Quanta Services Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 23, 2023

Key Takeaways

  • Record backlog: Total backlog hit $24.1 billion at year-end 2022, marking another record level and excluding recent acquisitions.
  • Quanta advanced its front-end solutions strategy through organic growth and strategic investments, expanding design, engineering, permitting, logistics and program management capabilities to increase its total addressable market.
  • The Renewable Energy segment was pressured by unanticipated solar project delays and a software implementation impairment, which reduced Q4 margins by approximately 120 basis points.
  • 2023 guidance: Quanta expects consolidated revenues of $18.4–18.9 billion, adjusted EBITDA of $1.8–1.9 billion and adjusted EPS of $6.75–7.25, projecting another year of double-digit growth and record EBITDA.
  • Management demonstrated confidence in its financial strength by repurchasing $128 million of common stock and raising the dividend 17%, while maintaining ample liquidity.
AI Generated. May Contain Errors.
Earnings Conference Call
Quanta Services Q4 2022
00:00 / 00:00

There are 10 speakers on the call.

Operator

Greetings, and welcome to the Quanta Services 4th Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. And it is now my pleasure to introduce to you Kipp Rupp, Vice President of Investor Relations.

Operator

Thank you, Kipp. You may begin.

Speaker 1

Thank you, and welcome, everyone, to the Quanta Services 4th quarter and full year 2022 earnings conference call. This morning, we issued a press release announcing our Q4 and full year 2022 results, which can be found in the Investor Relations section of our website at quantaservices.com, along with a summary of our 2023 outlook and commentary that we will discuss this morning. Additionally, we'll use a slide presentation this morning to accompany our prepared remarks, which is viewable through the call's webcast and is also available on the Investor Relations section of Aquana Services website. Please remember that information reported on this call speaks only as of today, February 23, 2023, and therefore, you advise that any time sensitive information This call will include forward looking statements intended to qualify under the Safe Harbor from liability Established by the Private Securities Litigation Reform Act of 1995. These include all statements reflecting Quanta's expectations, intentions, Assumptions or beliefs about future events or performance that do not rely or do not relate solely to historical or current facts.

Speaker 1

Forward looking statements 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. For additional information concerning some of the risks, uncertainties and assumptions, Please refer to the cautionary language included in today's press release and the presentation along with the company's periodic reports and other documents filed with the Statements and Quanta does not undertake any obligation to update such statements and disclaims any written or oral statements made by any third party regarding the subject matter of this Please also note that we will present certain historical and forecasted non GAAP financial measures in today's call, including adjusted diluted EPS, Comparable GAAP financial measures are included in our earnings release. Lastly, if you would like to be notified when Quanta publishes news releases and other information, Please sign up for e mail alerts through the Investor Relations section of quantaservices.com. We also encourage investors and others interested in our company to follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would now like to turn the call over to Mr.

Speaker 1

Duke Austin, Quanta's President and CEO.

Speaker 2

Thanks, Kipp. Good morning, everyone, and welcome to Aquana Services' 4th quarter and full year 2022 earnings conference call. On the call today, I will provide operational and strategic commentary and will then turn it over to Jayshree Desai, owner CFO, to provide a review of our financial results and full year 2023 financial expectations. Following Jayshree's comments, We welcome your questions. This morning, we reported strong 4th quarter and full year results, which were built off an industry leading operational and financial platform that delivered another year of solid, safe execution and profitable growth.

Speaker 2

Additionally, total backlog of $24,100,000,000 at year end was a record and does not include several notable recent project awards. Driven by the dedication and operational excellence of our world class employees and the culture of collaboration throughout Quanta, We believe our 2022 results also demonstrate the benefit of our diversified portfolio of solutions, Our repeatable and sustainable model and the successful execution of our strategic initiatives to drive operational excellence and total cost solutions for our clients and ultimately the consumer. Our portfolio of companies, Diversity of service lines, geographic coverage, outstanding field leadership and deep long standing and collaborative relationships with our clients Have allowed us to successfully navigate through the challenges presented by a global pandemic and manage ongoing macroeconomic uncertainty And supply chain constraints, while still delivering 5 consecutive years of record adjusted EBITDA and 6 consecutive years We accomplished a great deal in 2022 Through the successful implementation of our strategic initiatives and our past success positions us well for the future. Our innovative approach to our infrastructure solutions, our portfolio of services and our passion for working Collaboratively with our clients to support their success positions us to be a critical partner in enabling the energy transition for years to come.

