Quanta Services Q3 2024 Earnings Report

Quanta Services EPS Results

• Actual EPS: $2.72
• Consensus EPS: $2.46
• Beat/Miss: Beat by +$0.26
• One Year Ago EPS: $2.08

Quanta Services Revenue Results

• Actual Revenue: $6.49 billion
• Expected Revenue: $6.56 billion
• Beat/Miss: Missed by -$67.88 million
• YoY Revenue Growth: +15.50%

Quanta Services Announcement Details

• Quarter: Q3 2024
• Date: 10/31/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, October 31, 2024
• Conference Call Time: 9:00AM ET

Quanta Services (NYSE:PWR) provides infrastructure solutions for the electric and gas utility, renewable energy, communications, and pipeline and energy industries in the United States, Canada, Australia, and internationally. The company's Electric Power Infrastructure Solutions segment engages in the design, procurement, construction, upgrade, repair, and maintenance of electric power transmission and distribution infrastructure and substation facilities; installation, maintenance, and upgrade of electric power infrastructure projects; installation of smart grid technologies on electric power networks; and design, installation, maintenance, and repair of commercial and industrial wirings. This segment also offers aviation services; emergency restoration services; and other engineering and technical services; design and construction solutions to wireline and wireless communications, cable multi-system operators, and other customers; and training for electric workers, as well as training for the gas distribution and communications industries. The company's Renewable Energy Infrastructure Solutions segment is involved in engineering, procurement, construction, repair, and maintenance of wind, solar, and hydropower generation facilities, as well as battery storage facilities; and provision of engineering and construction services for substations and switchyards, transmission, and other electrical infrastructures. The company's Underground Utility and Infrastructure Solutions segment offers design, engineering, procurement, construction, upgrade, repair, and maintenance services for natural gas systems for gas utility customers; fabrication services for pipeline support systems and structures and facilities; and engineering and construction services for pipeline and storage systems, and compressor and pump stations. The company was formerly known as Fabal Construction, Inc. and changed its name to Quanta Services, Inc. in November 1997. The company was incorporated in 1997 and is headquartered in Houston, Texas.

Quanta Services Q3 2024 Earnings Call Transcript

Presentation

[Operator]

Greetings, and welcome to the Quanta Services Third Quarter 2024 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kip Rupp, Vice President, Investor Relations.

[Operator]

Thank you, sir. You may begin.

[Kip Rupp, VP of IR at Quanta Services]

Thank you, and welcome everyone to the Quanta Services' Q3 2024 earnings conference call. This morning, we issued a press release announcing our Q3 2024 results, which can be found in the Investor Relations section of our website at quantaservices.com. This morning, we also posted our Q3 2024 operational and financial commentary and our 2024 outlook expectations summary on Quanta's Investor Relations website. While management will make brief introductory remarks during this morning's call, the operational and financial commentary is intended to largely replace management's prepared remarks, allowing additional time for questions from the institutional investment community. Please remember that information reported on this call speaks only as of today, October 31, 2024, and therefore, you advise that any time sensitive information may no longer be accurate as of any replay of this call.

[Kip Rupp, VP of IR at Quanta Services]

This call will include forward looking statements and information intended to qualify under the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995, including statements reflecting expectations, intentions, assumptions or beliefs about future events or financial 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 Quanta's control and actual results may differ materially from those expressed or implied. While 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 operational and financial commentary. Please refer to these documents for additional information regarding our forward looking statements and non GAAP financial measures. Lastly, please sign up for e mail alerts through the Investor Relations section of quantaservices.com to receive notifications of news releases and other information and follow Quanta IR and Quanta Services on the social media channels listed on our website.

[Kip Rupp, VP of IR at Quanta Services]

With that, I would like to now turn the call over to Mr. Duke Austin, Quanta's President and CEO. Duke?

[Duke Austin, President and CEO at Quanta Services]

Thanks, Kipp. Good morning, everyone, and welcome to the Quanta Services' Q3 2024 earnings conference call. Before I turn to our Q3 results, I would like to comment on Quanta's response to Hurricanes, Errol and Helene. During the Q3, we deployed significant resources to assist power restoration and related efforts in Texas for Hurricane Beryl and in the Southeast for Hurricane Helene. During these events, our employees often do more than work to get the power restored.

[Duke Austin, President and CEO at Quanta Services]

What is not well known are the other ways that our crews, who are first responders, help people in need during these devastating events. For example, in response to Hurricane Helene, Quanta Cruz worked with local sheriffs, law enforcement groups and various humanitarian organizations to leverage our helicopter assets to deliver more than £200,000 of cargo to impacted rural and mountain communities in North Carolina, including water, food, medical and camping supplies, pet food, pay for livestock and more. Our pilots also aided search and rescue efforts, provided reconnaissance and roadway assessments and performed welfare checks. These severe weather events also often impact the lives and property of Quanta employees, many of whom are away from their families for long periods restoring power to others. Quanta Cares, our employees relief fund, provided financial support to approximately 125 employees and their families who were impacted by these damaging storms.

[Duke Austin, President and CEO at Quanta Services]

I want to recognize and thank the thousands of Quanta employees who work tirelessly to restore power and much more for people in need during these severe weather events. Quanta delivered another quarter of double digit growth in revenues, adjusted EBITDA and adjusted earnings per share, as well as a number of other record financial metrics, including total backlog of $34,000,000,000 and free cash flow of $539,000,000 There is momentum building across our portfolio of solutions with the increased demand for and tightening of power generation capacity and the significant power grid upgrades and enhancements required to facilitate load growth, our collaborative solution based approach is valued by our clients more than ever. Wanna sits at the nexus of the utility, renewable energy and the convergence of these industries is gaining pace. Utilities across the United States are experiencing and forecasting meaningful increases in power demand for the first time in 2 decades, which is being driven by the adoption of new technologies and related infrastructure, including artificial intelligence and data centers, as well as federal and state policies designed to accelerate the energy transition and policies intended to strategically reinforce domestic manufacturing and supply chain resources. The necessity to build and modernize infrastructure is clear, and we believe Quanta's craft skilled labor work force and self perform capabilities are critical to advancing our infrastructure solutions.

[Duke Austin, President and CEO at Quanta Services]

To that end, the integration of Cupertino Electric is progressing well. And while it is early, we have received positive customer response to our comprehensive critical path electric infrastructure solutions for the technology and data center industry that provides opportunity to improve speed to market for projects. In summary, we are executing well on our strategic plan, and while there are areas for improvement, we are pleased with where we sit. We are pacing well against our multiyear financial targets, including double digit EPS growth and double digit returns. We ended the quarter with record backlog.

