strategic commentary and we will then turn it over to Derrick Jensen.
<unk> is making a turn call appearance filling in for <unk> today.
We'll provide a review of our second quarter results and full year 2022 financial expectations. Following <unk> comments, we welcome your questions.
Our second quarter results continue our solid start to the year.
Quarterly revenues exceeding $4 billion for the first time in our history as well as record quarterly adjusted EBITDA and adjusted earnings per share.
We also believe momentum is building continued profitable growth next year, and we continue to see opportunities for multiyear expansion across our service lines driven by Eric.
Solutions based approach to growth.
Spending with existing and new customers and favorable Mega trends, we are negotiating several large master service agreement or MSA renewals with utilities.
That's a significant level of limited notices to proceed with projects across our segments and we are actively pursuing numerous larger transmission projects.
As a result, we believe there is offered to achieve record backlog levels again in the coming quarters.
Okay.
Our electric power infrastructure solutions segment performed well overall during the quarter, despite some supply chain challenges, causing delays and resource utilization and efficiencies.
The impact on our business has been relatively limited and these challenges are not causing meaningful meaningful delays and our overall utility capital spending. We also believe these are conditions that have resulted in mostly short term delays in the timing of certain electric transmission work.
And we continue to collaborate and partner with our customers to manage through these dynamics and work on potential mitigation solutions, which we believe will further enhance our relationships going forward.
For our services continues to be driven by broad based business strength from utility grid modernization system partnering initiatives.
As well as our reputation for solid.
<unk>.
Additionally, our communications operations, continuing to execute well from both a revenue and margin perspective and remain on track for improved performance. This year.
Overall, our electric power outlook remains strong driven primarily by increasing service line opportunities and market share gains.
Chris.
Incrementally we continue to actively pursue large utility programs that are designed to modernize the grid support growing electric vehicle penetration and on other new technology adoption.
And harden the system to be more resilient to wildfires and severe weather events.
To that end our earnings release. This morning, we highlighted an MSA we secured in July to provide turnkey engineering construction and program management solutions and support the deployment of a national electric vehicle direct current fast charging network.
This program brings together one of the largest auto manufacturers.
North America's largest operator of travel centers and the nation's largest public fast charging network for electric.
These companies are collaborating on a fast charging network that is expected to include as many as 2000 D. C charging Smith installed hundreds of traveling.
Across the United States.
We expect to begin engineering work on this program this year with construction expected to begin in 2023.
This is just one example of several large electric vehicle charging deployment programs that we have been pursuing.
Additionally, we believe the need to modernize and enhance the power grid to enable both <unk>.
And continuous power demand caused by.
Electric vehicle penetration will create significant opportunity for <unk>.
Renewable developers and utilities are leading the effort to reduce carbon emissions, many with significant carbon reduction commitments through aggressive efforts to expand our renewable generation portfolios.
Assuming there goes will also require substantial incremental investment in transmission and substation infrastructure to interconnect, new renewable generation facilities to the power grid and to ensure greater reliability due to the significant increase of intermittent power through the system.
Over the near and longer term, we believe substantial load growth favorable public policy and overall positive sentiment supporting a greener.
We will continue to drive North America's power generation mix increasingly towards renewables.
Our renewable energy infrastructure solutions segment.
During the quarter and successfully managed through general supply chain challenges and solar project disruption caused by the department of Commerce's investigation into solar panel manufacturers, several south East Asian countries, the impact of which has since been mitigated through an executive order by pressing the button.
Well the first six months of 2022 presented challenges.
So the renewable industry.
And expect to build momentum through the rest of this year.
Interestingly due to the initial solar industry uncertainty and project delays caused by the department of Commerce investigation, a number of renewable developers and utilities have been poorer projects and their wind portfolios to be built.
Over the next several years.
We believe this incremental wind activity could create a restocking effect in future years on top of existing industry expectations for accelerated solar and battery storage project investment.
Hi, Dan we're actively collaborating with existing and potential renewable generation customers on their multi year programs with some discussions and planning extending out to 2026.
Additionally, we are pursuing several large high voltage electric transmission projects designed to support renewable generation and overall system reliability.
These projects have made.
Progress with permitting and approvals.
