Greetings, and welcome to the Quanta Services Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kip Rupp, Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, and welcome, everyone, to the Quanta Services third quarter 2024 earnings conference call. This morning, we issued a press release announcing our third quarter 2024 results, which can be found in the Investor Relations section of our website at quantaservices.com. This morning, we also posted our third quarter 2024 operational and financial commentary and our 2024 outlook expectations summary on Quanta's Investor Relations website. While management will make brief introductory remarks during this morning's call, the operational and financial commentary is intended to largely replace management's prepared remarks, allowing additional time for questions from the institutional investment community. Please remember the information reported on this call speaks only as of today, October 31st, 2024, and therefore, you are 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 and information intended to qualify under the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995, including statements reflecting expectations, intentions, assumptions, or beliefs about future events or financial performance that -- or that do not solely relate to historical or current facts. You should not place undue reliance on these statements as they 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. We will also present certain historical and forecasted non-GAAP financial measures. Reconciliations of these financial measures to their most directly comparable GAAP financial measures are included in our earnings release and operational and financial commentary. Please refer to these documents for additional information regarding our forward-looking statements and non-GAAP financial measures. Lastly, please sign up for email alerts through the Investor Relations section of quantaservices.com to receive notifications of news releases and other information, and follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would like to now turn the call over to Duke Austin, Quanta's President and CEO. Duke?

Thanks Kip. Good morning everyone and welcome to the Quanta Services third quarter 2024 earnings conference call. Before I turn to our third quarter results, I would like to comment on Quanta's response to Hurricanes Beryl and Helene. During the third quarter, we deployed significant resources to assist power restoration and related efforts in Texas for Hurricane Beryl and in the Southeast for Hurricane Helene. During these events, our employees often do more than work to get the power restored, but it's not well known are the other ways that our crews who are first responders, help people in need during these devastating events. For example, in response to Hurricane Helene, Quanta crews worked with local sheriffs, law enforcement groups and various humanitarian organizations to leverage our helicopter assets to deliver more than 200,000 pounds of cargo to impacted rural and mountain communities in North Carolina, including water, food, medical and camping supplies, pet food, hay for livestock, and more. Our pilots also aided search and rescue efforts, provided reconnaissance and roadway assessments, and performed welfare checks. These severe weather events also often impact the lives and property of Quanta employees, many of whom are away from their families for long periods, restoring power to others. Quanta Cares, our employee relief fund, provided financial support to approximately 125 employees and their families who were impacted by these damaging storms. I want to recognize and thank the thousands of Quanta employees who work tirelessly to restore power and much more for people in need during these severe weather events. Quanta delivered another quarter of double-digit growth in revenues, adjusted EBITDA and adjusted earnings per share, as well as a number of other record financial metrics including total backlog of $34 billion and free cash flow of $539 million. There is momentum…

Thanks, Duke and good morning everyone. This morning we reported third quarter revenues of $6.5 billion, net income attributable to common stock of $293.2 million or $1.95 per diluted share and adjusted diluted earnings per share of $2.72. Adjusted EBITDA was $682.8 million or 10.5% of revenues. Additionally, we generated healthy cash flows in the third quarter with cash flow from operations of $739.9 million and free cash flow of $539.5 million. During the quarter we also successfully recapitalized the business following our acquisition of Cupertino, allowing us to address the maturity of our senior notes that were due in October. Our earnings and cash flow performance coupled with this recapitalization allowed us to end the third quarter with ample liquidity and a balance sheet that supports both our organic growth expectations and the opportunistic investment of capital to generate incremental returns for our stockholders. This morning we also provided an update to our full year 2024 financial expectations, which calls for another year of profitable growth with record revenues and opportunity for double-digit growth in adjusted EBITDA, adjusted earnings per share and free cash flow. We believe our expectations demonstrate the strength of our portfolio approach to the business, our commitment to our long-term strategy, favorable end market trends and our competitive position in the marketplace. Additional details and commentary about our 2024 financial guidance can be found in our Operational and Financial Commentary and Outlook Expectation Summary, both of which are posted on our IR website. With that, we are happy to answer your questions. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Atidrip Modak with Goldman Sachs. Please proceed with your question.

Hi, good morning Duke and Jayshree. You acquired some transformer manufacturing capability again. Can you talk about that a little bit? Is the supply chain still significant of a concern going ahead and how much of your internal needs can you now source and are there synergies with the PTT assets? Any color around that?

