Quanta Services, Inc.

Greetings and welcome to the Qantas Services fourth quarter and full year 2020 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Kip Rupp, Vice President and Investor Relations. Thank you, sir. Please go ahead.

Great. Thank you and welcome everyone to the Qantas Services fourth quarter and full year 2020 earnings conference call. This morning we issued a press release announcing our fourth quarter and full year results, which can be found in the Investor Relations section of our website at QantasServices.com, along with a summary of our 2021 outlook and commentary that we'll 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 viewable or available on the investor relations section of the Quantum Services website. Please remember that information reported on this call speaks only as of today, February 25th, 2021, 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 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 and Exchange Commission, which are available on QANAs or the SEC's website. You should not place undue reliance on forward-looking statements, and QANA does not undertake any obligation to update such statements and disclaims any written or oral statements made by any third party regarding the subject matter of this call. Please also note that we will present certain historical and forecasted non-GAAP financial measures in today's call, including adjusted diluted EPS, backlog, EBITDA, 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'd 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 Quanta Services on the social media channels listed on our website. With that, I would now like to turn the call over to Mr. Duke Austin, Quanta's president and CEO. Duke?

Thanks, Skip. Good morning, everyone, and welcome to the Quanta Services fourth quarter and full year 2020 earnings conference call. On the call today, I will provide operational and strategic commentary and will then turn it over to Derek Jensen, Juana's Chief Financial Officer, who will provide a review of our fourth quarter and full year results and full year 2021 financial expectations. Following Derek's comments, we welcome your questions. As noted in our earnings release this morning, we have renamed both of our segments to include solutions. which we believe is an accurate word to describe the value-creating and collaborative approach we take to working with our customers. Additionally, we renamed our pipeline and industrial segment to underground utility and infrastructure solutions, which we believe is more reflective of the strategic changes we have made over the past five years to reposition this segment towards a greater level of resilient business services to our gas utility, pipeline integrity, and industrial customers. These services tend to be more visible and recurring in nature and are driven by safety, reliability, and environmental regulations. We continue to expand our capabilities in both segments to provide comprehensive end-to-end solutions with craft field labor at the core. We are proud of our successful focus on base business activity over the last five years, which now accounts for more than 90% of our revenues. We continue to view large projects as upside opportunities and are well positioned to safely execute them when they occur. QANU performed well and delivered a solid year in 2020, which includes numerous accomplishments. This was due to the performance of our field leadership and the people of this organization, who continue to be exceptional. Here are some of the accomplishments in 2020. Electric power segment revenues achieved record levels, and we earned our best operating margin performance in six years, driven by strong execution across our operations. Included in these results were record storm response revenues from supporting our customers' efforts to restore power to millions of people adversely impacted by numerous severe weather events during the year. Our ability to quickly mobilize this level of resources to support our customers in times of need even during a pandemic, is unmatched in our industry. After an 18-month competitive process, LUMA Energy, our joint venture with ACCO, was selected for a 15-year operation and maintenance agreement to operate, maintain, and modernize PREPA's more than 18,000-mile electric transmission and distribution system in Puerto Rico. LUMA and PREPA are making good progress towards transitioning operations of the system this year and we continue to believe this opportunity is transformative for QANU. We grew our communication services revenues by more than 40%, meaningfully improved profit margins, and ended the year with a total backlog of approximately $900 million. We substantially completed the exit of our Latin American operations, despite the significant challenges and impacts to these wind-down activities from the effects of COVID-19. We continue to lead the industry in safety, which we believe starts with training. We continue to incrementally invest in our training efforts through our Northwest Line College and Quanta Advanced Training Center. Additionally, last year we began site preparation for a new line worker training campus in Puerto Rico that will be operated by Northwest Line College. The facility will provide world-class training to Luma's employees and develop Puerto Rico's future craft skill workforce. Our industry-leading training and recruiting initiatives are driving improved productivity in the field and ensures that we have the very best craft skill labor. This enhances our ability to collaborate with customers and labor affiliations on future workforce needs and further differentiates us in the marketplace as a strategic solutions provider. We invested approximately $400 million in strategic acquisition of seven high-quality companies with great management teams that expand or enhance our ability to provide solutions to our customers, are additive to our base business, and advance our strategic initiatives. These companies add to our self-perform capabilities, which typically accounts for approximately 85% of our work, and are key to providing cost certainty to our customers. We believe our approach to acquisitions and our operating model helps de-risk our work portfolio through improved execution and results in more consistent earnings. We strengthened our financial position with the closing of our $1 billion investment-grade senior notes offering, which we believe points to the resiliency and sustainability of our business model and positive multi-year outlook. We demonstrated our commitment to stockholder value and confidence in Kiwanis financial strength and continued growth opportunities through the acquisition of approximately $250 million of common stock and a 25% increase in our dividend. And finally, the diversity of our services, proactive cost management, and execution through significant uncertainty caused by the pandemic and challenged energy markets allowed our underground utility and infrastructure solutions operations to perform well under the circumstances. We are optimistic that the most challenging market conditions are behind us and we see opportunity for revenue and margin improvement in 2021 and continue to believe the segment can achieve upper single-digit operating income margins as operating conditions further normalize over time. We believe our strategic position in the marketplace remains strong. and we are well positioned for continued profitable growth over the near and longer term. Despite unprecedented operating conditions and uncertainties caused by the global pandemic for portions of our business, the strong performance of our electric power and communications operations resulted in