Quanta Services, Inc.

Greetings and welcome to Qantas Services first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Kip Ruff, Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you and welcome everyone to the Qantas Services first quarter 2020 earnings conference call. This morning we issued a press release announcing our first quarter results which can be found in the investor relations section of our website at QantasServices.com along with a summary of our 2020 outlook and commentary that we will discuss this morning. Additionally, we will 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 Quantum Services website. Please remember that information reported on this call speaks only as of today, May 7, 2020, 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 QANU's expectations, intentions, assumptions, or beliefs about future events or performance or that do not solely relate to historical or current facts. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict or beyond QANU's control, and actual results may differ materially from those expressed or implied. For additional information concerning some of these risks, uncertainties, and assumptions, please refer to the cautionary language included in today's press release along with the company's periodic reports and other documents filed with the Securities Exchange Commission, which are available on QANTA's or the SEC's website. You should not place undue reliance on forward-looking statements, and QANTA does not undertake any obligations to update such statements and disclaims any written or oral statements made by any third party regarding such a 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, and free cash flow. Reconciliations 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 email alerts through the investor relations section of quantaservices.com. We also encourage investors and others interested in our company to follow Quanta IR, and Qantas 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, Qantas President and CEO. Duke?

Thanks, Kip. Good morning, everyone, and welcome to the Qantas Services first quarter 2020 earnings conference call. On the call today, I will provide commentary about our first quarter results, the operational steps we are taking to successfully navigate the current environment and resiliency and sustainability of QANU's customers and business model. Derek Jensen, QANU's Chief Financial Officer, will provide a review of our first quarter results and 2020 financial expectations. And then I will provide additional remarks before we turn it to your questions. QANU is operating in an unprecedented health and economic environment with no pre-developed process or playbook to guide us through. This is when we rely on our people who are the very core of Quanta. The tenacity and instincts we have witnessed throughout our operations over the past several weeks has been nothing short of inspiring. We believe our core competency is our ability to safely execute in challenging environments. Our people work in harsh conditions every day, and we have managed through economic cycles and other challenges throughout our history. While each circumstance is different, our people rising to the occasion is nothing new to Quanta. We have remained vigilant and have adapted to the unforeseen nature of this pandemic. We have remained committed to our operating and business model and to the successful execution of our objectives. We believe our resilient business model and strong financial position provides us with the opportunity to not only navigate through times of uncertainty like we are experiencing currently, but to come out the other side better positioned. First and foremost, we remain focused on the health and safety of our employees. We implemented our existing pandemic plan in response to COVID-19 in February to protect our employees in the field and subsequently initiated work from home policies where appropriate. We developed our pandemic plan to be comprehensive and are confident it has been effective. We have collaborated with our customers and continue to enhance our plan as we move forward. As shelter in place orders ease, and the density of the general public in proximity to our work areas increase. At the end of the first quarter, we had approximately 39,500 employees and to date have not experienced any meaningful health impacts on the availability of our workforce or key personnel as a result of COVID-19. Our customers and the end markets we address are all considered critical infrastructure per government guidelines and are needed to continue to work during periods of community restriction, which most states and localities have adhered to. Our proactive steps have not only protected the health and safety of our employees, but have allowed us to provide continuity of service to our customers. Our services are needed, perhaps more than ever. As tens of millions of people are now working from home and sheltering in place and require reliable electricity, communications, internet, heating and cooling services. Our first quarter results were solid and would have put us on track to meet our pre-pandemic 2020 outlook. We ended the quarter with backlog near record levels. We expect record backlog during the year as we renew various master service agreements and secure additional projects, which demonstrates the resiliency of Qantas business and our favorable positioning going forward. Demand for our services during the quarter remained high in most service lines. Though in the later part of March, we began to experience some impacts from COVID-19 and challenges in the energy and industrial markets. Shelter in place restrictions in some areas have created disruptions to portions of our operations, particularly in major metro markets, especially those that have been meaningfully impacted by COVID-19. This dynamic has also compounded challenges that the broader energy market is experiencing, which is affecting portions of our pipeline and industrial segment. We believe April will prove to be our most challenging month of the year due to shelter in place declarations, throughout North America and their impacts on our operations in some areas. However, cities and states are beginning to ease community restrictions, and as a result, we are planning with our customers for the disruptions to our work to moderate. We have been and continue to communicate closely, collaborate with our customers while we are experiencing some minor permitting delays. We are not experiencing and do not expect to experience significant supply chain disruptions or