Thank you for joining us this afternoon. My name is Justin Hauke. I'm the Senior Research Associate covering facility industrial services here at Baird. Presenting next, we've got Quanta Services. Quanta is the 800-pound gorilla in the power delivery space. Very large specialty contractor, often imitated, never replicated. We've got Kip Rupp today, the company's long-serving Vice President of Investor Relations. He's gonna give us a couple of slides, just an overview to level set everyone, then we'll do some Q&As fireside. Kip, thanks for joining. Great. Thank you. Appreciate it, Justin. Thanks for everybody in the room, for your interest, as well as on the webcast. Like Justin said, I'll just flip through a couple of quick slides for anyone who's less familiar, we'll dig into the details. As to investors, legal disclaimers. Just from a few key takeaways we'll get into. As Justin said, we're a leading specialty infrastructure solutions provider, somewhere, to the utility, renewable energy, communications, and energy industries. About 80% of our revenues come from providing services. We're the largest player in North America of building and maintaining the power grid. We're also a leader in building renewable generation. We've built about 25% of all the utility-scale renewable capacity in the United States. When you're thinking about the energy transition, electrification, moving to a lower carbon economy, et cetera, we really sit at the core of making that happen, you know, through power grid, through renewable generation, et cetera. As a result, we're exposed to some really nice long-term mega trends, if you will, things like grid modernization, system hardening, renewable generation, I mentioned, integration of electric vehicles, et cetera. One important factor that is a real differentiator to our business is that we self-perform over 80% of the revenues that we do. That's important because it's our operating companies, our leadership, our people. We're executing on the jobs. It helps us execute better, manage risk, clearly from a on time, on budget to the client, which is important. We're much better able to deliver at that because we have control of the labor that's executing that work. When you look over the past seven or eight years, we've had a really nice delivery from a financial results perspective, double-digit top line growth, margin improvement. That's helped us deliver, you know, over 20% adjusted EPS CAGR over that time frame. This slide you'll see here, these are our three reporting segments that we have: Electric Power, Renewable Energy Infrastructure, and Underground Utility and Infrastructure Solutions. What you see on this slide is just some of these mega trends and dynamics that I referenced, and how we're exposed to them, which we'll get into. Here's another slice, just showing the three segments with estimated revenue breakdown of this year. Importantly, I'd guide you down to the bottom of the slide. Across what we do here, we're able to address the entire life cycle of infrastructure. That's from the planning and engineering side of it, to the construction and installation of that infrastructure, maintenance of it over time, and of course, you know, the replacement of that, when it's time to replace it. You know, fortunately, we've been very successful in delivering shareholder value over the years, but I think in many ways, we're just getting started. Tremendous amount of opportunity going forward. These are some of the dynamics or some of the things we're looking to achieve over the long term to continue to deliver, shareholder value. With that... Great. Well, thanks a lot, Kip. I forgot to mention. Any questions? First, we will have a breakout session afterwards. If you have a question, session two at rwbaird.com, we'll integrate those as they come in. I wanna get into each one of the business lines, and talk a little bit about each of them. Maybe just starting big picture. One of the things, if you haven't looked at Quanta, I mean, you guys are still... You lead as a contractor, but you're much more than that. You've integrated the business. Just talk about the kind of the strategic change and how you've maybe pushed more of that embedded with clients and the visibility and the MSAs that you have, and how that's kind of changed over the years. Yeah, certainly. I mean, we certainly do not think of ourselves as a EPC or as a contractor. We really do view ourselves as a infrastructure solutions provider to our clients. You know, that, to your point, didn't happen overnight. I think, you know, our leadership team has done a tremendous job over a long period of time, thinking very strategically about what's to come. You know, what's to come in our end markets, what's to come in our customers' needs, and really focusing on the client. Not worried about what competitors are doing, but focused on the client, and then it solves for itself. You know, we're always looking to innovate and expand the capabilities that we can provide. You know, the Quanta, certainly of, you know, 1998, when we came public, is