Q1 2023 Quanta Services Inc Earnings Call
Press Star Zero from your telephone keypad. Please.
Please note this conference is being recorded.
At this time I'll turn the conference over to Kip Rupp, Vice President Investor Relations.
You may now begin.
Thank you and welcome everyone to the Quanta services first quarter 2023 earnings Conference call. This morning, we issued a press release announcing our first quarter of 2023 results, which can be found in the Investor Relations section of our website at Quanta services Dot com, along with a summary of our 2023 outlook and commentary that we will discuss this morning.
Additionally, we will use a slide presentation. This morning to accompany our prepared remarks, which is available through the call. The webcast and is also available on the Investor Relations section of the Quanta services website. Please remember that information reported on this call speaks only as of today may four 2023, and therefore, you're advised that any time soon.
That information may no longer be accurate as of any replay of this call.
This call will include forward looking statements intended to qualify under the safe Harbor from liability established by the private Securities Litigation Reform Act of 1095 include.
Including all statements, reflecting expectations intentions assumptions or beliefs about future events or performance or that do not solely relate to historical or current facts.
You should not place undue reliance on these statements as they 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 we will also present certain historical and forecasted non-GAAP financial measures reconciliations of these financial measures to their most directly.
Comparable GAAP financial measures are included in our earnings release and slide presentation.
Please see slide two and the appendix of the slide presentation for additional information regarding our forward looking statements and non-GAAP financial measures.
Lastly, if you would like to be notified when quanta publishes news releases and other information. Please sign up for E Mail alerts through the Investor Relations segment 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 like to now turn the call over to Mr. Duke Austin, <unk>, President and CEO Duke.
Thanks, Kip good morning, everyone and welcome to Quanta services first quarter 2023 earnings conference call on the call today, I will provide operational and strategic commentary and we will turn it over to <unk>, who decide Qantas CFO .
To provide a review of our first quarter results and full year 2023 financial expectations.
Following <unk> comments, we welcome your questions.
Before we begin reviewing our financial results I would like to briefly highlight the recognition the quantum recently received.
From Engineering news record, a leading engineering and construction industry publication.
Anr selected quanta, whereas prestigious and highest honor the award of excellence.
One of them was selected for its safety leadership with our innovative capacity model a unique safety and training program that is designed to not only create a work environment that prevents incidents, but also building the capacity to fill safely and it focuses on learning from mistakes in order to drive improved outcomes.
One is changing how we our customers and the industry think about safety excellence and I want to congratulate quanta employees for their dedication to safety and our shared success and being recognized with this award.
Our first quarter results, which include double digit revenue growth and adjusted diluted EPS of $1 24 demonstrated a good start to the year.
More importantly, we continued to enhance our self perform model and remain on track to achieve our full year 2023, and multi year expectations.
Additionally, total backlog at the quarter end was $25 3 billion.
A record and considerably higher than the same period last year.
Notably, we see opportunity to significantly increase backlog as we move through the year.
Driven by our base business and larger energy transition projects, such as the <unk> transmission and Cynthia wind projects, we announced this morning.
We believe we are in the early stages of capitalizing on significant opportunities across our service lines, which are driven by our collaborative solution based approach that is designed to ultimately benefit consumers.
Additionally, the growth of the programmatic spending with existing and new customers and favorable megatrends provide greater flexibility into our near and long term growth outlook.
Our electric power infrastructure solutions segment continued to perform well and generated record quarterly revenues.
And for our services is strong driven by broad based business activity from utility grid modernization grid security and system hardening initiatives as well as our reputation for consistent and safe execution.
We continue to work with our customers to provide them with resources to meet our capital deployment initiatives and to help them address supply chain constraints.
As we have discussed over the past several quarters. Our view is that the electric power grid will require significant upgrades and modernization to handle the energy transition.
We also believe that electric vehicle penetration could increase at a faster rate than expected, which could create significant grid constraints that we believe are underappreciated by many.
We expect the issue in the near term.
The medium term in most regions will not be generation load supply availability, but the inability to move supply to areas with accelerating EBIT driven low demand through the current distribution system.
According to estimates from UBS non estates EV car penetration is expected to be more than quadruple from approximately 4% in 2025 to approximately 19% by 2030.
We believe this developing grid capacity challenge will be acutely impacted as commercial fleets.
And heavy duty trucks and buses become increasingly electrified.
For example, yesterday Navistar, a long standing key partner to quanta for medium and heavy duty trucks announced their partnership with us to provide its customers a turnkey battery electric vehicle product and charging infrastructure solution that enables fleets to deploy battery evs quickly and efficiently.