Speaker 2

Here are some of our accomplishments in 2022. We continue to successfully advance our front end solutions strategy, both organically and through acquisitions and strategic investments. Our focus is on strengthening our design, engineering, Permitting environmental, logistics and program management capabilities. This strategy allows us to expand our solutions to our customers and provide them with greater certainty around cost, time to market and quality, which ultimately benefits consumers. It also enhances our risk management capabilities and increases our total adjustable market.

Speaker 2

Electric Power Infrastructure Solutions segment Revenues achieved record levels, maintained margins and increased market share despite some work delays caused by ongoing supply chain challenges. We further expanded our emergency response capabilities and supported our customers' efforts to restore power to millions of people adversely impacted by several severe weather events During the year, our ability to quickly mobilize significant resources to support our customers in times of need is unmatched in our industry. Luma Energy, our joint venture with ACCO, which is managing Puerto Rico's more than 18,000 mile electric transmission and distribution system, Continue to improve its customer service, response times, customer communication and workforce safety as well as overall system reliability. Additionally, Luma restored power to more than 90% of its customers in less than 2 weeks following Hurricane Fiona, which was much faster than previous storm responses by the prior grid operator and was comparable to, if not better, Duration times following major hurricanes in the Mainland United States. So many years of challenges and work remain, we We continue to believe this opportunity is transformative for Quanta and the people of Puerto Rico and remain committed to supporting Luma's mission to provide reliable electricity while building a modern and sustainable transmission and distribution system.

Speaker 2

We continue to grow our Communications Services business and increased revenues by approximately 30%. Contributing to the growth was further development of our wireless solutions, which expand our opportunities to capitalize on 5 gs network deployment and an ongoing enhancement of 4 gs wireless networks. We continue to make meaningful progress on growing our portfolio of services within each of our operating companies to further enhance our operating results. For example, we are leveraging our gas utility assets to perform certain aspects of underground electric power and telecom related work. We believe the resource expansion and operating leverage we gain through these initiatives is significant opportunity for Quanta to reinforce our self performed capabilities, Wana's capacity model was recognized by the National Safety Council as a finalist for its prestigious Green Cross For Safety Award, which recognizes outstanding projects and organizations working to support the National Safety Council's mission to save lives and prevent injuries From workplace to any place, the capacity model is revolutionary because it only creates a work environment that focuses on preventing an incident, but also build the capacity to fill safely.

Speaker 2

We demonstrated our commitment to stockholder value and our confidence in Quanta's financial strength and continued growth opportunities through the repurchase of approximately $128,000,000 of our common And a 17% increase of our dividend, while also increasing our liquidity. And finally, we continue to increase our efforts and dedicate resources towards implementing sustainable business practices throughout the organization. We made significant progress in our 2021 Sustainability Report, which discusses the company's accomplishments during that year and marks a key milestone for Quanta as we published our 1st consolidated set of Sustainability metrics, including our Scope 1 and 2 emissions. We also highlighted and discussed the important positive impact Demand is robust for our solutions that support our customers. Efforts to modernize and harden the grid and prepare it for the impact of increased electric vehicle penetration.

Speaker 2

This activity drove our Electric Power segment results and backlog strength during 2022, primarily through significant multiyear master service agreements and gains through our service line expansion with Utilities. Further, we continue to believe we are in the early stages of utilities' undergrounding transmission and distribution lines to protect them from the effects of severe weather events and wildfires. We see this activity increasing in the Western United States and high fire threat areas, but these initiatives are active in other areas of the country. Examples include electric transmission projects in the Northeast, distribution circuits along the coastlines and electric transmission line projects for offshore wind generation. Many of these initiatives are part of a large scale multiyear system modernization and hardening programs.

Speaker 2

Our utility and renewable developer customers, who accounted for the majority of our 2022 revenues, are leaders in the effort to reduce carbon emissions, Increased electrification and lead the energy transition with aggressive plans to expand and modernize the power grid and grow their renewable generation portfolios. Achieving these goals will require substantial incremental investment in transmission, substation and renewable generation facilities to produce and transport clean power to ensure grid reliability due to the growth of intermittent power added to the system. For example, in December of last year, we announced Quanta's selection by Xcel Energy As its prime constructor, to manage all construction activities for Colorado's Power Pathway high voltage electric transmission project in Colorado, The approximately 610 mile high voltage electric transmission line project is designed to increase the reliabilities of the state's power grid and enable Future renewable energy development in Colorado, including approximately 5,500 megawatts of new wind, Solar and other resources that Xcel Energy plans to add through 2,030. While the supply chain and regulatory hurdles created challenges for the renewable industry during 2022, there is significant demand for our power grid and renewable generation solutions. A number of solar projects that were delayed in 2022 are beginning to move forward in 2023.