Yes, thank you. We did acquire some a small transformer manufacturing company in upstate New York in the quarter a hundred year old family business. When we were going through the markets we did some things that would allow us to make this acquisition certainly beneficial to PTII and the markets that we serve. We continue to see constraints on large transformers. The factory certainly helps us with that. Our backlog in the business has gotten longer, not shorter. We continue to see opportunities internally and find synergies with the ability to build both transformers and breakers as we move forward. So the supply chain constraints are there. They're real. We're trying to do things in the lower 48 with the load that we see and so I think we'll continue to see ourselves get in a good position to make sure that we can have self-performed capabilities both from a manufacturing standpoint as well as to build and the craft skill labor on certain critical path items. So the synergies are there. We're seeing them show up. You can support the business internally. We build probably around 150 to 170 EPC subs a year. So we can support that, but that's not what we bought them for. We really believe it's to enhance the whole market and we would not do that internally just to supplement some of our bills that provide synergies to some clients.

Got it. That's helpful. And then you talked about having visibility into the timing of renewable transmission projects. Can you give us a lay off the land, big picture view of how that's shaking out for the next few years here as conversations with your customers is progressing?

Yes, I mean, I think everyone's hearing the market demand from load and in order for load to work, we need the transmission infrastructure. I would say that the inbounds, the bids, the proposals that we have, things in contract, things that we're talking about record levels year-over-year, record levels in the 25, record levels in the 26, record levels in the 27. We continue to see more bid opportunities, more discussions on larger transmission capacity constraints. So yes, I mean, we said it on the call. We've never seen the business any better and we continue to believe that large transmission is the cheapest form of generation in many ways. So you can't do the things that we're trying to do and accomplish in the country without transmission and we need to expedite it.

Awesome. Thank you so much.

Our next question comes from the line of Jamie Cook with Truist. Please proceed with your question.

Hi, good morning. I guess two questions from me. One, the renewable margins in the quarter obviously were pretty good and you've made a nice improvement in margins for that business throughout the year. And then you raise guidance, I guess. Jayshree, is it unreasonable to think that 2025, we're finally at a place, with the revenue and the performance of the business where we can expect, double-digit margins because that's where we will be exiting the year. I'm just wondering if that's a reasonable expectation. And then I guess my second question, Duke or Jayshree on Cupertino, just sort of an update on how that business is doing. Is there any change in your guidance for Cupertino, for the year and then just potential for revenue synergies there? Thank you.

Hey Jamie. I’ll speak and I'll let Jayshree comment on some of the questions there in a minute. So when we see it, when we look at it, the renewables and margins, they were good. We did say that we could get them up in double-digits. I believe we can over time. We've done it and I wouldn't run it. You have seasonality in the business, so your first half will be a little bit slower and you'll pick it up in the back half. Whenever transmission business is in there today that business has always ran in double-digits. The platinum business has ran at double digits. So we consistently said we can do that. I believe that's possible going out as we move forward. The Cupertino business certainly has provided synergies to us already. We continue to get inbounds on Cupertino. I think it's from our standpoint, something that will allow us a different customer base, allows us to participate much in a much greater way in the data center business as we see it. So the electrification thereof and it really, we haven't got the synergies like baked into anything at this point, but they're there. Much like Blattner, they're there and we're seeing those show up in our business today. We'll see Cupertino show up in our business in 2025, 2026 and beyond. And we're pretty excited about next year and what we see. But it's not a next year story. We're delivering. We've delivered for the past five years. We continue to deliver. It's -- next year will just be better than this year. Jayshree?

Yes. You covered it. Yes. Just remind you, Jamie, of the cadence of the renewable segment. So as Duke said, back half is definitely usually stronger than the first half. So going into next year, I think the right way to look at it is what we said in Investor Day, that we have the opportunity to perform that 9% to 10% range in renewable.

But Jayshree, sorry, the expectations that what's implied in the guide for 2024 for Cupertino, has that changed?

In 2024 guide?

Yes. For Cupertino, has that changed at all?

Yes. If you recall, we told you that Cupertino has the ability to perform in that $1 billion to $1.1 billion range in revenue. They're performing at the high end of that range.

Okay, thank you.

Our next question comes from the line of Steve Fleishman with Wolfe Research. Please proceed with your question.

Yes. Hi, good morning. Thanks. First question, just on the. In the quarter, a lot of, good backlog and revenue growth, but a lot of it was kind of acquisition recent Acquisitions. Could you just talk to organic growth that you're seeing and kind of why was that maybe a little slower in the quarter and how do you look at that from here?

Yes, thanks Steve. I think when you, when you think about it, there was some backlog growth around 400 million or so in the, in, in the quarter. With the way the segmentation, delineation of the segmentation, the segments create some issues for us. When you think about just T&D, our traditional T&D business, it certainly if you look at where we're at, it's 5% into the third quarter of growth organically. It's double digit growth in the forecast at the midpoint of the range. So we have double-digit growth year-over-year at the traditional T&D business at the midpoint of the range. And we stated that going forward we believe we grow that upper single digits on a go forward basis organically.