The partnership intends to leverage notwithstanding approach to delivering fully integrated E mobility solutions to its customers with Qantas expertise in assessing and designing EV charging infrastructure and building the interconnecting EV battery charging infrastructure and to the power grid.
One understands infrastructure and its partnership agreement with Navistar is an example of a unique vantage point, we have into the growing challenges with the power grid as the energy transition and electrification of everything accelerates.
As we have discussed on prior calls to meaningfully reduce carbon emissions and increased electrification of the economy will require substantial incremental investment in transmission substation and renewable generation facilities to produce and transport clean power and to ensure.
<unk> grid reliability due to the growth of intermittent power added to the system.
One of the strategic reasons, we acquired Blattner was because we believe the addition of utility scale renewable generation solutions to Qantas holistic grid solutions will transform our ability to collaborate early with our customers.
On to our energy transition strategies over the coming decades, and create a value proposition unique in the industry.
To that end. This morning, we announced that quanta was selected by pattern energy to provide comprehensive infrastructure solutions for the Sun Zia transmission and sons via wind projects, which together compromise the largest clean energy infrastructure project in the United States history.
While we will leverage the capabilities of multiple operating companies to execute these projects for pattern.
Energy, We believe these project awards validate the power of our combined high voltage transmission and renewable generation solutions and demonstrate the value of our collaborative approach to providing energy transition infrastructure solutions.
Which can serve as a model for the renewable and utility industries going forward.
As expected normal seasonality and the solar panel supply chain and regulatory hurdles from last year resulted in a slow start for our renewable generation project activities in the first quarter.
However, these dynamics are improving and renewable generation project activity is accelerating which we expect to continue throughout the year.
For example at the end of April we were in various levels of construction on 28 utility scale renewable generation projects.
Further we are in active discussions with clients about projects in 2024 and beyond and are focused on scaling our resources and capacity to handle what we expect to be record levels of new renewable generation capacity additions over the coming decade at least.
Additionally.
We are pursuing billions of dollars of high voltage transmission projects that are designed to support current and future renewable generation capacity growth and overall system reliability.
We are pleased with the performance of our underground utility and infrastructure solutions segment in the first quarter.
Which delivered double digit revenue growth and record levels of first quarter profitability.
In Australia solid execution across our operations in this segment our.
Our industrial services operations executed well and experienced strong demand following two years of deferred activity during the pandemic.
We also experienced solid demand for our gas utility and pipeline integrity operations, which are executing well and are driven by regulated spend to modernize systems reduce methane emissions ensure environmental compliance and improve safety and reliability.
We continue to believe our operational portfolio is a strategic advantage that provides us the ability to ship resources across service lines and geographies.
Which we believe will become increasingly important as the energy transition accelerates we.
We believe our portfolio approach approach positions us well to allocate resources to the opportunities we find the most economical.
Additionally.
And attractive to achieve operating efficiencies and enhance our operational and financial consistency.
The energy transition towards a reduced economy continues to progress and we believe is gaining pace.
Donna is successfully executing on our strategic initiatives to drive sustainable and resilient operational excellence.
Total cost solutions for our clients consistent profitable and value.
Consistent profitable growth and value for our stakeholders, all of which gives us confidence in our ability to deliver on our 2023 and multi year financial expectations.
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 <unk> base business and leadership 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 all our stakeholders.
I will now I will turn the call over to Jeff <unk>, our CFO for.
For her review of our first quarter results and 2023 experts expectations history.
Thanks, Dave and good morning, everyone today, we announced record first quarter revenues of $4 4 billion.
Net income attributable to common stock with $95 million or <unk> 64 per diluted share and adjusted diluted earnings per share was $1 24.
Our first quarter electric power revenues were $2 3 billion.
And operating income margins were nine 2% consistent with the directional views provided on last quarter's call and reflecting successful execution across the segment.
Our base business continues to lead the way for the segment as utility investments in hardening and modernization initiatives create growing demand for our comprehensive solution.
Renewable energy infrastructure segment revenues for first quarter, 'twenty, three or $1 billion.
With operating income margins at three 5%.
Revenues in the quarter were better than expected due to the acceleration of construction activities as our renewable customers move forward with projects.
As we mentioned on our last call, we anticipated first quarter renewable revenue can be the segment's lowest of the year and the lower volumes would create fixed cost absorption pressure on segment margin.
In light of that expected pressure from a margin perspective, we are pleased with the results from the bulk of our project activities.