Speaker 2

Regulatory hurdles Our easing and the implementation of the Inflation Reduction Act or IRA, which is considered by many to be the nation's most The ambitious legislative action ever taken on climate is expected to have meaningful positive effect on a number of our end markets, which would be additive to our strategy for at least the next decade. Our Underground Utility and Infrastructure Solutions Segment consistently performed at a high level through the year. Revenues grew strongly and margins significantly improved after navigating through tough Operating conditions caused by the global pandemic over the prior 2 years. Importantly, we continue to invest And our people and strategies during those challenging times and Emerge is a stronger and better company, which is reflected in our solid 2022 results. We expect to continue our focus on growing our gas utility, pipeline integrity and industrial services businesses, Consistent with our strategy over the last 5 years, which are executing well and driven by regulatory Spend 2 modernized systems, reduce methane emissions, ensure environmental compliance and improve safety and reliability.

Speaker 2

Looking to the coming years, we continue to believe Quanta has meaningful opportunities with customers in this segment as They increasingly pursue strategies to reduce their carbon footprint and diversify their operations and assets toward greener business opportunities. Further, the RA includes incentives to support certain energy transition technologies to further encourage a broader set of current In our earnings release this morning, we provided our 2023 guidance, which we believe demonstrates The strength and sustainability of our portfolio approach to the business and long term strategy, favorable end market trends, Our ability to safely execute our strong and strengthening competitive position in the marketplace. Further, our ongoing investment End and commitment to workforce training continues to positively impact our performance and allow us to capitalize on future opportunities. Our expectations call for another year of meaningful growth and record revenues, improved margins and opportunity for double digit growth in adjusted EBITDA, Cash flow and earnings per share. Additionally, we see opportunity to achieve record levels of backlog in 2023.

Speaker 2

Jayshree will provide additional detail about our guidance in our commentary. Quanta's management team recently had the privilege of ringing the closing bell at the New York Stock Exchange to commemorate our 25 year anniversary of trading on the prestigious exchange. Standing on that balcony and reflecting on what we have built over the last 25 years and where we are heading in the future was humbling and I couldn't be prouder. Quantum's Infrastructure Solutions are at the tip of the spear of the energy transition in North America. At our Investor Day last year, we laid out a 5 year financial goals we expect to achieve through 2026, which provided an organic growth strategy to generate a 10% adjusted earnings per share CAGR and when considering the levers available to us to allocate future cash flow generation into value creating opportunities, A platform with opportunity to deliver more than a 15% CAGR in adjusted earnings per share.

Speaker 2

With the strong results we delivered last year, our outlook for 2023 and the momentum we see building for the coming years, we are increasingly confident in our ability to meet or exceed those goals we laid out. We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best in class field leadership. We will pursue opportunities to enhance Quanta's base business and leadership position in the industry and provide innovative solutions to our customers. We believe Quanta's diversity, unique operating model and entrepreneurial mindset I will now turn the call over to Jayshree Desai, Our CFO for her review of our Q4 and full year results and 2023 expectations. Jayshree?

Speaker 3

Thanks, Duke, and good morning, everyone. Today, we announced record 4th quarter revenues of $4,400,000,000 Net income attributable to common stock was $163,000,000 $1.10 per diluted share and adjusted diluted earnings per share was a record for the Q4 at $1.68 Overall, the Q4 closed out another year of exceptional operational performance by Quanta. Our Electric segment benefited from outstanding execution and higher revenues across Additionally, our underground segment performed well in the 4th quarter, led by increased volumes and operating income from our base business operations. Our Renewables segment, however, was negatively impacted by unanticipated project delays, which were primarily attributable to the changes in the solar market regulations that we discussed in the Q3. These delays created cost absorption challenges, which pressured operating margins.

Speaker 3

Additionally, the segment's operating margin was negatively impacted by approximately 120 basis points due to impairment charges on a software implementation project Supply chain challenges, inflationary pressures and a complex regulatory environment, our portfolio delivered against our targets for the Q4 the year, and we remain well positioned for the anticipated growth ahead. Below the line, we recorded an unrealized loss of $15,000,000 associated with Common equity interest in fixed wireless broadband technology provider, Starry Group Holdings, which reduced the carrying value of our investment to 0. Offsetting this unrealized loss was an unrealized gain of $26,000,000 on the sale of an investment in a non integral unconsolidated affiliate, of which $10,000,000 was attributable to a non controlling ownership interest. Further commentary comparing Q4 'twenty two to Q4 'twenty one Our total backlog was $24,100,000,000 at the end of the 4th quarter, A significant increase from Q3 2022 and another record level. The increases across each of our segments are attributable to multiple new project awards, including the previously announced Colorado Power Pathway project and extensions and increases in expected volumes under MSAs.

