Quanta Services, Inc.

Greetings and welcome to QANTA Services first quarter 2021 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kip Rupp, Vice President, Investor Relations. Please go ahead, sir.

Great. Thank you, and welcome, everyone, to the Kiwana Service's first quarter 2021 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 KiwanaService.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 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 6, 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 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 QANTA's or the SEC's website. You should not place undue reliance on forward-looking statements, and QANTA does not undertake any obligation to update such statements and disclaims any written or oral statements made by a 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 would like to be notified when Quanah 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, Kip. Good morning, everyone, and welcome to the Quanta Services first quarter 2021 earnings conference call. On the call today, I will provide operational and strategic commentary and will then turn the call over to Derek Jensen, QANU's Chief Financial Officer, who will provide a review of our first quarter results and full year 2021 financial expectations. Following Derek's comments, we welcome your questions. This morning, we reported solid first quarter results. with revenues of $2.7 billion in gap and adjusted diluted earnings per share of $0.62 and $0.83, respectively. Backlog at the end of the quarter was a record $15.8 billion, which we believe reflects the continued advancement of our long-term growth strategies. We continue to see opportunities for multi-year growth across our service lines, driven by our solutions-based approach and the growth of programmatic spending with existing and new customers. The recognition that the country's infrastructure needs to be modernized to support economic growth, improve safety and reliability, and for a cleaner environment is evidenced by the Biden administration's recently proposed $2 trillion infrastructure plan. The proposal will evolve and take time to move through the political process. But as proposed, the plan includes funding and policies to encourage new infrastructure development and modernization in several of our core markets, including high voltage electric transmission and power grid modernization and resiliency, renewable energy, electric vehicle charging station infrastructure and other electrification initiatives, and broadband infrastructure expansion. While this infrastructure proposal could accelerate activity in these areas and provide incremental opportunity for QANTA over several years, I want to stress that our positive multiyear outlook and strategic plan are not reliant on this infrastructure proposal. We have been collaborating with our customers for many years to support their significant multi-year investment programs already in place to modernize the existing power grid, ensure reliable power delivery, and to integrate higher levels of renewable generation. Our electric power solutions operations perform well during the quarter, reflecting broad-based business strength driven by ongoing grid modernization, system hardening, renewable energy interconnections, and solid and safe execution. During the quarter, we signed a significant multi-year master services agreement with a utility in the western United States, which made a substantial incremental contribution to our record first quarter backlog. We believe our record backlog and these initiatives will continue to drive multi-year growth opportunities for Qantas. Though COVID-19 has created some near term challenges in Canada, we see opportunities to pursue additional large projects there for the coming years. Additionally, our discussions with high voltage electric transmission project sponsors in the United States have increased, as the need for large scale electric transmission infrastructure to support growing renewable generation and achieve carbon neutrality goals become evident. Luma Energy and its employees as supported by Quanah and its joint venture partner, ATCO, are all working diligently towards transitioning the operations and maintenance of the Puerto Rico electric power grid to LUMA in early June. LUMA's efforts under the agreement are intended to deliver long-term social and economic benefits to the people of Puerto Rico. As stated previously, we believe this opportunity is transformative for all the parties involved, including the people of Puerto Rico, and the work to be performed by Luma under the 15-year contract aligns with Quanah's strategy of providing sophisticated and valuable solutions to the utility industry that benefits consumers. The majority of our communications operations are off to a solid start this year, driven by strong demand for fiber densification to reach homes and businesses and the early stages of 5G network deployments. During the quarter, we experienced short-term challenges largely associated with deficient subcontractor work in a specific geographic area, which required rework. We have addressed our quality assessment protocol shortcomings on this issue and are pursuing compensation from the subcontractor. This was an isolated issue, and we believe we are on track to generate high single or double digit operating income margins for the remainder of this year. Additionally, we continue to believe We can achieve at least $1 billion in annual revenue with double-digit operating income margins in the medium term. As service providers continue to push fiber closer to the customer, fiber backhaul densification continues, 5G wireless infrastructure development increases, and meaningful federal funding is provided for broadband network expansion initiatives in underserved markets. On prior calls, we have shared our belief that Quanta is uniquely positioned between the communications and utility industries to provide solutions for broadband and 5G technology deployments, leveraging existing infrastructure. We have made significant progress working with our customers and a broadband technology partner, and during the first quarter, made a minority financial investment in this partner. We also entered into a strategic alliance with them, where Quanta will serve as a program manager for large-scale deployments of their fixed wireless broadband technology, which we utilize our customers' facilities where appropriate. We believe this relationship advances our solutions with customers to accelerate and improve access to affordable and reliable broadband in rural and underserved markets. We believe our proactive strategy and the unique solutions Quanta provides the marketplace enhances our opportunity to expand our telecom infrastructure solutions with other utility and communication customers. Our underground utility and infrastructure solution segment performed well in the quarter, with better than expected profitability despite seasonality and continued challenges caused by COVID-19. We are confident in our full expectations for the segment, driven by solid demand for our gas utility and pipeline integrity service. Additionally, there are encouraging signs supporting our expectations of improved demand for our industrial services beginning in the second half of this year. We believe deferred maintenance and capital spending due to the effects of COVID on the downstream market is creating pent-up demand for our services, which should prove beneficial as market conditions normalize for our customers. However, we would like to see how the summer travel season develops, which could influence activity levels of our downstream customers before making adjustments to our full-year expectations for this segment. The solutions Quanta provides support our customers' efforts to increase reliability, safety, efficiency, and connectivity, all of which have favorable environmental and social impact. 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 grid modernization and hardening. The transition toward a carbon-neutral economy and the adoption of new technologies such as 5G, battery storage, and hydrogen. Previously, we have discussed our strategic focus on enhancing our front-end capabilities, such as engineering and permitting. To complement our world-class construction expertise, our strategy is designed to provide differentiated, comprehensive, and industry-leading solutions to our customers, which we have achieved through organic investment and select acquisitions. This strategy is contributing to our backlog growth, increasing our total addressable market, and providing meaningful growth opportunities for the future. In our earnings release this morning, we raised our 2021 guidance due to solid first quarter results and confidence in the business. We believe this demonstrates the strength and sustainability of our business and long-term strategy, favorable in market trends, our ability to safely execute, and our strong competitive position in the marketplace. We continue to believe we are in a multi-year up cycle with continued opportunity for further record backlog and results in 2021. 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 build 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 Kiwanis' 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 our first quarter results and 2021 expectations. Derek?