The overall segment margin was affected however by the large renewable transmission project in Canada, which we've discussed on prior calls.
With over 90% of the project complete as of March 31, construction activities were quite successful during the quarter and we believe we are positioned to achieve substantial completion. After the next winter build season.
Despite the significant progress access delays logistics and other issues outside of our control increased our costs on the project negatively impacting quarter margins by approximately 120 basis points.
We are working collaboratively with the customer to recover the financial impacts associated with these and other issues and are confident in an equitable outcome.
Underground utility and infrastructure segment revenues were $1 1 billion for the quarter and operating income margins were five 7%.
Can you strength from our base business operations drove the performance with margins exceeding expectations benefiting from improved fixed cost absorption and higher than anticipated revenue level.
For additional commentary comparing first quarter, 23% first quarter 'twenty two please refer to the slides accompanying this call.
With regard to backlog, we continue to achieve record levels.
At March 31, 2023 backlog with $25 3 billion.
An increase of $1 2 billion compared to December 31st and did not include amounts related to Sandia, which we announced this morning and was awarded subsequent to the quarter end.
Our 12 month backlog is also at a record level of $14 6 billion.
Which we believe is another indicator at the steady growing demand for our base business solutions.
Our end markets remain robust with opportunities that can lead to new record levels of backlog in subsequent quarters.
For the first quarter of 2023 as expected we had negative free cash flow of $31 million driven by working capital demand from the aforementioned Canadian renewable project as well as a ramp up of work activities. Following the holidays, which is typical for the first quarter.
DSO measure 77 days for the first quarter of 2023 lower than our historical average aided by favorable billing arrangements associated with certain awards during the quarter.
Okay.
Regarding the Canadian renewable transmission project the contract asset balances grew during first quarter 'twenty three and continues to pressure DSO.
Positive discussions with the customer regarding portions of the balance are ongoing which represents approximately 5% to six days of DSO as of March 31, and we are increasingly confident in our position.
As of March 31, 2023, we had total liquidity of approximately $1 8 billion.
And a debt to EBITDA ratio of two five as calculated under our credit agreement.
The decrease in liquidity and increased leverage profile is due to roughly $450 million of capital deployed on acquisitions in the first quarter.
We expect continued earnings growth and cash generation to support our ability to efficiently delever over the coming quarters, while continuing to create stockholder value through incremental capital deployment.
Turning to our guidance, we had a nice start to the year with record first quarter revenues and strong performance in the field.
Given that strength, we are raising our revenue expectations for the year by $200 million.
While our expectations for full year adjusted diluted earnings per share attributable to common stock are unchanged ranging between $6 75.
And $7 25.
From a segment perspective, we continue to see electric segment revenues between 10, and $10 1 billion for the year with full year margins between 10, seven and 11, 3%.
We expect segment margins to be somewhat pressured in the second quarter due to challenging weather conditions throughout the northern and western parts of North America.
Regarding our renewable segment given the strength of the first quarter and increased project award we are raising our full year revenue expectations for the segment by $200 million.
Ranging between four five and $4 7 billion.
We continue to expect margins around eight 5% for the year with second quarter margins in the upper single digits.
The increase.
In renewables is being offset by a reduction in our underground segment due to a shift in the expected portfolio mix. Our segment revenue expectations are unchanged, but we now expect full year margin to range between seven and seven 5%.
We slightly modified other aspects of our guidance the details of which are included in our outlook summary, which can be found in the financial information section of our IR website at Quanta services Dot com.
Looking ahead, our end markets continue to strengthen led by utilities modernizing their infrastructure to support increased load driven by electrification trends and most importantly to support North America has transitioned to a reduced carbon future.
We believe we are uniquely positioned to deliver a comprehensive solution to the markets, we serve and to create significant shareholder value through organic growth and strategic capital investments.
I'll now turn it back to the operator for Q&A operator.
Thank you will.
We will now be conducting a question and answer session.
To ask a question at this time, please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the Q4.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
So that we may address questions from as many participants as possible. We ask you. Please limit yourself to one question.
If you have additional questions you may re queue in time, preventing those questions will be addressed.
One moment please poll for questions. Thank you.
Our first question is from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.
Hey, good morning, everyone.
Good morning.
Given your backlog has been accelerating over the last few quarters it seems like.
You are announcing more large projects are you just generally seeing an acceleration in these types of projects.
Would you expect their frequency to continue and then I know you talked about backlog continue to increase does the higher backlog in your view raise the probability that quanta can deliver that higher and I think you had told us at the analyst day, like 15% plus longer term EPS growth.