Speaker 3

Our 12 month backlog was also at a record level of $13,800,000,000 which we believe is another indicator of the strength of our core markets and the steady growing demand for our solutions based approach. For the Q4 of 2022, We generated free cash flow of $513,000,000 resulting in $767,000,000 of free cash flow for the year. Contributing to our free cash flow was the collection of $101,000,000 of insurance proceeds following a favorable arbitration ruling associated with Peruvian Subsidiaries Terminated Telecommunications Project. Excluding those proceeds, Our Q4 cash flow was still in line with our expectations and included planned outflows of approximately $45,000,000 for change of control related payments Associated with the Blattner acquisition and $54,000,000 of previously deferred payroll taxes in accordance with the CARES Act in 2020. DSO measured 75 days for the Q4 of 2022, which was a reduction of 6 days compared to the Q3 of 2022, primarily due to favorable billing arrangements related to certain projects.

Speaker 3

Regarding the Canadian Renewable Transmission project that we've discussed in prior quarters, We continue to work with the customer to address the contract asset balance. Resolution of certain of these amounts could extend into 2024 and currently represent 5 to 6 days of DSO at December 31, 2022. While we remain confident in our position, our DSO will be pressured We had total liquidity of $2,400,000,000 at year end and a debt to EBITDA ratio of 2.1 as As we mentioned in today's release, we continue to identify and make strategic investments and acquisitions. In January of 2023, we acquired 3 businesses for total combined consideration of approximately $588,000,000 Approximately $465,000,000 of which was paid in cash at the time of the acquisitions. Additionally, we repurchased approximately $128,000,000 Turning to our full year 2023 guidance.

Speaker 3

The growth across our end markets remains robust, And we believe the tailwinds driving our growth are long in duration and create multiyear visibility in our earnings potential. As the build out of the necessary for the Energy Transition Accelerate, we believe the complementary capabilities of our operations will become even more valuable to our customers. While segment designations help investors better understand the work we're performing, we'll continue to emphasize the power of our aggregate portfolio of solutions and the earnings they generate. That said, the following remarks will speak to our expectations at a segment level for 2023. As it relates to the Electric Power segment, We expect 2023 revenues ranging between $10,000,000,000 $10,100,000,000 Our base business continues to lead the growth in the segment, driven primarily by North American utilities outsourcing the activities required to replace, rebuild and modernize existing infrastructure.

Speaker 3

Notably, our 2023 expectations included $250,000,000 of emergency restoration services revenues, compared to a little over $300,000,000 in 2022. Also included within the segment are our communications operations, which we expect will generate around $900,000,000 of revenue, in line with We expect 2023 operating margins for the Electric Power segment to range between 10.7% and 11.3%, which includes contributions of between 43 and $48,000,000 of earnings from our integral unconsolidated affiliates, the largest portion of which relates to the Luma joint venture in Puerto Rico. From a seasonality perspective, we expect revenues to be lowest in the Q1 with mid single digit growth from Q1 'twenty two, then growing sequentially through the Q3, followed by a seasonal decline in the 4th. We expect 4th quarter operating margins will be the lowest for the year, likely around 9%, then increasing into the 2nd and third quarters and slightly declining in the 4th quarter. The Renewable Energy Infrastructure Solutions segment full year revenues are are expected to range between $4,300,000,000 $4,500,000,000 over 15% growth compared to 2022 as we believe the headwinds faced by the solar market in 2022 should meaningfully improve in the second half of twenty twenty three.

Speaker 3

We think it's important to note that within our range of guidance for renewables, approximately $3,000,000,000 of our planned revenues are already in various stages of construction, giving us confidence in our ability to deliver full year revenues at these levels. We expect 2023 operating margins for the Renewable Energy segment To be around 8.5% for the year, slightly lower than the 9% level that we would normally expect. We've invested meaningfully in the project leadership, Specialized equipment and administrative needs required to support the expected ramp in project activity in the second half of twenty twenty three and into twenty twenty four. However, the cost of that investment weighs on margins, particularly in the Q1. We expect margins for the Q1 to be the lowest for the year, likely between 4% 5%, but should strengthen in each sequential quarter as volumes increase throughout the year.