[Duke Austin, President and CEO at Quanta Services]

We expect adjusted EPS to grow approximately 20% at the midpoint of our guidance over last year. We expect record levels of free cash flow this year, a leverage profile below 2x by year end and over $3,000,000,000 of liquidity. Our end markets have never been better, and we see opportunity for further strength in the coming years. 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. We are positioning Quanta for decades of expected necessary infrastructure investment and believe our service line diversity creates platforms for growth that expand our total addressable market.

[Duke Austin, President and CEO at Quanta Services]

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. 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. I will now turn the call over to Jayshree Desai, Wanna CFO, to provide a few remarks about our 2024 results and guidance, Q1 results

[Duke Austin, President and CEO at Quanta Services]

and guidance, and then we will

[Duke Austin, President and CEO at Quanta Services]

take your questions.

[Duke Austin, President and CEO at Quanta Services]

Jayshree?

[Jayshree Desai, Chief Financial Officer at Quanta Services]

Thanks, Duke, and good morning, everyone. This morning, we reported 3rd quarter revenues of $6,500,000,000 net income attributable to common stock of $293,200,000 or $1.95 per diluted share and adjusted diluted earnings per share of $2.72 Adjusted EBITDA was $682,800,000 or 10.5 percent of revenues. Additionally, we generated healthy cash flows in the 3rd quarter with cash flow from operations of $739,900,000 and free cash flow of $539,500,000 During the quarter, we also successfully recapitalized the business following our acquisition of Cupertino, allowing us to address the maturity of our senior notes that were due in October. Our earnings and cash flow performance coupled with this recapitalization allowed us to end the Q3 with ample liquidity and a balance sheet that supports both our organic growth expectations and the opportunistic investment of capital to generate incremental returns for our stockholders.

[Jayshree Desai, Chief Financial Officer at Quanta Services]

This morning, we also provided an update to our full year 2024 financial expectations, which calls for another year of profitable growth with record revenues and opportunity for double digit growth in adjusted EBITDA, adjusted earnings per share and free cash flow. We believe our expectations demonstrate the strength of our portfolio approach to the business, our commitment to our long term strategy, favorable end market trends and our competitive position in the marketplace. Additional details and commentary about our 2024 financial guidance can found in our operational and financial commentary and outlook expectation summary, both of which are posted on our IR website. With that, we are happy to answer your questions. Operator?

[Operator]

Thank you. We will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may re queue and those questions will be addressed time permitting. Thank you.

[Operator]

Our first question comes from the line of Ati Modak with Goldman Sachs. Please proceed with your question.

[Ati Modak, Analyst at Goldman Sachs]

Hi, good morning, Duke and Jayshree. You acquired some transformer manufacturing capability again. Can you talk about that a little bit? Is the supply chain still significant of a concern going ahead? And how much of your internal needs can you now source?

[Ati Modak, Analyst at Goldman Sachs]

And are there synergies with the PTT assets? Any color around that?

[Duke Austin, President and CEO at Quanta Services]

Yes. Thank you. We did acquire some a small transformer manufacturing company in Upstate New York in the quarter. It was 100 year old family business. When we were going through the markets, we did some things that would allow us to make this acquisition, certainly beneficial to PTTI and the markets that we serve.

[Duke Austin, President and CEO at Quanta Services]

We continue to see constraints on large transformers. This factory certainly helps us with that. Our backlog in the business has gotten longer, not shorter. We continue to see opportunities internally and find synergies with the ability to build both transformers and breakers as we move forward. So the supply chain constraints are there.

[Duke Austin, President and CEO at Quanta Services]

They're real. We're trying to do things in the Lower forty eight with the load that we see. And so I think we'll continue to see ourselves get in a good position to make sure that we can have self perform capabilities, both from a manufacturing standpoint as well as to build on the craft scale labor on certain critical path items. So the synergies are there. We're seeing them show up.

[Duke Austin, President and CEO at Quanta Services]

If you can support the business internally, we build probably around 150 to 170 EPC subs a year. So we can support that, but that's not what we bought them for. We really believe it's to enhance the whole market, and we would not do that internally, just a little supplement on some of our builds that provide synergies to some clients.

[Ati Modak, Analyst at Goldman Sachs]

Got it. That's helpful. And then you talked about having visibility into the timing of renewable transmission project. Can you give us a layoff the land, big picture view of how that's shaking out for the next few years here as conversations with your customers are progressing?

[Duke Austin, President and CEO at Quanta Services]

Yes. I mean, I think everyone's hearing the market demand from load. And in order for load to work, we need the transmission infrastructure. I would say that the inbounds, the bids, the proposals that we have, things in contract, things that we're talking about, record levels year over year, record levels in the 25, record levels in the 26, record levels in the 27. We continue to see more bid opportunities, more discussions on larger transmission capacity constraints.

[Duke Austin, President and CEO at Quanta Services]

So yes, I mean, I we've said it on the call, we've never seen the business any better. And we continue to believe that large transmission is the cheapest form of generation in many ways. So you can't do the things that we're trying to do and accomplish in the country without transmission, and we need to expedite it.

[Ati Modak, Analyst at Goldman Sachs]

Awesome. Thank you so much.

[Operator]

Our next question comes from the line of Jamie Cook with Truist. Please proceed with your question.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Hi, good morning. I guess two questions from me. 1, the renewable margins in the quarter, obviously, were pretty good and you've made a nice improvement in margins for that business throughout the year. And then you raised guidance. I guess, Jayshree, is it unreasonable to think that 2025 we're finally at a place with the revenue and the performance of the business where we can expect double digit margins because that's where we will be exiting the year?

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

I'm just wondering if that's a reasonable expectation. And then I guess my second question, Duke or Jayshree, on Cupertino, just sort of an update on how that business is doing. Is there any change in your guidance for Cupertino for the year and then just potential for revenue synergies there? Thank you.

[Duke Austin, President and CEO at Quanta Services]

Hi, Jamie. It's Duke. And I'll let Jayshree comment on some of the question there in a minute. So when we see it, when we look at it, the renewables and margins, they were good. We did say that we could get them up in double digits.

[Duke Austin, President and CEO at Quanta Services]

I believe we can. Over time, we've done it. And I wouldn't run it you have seasonality in the business. So your first half will be a little bit slower and you'll pick it up in the back half. We have our transmission business that's in there today.

