Quanta Services, Inc.

Greetings and welcome to the Qantas Services fourth quarter and full year 2021 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 one on your telephone keypad. 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. It is now my pleasure to introduce your host, Kip Rupp, Vice President, Investor Relations. Thank you. Please go ahead.

Thank you, and welcome, everyone, to the Qantas Services fourth quarter and full year 2021 earnings conference call. This morning, we issued a press release announcing our fourth quarter and full year 2021 results, which can be found in the Investor Relations section of our website at QantasServices.com, along with a summary of our 2022 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, February 24, 2022, 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 and satisfy 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 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 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 Quanta Services on the social media channels listed on our website. With that, I'd like to now turn the call over to Mr. Duke Austin, Quanta's president and CEO.

Duke? Thanks, Keith. Good morning, everyone, and welcome to the Quantum Services fourth quarter and full year 2021 earnings conference call. On the call today, I will provide operational and strategic commentary and will then turn it over to Derek Jensen, Quantum's chief financial officer, who will provide a review of our fourth quarter results and full year 2022 financial expectations. Following Derek's comments, we welcome your questions. This morning, we reported strong fourth quarter results. complete another year of solid, safe execution, profitable growth. These results were built off a strong operational and financial platform, and we believe demonstrates the dedication of the best employees in the industry. Our portfolio of companies, diversity of service lines, and field leadership has allowed us to endure the uncertainties and challenges presented by the global pandemic over the past couple of years while still delivering four consecutive years of record-adjusted EBITDA, and five consecutive years of record-adjusted earnings per share. We accomplished a great deal in 2021 through the successful implementation of our strategic initiatives and our past success positions us well for the future. We remain focused on continuing to provide collaborative solutions to our customers and business partners to help them achieve their goals and to capitalize on opportunities to enable the energy transition that is unfolding. Here are some of our accomplishments in 2021. We continue to advance our front-end solution strategy, both organically and through acquisitions, which is focused on strengthening our design, engineering, permitting, environmental, and program management capabilities. This strategy allows us to expand our solutions to our customers, enhances risk management, and increases our total adjustable market. We expanded our emergency response capabilities and generated another year of record revenues by supporting our customers. Efforts to restore power to millions of people adversely impacted by several severe weather events during the year. Our ability to quickly mobilize significant resources to support our customers in times of need is unmasked in our industry. Luma Energy, our joint venture with ATCO, successfully transitioned to managing Puerto Rico's more than 18,000-mile electric transmission and distribution systems. Though many years of challenges and work remain, LUMA has made significant progress in improving customer service, response times, customer communication, and system reliability. We continue to believe this opportunity is transformative for Juana and the people of Puerto Rico, and remain committed to supporting LUMA's mission to provide reliable electricity while building a modern and sustainable transmission and distribution system. Of our commitment to the people of Puerto Rico, we, along with ATCO, funded and commenced the LUMA College for Technical Training in Puerto Rico, and the first class of electric utility line workers graduated in October. Since opening the college, which is supported by Northwest Lineman College, hundreds of workers from LUMA have received additional training with the support of QANU. We are proud of our commitment to the advancement of craft-skilled workforce in Puerto Rico. We grew our communication services revenue by approximately 25% and ended the year with record communications total backlog of approximately $1.3 billion. We also developed and rolled out wireless infrastructure solutions to strengthen our opportunities to capitalize on 5G network deployment and the ongoing enhancement of 4G wireless networks. We expect to profitably grow the business and are booking incremental wireless revenue. We completed the acquisition of Blattner, a premier utility-scale renewable energy infrastructure solutions provider in North America, with decades of experience and strong safety culture. This is Quanta's largest acquisition to date, and we believe it positions Quanta to be a leader in the energy transition and transforms our ability to collaborate early with our customers on their energy transition strategies. The integration of Blattner is going well, and we have increasing confidence in our ability to create meaningful growth and cost synergies together over time. We made meaningful progress in our initiative to apply certain skill sets and expertise from operations within the underground utility and infrastructure solution segment to perform certain aspects of electric power and telecom-related work. We