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.

Thanks, Duke, and good morning, everyone. I'm going to talk briefly about financial highlights of the first quarter and spend more of my prepared remarks discussing the current environment and our forward-looking financial expectations. Today, we announced first quarter 2020 revenues of $2.8 billion. Net income attributable to common stock was $39 million, or 26 cents per diluted share, and adjusted diluted earnings per share, a non-GAAP measure, was 47 cents. From an operational perspective, the first quarter results largely met our expectations. Our electric power revenues, excluding Latin America, were $1.8 billion, an 8% increase when compared to the first quarter of 2019, reflecting continued base business strength prior to COVID-related disruptions. Electric segment margins were 7.3%, and excluding Latin American operations were 8.2%, in line with our previous commentary, which anticipated lower margins in 1Q due to seasonality, as well as fire hardening activities being weighted towards the second half of the year. Recall that these fire hardening activities were running at substantial levels throughout every quarter of last year, and the back half weighting in 2020 resulted in some level of cost absorption pressure in the first quarter. Our communications operations, which are included in our electric segment, grew revenues almost 40% compared to the first quarter of 2019 and delivered operating margins in the mid-single digits. Our pipeline and industrial revenues were $1 billion, 13% lower than 1Q19 due to an expected reduction in revenues from larger pipeline projects, the contribution from which was $170 million less than 1Q19. Partially offsetting this decline were increased levels of base business activities, including approximately $100 million from acquired companies. Operating margins for the P&I segment were 3.1%, lower than 1Q19, but within our range of expectations for the quarter, despite having been impacted by adverse weather across our Canadian pipeline operations. The orderly exit of our Latin American operations progressed during the first quarter. However, the $16.3 million of operating losses exceeded our expectations. The losses primarily relate to early termination and closeout costs associated with projects in the region, exacerbated by stringent COVID-19 stay-at-home orders in the second quarter, necessitating loss recognition on certain projects in one queue. We received no tax benefit for losses in Latin America, so the approximately $16 million in losses impacted the quarter by approximately 11 cents. four cents more than what we had originally anticipated. Our total backlog was $14.7 billion at the end of the first quarter, slightly below year-end, but $2 billion higher than 1Q19. Twelve-month backlog at $7.6 billion is approximately $685 million higher than 1Q19. We continue to see opportunities for backlog growth. However, timing of awards for certain customers could be delayed in the current environment. For the first quarter of 2020, we generated free cash flow, a non-GAAP measure, of $164 million, which included $82 million of insurance proceeds associated with the settlement of two pipeline project claims, as we mentioned on last quarter's call. Day sales outstanding, or DSO, for the quarter was 85 days, a decrease of three days compared to the first quarter of 2019 due to lower levels of retainage balances associated with larger projects, but slightly higher than the 81 days at year end. We had experienced some administrative impacts throughout the business at the end of March, which has continued into the second quarter due to various stay-at-home dynamics. However, we haven't seen any significant pressure on extending payment terms thus far. Due to volatile capital market conditions in March, as a cautionary measure, we borrowed $250 million against our revolving credit facility to ensure we had adequate access to cash to fund our operations in what was a rapidly changing and unpredictable environment. As a result, we had approximately $380 million of cash at the end of the quarter. Our net interest expense was slightly higher in the first quarter due to this drawdown, and to a lesser extent, due to the deployment of $200 million for the repurchase of 6 million shares of our common stock during the quarter. As the capital markets improved and risk associated with daily liquidity requirements moderated, we reduced our cash position substantially by paying off outstanding borrowings on our revolver at the end of April and resumed routine funding of daily cash requirements. From a balance sheet and liquidity perspective, we believe we are well positioned to handle the disruptions to our operations associated with COVID-19 and the challenging energy market environment. As of March 31, 2020, we had total liquidity of approximately $1.7 billion. Our debt facilities do not mature until October 31, 2022, and as of March 31, 2020, we had a debt-to-EBITDA ratio, as calculated under our Senior Secured Credit Agreement, of approximately 1.7 times, within our preferred range of 1.5 to 2 times, and well below the 3 times maximum provided for in our credit facilities. At the end of the first quarter, we were comfortably in compliance with all of the financial covenants in our credit facility. The combination of COVID-19 and the challenging energy market environment represents an unprecedented economic impact in the modern era. However, Quanta successfully navigated through the financial crisis of 2008 and 2009 and through the challenging energy market and operating conditions of 2015 and 2016. In both circumstances, Quanta remained solidly profitable maintained a strong balance sheet, generated solid cash flow, and came out of these periods a stronger and better competitively positioned company. Turning to our guidance, I'll start by saying that our decision to provide guidance and our approach was developed through much internal debate. We concluded that the value of providing a level of meaningful commentary and financial expectations to the investment community outweighed the risk that doing so implies certainty in a very uncertain environment. Given the circumstances, our outlook commentary should be considered as directional and is meant to be helpful to understand the nature of what we see today. Currently, our expectations for the electric power segment remain largely intact. We expect revenues for the segment between $7.5 billion and $7.7 billion and operating margins between 9 and 9.3%, with Latin America contributing operating losses of $25 to $30 million. Excluding Latin America losses, margins are expected to range between 9.4 and 9.7%. Certain markets have seen some level of COVID-19 impact operations in the second quarter, both in our electric and communications services operations, and our slight reduction in annual revenue and margin guidance is largely expected to occur in the second quarter. Annual margins are also somewhat impacted by reductions in electrical work in certain industrial facilities, and by slightly higher than previously expected Latin America costs in 1Q and the rest of the year. Having said that, we see the opportunity for