record adjusted EPS, adjusted EBITDA, cash flow, and backlog in 2020. While we are proud of the achievements last year, we remain focused on getting better to ensure that Kiwana continues to evolve to effectively collaborate with our customers and business partners in helping them achieve their goals and to capitalize on the opportunities ahead of us. The recent severe weather conditions that impacted living conditions in Texas and other parts of the country shows how a critical infrastructure that we design, build, and maintain is to our everyday well-being. The solutions Quanta provides supports our customers' efforts to increase reliability, safety, efficiency, and connectivity, all of which have a favorable environmental and social impact on both the markets that we serve and society. Additionally, our solutions facilitate policies and goals aimed at the adoption of new technologies and transitioning towards a carbon-neutral economy. As a result, we believe our business is levered to favorable and sustainable long-term goals. Our utility customers, who account for more than 70% of our 2020 revenues, are leaders in the effort to reduce carbon emissions with aggressive efforts to modernize and harden their systems, expand their renewable generation portfolios, and implement new technologies for current and future needs. A number of utilities have committed to providing 100% of their power by clean energy or achieving net zero carbon emissions by 2050. Achieving these goals will require substantial incremental investment in transmission, substation, and distribution infrastructure to interconnect new renewable generation facilities to the power grid and to ensure grid reliability due to the significant increase of intermittent power added to the system. Further, developed economies are expected to be increasingly driven by electricity to meet carbon reduction goals over time. Vehicle electrification offers a large carbon reduction opportunity in addition to residential and commercial space and water heating and industrial and agricultural electrification. According to a report from the WIRES Group, increased electrification and electric vehicle adoption in the United States could require 70 to 200 gigawatts of new power generation by 2030. the majority of which is expected to be renewables and could require incremental transmission investment of $30 to $90 billion by 2030. We believe these investment requirements associated with electrification are in addition to the significant multi-year investment programs already in place for the coming years to modernize the existing power grid to ensure reliable power delivery under current market conditions. The outlook for our communications operations, which is within the electric power segment, remains bright. We expect to generate approximately $700 million in revenue this year, which would represent approximately 30% growth over 2020. Our communications services support the technology we use every day for work, education, entertainment, connecting with friends and family, all of which are critically important. To that end, the effects of COVID-19 have caused communication providers to increase investment in the fiber networks to ensure adequate speed, capacity, and reliability to meet these needs. Additionally, we believe Quanta is well-positioned to leverage our electric power and communication solutions capabilities to assist many of our rural and municipal electric customers who are expected to participate in the Rural Digital Opportunity Fund. This fund provides more than $20 billion to bridge the digital divide that exists for millions of people living in rural America without access to adequate broadband connectivity. Further, we expect 5G deployments to accelerate in 2021, which we remain well-positioned to continue to participate in. Our underground utility and infrastructure solutions segment experienced meaningful challenges during the year to the effects of COVID-19. such as shutdowns in certain cities that had short-term impacts on our gas utility services and the significant reduction in demand for refined products that materially impacted our industrial service customers. As discussed previously, we believe the greatest impacts from these dynamics are behind us. Going forward, we expect to continue our focus on our gas utility, pipeline integrity, and industrial services businesses, consistent with our strategy of the last five years. due to the favorable long-term trends driven by safety, reliability, and environmental regulations. Our gas utility services supported regulated programs to replace and modernize aging infrastructure, which can be leak-prone and pose potential safety concerns. They also support customer efforts to reduce methane emissions and position their gas distribution systems to potentially deliver hydrogen to users in the future. Our pipeline integrity services seek to ensure that existing pipelines operate safely and in an environmentally friendly manner. And many of our industrial services support customers' compliance with regulations aimed at minimizing environmental impacts caused by methane gas release and increased operational efficiency and safety. We believe these favorable safety, reliability, and environmental initiatives and long-term industry trends, such as electrifications and technology implementations, will continue to drive growth opportunities for Quanta for the foreseeable future. Quanta is actively engaged in collaborative conversations with many of our customers about their multi-year, multi-billion dollar programs extending as far as 10 years. regarding how Quanah can provide solutions throughout our customer's value chain to meet their strategic infrastructure investment goals in support of these initiatives. In our earnings release this morning, we provided our 2021 guidance, which we believe demonstrates the strength and sustainability of our business and long-term strategy, favorable in market trends, our ability to safely execute in our strong competitive position in the marketplace. Our expectations call for growth in revenues, adjusted EBITDA, and earnings per share, and improved profit margins. Additionally, we see opportunity to achieve new record levels of backlog in 2021. In summary, we generated solid results in 2020 that we believe will reflect the resiliency and sustainability of our business. The benefit of our strong financial position, the successful execution of our strategic initiatives, and the excellence of our people. The challenges we faced and the way we continued to support and collaborate with our customers last year, particularly as it relates to the pandemic, brought out the best of this organization, and I believe, made Kiwanis stronger. Overall, our end markets and multi-year visibility are solid, and we have built a strong platform that positions us well to capitalize on favorable long-term trends, particularly the transition towards a carbon-neutral economy and the adoption of new technologies. Considering our organic growth opportunities and the levers available to us to allocate future cash flow generation into creating opportunities such as stock repurchases, acquisitions, strategic investments, and dividends, we believe Quanta will continue to generate meaningful stockholder value going forward. Quanta is a portfolio of exceptional businesses with geographic and service line diversity. We are anchored by our commitment to craft skill labor and our self-reformed capabilities. 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 our stakeholders. I will now turn the call over to Derek Jensen, our CFO, for his review of the fourth quarter and full year results and 2021 expectations. Derek.