believe the resource expansion and operating leverage we gained through this initiative is a significant opportunity for Quantum to reinforce our self-reformed capabilities, improve operating efficiency and profitability, and demonstrates the strength of our portfolio approach. In addition to the acquisition of Platinum, we invested approximately $350 million in strategic acquisitions of nine high-quality companies, which primarily support our electric power and front-end service solutions. We believe the acquired companies are additive to our base business, advance our strategic initiatives, and enhance our self-reform capabilities, which typically accounts for approximately 80% of our work and are key to providing cost certainty to our customers. We maintained our investment-grade credit rating while issuing $1.5 billion of senior notes and expanded our credit facility to fund the Glattner acquisition, which we believe points to the merits of the transaction, our strong financial profile, the resiliency and sustainability of our business model, and positive multi-year outlook. We demonstrated our commitment to stockholder value and our confidence in Kiwanis' financial strength and continued growth opportunities through the repurchase of approximately $64 million of common stock and a 20% increase of our dividends. And finally, we continue to increase our efforts and dedicate resources toward implementing sustainable business practices throughout the organization and to improve the data we capture to manage our operations sustainability and better communicate our ESG impact and initiatives to our stakeholders. It is easy to take for granted the reliability of the power grid. Access to abundant resources of affordable energy and Internet connectivity for commerce and entertainment. The impact of a hurricane, winter storm, wildfire, or other event that shuts off power affects our ability to heat or cool our homes and disrupts our quality of life. Quickly changes this perspective and highlights how critical the infrastructure that we design, build, and maintain is to our everyday well-being. The solutions Quanta provides support our customers' efforts to increase reliability, safety, efficiency, and connectivity. all of which have a favorable environmental and social impact. Additionally, our services are the forefront of providing the infrastructure solutions necessary to enable the energy transition and the adoption of new technology. As a result, we believe our business is levered to favorable and sustainable long-term trends. Demand for grid modernization, system hardening, electric vehicle charging, infrastructure, and renewable energy interconnection services is robust, and we believe will remain so for the foreseeable future. This activity drove our electric power results and backlog strength during 2021, primarily through significant multi-year master service agreements with utilities. Further, we believe we are in the early stages of utilities undergrounding transmission and distribution lines to protect them from the effects of severe weather events and wildfires. For example, several utilities in the western United States are planning to invest tens of billions of dollars in the aggregate to underground thousands of miles of electric power lines in high-fire threat areas. Electric utilities in other areas of the country are pursuing initiatives to underground critical infrastructure. Examples include electric transmission projects in the northeast, distribution circuits along the coastlines, and electric transmission line projects for offshore wind generation. Many of these initiatives are part of the large-scale multiyear system partnering programs. We also believe North America is at an inflection point for significant investment in electric vehicle related infrastructure, including charging infrastructure and the electric distribution system upgrades necessary to support the anticipated increase in the adoption of electric cars, trucks, and commercial fleet vehicles in the coming years. Quanta continues its work with multiple leading electrical vehicle charging companies and utilities to build out infrastructure necessary to make fast, affordable charging possible in numerous states across the country. Quanta is presently working on the rollout of hundreds of charging stations. In many of these locations, Quanta is serving as the program manager, providing a full suite of engineering, development, and construction services. With our scope and scale, and turnkey program management capabilities, we are pursuing additional EV charging program management opportunities with other charging infrastructure companies, automakers, and utilities. Our communications operations, which are within the electric power segment, grew revenues and backlog nicely in 2021, but our profitability levels did not achieve our goals. We are working constructively with our customers on certain items, that have impacted profitability and believe these issues are approaching resolution. With the exception of these issues, the remainder of the communications operations are operating close to our target margin profile for the year. The demand for communication services remains high, and we expect double-digit revenue growth and a return to single-digit operating income margins for our communications operations in 2022. With the addition of Blattner to our portfolio, we have begun reporting through three segments by adding a new renewable energy infrastructure solution segment. This platform consists of services and solutions for infrastructure supporting the delivery of renewable energy, including renewable generation, electric