this segment to be at or near our double-digit target margins in the third and fourth quarters. Our largest change in expectations is within our pipeline and industrial segment. As opposed to the electric power segment, where we have had limited impacts from stay-at-home orders, for the P&I segment, COVID-19 has impacted certain metro markets such as New York, Detroit, and Seattle, where despite our services being deemed essential, local governments are restricting and shutting down our work, which is creating a material impact. The exacerbating effect of COVID-19 on the challenged energy market is resulting in a meaningful revenue reduction in almost all of our pipeline and industrial services in the second quarter. Revenues for the second quarter are expected to be as low as 700 to 800 million dollars. roughly 40% lower than our original expectations, likely resulting in a small operating loss for the segment in the second quarter. The combined impacts of COVID-19 and the challenged energy market are expected to continue to negatively impact segment margins in our third and fourth quarters. This is particularly true for our industrial services operations, as customers are reducing and deferring regularly scheduled maintenance and turnaround activities as a lack of demand for their refined products is pressuring budgets. For the remainder of the year, we have assumed a substantial pullback in these areas. Also, we expect reduced revenue from smaller pipeline and industrial capital projects throughout 2020 to weigh on segment margins as we expect to experience a prolonged effect from the current energy market and its impact on our customers' capital budgets. For the remainder of the year, we see the opportunity for segment revenues to exceed a billion dollars in each of the third and fourth quarters, and for our margins to reign between 6% and 8%. Our annual expectations are for approximately $4 billion of revenues with operating margins not likely exceeding 5% for the full year of 2020. However, for this to occur, it assumes we have ramped to normal activities early in the third quarter within the metro markets currently impacted by stay-at-home orders, and normal activity levels continue for the remainder of the year. We are aware that investors have at times had difficulty assessing the repeatable and sustainable nature of the pipeline industrial segment specifically. We believe the complexity of the current landscape only adds to that difficulty. As such, we have attempted to aid investors by providing additional service level detail within this segment in our earnings release and slide presentation, which is viewable through the webcast and is also available on the investor relations section of Quanah's website. We've defined these service areas as gas distribution, maintenance and integrity, larger pipeline projects, and other pipeline and industrial infrastructure services. Importantly, the revenue range associated with each area is directional and intended to provide a deeper understanding of the activities performed within the segment, but is not meant to provide a precise view of the revenue expectations by category. Our expectations for reduced gas distribution revenues and most of the reduced maintenance and integrity revenues are COVID-19 related, either by the previously discussed stay-at-home orders or reduced fuel demand. These services represent the largest components of segment revenues and are the largest component of our base business activity in the segment. We consider these portions of our work as highly resilient and have not changed our confidence in their multi-year repeatable and sustainable contributions. We think it is valuable to consider that although the COVID-19 dynamic did not exist during the 2015 and 2016 commodity price collapse, and we did not own Stronghold at the time, they are our largest provider of industrial maintenance and integrity services today. During that period, Stronghold was able to grow revenues each year at a double-digit compound annual growth rate and achieve margins within their historical ranges, despite the challenging energy markets. We remain comfortable with our expectations to generate approximately $500 million of larger pipeline project revenue in 2020. Although additional project awards are needed to achieve these expectations, we are in advanced discussions with customers on several opportunities that provide us with good visibility. The timing and potential award of these projects is not currently anticipated to be impacted by the economic factors we have discussed. Our other pipeline in industrial revenues represents the portion of the segment that is most impacted by lower oil prices, and therefore, we would consider to be the least resilient. This includes industrial capital projects, midstream work, and certain less critical maintenance work. Turning to cash flow, we are maintaining our free cash flow expectations for the year, expecting to generate between $400 and $600 million. While a reduction of revenue would normally result in increased cash flow due to working capital converting to cash, as well as lower levels of capital expenditures, that dynamic is primarily being offset by the expected reduction of earnings due to COVID-19. Additionally, given the uncertainty across our end markets and the broader economy, we're taking a cautious approach to working capital expectations for the remainder of the year. I'll close my guidance commentary with the belabored point that our expectations are as of today and are based on our ability to ramp to normal levels early in the third quarter. Those and other factors are not within our control and prolonged or reinstituted restrictions on our ability to perform services or the implementation of new restrictions for COVID-19 hotspots that may develop in other metro markets or even at project sites could negatively impact our EBITDA and adjusted EBITDA expectations. As we described throughout our commentary, the combination of COVID-19 and the incremental pressure it has applied to already unstable oil prices makes it difficult to quantify the distinct impact each of these factors has had on our revised outlook. That being said, we would estimate at least 70% of the change in our expectations can be attributed to COVID-19-related disruptions, with the remaining 30% largely associated with the residual effects that low oil prices have on our pipeline and industrial customers' capital budgets, and to a lesser extent, the increased losses attributable to our Latin American operations. Maintaining a strong balance sheet remains a foundational principle for us as we execute our operational strategies and navigate uncertain market dynamics. Our strong balance sheet has supported our growth, opportunistic deployments of capital, and now will be relied upon for resilience through these challenging times. We see the opportunity for strong cash generation now and in future periods, and we will continue to prudently manage our balance sheet and capital deployment to maintain our current strength provides stability to employees and customers, and to ensure we deliver long-term shareholder value. I'll turn it back to Duke for closing comments.