very different from, you know, five and 10 years after that, versus where we are today, as we've evolved our business to be not just building and maintaining infrastructure, but really providing the solution to the client for a lot of the challenges that they're facing. It's a tremendous dynamic industry that we're in right now. Record levels of CapEx and OpEx that utilities are spending every year. We talk about energy transition, all these wonderful mega trends. You're just starting to see that happen. A lot of our clients in our end markets are in a great circumstance, but a challenging circumstance that they've never been in before. We've really tried to stay ahead of that and be in a position where we can help them do that and be successful. We, you know, started really, the core of what we do is construction. Over the years, we've tacked on engineering, program management, you know, what we refer to as front-end services. We're able to really, you know, touch a holistic part of the scope of our clients' CapEx and do more for them. As I said, what's really helped us, I think, evolve into a solutions provider and not just, you know, a contractor. Great. All right. I guess starting, because it is the biggest business, starting with electric, you know, you talked about some of the secular trends that are driving it. I mean, maybe you can just level set people on, you know, kind of the size of the market. What do utilities typically spend on transmission annually? We've got all this stimulus funding that's coming in, which, from the IIJA. Even beyond that, the drivers are kind of there beyond stimulus. Maybe just talk about, what are the mega drivers, how they're kind of integrated with each other, how you guys position market share in that? Yeah, sure. I mean, it depends on how you slice and dice all that. Yeah. If you kind of look across the end markets that we address, you know, I would say the annual spend is hundreds of billions of dollars. Mm-hmm. just annually based on kind of what we know today, not accounting for, you know, all these wonderful things that we're talking about, or, you know, what's the impact of the IRA on the energy transition, et cetera. That's just additive to it. That's total grid spending, so transmission, distribution. Yeah, I'm thinking even, you know, renewables-... telecom- Right you know, you know, other aspects of system modernization. Yeah. When you get into, you know, what's it gonna take to not even maybe get to, but try to transition and move towards a more lower carbon or, you know, carbon neutral, whatever you wanna call it, economy. That's measured in the Ts, based by, you know, what anybody thinks. When you think about, you know, How much transmission do we need to have to integrate all these renewables and move towards more renewable generation, I mean, you're talking about doubling or tripling the amount of high-voltage transmission that's hanging in the air today, that took, you know, what, 100 years or whatever it is to get to this point. People are saying, "Well, we need to do that in the next 20 years, 30 years. Yeah. I mean, I think that's probably unrealistic, especially with the challenges to permitting, which is a whole 'another thing, nevertheless, that's what people are trying to push to. When you think about integrating higher levels of electric vehicle penetration, you know, into, you know, the fleet of vehicles that are out there, not even talking about trucks, you know, fleet with, like, the Amazons, UPS, FedExs of the world, school buses. You're basically talking about the need to rebuild the entire distribution system over the coming decades to accommodate that. There's no way the power grid is designed or capable today to do any of this stuff. Yeah. That's what needs to happen to achieve this. Getting to that is probably not going to be easy. Right ... smooth. It's not gonna be as good as everybody thinks. It's not gonna be bad. It's gonna be something in the middle. That's good. You know, that's a good spot for us. That's the kind of stuff that we enable. Yeah, I mean, it's one of the things, I think that's different. You know, people always ask about cycles, but these trends are almost, I always almost think of you guys as acyclical because these are mega trends that extend for so many years, so it's not like we're looking at a three-five year spend. We're looking at a 20-30-year spend of opportunity that you guys have in front of you. Oh, yeah, no question. I mean, especially with the IRA from the renewables standpoint, that gives long-term policy visibility that that industry has literally never had. Yeah. that even trues up the visibility into that, you know, part of the renewable area. What are the biggest constraints? I mean, is it permitting? Is it labor? Is it supply chain? You guys have outlined that you think you can grow organically 5%-8%. That was at your Analyst Day last year. You've actually been doing stronger than that. Is the market at a place where you think you can actually grow sustainably beyond those targets? Or, what keeps us from