Are the leading high voltage electric transmission infrastructure solutions provider in North America, and believe we are well positioned to be selected for these projects.
As we have commented previously about both proposed and enacted federal infrastructure legislation, our positive multi year outlook is not dependent on them. However, we view the current climate related components of the proposed inflation of indefinitely.
A positive for the renewable industry. We believe the passage of these provisions could accelerate renewable generation and infrastructure investment over the coming years and provide quanta with greater visibility into future opportunities for growth.
We are pleased with the performance of our underground utility and infrastructure solutions segment in the second quarter.
Industrial services operations continued to execute very well and experienced strong demand as capital spending resumes and pent up activity from two years of deferred maintenance on this board.
We also continue to experience solid demand for our gas utility and pipeline integrity operations, which are executing well and driven by regulated spend to modernize systems reduce methane emissions and ensure environmental compliance and improve safety and reliability.
Looking to the coming years, we also continue to see opportunities.
Underground utility.
Our solutions operations to play an evolving and increasing role with customers as they move from strategies to reduce their carbon footprint and diversify their operations in assets towards greener.
<unk>.
Quanta is successfully executing on our strategic initiatives to drive operational excellence total cost solutions.
<unk> profitable growth.
And valued stakeholders.
Strategic initiatives are designed to uniquely because not only to capitalize on the megatrends of.
The end markets, but also enhance our customer relationships and market position.
As a result, we are able to collaborate with our clients to execute their capital deployment plans, even during challenging conditions like the ones, we face today with supply chain inflation, COVID-19, regulatory and economic uncertainties.
These dynamics are not easy to navigate but we expect to continue to successfully manage through them. We believe we have taken a prudent approach to our guidance for the remainder of the year to incorporate these factors.
It is during these times of quantum demonstrates that this resilience, which we believe shows the strength of our operations portfolio and platform of solutions.
As I hope you gather from my remarks.
The manpower services is robust across our portfolio and driven by long term well in Brazil.
Yes.
As a result of our solid financial results.
Great ability and continued overall.
Modest dollars.
And our 2022 consolidated financial expectations.
More importantly, as we look to the medium and long term.
And play more pilots.
As energy transition carbon reduction initiatives accelerate.
We believe the infrastructure investment and renewable generation necessary to support these initiatives are still in the early stages of that.
Yeah, a profitable company and executed well in the past.
And I expect to continue to do so.
So now.
It's been a long term and expect to continue to distinguish ourselves through safe execution and best in class build leadership, we will pursue opportunities to enhance <unk> base business.
<unk> position in the industry and provide innovative solutions to our customers. We believe quanta diversity unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long term value for our stakeholders.
I will now turn the call over to Derrick Jensen for his review of our second quarter results and 2022 expectations Derrick.
Thanks, Duke and good morning, everyone I'll start by saying that we've received so many phone calls and emails for non core performance that I'm doing one more quarter call, but after this call I'm dropping the mic.
As Kipp comment a J sure he's doing and those who are not joining the call today. She has been overseeing the quarter and we will be signing the circle for our filing she will be delivering next quarter's call nodes as I wander around backstage.
With that I'll turn earnings release, where today, we announced record second quarter to $4 2 billion.
Okay attributable to common stock was $8 billion or 59 cents per diluted share and adjusted diluted earnings per share a non-GAAP measure.
The second quarter at $1 54 sets.
Our electric power revenues were $2 $2 billion, a quarter and a 21% increase when compared to the second quarter of 2021.
This increase was primarily due to growth in spending by our utility customers on grid modernization and hardening, resulting any demand for our services as well as approximately $80 million in revenues attributable to acquired.
Yeah.
Electric segment operating income margins in <unk> were 10, 6% compared to 11, 4% in <unk> 'twenty one.
The margin reduction is largely attributable to normal project variability. However margins were pressured somewhat inefficiencies attributable to supply chain disruptions impacting certain operations elevated consumables costs.
Despite those headwinds we were able to deliver margins in line with our guidance for the quarter.
Also included within our electric segment, our communications operations, which delivered improved sequential and quarter margins, putting us on pace for upper single digit to double for the year.
Renewable energy infrastructure segment revenues for <unk>, 22, or $924 million, a substantial increase from <unk> 21, primarily due to $490 million in revenues attributable to acquired businesses.