Thanks, Derek. Though we expect our second quarter results to reflect the near-term disruptions we are experiencing and will be the most challenging quarter of the year, we are optimistic that the activity levels and near-term visibility will improve as community restrictions ease and the economy begins to reopen. As Derek discussed, We have taken a prudent approach to our outlook for the year based on what we know today. However, we are pursuing opportunities in the marketplace that are not incorporated into our expectations, but that we believe we are well positioned for. And we are just as positive and confident today about QANU's multi-year opportunities as we were on our year-end 2019 call just a couple months ago. We believe our operating leadership and employees are the best in the business, and that we will continue to successfully perform through the current environment. Importantly, we remain focused on the successful execution of five key objectives, which are focus and grow our base business, improve margins, create growth platforms through service line expansions in the utility, communications, and industrial industries, and adjacent industries where craft skill labor is critical to providing cost-certain solutions, be the industry leader in safety and training by investing in craft-skill labor, and finally, deploy capital in a disciplined and value-creating manner. When considering our commentary about the repeatable and sustainable nature of our operations, we believe our adjusted EBITDA before the effects of Latin America operations and COVID-19 on our 2020 expectations. continue to trend towards the $1 billion level that we have spoken about the last several years. Kiwana was built for times like this, and we are confident in the resiliency and sustainability of our business model. Despite the near-term challenges, we believe Kiwana has a long runway for generating repeatable and sustainable earnings ahead of us as we execute on strategic initiatives. Considering our organic growth opportunities, and the levers available to us to allocate future cash flow generation into value-creating opportunities such as stock repurchases, acquisitions, and strategic investments and dividends, we believe Quanah has the opportunity to generate meaningful stockholder value over time. As we have discussed many times in prior investor communications, our people are the heart of Quanah, and it is their hard work and dedication that has produced several years of record results and would be critical to our success going forward. I again want to recognize and thank them for their hard work and dedication during this challenging time. We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best in class field leadership. We will pursue opportunities to enhance Qantas based business and leadership position in the industry and provide innovative solutions to our customers. We believe Qantas diversity Unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for all of our stakeholders. With that, we're happy to take your questions. Operator?

Thank you. At this time, we will be conducting a question and answer session. We ask that you limit yourself to one main question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation sign will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, as we poll for questions.

Our first question comes from the line of Andy Kapalowicz with Citigroup. Please, see with your question.

Duke, if we look at the breakdown of your expected revenue for 2020, Given that gas distribution and maintenance and integrity are now big businesses for you, it appears a little more than half of the revenue hit is expected to come from these businesses despite them being relatively resilient. So my question is, given the critical nature of this type of work, is this really just pushing this revenue and its relatively high margin into 21 and you should get it back or could some of it actually be lost revenue for you guys?

Yeah, good morning, Annie. Thanks for the question. I think when you look at our business and you look at that piece of business, what we had is in the quarter as well as in the year in our guidance, you had the light switch effect of cities closing. And so when you think about it, when you think about just take our New York business, that business relatively, 90% of that work shut down in that area because of the COVID-related issues. Impacts and we worked with the governor I worked with our clients there that type of work We had to deal with the customer when you shut gas off and things like that You're dealing with the customer you're interfacing so that that type would shut down what we have seen is that work come back And start to come back. Let's say it'll it'll ramp back It won't it won't be a like on and off it goes off really quick and you start ramping back So that's what you'll see coming back in all the cities. It was not only New York, it was Seattle, Detroit, others. So that's the impact there in the quarter. And some of that is not going into the year. So when you look at the total, it's about the majority of the second quarter is that when you think about the impact there. So you had that. You also had lower fuel pricing and also on oil. And you had demand side of that as well which that's more so what we're saying what we're seeing in outer quarters so the original impact and then demand and it's about 70 percent of what we're looking at is covered related for our guidance going forward as well as in the quarter it's the majority of the quarter which is a light switch effect derek can provide some more numbers on it um and the guidance there.

Yeah, actually, I want to come back to a part of the question, Andy, on the relative to high margins. I also think it's very important to recognize that these are contribution margin type dynamics, not necessarily the overall margin profile of the work. When you have a, as Duke mentioned, a light switch type event on the revenue side, your cost structure doesn't change quite so rapidly. So the contribution margins become quite high because it's right at the incremental stage. as you deal with costs, you know, holding on to costs because you think you're going to be turning around and, to your point, ramping back up and dealing with work on a more recurring basis than 21. So it's important to recognize that it's a contribution margin, not necessarily the margin over all of the work.

They can't really cancel this stuff, right? They can just defer it, or can they just, like, push an inspection or something like that and not do it, right? It's more deferred than canceled, right?

Yeah, I mean, when you think about our gas, our LDC business and our gas distribution business, which is, we've given some level of guidance on that, well over a billion dollars. That business we feel is very resilient. It'll be, you know, in outer quarters. This was just the fact that when Governor Cuomo decides to shut down New York, many of you that are there, you understand it shut down the city. And so we were, in certain cities, we adhered to the policy. We did keep some staff, but I would say all in all, you won't see that going forward. We put in place PPE, things like that in the future. I believe those things, those crews and that piece of business will stay resilient even throughout New York. So, yes.