having kind of a step function change from how you've grown historically? Yeah, I mean, labor is certainly topical, you know, these days. A lot of companies and industries are struggling with the tight labor market or challenges that they've never had to deal with before. I guess, in a bit of a good way, we've been in a tight labor market for 20-plus years. Yeah there's really nothing going on today that's new or different for us, and we've gotten well ahead of it. I mean, just because our industry is in a great space, and we are, you know, ultimately a people business, we've done a number of things strategically over the past 10 years to really be prepared for this and to get ahead of it, arguably. You know, ironically, perhaps, and I'm not saying by any means it's easy, but labor is not necessarily our issue. I mean, we're already doing the right things there. It's not to say if you gave me 4,000 linemen today, we couldn't put them all to work tomorrow. You could. I mean, there's that level of demand out there, you know, we're able to add the people to do the work we do, and clearly, you know, as you said, we're growing, you know, very nicely to it. In the near term, supply chain has been, just not constraining per se, but just a little bit choppy, right? I mean, you look at high-voltage transformers in particular, are probably 2-3 years out. Even lower-voltage transformers, you know, the everyday stuff on the distribution system, where you never had problems getting those, and they're, you know, as much as 18 months out. That just creates a little bit of choppiness and, you know, impacts your ability to be as efficient with your resources as you might otherwise like to be. I think that's more of just a nearer term dynamic. The flip side of that is we're actually looking at that and trying to see where we can provide the solutions around it. Mm-hmm. You can sit there and keep your fingers crossed and just hope it gets better, or you can try to see what you can do to make things better for your clients. That's what we're doing, and working on some of these things. Kind of stay tuned on that. What you mentioned, permitting, yes. I mean, that's very topical from a political standpoint these days. Yeah. I mean, that's, you know... I mean, there were some steps that were improved with the debt ceiling. Yeah. There's a little bit that comes into it that addresses some of it. Yeah, there were a few little things in there. The good thing is, there does appear to be bipartisan support to try to get this improved because it affects all infrastructure. Yeah, I mean, if they could. Doesn't even have to be perfect, but if you could get a bipartisan effort to make some decent strides on some of the permitting challenges, you know, that would just be incremental. I mean, we don't have any assumptions for any of these things in, you know, in your mentioned our Investor Day. It's not in any of the numbers that were in there, that was pre-IRA. Certainly anything from a, you know, permitting reform would be, you know, incremental, beneficial. Just, it gives certainty, reduces risk. Yeah ... you know, for clients. You know, it just. That's the things you need to make this energy transition, you know, successful. I mean, we were talking about it outside, but I mean, just for perspective, you guys announced this SunZia project that you won, which I think collectively is the largest contract in the company's history. Yeah. I mean, that has taken 15 years to, from conception to the point where they're actually awarding a contract. Yeah. It's. Yeah, that's exactly right. You know, some of these projections that you see out there of saying, "Well, to achieve X level of carbon reduction by," I don't know, pick a date, "2035," or whatever, "you know, we need to double the amount of whatever, transmission." I mean, it's just, you can't do it. Yeah ... you know, the current regime, as you said. 10 years is almost a minimum it takes to get, you know, a meaningful transmission project from kind of conception to construction. Yeah. Any help there would be helpful. One more on this business before I move to the other one, but just on the labor, I think another thing that's unique about you guys, that some of your peers that are public or private, and they've got scale businesses as well. You guys, you own a college that trains people. I think Duke, your CEO, has talked about there's something like 26,000 people that you're training collectively in any given year. Mm-hmm. Just how that's a differentiator. I mean, how do those people matriculate into being at Quanta? The college is Northwest Lineman College, or what we call NLC, and, you know, anybody who in the audience wants to become a line worker, you could go there. You know, go through that pre-apprentice program, and when you come out, it's almost you've accelerated you know, your capability. The timeline that it'll take you to go through that apprenticeship project up to journeyman lineman status is kind of accelerated, which normally it could take as much as four years. You know, if you're good, it