Operating income margins in <unk>, 'twenty, two or eight 8% comparable to the 9% to <unk> 21.
Underground utility and infrastructure segment revenues, a record $1 $1 billion for the quarter, 30% higher than Q2, reflecting increased demand from our gas utility and industrial customers.
Increased dilution from larger pipeline projects.
Operating income margins for the segment were $8, 1% 530 basis points higher than Q2 'twenty one.
The margins reflect strong performance across the segment.
They buy our industrial operations, which had record quarterly revenues.
One below the item born below the line item on what it is.
And expense.
As I discussed last quarter, we hold a common equity interest in a fixed wireless broadband technology provider start since Inc.
We re measured the fair about this investment based on the market prices of publicly traded companies stock as of June 32022, which result recognition realized loss of $41 million during the quarter.
While the unrealized loss is significant and we remain confident in the storage business. So our scalable wireless platforms and see a bright future for the deployment of <unk> wireless technology.
And we're not alone in this assessment is a point of reference the analyst community has an average price charter starry above NAV per share.
Our total backlog was $19 9 billion, a reduction of <unk> $6 billion compared to last quarter.
The reduction is primarily attributable to our multiyear msas with a reduction so abid value due to one.
Of course, the backlog turning into recognize revenues during the second quarter.
Our 12 month backlog is a record 11 6 billion.
<unk> increased compared to last quarter, indicating consistent levels of committed work over the near term.
The continued demand for our services and robust activity across all of our segments. We fully expect backlog to remain strong and to report new record levels of backlog and so forth.
For the second quarter of 2022, we had free cash flow, a non-GAAP measure of $14 million compared to $126 million of free cash flow in <unk> 'twenty one.
Free cash flow for the quarter was below our patients with the shortfall largely attributable to timing on certain renewable contract award, which typically triple cash terms.
It seemed elevated working capital requirements associated with a large ongoing Canadian renewable transmission project driving an increase in contract assets, which we've discussed in prior quarters.
Regarding the Canadian renewable transmission project, we continue to work with the customer to address the growing contract asset balance.
Extensive schedule delays, primarily over the restrictions and its impact on remote locations or the project have extended production schedules through another build season.
This is another factors have negatively impacted our ability to meet actual billing milestones and have also increased cost as well.
Discussions are ongoing customer buys build schedule agreed to rates.
We are engaged in discussions regarding adjusting billing milestones and remain confident in our cost position, but resolution of certain of these amounts will likely extend beyond this year and have impacted free cash flow and we will continue to impact DSO in the near term.
The estimated impact of these dynamics is currently increasing dsos by as much as five to six days.
Our deposits.
Another previously discussed large Canadian electric transmission project with similar challenges received customer approval for a significant portion of the contract asset associated with change orders during the quarter.
The approved amounts will build during the quarter and we expect flex and <unk> 22 with resolution of the smaller remaining balance is expected by the end of the year.
Days sales outstanding or DSO measure at 81 days for the second quarter of 2020 to decrease as compared to the second quarter of 2021, and an increase of one day compared to Iraq.
The decrease from <unk> 21 was primarily due to the favorable impact of the acquisition of Blattner with historic operates with a lower tier so that certain of our other larger operators.
This positive impact was partially offset by the previously discussed working capital dynamics associated with the two Canadian transmission projects.
As of June 32022, we had total liquidity of approximately $1 billion debt to EBITDA ratio of 2.4 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 seemingly to create stockholder value through our dividend and repurchase programs as well as strategic acquisitions.
As of July 31, 2002, we've acquired approximately $4 million worth of stock since the beginning of the year as part of our repurchase program and in July we acquired a utility contractor in the west that specializes in underground construction.
Turning to our guidance.
First half of the year and we remain confident in our ability to deliver against the guidance we laid out on our last call. However, the composition of our earnings across our segments is slightly different than our initial expectations, which we believe reflects the benefit and strength of our portfolio of solutions.
We continue to see strong demand for <unk>.
Services across our electric.
And we now expect revenues to range eight five and $8 $6, a $200 billion increase from our previous range.
However, as Duke commented portions of our transmission operations are being negatively impacted by customer driven material.
And accordingly, we're moving labor and equipment to address our customers growing distribution needs.