[Duke Austin, President and CEO at Quanta Services]

That business has always ran at double digits. The platinum business is running at double digits. So we've consistently said we can do that. I believe that's possible going out as we move forward. The Cupertino business certainly has provided synergies to us already.

[Duke Austin, President and CEO at Quanta Services]

We continue to get inbounds on the 2 Pertino. I think it's, from our standpoint, something that will allow us a different customer base, allows us to participate much in a much greater way in the data center business as we see it, so the electrification thereof. And it really we haven't got the synergies like baked into anything at this point, but they're there. Much like Blattner, they're there. And we're seeing those show up in our business today.

[Duke Austin, President and CEO at Quanta Services]

We'll see Cupertino's show up in our business in 'twenty five, 'twenty six and beyond. And we're pretty excited about next year and what we see. But it's not a next year story. We're delivering. We've delivered for the past 5 years.

[Duke Austin, President and CEO at Quanta Services]

We continue to deliver. It's next year will just be better than this year. Fisher?

[Jayshree Desai, Chief Financial Officer at Quanta Services]

No, we covered it. Just to remind you, Jamie, of the cadence of the Renewable segment. So as Duke said, back half is definitely usually stronger than the first half. So going into next year, we I think the right way to look at it is what we said in Investor Day that we have the opportunity to perform that 9% to 10% range in renewable margins.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

But Jayshree, sorry, the expectations that what's implied in the guide for 2024 for Cupertino, has that changed?

[Jayshree Desai, Chief Financial Officer at Quanta Services]

Yes.

[Jayshree Desai, Chief Financial Officer at Quanta Services]

In 2024 guide?

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Yes, for Cupertino, has that changed at all?

[Jayshree Desai, Chief Financial Officer at Quanta Services]

Yes. If you recall, we

[Jayshree Desai, Chief Financial Officer at Quanta Services]

told you that, Cupertino has the ability to perform in that $1,000,000,000 to $1,100,000,000 range in revenue. They're performing at the high end of that range.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Okay. Thank you.

[Operator]

Our next question comes from the line of Steve Fleishman with Wolfe Research. Please proceed with your question.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research LLC]

Yes. Hi. Good morning. Thanks. First question just on the in the quarter, a lot of good backlog and revenue growth, but a lot of it was kind of acquisition recent acquisitions.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research LLC]

Could you just talk to organic growth that you're seeing and kind of why was that maybe a little slower in the quarter? And how do you look at that from here?

[Duke Austin, President and CEO at Quanta Services]

Yes. Thanks, Steve. I think when you think about it, there was some backlog growth around $400,000,000 or so in the quarter. With the way the segmentation delineation of the segmentation, the segments creates some issues for us when we think about just T and D, our traditional T and D business. It certainly, if you look at where we're at, it's 5% into the Q3 of growth organically.

[Duke Austin, President and CEO at Quanta Services]

It's double digit growth in the forecast at the midpoint of the range. So we have double digit growth year over year at the traditional T and T business at the midpoint of the range. And we stated that going forward, we believe we'd grow that upper single digits on a go forward basis organically.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research LLC]

Okay, great. And then one other question just on the data center opportunity, not just Cupertino, but also in your utilities business. I think you said recently that data center investment really hasn't even shown up in utility plans yet for the most part. Do you have a better sense when it will show up there and then kind of filter through to your backlog?

[Duke Austin, President and CEO at Quanta Services]

Yes. I mean, I think it's you hear a lot about it. You're starting to see utilities issue equity. You're starting to see that come in. And a lot of that's the transmission growth, MISO, STP.

[Duke Austin, President and CEO at Quanta Services]

Your RTOs are robust in the planning stages. The thing is, if it's showing up 3 years from now, we better start today. And so I think we are seeing those discussions today from RTOs, from developers, from all of our customers. You have to start the transmission transformers 3 years out. You're 36 months away from energization, and you need some time to build the substations.

[Duke Austin, President and CEO at Quanta Services]

So I just I think it's a fallacy to think that you can't you have to start building transmission now. And the worst thing that we can do as an industry is sit here. So I don't think that sitting here works. I think everyone's moving forward. It took a little while to get this going.

[Duke Austin, President and CEO at Quanta Services]

It took a little while to make sure that the rates are not punitive to the ratepayers. And we have good rate structures across the country. You're starting to see those show up. So I'm pretty excited about where we're at as an industry. We're what I would consider moving forward against the big doubling of maybe tripling in generation over the next 2 decades.

[Duke Austin, President and CEO at Quanta Services]

So all the transmission build and substation build behind that is substantial, and it has to get started. And I think we're in the early very early stages of getting that started today.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research LLC]

Great. Thank you very much.

[Operator]

Our next question comes from the line of Alex Rygiel with B. Riley. Please proceed with your question.

[Alex Rygiel, Senior Managing Director at B.Riley Securities]

Thank you and good morning everyone.

[Alex Rygiel, Senior Managing Director at B.Riley Securities]

A couple of quick questions here. First, nuclear power generation has regained significant interest in small modular reactors, in particular nearing commercial deployment. Can you talk a bit about Quanta's opportunity in that generation?

[Duke Austin, President and CEO at Quanta Services]

Yes. Thanks, Alex. I think when you see it, you'll see us build the substation interconnections. I don't see us at SMRs in any capacity. I think they're a decade away to any kind of scale.

[Duke Austin, President and CEO at Quanta Services]

So yes, nuclear will be a piece of it going forward. You'll still be back heavily renewables. Even your big reactors, you're talking about a gig on the bigger plant. So the smaller ones are certainly less, and you'll see a lot of that to from a standpoint of emergency generation, things of that nature versus diesel. But I think it's an answer.

[Duke Austin, President and CEO at Quanta Services]

It helps. Nuclear is something that's long term. You're going to need it to come in if we're going to grow the generation like we say we are. So yes, but I think for us as we sit here today, our the way we see it is we'll be around the edges on the substations and all the electrification there.

[Alex Rygiel, Senior Managing Director at B.Riley Securities]

That's helpful. And then, Duke, as the business has grown through the years, can you talk a bit about how the risk profile of projects, contracts in the business in general has changed?

[Duke Austin, President and CEO at Quanta Services]

Anytime you have EPC, you create risk. You have different kinds of risk. We've stayed to our knitting. I mean, I think we have a really good EPC program here of our engineering, procuring product and constructing the linear part or craft skilled labor is usually where people break down, and that's what we've invested in. We self perform 85% of the business.

