Q4 2022 Quanta Services Inc Earnings Call
Greetings and welcome to the Quanta services fourth 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.
As a reminder, this conference is being recorded and is now my pleasure to introduce to you kept Rupp Vice president of Investor Relations.
Thank you Kip you may begin.
Thank you and welcome everyone to the Quanta services fourth quarter and full year 2022 earnings Conference call. This morning, we issued a press release announcing our fourth quarter and full year 2022 results, which can be found in the Investor Relations section of our website at Quanta services Dotcom, along with a summary of our 2023 outlook and commentary.
Gary will discuss this morning. Additionally, we will use a slide presentation. This morning 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 February 23rd 2023, 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.
Form Act of 1995. These include all statements, reflecting clients' expectations intentions assumptions or beliefs about future events or performance or that do not rely or do not relate solely 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.
For additional information concerning some of the risks uncertainties and assumptions. Please refer to the cautionary language included in today's press release and the presentation along with the Companys periodic reports and other documents filed with the Securities Exchange Commission, which are available on Qantas or the SEC's website.
You should not place undue reliance on forward looking statements and quanta does not undertake any obligation to update such statements and disclaims any written or oral statements made by any third party regarding the subject matter of this call. Please.
Please also note that we will present certain historical and forecasted non-GAAP financial measures in today's call, including adjusted diluted EPS backlog EBITDA, adjusted EBITDA and free cash flow.
Reconciliation of these measures to their most directly comparable GAAP financial measures are included in our earnings release.
Lastly, 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 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 .
Thanks, Kip good morning, everyone and welcome to the Quanta services fourth quarter and full year 2022 earnings conference call on the call today, I will provide operational and strategic commentary and we will then turn it over to Jay Sri decide on our CFO to provide a review of our financial results and full year 2023.
Expectations.
Following <unk> comments, we will we welcome your questions.
This morning, we reported strong fourth quarter and full year results, which were built off an industry, leading operational and financial platform that delivered another year of solid.
Safe execution and profitable growth.
Additionally, total backlog of $24 $1 billion at year end was a record.
It does not include several notable recent project awards.
Driven by the dedication and operational excellence of our World class employees and the culture of our of collaboration throughout Quanta, We believe our 'twenty to 'twenty 'twenty. Two results also demonstrate the benefit of our diversified portfolio of solutions are repeatable and sustainable model and the successful X.
<unk> of our strategic initiatives to drive operational excellence and total cost solutions for our clients and ultimately the consumer.
Our portfolio of companies diversity of service lines, and geographic coverage outstanding field leadership, and deep long standing and collaborative relationships with our clients.
I have allowed us to successfully navigate through the challenges presented by a global pandemic.
And manage ongoing macro economic uncertainty and supply chain constraints, while still delivering five consecutive years of record adjusted EBITDA and six consecutive years of record earnings per share.
We accomplished a great deal in 2022 through this.
The successful implementation of our strategic initiatives and our past success positions us well for the future.
Our innovative approach to our infrastructure solutions.
Portfolio of services and our passion for working collaboratively collaboratively with our clients to support their success positions us to be a critical partner in enabling the energy transition for years to come.
Here are some of our accomplishments in 2022.
We continued to successfully advance our front end solutions strategy, both organically and through acquisitions and strategic investments. Our focus is on strengthening our design engineering permitting environmental logistics and program management capabilities.
This strategy allows us to expand our solutions to our customers and provide them with greater certainty around cost time to market and quality, which ultimately benefits consumers. It also enhances our risk management capabilities and increases our total addressable market.
Electric power infrastructure solutions segment revenues achieved record levels.
Maintain margins and increased market share. Despite some work delays caused by ongoing supply chain challenges.
We further expanded our emergency response capabilities and supported our customers efforts to restore power to millions of people adversely impacted by several severe weather events during the year, our ability to quickly mobilize significant resources to support our customers in times of need is unmatched in our industry.
<unk> energy, our joint venture with Atco, which is managing Puerto Rico's more than 18000 mile electric transmission and distribution system continued to improve its customer service response times customer communication and work for safety as well as overall system reliability.
Additionally, luma restored power to more than 90% of its customers in less than two weeks following hurricanes Fiona.
Which was much faster than previous storm responses by the prior grid, operator and was comparable to if not better than restoration times falling major hurricanes in the mainland United States.