You discussed.
Yes, thanks Sandy.
I think when we look at the market and especially the larger projects within the market.
There is significant amount that you got to get through permitting and you got to get through a lot of different things more importantly, if youre doing a transition as need for transmission in.
North America for that matter, a significant way more than what people will estimate.
I think you hear it quite a bit.
Moving towards the transition we are so that said, we do see large projects across the board, but you have multiyear projects as well with existing customers that are also addressing this.
No need to provide low to the load centers from the areas, where you have renewables. So those things along with what Youre doing with EV penetration and things like that are certainly increasing our dialogue with customers is robust.
Amount of capital necessary to go or do you want to go continues to grow.
I don't see a path to get to anywhere near where we want to go in 2000, 32000 40050 without significant infrastructure build across the grid, it's not meant to handle the modernization the penetration of electric vehicles and what we're trying to do from a carbon environment without.
Modernizing this infrastructure in a significant way.
Are we at least trending towards your higher end.
Target that you talked about last year.
Listen Andi see our backlog growing.
Don't even have some <unk> and it will go up significantly I think it will go up significantly every single quarter throughout the year. It may not be perfect CAGR, but it will grow.
Through this year and I don't see that stopping.
Given you good guidance on a multi year.
10% type growth at the EPS line with the ability to grow 15, a standby today, even more so.
I appreciate it.
Our next question is from the line of Adam Thalheimer with Thompson Davis. Please proceed with your question.
Hey, good morning, guys. Congrats on a strong start to the year.
Good morning, Hey, Duke at a high level.
Thanks, Dan with renewable with the renewable supply chain.
I think its getting better I mean, you are still you still hear Congress.
Even today or yesterday I can't when you start to see things around.
Your reliance on China for panels, and I do think that will continue to play through this but all in all for what we see for what we have we certainly have risk adjusted kind of how we're guiding.
This year, so I do think we've watched it we know what panels are in we know what panels arent and I do believe that has alleviated a bit and we will continue so the supply chain has gotten better in many ways certainly if theres any kind of regulation or things like that it could change, but I do see more.
For that matter of everything being more onshore than offshore and I do think that's a good trend for us in the way that we think about providing the solutions from Jason can comment.
No.
That's right I think it is opening up we're seeing.
The supply chain the panel manufacturers make us do a better job of ensuring that they are meeting their requirements under the <unk>.
Its tariff provisions.
But yes, if there is any sort of regulation any sort of anti China sentiment that continues to push through that can obviously affect the supply chain again.
Okay. Thanks, guys.
The next question is from the line of Alex Rygiel with B Riley. Please proceed with your question.
Thank you gentlemen, a real quick question here.
Where do you stand on the percentage of revenue generated from self perform versus external subs, how could we change over the coming years.
Yeah. Thanks, Alex So I think in general we're about 85% still I think that remains.
The Borg mix for us if we get more material concentric, we'll make some comment on it today, it's the same for <unk>.
85% of the business is still self perform.
We liked that we liked that mix I think it will continue we certainly to have certainty in our projects.
And to the client on delivery times and on for our ability to provide earnings power, we need to be able to self perform about that mix and the constraints that we have.
No one understands is and we have to make sure that we can operate through any kind of <unk>.
Issue. So that's about the mix you'll see.
And then secondly can you talk a little bit about the competitive environment, particularly as it relates to some Neil congratulations on multiple how many bidders were on that how does that compare to a few years ago.
Yes, honestly I don't have any idea.
No we had great collaboration with decline is a collaborative effort.
I believe it shows.
What the <unk> acquisition did for US when you put both of US together, what we can do together what we can do for the client the synergies that we can create for our clients in a project like this I would say is proof of concept. It's proof of what can be done with the client to the ultimate consumer and I don't I don't think there is anyone that can do what we can do.
With these type of projects based upon history based upon what we're able to really think through for early in construction.
We can certainly create impacts and solutions to both sides of this transition unlike any other.
Thank you.
Our next question is from the line of Justin Hauke with Robert W. Baird. Please proceed with your question.
Great. Thanks.
So I guess I had a couple of questions on <unk>, just because it's been out there obviously forever. It's had all kinds of moving pieces on financing side and the regulatory side I'm. Just curious is there anything that it still has outstanding that it needs to received to start construction in <unk> or is that pretty much all cleared up and then.
I guess related to that is there any.
Contribution that youre, assuming in your guidance for this year from it.
Yes, we have some revenue in our guidance this year from it it was in our uncommitted prior to.
The award, but that said, it's minimal and I don't we don't see.
