Greetings, and welcome to the Quanta Services Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. And it is now my pleasure to introduce to you, Kip Rupp, Vice President of Investor Relations. Thank you, Kip. You may begin.

Thank you, and welcome, everyone, to the Quanta Services Fourth Quarter and Full Year 2022 Earnings Conference Call. This morning, we issued a press release announcing our fourth quarter 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 the Quanta Services website. Please remember that information reported on this call speaks only as of today, February 23, 2023, and therefore, you're advised that any time-sensitive information may no longer be accurate as of any replay of this call. 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 or that do not rely or do not relate solely to historical or current facts. 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 Securities and Exchange Commission, which are available on Quanta's or the SEC's website. You should not place undue reliance on forward-looking 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 call. Please also note that we will present certain historical and forecasted non-GAAP financial measures in today's call, including adjusted diluted EPS, backlog, EBITDA, adjusted EBITDA and free cash flow. Reconciliation of these measures to their most directly 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. Duke Austin, Quanta's President and CEO. Duke?

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services fourth quarter and full year 2022 earnings conference call. On the call today, I will provide operational and strategic commentary, and we'll then turn it over to Jayshree Desai, Quanta 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 fourth 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. Additionally, total backlog of $24.1 billion at year-end was a record, and that 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 '22 -- 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 five consecutive years of record adjusted EBITDA and six consecutive years of record earnings per share. 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…

Thanks, Duke, and good morning, everyone. Today, we announced record fourth quarter revenues of $4.4 billion. Net income attributable to common stock was $163 million or $1.10 per diluted share and adjusted diluted earnings per share was a record for the fourth quarter at $1.68. Overall, the fourth quarter closed out another year of exceptional operational performance by Quanta. Our electric segment benefited from outstanding execution and higher revenues across the segment. Additionally, our underground segment performed well in the fourth 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 third quarter. These delays created cost absorption challenges, which pressured operating margins. Additionally, the segment's operating margin was negatively impacted by approximately 120 basis points due to impairment charges on the software implementation project at an acquired company, which commenced prior to our acquisition, but was discontinued in the fourth quarter. Ultimately, in the aggregate, against the backdrop of supply chain challenges, inflationary pressures and a complex regulatory environment, our portfolio delivered against our targets for the fourth quarter and the year, and we remain well positioned for the anticipated growth ahead. Below the line, we recorded an unrealized loss of $15 million associated with our common equity interest in fixed wireless broadband technology provider, Starry Group Holdings, which reduced the carrying value of our investment to zero. Offsetting this unrealized loss was an unrealized gain of $26 million on the sale of an investment in a non-integral unconsolidated affiliate, of which $10 million was attributable to a non-controlling ownership interest. Further commentary comparing fourth quarter '22 to fourth quarter '21 for each segment can be found in…

[Operator Instructions] And our first question comes from the line of Alex Rygiel with B. Riley.

Excellent quarter. A few quick questions. Duke, backlog growth is fantastic here. 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 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.

Thanks, Alex. The backlog is really not material when you look at the acquisitions, 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 '23. The dynamic of the stacking of larger projects along with 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 U&I segment. So we see robust markets there. As we look at the bid pipeline, 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. But the pipeline itself, larger projects are certainly in there. But our MSA business, base business is robust as well. So just a broad-based kind of look at the business at this point.

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

Fair enough. And then secondly, you referenced ongoing supply chain challenges. There's a couple kind of thought on that topic. And one is supply chain challenges to 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? .

We anticipated the labor. So I think craft skilled labor is still at the core of the business. We've invested in a long ago and not -- we continue to invest in it today. That is 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. I think we have the fourth largest fleet in North America. So it's something that we challenge ourselves to be in front of that as well with our suppliers and the same collaborative manner that we use with our customers, we use with our suppliers. So I certainly gave 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 control is labor and fleet and so we made it pretty tough.

[Operator Instructions] Our next question comes from the line of Neil Mehta with Goldman Sachs.

Congrats on a great quarter here. I wonder if you spend some time on the renewable segment. And if you could comment 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 or in revenue? And then Jayshree, you made some comments about operating income at the segment moving in the right direction as you think '23. Can you help us give us the building blocks to think about that?

Yes. With the Renewables segment, when we look out the IRA, 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 conversations today, it's certainly about U.S. content, how we look at labor, all those kind of things within the IRA bill. 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.

Yes, Neil, the Renewables segment margin and revenues, basically, as we said, till a little down in the first quarter, but it will be picking up as we move throughout the year. And that's really driven by the fact that as the industry gets more and more comfortable with where the IRA is 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.

And the next question comes from the line of Justin Hauke with Robert W. Baird.

