Q3 2024 Quanta Services Inc Earnings Call
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Speaker Change: [inaudible]
Speaker Change: Returns.
Speaker Change: We ended the quarter with record backlog.
Speaker Change: We expect adjusted EPS to grow approximately 20% at the midpoint of our guidance over last year.
Speaker Change: We expect record levels of free cash flow this year, our leverage profile below two times by year end and over $3 billion of liquidity are.
Speaker Change: Our end markets have never been better and we see opportunity for further strength in the coming years.
Speaker Change: As I hope you can tell we are proud of our execution and even more excited about the solutions platform, we have built for the future.
Speaker Change: We are positioning quanta for decades.
Speaker Change: Of expected necessary infrastructure investment and believe our service line diversity creates platforms for growth that expand our total addressable market.
Speaker Change: Our portfolio approach and focus on craft skilled labor is a strategic advantage that we believe provides us the ability to manage risk and shift resources across service lines and geographies, which is increasingly important as the energy transition and new technologies add complexity to infrastructure programs.
Speaker Change: We believe our service offering diversity supply chain capabilities and portfolio approach have improved our cash flow and returns profile and position us well to allocate resources to the opportunities we find most economically attractive and achieve operating efficiencies and consistent financial results.
Speaker Change: I will now turn the call over to Jay Sri decide on our CFO to provide a few remarks about our.
Speaker Change: You have seasonality in the business. So your first half build it slowly go pick it up in the back half.
Speaker Change: Whenever transmission business has been there and today that business is always running double digits to bladder businesses ran at double digits. So we've consistently said we can do that I believe that's possible going out as we move forward.
Speaker Change: Cortina business.
Speaker Change: Certainly has provided synergies to us already.
Speaker Change: We continue to get inbounds on Super Dino I think it's.
Speaker Change: From our standpoint, something that will allow us a different customer base.
Speaker Change: Allows us to participate much in a much greater way and data center business as we see it so the electrification thereof and.
Speaker Change: It really we havent got the synergies like baked.
Speaker Change: Baked into anything at this point, but they are there much like blattner. They are there and we're seeing those show up in our business today, we will see Cupertino show up in our business in 25, 26 and beyond and.
Pretty excited about next year, and what we see but it's.
It's not a next year story, we're delivering we've delivered for the past five years, we continued to deliver its next year will just be better than this year.
Speaker Change: Fisher.
Fisher: You covered it.
Just to remind you Jamie in the cadence of the renewable segment. So as Dave said that cathie is definitely unusually stronger than the first half so I'm going into next year I think the right way to look at is what we said in Investor day that we have the opportunity to perform that 9% to 10% range and renewable.
But <unk> sorry, the expectation is that what's implied in the guide for 2024 for Cupertino has that changed.
Speaker Change: Yes.
Speaker Change: In 2024 guide.
Speaker Change: Your outlook here is developing pretty well, but maybe just to start with a couple of clarifications about some of the near term dynamics.
Just on the electric side of things.
Just curious if with the kind of puts and takes on the revenue guidance that was unchanged for that segment.
In light of the extra $225 million of emergency work, maybe that was just a shift in resources I know that can happen with these stores for some time and then the 5% organic growth.
That you mentioned going to 10% for the year I think you said last quarter, 9% I'm not sure. If those numbers are all apples to apples and maybe if they are can you just remind us what's the the.
Grams that are driving the acceleration to that.
This 10% for for the year there. Thank you.
Yeah. Thanks, Steve Yeah, you know we've talked about the plenty I think the other segments and that we do have crude movement.
Speaker Change: Across both segments.
So you do get some of those things and that show up in the way that the the reports come out when.
Speaker Change: When we look at it yes, the storms of about 200 million incremental.
Speaker Change: Do you do with any kind of storms for one thing the company.
It's six six plus six and a half a billion of revenue in a quarter. It's just it's not that big of an impact to the company and maybe the others, it's not to us and it does pull back off our industrial business and in the and the gas based or in barrel you have a lot of push out in our industrial business due to the fact that the storm thing and so you're seeing.
That show up in that in that margin profile and our industrial business. So you have a lot of turnarounds at post the storms. So the impacts across the company and portfolio you can't see those things show up in the storm number. So there isn't an impact we're pulling off transmission, we're pulling off some renewable projects.
There are larger are flying people in from Canada.
To say human life.
More importantly, and I think that's that's the struggle is to get everyone to see it's more than just storm.
Speaker Change: I mean, you know you're going to have to see batteries become longer duration more batteries for the intermittency of renewables solar continues to get built.
It's economical.
When will be there, but the gas has got it back at them.
Speaker Change: See all the gas generation, that's coming online.
Speaker Change: Our anticipated to come online I think better was better said, that's there as well but.
