Quanta Services, Inc. Q3 FY2025 earnings call

• Duke Austin stated Quanta delivered strong results with double-digit growth in revenue, adjusted EBITDA, and adjusted EPS, along with a record backlog of $39.2 billion. • Core drivers include craft-skilled labor, execution certainty, and disciplined investment. • Announced expansion of the Total Solutions platform focused on power generation, battery energy storage, etc. • Partnership with NiSource for a generation and infrastructure project was highlighted. • Jayshree Desai mentioned raising full-year revenue expectations to $27.8 billion to $28.2 billion and free cash flow expectations to $1.5 billion midpoint.

In the third quarter, Quanta reported revenues of $7.6 billion, net income attributable to common stock of $339 million or $2.24 per diluted share, adjusted diluted earnings per share of $3.33, and adjusted EBITDA of $858 million. However, no detailed breakdown by product segment is provided in the transcript.

• Raised full-year revenue expectations to a range of $27.8 billion to $28.2 billion. • Raised full-year free cash flow expectations to $1.5 billion at the midpoint. • Expect to achieve record backlog and another year of double-digit earnings per share growth in 2026.

• Execution risk with larger total solution jobs, particularly in power generation. • Regulatory and permitting challenges, such as with large diameter pipelines and nuclear projects. • Affordability concerns for ratepayers affecting project viability.

Q: Yesterday, we heard from AEP talking about a potential partner for their high-voltage transmission opportunities. Maybe I'd be curious if you could comment on whether that would likely be you? And then also just how much of the kind of high voltage transmission that's being discussed in Texas, PJM is kind of already in any backlog? Or is that all mainly to come? And when might we see it?

A: Earl Austin responded about the strong relationship with AEP, no 765 in backlog yet, but more to come.

Q: Duke, Jayshree, obviously, the Total Solutions platform announced today, I think, can provide a whole new driver of backlog growth. But how do you think about execution risk for these larger total solution jobs that include power generation. I don't think you ever really left power generation, but Duke, as you know, when you've focused on bigger power generation, you've had a little more variable performance. So can you get favorable terms and conditions and get comfortable? How do you protect Quanta as you enter these larger jobs?

A: Earl Austin discussed collaboration with clients, derisking cost escalations, and working holistically with clients.

Q: So in 2019, you rolled out this Utility Services model, which reduced the reliance on larger discrete projects and focused I guess it was around 80% plus or so more on kind of Utility Services. And I think that's obviously been a very, very successful strategy. And I'm just curious how we should think about your overall strategy. I know, obviously, it's very heavily focused on being a solutions provider in this new platform. I think you would say is clearly part of providing solutions. But just curious how we should think about framing the strategy between being sort of this more base-level recurring services type strategy versus more of a discrete EPC project delivery that may be a little bit lumpier?

A: Earl Austin talked about the 80% base business, stacking large projects on top, and expected backlog to continue increasing.

Q: Can I ask a follow-up on the JV that you announced this morning for the large load center. I'm assuming that this is mostly all your basic high voltage work that you do. But I'm wondering if there's a potential to add further scope to this with the customer itself for low-voltage electrical or mechanical work?

A: Earl Austin responded that it's a full CCGT build, a 50-50 JV, and further scope expansion may occur but it's a full turnkey project.

Q: Look, if I could follow up a little bit on this question of scope of business. Obviously, you guys are expanding into the -- more of the generation side. But how do you think about expanding more into the data center side, specifically, right? You're talking about pursuing generation here, specifically for large loads. How about getting sort of inside the house? Obviously, you guys have done a couple of acquisitions here. It would seem germane to your strategy to continue to ramp and expand the scope more directly here. How do you think about that and the rate of growth there in specifically?

A: Earl Austin mentioned Quanta can build the whole data center, including MEP, and has opportunities to expand scope with technology.

Q: Duke, I just want to build on your announcement this morning with the total solutions power generation platform and the joint venture with Zachary to build power plants. I guess just taking this a step further, this is sort of unlike you to sort of joint venture with someone. So I'm just thinking longer term, is this sort of you dipping your toe in power generation and getting more comfortable. To what degree do you think you need to do an acquisition and acquire someone to do full EPC power plants? Like is this a step in dipping your toe and then over time, you would do an acquisition so you could do everything, I guess, by yourself.

A: Earl Austin discussed the JV as a way to listen to customer needs, collaboration with Zachary, and selective approach to acquisitions in power generation.

Q: I'm just wondering, as you think about the JV opportunities in general, is there a way to think about the dollar value of the project, maybe on a gigawatt basis or whatever way you would like to guide us? And what's the view on the total market opportunity that you have for CCGTs as it stands today? And what is a reasonable market share for you longer term?

A: Earl Austin compared the JV to SunZia and mentioned being selective in pursuing CCGT opportunities.

Q: I just wanted to kind of touch upon. So just given kind of the massively increased demand for natural gas as the feed fuel. I mean, have you guys been having some conversations? Obviously, the pipeline business is kind of -- it was targeted to be down this year. Just kind of thinking about the available infrastructure currently within the United States and then the need -- the inevitable need for some more. Just wanted to get a sense of are people starting to talk about that? Or is it still very early innings?

A: Earl Austin said there are conversations about pipeline work but it's selective and depends on derisking and client needs.

Q: On one of your earnings supplements, I think kind of said that your solar and storage backlog increased pretty significantly versus last quarter. I was just wondering if you guys could provide a little bit more color on how much did it increase? And then what do you guys see as the kind of drivers of that? Is that more from the legislative and safe harbor certainty? Or is this kind of just more follow-through from kind of the power demand environment that's out there?

