The operator welcomes participants to the Quanta Services Third Quarter 2023 Earnings Conference Call and introduces the host, Kip Rupp. The company has issued a press release announcing their third quarter 2023 results and a summary of their 2023 outlook. A slide presentation will accompany the call and forward-looking statements will be made. Participants are advised that any time-sensitive information may no longer be accurate after the call. The call will also include non-GAAP financial measures.

Quanta Services reported strong third quarter results, with double-digit revenue growth and record financial metrics. The Electric Power Infrastructure Solutions and Renewable Energy Infrastructure Solutions segments were the main drivers of this growth, reflecting the demand for grid modernization and renewable energy projects. The company's backlog also reached an all-time high, indicating strong client relationships and momentum for the future.

Quanta is positioning itself for long-term success by utilizing its diverse portfolio and ability to manage risk and allocate resources across different service lines and geographies. The company's Electric Power Operations are performing well and demand for its Electric Power Infrastructure Solutions is strong. Quanta is also seeing growth in its communications and renewable infrastructure segments. This is due to the company's focus on selective and profitable projects and solid execution.

Quanta Services has reached a record backlog of $7.9 billion, driven by the addition of the SunZia Wind project and various renewable energy projects. They have mobilized resources for the SunZia project and are making investments to handle large-scale renewable programs. They are also pursuing high-voltage transmission projects to support renewable energy growth and system reliability. Quanta Services has announced the acquisition of Pennsylvania Transformer Technology, a manufacturer of power transformers, to meet the growing demand for electric power and renewable energy solutions. This demand is driven by the energy transition and other megatrends.

Quanta has been developing a strategy to create supply chain solutions to help clients navigate equipment shortages and delays in the energy industry. The addition of PTT will help Quanta better manage the availability of critical grid components and provide a secure and domestic supply chain solution. PTT also has the potential for growth and synergies with Quanta's other segments. The Underground Utility and Infrastructure Solutions segment has seen double-digit revenue growth and strong demand for gas utility and pipeline integrity operations.

Quanta is expanding their services to include underground electric work and is seeing growth opportunities in the transition towards a reduced carbon economy. They are currently ahead of their financial targets and believe they are well positioned for double-digit EPS growth in 2024 and beyond. They will continue to focus on safe execution and innovation to enhance their position in the industry and generate long-term value for stakeholders.

In the third quarter, the company announced record revenues of $5.6 billion, with net income of $273 million and adjusted diluted earnings per share of $2.24. The electric power segment had revenues of $2.5 billion and operating income margins of 11.9%, while the Renewable Energy Infrastructure segment had revenues of $1.7 billion and operating income margins of 8.7%. The Underground Utility and Infrastructure segment had revenues of $1.4 billion and operating income margins of 8.9%. The company's strong performance was driven by its base business activities, telecom operations, and momentum in renewable energy infrastructure. However, there was pressure on margins due to lower contingency releases on mature projects and the recognition of lower margin profits from early-stage work.

In the third quarter of 2023, the company's total backlog and 12-month backlog reached record levels, with growth from both large project awards and base business activities. The company also had a strong free cash flow and low DSO, aided by favorable billing arrangements. The company is confident in its position regarding a Canadian renewable transmission project and has a strong liquidity position and low debt-to-EBITDA ratio. The company made a small acquisition and closed on a strategic acquisition to address supply chain constraints. The company continues to see opportunities for strategic investments and is performing well, with strong demand for its solutions.

The company is revising their revenue expectations for the year due to various factors, including the transferability of resources between segments, supply chain issues, and timing of capital deployment. They now expect overall revenue to be between $20.1 billion and $20.4 billion, with electric segment revenues between $9.6 billion and $9.7 billion and renewable segment revenues between $5.8 billion and $5.9 billion. The company also expects storm revenues to be around $300 million for the year and margins for the renewable segment to be around 8%.

Quanta Services had a strong quarter and expects revenue from their Underground segment to increase by $300 million. They also expect higher margins and have increased their full year adjusted EBITDA and earnings per share expectations. The acquisition of Pennsylvania Transformer is not expected to have a significant impact on their quarterly results. Quanta Services remains confident in their ability to meet their multiyear targets and believes the acquisition will enhance their role in the North American energy transition.