Yeah, got it. That's helpful. And then, Duke, you mentioned that you still expect record backlog this year, which means you still have visibility to grow backlog despite the lower oil price in the pandemic. So maybe you could talk about where the conviction is coming from. You mentioned some bigger MSA renewables. you can give us some more color there, but do you still see good opportunity for large transmission bookings in 2020? And given you do expect record backlog, it would stand to reason that you don't expect a big hit to your oil and gas backlog. Is that because of the oil sensitivity now, the backlog really is at low levels?

When you look at the business, I mean, we're very, you know, still remain highly optimistic and convicted to our strategy, and that strategy is around the longer-term MSAs that you see on programmatic spends within the oil and gas segment as well as, or the P&I segment, as well as the electric segment. We're relatively intact in the electric segment, which shows you the resiliency there. We've talked about the backdrop of the utility business, and almost all of our clients, I mean, 95% of them have remained, their three-year capital budgets or long-term capital budgets have remained intact. You've had some push out maybe to year two versus year one, very little. But we see that business strong, continue to see great opportunities in the programs there. There's opportunities for larger projects. The larger project piece of our electric transmission business has been robust, the bidding. And so we have not seen any pullback there. We talked about the fire-hardening work on the programs being in the later half of the year. We're starting to see signs of that ramping now. So it's all intact.

One other way to think about this is that when you think about kind of from that top-down perspective, we had talked post-year-end call throughout that we saw roughly, let's say 10% of our business was kind of commodity-related. And that means that the vast majority of our business is not. And of that commodity-related component that might get impacted because of headwind of oil, we said that we found it very unlikely that roughly the billion dollars levels would go to zero. I think that you can see kind of in some of the numbers we've laid out here now, we've laid out that there is a headwind effect, but there's still a substantial amount of those revenues we think are still yet ongoing. So there's a kind of a somewhat muted revenue effect. From a backlog perspective, what we'd say is that that component of the business is reasonably quickly booked and burn, and so it does represent a significant portion of our overall backlog. So much of our backlog relates to those longer-term perspectives that are more resilient. So that's, I think, maybe colors how we continue to feel about the strength of the backlog as you move forward.

Our next question comes online of Jamie Cook with Credit Suisse. Please start with your question.

Hi, good morning, and hope everyone, glad to hear everyone's healthy and well. I guess my first question is short-term. You know, to achieve your guidance, what are you expecting in terms of the cadence of easing of shelter in place? Like, I'm just trying to understand what you're assuming there and just if you could talk to, you know, how bad April was. And then my second question is longer-term, and it's directed more towards you, Derek, I guess. I'm just trying to think about normalized EPS for Kwanzaa. I mean, even if I look at the guide today and then I add back what was related to COVID and then I add back, you know, the 20 cents or so headwind from LATAM, which is one time. I mean, I think it's easy to paint a case that, you know, normalized EPS, you know, with the backlog that you're talking about too is, you know, $4 isn't, you know, isn't a crazy number to throw out there, Derek. So any comments or am I way off base there? Thanks.

I'll comment in generalities. I think when you look at the business, Jamie, we've built a resilient business that we feel like we talked in the script about a billion-dollar kind of run rate on it. So from an adjusted EBITDA standpoint, I think you see that. I think we're convicted to those kind of numbers. Derek talked about the COVID effect and what it did to the second quarter margins on P&I. So if you look at that and you think about it and you think about the second half of the year, you get some. COVID one-time effect, which is call it 70% of the whole revision and guidance. And then the majority of that 70% is in the second quarter, and it's a one-time effect. So when you look at that, you're right. I mean, the run rate gets back to more normalized basis, and you have a great base going forward. So it's a one-time light switch type effect in many ways. There's some impact. So there's a demand impact you have out there when oil goes to negative, and you just don't know how fast that industrial business ramps back. But we have a really good management team there that will take advantage of some opportunities out there and grow that business even through this, in my mind. So I'm not concerned. They did it in the past, and they had a record quarter, and it's not – critical path business there that's our base. So I'm extremely pleased with where we sit and we'll come out stronger. But Derek, you can comment on the rest.

I agree with everything you said. And as well as Jamie, I don't take really exception with your perspective, kind of the multi-year. The Latin America, as we call out very explicitly, has no tax benefits. So those things are fairly pronounced. We clearly don't look at that as being a repeatable, sustainable component of our business. So the midpoint of our guidance by definition, as you go forward, would have some level of add-back for Latin America. When we go through and talk about the adjusted EBITDA impacts, we did our best effort to quantify how that COVID very much April, exactly as you called out, very much second quarter in total, call it roughly 70% of the number. When you start looking at that component being non-recurring and in our expectations, looking at 21 and 22, being regular operations that would add back into that, and you start to really ramp up into the numbers that you're talking about. We would largely consider, you know, the headwind we're dealing with right now is kind of on the oil side, and we think we've otherwise shown up in the past our ability to execute through that. So I don't take exception with your math.

Great. Thank you.

Stay well. Thanks. Our next question comes from the line of Noel Diltz. with Stifel. Please share with your question.

Hi, thanks. Good morning. Good morning. So I was hoping for my first question, I was hoping you could expand on the three acquisitions in the quarter. And then, you know, if you if you look at kind of difficult market conditions, particularly with some challenges on the oil side of the business, you know, I would think that some of the smaller competitors in the market might be under pressure. So I was curious, you know, if you think about M&A moving forward and the potential for some consolidation in the industry, you know, kind of the markets that you view as most interesting and where you might look to expand. Thanks.