So many years of challenges and work remains we continue to believe this opportunity has trimmed its transformative for quanta and the people of Puerto Rico and remain committed to supporting Lumens mission to provide reliable electricity, while building, a modern and sustainable transmission and distribution system.
We continue to grow our communication services business and increased revenues by approximately 30% contributing to the growth was further development of our wireless infrastructure solutions, which expand our opportunities to capitalize on <unk> network deployment and ongoing enhancement of <unk> wireless networks.
Yeah.
We continue to make meaningful progress on growing our portfolio of services within each of our operating companies to further enhance our operating results. For example, we are leveraging our gas utility assets to form certain aspects of underground electric power in telecom related work.
We believe the resource expansion and operating leverage we gained through these initiatives is significant opportunity for quanta to reinforce our self perform capabilities improve operating efficiency and profitability and demonstrates the strength of our portfolio approach.
Qantas capacity model was recognized by the National Safety Council as a finalist for its Christy.
Prestigious Green Cross for Safety Award, which recognizes outstanding projects and organizations working to support the National Safety Council's mission to save lives and prevent injuries from.
From workplace to any place.
The capacity model is revolutionary because they don't only creates a work environment that focuses on preventing an incident, but also builds the capacity to fill safely.
We demonstrated our commitment to stockholder value and our confidence in Qantas financial strength and continued to growth opportunities through the repurchase of approximately $128 million of our common stock and a 17% increase of our dividend while also increasing our liquidity.
And finally, we continue to increase our efforts and dedicate resources towards implementing sustainable business practices throughout the organization.
We've made significant progress in our 2021 sustainability report, which discusses the company's accomplishment accomplishments during that year and marks a key milestone for quanta as we published our first consolidated set of sustainability metrics.
Including our scope, one and two emissions.
We also highlighted and discussed the important positive impact quanta has on society, and enabling the energy transition and technological development.
Demand is robust for our solutions that support our customers' efforts to modernize and harden the grid and prepare it for the impact of increased electric vehicle penetration.
This activity drove our electric power segment results and backlog strength during 2022.
Primarily three significant multiyear master service agreements and gains through our service line expansion with utilities.
Further we continue to believe we are in the early stages of utilities underground transmission and distribution lines to protect them from the effects of severe weather events and wildfires.
We see this activity increasing in the western United States and high fire threat areas, but these initiatives are active in other areas of the country.
Examples include electric transmission projects in the northeast distribution circuits, along the coast lines and electric transmission line projects for offshore wind generation.
Many of these initiatives are part of a large scale multi year system modernization and hardening programs.
Our utility and renewable development developer customers.
Who accounted for the majority of our 2022 revenues are leaders in the effort to reduce carbon emissions increased electrification and lead the energy transition with aggressive plans to expand and modernize the power grid and grow their renewable generation portfolios.
Achieving these goals will require substantial incremental investment and transmission substation and renewable generation facilities to produce and transport clean power to ensure grid reliability due to the growth of intermittent power added to the system.
For example in December of last year, we announced Qantas selection by XL energy as its prime constructor to manage all construction activities for Colorado power pathway high voltage electric transmission project in Colorado.
Approximately 610 mall I voltage electric transmission line project is designed to increase the reliability of the state's power grid and enable.
Future renewable energy development in Colorado, including approximately 5500 megawatts of new wind.
Solar and other resources that XL energy plans to add through 2030.
Yeah.
While the supply chain and regulatory hurdles created challenges for the renewable industry. During 2022, there is significant demand for our power grid and renewable generation solutions a number of solar projects that were delayed in 2022 are beginning to move forward in 'twenty three.
Regulatory hurdles are easing and the implementation of the inflation reduction act or I R. E, which is considered by many to be the nation's most ambitious legislative action ever taken on climate is expected to have meaningful positive effect on a number of our end markets, which would be additive to our strategy for at least the next decade.
Our underground utility and infrastructure solutions segment consistently performed at a high level through the year revenues grew strongly and margins significantly improved after navigating through tough operating conditions caused by the global pandemic over the prior two years.
Importantly, we continue to invest in our people and strategies during those challenging times and emerge as a stronger and better company, which is reflected in our solid 2022 results.
We expect to continue our focus on growing our gas utility pipeline integrity and industrial services business businesses consistent with our strategy over the last five years.
Which are executing well and driven by regulatory spend to modernize systems reduce methane emissions ensure environmental compliance and improve safety and reliability.