A pullback or a path where it doesn't go so there's a lot of commitments being made here, where you feel like the projects that <unk> is a great project on patterns, a longtime customer of <unk> for that matter. So we are confident and we work hard with the client to make sure that.
This project as a showcase for them and us in the industry, what can be done through artwork and yes. It's a long long project that took a long time. It shouldnt take this long in America to build infrastructure. So certainly.
It's we're glad to get across finish line for for everyone.
Okay, Great. That's helpful. And then I guess my second question is just on the Canadian renewable job.
You said, it's 90% complete and Youre expecting it to complete with the next winter build.
That mean that for the next couple of quarters, there's really no contribution on that and so we shouldnt think of that as kind of a.
Source of potential pressure and it won't start up again until we get back to next winter when it completes.
Or any way to think a little bit.
Little bit on the project Thats, the way to think about it but a little bit on that project. So we can discuss it a bit.
It's that's a project that we go through the pandemic and its a project no one's done in northern climes like this where we're taking taken.
People are fuel and putting them on renewable power I think it's significant in the way you think about the northern climes and what can be done our people work through a pandemic and built this and so that said no one's ever done that no one's ever so the way that we're thinking through it we've taken a prudent approach taken a prudent approach the way we've looked at.
All I can say is we can build things in northern climes better than anyone in the world I am confident in our position I think it's much better than what we what we have but we took a prudent approach to it we'll continue to do so I don't think youll see anymore fluctuations unless it goes the other way I feel confident in where we're at and it was our decision.
Really to make sure we derisk the rest of the year and the rest of the job with the approach that we've taken so we're extremely happy with our people. This build was significant for us in a COVID-19 free environment of what's possible.
Productivity rates and everything else were off the chart. So real pleased with how we finished up and I do believe it will pay dividends long term.
Okay, great. Thanks perfect.
Thank you.
Our next question is from the line of Steven Fisher with UBS. Please proceed with your question.
Hi, Thanks, Good morning, Congrats on <unk>, just wanted to follow up on that last point there I mean this seems to be.
A reminder, that things can happen on these renewable projects and so.
How can we get comfortable that these risks can be reasonably controlled.
What comfort can you give investors that <unk> is not going to be an execution overhang I know your partner has done other work.
In new Mexico before Youre taken great efforts to de risk of the business, but it's obviously, it's a big huge project.
Do you have.
Our margin impact this quarter from renewables projects. So what comfort can you give investors that there's not going to be an execution overhang now. Thank you.
Thanks, Steve.
Since he is right down the middle for US both from a we just got off a wind project with pattern did really nicely rebuilt line across that part of the world. Many many times not concern, but I can't control. The pandemic. So if our project has a 24 month pandemic in it I don't know I don't know how to address that yet.
Let you know when we get done with.
Walden settlements on the claim but.
The one in Canada, we worked through a 24 month pandemic in a camp and then most northern territory in North America.
So.
By the way like every other project that there is off the rails.
So look at coastal gas look at Transmontane, what they did compared to what we've done I like our chances. So I'd note. We know we're doing on large projects and this one is right down the middle I expect many more of them to come.
Okay.
Okay. Thank you.
The next question is from the line of Chad Dillard with Bernstein. Please proceed with your question.
Hi, good morning, guys.
No.
First of all can you talk about what is the mix of small versus large projects today, particularly on electric transmission.
And then with the recent spate of large wins that you've had over the couple of quarters like where do you think that mix goes over the next couple of years and what I'm ultimately trying to understand is like how should we think about the margin impact.
If a potential mix shift.
I think when you look at it it's about the same between 80% to 85% base business the way we've laid it out.
Large projects will grow significantly in our base business to grow significantly we're signing much larger MSA type programmatic spend than the projects that youre seeing it just theyre over multi years and cynthia's over I think we have done in 'twenty six 'twenty.
26 align goes a little faster 25, but that said.
We have multiyear type MSA type agreements with our current customers that are longer in nature much bigger. So we continue to see both the base as well as these larger projects as we've talked about the stacking effect due to the transition and all the things that we're able to accomplish there on the companys in front of it and I do believe the outlook looks good.
Certainly our strategies are.
Five years out and I like where we're at and I think we're right on track, maybe a little better.
That's helpful.
And then secondly can you give a little more color on the Navistar partnership.
Is this something where.
It's exclusive for quanta.
And then just saying at what stage of the sales cycle and quantify them.
The type of like program work.
Got you.
Talking about.
Yes, when we look at the <unk> Star contract I think it's just how we relate with our with our.