The suffering of resources is creating inefficiencies as we also grow head count.
It was slightly the margins in the back half of the year.
As a result, we now expect margins for the segment to range between $10 six and 10, 8% still.
Well digit operating profile was slightly below our expectations.
Our renewables segment was negatively impacted by the uncertainty project timing attributable to potential supply chain disruption. However.
However, we've seen some of them in that regard over the last month.
We currently see the opportunity for the back half of the year to be stronger with full year revenue is now expected to range between 4 billion and $4 2 billion.
The $200 million increased previous range and operating margins continuing to range between five and 9%.
Our underground segment has had a great start to the year.
Given the solid state and improved visibility into the remainder of the year, we are tightening our full year range of expertise.
We now expect full year revenues to range between four one and $4 $2 billion, but margin is expected to range between seven and seven 5%, which puts our previous midpoint expectation as the new low end of the margin range.
With regard to free so we are our full year expectations, primarily due to the Canadian transmission project dynamics, we're working through but also due to incremental revenue growth that will require additional working capital.
Accordingly, we now expect free cash flow for the year to range between $5 million to $50 million and $750 million.
The lower free cash flow, coupled with increased interest rates on our variable rate debt. We now expect full year interest cost to range between $120 million and $130 million.
In the aggregate our consolidated expectations for full year diluted earnings per share attributable to common stock are now expected to range of $3 32.
$3 65.
Full year adjusted diluted earnings per share attributable to Cai.
Our financial measure to range between $6 10.
And $6.44.
Additionally, we now expect adjusted EBITDA, a non-GAAP measure to range between $1 six 4 billion, one $7 billion to $1 billion here.
Yeah. Thanks, Steve.
The renewable backlog when we look at it and the amount of inbound calls is probably one of the most robust times that we've had at the company from that standpoint.
Believe that backlog will build substantially throughout the year in the renewable segment.
Timing.
<unk> is a really more so when you say limited notice to proceed with that but those are in backlog and as that becomes contract then we'll put them in.
The amount of LNG piece to contract that time has elongated a bit.
Well just.
Primarily around.
The solar impact.
On the portfolio moving up I, just we see the what do you see that growing throughout the year.
Timing of which it could it be the fourth quarter it could be a third quarter, maybe early next year, but.
Again, we reiterated where we think the segment where we thought.
And I continue to be more confident about whether that renewables segments going today than I've ever been.
I'll add.
With that said I'll add that.
We've always talked about how backlog can be lumpy for quanta as a whole oh emphasize that.
Calls we've commented that it could be more so in this renewable segment right. It is.
In aggregate.
<unk> type dynamics advantage, a little bit less base business component to it so you might see a little bit more ups and downs at any given point in time and that doesn't necessarily indicate the trend we continue to feel quite confident in that multiyear market.
Okay. Just a follow up can you give us a sense of the size of that EV charging MSA and I think you have you mentioned a bunch of other Msas do you have in the works how many of those are completely new types of arrangements versus renewables renewables of what you already have thank you.
Yeah, Steve it's meaningful I would say it's more about.
For us when it's going to get started how it's looking on a go forward basis, we're having the same discussions with multiple clients multiple programs, but it's also the ancillary effect on the utility system I'll continue to say that it is more important.
Competence to the system and really the utility spend against EV charging and what's necessary to make that work on a consistent basis day to day.
This substantial substantially more than the EV charging network itself, but we are seeing those projects come to.
Fruition here.
Thank you. Our next question is from Chad Dillard with Bernstein. Please proceed with your question.
Okay.
Hi, good morning, guys.
Good morning.
So I wanted to go back to.
And about how our margin.
And bringing it down.
Sure.
So can you just break out that impacts from a head count the customer driven material delays and I think you mentioned it is consumed.
And then just like is there any opportunity to recover this and just like how broad based on these issues in your portfolio.
Yeah.
I don't think that the issues systemic I don't think it's elongated we're building crude.
I normally the company runs right through it we did increase head count around 1000 in the quarter. It does create some pressure the material amount of material delays with with some inflationary pressure on consumables altogether.
It it does impact a little bit I do not think it's we're going to work with our clients long term.
We're a company that truly collaborate.
I don't see us.
Getting any recovery on and it will work through it it'll be a long term for us over the next 10 years the games today the.