could maybe take two. Mm-hmm. We found that people who go through that program and then tracking their career, something like 90% or so of those folks stay in the industry, versus the more traditional routes, you know, there's like a 50% dropout rate. Mm-hmm. There's no question that training properly and getting folks out into the field when they're capable off the bat, really helps, you know, their careers accelerate. We view NLC, I mean, of course, we hire people out of there, but they're also. They pay to go there. There's, you know, different kind of grants from the government, et cetera. They can go work wherever they want. We view it as a, you know, as a leader in the space, we think it's probably very likely that someone going through there, even if they go to work for a competitor or a client, will someday work for us, and we'd much rather them be trained the right way, safe, you know, every day, try to get them home to their families. Are you finding I mean, there's a skilled trades shortage everywhere, but are you finding more people are coming into looking at lineman because of the visibility that the industry has versus commercial construction, for example? Yeah. No, I think there's certainly an element of that. There is an element, particularly with the, with the younger generation who, you know, cares about the energy transition and moving towards more renewables, et cetera, you know, that wants to, in a way, be a part of that. I think those all kind of play and, you know, have a role. Yeah. All right, let's move to the renewable energy segment. You guys did the largest acquisition in your history about a year and a half ago now, almost two years, Blattner. Mm-hmm. Blattner, talk about Blattner. What's their market share on building renewables? Who are they as a company? Why were they a good fit to kind of complement what you do in power delivery historically? Yeah. Blattner is a fantastic company. They're a family-owned and operated business for, I think it's about 115 years, prior to joining Quanta. They have built 25% of all the renewable generating capacity that's operating in North America. They've been involved in wind and solar, you know, the renewable generation side from the beginning. One out of every three wind turbine that's hanging in the air, they built. They're really been in it for a long time. You know, we really, from an acquisition perspective, only buy quality. Mm-hmm. We don't do turnarounds and fixer-ups. We look for the best we can find, Blattner, no doubt, meets that criteria. You know, they've got a great client base. They're very high quality, all the leading renewable generation companies. You know, it's really kind of a bespoke client list that they've developed over time. That gives us really a great leadership position in building renewable generation. It also works very nicely with, you know, kind of Quanta's legacy, if you wanna call it that, transmission and substation capabilities. When you think about, you know, building renewables and the interconnections of that into the system, you know, we really have kind of a turnkey capability that we can provide. SunZia is kind of a poster child of that, where SunZia is a three and a half... or a 3,500 megawatt wind farm, and then a 550-mile high-voltage transmission line, with, you know, high-voltage DC converter stations on each end. We're doing the whole thing. That's a really good example of how we're bringing the entire, you know, scope, full turnkey approach to the client for a solution for that. You know, I think, I don't know if it's a controversy, but it certainly is something that people ask more about, is the margin profile of the renewables business, just because electric is your highest margin business. Some of that is because the master service agreements and the fact that you don't have constant mobilization, demobilization. I know that you guys had talked about renewables being a double-digit margin business, acknowledging that it's a little bit lower today because of the supply chain issues. Mm-hmm. I mean, maybe just talk about their historical execution. What gives you confidence that the margins can be, you know, kind of at the corporate average over time? Yeah. I mean, in our Investor Day, we kind of said we're looking for, like, a 9%-10% operating margin for that segment. Keep in mind, you've got Blattner in there- Right ... building wind and solar, et cetera, but you've also got transmission and substation work that's directly associated with- Yeah With supporting renewables. How are we confident to get there? Well, we've done it in the past. We, meaning Blattner historically, has on average, operated at a 10% or better, you know, EBITDA margin, and certainly, the transmission and substation work that we do there has done the same, you know? Yeah. In that, we resegmented last year because of the acquisition into three segments, before that, transmission to substation part was in our Electric segment. Right. You say you can see historically how that was. Anyway, long story short, the confidence is because we've