Looking to the coming years, we continue to believe quanta has meaningfully meaningful opportunities with customers in this segment as they increasingly pursue strategies to reduce their carbon footprint and diversify their operations and assets toward greener business opportunities.
Further they are a includes incentives to support certain energy transition technologies to further encourage a broader set of current and potential traditional energy and industrial customers to accelerate their pursuit of opportunities around these technologies.
In our earnings release. This morning, we provided our 2023 guidance, which we believe demonstrates the strength and sustainability of our portfolio approach to the business and long term strategy favorable end market trends, our ability to safely execute our strong and strengthening competitive position.
In the marketplace.
Another.
Our ongoing investment in and commitment to workforce training continues to positively impact our performance and allow us to capitalize on future opportunities.
Our expectations call for another year of meaningful growth and record revenues improved margins and opportunity for double digit growth in adjusted EBITDA.
Cash flow and earnings per share. Additionally.
Additionally, we see opportunity to achieve record levels of backlog in 2023.
G III will provide additional detail about our guidance in her commentary.
Yeah.
One of his management team recently had the privilege of ringing the closing Bell at the New York Stock exchange to commemorate our 25 year anniversary of trading on the prestigious change.
Standing on that balcony and reflecting on what we have built over the last 25 years and where we are heading in the future. It was Emily and I couldn't be prouder.
One is the infrastructure solutions are at the tip of the spear of the energy transition in North America.
At our Investor Day last year, we laid out a five five year financial goals, we expect to achieve through 2026.
Which provided an organic growth strategy to generate a 10% adjusted earnings per share CAGR and when considering the levers available to us to allocate future cash flow generation into value creating opportunities.
Platform with opportunity to lift to deliver more than a 15% CAGR and adjusted earnings per share.
With the strong results, we delivered last year, our outlook for 2023 and the momentum we see building for the coming years, we are increasingly confident in our ability to meet or exceed those goals we laid out.
We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best in class build leadership, we will pursue opportunities to enhance Qantas base business and leadership position in the industry and provide innovative solutions to our customers. We believe Qantas diversity unique operating model and.
Entrepreneur 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 Jay Street Aside our CFO for her review of our fourth quarter and full year results and 2023 expectations Shri.
Thanks, Dave and good morning, everyone today, we announced record fourth quarter revenues of $4 $4 billion net income attributable to common stock was $163 million or $1.10 per diluted share and adjusted diluted earnings per share was a record for the fourth quarter and $1 68.
Overall, the fourth quarter closed out another year of exceptional operational performance my quanta.
Quick segment benefited from outstanding execution and higher revenues across the segment. Additionally.
Additionally, our underground segment performed well in the fourth quarter led by increased volumes and operating income from our base business operations.
Our renewable segment, however was negatively impacted by unanticipated project delays, which were primarily attributable to the changes in the solar market regulation that we discussed in the third quarter.
These delays created cost absorb some challenges, which pressured operating margins.
Additionally, the segment's operating margin was negatively impacted by approximately 120 basis points due to impairment charges on our software and the implementation project at an acquired company, which commenced prior to our acquisition, but was discontinued in the fourth quarter.
Ultimately in the aggregate against the backdrop of supply chain challenges inflationary pressure and a complex regulatory environment, our portfolio delivered against our targets for the fourth quarter and the year and we remain well positioned for the anticipated growth ahead.
Below the line, we recorded an unrealized loss of $15 million associated with our common equity interest in fixed wireless broadband technology provider Starry group holdings, which reduced the carrying value of our indefinite zero.
Offsetting this unrealized loss was an unrealized gain of $26 million on the sale of an investment in a non integral unconsolidated affiliate of which $10 million was attributable to a noncontrolling ownership interest.
Further commentary comparing fourth quarter, 22% fourth quarter 'twenty one for each segment can be found in the slides accompanying this call.
Our total backlog was $24 $1 billion at the end of the fourth quarter, a significant increase from third quarter 'twenty, two and another record level.
The increases across each of our segments are attributable to multiple new project awards, including the previously announced Colorado power pathway project and extensions and increases in expected volumes under Msas.
Our 12 month backlog was also at a record level of $13 $8 billion, which we believe is another indicator of the strength of our core markets and the steady growing demand for our solutions based approach.
For the fourth quarter of 2022, we generated free cash flow of $513 million, resulting in $767 million of free cash flow for the year.