Yeah, thanks, Noelle. It was two acquisitions, two small ones, I think, combined, less than $20 million. One was a telecom business that an underground-sided business that we felt regionally that could add value there, and the other was to support some catalyst stuff in the industrial side of the business. So two small ones that we believe that the synergies and they support kind of our strategy. I think that's that. What was the other part of it?

Just, you know, if you look at everything that's going on in the market, COVID and oil, you know, I would think a lot of some of your smaller competitors in the market may be under strain and So where you might look to potentially acquire or expand if you do see some of your smaller competitors come under pressure.

Yeah, thanks, Noelle. Yeah, when we look at it, I mean, I think we talked about the industrial business was able to grow the last time that you saw this kind of impact. So I think we have a good opportunity there to organically grow areas. I would say we'll be measured in that approach. We have real nice business, and so we'll watch it. But all around, you are seeing people start to get nervous about their jobs and things of that nature. So we'll have opportunities to organically grow. There'll be opportunities for M&A. We'll be selective and smart. Obviously, we'll use our balance sheet like we have in the past. given the backdrop of what we see from a demand side of the virus. So we'll be measured and conservative as we always are. But I think there will be opportunities when we look at the businesses and we'll come out stronger. As we said, I like our chances. I like what we're doing. Our customer base is really looking at big balance sheets and things of that nature. We've done a nice job protecting that. We're collaborating quite a bit on our capital budget. So I can't, the one thing that, As perplexing as some of the smaller companies have taken loans and things like that, and I don't know the impacts of that. So it's a little bit of imbalance from that standpoint. So I don't know what the effects of that will be and how long that will last. But normally you would see capitulation in some of the smaller stuff. I just don't understand the dynamics of the loans or grants, whatever you may call it at this point.

Okay.

Okay, thanks.

And then, you know, when you look at the markets that were completely shut down, any chance you have that how much of those markets represented as a percentage of sales? And then if you could just comment on, you know, how flexible the workforce has been there, you know, if you could comment on in a market that's completely shut down, for example, are you holding on to some of your folks in anticipation that those markets are coming back quickly? You know, how do we sort of think about the underutilization element of some of those market shutdowns?

Yeah, I mean, I think I'll go backwards on it. The people aspect, and we have longtime companies, and I think this really, you see our portfolio and you see how we run in the field decentralized, and we're very, very close to our employees as well as our clients and government officials. So it allows us to stay very vigilant. We can go up, we can go down, and we can ramp back fairly quickly. We self-perform 85% to 90%. I continue to say that's the strength of Qantas, that self-perform capabilities. We ramp right back. And I think we'll just go at the pace that our customers allow us to start that. It's somewhat of a seasonality effect. In my mind, if you take out COVID, we're starting to see the seasonality kind of where you would ramp back quickly when you shut off for winter it's similar to that in the pandemic and we're ramping back in a gradual step in some areas but as we said it only affected a certain piece certain cities not not the majority of the business the electric business stayed intact it was mainly the ldc and some industrial where you know the People took different approaches. As you've seen on the news, you see how states are opening, things like that. Our major metro areas where we had concentration in a few places, Seattle, Detroit, Pennsylvania, New York, other areas, it just affected it a little more. And that's the major impact, the majority of the impact in the quarter.

And, Noel, it's difficult to quantify that as to what percentage of sales. I mean, because we do other activities in those. That's a great example. I mean, Seattle, we do a lot of electric work up there. We do a lot of electric work in the Midwest. So quantifying it like that is very difficult. What I would tell you is that as you look at the supplemental information we provided on gas distribution maintenance, the pullback there, you know, that's where you'd see kind of that market impact. So if you saw those markets move, I mean, you'd probably see it in our expectations of gas distribution and maintenance and integrity clearly. And, you know, it could be, we'll just say, revenue-wise comparable to what some of the numbers that you saw in our expectation chains in the supplemental segment.

Our next question comes from the line of Brent Dillman with Gary Davidson. Please do with your question.

Great. Thank you. Good morning. I actually had a non-COVID question. And, Duke, this is more around the executive order to sort of blacklist certain equipment vendors, utilities can use for the grid. Do they have a contingency for that? And I'm just wondering if that might mean anything for Quanah, either in the short term or long term.

I mean, we work with the clients on it. I have not seen it. You know, a lot of the major transformers and some of the communication equipment within your systems come from areas that the government's deemed, it's on the blacklist, to put it that way. I think, for the most part, we've seen the ability to overcome those kind of type orders and move forward. I understand what they're saying at this point. In my mind, we're an American company. We're not really relying on the equipment that they're talking about to, to progress forward in our workforce. It's a, it's really the backs, the front side of it. I guess what I would say is how the, how the system communicates more so than the actual hard hardware and things of that nature. So we're, we're in good shape as it sits today.

Got it. Okay. And then, you know, I guess as every company is kind of looking at their cost profile these days, I'm just wondering as utilities probably looked at Titan belts, at least in some areas, Does that potentially accelerate the outsourcing movement? Is that something you saw coming out of the financial crisis? Just curious your thoughts there.