Okay, great. And then one other question. Just on the data center opportunity, not just, not just Cupertino, but also in your utilities business, the I think you said recently that data center investment really hasn't even shown up in utility plans yet for the most part. Do you have a better sense when it'll show up there and then kind of filter through to your backlog?

Yes, I mean I think it's, you hear a lot about it. You're starting to see utilities issue equity, you're starting to see debt come in and a lot of that's the transmission growth so their RTOs are robust in the planning stages. The thing is, if it's showing up three years from now, we better start today. And so I think we are seeing those discussions today from RTOs, from developers, from all of our customers. You have to start the transmission, the transformers three years out, you're 36 months away from energization and you need some time to build the substations. So I just, I think it's a fallacy to think that you can't, you have to start building transmission now. And the worst thing that we can do as an industry is sit here. So I don't think that sitting here works. I think everyone's moving forward. It took a little while to get this going. It took a little while to make sure that the rates are not punitive to the rate payers and we have good rate structures across the country. You're starting to see those show up. So I'm pretty excited about where we're at as an industry, where we're what I would consider moving forward against a big, doubling of maybe tripling of generation over the next two decades. So all the transmission build and substation build behind that substantial and it has to get started. And I think we're in, the early, very early stages of getting that started today.

Great, thank you very much.

Our next question comes from the line of Alex Rygiel with B Riley. Please proceed with your question.

Thank you and good morning everyone. A couple quick questions here. First, nuclear power generation has regained significant interest in small modular reactors in particular nearing commercial deployment. Can you talk a bit about Quanta's opportunity in that generation?

Yes, thanks Alex. I think when you see it, you'll see us build a substation interconnections. I don't see us at SMRS in any capacity. I think they're a decade away to any kind of scale. So yes, nuclear will be a piece of it going forward. They'll still be back heavily renewables. Even your big reactors, you're talking about a gig and on the bigger plant. So the smaller ones are certainly less and you'll see a lot of that to from a standpoint of emergency generation, things of that nature versus diesel. But I think it's an answer, it helps. Nuclear is something that's, long-term. You're going to need it to come in if we're going to grow the generation like we say we are. So yes, but I think for us as we sit here today, the way we see it is we'll be around the edges on the substations and all the electrification thereof.

That's helpful. And then Duke, as the business has grown through the years, can you talk a bit about how the risk profile of projects, contracts and the business in general has changed?

Anytime you have EPC, you create risk, you have different kinds of risk. We stay to our knitting. I mean I think we have a really good EPC program here where we're engineering, procuring product and constructing the linear part or craft skill. Labor is usually where people break down and that's what we've invested in. We self-perform 85% of the business. So I think the self-perform capabilities of Quanta de risk our business and we stay to that knitting and we know the costs when we go into them and having our own supply chains and our critical path items that we've done in the vertical supply chain really de risk the project. And if there's risk in it, then there's more margin in it. And so I like the risk profiles that we have because we can create margin out of them. So we're in good shape. And I think you'll continue to see that type of environment going forward due to the fact that there's just not enough talent around and you're going to see EPC get built for certainty across the country.

Thank you.

Sure.

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

Thanks. Good morning. It seems clear that the big picture outlook here is developing pretty well. But maybe just to start with a couple of clarifications about some of the near term dynamics. Just on the electric side of things, just curious what the kind of puts and takes on the revenue guidance that was unchanged for that segment in light of the extra 225 million of emergency work. Maybe that was just a shift in resources. I know that can happen with these storms sometime. And then the 5% organic growth that you mentioned going to 10% for the year, I think you said last quarter 9%. I'm not sure if those numbers are all apples to apples and just maybe if they are, can you just remind us what's the programs that are driving the acceleration to that nice 10% for the year there? Thank you.

Thanks, Steve. Yes, we talked about the delineations of the segments and we do have crude movement across both segments. So you do get some of those things that show up in the way that the reports come out when we look at it. Yes, the storms are about 200 million incremental. You do with any kind of storms. For one thing, the company, at six and six plus six and a half billion in revenue in a quarter. It just, it's not that big of an impact to the company and maybe to others. It's not to us. And it does pull back off our industrial business and the gas space during barrel. You have a lot of push out in our industrial business due to the fact that the storms came in. So you're seeing that show up in that margin profile in our industrial business. So you have a lot of turnarounds that pushed due to storms. So the impacts across the company and portfolio, you can't see those things show up in these storm numbers. So there is an impact. We're pulling off transmission, we're pulling off some renewable projects that are larger. We're flying people in from Canada to save human life more importantly. And I think that's the struggle is to get everyone to see it's more than just a storm. We're also pulling off major, major projects to go do this. And it's necessary for the industry for us to do this. We had well over 5,000 people and continue in the mountains to restore power. So yes, it's incremental, but it's not as big as what's being written. It's very, very small incremental gains there on the storm. So yes, and when we look at it going forward, you'll see those things show up. And I do think our renewable business is strong. The electric, like the T&D there continues to be good and that's kind of where it sits today.