Contributing to our free cash flow was the collection of $101 million of insurance proceeds following a favorable arbitration ruling associated with our Peruvian subsidiaries terminated telecommuting telecommunications project.
Excluding those proceeds our fourth quarter cash flow was still in line with our expectations and included planned outflows of approximately $45 million for change of control related payments associated with the blattner acquisition and $54 million of previously deferred payroll taxes in accordance with the cares Act in 2020.
DSO measured 75 days for the fourth quarter of 2022, which was a reduction of six days compared to the third quarter at 2022, primarily due to favorable billing arrangements related to certain projects.
Regarding the Canadian renewable transmission project that we've discussed in prior quarters, we continue to work with the customer to address the contract asset Daleth.
Resolution of certainties of these amounts could extend into 2024 and currently represent five to six days of DSO at December 31 2022.
While we remain confident in our position our DSO will be pressured by the project in the near term.
We had total liquidity of $2 $4 billion at year end and a debt to EBITDA ratio of 2.1 as calculated under our credit agreement.
As we mentioned in today's release, we continue to identify and make strategic investments and acquisitions.
In January of 2023, we acquired three businesses for total combined consideration of approximately $588 million.
Proximately $465 million of which was paid in cash at the time of the acquisition.
Additionally, we repurchased approximately $128 million of our common stock during the year.
Turning to our full year 2023 guidance.
The growth across our end markets remains robust and we believe the tailwind driving our growth are long in duration and create multi year visibility in our earnings potential.
As the build out of the infrastructure necessary for the energy transition accelerates, we believe the complementary capabilities of our operations will become even more valuable to our customers.
While segment designations have help investors better understand the work, we're performing well continue to emphasize the power of our aggregate portfolio of solutions and the earnings they generate.
That said the following remarks will speak to our expectations at a segment level for 2023.
As it relates to the electric power segment, we expect 2023 revenues ranging between 10 and $10.1 billion.
Our base business continues to lead the growth in this segment driven primarily by North American utilities outsourcing the activities required to replace rebuild and modernize existing infrastructure.
Notably our 2023 expectations included $250 million of emergency restoration services revenues compared to a little over $300 million in 2022.
So included within the segment, our communications operations, which we expect will generate around $900 million of revenue.
In line with 2022 levels.
We expect 2023 operating margins for the electric power segment to range between $10 seven and 11, 3%, which includes contributions of between 43 and $48 million of earnings from our integral unconsolidated affiliates, the largest portion of which relates to the luma joint venture in Puerto Rico.
From a seasonality perspective, we expect revenues to be lowest in the first quarter with mid single digit growth from first quarter 'twenty two than growing sequentially through the third quarter, followed by a seasonal decline in the fourth.
We expect fourth quarter operating margins will be the lowest for the year likely around 9% then increasing into the second and third quarter and slightly declining in the fourth quarter.
The renewable infrastructure energy infrastructure solutions segment full year revenues are expected to range between four three and $4 $5 billion over 15% growth compared to 2022 as we believe the headwinds faced by the solar market in 'twenty two should meaningfully improve in the second half of 2023.
We then we think it's important to note that within our range of guidance for renewables approximately $3 billion of our planned revenues are already in various stages of construction, giving us confidence in our ability to deliver full year revenues at these levels.
We expect 2023 operating margins for the renewable energy segment to be around eight 5% for the year slightly lower than the 9% level that we would normally expect.
We've invested meaningfully in the project leadership specialized equipment and administrative needs required to support the expected ramp in project activity in the second half of 'twenty three and into 'twenty four.
However, the cost of that investment weighs on margins, particularly in the first quarter.
We expect margins for the first quarter to be the lowest for the year likely between four and 5%, but should strengthen in each sequential quarter as volumes increase throughout the year.
From a revenue seasonality perspective, we expect satellite segment ragging right. We expect segment revenues to be between 850 and $900 million in the first quarter. The lowest for the year, then growing sequentially into the third quarter and slightly declining in the fourth.
As a reminder, it's possible that as we progressed through the year and gain more visibility into the nature of the work will be performing there could be movements outside these initial ranges for the electric and renewable segment, depending on the type of generation our activities support.
Okay.
With regard to the underground utility and infrastructure solutions segment. We are currently anticipating full year revenue range to range between 4.1, and $4 3 billion, a slight decline compared to 2022.