[Duke Austin, President and CEO at Quanta Services]

So I think the self perform capabilities of Quanta derisk our business. And we stayed at that in the beginning and we know the cost when we go into them. And having our own supply chains and our critical path items that we've done in the vertical supply chain really de risk the project. And if there's risk in it, then there's more margin in it. And so I like the risk profiles that we have because we can create margin out of them.

[Duke Austin, President and CEO at Quanta Services]

So we're in good shape, and I think you'll continue to see that type of environment going forward due to the fact that there's just not enough talent around and you're going to see EPC get built for certainty across the country.

[Alex Rygiel, Senior Managing Director at B.Riley Securities]

Thank you.

[Duke Austin, President and CEO at Quanta Services]

Sure.

[Operator]

Our next question comes from the line of Steven Fisher with UBS. Please proceed with your question.

[Steven Fisher, Managing Director & Equity Research Analyst at UBS Group]

Thanks. Good morning. It seems clear that the big picture 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 the kind of puts and takes on the revenue guidance that was unchanged for that segment in light of the extra $225,000,000 of emergency work? Maybe that was just a shift in resources.

[Steven Fisher, Managing Director & Equity Research Analyst at UBS Group]

I know that can happen with these stores sometime. 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 just maybe if they are, can you just remind us what's the programs that are driving the acceleration to that nice 10% for the year there?

[Duke Austin, President and CEO at Quanta Services]

Thanks, Steve. Yes, we talked about the delineations of the segments and that we do have crude movement across both segments. So you do get some of those things and that show up in the way that the reports come out. When we look at it, yes, the storm is about $200,000,000 incremental. You do with the same kind of storms, for one thing, the company, it's $6,000,000,000 plus $6,500,000,000 of revenue in a quarter.

[Duke Austin, President and CEO at Quanta Services]

It's just it's not that big of an impact to the company. And maybe to others, it's not to us. And it does pull back off our industrial business and the gas based during barrel, you have a lot of push out in our industrial business due to the fact that the storms came in. So you're seeing that show up in that margin profile in our industrial business. So you have a lot of turnarounds that pushed due to storms.

[Duke Austin, President and CEO at Quanta Services]

So the impacts across the company and portfolio, you can't see those things show up in these storm numbers. So there is an impact. We're pulling off transmission. We're pulling off some renewable projects. They're larger.

[Duke Austin, President and CEO at Quanta Services]

We're flying people in from Canada to save human life, more importantly. And I think that's the struggle is to get everyone to see it. It's more than just a storm. We're also pulling off major, major projects to go do this, and it's necessary for the industry for us to do this. We had well over 5,000 people and continue in the mountains to restore power.

[Duke Austin, President and CEO at Quanta Services]

So yes, it's incremental, but it's not as big as what's being written. It's very, very small incremental gains there on the storm. So yes, and when we look at it going forward, you'll see those things show up. And I do think our renewable business is strong. The electric is like the T and D there continues to be good, and that's kind of where it sits today.

[Steven Fisher, Managing Director & Equity Research Analyst at UBS Group]

Okay. Just maybe a follow-up on the underground. Separate from the storm impact, were there any new challenges arising? Or is this just a continuation of kind of the same issues as before? And what's it going to take on the U.

[Steven Fisher, Managing Director & Equity Research Analyst at UBS Group]

S. Gas operations to get those delayed projects ramping up? Is that sort of just rate case decisions that we're waiting for?

[Duke Austin, President and CEO at Quanta Services]

Yes, Steve. I think when you look at it, the underground side of the business, they're building electric, they're building telecom, they're building renewables. The budgets certainly were impacted early. We talked about last quarter where if you're a utility and you could build underground electric or gas, a lot of the gas budgets went to not a lot, but enough to cause impacts on our LDC business to move from gas to electric. And so we moved our crews along with that.

[Duke Austin, President and CEO at Quanta Services]

We moved our crews into telecom, and you can see it show up in those segments. But yes, it did impact the LDC business as well as the industrial business with the storms that push out there more impacts. So we had those. We run it as a portfolio as we've talked about before. And I think go forward, if we look at the portfolio in the 'twenty five, you get guidance in 'twenty five.

[Duke Austin, President and CEO at Quanta Services]

We talk about guidance in 'twenty five. You'll see double digit guidance at the EPS level. 15% certainly is in the realm of possibility and beyond into next year. And we're willing to say it, I just said it, into next year. So the concern may be short term, but we see long term growth, multi I mean, decades worth of growth here.

[Duke Austin, President and CEO at Quanta Services]

And that's how we're running the business in this portfolio.

[Steven Fisher, Managing Director & Equity Research Analyst at UBS Group]

Makes sense. Thank you.

[Operator]

Our next question comes from the line of Julien Dumoulin Smith with Jefferies. Please proceed with your question.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Hey, good morning team. Thank you guys very much. Appreciate the opportunity. Look, how do you guys think about the emerging dirt, the workforce driving a tighter backdrop here for the business? I mean, it's a pretty interesting backdrop for you all.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

You've been persistent in enabling a pipeline of labor training as a company. How do you

[Jayshree Desai, Chief Financial Officer at Quanta Services]

Julian, we lost you.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Hello.

[Operator]

Hello, Mr. Dumoulin Smith, are you still there?

[Duke Austin, President and CEO at Quanta Services]

That's okay. I'll answer the question.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Yes.

[Duke Austin, President and CEO at Quanta Services]

Okay. So the workforce, look, we have invested in it. I do think, as we stand today, we made substantial investments there early 8, 9 years ago with both colleges and curriculum. It's well known. The craft skilled labor, as we stand today, we went from 53, 54 to begin the year.

[Duke Austin, President and CEO at Quanta Services]

We're at 62,000 today. So that work that 62,000, some of it's organic, some of it's acquired through Cupertino and others, but we continue to invest in curriculum. We see opportunities to look at craft skills that are getting performed along in our segments and invest. And we'll continue to do that. We need to make sure that for us, that's the core of the business is that craft and the 85% of that self performed craft that we're supplementing across the country and all the service lines that we perform continue to grow.

[Duke Austin, President and CEO at Quanta Services]

We've got to invest in that. We knew it early. We're working with our partners or unions and trade associations across the country to make sure that, that investment for a trained, safe, dependable workforce is there, and we'll continue that as we go forward doing.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Excellent. Can you guys hear me now?