The futures are mine, a little bit of margin pressure not bad we'll work through it.
Also with me out when.
When we look outward against what we've seen in the past if you think about storm our guidance is like 100 plus million and last year. We did 400 in the last two quarters.
No we're not.
Not baking any of that and it'll depend on utilization that will give prudent guidance and I believe there is upside potential to that side, given where we said if we get supply chain coming through or any kind of major storm event.
Got it Thats helpful.
And then it's almost been a year since you've acquired flatten or at least announced the acquisition. So just curious to get some update on progress on what you're seeing in terms of sell through.
From legacy Quanta customers enter blattner.
And are you seeing an uptick in regulated utility and to shift the.
The mix towards renewables.
I think the business itself.
We continue to be pleased with where we said, we're making good progress on synergies.
We constantly are in contact with our clients about both wind and solar not only on.
Utilities or developers, but also our U S segment.
All of our customers looking towards a carbon free.
Footprint and when we think through it we thought that we could sit at the tip of the sphere.
Energy trend, we think we're at the tip of the spear on entry.
With bladder and certainly believe that every bit today as we did before and we're proving it out everyday.
Yeah.
Thank you our next.
From Justin Hauke with Baird. Please proceed with your question.
Hi, good morning, guys.
Garik I guess last time, we'll talk this way Oh on.
On these calls, but I guess I had a question.
The guidance with the upside from the JV contribution from Lima.
I guess you implied.
Segment margins are a little bit lower but I was more interested in kind of where the upside is coming from that.
I know there was opportunity for earn outs and some additional project pickups I'm guess I'm wondering if it's from that.
The base contract expanded and Theres still more opportunities in those other items.
Yeah, it's really the latter.
All of it was associated with this.
Carry through some cost management side of the equation on activities that we're doing as if we haven't started.
You know anything for the new project type dynamics, which would be incremental to the base project. Those things are still yet to come out there they're imminent.
But right now the differential this quarter was basically kind of cumulative cost management.
Looking forward you can see that we're still forecasting the contribution to be comparable to our previous forecast.
Levels for the third and fourth quarter.
Okay do you think.
We're seeing some famous funding coming through down on the island and I do think there'll be opportunities for us in 2023 to <unk>.
Actually.
Perform some construction that's outside of the contract.
Another one here.
Cleanup. There is is that that line item has multiple joint venture.
Just another joint venture. So we had a few joint ventures that actually executed quite well during the quarter.
So not all of that variance is unique dilemma.
Okay. Thank you for that and.
And I guess my second question is just going back to blattner again.
The revenue contribution from this segment at least from M&A $490.
Comparable to what it was in <unk> I guess, we would have thought there would have been maybe a little bit more.
You guys have been pretty upfront about the challenges from the tariffs on the renewables business here in the first half, but I'm just curious with your outlook for that business are you still thinking $2 5 billion of revenue contribution or or is that a little bit different this year and maybe what the new regime.
No.
Reiterated.
Our guidance on on the acquisition as well as the segment. So obviously.
Think in my mind.
It's every bit as good as what we have said and I think the longer term even three.
Build in 'twenty, three and beyond is greater than mcdonalds.
Thank you. Our next question is from Noelle Dilts with Stifel. Please proceed with your question.
Hi, guys. Thanks for taking my question.
So I wanted to dig into the cost side, a little bit more just because you know I think it's been tough from a cost perspective kind of across the industry.
You've discussed fuels, a relatively small percentage of your total cost that I think at about 2%.
Could you speak to how you dealt with fuel cost increases in the quarter and the extent to which you've been able to pass them on to customers.
And also sort of with labor and equipment.
Equipment.
And have you been able to pass that through reasonably well or have there been instances, where you've had to go back to the customer and get some relief I'm just kind of curious.
You know what the process has been like for some of those challenges in the quarter. Thanks.
Even if <unk> has good visibility and there is a large number of projects that get stated it's still.
But from those big projects, but that said we are in the middle of quite a few.
Morris more so now than in the past. So we are looking at a lot of bigger projects I wouldn't say, we're around the edges on them. All we try to collaborate with the client on these and certainly for US it's about planning and helping upfront. So we have a success in the future and I think thats supposed to work with.