I've got, I guess, a question just on the guidance and the acquisitions that you did post quarter. Just the $580 million that for three deals is actually a fairly large amount for you guys when you usually do kind of more smaller bolt-on ones per quarter. So maybe you could just give a little bit of guidance around the revenue and EBITDA contribution in 2023 from that incremental M&A?

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

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

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

Good morning and congrats on a nice quarter. I guess just back to the renewable margins. I think you guys talked about investing in the business, which is weighing on margins, in particular, in the first quarter. Can you help us understand like the investments that you're making and how to think about how much that's 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, $7 your 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?

Yes. Thanks, Jamie. When we think about the renewable segment is primarily around utilization and how quickly you're going to get absorption 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 fourth quarter, you'll see it in the first quarter. We know the projects that we're on, we talked about $3 billion that we have started. 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 work this year, especially on the panels and things of that nature and how the IRA 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. It's exactly the same way.

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

I know there's been a fair amount of discussion around supply chain. But I have heard that 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&D?

Thanks, Noelle. The -- when we look at the supply chain, most of your larger Us, 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. So that's helped us. I do think there's opportunity there for us and how we participate in solving these solutions with the client. That said, I don't -- transformer is going to be a while. I think the back half of the year, maybe even into the fourth quarter before that levelizes out and we get enough capacity in the market. But with the amount of EV penetration, 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.

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

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 your bookings and backlog?

Thanks. Here's what we see. We see North America is load growing as we look at it across our segments. So 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, you have EV penetration ongoing. So all those things are coming in to these CapEx. 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 that needs to be interconnected. The way that you think about it, you think about all the things that are necessary to make this work, 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 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 these countries have as a resilient grid, will require a significant amount of capital.

And the next question comes from the line of Adam Thalhimer with Thompson, Davis.

Great quarter. Great outlook. A quick question on electrical margins. So the guidance range for margins this year, 10.7% to 11.3%. 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 drive you to the low end last year and what could drive you to the high end of this year?

We talked about the segment. And when you look at it, I mean, I think in general, this year, the supply chain on the way -- well, you had inflation, you had real costs rising, 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 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. A lot of people talk about EBITDA, so it's 12% in EBITDA.

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

So Duke, I want to go back to your comments about your focus on front end. And my question is, by 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?

When we look at the market, if you take it all, it's 30% or so of total addressable market within our client base. And I -- we continue to build that out because what was happening, and 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 ongoing are certainly something that we'll continue to build off as we move into the future. And that market is there. It makes us more efficient on the backside of a lot of reasons for us to like that piece of business. And we'll continue to invest.

Got it. Okay. And then my second question is just on the supply chain. Can you talk about what's embedded in your '23 guide in terms of improvement maybe like versus where we are today? And then just going to the Renewables segment, how much of the revenues in '23 what were delayed in '22?

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

Yes. I would say it's a mix. It's hard to -- I don't want to sit here and say how much is due to delays versus there has been additional backlog on the renewable segment, that's starting to come in, and you've got some projects that have moved into the -- from '22 to '23, it's both.

[Operator Instructions] Our next question comes from the line of Michael Dudas with Vertical Research.

Duke, you announced several large T&D projects over the last couple of months. Can you talk about what you have in the pipeline relative to those types of projects and what your selectivity might be going forward? And maybe how that plays out over the next several years because these are much longer gestation projects than we have in your base business?

Yes. 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 CREZ seven, eight 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. We're being every project the same. We did the risk. We're not going to win them all. We're just not. And I've watched one recently look at -- we know our cost, we know what we're doing. We're not going to take risk. It's not something we're going to gamble on. If 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. We can build our base. But we do see an incremental amount of larger projects coming in, in '23, '24 and beyond.

[Operator Instructions] Our next question comes from the line of Brent Thielman with D.A. Davidson.

Duke, expectation for reduction in large pipeline work in '23 versus '22, is that just a function of sort of project sequencing for your business? Because your backlog is up pretty nicely in undergrads that just sort of reflective of the environment we're in. And I also just be curious there's opportunities to still fill that void you're sort of talking about for the underground business late in the year.

Yes, the backlog was primarily driven by MSA growth there. And when we look at the larger diameter pie, we talked about guiding to kind of 450, 500 type range year-over-year. Certainly, there's opportunities for us to do $1 billion and that opportunity is out there. We guided to where we're at. Just for us, we can make the numbers in a portfolio approach where we're at. I felt comfortable with them. We felt comfortable if things move, let's just say, solar moved 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 if we get more work, we'll certainly update.

[Operator Instructions] 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.

Yes, I want to thank men and women in the field, they are putting up the numbers every day and more in safe. It allows for a great call and for us to talk about how great the company is doing. And certainly, after 25 years in Quanta, I think we're just getting started. So I'd like to thank everyone for participating in our conference call. We appreciate your questions and your ongoing interest in Quanta Services. Thank you, and this concludes our call.

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