[Duke Austin, President and CEO at Quanta Services]

Yes. Got you.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Sorry, I don't know what happened there. But just how does that impact your top line inflation when you think about the business trajectory and what you're seeing right now? I mean, it seems like the overall sector is seeing this trend. How does that impact your potential for margin expansion and overall just top line inflation at the same time to run with that?

[Duke Austin, President and CEO at Quanta Services]

Good question. Certainly, we pass through the we believe labor goes up about between 4% to 6%, as we move forward, let's 3% to 5%, probably 4% to 6% now. And those are passed through to contractually through our if it's not contractually, then we have it in our multiyear bids. But the 4% to 6% inflationary piece of labor has been there. It's been there a long time.

[Duke Austin, President and CEO at Quanta Services]

So that's always been in the pass through or we've adjusted our portfolio and bids for those labor impacts. On the data center business, on the inside electric piece of the business, it's certainly constrained more than our outside business. So we're also putting in training. We're also doing a lot of things with the Cupertino acquisition and that platform to enhance that labor force. And so I think you'll continue to see us anything we do that involves craft skill will be curriculum.

[Duke Austin, President and CEO at Quanta Services]

We'll have college credits with that. We'll have a lot of different things, but we're trying to enhance the workforce is to build for the future.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Thank you, guys.

[Duke Austin, President and CEO at Quanta Services]

Sure.

[Operator]

Our next question comes from the line of Gus Richard with Northland Capital. Please proceed with your question.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Yes. Thanks for taking the question. Electricity demand is exceeding supply growth and delivery growth. And is there a some point in time where demand overwhelms supply and their shortages? And what's the near term next 2 or 3 year solution?

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Clearly, SMR is not the answer. And I was just wondering if you had any thoughts on that.

[Duke Austin, President and CEO at Quanta Services]

I mean, 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. Wind will be there, but gas has got to back it. You see all the gas generation that's coming online or anticipated to come online.

[Duke Austin, President and CEO at Quanta Services]

I think it's better said. That's there as well. But we've always thought gas would be 20% of the business, and I still believe generation fleet, and I still believe that's the case. Even at double growth, we'll still keep it up there just to keep the intermittency of the grid and to make sure that you can have that. The reserve margins, if you go across the country, used to have a pretty nice reserve margin across the country.

[Duke Austin, President and CEO at Quanta Services]

I believe most of that is replenished substantially. And you can't run the grid on the edge. So you've got to get the generation in and get it in quick to get those reserves back up on anticipated demand. And that or you can't build. So one of the 2 things, you're either going to constrain the grid, constrain the keys because you can't build generation or you build generation.

[Duke Austin, President and CEO at Quanta Services]

So I do believe gas is probably the most immediate thing that you'll see get built along with solar and wind as you see it today, but gas will certainly supplement more so than we've seen in the past.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Got it. That makes complete sense. And that feeds into sort of the next question. Given the hurricanes and fires and whatnot, are you seeing an increase in demand for hardening services? Are the utilities starting to allocate more resources?

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

And are you seeing that benefit?

[Duke Austin, President and CEO at Quanta Services]

Yes. I mean, I think the grid hardening programs, both fire and storms are certainly there. We see it across the board where you have multiyear type programs against fire or grid hardening per se. So yes, I mean, we see it quite a bit continuing. It's early stages in many areas, but in other areas, Florida being 1, it's late stages or later stages.

[Duke Austin, President and CEO at Quanta Services]

I won't say late stages, but mid to 3 quarters into something in most areas. So a lot of people started with transmission hardening and urine started in distribution hardening and undergrounding in certain areas. So I think you're early stages of this and you'll continue to see violent weather impacts and demands from the client to have them up quicker. The only way you can get things up faster is you've got to harden the grid or underground it, one of the 2. And so that pressure against the grids that are 50, 70 years old, you've got to do, you've got to modernize the grid.

[Duke Austin, President and CEO at Quanta Services]

And you're doing all this while demand is doubling. So it is something that everyone's looking at from a standpoint of what do you do first and you've got to harden the grid while you meet demand. So it is something that is unique to the industry these days.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Okay. Thanks so much.

[Operator]

Our next question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.

[Chad Dillard, Analyst at Bernstein]

Hey, good morning, guys. Good morning. So my question is on the MSA renewal process. And I know that this is an ongoing process for you guys year in year out. But just curious how much of the business is up for renewal over the next 12 months?

[Chad Dillard, Analyst at Bernstein]

And then I think these contracts are 3 to 4 years in duration. So I'd love to get a sense for just like how those conversations and how the contracts have changed versus 3 to 4 years ago from like a terms perspective, if you can talk pricing, anything like that would be very helpful.

[Duke Austin, President and CEO at Quanta Services]

Yes. I mean, MSA is a really framework for unseen work in many ways and allows contractual terms to be done and 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's certainly more efficient and more prudent, to get out in front of it.

[Duke Austin, President and CEO at Quanta Services]

So have the labor there. The labor shortages don't show up if you talk long term. So I think they're longer in nature. They're bigger, as we see it. They I can't tell you how many are up.

[Duke Austin, President and CEO at Quanta Services]

We have, I don't know, 100, maybe 1,000 of MSAs, maybe 10,000, I don't know. A lot of MSAs that go around, we've worked off of them for 50 years. So it's very, very difficult for me to I mean, 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 base business is 85% today, and that's those MSAs typically around that for the most part.

[Duke Austin, President and CEO at Quanta Services]

And as we see it going forward, it will be 85% as the business grows on the top line. You'll still see it at 85%. So as the business has grown, because MSAs and our ability to bid or negotiate or collaborate with the client to continue that, the stickiness of that and supplement their current workforces is there and will continue to be there going forward.

[Chad Dillard, Analyst at Bernstein]

That's helpful. Second question is on Cupertino and labor availability. So I'd love to get a better sense for how you plan to integrate that segment with your labor training program. Just trying to figure out like just how much labor that can unlock over the next couple of years and how fast you can scale the business? And if you can, just how much in terms of headcount is Cupertino?

[Duke Austin, President and CEO at Quanta Services]

Yes. I think Cupertino, when you look at the workforce and how it's trained, I mean, they have very good training programs, 3, 4 year training programs, I believe. So very, very good. When we look at it, can we supplement it? Yes.

[Duke Austin, President and CEO at Quanta Services]

I think what we can do is early on our recruiting process is the way we get people into the trade. Some people can't climb, some people don't want to climb. So we can move people over into that segment. And it's just a it'll be synergistic for us as well. Some won't want to stay on the ground, they want to climb.