I mean, every utility is different. Every city is different. It just depends on where you're at on your pendulum. I think most have really looked at their capital budgets and said, yes, we're going to go forward with it. In the past, a lot of it had to do with demand. What we're seeing for the most part on that side of the business has a lot to do with modernization and things of that nature. It's not contingent on demand. I won't say demand doesn't create some issues for us, but for the most part, a lot of the things that we do and doing is we're shifting to renewables. I don't think that changes. We're not going to see technology stop. Electric vehicles is going to continue to move forward. All the things that we've been doing and been talking about really show up in this timeframe, even in somewhat depressed-type demand. So I feel good about it, and I feel good about everything we've talked about. Our customers continue to talk about the long-term nature of their capital programs, and that's us. And so we're right there with them, trying to collaborate to get it moving.

Okay. Thank you. Hmm? Our next question comes from the line of Andrew Whitman.

Please deal with the question.

Great, thanks. I think my first question is probably for Derek. And, Derek, I wanted to ask about management of receivables, particularly in the pipeline and industrial business. Obviously, this is a business that has historically consumed more working capital than the other businesses, and the credit quality of some of those customers has degraded pretty significantly. I was wondering what you're doing today to make sure that you don't get burned on the back end. And in terms of things that you're putting in the contract, are you shortening terms on collections? Are you expecting prepayments? Anything to that nature to protect shareholders? I'd be curious as to how you're managing that.

Sure. So the reality is that I think a major portion of the question is how much of that is in this oil-related environment? Do we have exposure to things like, you know, MLPs and the like. And honestly, you know, the majority of the things that we do, so it is with larger customers with substantial credit profiles. So we do go through and monitor that. We're seeing fairly minimal exposure as it stands today associated with anything that is with, you know, kind of lower credit quality customers because the nature of our customers are are really, again, back on more of the higher quality dynamics. So we don't see anything right now. We're not really concerned any more incrementally in pipeline than we were before, based upon the backdrop of the quality of those customers. We're always mindful of our contract terms, and we'll continue to be mindful of, you know, as new work comes about, looking at the credit quality. But right now, we have no incremental significant concerns.

Okay, that's helpful. And then my follow-up question, I just wanted to ask about the kind of remaining steps to get out of Peru. How much more, I guess, maybe backlog is left to do there to finish up? And how much more capital needs to be extended from you guys at this point?

Yeah, when we look at it, I think we've sped it up in the quarter. So we're really driving to get that largely complete this year. and be out of Latin Am for that matter. We'll still have some ongoing legal concerns. We're still trying to opportunistically divest some areas and things of that nature. But I would say largely this year we'll be out of there and took some steps in the quarter to move it faster, not slower. It's our desire to move that quicker. And, you know, some of the COVID impacts, they shut down certain areas that just shut it down. And I'm glad that we had already moved as fast as we had or would have been more impact It's our desire to certainly move there, and the legal implications there will go on for 18, 24 months. So that'll be going.

Relative to the additional project demands, we have no sizable things left to do on the individual Peru project. Overall, in Latin America, I mean, we do have other operations than just Peru, which is some of the shutdown costs we have.

Our next question comes from the line of Sean Eason with KeyBank. Please see what your question is.

Hi, guys. Thanks for taking my questions. High level one for me to start. I'm just curious what you're seeing from the federal government here just in terms of potential growth opportunities around stimulus measures and just this focus on reshoring of critical supply chains. Any kind of incremental opportunities you guys are seeing there? Anything you'd point out that we should be tracking?

I mean, when we look at the you know, what the government's done with liquidity and things of that nature. Certainly we see the ability, our customers are sustaining their capital. The current administration certainly wants people to work, manufacturing, all those kind of things that would help with load. I'm not sure what will happen on oil pricing. We have seen some rebound there. We'll just have to wait and see on that. But really it's a demand side when airlines get going back and the COVID part of that will create that demand. once we get going back in the later half of the year. So I think just the impacts of the administration putting in liquidity certainly helps all of our clients and our customer base. It remains robust. We haven't seen much change. I think the opportunities, if we get some infrastructure bills, the ancillary effects of those things certainly help us. Everything that we've seen, you know, from them and have discussed with them is to get jobs moving. We self-construct, you know, 85% of our business, 90% of our business probably at this point. So those jobs are great jobs. And I think where we sit is in a really good spot here. So we'll move that forward as they come out with stimulus packages.

Okay, thanks, Duke. And next one for me is just trying to understand this industrial services piece a little bit better. What do we need to see happen for a recovery in the back half here? You know, I'm just curious, what was the driver behind Stronghold's ability to grow revenue through the last energy downturn? Just trying to get a sense for oil price sensitivity on this piece of the business.

Yeah, when you look at Stronghold, their critical path pieces, the cattle's replacement, things of that nature, also are high voltage side of the business. that's necessary. So those guys continue to stay out there. It allows us a great base to build off of and to do other services. So as smaller guys that can't stay, we tend to go into more programmatic type arrangements with them on turnarounds and things of that nature. We can be more efficient. We can do a lot more things quicker. So it allows, they really look at time and things of that nature on a go-forward basis. So we can really come off the strength of really the core and grow it here It's pretty easy in good times. People don't really look at how their supply chains work. In times like this, people are really looking at how their supply chains work so they can become more efficient. We feel like we're in a really good spot there. That's why they grew last time. The second half of the year, we're not losing money there. It's just we don't have the same outlook as we had in the past. Part of it is the unknown. Anytime you're dealing with unknown, we'll take a prudent approach to it, and we did. we'll see where the demand goes in the second half of the year, but it's all based on refining capacity and things of that nature towards, you know, airlines, everything. So when the whole economy shuts, it just creates that. We'll have to see how quickly that comes back in the refining business.