Not only us, but our suppliers, we collaborate and collaborations leads to other things that we can do together such as try to create the safest truck in the industry, which I think is where the start it was trying to create the safest drop what can we do with automated driving what can we do with other things and then allowed to where what can we do.
Together to build the infrastructure necessary to go to electric vehicles that said, if you think about navistar.
The amount of market share in school buses and every school district across North America with significant many of the school districts load once you put buses and <unk>.
Go to an EV type bus it will pull more load at the bus depot than the town.
So when you start thinking through that and you're starting to all the school districts that are out there I think it's a significant build it's meaningful for the company.
If we work together, we worked with our utility clients and municipalities.
On the front end of this we can certainly do a cost effective and create an environment that allows everyone to move towards a carbon free.
Great. Thank you.
Our next question is from the line of Jamie Cook with Credit Suisse. Please proceed with your question Hi.
Hi, good morning, and congrats on <unk>.
I guess.
First question is there any way you could size the number of projects or in dollars, what you're bidding on where you are where you're bidding both the transmission and the renewable side sort of like <unk>. We can see how many more opportunities that are out there and to what degree are you worried.
Or I know you've been investing in labor for some period of time and you always have but that.
Do you need to ramp your investment in labor or even more and could that be a risk to margins in the short term and then my second modeling question is just on within renewables understanding the first quarter margins were below your expectation.
Can you explain that fine, but I think you've maintained your renewable margin guidance for the year. Despite the first quarter.
Being lower so I'm wondering if that implies potentially the rest of the business is performing at a level slightly better than expected. Thanks.
Hey, good morning, Jami, So I do think when you think about that were on call.
Call. It 25 renewable projects today all of those have interconnections.
The discussions with the customer easily.
When we weren't didn't have blattner you werent combining that you were really were doing a lot of the interconnection for the utilities or for the developers some are going towards a combined approach I think the more we show the economics around it the more we think through it.
The bigger the bigger the projects certainly the more economical it is for us too.
Through both wind and solar in the interconnection with the client and we do that quite a bit.
As far as the man there is there is significant amount of projects out there that are ongoing.
Or from utilities driving win towards the west.
The east coast coming down from Canada, where youre, absolutely, bringing load wind whether we're on the wind side are not usually we're on both sides of it if they combine it better.
It's our job to show the client the economics around that and how we see it.
And is that the ultimate.
Is that the ultimate project for the consumer at the end can we do it cheaper and.
And more efficient.
So I do think I like our chances Cinzia is certainly a highlight of what can be done and I think when you collaborate early you get those kind of results and everyone wins as far as the margins on those I think a lot of that was the Canadian project pointed down a bit.
I believe when you start to scale the way we are scaling.
What happened in the renewable business across the board you had a staff of six months nine months, where no one did much because all the regulations in 'twenty two.
And also they are coming in as the RNA comes in you're going to get on more of a run rate base rate that you can see in the stack on top of that as you grow I don't think youll have this.
<unk> that you have where you're growing from the first quarter significantly into the second and third and the fourth and you get more obviously.
We have to perform on the backside.
Much better than we did on the front end I believe everything in a historical is nothing on the backside as out of outside of any historical margins in fact to drive down the middle for us on the back side of this I.
I think.
That should create youll have some seasonality in the first quarter, but your fourth quarter is going to obviously grow.
Do you have some impacts in the second due to the way that we're mobilizing our projects and things of that nature, but it should smooth out into 'twenty four and beyond yes.
And we are seeing better performance than the rest in the rest of our business Jamie when you when you see the.
The impact of the Canadian project at 120 basis points. The rest of the business. We were pleased as I said the performance there because my margins arent doing better than we expected and as <expletive> said.
As we move out of the first quarter into second and third.
Youre going to have more volume you're going to have better fixed cost absorption and youre going to just have better productivity as a result of getting into better climate.
Well not to question I am just wondering if the back half margins implied double digit if that's a new run rate going forward, given just what youre seeing in the market.
Yeah.
We don't have enough history, Jamie gave you that if I can get 12 months worth of running clean on renewables I'll be in much better place to give you some dialogue, but it certainly will.
If you do the math, you've got to be in double digits on the back half.
Okay. Thank you.
Our next question is from the line of Marc Bianchi with TV Cowen. Please proceed with your question.
Hi, Thank you.
How much should sanjay contribute to backlog here in the.
Second and third quarter and then.
How is your how does that constrain if at all your bandwidth to take on additional work or is there a level where backlog gets filled up in it you probably just going to continue to work on that level for several quarters.