Okay, just maybe a follow up on the underground. Separate from the storm impact. Were there any new challenges arising or is this just a continuation of kind of the same issues as before and what's it going to take on the U.S. Gas operations to get those delayed projects ramping up? Is that sort of just, rate case decisions that we're waiting for?

I think when you look at it, the underground side of the business, they're building electric, they're building telecom, they're building renewables. The budgets certainly were impacted early. We talked about last quarter where if you're a utility and you could build underground electric or gas, a lot of the gas budgets went to, not a lot, but enough to cause impacts on our LDC business to move from gas to electric. And so we moved our crews along with that. We moved our crews into telecom and you can see it show up in those segments. But yes, it did impact the LDC business as well as the industrial business with the storms, the push out there, more impacts. So we had those. We run it as a portfolio as we talked about before and I think go forward. If we look at the portfolio into 2025, you get guidance in 2025, we talk about guidance in 2025, you'll see double digit guidance at the EPS level. 15% certainly is in the realm of possibility and beyond into next year and we're willing to say it, I just said it into next year. So the concern may be short term, but we see long term growth, multi, I mean a decade's worth of growth here. And that's how we're running the business in this portfolio.

Makes sense. Thank you.

Our next question comes from the line of Julien Dumoulin Smith with Jefferies. Please proceed with your question.

Hey, good morning team. Thank you guys very much. Appreciate the opportunity. Look, how do you guys think about the emerging dearth of workforce driving a tighter backdrop here for the business? I mean it's a pretty interesting backdrop for you all, you've been persistent in enabling a pipeline of labor training as a company. How do you…

Julian, we lost you. Hello, Mr. Dumoulin. Smith, are you still there?

That's okay, I'll answer the question. Yes, okay. So the workforce, look, we have invested in it. I do think as we stand today, we made substantial investments there early eight, nine years ago with both colleges and curriculum. It's well known. The crowd skilled labor as we stand today, we went from 53, 54 to begin the year. We're at 62,000 today. So that work, that 62,000, some of it's organic, some of it's acquired through Cupertino and others. But we continue to invest in curriculum. We see opportunities to look at craft skills that are getting performed along our segments and invest. And we'll continue to do that. We need to make sure that for us that's the core of the business is that craft and 85% of that self performed craft that we're supplementing across the country and all the service lines that we perform continue to grow. We've got to invest in that. We knew it early. We were working with our partners, our unions and trade associations across the country to make sure that that investment for a trained, safe, dependable workforce is there. And we'll continue that as we go forward, Julien.

Excellent. Can you guys hear me now?

Yes, got you.

Sorry, I don't know what happened there. Just how does that impact your top line inflation when you think about the business trajectory and what you're seeing right now? I mean it seems like the overall sector is seeing this trend. How does that impact your potential for margin expansion and overall just top line inflation at the same time to run with that?

Good question. Certainly we passed through the. We believe labor goes up about between 4% to 6% as we move forward, let’s 3% to 5%, probably 4% to 6% now. And those are passed through to contractually through. If it's not contractually, then we have it in our multiyear bids. But a 4 to 6 inflationary piece of labor, it's been there a long time. So that's always been a pass through or we've adjusted our portfolio and bids for those labor impacts. On the data center business, on the inside electric piece of the business, it's certainly constrained more than our outside business. So we're also putting in training, we're also doing a lot of things with Cupertino acquisition and that platform to enhance that labor force. And so I think you'll continue to see us anything we do that involves craft skill, will be curriculum, we'll have college credits with that. We'll have a lot of different things where we're trying to enhance the workforces to build for the future.

Thank you guys.

Sure.

Our next question comes from the line of Gus Richard with Northland Capital. Please proceed with your question.

Yes, thanks for taking the question. Electricity demand is exceeding supply growth and delivery growth. And is there some point in time where demand overwhelms supply and their shortages and what's the near term, next two or three year solution? Clearly SMR is not the answer and I was just wondering if you had any thoughts on that.