The client to be successful in <unk>.
<unk>, Canada.
It's always we've.
Ben.
Five or six projects takes a little bit to get cash we always work through those with the client we work there one successfully in the quarter, we'll work through the next one the southern one.
The remaining of this year into next but.
We are executing well known for northern Climes are people in the third World class.
And that project is really what we've done.
So I'm highly confident where we sit there.
Our collectability, there as well as getting our cash flow a little better okay.
Canada being impacted more so than the lower 48, when you look at Covid and things of that nature, especially with 12 camps.
So.
Look I think both both Canada from the pipe side in the lower 48, there is some projects moving around.
But base business is robust.
We're all really additive and came to us.
The future versus where we sit I anything there would be additive the way I see it we're really not going to chase shiny objects, we're really working on our base business shiny.
Johnny objects happened to come in that will only increase our guidance going forward.
Thanks, Steve.
Thank you. Our next question is from Adam Thalheimer with Thompson Davis. Please proceed with your question.
Hey, good morning, guys nice quarter.
Hey, first question I wanted to ask about your M. S. A's.
Did those have inflation protection baked into them coming this year or is that something you need to work on as you renegotiate those going forward.
They're all day, but I would say, we typically have some escalations labor escalations for sure which is typically around 60.
70% of the project so normally that's in there and some of the consumables would be in there again, it feels about 2% of cost.
And so it's really the build up your training things that are necessary to put new people in the field, which we've done a nice job through the colleges and their pretty apprentices.
That coupled with.
Some of the inflationary pressures certainly in the quarter I would say, we just took a prudent approach in the future on guidance. We're wrong, we're really on target the way I see it for the quarter.
I agree Okay, and then I wanted to ask about the EV charging opportunity is the big opportunity for quanta.
Is it is it actually installing the bay or is there some churn in transformer work behind that that's more meaningful for you guys.
I think it's both but what I would say.
100 times more meaningful on the box side than it is on the station itself, where the base itself in the region.
Is the load is really at.
The distribution level, particularly and so as that happens you get the low to the distribution level is substantial both in from a generation standpoint.
Down through into the distribution side of the business.
It's like I don't know how to explain the big pipe.
It doesn't have any room, so you need bigger pipe all the way through.
So in my mind.
Just a lot on the system that needs to be modernized and we're in the early stages of starting that distribution bill across North America.
Thank you. Our next question is from Alex Rygiel with B Riley. Please proceed with your question.
Thank you you've been through many different economic can you talk just a little your experiences at.
At the beginning of an inflection point of an economic cycle and how many will.
Wanted to think about sort of the next 12 to 18 months as to how that.
Impact your core electrical power business.
Yeah, Thanks, Alex Scott normally in other cycles typically when youre looking at inflationary pressure natural gas at $8.
It doesn't impact revenue.
Tumor in my mind, she started increasing bills.
The regulators certainly look at this.
This time, it's not a problem, that's what where we're what where does the country when we're going towards a carbon free environment.
<unk> penetration has already left the building there is no choice in my mind other than to put capital into their systems in order to enhance and modernize them.
The only pressure you could do is just stop and I don't believe the country's stop the carbon free environment. At this point I'm not there is loan growth now and when you think about it in the past there was no load growth to three 5% load growth in places and that is often.
Setting some of the cost of capital going into the systems as well so the ultimate impact of the consumer for the grid build is not showing.
But the fuel costs I do think natural gas needs to regulate the get down where it should be.
And I do think that'll that'll help fill and everything else I don't real impacts that I would have seen we would have seen in the past, but look we're always cautionary about the inflationary pressures they're in places we should be prudent about how we think about it but we're not seeing that at all yet.
And then sorry, if I missed this but what is your backlog within the telecom segment and what is this backlog telling you about organic growth kind of on a go forward.
Is it accelerating can we see double digit organic growth out of that segment.
Yes.
We're about $1 billion.
And telecom.
At $1 billion in backlog in telecom, we could build it Alex it is just something I find the carriers cyclical and more spontaneous.
Please as well as our developers so we will be cautious about that as we grow the business we placed both.
Chris.
I do think the margins are upper singles go into double digits, which is really what we're after so I'm happy where we sit we could grow I feel comfortable that our platform will allow us. The company has really worked hard on them.