[Duke Austin, President and CEO at Quanta Services]

So both sides of that continue, and we're always around the edges of each other. Craft is very similar. The way they think, the way we think. The company sits on top of us nicely. And so when you look at that, it just it bodes well for us to recruit very, very what I consider the top talent out there.

[Duke Austin, President and CEO at Quanta Services]

They were premier solution provider for the data center business for a long period of time. Since inception, they have capabilities across the board beyond data centers that we like a lot, both solar, wind. It's a different labor pool, but they're exceptional in what they do. So we're excited about supplementing the curriculum, supplementing the onboarding, what I would consider pre apprenticeship programs that we have where people are smarter and faster and more productive when they get in. So all those things will certainly benefit both us and Cupertino going forward.

[Duke Austin, President and CEO at Quanta Services]

The count, it's between 46,000 somewhere in there. It varies depending on where

[Duke Austin, President and CEO at Quanta Services]

the

[Operator]

Our next question comes from the line of Drew Chamberlain with JPMorgan. Please proceed with your question.

[Drew Chamberlain, Equity Research Associate at JP Morgan Chase & Co]

Yes, good morning. Thank you for taking our questions. The first one on the Renewable side, some positive commentary in the prepared materials on sort of bidding activity and what you're hearing from your customers. But obviously, bookings throughout the 1st part of the year, our first three quarters have been a little lighter than last year. And just kind of want to hear your thoughts on maybe what's holding up some of this from converting into backlog and maybe what are some of the headwinds and stuff that you're hearing from your customers maybe on the election, IRA and when this can really convert?

[Duke Austin, President and CEO at Quanta Services]

I mean, I expect us to between now and and the next time we get on a call, a substantial amount of LNTPs going into contract. The negotiations are robust. And I'm not sure I can't put a finger on why the backlog has not increased more there based on what the conversations are. It's just pen to paper in many ways and from LNTP to final FID. So I'm not concerned.

[Duke Austin, President and CEO at Quanta Services]

The inbounds are as good as they've ever been, the negotiation verbals, the other things that we're discussing on the Renewables segment. I feel confident that going into next year, the backlog will grow and it will look different the next time we have this discussion. So that piece of the business, I'm not concerned with on the backlog side of it. So we see the market continuing to progress forward, the solar business, the wind business, even the repower business, batteries are growing our fastest growing pace. But we like it all.

[Duke Austin, President and CEO at Quanta Services]

We see it. It's coming our way. And I think the election, yes, it could have a little bit of a delay. But the feedback we're getting from the client is either a Harris or a Trump win. You're going to have some noise in 1 or the other, but the business itself and the underlying business continues forward, and I believe our customers would say the same thing.

[Drew Chamberlain, Equity Research Associate at JP Morgan Chase & Co]

Okay, great. Thank you. And then just on the data side, you updated the market forecast that you used in the deck, calling for a 23% CAGR versus I think it was a 15% prior. Kind of just what's changed quarter over quarter? Have conversations started to look materially different?

[Drew Chamberlain, Equity Research Associate at JP Morgan Chase & Co]

And do you think that this higher growth rate is indicative of what your business is going to do and what your internal expectations are over the course of the decade?

[Jayshree Desai, Chief Financial Officer at Quanta Services]

Yes. Just as a reminder, those are, 3rd party reports that we're putting in there. And I think what it does is just reflects the continuing optimism of how much data center growth is out there, as well as the power needs for enabling that data center growth. That's really what we were trying to show in that graph. But from our customer standpoint, I can maybe talk about that.

[Duke Austin, President and CEO at Quanta Services]

Yes. I mean, I think

[Duke Austin, President and CEO at Quanta Services]

that the graphs are certainly indicative of what we see in the business. And when you think about the growth and then what we've done, yes, some of it's inorganic, but you also need to look at if we've done it consistently over the last 7, 8 years, we'll continue to do that going forward. And I do think the growth of the business at the midpoint staying under 2 of leverage, you can see it going forward. And it's basically the strategies of the company that put us in the 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.

[Duke Austin, President and CEO at Quanta Services]

And the need for power at a data center is substantial. Can we be a solution to all the things? Yes. Are we in the middle of the discussions on all things data? Yes.

[Duke Austin, President and CEO at Quanta Services]

Are we in the middle of the discussion on all things power? Yes. So it allows us a unique position to help and collaborate with multi customers. And I just think it's from east to west, and it's a lot of opportunities and the company is pretty excited about what we can do with the growth platform that we've built and the TAM that's around it. Addressable markets are much bigger than they were yesterday.

[Duke Austin, President and CEO at Quanta Services]

So I like what we said and I like our customer base.

[Drew Chamberlain, Equity Research Associate at JP Morgan Chase & Co]

Okay. Thank you.

[Operator]

Our next question comes from the line of Brian Brophy with Stifel. Please proceed with your

[Brian Brophy, Associate Vice President at Stifel Financial]

I wanted to ask one on cash flow. So implied free cash flow conversion versus EBITDA for this year is now about 60% excluding that Canadian transmission collection, which is obviously a little bit higher than some of your longer term targets that are out there. Is there anything in free cash flow this year that's more one time in nature? Or is this a good way to think about core free cash flow conversion going forward? Thanks.

[Jayshree Desai, Chief Financial Officer at Quanta Services]

Yes. I think we are very pleased with where we sit with our free cash flow. We have it's a reflection of several things. 1, of course, is the mix of work. The Renewable business and the way those contracts are structured continue to be very working capital accretive.

[Jayshree Desai, Chief Financial Officer at Quanta Services]

And so you're seeing the benefit of that in our free cash flow guide. We are doing better at our collections. Our DSO is improving. So those things are all factored into our free cash flow guide for the year. I will say going forward, we've set our expectations.

[Jayshree Desai, Chief Financial Officer at Quanta Services]

The right way to look at it is around a 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 drag on working capital. So think the right way to look at it, Brian, is continue to be in that 45% to 55% range with very good opportunities being the high end in that range.

[Duke Austin, President and CEO at Quanta Services]

Yes. And I'll add, the impact of Canada is certainly in the numbers. We don't expect to collect that this year. So that is certainly pressing on the number. That said, we did get some of the money in.

[Duke Austin, President and CEO at Quanta Services]

We like the way the negotiations are going. Nothing wrong. We were highly confident in the claim. We're highly confident in what we've done from a construction standpoint. It's just taken longer to get pen to paper in Canada to receive our money.