Speaker 3

From a revenue seasonality perspective, we expect segment revenues to be between 850 And $900,000,000 in the Q1, the lowest for the year, then growing sequentially into the 3rd quarter and slightly declining in the 4th. As a reminder, it's possible that as we progress through the year and gain more visibility into the nature of the work we'll be performing, There could be movements outside these initial ranges for the Electric and Renewables segments, depending on the type of generation our activities support. With regard to the Underground Utility and Infrastructure Solutions segment, we are currently anticipating full year revenue range to range between $4,100,000,000 $4,300,000,000 a slight decline compared to 2022. This decline is due to lower volumes of larger pipeline projects, which contributed almost $900,000,000 of revenue in 2022, but are expected to be around $450,000,000 in 2023. Despite the revenue reductions, operating margins for the year are expected to range between 7.25% and 7.75%, led by our base business activities in the segment.

Speaker 3

From a seasonality perspective, we expect segment revenues in the Q1 to be in line with Q1 2022 revenues, With operating margins around 5%. We then expect revenues and margins to improve in the second and third quarters with a seasonal decline in the 4th quarter. As it stands today, we expect Q4 'twenty three revenues to be the lowest for the year. These segment operating ranges support our for 2023 annual consolidated revenues of $18,400,000,000 to $18,900,000,000 and adjusted EBITDA Between $1,800,000,000 $1,900,000,000 This represents another record level of adjusted EBITDA with expected full year adjusted EBITDA margins at the mid With these operating results, we estimate our range of GAAP diluted earnings per share attributable to common stock for 2023 To be between $4.67 $5.17 and non GAAP adjusted diluted earnings per share to be 6 point and $0.75 $7.25 Of note, we estimate our tax rate for the year will range between 26.25 percent and 26.75%. The Q1 rate, however, will be negligible, potentially 0 due to favorable discrete tax dynamics Associated with the increase between grant date value and the vesting date value of stock related awards under our equity compensation plan.

Speaker 3

We currently expect 2023 free cash flow to range between $750,000,000 $1,000,000,000 with capital expenditures of around $400,000,000 which should give us the ability to be within our target leverage range of 1.5x to 2x by the end of 2023. We remain committed, however, to creating shareholder value with strategic acquisitions and opportunistic repurchase activity throughout the year, while retaining our investment grade rating. Going into 2023, we have $345,000,000 of availability remaining on our current stock repurchase program. As a reminder, we've provided more guidance details in the outlook summary that posted in connection with the earnings release and can be found on our IR website at quantaservices.com. The strength and versatility of our portfolio give us confidence in our ability to continue driving results against an uncertain macroeconomic backdrop.

Speaker 3

The infrastructure investment required to support North America's energy transition is still in its early stages and creates opportunity for Quanta to continue providing Industry leading comprehensive end to end solution. Our relationships and the breadth of our solutions have proven to be critical in our ability to navigate the Economic landscape of the last three years, and we are confident those attributes position us to continue along our expected double digit growth trajectory. This concludes our formal presentation and we'll now open the line for Q and A. Operator?

Operator

Thank you. We will now be conducting a question and answer session. And we ask that you please limit yourself to only one question and then re queue. Thank you. One moment please while we poll for questions.

Operator

And our first question comes from the line of Alex Rygiel with B. Riley. Please proceed with your question.

Speaker 4

Thank you. Good morning and thank you for taking my question here. Excellent quarter. A few quick questions. Duke, backlog growth is just fantastic here.

Speaker 4

Obviously, some of that is from some of your acquisitions. But I guess what I'm trying to get at is, How do you think about backlog growth over the next couple of years? And maybe if you could sort of comment on What you think your bid pipeline sort of looks like as it relates to backlog? Do you see an acceleration in your bid pipeline? It sounds like you might be Seeing that, but any thoughts there would be helpful.

Speaker 2

Thanks, Alex. The backlog It's really nonmaterial when you look at the acquisition, so take that out. I think we had broad based backlog growth Within the company and as we look forward, I think you'll continue to see that throughout 2023. The dynamic of the stacking of larger projects along What we see at our MSA levels continue to be robust, and I think it will be broad based on our renewables as well as our electric power and even in You and I segment, so see a robust markets there. As we look at the bid pipelines, I think both the renewable side, You see more of elongation out where it was just 12 months, you're seeing 24 month, 36 month type Things within our backlog, so that's creating that growth as well there.

Speaker 2

But the pipeline itself, larger projects are certainly in there. But our MSA business, base business It's robust as well. So just a broad based kind of look at the business at this point.

Speaker 3

Hey, Alex, just to add and clarify that The acquisitions were done in January, so they are not in our backlog.