We've always thought gas would be 20% of the business I still believe a generation fleet and I still believe that's the case, even a double growth will still keep it up there just to keep the keep the intermittency of the grid and on to make sure that you can have the reserve margins. If you go across the country.
You used to have a pretty nice reserve margin across the country I believe most of that is.
The plaintiffs substantially and you can't you can't run the grid on the edge So got to get the generation in and get it in and quick to get those reserves back up.
Dissipated demand.
You can't build so one of the two teams really going to constrain the grid constrained the keys, because you can't build generation or are you Bill generation. So I do believe gas is probably the most immediate thing that youll see get built.
Long with solar and wind as you see it today, but gas will certainly supplement more so than we've seen in the past.
Got it that makes complete sense and that feeds into the sort of the next question given the hurricanes and fires and whatnot are you seeing an increase in demand for hardening services.
Or are the utilities, starting to allocate more resources.
Are you seeing that benefit.
No I mean, I think the grid hardening programs, both fire and storms are certainly there, but we see it across the board, where you have multi year type programs against.
Fire grid hardening per se.
Yeah, I mean, we see it quite a bit continuing its early stages in many areas, but in other areas in Florida being one of your late stages at later stages.
Speaker Change: Say late stages, but.
Speaker Change: Mid to three.
Speaker Change: Three quarters into something than.
In most areas. So a lot of people starwood transmission hardening and you're in certain distribution hardening and underground in certain areas. So I think you're early stages of this and you'll see it.
Speaker Change: We continue to see violent weather impacts and the demands from the client to have them up quicker that the only way you can get things up faster is you've got to harden the grid or underground it wanted to do.
Speaker Change: So that pressure against the grids that are 57 years old you've got to do got to modernize the grid and Youre doing all this while demand is doubling so.
Is something that everyone's looking at from a <unk>.
Standpoint of what do you do first and got to harden the grid, while you meet demand. So it is it is something that is unique to the industry. These days.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Okay.
Our next question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.
Hey, good morning, guys.
Speaker Change: One.
So my questions on MSA renewal process and I know that this is an ongoing process for you guys saw year on year out but I'm.
I'm just curious how much of a difference is up for renewal over the next 12 months and then yeah. I think these contracts are three to four years in duration. So I'd love to get a sense for like how how are those conversations and how the contracts are changed versus.
Three to four years ago from like a terms perspective, if you can talk pricing anything like that would be very helpful.
Speaker Change: Yes, I mean, msas are really a framework for unseen work in many ways.
Speaker Change: <unk> allows.
Contractual terms to be done in resources to be allocated I would say as it stands today, it's much more collaborative because you can see the business longer so can our clients and you can see capital out and plan and prepare it certainly more efficient and more prudent.
I got in front of it. So you don't have the labor there is the labor shortage as well, but if you talk long term.
I think they are longer in nature, they're bigger.
Speaker Change: As we see it.
I can't tell you how many are up.
We have I don't know hundreds maybe thousands of msas.
Maybe 10000, I don't know a lot of Msas that go around we worked off of them for 50 years. So it's very very difficult for me to any one client could have 50 msas. So it's just it's extremely difficult for me to give you those numbers, but what I would say is the.
The base business is 85% today and Thats those msas typically around that for the most part and as we see it going forward it'll be 85% as the business grows on the topline will still see it at 85%. So as the business has grown because the msas and our ability to.
Bid or negotiate or collaborate with the client to continue that stickiness of that and supplement their current workforces.
Is there and will continue to be there going forward.
That's helpful.
Second question is on Cooper as you know.
Speaker Change: And labor availability.
So I'd love to get a better sense for how you plan to integrate that segment.
Speaker Change: With your Labor training program.
Trying to figure out like how much labor that can unlock over the next couple of years and how fast we can scale the business.
If he can just how much.
Speaker Change: In terms of head count.
Speaker Change: Is it as cupertino.
Yeah, I think cupertino, when you look at the workforce and how it's train I mean, they're very good training programs, you know three or four years for your training programs I believe.
So very good.
When we look at it can we supplement it yes, I think what we can do is early on our recruiting processes. The way we get people into the trade.
Some people can't climb some people don't want our clients. So we can move people over into that segment and it's just it'll it'll be.
Synergistic for us as well some some won't.
One wanted to stay on the ground they weren't our clients. So both sides of that continuum, we're always around the edges of each other craft is very similar on.
The way I think the way we think the company's sits on top of us nicely.
And so when you when you look at that.
It bodes well for us to recruit.
What I consider the top talent.
Speaker Change: Out there they were.
Speaker Change: Premier Premier.
Speaker Change: Premier solution provider for.
Speaker Change: For the data center business for.
A long period of time since inception.
Capabilities across the board beyond data center that we like a lot.
Speaker Change: <unk>, it's a different it's a different labor pool, but they are exceptional at what they do so we're excited about supplementing the curriculum supplementing.