This decline is due to lower volumes of larger pipeline projects, which contributed almost $900 million of revenue in 2022, but are expected to be around $450 million in 2023.
Despite the revenue reduction operating margins for the year are expected to range between 7.25% and 7.75% led by our base business activities in the segment.
From a seasonality perspective, we expect segment revenues in the first quarter to be in line with first quarter 'twenty two revenues with operating margins around 5%. We then expect revenues and margins to improve in the second and third quarters with the seasonal decline in the fourth quarter.
As it stands today, we expect fourth quarter 23 revenues to be the lowest for the year.
These segment operating ranges support our expectation for 2023 annual consolidated revenues of $18 four to $18 $9 billion and adjusted EBITDA of between one eight and $1 $9 billion.
This represents another record level of adjusted EBITDA with expected full year adjusted EBITDA margins at the midpoint of over 10%.
With these operating result, we estimate a range of GAAP diluted earnings per share attributable to common stock for 2023 to be between $4 67, and $5.17 and non-GAAP adjusted diluted earnings per share to be $6.75 and $7.25.
Of note, we estimate our tax rate for the year will range between $26, two 5% and $26 75 per cent.
The first quarter rate. However, it will be negligible potentially zero due to favorable discrete tax dynamics associated with the increase between grant date value and divesting date value of stock related awards under our equity compensation plan.
We currently expect 2023 free cash flow to range between $750 million and $1 billion with capital expenditures of around $400 million, which should give us the ability to be within our target leverage range of 1.5 to two times by the end of 2023, we rank well we remain committed however to be create.
We remain committed however to creating shareholder value with strategic acquisitions and opportunistic repurchase activity throughout the year, while retaining our investment grade rating.
Going into 2023, we have approximately $345 million of availability remaining on our current stock repurchase program.
As a reminder, we've provided more guidance details and the outlook summary that was posted in connection with the earnings release and can be found on our IR website at Quanta services dotcom.
The strength and versatility of our portfolio gives us confidence in our ability to continue driving results against an uncertain macroeconomic backdrop, the infrastructure investment required to support North America's energy transition is still in its early stages and creates opportunity for quanta to continue providing industry, leading comprehensive end to end solution.
And.
Our relationships and the breadth of our solutions have proven to be critical in our ability to navigate the economic landscape of the last three years and we are confident those attributes position us to continue along our expected double digit growth trajectory.
This concludes our formal presentation and we'll now open the line for Q&A operator.
Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the.
The Star Keys, and we ask that you. Please limit yourself to only one question and then re queue. Thank you.
One moment, please while we poll for questions.
And our first question comes from the line of Alex Rigel with B Riley. Please proceed with your question.
Thank you good morning, and thank you for taking my question here excellent quarter, a few quick questions Duke backlog growth is just fantastic here. Obviously some of that is from some of your acquisitions.
But I guess, what I'm trying to get at is.
How do you think about backlog growth over the next couple of years and maybe if you could sort of comment on what you think your bid pipeline sort of looks like as it relates to backlog do you see an acceleration in your bid pipeline. It sounds like you might be seeing that.
But any.
Any thoughts there would be helpful.
Thanks, Alex.
The backlog is.
Really non material when you look at the acquisition so take that out I think we had broad based backlog growth within the company and as we look forward I think youll continue to see that throughout twenty-three the dynamic of the stacking of larger projects along with what we see at our MSA levels continue.
To be robust and I think it'll be broad base on our renewables as well as our electric power and even in you an ice segment. So.
Okay robust markets there as we look at the bid pipelines I think both the renewable side.
If you see more of a long geisha and out.
Where it was just 12 months Youre seeing 24 month 36 month type things within our backlog, so that's creating that growth as well there, but the pipeline itself larger projects are certainly in there, but our MSA business base business is robust as well. So just a broad based kind of look at the business at this point.
Hey, Alex just to add.
Clarify that the acquisitions were done in January so they're not in our backlog.
Fair enough and then secondly.
You referenced ongoing supply chain challenges you know theres, a couple kind of thoughts on that topic and one is supply chain challenges kind of hold back your ability to.
Obviously acquire equipment to execute on projects.
But also you know kind of when you layer into that.
Quanta is historical.
Achievements in managing difficult labor supply chain challenges.
And educating and training in.
<unk> can.