I mean you're going to have to see batteries become longer duration, more batteries for the intermittency of renewables. Solar continues to get built, it's economical, Wind will be there, but gas has got to back it. You see all the gas generation that's coming online, anticipated to come online. I think better, better said that's there as well. But we've always thought gas would be 20% of the business generation fleet and I still believe that's the case. Even at double growth you'll still keep it up there just to keep the, keep the intermittency of the grid and to make sure that you can have that. The reserve margins, if you go across the country used to have a pretty nice reserve margin across the country. I believe most of that is replenished substantially and you can't, you can't run the grid on the edge. So you've got to get the generation in and get it in quick to get those reserves back up on anticipated demand and that or you can't build. So one of the two teams, you're either going to constrain the grid, constrain the keys because you can't build generation or you build generation. So I do believe gas is probably the most immediate thing that you'll see get built along with solar and wind as you see it today. But gas will certainly supplement more so than we've seen in the past.

Got it. That makes complete sense. And that feeds into the next question. Given the hurricanes and fires, whatnot, are you seeing an increase in demand for hardening services, or are the utilities starting to allocate more resources and are you seeing that benefit?

Yes, I mean I think the grid hardening programs, both fire and storms are certainly there. We see it across the board where you have multi-year type programs against fire or grid hardening per se. So yes, I mean we see it quite a bit, continue it's early stages in many areas, but in other areas, Florida being one, you're in late stages or later stages. I won't say late stages, but mid to 3/4 into something in most areas. So a lot of people started with transmission hardening, and you're starting in distribution hardening and undergrounding in certain areas. So I think your early stages of this and you'll continue to see violent weather impacts and demands from the client to have them up quicker. The only way you can get things up faster is you've got to harden the grid or underground it, one of the two. So that pressure against the grids that are 50, 70 years old, you've got to do. You've got to modernize the grid. And you're doing all this while demand is doubling. So it is something that everyone's looking at from a standpoint of what do you do first? And you've got to harden the grid while you meet demand. So it is something that is unique to the industry these days.

Thanks so much.

Our next question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.

Hey, good morning, guys.

Morning.

So my question's on the MSA renewal process. And I know that this is an ongoing process for you guys year in, year out, but just curious how much of the business is up for renewal over the next 12 months. And then, I think these contracts are three to four years in duration. So I'd love to get a sense for just like how those conversations and how the contracts have changed versus three to four years ago. From a terms perspective, if you can talk pricing, anything like that would be very helpful.

Yes, I mean, MSAs are really framework for unseen work in many ways, and it allows contractual terms to be done and resources to be allocated. I would say as it stands today, it's much more collaborative because you can see the business longer, so can our clients. When you can see capital out and plan and prepare, it's certainly more efficient and more prudent to get out in front of it. So, have the labor there, the labor shortages don't show up if you talk long-term. So I think they're longer in nature. They're bigger as we see it. I can't tell you how many are up. We have, I don't know, hundreds, maybe thousands of MSAs, maybe 10,000. I don't know a lot of MSAs that go around. We've worked off of them for 50 years. So it's very, very difficult for me to. I mean one client could have 50 MSAs. So it's just, it's extremely difficult for me to give you those numbers. But what I would say is the base business is 85% today and that's those MSAs typically around that for the most part. And as we see it going forward, it will be 85% as the business grows on the top line, you will still see it at 85%. So as the business has grown because the MSAs and our ability to bid or negotiate or collaborate with the client to continue that, the stickiness of that and supplement their current workforces is there and will continue to be there going forward.

That's helpful. Second question is on Cupertino and labor availability. So I'd love to get a better sense for how you plan to integrate that segment with your labor training program. Just trying to figure out just how much labor that can unlock over the next couple of years and how fast you can scale the business and if you can, just how much in terms of headcount is Cupertino.

Yes. I think Cupertino, when you look at the workforce and how it's trained, I mean they've had very good training programs, 3, 4 year training programs, I believe. So very, very good. When we look at it, can we supplement it? Yes. I think what we can do is early on, our recruiting process is the way we get people into the trade some people can't climb some people don't want to climb, so we can move people over into that segment. And it's just -- it will be synergistic for us as well. Some won't when one of down the ground, they want to client. So both sides of that continue, we're always around the edges of each other. Craft is very similar. The way they think -- the way we think the company sits on top of us nicely and so when you look at that, it just -- it bodes well for us to recruit very, very, what I consider the top talent out there. They were with premier solution provider for the data center business for a long period of time since inception, they have capabilities across the board beyond data centers that we like a lot both, solar land, it's a different labor pool, but they're exceptional in what they do. So we're excited about supplementing the curriculum, supplementing onboarding, the what I would consider pre-apprenticeship programs that we have, where people are smarter and faster and more productive when they get in. So all those things will certainly benefit both us and Cupertino going forward. The count -- it's between 4,000 and 6,000 somewhere in there. It varies depending on where they are.

Thank you.

Our next question comes from the line of Drew Chamberlain with JPMorgan. Please proceed with your question.