workforce availability issues. We have proactively implemented certain steps to manage costs given the uncertain macro environment. Some of the cost management steps we have taken include suspension of hiring and raises at various operations, discretionary spending, nonessential travel, and deferral of nonessential capital expenditures. We have also taken tough but necessary actions to manage headcount at operations that are facing challenges and uncertainty under the current environment. Though we believe Kiwana's business will remain resilient and flexible, and we continue to see opportunity for profitable growth going forward, we believe these prudent actions given the circumstances. We have worked diligently over the past several years to create a more repeatable and sustainable business model. Our portfolio of companies Geographic and services diversity and focus on growing our base business gives us confidence in the resiliency of our business. We estimate 80 to 90% of our revenues are derived from utility, communications, and certain pipeline and industrial infrastructure services that we believe will be resilient even in today's environment. The remaining less resilient portion of our revenues, some of which are currently under pressure, could stabilize in the second half of this year and, we believe, provide multi-year growth opportunities and reasonable returns. Derek will provide additional details in his commentary regarding our outlook. Demand for our electric power services remains solid, and we have not seen meaningful reductions in the utility CapEx budgets. Utilities continue to actively deploy capital into their systems to modernize, harden, expand, and adapt to current and future needs. Long-time Quanta Utility customers across our service offerings are investing tens of billions of dollars to modernize and create sustainable systems for end users over the medium term. Work on our Wate and East-West Highline electric transmission projects in Canada is proceeding and to date has not meaningfully impacted by COVID-19. Additionally, Throughout our service territories, we continue to actively pursue billions of dollars of larger electric transmission projects, some of which have recently made incremental progress towards final permitting and construction. We are confident we are well positioned for many of these projects. Our communications infrastructure services operation, which are included in electric power segment, had a good first quarter with double-digit revenue growth and solid profitability. Our projects are moving forward with minimal disruption, and we continue to see strong demand for overall fiber densification to reach homes and businesses and the early stages of 5G deployments. Utilities and electric cooperatives also continue to evaluate opportunities for their involvement in 5G and fiber capacity, and we're actively collaborating with them on solutions. Turning to our pipeline and industrial segment. In the first quarter, our gas utility operations performed well in what is seasonally the weakest quarter of the year. Utilities are in the early stages of multi-decades modernization programs to replace aging gas distribution infrastructure to meet regulatory requirements aimed at improving reliability and safety. However, as shelter-in-place orders were implemented across North America, Community restrictions impacted our operations in certain metro markets beginning in the last week of March that continues today. As a result, we have managed headcount in those markets to match meaningfully reduced utilization rates. However, these restrictions are beginning to lift and our activity and utilizations are gradually increasing as we rehire employees and get back to work. Our industrial services operations had a record first quarter. driven by broad demand for our services, primarily from refinery customers. Our core catalyst services are a critical path and necessary for our customers to efficiently refine product. As we entered the second quarter, demand for our catalyst services remained solid. However, due to COVID-19 and challenging overall energy markets, customers began restricting on-site activity for our other services and deferred maintenance and certain turnaround projects to later this year or 2021. We believe our industrial services operations will be significantly impacted in the second quarter due to these factors, and we have been implementing initiatives to manage costs to the current environment. However, we are confident that this delayed work will return in the future as economic and market conditions improve, and we are cautiously optimistic that there is opportunity for stability in the second half of this year. Certain portions of our midstream ancillary services operations in the United States and Canada begin to experience softness in the later part of the first quarter, primarily due to challenging energy market conditions, which are amplified by COVID-19. And we have continued into the second quarter. Quanta has some, but not significant, midstream services exposure to oil-focused areas. At this point, we expect midstream activities in oil-focused areas to be impacted through at least the balance of this year. As a result, we have reduced headcount and are actively implementing cost management initiatives at impacted operations. On the plus side, we continue to actively pursue billions of dollars of larger pipeline project opportunities, most of which are for natural gas transportation. These larger pipeline projects are needed for long-term transportation of hydrocarbons, are underpinned by long-term commercial agreements with producers, and tend to be resilient to the short-term fluctuations in commodity prices. However, permitting and regulatory approvals remain the gating factor for when these larger pipeline projects move forward. Over the past five years, we have executed on our strategy to mitigate risk inherent in our business and prepare for unexpected events through diversification and maintaining a strong financial profile. We have a diverse, high-quality customer base with low customer concentration, a broad and diverse geographic presence, and a diverse and expanding line of services. We believe our diversification strategy, favorable and resilient industry dynamics, and the strategic investments we have made will continue to benefit Quanta during favorable and challenging times, and will allow us to continue to serve all our stakeholders. I will now turn the call over to Derek Jensen, our CFO, for his review of our first quarter results and 2020 expectations. Derek.