Speaker Change: Onboarding.
Speaker Change: What I would consider pre apprenticeship programs that we have where people smarter and faster and more productive when they get in so all those things will work.
Certainly benefit both us and cupertino going for the count it's between four and 6000 somewhere in there.
Speaker Change: It varies depending on where they are.
Speaker Change: Thanks.
Speaker Change: Mhm.
Our next question comes from the line of drew Chamberlain with J P. Morgan. Please proceed with your question.
Drew Chamberlain: Yeah, Good morning, and thank you for taking our questions.
First one on the on the renewable side have some positive commentary in the prepared materials on.
Bidding activity and what you're hearing from your customers, but you know obviously.
Bookings throughout the first part of the year or first three quarters, but on the wider than last year.
Drew Chamberlain: And just kind of wanted to hear your thoughts on maybe what's holding up some of it from converting into.
And the backlog and maybe what are some of the headwinds and stuff that youre hearing from your customers maybe on the election IRI and when those can really convert.
And I expect us to between now and the next time, we get on a call it a substantial amount of them.
L. A N C P is going into contract.
Speaker Change: The negotiations are robust and.
Drew Chamberlain: I'm not sure that I can't put a finger on why the why the backlog does not increase more there based on what the conversations are just tend to paper in many ways from L. A N C. P to final F. I D. So.
Not concerned the inbounds are as good as they've ever been in negotiations levels. The other things that we're discussing on the renewable segment.
Drew Chamberlain: I feel confident that going into next year, the backlog will grow in.
It will look different if suddenly we public discussion so.
That piece of the business not concerned with on the backlog side of it so we see that.
The market.
Continuing to progress forward, the solar business, the wind business, even repower business batteries are growing our fastest growing pace.
Drew Chamberlain: But we like it or we see it.
Drew Chamberlain: Coming our way and.
I think the election I could have a little bit.
Drew Chamberlain: The delay but.
The feedback we're getting from the clients.
Either a harris or.
Drew Chamberlain: Trump win.
Drew Chamberlain: Youre going to have some noise in one or the other but the business itself and the underlying business continues forward and I believe our customers, let's say the same thing.
Okay, great. Thank you and then just on the <unk> side.
You updated the updated the market forecast using the DAC, calling for a 23% CAGR versus I think it was a 15% prior.
Speaker Change: What's changed quarter over quarter if conversations.
Starting to look materially different than your do you think that this year.
Higher growth rate is indicative of what your business is going to do and what your internal expectations are over the bulk of it.
Of course of the decade.
Speaker Change: Yeah, just just as a reminder, those are third party reports that were putting in there.
Speaker Change: What it does is just reflects the continuing optimism of how much data center growth is out there and as well as the power needs for.
Enabling that data center, that's really what we were kind of showing up in that graph that from our customer standpoint, I can let Dave talk about yeah. I mean, I think that the graphs are certainly indicative I've always seen in the business.
And when you think about the growth and then what we've done yes. Some of it is inorganic but you also need to look at it.
Speaker Change: We've done it consistently over the last seven eight years, we will continue to do that going forward and.
I do think the growth of the business at the mid point and stay at one or two of leverage you can see it going forward and it's basically the strategies of the company that put us in a data center business that put us in the.
Renewable business going forward and when you think about the Nexus of it it all comes together and the need for power at a data center substantial can we be a solution to all of the things yes are in the middle of the discussions on all things data, yes are we in the middle of the discussion of empower yes. So it.
It allows us a unique position to help them collaborate with multi customers than I do.
Speaker Change: Just think of it.
Speaker Change: From east to West.
We've we've set our expectations.
The right way to look at it.
Around 45% to 55% conversion rate.
With Cupertino now we do believe we have opportunities to be on the high end of that range and even greater as we've seen this year, but it really depends on the mix of work and so you have a big storm like we had this year this quarter last quarter that can be a drag on free cash flow.
Depending on the mix of the MSA work and how that comes into play that can also be a draw.
On working capital So I think the right way to look at it Brian is continue to be in that $45 to 55% range with very good opportunity would be in the high end in that range.
Speaker Change: Yes.
The impact of Canada, certainly in the numbers.
We don't expect to collect that this year so that is certainly.
Speaker Change: Pressing on the number that said, we did get some of the money and we like the way. The negotiations are going nothing wrong. We were highly confident in our claim we're highly confident in what we've done from a construction standards has taken longer to get pen to paper in Canada to receive our money.
And so I do believe you'll see it in the next year.
Speaker Change: We're not going to press their business to tell you exactly when because.
I think it's more important to get the right answer for what what we deserve and what we've done and so there's a client. So we're just working with them to get the collections, but nothing wrong with the collections has taken a little longer.
I appreciate you answering my follow up I will pass it on.