A: Earl Austin mentioned solar and storage backlog growth is from normal course of business, renewable demand, and ability to provide larger solutions.

Q: Great. I guess I just wanted to build on Jamie's question. The thing, I guess, you guys have always self-performed so much of your work and that's sort of a way that you've mitigated risk. And so just with the joint venture, maybe you can clarify kind of what's in your wheelhouse that you'll be doing and what's in Zachary's in terms of the combined cycle gas plants. And then also just on the margin profile. I know you're not looking to do kind of discrete one-off plants. But I guess, how we would think about it is historically, the margins on those have been a little bit lower than the grid work just because the utilities, the ROEs are lower on that CapEx versus the spend on grid with some of the adders. So anything different from the margin profile on the work that would be coming in on that? So kind of those are the questions.

A: Earl Austin discussed that both Quanta and Zachary can perform total solutions, with each having strengths, and margin profile is at parity or better in the segment.

Q: I know you haven't given guidance for '26. But as we wind down '25, can you share what the growth trajectory for organic growth might look like for '26? Perhaps comments on the different outlook for Electric Infrastructure and UUI. If you can't take that, perhaps you can comment on the margin profile, the expanded total solutions platform compared to the current electric power margins. Is the deal with NiSource margin accretive or in line with current run rate?

A: Earl Austin mentioned guidance is focused on multi-year and decades, with '26 growth trajectory being part of that, and the NiSource deal is in line or accretive.

Q: A big picture question for you guys. So over the medium and long term, how do you think the power industry evolves to serve large load customers like data centers? Is it [indiscernible] model like we're seeing with NiSource? Is it behind the meter? Is it traditional grid connection? I know it's a combination of all the above, but I would love to get a sense for like how you think that mix evolves? And then I guess, secondly, when it comes to the JV just announced, how do we think about the contract structure, and just like how you guys are thinking about bidding? Is it competitive? Is it open book? Any color on that would be helpful.

A: Earl Austin said it's a combination of models, and early preplanning is important, with contract structures being collaborative and non-risky for the client.

Q: I just wanted to touch on M&A a bit. Just as your backlog builds on multiyear demand, would you ever consider shifting your M&A focus to complement your craft labor pool by acquiring smaller service providers? Or do you feel that the steps you've taken internally to grow the labor pool are able to match the workload that you want to take on in the coming years?

A: Earl Austin said M&A is for strategic gaps, focusing on vertical supply chain and family businesses that fit the solution-based strategy.

Q: A bit of a follow-on to that last question. But when you look across this sort of massive craft workforce you've accumulated here, are there trades in particular where you see real scarcity such that it's actually somewhat of a limiting factor to our growth? The growth has been good, obviously. And maybe where you're especially focused on sort of recruiting talented folks out there?

A: Earl Austin mentioned scarcity in inside wireman, investing in curriculum, and focusing on premanufacturing to scale growth.

Q: Given the extraordinary demand you're seeing and the tightness in capacity, are your customers starting to recognize they need to secure your time, your MSA, your resources at a more quicker rate? And does that lead to maybe better scale and execution on margins as we move forward? And maybe an ancillary to that, any concern on how the industry is going to pay for all this capacity that's coming through, certainly living in New Jersey, we've been seeing a lot of issues on rates going up, et cetera. Just wanted to get your thoughts on how that's plays through as you're talking to utilities and your developers?

A: Earl Austin discussed affordability concerns, NPV of projects, and the positive effect on ratepayers as projects progress.

Q: Nuclear power is gaining momentum here. Can you talk about how Quanta might get involved in that?

A: Earl Austin said Quanta stays around the edges of nuclear projects, avoiding the reactor and nuc-fence areas, but can work on ancillary aspects.

Q: Just following up on the NiSource project. Curious if you can comment on whether that is structured as a cost plus or a fixed price project. I would assume it's fixed price, but I think you've alluded to in the past, potentially structuring those on a cost-plus basis to derisk it. Just curious if you can provide any color.

A: Earl Austin discussed collaborative contract structures, derisking for clients, and being comfortable with the structure without specifying cost plus or fixed price.

Q: Maybe just one question on the JV and maybe this is for Jayshree. Can you just talk about the accounting here? It seems like 50-50 JV and NiSource talked about like a $6 billion, $7 billion CapEx. Could we assume that $3 billion coming to some backlog here? And in terms of the rev rec, could you share that? Or how to think about that here?

A: Earl Austin and Jayshree Desai discussed backlog incremental on the JV, air permits hitting backlog in second half of next year, and revenue pickup in '27 and '28 with proportional accounting.

Q: Guys, nice quarter.

A: Jayshree Desai thanked the questioner.

Q: If you can comment on the Dynamic acquisition, how the integration is going? What kind of demand you're seeing generally in Texas? And what would be your appetite for more mechanical construction acquisitions?

A: Earl Austin discussed successful integration of Dynamic Systems, increased demand in Texas, and continued evaluation of mechanical construction acquisitions.

Q: Lots of talk about combined cycle gas. I'm a little curious, we hear a lot about single cycle going inside the fence alongside some of these big data centers to complement [ grid ] scale renewables. I'm wondering if that's perhaps part of the work that you're seeing or perhaps contemplating.

A: Earl Austin mentioned consideration of single cycle for speed to market and complementing renewables, focusing on execution and certainty.

Q: The utility seeing any regulatory pushback to fund T&D growth?

A: Earl Austin discussed affordability concerns, regulatory differences by state, and NPV considerations affecting project viability