Yes, good morning and thank you for taking the questions. The first one on the renewable side, some positive commentary in the materials on that bidding activity and what you're hearing from your customers. But obviously, bookings throughout the first part of the year, our first three quarters been a little lighter than last year. And just kind of to hear your thoughts on maybe what's holding up some of this from converting into backlog and maybe what are some of the headwinds and stuff that you're hearing from your customers maybe on the election, IRA and when this can really convert?

I mean I expect us to -- between now and the next time we get on the call, a substantial amount of LNTP going into the contract. The negotiations are robust, and I'm not sure -- I can't put a finger on why the -- why -- the backlog is not increase over there based on what the conversations are. It's just tend to paper in many ways and from LNTP to final FID. So I'm not concerned, the inbounds are as good as they've ever been in the negotiation, verbal’s all the things that we're discussing on the Renewables segment. I feel confident that going into next year, the backlog will grow and it will look different. The next time we have this discussion. So -- that piece of the business is not concerned with on the backlog side of it. So we see the market continuing to progress forward the solar business, the wind business, either the repower business, batteries are growing our fastest-growing piece. But we like it all. We see it it's coming our way. And I think the election, yes, I could have a little bit of a delay, but the feedback we're getting from the client is either a Harris or Trump when you're going to have some noise in one or the other, but the business itself and the underlying business continues forward, and I believe our customers would say the same thing.

Okay. Great. And then just on the data side, you updated the updated the market forecast that you used in the deck calling for a 23% CAGR versus I think it was a 15% prior Kind of just what's changed quarter-over-quarter? Have conversations started to look materially different? And do you think that this higher growth rate is indicative of what your business is going to do and what your internal expectations are over the course of the decade.

Yes. Just as a reminder, those are third-party reports that we're putting in there. And I think what it does is just reflects the continuing optimism of how much data center growth is out there as well as the power needs for enabling that data center growth. That's really what we were trying to show in that graph. But from our customer standpoint, I can have Duke tell about that.

Yes. I mean I think that the graphs are certainly indicative of what we see in the business. And when you think about the growth and what we've done yes, some of it is inorganic, but you also need to look at if we've done it consistently over the last 7, 8 years, we'll continue to do that going forward. And I do think the growth of the business at the midpoint staying under two of leverage, you can see it going forward. And it's basically the strategy to the company that put us in a data center business that put us in the renewable business going forward. And when you think about the nexus of it, it all comes together and the need for power at a data center is substantial, can we be a solution to all the things. Yes, are we in the middle of the discussions on all things data, yes, are we in the middle of the discussion offering power? Yes. So it allows us a unique position to help and collaborate with multi-customers. And I just think it's from east to west. And it's a lot of opportunities and the company is pretty excited about what we can do with the growth platform that we built in the TAM that's around a addressable markets are much bigger than they were yesterday. So I like where we sit, and I like our customer base.

Okay, thank you.

Our next question comes from the line of Brian Brophy with Stifel. Please proceed with your question.

Thanks good morning, everybody. I wanted to ask one on cash flow. So implied free cash flow conversion versus EBITDA for this year is now about 60% excluding that Canadian transmission collection, which is obviously a little bit higher than some of your longer-term targets that are out there. Is there anything in free cash flow this year, is this more onetime in nature? Or is this a good way to think about core free cash flow conversion going forward? Thanks.

Yes. I think we are very pleased with where we sit with our free cash flow. We have -- it's a reflection of several things. One, of course, is the mix of work, the renewable business and the way those contracts are structured, continue to be very working capital accretive. And so you're seeing the benefit of that in our free cash flow guide. We are doing better at our collections. Our DSO is improving. So those things are all factored into our free cash flow guide for the year. I will say going forward, we've said our expectations -- the right way to look at it is around a 45% to 55% conversion rate. With Cupertino now, we do believe we have opportunities to be on the high end of that range and even greater as we've seen this year, but it really depends on the mix of work. And so we have a big storm like we had this year -- this quarter -- last quarter, that can be a drag on free cash flow depending on the mix of the MSA work and how that comes into play, that can also be a drag on working capital. So I think the right way to look at it, Brian, is to continue to be in that 45% to 55% range with very good opportunities to be in the high end of that range.

The impact of Canada is certainly in the numbers. We don't expect to collect that this year. So that is certainly pressing on the number. That said, -- we did get some of the money in. We like the way the negotiations are going. Nothing wrong. We were highly confident in the claim. We're highly confident in what we've done from a construction statement, which has taken longer to get end of paper in Canada to receive our money. And so I do believe you'll see it in next year. We're not going to press the business to tell you exactly when because I think it's more important to get the right answer for what we deserve and what we've done. And so there's a client. So we're just working with them to get the collections. But nothing wrong with the collection, it's taken a little longer.