Can you talk about how their supply chain challenges have a loud quanta to gain market share.
Kind of in this current environment right now and moving forward.
We anticipated the labor, so I think craft skilled labor and still at the core of the business, we've invested and how long ago and not we continued in Boston today on.
That's something that we were in front of the supply chain challenges with the fleet and we've done a nice job of great partnerships in our fleet over the years certainly leverage I think we have the fourth largest fleet in North America. So it's something that we challenge ourselves to be in front of that as well with our suppliers in the same collaborative manner that we use with mark.
Customers, we use with our suppliers so I certainly.
It gave us an advantage, but also gives us a look in the future and I just think we'll stay on top of the two things that we manage and control is labor and fleet and so we manage a pretty tough.
Congratulations good luck.
Yeah.
Thank you and as a reminder, we ask that you. Please limit yourself to one question and then re queue. Our next question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.
Hey, Thank you team and congrats on a great quarter here I want you to spend some time on the renewable segment.
And if you could comment on first how the inflation reduction act impacting customer conversations.
And when we when you think it will start to show up in terms of either backlog.
Revenue and then J sure you made some comments about operating income at the segment.
<unk> been moving in the right direction as you think about 2023 can you help us can you give us the building blocks to think about that thank you.
Yeah with the renewables segment.
When we look out there are a certainly its additive to anything we've talked about to get your hands around it and what it actually means I don't think we see.
Anything at this point that has you know the consequences thereof. It does give us certainty over the next 10 years within that but as our backlog is we're having the conversations today, it's certainly about U S content, how we look at labor all of those kind of things within the hour a bill so that that's something the company has done a nice job of getting in front of.
And we're proud of that.
I'll, let Joseph comment on the rest of them.
Yeah Neil.
The renewables segment margin and revenue is basically as we said, though he lived down in the first quarter, but it will be picking up as we move throughout the year and that's really driven by the fact that as the as the industry gets more and more comfortable with where they are headed as projects move forward with a PPA.
And financing, we should see a big pick up in the back half of the year, we have been prudent with our guidance given some of the still supply chain issues and the tariff situations that are out. There. However, we're seeing a lot more interest a lot more movement and it should it should start developing in the back half of the year and especially into 2024.
<unk>.
Thank you.
And the next question comes from the line of Justin Hauke with Robert W. Baird. Please proceed with your question.
Hi, good morning, guys.
I've got a I guess a.
Question just on the.
The guidance and the acquisitions that you did post quarter.
Just the $580 million for three deals is actually a fairly large amount for you guys. When you usually do kind of more smaller bolt on ones per quarter. So.
If you could just give a.
A little bit of guidance around the revenue and EBITDA contribution in 2023 from from that incremental M&A.
Thank you.
Hi, Yeah. The revenue contribution is around 600 million for those three deals and I would just say that from the E.
P. S contribution will contribute around 15 to 20 cents.
As far as three deals and they're all within this strategic.
Platform that we've set out and a regional T N D. A.
One addresses the front end side of the the solar markets and.
When so batteries et cetera.
And the other ones are supply chain time on contribution there. So three things that we felt like we're we're right down the middle for US, We've always said the timing and how we deploy capital.
It's sometimes it's lumpy sometimes it spreads out so I wouldn't read anything into it.
And the next question comes from the line of Jamie Cook with Credit Suisse. Please proceed with your question.
Hi, good morning, and congrats on a nice quarter I guess I'm just back to the renewable.
You know margins I think you guys talked about investing in the business, which is weighing on the margins in particular, the first quarter can you help us understand like the investments that you're making and how to think about you know how much that's impacting that the margin guidance for the year and so I guess, that's my first question and my second question is you know I'm I'm sorry.
Struck with the guidance that we've that we're implying for 2023, you know $7 you accompany that typically you know guide fairly conservatively, they're trying to think about if there's upside to the numbers in 2023 or downside to the numbers could you just calibrate a where.
Where are the upside or downside could be given a good guide already thank you.
Yes, Thanks Jeremy.
When we think about it.
Annual segment is primarily around utilization and how quickly can it get absorption early on and as we move on to the projects that are stated.
Certainly you get absorption in the back half you're a little light and you saw it in the fourth quarter, you'll see it in the first quarter. We know the projects that we're wrong, we talked about $3 billion that were start have started the back half when we look at the back half certainly theres opportunities. There we were prudent about how we looked at it we felt like with the way.