Speaker Change: Okay.
Our next question comes from the line of Andy Kaplowitz with Citi. Please proceed with your question.
Speaker Change: Good morning, everyone.
Speaker Change: Hello.
I know one of the questions you get occasionally is that as some via ramps down.
In 26, given the size of the project that it would be tough to fill we all know there's so much more of the.
Sex, but at the same time, you know does it feel like you're you're absolutely tracking to that upside case, given what you guys have done with Cupertino in bladder and then you know the markets themselves.
I mean, I said, just a minute ago and I'm sure. If we drove double digit E. P. S. If if it's 15, we certainly have the opportunity for 15 and beyond we've grown 20 this year at the midpoint.
Speaker Change: Flooring capital. So you know we see.
Our ability to deploy capital continues we believe we'll be in.
Speaker Change: Some part of the range will be in double digits and 25. So if it's in 'twenty five and we're going to grow the bottom 10% that gets you to $11 26. If you just do the math and look that's easy to say it comes out real quick, but we gotta go and deliver and execute on it which I don't think we're a story about tomorrow, we're doing it today and I think.
Speaker Change: We will do it in 25 I think we'll do in 'twenty six we certainly have the opportunity and the markets are there.
Speaker Change: I appreciate the color.
Our next question comes from the line of Michael Dudas with vertical research. Please proceed with your question.
Good morning, Jay she quit Kip.
How are you doing.
Good morning.
Maybe follow along on an allocation of capital.
Speaker Change: Given the extraordinary demand and the excitement that's within the.
Speaker Change: The vendors, serving the electric utility and devotion industry, when you're talking to the various companies that you look to maybe bring onboard the next couple of years too.
Solidify your long term plans are.
Speaker Change: Our.
Interest you're going to need it because it seems like there's going to be a lot more scale consolidation needed and our you know potential sellers of their businesses.
Speaker Change: As for our investors.
Speaker Change: And its stakeholders.
Well said thank you.
Speaker Change: Okay.
Our next question comes from the line of <unk> Jain with Keybanc.
Keybanc capital markets. Please proceed with your question.
Yeah. Thank you guys for taking my question. So do you. The deal. We just recently signed on to become an anchor tenant on a handful of transmission projects can you tell us what you think that means does that bring them to the front of the line and are you already talking to them some of them.
Yeah I mean.
We've talked with you or have you talked to the people visit or anchor tenants.
A bit are you still got permitting in store.
Some of them have transferring some of them don't.
Speaker Change: I do think it helps but.
In reality your utilities, you I'll use that are sitting right. There if it's not in our view, but some of them are.
It's I'll just say, it's it has inherent risks and more difficult it's not that it won't happen, it's just harder.
And I do think the projects that you see the deal. He backer are good I mean, they're great projects and we're all around them and we liked the anchor tenant that's it.
Great concept I think you know when you look at Texas with the Texas Fund and the things that are happening there same thing.
Speaker Change: But a lot of the states in the permitting and states and the P. CS and things like that it's really a dollar rate payer discussions are really putting pressure on rates at the rate payer level and when you look at it T. N D is not the biggest piece of our rate and so we've got to do a better job of how we discuss that.
Speaker Change: Yeah.
Speaker Change: Hi, Thanks.
I guess this is a little bit of a follow up to the prior question. There's been some concern expressed by renewable developers around labor and supply chain challenges being a bottleneck to their growth I know you just talked about the transformer thing a little bit talked about labor earlier, but I think that was maybe more around kind of the T&D side of it.
Speaker Change: Business, but could you.
Talk about what Youre seeing on the ground like right now as it relates to some of the supply chain concerns is there anything thats, maybe incrementally worse or better than it was last quarter.
I mean, you have to get into H B D C. Certain kinds of H D C, especially D. C. Construction in your large stations to get like real bad.
But besides that I mean, transformers, certainly a constrained breakers or certainly a constraint, but we've been able to.
Have a good robust we see it so I think the things that we've done in our supply chain. We can we can help and enhance developers.
Certainly our partners and the ones, we collaborate with for sure new projects forward.
It's something that the company has been able to do and collaborate with.
Speaker Change: On clients. So we like our positioning there I don't think it's gotten any worse it hasn't gotten any better than you would think it would get better it hasn't and so it's just kind of stayed the same.
Labor from our standpoint, I wish that manufacturing would get out of our capacity.
I don't believe I'll say it in my lifetime, but.
Speaker Change: <unk> been able to outpace any kind of permitting bill any kind of constraint. So if someone says come and build.
Speaker Change: 1000 miles of 500 kv Tomorrow I will tell you. They said it three times over 5000 miles the answer is yes, and yes and yes.
Speaker Change: Hey.
Speaker Change: Got it thanks, that's all I had.
Speaker Change: Okay.