[Duke Austin, President and CEO at Quanta Services]

And so I do believe you'll see it in next year. We're not going to press the business to tell you exactly when because I think it's more important to get the right answer for what we deserve and what we've done and so does the client. So we're just working with them to get the collections, but nothing wrong with the collections. It's taking a little longer.

[Brian Brophy, Associate Vice President at Stifel Financial]

Appreciate you answered my follow-up. I will pass it on.

[Operator]

Our next question comes from the line of Andy Kaplowitz with Citi. Please proceed with your question.

[Andrew Kaplowitz, Managing Director at Citi]

Good morning, everyone.

[Jayshree Desai, Chief Financial Officer at Quanta Services]

Hello.

[Andrew Kaplowitz, Managing Director at Citi]

Duke, I know one of the questions you get occasionally is that as Sunsea ramps down in 'twenty six, given the size of the project that it would be tough to sell. We all know there's so much more to Quantum than just large electrical transmission projects. But how do you see that environment? Do you see sort of a new wave of large projects that could come out in 2025 and 2026 or how do you think about that?

[Duke Austin, President and CEO at Quanta Services]

Yes. I mean, we see multi projects and whether they're $1,000,000,000 or $2,000,000,000 or $500,000,000 they're there. We're probably in a I will say it again, the inbound and the negotiations, the variables, the way you build discussions are substantial. And I was somewhere the other day, and I was listening to I can't one of the bigger manufacturers, Siemens Itachi or one of them, I can't remember which one it was, talking about transformers, and they said, hey, we can get there by 2,030. If we said that today on the work that we did, I will get you by 2,030.

[Duke Austin, President and CEO at Quanta Services]

I would just tell you, like, it's not that's not in our DNA. And that demand is the same for us. The demand for larger projects that are out there has never been greater. And we see it to the west, to the east. You can look at MISO, you can look at SPP, you can look at ERCOT, you can look at 765 build, you can look at anything you want, developers, just pick something and pick a geography within the country and see if you don't see large transmission there.

[Duke Austin, President and CEO at Quanta Services]

There is just as big as projects. If you add them together or you take 1, you take 3. We're not concerned with our ability to look at large construct. I do believe you'll see the stacking effect of the business going forward. And we see it in 'twenty six, we see it in 'twenty seven, we see it in 'twenty eight, we see it in 'twenty nine.

[Duke Austin, President and CEO at Quanta Services]

We see the same thing they see.

[Andrew Kaplowitz, Managing Director at Citi]

So to that point, Duke, I mean, there's always going to be a little bit of noise. But at the Investor Day that you had a couple of years ago, I mean, you talked about sort of this upside case of 15% plus EPS growth that would get you with capital deployment to $11 to $12.26 I'm sure you don't want to give us guidance in $26 But at the same time, does it feel like you're absolutely tracking to that upside case given what you guys have done with Cupertino and Blattner and then the markets themselves?

[Duke Austin, President and CEO at Quanta Services]

I mean, I said just a minute ago, next year, if we grow double digit EPS, if it's $15,000,000 we certainly have the opportunity for $15,000,000 and beyond. We've grown $20,000,000 this year at the midpoint, deploying capital. So we see our ability to deploy capital continues. We believe we'll be in some part of the range will be in double digits in 'twenty five. 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.

[Duke Austin, President and CEO at Quanta Services]

And look, that's easy to say. It comes out real quick. But we've got to get and deliver it and execute on it, which I don't think we're a story about tomorrow. We're doing it today. And I think we'll do it in 'twenty five, I think we'll do in 'twenty six.

[Duke Austin, President and CEO at Quanta Services]

We certainly have the opportunity and the markets are there.

[Andrew Kaplowitz, Managing Director at Citi]

Appreciate the color.

[Operator]

Our next question comes from the line of Michael Dudas with Vertical Research. Please proceed with your question.

[Michael Dudas, Equity Research Analyst at Vertical Research Partners]

Good morning, Jayshie, Kipp and Duke. How are you doing?

[Duke Austin, President and CEO at Quanta Services]

Good morning.

[Michael Dudas, Equity Research Analyst at Vertical Research Partners]

Maybe follow along on allocation capital. Given the extraordinary demand and the excitement that's within the vendors serving the electric utility and development industry, When you're talking to the various companies that you look to maybe bring on board in the next couple of years to solidify your long term plans, are is the industry going to need it seems like there's going to be a lot more scale and consolidation needed and are potential sellers of their businesses looking towards that to kind of get to the next level of their growth and that provides opportunities for you guys to kind of get into the areas to maybe even especially maybe on the front end engineering kind of work because it seems like the customer base is wanting a lot more of that from you given the collaboration you've been talking about?

[Duke Austin, President and CEO at Quanta Services]

I mean, certainly the front side of the business as we call it, the engineering, the permitting, all those things are a big part of the business and we need to look at those things to add to the to our strategies and that's been known for a long time. We're disappointed about how we acquire and we'll grow it organically, we'll grow it somehow, some way. If we have to partner, if we can acquire, we'll acquire. We're not going to acquire at any cost. We've said that before.

[Duke Austin, President and CEO at Quanta Services]

We are disciplined to it and we'll stay disciplined to it. So we see that. We see long term if you look at the transformer business we acquired, it's a 100 year old business, a family business. It wasn't for sale. And I think when you think about it, people are they want these big long term businesses.

[Duke Austin, President and CEO at Quanta Services]

They want stability in their companies. They want to perpetuate the name. They see what we do. They see how we take care of people. They see, the culture that we have here, and we're very selective.

[Duke Austin, President and CEO at Quanta Services]

When we look at it, I mean, Cupertino is a great example of a multi decade relationship that generationally, we can provide great things for their people, great things for the management, great things for the family. And they keep the culture that they've had yesterday, and the name is still in the truck today, and it will be in a decade from now. So I think that's the key to it is just continue to create the culture that we have here. People generationally, I'm not sure why craft and the perpetuation when you get down, a lot of people that have businesses that are large in nature that provide craft skills, their kids want to go build they want to go build apartments and real estate or other things. They don't really like the businesses that their families have or they're not interested in craft and things like that, which is fine.

[Duke Austin, President and CEO at Quanta Services]

It's great. So they want they're looking for stability for the people. And I think that's the key for us is to find those businesses and attract them and continue to execute on the culture that's here and protected and move forward with it, while we're creating what I would consider great returns for our investors and stakeholders.

[Michael Dudas, Equity Research Analyst at Vertical Research Partners]

Well said, Duke. Thank you.