Speaker 4

Fair enough. And then secondly, You referenced ongoing supply chain challenges. There's a couple of kind of thoughts on that topic. And one is Supply chain challenges kind of hold back your ability to obviously acquire equipment to execute on projects, But also kind of when you layer into that Quanta's historical achievements in managing Difficult labor supply chain challenges and educating and training internally. Can you talk about how those supply chain challenges Have allowed Quanta to gain market share, kind of in this current environment right now and moving forward?

Speaker 2

We anticipated the labor. So I think craft scale labor is still at the core of the business. We've invested in it long ago and now we continue to invest in it today. That was something that we are in front of, the supply chain challenges with the fleet. We've done a nice job, have great partnerships in our fleet over the years, certainly leverage.

Speaker 2

I I think we have the 4th largest fleet in North America. So it's something that we challenge ourselves to be in front of that as well With our suppliers in the same collaborative manner that we use with our customers, we use with our suppliers. So I certainly Give us an advantage, but also gives us a look in the future. And I just think we'll stay on top of the two things that we manage and can control is labor and fleet. So we manage them pretty tough.

Speaker 2

Congratulations. Good luck.

Operator

Thank you. And then re queue. Our next question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.

Speaker 5

Hey, thank you, Tim, congrats on a great quarter here. I wanted you to spend some time on the Renewables segment. And if you could comment On first, how the Inflation Reduction Act is impacting customer conversations And when we when you think it will start to show up in terms of either backlog in revenue? And then Jayshree, you made some comments about operating income at the segment. We're moving in the right direction as you think about 2023.

Speaker 5

Can you help us Give us the building blocks to think about that. Thank

Speaker 2

you. Yes. With the Renewables segment, when we look out the RA, Certainly, it's additive to anything we've talked about. To get your hands around it and what it actually means, I don't think we see anything at this point that has The consequences thereof, it does give us certainty over the next 10 years within that. But As our backlog, as we're having the conversation today, it's certainly about U.

Speaker 2

S. Content, how we look at labor, all those kind of things within the IRA bill. So that's something the company has done a nice job of getting in front of and we're proud of that. I'll let Jayshree comment on the rest of it.

Speaker 3

Yes, Neil, the Renewables segment margin and revenues, basically, as we said, will be a little down in the first But it will be picking up as we move throughout the year. And that's really driven by the fact that as the industry It gets more and more comfortable with where the IRAs headed. As projects move forward with PPAs and financing, we should see a big pickup in the back half of the year. We have been prudent with our guidance, given some of the still supply chain issues and the tariff situations that are out there. However, we're seeing a lot more interest, a lot more movement, And it should start developing in the back half of the year and especially into 2024.

Speaker 5

Thank

Operator

you. And the next question comes from the line of Justin Hauke with Robert W. Baird. Please proceed with your question.

Speaker 6

Hi, good morning guys, guys and gals. I've got a I guess A question just on the guidance and the acquisitions that you did post quarter. Just the 580,000,000 For 3 deals, it's actually a fairly large amount for you guys when you usually do kind of more smaller bolt on Once per quarter. So, if you could just give a little bit of guidance around the revenue and EBITDA contribution in 20 20 Free from that incremental M and A?

Speaker 7

Thank you.

Speaker 3

Hi. Yes, the revenue contribution is around $600,000,000 for those three deals. And I would just say that from an EPS contribution, they contribute around $0.15 to $0.20

Speaker 2

As far as the 3 deals and they're all Within the strategic platform that we've set out and a regional T and D, One addresses the front end side of the solar markets and wind, so batteries, etcetera, And the other one is a supply chain contribution there. So three things that we felt like were right down the middle for us. We've always said the timing and how we deploy capital, sometimes it's lumpy, sometimes it spreads out. So I wouldn't read anything into us.

Operator

And the next question comes from the line of Jamie Cook with Credit Suisse. Please proceed with your question.

Speaker 8

Hi, good morning and congrats on a nice quarter. I guess, just back to the Renewable margins, I think you guys talked about investing in a business, which is weighing on the margins, in particular, the Q1. Can you help us understand like the investments that you're making and how to think about how much impacting the margin guidance for the year. So I guess that's my first question. And my second question is, I'm sort of struck with The guidance that we're implying for 2023, dollars 7 you're a company that typically guides Fairly conservatively, so trying to think about if there's upside to the numbers in 2023 or downside to the numbers, could you just calibrate Where the upside or downside could be given the good guide already?

Speaker 8

Thank you.