So you're seeing that show up in the U R margins.
I know we've talked a lot about electric we've talked a lot about renewables, but that portfolio. The way that we're displacing G&A and the things that we've done internal management team has really brought it into one single brand one thing.
Patients with <unk>.
The impact across the board at quarters, when we pick up the adjusted EBITDA.
Okay.
Our next question comes from Andy.
Citigroup. Please proceed with your question.
Everyone.
Hey, Andy Good morning, maybe.
Maybe maybe if you could give us some more color regarding your negotiations with utilities.
Okay.
MSA it seems that the existing customers.
Electric power is there.
Moving to sourcing and are you seeing it in saying.
<unk> customers likely our tight control on labor.
Yeah.
I think when you look at the customary collaborated quite a bit nothing has changed there we continue at a robust environment good macro markets sit well in the marketplace.
Our ability to execute in the field safely on time on budget. It makes it easy conversation and you always has as long as we continue to execute in the field. This conversation.
Yes.
Maybe can you give us an update youre seeing an underground in whether it's the PG named project or anything else you're working on do you see underground and becoming a much more meaningful part of your business as you head into 2023.
It's not only in the west we're seeing underground and across the Gulf Coast for storm hardening.
I do think underground will be a big portion of the west going forward, but it is moving forward all the capital budgets. If you look back and you see where per mile was the utilities start anticipating in 'twenty three is substantially different than in 'twenty two early stages.
The west is tough to work and a lot of permits a lot of environmental.
Planning I do think our front end business, we talked about it quite a bit.
That engineering permitting all the things that we're doing on the front end is really helping us.
Prepared for those bills and helping us with our client to reduce costs on that so where.
Where we sit there I think it is something that youll see in 'twenty three show up.
And after.
The Gulf Coast.
Yeah.
Okay.
Sure.
Thank you. Our next question is from Sean Eastman with Keybanc capital markets. Please proceed with your question.
Hi, guys. Thanks for taking my questions.
I wanted to come back to the comment about.
Wind projects being pulled forward.
What does the sort of come back on the side tell us about.
The anticipated margin progression in the renewables segment.
We thought that and correct me, if I'm wrong, but.
A lot of this year.
Softness.
And the blattner business that we're seeing in <unk>.
Two from a margin perspective is that softer wind dynamics, so I wanted to check in on that.
I don't know if youre seeing any margin issues with butler, but that.
That is down a little bit I don't think it has anything to do with.
The lender or the platform.
Or is everything to do with us taking a prudent approach to work through inflationary pressures as well as guidance.
Did that.
On a go forward basis to scale I don't think the mix of work impacts the margins there in the <unk> segment does have large electric transmission and as well as substation interconnect.
So those kind of things are and the segment is splatter.
I do think as we move forward certainly the wind coming in helps in.
But we're every bit as happy with solar as well.
When we see it we thought we would have some delay in.
'twenty two we did.
But we took that into account early when we made the acquisition and we also reiterated its term on the $3 6 billion 26 that got pulled in I think you will see.
Significant amount of growth there in 'twenty, three as well as and beyond.
Maybe color as well as we had commented that the bladder or be able to execute a double digit <unk>.
<unk> levels and they continue to execute at those levels.
Okay, great Yeah, I didn't framed that question.
Thought it was kind of exciting to see when coming back in the mix I guess really it's not a margin dynamic it's more just additive to that stronger visibility around.
Gross for renewables into the out years.
And then.
So im not saying, we can increase margin on a go forward basis in this segment.
It's all scale.
When it doesn't matter if you get more scale out of it and cover off January we'll certainly sir.
Okay, that's really helpful. Dave Thanks for that.
And then to the cash flows just this this Canadian transmission project dynamic.
Is this more an element of working through.
The.
C client versus some sort of point of contention with the client is that a fair comment Derek.
This is Derek.
Deal with them quite a bit and we went through we had two large projects. One just completed that no one's ever been through Covid.
In Canada, So it's just.
Cost against where you're at for one part and then the way the milestone billing works second one.
Look we didn't anticipate.
<unk> and winter delays that we have today and so that those milestones we have to escalate them off or get paid earlier I don't think there is we're working through those now theres no contention that it's really a matter of fact going justifying and moving forward a lot of paper I would say from my standpoint.