Our next question comes from the line of Stephen Fisher with UPS. Please start with the question.

Thanks very much. Good morning. Just looking out beyond 2020, you talked today about the fire-hardening visibility picking up. At this point, do you think you can get that back to the pretty solid 2019 levels that you had when you look at some of the plans from your customers and their spending? And any other thoughts on things like Puerto Rico?

Yeah. So, hey, Steve. I think when you look at the fire hardening and what we've seen recently in some of the larger customers, we've seen them basically look at their CapEx out. They've either grown their CapEx or from what they said last year going forward, I just think the spend's become more utility-like. One of our larger customers there is coming out of bankruptcy. I've said in the past, in past calls as they come out, it'll be more traditionally and we'll get our crews levelized. in the West, so I think we've done that largely through the first quarter. We've got more levelization there, and we'll ramp to their CapEx budgets that'll start second half of the year, and that should maintain for the foreseeable future at very heightened levels. If you think about it like anything that we have, we can also work more over time. We can do some things in the back half if customers want to move capital budgets into this year or to next. We're able to move up and down with that. That was part of what happened last year. It had to get a lot of work done very quickly, so it created a lot of overtime and things like that. You could see those kind of dynamics happen in the back half. We've not built anything like that into guidance. As far as Puerto Rico, we've said it before. We'll say it again. The opportunity there is significant, and we're highly optimistic that we're in a good spot. We've maintained that. We've maintained our dialogue with Puerto Rico, so we're optimistic there. It just shows the breadth of Guana and all the opportunities that we do have. And we have a really good repeatable service business that would fall in line with that over the long term.

And just a couple of clarifications on some of the guidance items. What will now determine the upper end or lower end of the cash flow range is one. You still need that $500 million of pipeline work. When do you expect to book and break ground on that? And then can you give us where you stand on the utilization of your LDC assets right now relative to where it was at its worst? Thanks.

Yeah, I mean, I think we talked about April being our worst month. We're starting to see the man hours move the other direction. We're in constant contact with our clients. It'll ramp. It'll ramp from call it now until it stops, which sooner rather than later, hopefully, but we'll just have to see how that ramp goes on that piece. It's really basically making sure that the cities protect our employees and also our customers and users. That's the main thing, safety, and that concern is something that we'll look at as we move to those cities. It'll be a gradual ramp of somewhat like seasonality. And I'll let Derek comment on the cash flows.

Yeah, I think that it's really the growth dynamic. If we end up seeing the back half of the year, Duke just laid out that there were some additional opportunities that were there that we have been trying to be prudent on. And to the extent that those opportunities are realized and you see greater levels of whether it be MSA, fire hardening, whether it be the utility dynamic, that would put a draw of working capital. That would be on the low end of free cash flow. And then as well as just what happens from rate of pay. We do not see anything currently, but to the extent that as we get out into the end of the third quarter or whatever, you could see rate of pay slow for some of our customers. And we've factored some of that in. So I think that would put us in the low end of our free cash flow. High ends are kind of the opposite. If If the prudency that we've tried to address of that is that the rate of pay stays the same, I think you start to see less pressure there, and you start to see a little bit more free cash flow conversion.

We're not concerned with the $500 million. I think from my standpoint, we'll book that, and that's in good shape, and we'll start kind of mid-second quarter, and you'll see some ramp from there.

Our next question comes from Adam Thalheimer with Thompson Davis. Please start with your question.

Hey, good morning, guys. Congrats on Q1, and thanks for giving guidance.

Hey, thanks, Adam.

On the first question, I wanted to ask on the electric side, how resilient do you think the CapEx budgets are going to be next couple of quarters?

You know, they've all maintained pretty much their guidance and gave multi-year. I think the biggest thing that we've continued to try to feed home is If you look at our customer base, they continue, it's not this year, they continue to give multi-year guidance. And it's different than it was previously where utilities were more demand driven. And that's based on power plants, things of that nature, new build, new capital. What you have, why we're confident and why we've been confident on the backdrop of that is most of the work has to do with interconnections of renewables with with grid hardening, with getting ready for electric vehicles, with technology, those kind of things. And that maintains. I think America will maintain that. We want that. And it'll move forward. And we see it. It's very visible. And every one of them maintains their three-year outlook, four-year outlook on that. Our telecom business as well is, I would just say, there's opportunities there really as dynamic as anything we have and any service line we have. And we did a nice job in the quarter, and I think you'll see that continue to ramp rapidly.

Okay. And then I wanted to ask on Stronghold's business, I mean, this isn't a normal economic downturn. So, you know, as the shelter-in-place orders get lifted, a miles-driven goes up, I mean, why wouldn't that business snap back faster?

I mean, we can always take a prudent approach to it. I just can't tell you. I mean, it's basically how fast does airlines get moving? How fast do we move? How fast does the demand come back? It's us being measured about it. And we can't, you know, turnarounds can push a little bit. They can push into 2021. So from our standpoint, we're doing the best we can with the shutdown piece or the turnaround piece of the business. And it's also... When you look at the Gulf Coast, we refine for the world. It's not just North America. And this refining capacity and where we sit in it is really the hub of the world. So we have to make sure that the world comes back as well.