Speaker 2

Yes. Thanks, Jamie. When we think about the renewable segments, it's primarily around utilization and how quickly you can get early on and as we move on to the projects that are stated, certainly, you get absorption in the back half, you're a little light and you saw it in the 4th You'll see it in the Q1. We know the projects that we're on. We talked about $3,000,000,000 that were start that have started.

Speaker 2

The back half, when we look at the back half, Certainly, there's opportunities there. We were prudent about how we looked at it. We felt like with the way that the supply chain worked this year, especially on The panels and things of that nature and how the RA comes in and how quickly it comes in, we take the same approach to guidance every year, Which is prudent and I believe we did the same this year exactly the same way.

Operator

And the next question comes from the line of Noelle Dilts with Stifel. Please proceed with your question.

Speaker 8

Hi, thanks. I know there's been a fair amount of discussion around supply chain, but I have heard that the The transformer issue remains fairly challenging with extremely long lead times. So and we've talked about that before. So I was actually just curious To what extent you think that's getting better? Are things getting a little bit more predictable as it relates to some of these components that have been In short supply, specifically as it relates to electric T and D.

Speaker 8

Thanks.

Speaker 2

Thanks, Noelle. The When we look at the supply chain, most of your larger IOUs, your larger customers have solved much of this, not to say that the transformers And certain items are long lead times, they are. And it is issues. There is issues around it. But Once we understand it, once we understand cadence, we can be much more predictable about how we deploy crews and assets.

Speaker 2

So that's helped us. I do think there's opportunity there for us in how we participate in solving these solutions with the client. That said, I don't Transformers is going to be a while, I think, the back half of the year, maybe even into the Q4 before that levelizes out And we get enough capacity in the market, but with the amount of EV penetration and the things that we see, you're going to see Some shortages in transformers, and we just have to be more robust about how we deploy assets.

Operator

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

Speaker 9

Thanks. Good morning. Just on the electric transmission and distribution kind of customer spending outlook, There's been some mixed data points on utility CapEx over the last few months, but I guess still overall Positive. I'm curious what discussions you're having with the utility customers, specifically around the planning For the IIJA funds, how are they baking those into their spending patterns and how will that ultimately flow into It's your bookings and backlog. Thank you.

Speaker 2

Thanks. Here's what we see. We see North America's load growing. As we look at it across our segments, so that the growth of generation in North America, You have that going on. You have renewables and the way that we're looking at penetration through transmission.

Speaker 2

You have EV penetration ongoing. So all those things are coming into these CapEx. And I hear that and I hear, well, you've seen something different. All I've seen is Our customers moved our CapEx budgets up, primarily in distribution on the outer end because of penetration of EV And then all your transmission needs to be interconnected. The way that you think about it, you think about all the things that are Sorry to make this work.

Speaker 2

Yes, you can delay a bit. You can do some things, but we're already behind on just In general, if you stay flat on carbon today, you can't we're struggling to serve the load at the customer level On the coastlines and that's our duty to the this industry's duty to the consumer is to have load. And If you have wells that are offshore, if you have things that don't allow us to build generation that's necessary to get to a carbon free environment, We have to have more transmission. So either way you look at this on any level, the capital necessary to transform and to make Sure that this country has a resilient grid will acquire significant amount of capital. Thank you.

Operator

And the next question comes from the line of Adam Thalhimer with Thompson Davis. Please proceed with your question.

Speaker 6

Hey, good morning guys. Great quarter, great outlook. Hey, quick question on electrical margins. So the guidance ranges for margins this year 10.7 percent to 11 point 3, it's the same guidance we started last year with and we ended up at the low end 10.7. So my question would be what Factors drove you to the low end last year and what could drive you to the high end this year?

Speaker 2

Yes. We talked about This segment and when you look at it, I mean, I think in general, this year, we took the supply chain on The way what you had in place, you had fuel costs rising and a bunch of different things going on and we talked about that early on in the first half that we thought we could operate through it in the second half and we did. So we've got that in our system now. We understand cadence around supply chains and things of that nature. So it gives us a Great.

Speaker 2

More deal of comfort that we can operate in the higher end of the range, not in the lower. So that's just us understanding what markets we're in. We're still Our guide is at 12% EBITDA, something like that.

Operator

A lot

Speaker 2

of people talk about EBITDA, so it's 12% EBITDA.

Speaker 5

Great. Thank you, Duke.

Operator

And the next question comes from the line of Chad Dillard with Bernstein.

Speaker 7

So, Duke, I want to go back to your comment about your focus on front end. And my question How much does that greater focus on front end work expand your TAM? And then like would you classify this as a Pull from your customers versus a push from Quanta. And then how are you thinking about building this out? To what extent do you plan to focus on inorganic acquisitions versus just organic building?