delivered on it in the past, and as you said, there's been just some choppiness with solar panel access and different other things that has kind of weighed the margin down a little. You know, you really haven't even begun to see the earnings power of that segment. Yeah ... you know, in our view. I think you should start to see things improve as we move through the balance of this year. you know, knock on wood, things continue to normalize, and as the IRA starts to kick in in 2024 and beyond, you know, I think that's where, you know, we should see the, you know, the potential for that. That's a good point that, you know, you talk about, that it does have the electric elements in it. I think, you know, there's clearly been more market entrants, and there's been other civil contractors that are moving into doing renewables business and everything, but they don't have the power delivery and the integration aspect. Maybe that's a differentiator, too, that kind of supports the margin. Yeah, I mean, SunZia really is kind of the total package. Right Kind of a poster child, but, I mean, that's not gonna work for every project. Nevertheless, I mean, we've got a solution and a capability that is, you know, unique, I would say, and, proven in the market, that for, you know, the right customer, right client who thinks collaboratively, wants to be, you know, leverage the capabilities we have, you know, we can deliver a great solution for them. Yeah. All right, the Underground Utility and Infrastructure Solutions business probably doesn't get as much attention, but it's and it was pressured with the downturn, but it's come back really strong. Margin contribution's been great. Talk a little bit about the relative mix of that business, what Quanta does, how you're different, what that brings to the portfolio. Yeah, I mean, I guess I would say up front, that there's still, especially folks that have followed us for some time, there's still a little bit of a perception that all we do is build pipelines. Right. We've actually really kind of reconfigured that segment pretty meaningfully over the years, where we still have the capabilities to build, you know, larger gas pipelines and things, but it's much more of a minority of the business. You know, maybe we're $600 million or so of revenues of those kind of larger projects. About two-thirds of that segment's revenues comes from end markets and services that we've deliberately tried to that we consider more repeatable, sustainable, visible. Meaning a lot of that is driven by regulation. A pretty good amount of that segment's revenues come from providing maintenance and replacement and really modernization services to natural gas or gas pipe, gas utility companies that are, you know, digging up their, you know, many decades-old gas distribution system that has methane emission leaks, there are safety issues, et cetera, and they're modernizing that to newer, you know, materials. That's regulatory-driven, very visible. It's gonna take decades for that to play out. We do pipeline integrity services, which again, is, you know, driven by regulation, making sure that pipeline infrastructure is, you know, environmental, safety, other compliance. You know, we do some specialty services at the mostly for refineries- Yeah around, you know, liability, maintenance, environmental compliance, et cetera. You know, kind of the aggregate of those three is about two-thirds or so of the segment. You got some pipeline construction, the larger pipe stuff, some smaller pipe stuff, and then various ancillary services. That part of the business, too, is one that has exposure to energy transition dynamics. When you think about hydrogen, potentially carbon capture, and those sorts of things, some of the services we do there could apply to that. Right. I was gonna ask that next, because more or less you're in tag. It doesn't really matter what goes through the pipe, it's the same skill set, so you're agnostic to it, I guess. Yeah, generally, that's right. I mean, there's like anything, there's always nuances to it. You know, I'd say carbon capture is a little bit more near term and real. Hydrogen is still early- Yeah ... and there are some challenges putting that through pipes, but that there need to be figured out. We're on the edges on all that. you know, working with our clients on how they're thinking about some of those opportunities. Okay, fair enough. I've got one from the audience. Let me get to that in just one second. I think maybe asking you a CFO type question. The balance sheet is kind of at the higher end of your leverage because of Blattner. You've had some things that have kind of weighed on cash flow that you guys have been kind of vocal about. Maybe just talk about, you know, the capital allocation from here, free cash flow conversion, what you guys target, and the opportunity for, you know, some of the collections on some of those jobs that held back. Yeah. Maybe I'll start with question number two, first. One thing that's important to understand, as I said, we self-perform 80+% of the revenues that