Okay, thanks. Our next question comes online of Blake Hershen with Stevens. Please see what their question.

Yeah, good morning, guys. Thanks for squeezing me in here. Just A quick one for me, the free cash flow was real strong. The outlook good as well. Looks like you bought back a lot of stock. Is that going to be the primary kind of use of the free cash flow that you expect to generate this year?

Yeah, I think when you look at it, we'll be measured with our capital, we'll be measured with our cash. So we want to make sure that we This is unprecedented times. We'll continue to look at it, but I would say that the same discipline that we've had in the past, we do have some strategies around what we're trying to grow and things with our M&A, but there's nothing imminent there. There's nothing that I would say would be large there, and we'd also be patient and prudent when we look to deploy on M&A, but obviously we leaned into the stock. We felt comfortable doing that in the first quarter, so we've always kind of had a traditional approach to that. And I don't think that changes other than the fact that we'll be more prudent about it and make sure that the economy comes back and our cash position is in good shape.

You've seen us definitely over the years, I mean, move opportunistically in the buybacks. And there are times when we've moved opportunistically, we'll move sizably. As we look forward, you know, we'll to the extent there are M&A opportunities, we'll measure those still yet against the burden of how do we think deployment into our buying back ourselves works, because we always want M&A to be something that ultimately would create more value than buying back our stock. And we will continue to do that. And then still yet, like Duke said, we'll be measured against how that plays into the working capital dynamics. making sure we still yet position ourselves to be able to manage what we think is still yet multi-year as a repeatable, sustainable business with growth.

All right. That makes sense. That's it for me. Thanks.

Thanks, Blake. Our next question comes from Michael Dudas with Vertical Research Capital. Please proceed with your questions.

Good morning, Kip, Duke, Derek. First question, maybe you could elaborate a little bit more on your pretty good success just seeing the comms business with 5G, COVID-ish situation, the new normal. Have you seen any evidence or expect to see evidence of ramping up early, pushing some of that work through, and maybe at a better pace than anticipated going forward?

We've taken a measured approach to it. We're We're getting scale in most of our cities that we're in. We have certainly some larger opportunities there. I do think that the amount that we've certainly changed through this as we look at it and look at the demand of data at home, when you're trying to have conference calls and things of that nature and you have intermittency and all those kind of things as everybody's used Zoom and whatever else we're using. I personally haven't got quite there yet, but I'm working on it. And I think you'll continue to see that as we move forward, and the data that's really needed there to get the right kind of interaction between people is the bandwidth that's necessary. Certainly, we've got a long way to go, and we'll continue to see that deployment across the board. We're in current discussions all the time with our clients on that end to build that broadband.

Duke, you've got to get Zoom compliant. It's the 21st century here. I hear you. My follow-up is, as we look towards a 2021 timeframe, a normalization, hopefully in the economy and your businesses, can you speak to craft labor, access, going to change, obviously, with great unemployment levels, but you still think some of the skilled positions might be relatively in demand? How do you see that playing out, and do you anticipate maybe getting some more folks to come to your colleges and, you know, get more involved in your business relative to the longer-term view that you have with your clients? Thank you.

It helps us. I think it helps recruiting, and when we're looking at young folks getting into the workforce when they see stability, it always helps us. Typically, the oil fields draw out people that would normally come into our to our businesses. So is that if you see some decline in the midstream business and things like that, they tend to move back into more sustainable type businesses, which ours is that. So we should help us in that area. But I think we've invested quite a bit there. We continue to get people there. And so I'm optimistic on our workforce. Us and the model that we have, it really helps us to be localized in longstanding companies in regional areas. People resonate with a logo that's been there 50, 80, 100 years. They get it, and so they want to go there to go to work, and it really helps us in these environments.

Our final question comes online as Alex Regal with B. Riley. Please see what your question.

Surprisingly, I don't think I've heard too much talk about Keystone. Could you address Keystone? your uh capabilities availability of cruising equipment uh the possible timeline of keystone and how that can play out as it relates to bid award construction opportunities etc yeah um obviously it's it's something we've we've been around since 09 so we've we've bought right the fight right there with uh trans canada with them so we'll stay with them um we obviously

are in constant conversations on time frames and things like that with we have capacity and we have not baked any of that into the guidance at this point. And, you know, I think the logistics piece is kind of moving forward. So we are seeing some signs of life in Keystone. I don't want to get overly optimistic about it, but that's certainly there. I do think it's one of those projects is a critical project for Canada. You saw Alberta go in and support, you know, the Alberta piece of it. So that's a great sign there in Canada. So I'm optimistic about it. It seems in this timeframe that we've seen the tougher projects kind of move forward. And I don't know whether it's because of media or coverage or things like that, but some of our tougher projects have moved forward that I would have thought wouldn't have moved as fast. So I'm optimistic about it.

I also want to thank you for taking the hard path of providing guidance. Very helpful here.

Yeah. Thanks, Alex. Derek and I debated quite a bit about it. I think it's the right thing to do. So we'll move forward with it and give you better clarity in the second half of the year.

There are no further questions left in the queue.

I would like to pass the floor back over to management for any closing remarks.

Yeah, first I want to thank everyone for participating in the call. I can't say enough about our employees, our customer base that we have that have been through many, many times that are tough. And we've made it through the other side together and collaborating, and I think you'll continue to see Quanta do that. So thanks for participating with us today and your ongoing interest in Quanta.

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