I think we're continuing to grow backlog, we're not going to comment on how big the job was he said is the largest renewable project in North America. So it's quite large.
We'll put it in backlog next quarter, you can infer what that looks like but that said in general as far we hear a lot around constraints.
The company has grown about 1000 employees a quarter.
We're roughly very close to 50000 today and do you think that growth continues we were set up to meet the demands out there I have not seen.
The demand outpaced our ability to grow and grow.
<unk> way, where we can certainly put the resources on the projects in anything that we've seen anything we've seen in the market.
Out there we're bidding on and we can certainly handle and handle more of it.
I challenge the supply chain to catch our ability to perform the labor because that's where the problems.
Great. Thank you.
Thank you.
Our next question is from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.
Good morning, <expletive> and team I guess my first question is just around the cash flow free cash flow progression over the course of the.
Year, and how we should be thinking about the.
700.
$750 billion to $1 billion guidance and whether you are on track and whether you are targeting.
Where within that band you see yourself.
B.
Yes, Hi, Neil Yes.
We are tracking toward that $752 million, we still feel good about it our first quarter was negative which is typical for us in the first quarter and given the working capital requirements coming back from the holidays ramping up.
We did also have a little bit of pressure in the first quarter with some retain edge as well as some material procurement that impacted our dps, but again, well within our expectation and moving forward as the work increases.
Got more renewable projects.
Coming through you're going to see that cash flow and the revenue come in as a result, our expectations are still within that $750 billion to $1 billion.
Ron the midpoint is where Neil years.
If youre asking me today, where we are that midpoint is right is right down the middle in where we would be.
And so we we forget about where we are today and see no reason to change that.
Okay, that's really helpful and then.
Follow up is just on one of the core competencies and capabilities of your organization has been around making strategic acquisitions, not just large ones like flatten her but also smaller bolt on ones as well, what's the opportunity set in the M&A market for tuck ins recognizing big strategic point there.
The less likely.
As you are working to integrate our flatten out right now.
We made three in the first quarter I think are extremely strategic so that said its dresses mid market solar and many other things so our ability to think differently and to get in front of these.
Type trends as well as families want to perpetuate their business.
I do believe we will have the ability to do that.
We will certainly weigh that against organic growth on the way that we're thinking about the market.
Yes.
There is opportunities for sure and I will go back to cash flow.
If we grow the business for every $100 million would grow we pull cash out I think its around $12 million of free cash somewhere in there. So don't like if we grow another 500, Meg guidance youre going to pull out another $70 million.
60 of cash so just that happens.
We got to make sure that everyone understands.
We grow more than what we say does full cash.
Thanks team.
Our next question is from the line of Sean Eastman with Keybanc capital markets. Please proceed with your question.
Hi, Tim So so it's great to see the black mirror kind of revenue synergy story coming together with this big <unk> win.
You had alluded to.
Sure.
Economics to the customer being better when you guys kind of come to market with this combined transmission.
Generation solution could you give us a little more color on that and kind of what the go to market pitches.
And what the what the benefit to the customer is here.
Yes.
There's a lot of synergies Sean.
Kind of like the.
Nope.
Secret sauce, I am going to tell you what it looks like.
With the ingredients are so the issue is for US if you get us an early our ability to put a construction led engineering package together is what I think leads the industry forward not only from a safety standpoint, just the way, we think about supply chains everything.
Along.
The build so.
It's just our ability really to think through how we're going to build something and then make sure the engineering matches and where.
When we build all kinds of different things from logistics to everything else and we know with time.
Look we know who's going to build it. So we know the craft thats going to build them and those who can tenants that are going to build it when they sit with the customer early it always ends well.
Okay interesting and then a little bit more granular.
We haven't hit on the underground segment.
The first quarter margin performance was quite.
Quite a bit better than we expected and I think the guidance for the full year has come down so just wanted to understand what.
What's happening under the Hood around that mix shift you described.
I just think in the underground when we look at it.
I think the way, we see capital spend at our customers you can see some.
Paul and from gas LDC, and who may be electric or electric underground more so in the latter half of the year.
The total portfolio arises you may have some impacts on olay overhead here or there on your gas your industrial business on the back half we need to watch it.
We have good visibility for six months and then you can see the back half so you're hesitant on putting something forward that is not there at this point. So we will be we'll watch the underground business that said I do think that mix shift happens and youre going to see some portfolio adjustments.
Year over year, all the time because.
The difference between electric and electric created in renewables or electric or electric.