The supply chain work this year, especially on the panels and things of that nature and how that comes in and how quickly it comes in.
We take the same approach to guidance every year, which is prudent and I believe we did the same this year is exactly the same way.
And the next question comes from the line of Noelle Dilts with Stifel. Please proceed with your question.
Hi, Thanks, I know, there's been a fair amount of discussion around supply chain, but you know I have heard that the that the transformer issue remains fairly challenging with extremely long lead times.
So and we talked about that before so I was actually just curious you know to what extent you think that's getting better or things getting a little bit more predictable as it relates to some of these components that have been in short supply specifically as it relates to electric T&D. Thanks.
Thanks, Noelle the when we look at the supply chain most of your larger.
Or is your larger customers have solved much of this not to say that the transformers and certain items are long lead times they are.
And it is issues there is issues around it but once we understand it once we understand cadence we can be much more predictable about how we deploy crews and assets. So that has helped us I do think there's opportunity there for us and how we participate in and solving these solutions with a client that said.
Transformers is going to be a while I think the back half of the year, maybe even into the fourth quarter for that level is out and we.
Good enough.
Capacity in the market, but with.
With the amount of EV penetration and things that we see you're going to you're going to see some shortages in transformers and we just have to be more robust about how we deploy assets.
And the next question comes from the line of Steven Fisher with UBS. Please proceed with your question.
Thanks, Good morning, just on the electric transmission and distribution kind of customer spending outlook. There's been some mixed data points on utility capex over the last few months, but I guess still overall positive I'm curious what discussions you're having with the utility commercial customers specifically.
Around the planning for the I R. J a funds how are they baking those into their spending.
Spending patterns and how will that ultimately flow into your bookings and backlog. Thank you.
Yeah. Thanks.
Here's what we see we see North America as load growing.
As we look at it across.
Our segments, so that the growth of generation in North America, you have that going on you have renewables and the way that we're looking at penetration through transmission, yeah, EV penetration ongoing so all those things are coming in to these capex.
Did I hear that and I hear what you're seeing something different all I've seen is our customers moved their capex budgets up primarily in distribution on the outer in because of penetration of EV and then all your transmission and Newsweek interconnected.
The way that.
Do you think about it you think about all the things that are necessary to make this work. Yes, you can delay a bit you can do some things, but we're already behind on just in general if you stay flat on carbon today you can't.
We're struggling to serve the load at the customer level on the coastlines and.
That is our duty to those industries duty to the to the consumer is to have load and if you have wells that are offshore. If you have things that don't allow us to build generation that's necessary to get to a carbon free environment. We have to have more transmission. So either way you look at this.
On any level the capital necessary to transform and to make sure that this country is that how does the resilient grid will acquire significant amount of capital.
Okay.
And the next question comes from the line of Adam Thalheimer with Thompson Davis. Please proceed with your question.
Hey, good morning, guys, great quarter, Great outlook, Hey, a quick question on electrical margins.
So the guidance range for margins this year 10, 7% to 11 three at <unk>.
Same guidance, we started last year with and we ended up at the low end 10, seven so my question would be what.
Factors drove you to the low end last year and what could drive it to the high end of this year.
Yeah, we talked about the segment and when you look at it I mean I think in general this year, we took the the supply chain on the way well you had inflation you had fuel costs rising and a bunch of different things going on and we talked about that early on in the first half that we thought we could operate through it in the second half than we did.
So you know we've got that in our system now we understand cadence around supply chains and things of that nature. So it gives us a.
Great mobile of copper that we can operate in a higher end of the range on the lower so that's that's just us understanding what markets. We're in we're still you know our guys at 12% EBITDA something like that.
A lot of people talk about EBITDA, so it's 12% EBITDA.
Great. Thank you.
Mhm.
And the next question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.
Hi, good morning, guys.
Good morning.
So Duke I wanted to go back to your comment.
About your focus on the front end and my question is by how much does that greater focus on front end work.
Expand your Tam and then like would you classify this as a pull from your customers versus a push from quanta.
And then.
How are you thinking about building this out to what extent do you plan to focus on inorganic acquisitions versus just organic building.
When we look at the market you know.
If you take it all it's 30% or so.
Total addressable market within our client base and I.
We continue to build that al because what was happening and it made us less efficient and also the client less efficient and I believe from a construction standpoint, how we approach it how we approach the front end, we can give a lot more certainty do any project. So it was necessary in my mind for for us to get in that business.