transmission, substations, and battery storage. With Blattner's operations representing the majority of those solutions, we are strategically positioned to collaborate with our customers to lead North America's energy transition and capitalized on the growing and significant amount of expenditure expected to be invested in renewable generation and related infrastructure as part of these efforts. Renewable developers and utilities are leading the effort to reduce carbon emissions. Many with carbon neutral commitments do aggressive efforts to expand their renewable generation portfolios and implement new technologies for current and future needs. Achieving their goals will also require substantial incremental investment in transmission and substation 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. For example, we highlighted in our earnings release this morning our recent selection to build more than 400 miles of high-voltage electric transmission across several states for our customer in the western United States. This project is designed to improve operational flexibility in conjunction with future generation resources, including renewable energy to meet the load growth and provide increased reliability. Also of note, this is the largest electric transmission line contract ever awarded to Quantum in the United States. Over the near and longer term, We believe substantial low growth, public policy, and the overall positive sentiment supporting a greener environment will continue to drive North America's power generation mix increasingly towards renewables. Votner's utility-scale renewable generation solutions, coupled with Quanta's existing holistic grid solutions, create the unique value proposition and opportunity to collaborate with our customers to shape their energy transition initiatives. We are increasingly confident in the gross synergy opportunities we have with the addition of platinum, and to that end, believe we have only scratched the surface on what is possible. Our underground utility and infrastructure solution segment faced challenges last year, primarily due to circumstances outside of our control, such as impacts from the global pandemic, work disruptions along the Gulf Coast, due to hurricane and impact on results from a customer bankruptcy. Despite these challenges, our operations persevered and our gas utility and pipeline integrity operations performed well. We believe the recovery of certain of our markets and operations has begun. In particular, we expect our industrial services, Canadian and Australian operations to meaningfully improve this year, both in revenue and margins. We expect to continue our focus on growing 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. Looking to the coming years, we believe Tawana has meaningful opportunities with customers in this segment as they increasingly pursue strategies to reduce their carbon footprint and transition their operations and assets towards greener business opportunities. For example, gas utilities are implementing system modernization initiatives to reduce methane emissions and that position them to blend hydrogen into their natural gas flow and certain refiners. Utilities and developers are building renewable natural gas and biofuel processing facilities. We are also actively pursuing sizable carbon sequestration projects. In our earnings release this morning, we provided our 2022 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, and our strong and strengthening competitive positions in the marketplace. Further, our ongoing investment in and commitment to workforce training continues to positively impact our performance and positions us well to capitalize on future opportunities. Our expectations call for another year of meaningful growth, record revenues, adjusted EBITDA, and earnings per share, and improved profit margins. Additionally, we see opportunity to achieve new record levels of backlog in 2022. Derek will provide additional detail about our guidance in his commentary. In summary, the strong performance of our electric power and renewable energy infrastructure solutions operations and the contribution of acquisitions during the year yielded record results in 2021 and has given us a leading platform to collaborate with our customers to shape the energy transition. We believe our strategic position in the marketplace remains strong, which has been further enhanced by the acquisition of Blattner, and that we are all well-positioned for continued profitable growth over the near and longer term. We continue to make meaningful contributions meaningful progress on growing our portfolio of services within each of our units to further leverage our operating results. The recent promotion of Reggie Probst to Chief Operating Officer is intended to support and promote this strategy, and we look forward to continuing to work with him on his important initiative. Considering our organic growth opportunities and the leverage available to us to allocate future cash flow generation into value-creating opportunities, such as stock repurchases, acquisitions, strategic investments, and dividends, we believe Quanta will continue to generate meaningful value for our stakeholders going forward. 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 Quanta's base business and leadership position in the industry and provide innovative solutions to our customers. We believe quantum diversity, unique operating model, and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for our stakeholders. I will now turn the call over to Derek Jensen, our CFO, for his review of our fourth quarter and full year results and 2022 expectations.