It's nothing it's the same it's the work type who you're working for primarily or what youre doing with the work. So that said I mean, we could grow.
The electric side of the business faster than renewable side at times in the renewable side faster than electric at times.
That was going to blend in and the underground business. The same thing we can be doing telecom one day in gas. The next that's the beauty of the portfolio and I think if you if we get operating leverage if what the company is doing right. We'll continue to see some work mix shifts and the underground where you go into higher margins in electric in telecom its a good thing.
Okay interesting. Thank you I'll turn it over.
Yes.
Thank you. Our next question is from the line of Michael Curtis with vertical research. Please proceed with your question.
Good morning, good morning <unk>.
Good morning.
Yes.
Yes, following up on you mentioned telecom, maybe you could share it seems like you're.
Our revenue expectations remain where they have been I wonder if some of the trends youre seeing anything thats been more beneficial quarter and could you is there any visibility into say 2024, and some of the programs of where you guys can.
Okay Paul.
Yes, Mike, we're starting to see more and more programs from the nontraditional customers. So I think the art off money is starting to Hilda.
And look we're real close to $1 billion a share of double digits, which is what we're trying to accomplish.
We're very close.
And surprise me if the surpass it I think we pace the growth rate I think we've grown purposefully there.
And we will continue to take advantage of the market that said.
We're not investing a lot in that from acquisitions or things like that it's primarily around organic growth at this point. So it allows us to really expand.
Uh huh.
Other things against that market. So we're pacing our growth.
Big opportunities in 2024 really and beyond 'twenty three is nice.
We'll continue to watch it and it does get pickle at times.
Thanks, Steve.
But.
The next question is from the line of Brent Thielman with D. A Davidson. Please proceed with your question.
Hey, Thanks for taking the question.
Duke curious the outlook for sort of other new wind.
The opportunity seems like solar is kind of been the hot market last few years I'm wondering if you see an RFP rfps picking up in wind and maybe that's another significant lever I guess beyond <unk> from bookings in the coming quarters and years and I guess that.
That two are the economics of those projects more attractive going forward. It seems like it would be less saturated sort of competitive environment, given the technical necessities there.
Yes, I mean, we're seeing more opportunities in the outer years and win.
The curves.
Working steadily.
Your battery projects are going to pick up significantly to handle some of the intermediate fees as well as wind in certain areas.
You have to have transmission interconnects and things of that nature. So a lot of it is the transmission queues as you get these larger lines built.
Youll start to see more wind behind them.
They're not going to build and when they don't have anywhere to put it in the Repowering certainly is a big business. There will continue to see that Repowering market is nice and then I'll, let <unk> comment on the rest of them.
The only thing I'd add to <unk> comment is.
It is windows starting to get some momentum I still think.
We're still seeing that it's more back half weighted.
Projects have to get through the permitting and interconnection keys.
For all the reasons, Steve mentioned about.
The complexities of moving that wind power to where the load is it just it's harder and it takes more it takes more time and you have the IRA coming in as well, which will allow for more wind and have Wendy as competitive solar but again the projects have to move through the during the development cycle to be ready to be built.
But in terms of economics.
No I think we are comfortable with both.
Flattened around especially has a strong history in building wind and now solar and they've proven themselves to be successful inbound.
Okay. Thank you.
Thank you. Our final question I was wondering will be from the line of Marc Bianchi with TD Cowen. Please proceed with your question.
Hi, Thanks, I wanted to ask on the back half renewable margins here.
You mentioned, the I think 120 basis point burden in the first quarter I am curious what that Canadian project would be burdening the back half by just so we can get a sense of what it would look like.
Once that's out of the backlog.
Yes, I think its raw materials, if anything on the back half.
The 22.
So I think when you look at 'twenty, two it's down a bit and won't Canadian has been an impact in that segment. So theres not theres not as much Canadian content in the back half of our year and so we're confident in the historical performance of both sides of the business to be able to perform at double digits in the back side of this.
For the year Okay.
Okay Super Thanks, so much.
Okay.
Thank you at this time, we've reached the end of our question and answer session I will turn the floor over to management for closing remarks.
Yes.
We thank our people in the field.
We had a really really nice quarter through tough winter.
Let us know in places these guys women and perform in northern climes better than anyone in the world and what they do every day is remarkable they are building the nation's grid I'm real proud of where they're at from a safety standpoint, and where we're at and I would like to thank Dan <unk>.
We're participating in our conference call. We appreciate your questions and ongoing interest in Quanta services. Thank you. This concludes our call.
Thank you you may now disconnect your lines at this time, thank you for your participation.