The company believes it is well positioned in its markets and has the potential for growth and value creation through both organic growth and strategic capital deployment. They are optimistic about the industry's growth and see opportunities in areas such as interconnections and electric vehicle penetration. They view the recent noise and concerns in the utility sector as separate from their business, as they focus on providing solutions to their clients rather than being just a contractor.

The speaker explains that their customers and their approach to the market are different from others. They have a long-term focus and collaborate with their clients. They also discuss their recent acquisition and how it will help with supply chain issues and meeting the demand for renewable energy. They plan to add capacity to their existing facility rather than buying multiple transformer companies.

The company has seen some investment in renewable energy projects and plans to increase productivity in this area. They have IP on some component lines that will help them become a leading solution provider in the industry. The company has a strong customer base and is not experiencing any issues with tax equity. Margins in the renewable energy segment are improving and the company has been able to absorb fixed costs. Material costs in this segment are higher than in the electric segment.

The company's margins are in line with their previous projections, but there was some pressure due to contingency releases not materializing and a ramp-up in renewable projects. The acquisition of PTT is expected to be over $100 million in revenue and will provide synergies and opportunities for growth. The focus is on utilizing the underinvested facility rather than expanding manufacturing capacity.

The speaker discusses the company's plans for capital deployment and productivity at their manufacturing facility. They also mention their customer base, which includes both large utilities and private developers. The speaker feels positive about the trends and opportunities in the renewable energy market, with both the utility and developer business growing. They also mention the company's derisked portfolio and growth in 2021.

The company has seen growth in 2022 and expects to continue growing in the future. There have been some issues with cadence in certain areas, but they expect to operate in double digits next year. They are on track to meet their long-term plan and expect to see double-digit EPS growth. The company is pursuing large T&D projects and has good visibility toward backlog growth in the future. This T&D cycle is comparable to previous cycles and part of the upside will come from megatrends.

Duke Austin believes that the megatrends in the market are developing faster than expected, especially in areas such as data centers, electric vehicles, and battery demand. He believes that the demand growth in these areas will enhance the utility's ability to invest in capital projects. Despite challenges in the capital markets, Austin is optimistic about the company's future and is focused on execution. He also clarifies that the company has little exposure to offshore wind.

The speaker explains that they are not involved in any offshore activities and they have no exposure to offshore wind. They are only focused on onshore approaches and may help others with fabrication. The speaker also mentions that the current interest rate environment may limit growth opportunities in the electric power and infrastructure market, but they are still seeing some growth and are prepared to handle any challenges that may arise.

The speaker discusses the current state of the energy market and the need for companies to invest in infrastructure and interconnections. They mention the importance of planning for the future and the potential for double-digit growth in 2024, but do not provide specific guidance. They also note that there may be some fluctuations, but overall the market is expected to continue growing.

The speaker discusses the models used for predicting growth and margin in their company, mentioning that they feel comfortable with double-digit margin growth and EPS growth. They also mention the mix of large and small projects and their impact on margins, stating that they expect to continue operating in double digits and seeing growth in both segments. They also mention the sustainability of underground margins and their ability to leverage them.

The speaker discusses the record year for their industrial business and how they still like it. They caution that the portfolio moves around and must be looked at as a whole. They aim to derisk and provide opportunities for growth. The speaker also mentions high margins and double-digit EPS. The next question asks about segment margins and the speaker explains that their guidance for renewables implies ramping to double digits in Q4, which is due to a cadence issue rather than an execution issue. They mention carrying lower accruals and how this will carry into 2024.

The company has been working on multiple large projects since last year, which are still ongoing and will continue into 2024. This has led to better cadence and scale in the renewable segment, allowing for contingent releases and fixed cost absorption. The company has also been adding employees on a quarterly basis, which can be challenging to manage. In the electric segment, there have been efficiencies due to underutilization in the Canadian market.

Duke Austin, CEO of Quanta Services, provides an update on the company's performance in the electric segment and addresses any potential influences and supply chain issues. He mentions that Canada is currently a drag on their performance, but they are addressing it and expect improvements in the next year. He also discusses utilizing Canadian assets in the Lower 48 and negotiating larger projects in 2024. He thanks the company's employees and the participants on the call for their interest in Quanta.

This summary was generated with AI and may contain some inaccuracies.