we generate. That's, you know, our people out in the field. When our top line is growing beyond say 5% number, we're adding headcount, and those guys are getting paid every week. There's just this delay. It's just timing. Yeah of working capital increasing as our growth rate accelerates, and we're bringing on more people versus when we convert that work through the whole, you know, process with our clients of getting paid. If we're having accelerating growth, we're gonna have, you know, our cash flow being pressured a little bit from working capital. Conversely, what you saw in spades in 2020, if our revenues are flat or they go down a little bit, cash comes raining in the door because that working capital is, you know, goes the other way. It's a great model, actually, because we should be. If we're growing fast, we're gonna generate EBITDA growth, earnings growth, generating value that way. If we're growing slower or revenues were down for some reason, cash would be coming in the door. We can redeploy it into M&A, we can redeploy it into stock acquisitions or whatever, or stock repo, or whatever we want to do. Now forgetting the first part of your question. I was gonna ask, I mean, you've got these Canadian jobs that have weighed on your DSOs. Yeah, yeah. For a period. that was COVID driven. Right. Really, it's not an execution issue. To the contrary, nobody could have executed through two years of COVID on those jobs and done what we've done. Right, they're remote. Yeah. I mean, the remoteness of Northern Ontario and the complexity of it is cannot be understated. you know, so we were able to do that for a client. It obviously required, you know, different changes in work schedules and how we do things, higher costs. it's just been a process of, you know, documenting all that and working with the client to get those reimbursements in. That's all going very well. We had a great construction season over this past winter, that we really executed tremendously, and that you know further solidifies a lot of the things that we're pointing to. you know, we're confident. We don't have any projections of getting that taken care of this year. Right. We would expect, you know, next year we're over 90% done with the project, we should get that wrapped up and buttoned up next year. It's, I mean, it's a meaningful amount of cash collect. It's $150 million-$200 million, something like that. More than that. Yeah. I mean, when we get it'll be really nice. Okay. That's a 2024 opportunity. I guess maybe the last question on that side of the balance sheet and the capital allocation. Historically, you were entirely M&A driven, but you've got a dividend now. You've been doing buybacks the last several years. M&A is still a meaningful part of your portfolio. I I mean, you did $500 million revenue contribution just this last quarter. What is the M&A at this point? What does it bring? You're already at scale, so what do you look for in M&A? Yeah, that made me, reminded me of what your original question was about leverage. Yeah. We were at about two times at the end of the year last year. We popped up a little bit because of some of the acquisitions that you mentioned in January, to about 2.5. We certainly have a path to two times or below, which is really kinda, you know, where we think is a good place to be. Not that 2.5 times is overleveraged by any means, we like to be opportunistic, to your point. You know, we wanna be able to do select acquisitions when we see them. If we wanna rebuy our stock, we can do that aggressively, if we choose to, or both. We really like to have the optionality and a strong balance sheet to position us to do it. You know, really, we're looking at great companies that are well-run. Typically, they're family-owned, multi-generation. We really like that. You know, help us achieve our strategic goals. That would be, you know, more challenging to do from an organic standpoint. There's a number of different things. They could be, you know, a good traditional, transmission and distribution company. We did an acquisition earlier this year that was around kind of supply chain, but really kind of aggregates and concrete. Mm-hmm. We already, you know, we pour, like, something over 2 million yards of concrete a year. You think about foundations for renewables, transmission, what have you. It's a lot of work to be done out in the west for both, that's ensuring we've got, you know, the resources we need to do that at a good price point. That was a strategic. My point is there's a wide range of different strategic things we look at, but it's an opportunistic approach. There's no pressure on the system to do deals. Yeah. It's just really, what do we find that makes sense for the right price? Great. Well, I think we're kinda up against the end of our time. I know there were a couple of questions on labor. We did touch on it, but, there'll be the breakout session, and I think that's definitely a topic to continue to elaborate on there. Kip, thank you for joining us. Always appreciate it. Thank you, everyone, for, joining the session.