Appreciate the answer. I have a follow up. I will pass it on.

Our next question comes from the line of Andy Kaplowitz with Citi. Please proceed with your question.

Good morning everyone.

Hello.

Duke, I know one of the questions you get occasionally is that as some -- ramps down in 2026 given the size of the project that it would be tough to see. We all know there's so much more to Quanta and just large electrical transmission projects. But how do you see that environment? Do you see sort of a new wave of large projects that could come out in 2025 and 2026 or how do you think about that?

I mean we see multi projects and whether they're $1 billion or $2 billion or $500 million they're there. We're probably in a -- I will say it again, the inbound and the negotiations of variables to what you build discussions are substantial. And I was somewhere the other day and I was listening to -- I can't -- one of the bigger manufacturers seem to talk to you one of them, I can't remember which one of was, talking about transformers and they said, hey, we can get there by 2030. If we said that today on the work that we did, we'll get you by 2030. I would just tell you like it's not -- that's not in our DNA. And that demand is the same for us. The demand for larger projects that are out there has never been greater. And we see it to the west, to the east, you can look at MISO, you can look at SPP. You can look at ERCOT, you can go to 765 build. You can look at anything you want developers this pick something and pick a geography within the country and see if you don't see large transmission, there's just as big as projects. If you add them together or you take one, you take three, we're not concerned with our ability to look at large construction. I do believe you'll see the stacking effect of the business going forward. And we see it in 2026. We see it in 2027, we see it in 2028, going high. We see the same thing they see.

So to that point, Duke, I mean, there's always going to be a little bit of noise, but at the Investor Day that you had a couple of years ago, I mean, you talked about sort of this upside case of 15% plus EPS growth that would get you with capital deployment to $11 to $12 in 2026. I'm sure you don't want to give us guidance 2026. But at the same time, does it feel like you're absolutely tracking to that upside case given what you guys have done with Cupertino and Blattner and then the markets themselves.

I mean I said just a minute ago, next year, if we grow double-digit EPS, if it's 15%, we certainly have the opportunity for 15%, and beyond. We've grown 20% this year at the midpoint deploying capital. So we see our ability to deploy capital continues. We believe will be in some part of the range will be in double digits in '25. So if it's in 25 and we're going to grow the bottom 10% that gets you to $11.26 if you just do the math. And look, that's easy to say. It comes out real quick. But we've got to get and deliver and execute on it, which I don't think we're a story about tomorrow. We're doing it today. And I think we'll do it in 2025, I think we'll do in 2026. We certainly have the opportunity in the markets are there.

Appreciate the color.

Our next question comes from the line of Michael Dudas with Vertical Research. Please proceed with your question.

Hi, Jayshree, Duke and Kip. How are you doing?

Hi.

Maybe following on allocation and capital. Given the extraordinary demand and the excitement that's within vendors serving the electric utility and development industry. When you're talking to the various companies that you look to maybe bring on board in the next couple of years to solidify your long-term plans? Or the industry going to need -- if it seems like there's going to be a lot more scale and consolidation needed and our potential sellers of their businesses looking towards that to kind of get to the next level of their growth and that provides opportunities for you guys to kind of get into the areas to maybe even especially maybe on the front-end engineering kind of work because it seems like the customer base is wanting a lot more of that from you given the collaboration you've been talking about?

I mean, certainly, the front side of the business, as we call it, the engineering, the permitting, all those things are a big part of the business, and we need to look at those things to add to our strategies, and that's been known for a long time. We're disciplined about how we acquire and we'll grow it organically, we'll grow it somehow some way. If we have to partner, if we can acquire, we'll acquire we're not going to acquire any cost. We've said that before. We are disciplined to it, and we'll stay disciplined to it. So we see that -- we see long term -- if you look at the transformer business we acquired, it's a 100-year-old business, a family business. It wasn't for so. And I think when you think about it, people are -- they want these big long-term businesses, they want stability in their companies. They want to perpetuate the name. They see what we do. They see how we take care of people. They see the culture that we have here, and we're very selective. And when we look at it, I mean, Cupertino is a great example of a multi-decade relationship that generationally, we can provide great things for their people, great things for the management team, great things for the family. And they keep the culture that they've had yesterday and the name is still on the truck today and it will be in a decade from now. So I think that's the key to it is us continue to create the culture that we have here. People generationally, I'm not sure why craft and the perpetuation when you get down, a lot of people that have businesses that are large in nature that provide craft-skills, their kids want to go build -- they want to go build apartments and real estate or other things, they don't really like the businesses that their families have or they're not interested in at craft and things like that, which is fine, is great. So they want -- they're looking for stability for the people. And I think that's the key for us is to find those businesses and attract them and continue to execute on the culture that is here and protected and move forward with it, while we're creating what I would consider great returns for our investors and stakeholders.