Speaker 2

When we look at the market, if you take it all 30% or so of total addressable market within our client base and I We continue to build that out because what was happening, it made us less efficient and also the client less efficient. And I believe from a construction standpoint, how we approach it, how we approach the front end, we can give a lot more certainty to any project. So it was necessary in my mind for us to get in that business. And yes, the customer is happy with it. The projects that we have done, The programs that we are doing ongoing are certainly something that we will continue to build off as we move into the future and that market is there.

Speaker 2

It makes us more efficient on the backside, a lot of reasons for us to like that piece of business and we'll continue to invest.

Speaker 7

Got it. Okay. And then my second question is just on supply chain. Can you talk about what's embedded in your 2023 guide In terms of improvement, maybe like versus where we are today. And then just going to like the Renewables segment, How much of the revenues in 'twenty three were delayed in 'twenty two?

Speaker 2

As far as the supply chain, what we see today, what we've seen over the past quarters is how we've looked at it going forward. If it gets better, certainly, we'll come back and we'll talk about it. But we see intermittency in the supply chain on Utility side for the year, basically, I do think the Renewables segment supply chain gets better in the second half. We've certainly looked at that as well. But how much better, I'm not sure.

Speaker 2

And if it does, if it creates There is some conservatism in the Renewables segment due to that. We've baked all that in and I feel like hit it down the middle with prudent guidance. As far as revenue, I'll let Jayshree talk about it.

Speaker 3

Yes. I would say it's a mix. It's hard to I I don't want to sit here and say how much is due to delays versus there has been additional backlog on the Renewables segment that's starting to come in You've got some projects that have moved into the from 2022 to 2023, it's both.

Operator

Thanks. I'll pass it

Speaker 7

on. Thank

Operator

you. Our next question comes from the line of Michael Dudas with Vertical Research.

Speaker 2

Duke, you announced several large T and D projects over the last couple of months. Can you talk about what you Thanks, Michael. We talked about the stacking effect of the projects, the larger projects they stack on the base. I think when we went through Cres 7, 8 years ago, the company got off the base. I would tell you today, we're highly focused on our base business, Roughly 85%, 90% of that resilient business that we have, we'll continue to focus on that.

Speaker 2

We're bidding every project the same. We bid the risk. We're not going to win them all. We're just not. And I've watched one recently that Look, we know our cost.

Speaker 2

We know what we're doing. We're not going to take risk. It's not something we're going to gamble on. We're just not and it's not Vegas. We're going to get ourselves in a good position to make sure that we Execute on these projects and we don't need to necessarily take the larger projects.

Speaker 2

We can build our base, But we do see an incremental amount of larger projects coming in, in 'twenty three, 'twenty four and beyond.

Speaker 5

Thank

Operator

You may press star 2 if you would like to remove your question from the queue. Our next question comes from the line of Brent Thielman with D. A. Davidson. Please proceed with your question.

Speaker 6

Hey, great. Thank you. Hey, Duke, the expectation for reduction in large pipeline work in 'twenty three versus 'twenty two, Is that just a function of sort of project sequencing for your business because your backlog is up pretty nicely in underground or is that Just sort of reflective of the environment we're in. And I'd also just be curious if there's opportunities to still fill that void You're sort of talking about for the underground business late in the year?

Speaker 2

Yes, the backlog was primarily driven by MSA growth And when we look at the larger diameter pipe, we talked about guiding to kind of a $450,000,000 $500,000,000 type range year over year. Certainly, there's opportunities for us to do $1,000,000,000 in it. That opportunity is out there. We guided to where we're at. I just for us, we can make the numbers in a portfolio approach Where we're at, I felt comfortable with them.

Speaker 2

We felt comfortable if things move. Let's just say solar Move or let's say large pipe went the other way. The portfolio we have makes us what I think Very predictable and that those larger dynamics of pipe and some of our renewable projects, we took a prudent approach to guidance. We'll update you as if we get more work, we'll certainly update.

Operator

And this is the final poll for any questions. At this time, I'm not seeing any questions coming in. I'd like to pass it back over to the Quanta management team for any closing comments.

Speaker 2

Yes. I want to thank the men and women in the field that are putting up the numbers every day and working safe. It allows for a great call and for us to Talk about how great the company is doing. Certainly, after 25 years at Quanta, I think we're just getting started. So I'd like to thank everyone for participating in our conference call.

Speaker 2

We appreciate your questions and your ongoing interest in Quanta Services. Thank you. And this concludes our call.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

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