I'm, a little more than normal but.
Look it's.
As many times in Canada will get there with documentation we know.
The same approach we've taken delivery of other one there I am highly confident that we will work through this in the coming quarters.
Okay.
Thank you. Our next question from Neil Mehta with Goldman Sachs. Please proceed with your question.
Good morning team.
Last question was around the room.
Both legislation thats its way.
Through Congress right now recognize a believably.
Dynamic environment to try to process it but just any early observations of what that can mean.
Opportunity setting your business and clearly it could be positive for renewable energy infrastructure solutions, but do you see a way you could also tie into.
Electric power solutions as well.
Yeah for sure anything renewable I'll go backwards on the question, but anything renewal pool and the legislation effects degree.
No.
And so anything we're talking about impacts the backside of the grid and so I think yes, the substantial increase in utility spend either way I don't think.
The legislation is great. It's all incrementally positive 90 pages I want to comment on it other than just to say it's positive for us in many ways and if at all.
As stated we are extremely happy.
Okay that makes sense and I just wanted to follow up.
On the free cash flow.
Question I think can you provide some clarity around the specific in Canada, but can you help us bridge.
Between the previous free cash flow guidance and this one how much was that specific project versus others. Thank you.
That's why I came back is going to answer that.
Alright.
That's my Derek is never going to do another one of these calls yet.
Yeah.
Well look I mean, I think the biggest portion of what drives our cash flow.
As the world will demand it.
At length about the fact higher levels of growth put pressure on the working capital at this stage, our organic revenue growth for the year.
We'll exceed double digits.
And in the past we've talked about when you see it start to see free cash flow conversions against EBITDA, probably drifting down to.
The 40% range.
If you look at the math youre going to see that running about 35%.
The uptick in the revenues for the year about $400 million running 10% to 11% in 12 months.
Working capital is going to get you into about $40 million to $50 million.
The uptick in.
Are the decreasing.
Savings kick in and the revenue guidance. So it's all still across the same.
The same formulas.
You said that yeah, I think the remaining delta with largely individual timing of the project issues.
Alright, Thank you Sir.
Thank you. Our next question is from Gus Richard with Northland. Please.
Question.
Yes, good morning.
Good morning, Thanks for that.
Living mass question on Derek.
Final.
<unk>.
Sure.
High power semiconductors are kind of in limited supply the largest supplier is in Germany. The Oems.
Utilities.
Our volume customer.
Typically don't get favorable rollout.
I'm seeing lead times as long as 50 weeks for Igt's et cetera.
And I'm just wondering my question is.
The key issues that your customers are seeing are they getting worse getting better what are your customers, saying about this isn't going to continue to cause disruptions in your business.
Yes, we are saying.
Really transformers honestly I think are the bigger thing distribution transformers.
Kind of what I see little stuff here today.
That's really what we're focused on trying to collaborate with the client on those at this point.
Some transmission items are we seeing some delay in those as well but.
Our workforce is pretty nimble and we can move through these kind of issues and work with the client on those for the supply chain.
It is very resilient.
Come out with solutions on a daily basis in a collaborative manner. They collaborate quite a bit I don't as long term, we're working through all of these issues you can you can double shift factories.
But things too.
Right.
All the mining equipment.
Look there is always a big.
Lag on your Big H B D C transfer.
Transformers and turbines and those kind of things.
I do think.
That is already baked into the system and we're working through these minor issues with the client. It is a place where I believe quanta can collaborate and move forward the business on that and certainly the front side of it.
And the things that we're doing there is helping.
Must be successful.
In the field.
Got it that was it from me thank you.
Thank you.
Yeah.
Thank you there are no further questions at this time I would like to turn the floor back over for any comments.
Yeah, I'm going to first.
First I want to thank Eric for stepping in here certainly eases the mind someone of his caliber here at the Mayo and the management team, who says a lot about the family aspect of the company J J is doing great and she's listening to call his history.
And we know where you've done a lot here in the quarter to make US successful. So thank you and all the men and women in the field that.
Make our job easier and make this call easy for us because your execution.
We truly appreciate you and everyone that participated in our call today. Thanks for your interest in Quanta.
Okay.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yeah.
Yeah.