And yes, the customer is happy with it the projects that we have done the programs that we are doing ongoing are certainly something that we'll continue to build off as we move into the future and that market's there. It makes us more efficient on the back side a lot of reasons for us to to like that piece of business and we'll continue to.
Invest.
Got it okay.
And then my second question is just on the supply chain.
Can you talk about what's embedded in your 23 guide in terms of improvement may be like versus where we are today.
And then just going to take the renewable segment, how much of the revenues in 'twenty three.
There were delays in 'twenty two.
Yeah.
As far as the supply chain.
What we see today, what we've seen over the past quarters is how we've looked at it going forward.
If it gets better certainly will come back and we'll talk about it but we see intermittency and the supply chain.
Utility side.
The year basically I do think the renewable segment supply chain gets better in the second half and we've certainly looked at that as well, but how.
How much better I'm not sure and if it does.
If it creates.
There is some concern vacation and renewable segment due to that we baked all that in and I feel like I hit it down the middle with prudent guidance and as far as revenue tissue town.
Yeah, and I would say, it's a mix it's hard to Ah I don't I don't.
Don't want to sit here and say how much is due to delays versus theirs. There has been additional backlog on the renewable segment that that's starting to come in and you've got some projects that have moved into the.
From 'twenty two to 'twenty three it's about.
Okay. Thanks, I'll pass it on.
Thank you and as a reminder, please limit yourself to one question and then re queue. Thank you. Our next question comes from the line of Michael Dudas with vertical research. Please proceed with your question.
Good morning, Duke Treasury.
Good morning.
Thanks.
You announced the sort of several large T&D projects over the last couple of months can you talk about what you have in the pipeline relative to those types of projects and what your selectivity might be going forward and maybe how that plays out over the next several years because these are much longer gestation projects than we have in your base business. Thank you.
Yeah. Thanks, Michael we talked about the stacking effect in the projects.
Larger projects they stuck on the base I think when we went through crashes.
Seven eight years ago, the company got off the base I would tell you today, we're highly focused on our base business roughly 80, 590% of that resilient business that we have will continue to focus on that we're.
We're bidding on every project the same we bid the risk.
We're not going to win them, all but just not and.
Wash one recently that you know.
Look at we know our costs, we know we're doing we're not gonna take risk, it's not something we're going to gamble on.
If we're just not and it's not Vegas, we're going to get ourselves in a good position to make sure that we execute on these projects and we don't need to necessarily.
Take the larger projects, we can we can build our base, but we do see an incremental amount of larger projects coming in in 'twenty, three 'twenty four and beyond.
Thank you and as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if you would like to remove your question from the queue.
Our next question comes from the line of Brent Thielman with D. A Davidson. Please proceed with your question.
Hey, great. Thank you.
The expectation for a reduction in large pipeline work and $23 22 is that just a function of sort of project sequencing for your your business because your backlog is up pretty nicely and underground or is that just sort of reflective of the environment. We're in and I also just be curious the doctor.
<unk> the scale fill that void.
Youre sort of talking about for the underground business late in the year.
Yes, the backlog was primarily driven by MSA growth, there and when we look at the larger diameter pipe.
You talked about guiding to kind of.
450, 500 type range year over year, certainly theres opportunities for us to do a $1 billion.
That opportunities out there, we got it to where we're at I just for us.
We can make the numbers in a portfolio approach, where we're at I felt comfortable with them, we felt comfortable with things move.
Let's just say solar moves or let's say large pipe went the other way the portfolio. We have makes US you know.
What I think.
Very predictable and that those larger dynamics of pipe and tube.
One of our renewable projects, we took a prudent approach to guidance.
Well update you as if we get more work with certainly update.
And this is the final poll for any questions. If you have any final questions. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. Once again, if there are any final questions. Please press star one on your telephone keypad.
Okay. At this time I'm not seeing any questions coming in I would like to pass it back over to the quantum management team for any closing comments.
Yeah, I want to thank the men and women in the field are putting up the numbers every day and work in safe.
It allows for a great call and for us to talk about how great. The company is doing and I'm certainly after 25 years.
Water.
I think we're just getting started so I'd like to thank everyone for participating in our conference call. We appreciate your questions and your ongoing interest in Quanta services. Thank you and this concludes our call.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Okay.
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