Thank you.

Our next question comes from the line of Sangita Jain with KeyBanc Capital Markets. Please proceed with your question.

Yes, thank you guys for taking my questions. So Duke, did DOE just recently signed on to become an anchor tenant on a handful of transmission projects. Can you tell us what you think that means? Does that bring them to the front of the line? And are you already talking to some of them?

Yes. I mean we talked to the DOE. We talked to the people that are anchor tenants quite a bit. You still have got permitting and you still have -- some of them have transformed, some of them don't. I do think it helps, but -- in reality, our utilities or IOUs that are sitting right there, if it's not an IOU, which some of them are, it's -- I'll just say it's -- it has inherent risk and more difficult. It's not that it won't happen. It's just harder. And I do think the projects that you see to the DOE back are good. I mean they're great projects, and we're all around them. And we like that anchor tenant. That's it's a great concept. I think when you look at Texas, with the Texas fund and the things that are happening there same thing, but a lot of the states and the permitting in the states and the PUCs and things like that, it's really about a rate payer discussion. Are we putting pressure on rates at the rate payer level? And when you look at it, T&D is not the biggest piece of the rate. And so we've got to do a better job of how we discuss that to the rate payers because gas interest, a lot of different things are way more impactful than building T&D infrastructure. Actually, T&D infrastructure makes the rates go down through congestion and things like that in those cases. So I think all those things that you have to look at, if you can prove those things out, the projects go much faster.

Got it. So that's very helpful. And on that, can I also follow up with the recent transformer acquisition that you announced? And if that is a different type of transformer versus the PTT or I honestly anything that you can tell us on that acquisition would be great.

Long discussions in the transformer acquisition on the one we just made as well as PTT. So we've been in discussion since pretty covers on the transformer business. We like the business. It's supplemental. It's a little smaller than the class, the bigger class transformer that can be made in PTT, not to say but the utilities they serve, the clients they serve in the areas are certainly there. We can cross sell. We can sell internally. We're out in the 2027, 2028 even into 2029 with these factories. And so we just -- we've got to watch it. We got to understand the market and serve our internal customers as well. And we're in a very, very small percentage of manufacturing. And I think for us, it's really a backstop against if you get tariffs in China or in other places, transformers become difficult and we have U.S. based long-term transformers here. And it will allow us to move our current workforce and projects forward. And we're really derisking the business against those things as well as collaborating with the clients on U.S. based manufacturing. And that's the key for us is to continue down the path and critical path items that we believe are risk to the supply team.

Got it. Thank you so much.

Our next question comes from the line of Marc Bianchi with TD Cowen. Please proceed with your question.

Hi, thanks. I guess this is a little bit of a follow-up to the prior question. There's been some concern expressed by renewable developers around labor and supply chain challenges being a bottleneck to their growth. I know you just talked about the Transformer thing a little bit, talked about labor earlier, but I think that was maybe more around kind of the T&D side of the business. But could you talk about what you're seeing on the ground, like right now as it relates to some of these supply chain concerns. Is there anything that's maybe incrementally worse or better than it was last quarter?

I mean you have to get into HVDC certain kinds of HVDC, especially DC construction in your large stations to get like a real bad, but besides that, I mean, a transformer is certainly constrained. Breakers are certainly constrained. But we've been able to -- we have a good robust we see it. So I think the things that we've done in our supply chain, we can help and enhance developers certainly, our partners and the ones we collaborate with, for sure, new projects forward. It's certainly something that the company has been able to do and collaborate with on clients. So we like our positioning there. I don't think it's gotten any worse. It hasn't gotten any better though. You would think it would get better, it hasn't. And so it's just kind of stayed the same. Labor -- from our standpoint, I wish that manufacturing would get out of our capacity. I don't believe I'll see it in my lifetime. But we've been able to outpace any kind of permitting bill, any kind of constraint. So if someone says come and build thousand miles of 500 KV tomorrow, I will tell you, if they said it 3 times over 5,000 miles answer yes and yes and yes already.

Got it. Thanks, Duke. That’s all I have.

Thank you.

We have reached the end of the question-and-answer session. I will now turn the floor back over to management for closing comments.

Yes. First of all, I'm going to thank 60,0000 [ph] men and women out in the field and the inclement weather and what they've done is natural disasters. I would tell you they are first responders, they've seen a lot the respect that they deserve is certainly something that we see every day, and I want to thank they had done and held the job and they're the best in the business. And I want to thank you all for participating in the conference call. We appreciate your questions and your ongoing interest in Quanta Services. Thank you. This concludes our call.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.