[Operator]

Our next question comes from the line of Sangeeta Jain with KeyBanc Capital Markets. Please proceed with your question.

[Sangita Jain, Senior Analyst at KeyBanc Capital Markets]

Yes. Thank you guys for taking my question. So Duke, the DOE 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?

[Sangita Jain, Senior Analyst at KeyBanc Capital Markets]

And are you already talking to some of them?

[Duke Austin, President and CEO at Quanta Services]

Yes. I mean, we talked to the DOE, we talked to the people that are anchor tenants quite a bit. You still have got permitting and you still have some of them have transformed or some of them don't. I do think it helps. But in reality, your utilities, your IOUs that are sitting right there, if it's not an IOU, which some of them are, it's I'll just say it has inherent risk and more difficult.

[Duke Austin, President and CEO at Quanta Services]

It's not that it won't happen, it's just harder. And I do think the projects that you see the DOE back are good. I mean, they're great projects and we're all around them. And we like that anchor tenant. It's a great concept.

[Duke Austin, President and CEO at Quanta Services]

I think when you look at Texas with the Texas bond and the things that are happening there, same thing. But a lot of the states and the permitting in the states and the PUCs and things like that, it's really about a ratepayer discussion. Are we putting pressure on rates at the ratepayer level? And when you look at it, T and D is not the biggest piece of a rate. And so we've got to do a better job of how we discuss that to the ratepayers because gas interest, a lot of different things are way more impactful than building T and D infrastructure.

[Duke Austin, President and CEO at Quanta Services]

Actually, T and D infrastructure makes the rates go down through congestion and things like that in most cases. So I think all those things that you have to look at, if you can prove those things out, the projects go much faster.

[Sangita Jain, Senior Analyst at KeyBanc Capital Markets]

Got it. So that's very helpful. And on that, can I also follow-up with the recent transformer acquisition that you announced? And if that is a different type of transformer versus the PTT? Or honestly, anything that you can tell us on that acquisition would be great?

[Duke Austin, President and CEO at Quanta Services]

Long discussions in the Transformer acquisition on the one we just made as well as PTT. So we've been in discussions since pre COVID on the Transformer business. We like the business. It's supplemental. It's a little smaller than, the class, the bigger class transformer that can be made in PTT.

[Duke Austin, President and CEO at Quanta Services]

Not to say that, but the utilities they serve, the clients they serve in the areas are certainly there. We can cross sell. We can sell internally. We're out in the 'twenty seven, 'twenty eight, even into 'twenty nine at these factories. And so we just we've got to watch it.

[Duke Austin, President and CEO at Quanta Services]

We've got to understand the market and serve our internal customers as well. And we're a very, very small percentage of manufacturing. And I think for us, it's really a backstop against if you get tariffs in China or in other places, transformers become difficult. And we have U. S.-based long term transformers here.

[Duke Austin, President and CEO at Quanta Services]

And it will allow us to move our current workforce and projects forward. And we're really de risking the business against those things as well as collaborating with the clients on U. S.-based manufacturing. And that's the key for us is to continue down the path and critical path items that we believe are risk to the supply chain.

[Sangita Jain, Senior Analyst at KeyBanc Capital Markets]

Got it. Thank you so much.

[Operator]

Our next question comes from the line of Marc Bianchi with TD Cowen. Please proceed with your question.

[Marc Bianchi, Analyst at Cowen]

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 and D side of the business. But could you talk about what you're seeing on the ground like right now as it relates to some of these supply chain concerns?

[Marc Bianchi, Analyst at Cowen]

Is there anything that's maybe incrementally worse or better than it was last quarter?

[Duke Austin, President and CEO at Quanta Services]

I mean, you have to get into HVDC, certain kinds of HVDC, especially DC construction in your large stations to get like real bad. But besides that, I mean, our transformer is certainly a constraint, breakers are certainly a constraint. But we've been able to we have a good robust we see it. So I think the things that we've done in our supply chain, we can help and enhance developers. Certainly, our partners and the ones we collaborate with, for sure, move projects forward.

[Duke Austin, President and CEO at Quanta Services]

It's certainly something that the company has been able to do and collaborate with on clients. So we like our positioning there. I don't think it's gotten any worse. It hasn't gotten any better though. You would think it would get better, it hasn't.

[Duke Austin, President and CEO at Quanta Services]

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 do. I don't believe I'll see it in my lifetime. But we've been able to outpace any kind of permitting bill, any kind of constraint.

[Duke Austin, President and CEO at Quanta Services]

So if someone says come and build 1,000 miles of 500 kilobytes tomorrow, I will tell you if they said it 3 times over 5,000 miles, the answer is yes and yes and yes, already.

[Marc Bianchi, Analyst at Cowen]

Got it. Thanks, Stu. That's all I had.

[Duke Austin, President and CEO at Quanta Services]

Thank you.

[Operator]

Thank you. We have reached the end of the question and answer session. I will now turn the floor back over to management for closing comments.

[Duke Austin, President and CEO at Quanta Services]

Yes. First of all, I want to thank the 62,000 men and women out in the field in the inclement weather and what they've done in these natural disasters. I would tell you, they're first responders. They've seen a lot. The respect that they deserve is certainly something that we see every day, and I want to thank them.

[Duke Austin, President and CEO at Quanta Services]

They're going to want hell of a job, and they're the best in the business. And I want to thank you all for participating on the conference call. We appreciate your questions and your ongoing interest in Quantum Services. Thank you. This concludes our call.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Participants

Executives

• Kip Rupp, VP of IR
• Duke Austin, President and CEO
• Jayshree Desai, Chief Financial Officer

Analysts

• Ati Modak, Analyst at Goldman Sachs
• Jamie Cook, Managing Director - Equity Research at Truist Securities
• Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research LLC
• Alex Rygiel, Senior Managing Director at B.Riley Securities
• Steven Fisher, Managing Director & Equity Research Analyst at UBS Group
• Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group
• Gus Richard, MD & Senior Research Analyst at Northland Capital Markets
• Chad Dillard, Analyst at Bernstein
• Drew Chamberlain, Equity Research Associate at JP Morgan Chase & Co
• Brian Brophy, Associate Vice President at Stifel Financial
• Andrew Kaplowitz, Managing Director at Citi
• Michael Dudas, Equity Research Analyst at Vertical Research Partners
• Sangita Jain, Senior Analyst at KeyBanc Capital Markets
• Marc Bianchi, Analyst at Cowen