Quanta Services, Inc.

Greetings, and welcome to the Quanta Services second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Kip Rupp, Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, and welcome, everyone, to the Qantas Services second quarter 2024 earnings conference call. This morning, we issued a press release announcing our second quarter 2024 results, which can be found in the investor relations section of our website at QantasServices.com. This morning, we also posted our second quarter 2024 operational and financial commentary and our 2024 outlook expectation summary on Qantas' investor relations website. While management will make brief introductory remarks during this morning's call, the operational and financial commentary is intended to largely replace management's prepared remarks, allowing additional time for questions from the institutional investment community. Please remember the information reported on this call speaks only as of today, August 1st, 2024, 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 and information intended to qualify under the Safe Harbor from Liability established by the Private Securities Litigation Reform Act of 1995, including statements reflecting expectations, intentions, assumptions, or beliefs about future events or financial performance that or that do not solely relate to historical or current facts. You should not place undue reliance on these statements as they 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. We will also present certain historical and forecasted non-GAAP financial measures. Reconciliations of these financial measures to their most directly comparable GAAP financial measures are included in our earnings release and operational and financial commentary. Please refer to these documents for additional information regarding our forward-looking statements and non-GAAP financial measures. Lastly, please sign up for email alerts through the investor relations section of quantaservices.com to receive notifications of news releases and other information, and follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would like to now turn the call over to Duke Austin, Quanta's President and CEO.

Duke? Thanks, Skip. Good morning, everyone, and welcome to the Kiwanis Services second quarter 2024 earnings conference call. Kiwanis' first half of the year is off to a good start. Their second quarter results highlighted by another quarter of double-digit growth in revenue, adjusted EBITDA, and adjusted earnings per share, record total backlog of $31.3 billion, and strong cash flow. We believe our results reflect the power of our portfolio, sound execution, and continued demand for our services. driven by our customers' multi-year programs to build the renewable generation and power grid infrastructure necessary to support North America's energy transition, load growth, security, and reliability. We recently completed the acquisition of Cupertino Electric, or CEI, which provides a platform of new service lines and dynamic customer base, which includes technology companies driving load growth and demand for renewable energies. CEI brings an exceptional management team and a premier craft-skilled workforce that complements Kiwanis culture and will create a comprehensive, self-performed electric infrastructure solution offering for renewable developers, utilities, and large power consumers, from electron generation to transmission to consumption. Utilities across the United States are experiencing and forecasting meaningful increases in power demand for the first time in many years, driven by the adoption of new technologies and related infrastructure, including artificial intelligence and data centers, as well as federal and state policies designed to accelerate the energy transition and policies intended to strategically reinforce domestic manufacturing and supply chain resource. There is momentum building across our portfolio of solutions, but the complexities of the energy transition, its impact on the power grid, and the significant upgrades and enhancements required to facilitate load growth, our collaborative solution-based approach is valued by our clients more than ever. We continue to look forward to the realization of our multi-year strategic initiatives and the goals we expect to achieve in the coming years. We are positioning Quanta for decades of expected necessary infrastructure investment and believe our service line diversity creates platforms for growth that expand our total adjustable market. Our portfolio approach and focus on craftskill labor is a strategic advantage that we believe provides us the ability to manage risk and shift resources across service lines and geographies, which is increasingly important as the energy transition and new technology add complexity to infrastructure programs. We believe our diversity and portfolio approach has also improved our cash flow and returns profile and positions us well to allocate resources to the opportunities we find the most economically attractive and to achieve operating efficiencies and consistent financial results. I will now turn the call over to Jayshree Desai, Climate CFO, to provide a few remarks about our results and 2024 guidance, and then we'll take

Thanks, Duke, and good morning, everyone. This morning, we reported second quarter revenues of $5.6 billion, net income attributable to common stock of $188.2 million, or $1.26 per diluted share, and adjusted diluting earnings per share of $1.90. Adjusted EBITDA was $523.2 million, or 9.4% of revenues. We generated healthy cash flows in the second quarter, with cash flow from operations of $391.3 million and free cash flow of $258.6 million. This earnings and cash flow performance allowed us to end the second quarter with ample liquidity and a balance sheet that supports both our organic growth expectations and the opportunistic deployment of capital to generate incremental returns for our stockholders. To that end, and as Duke commented, subsequent to the end of the second quarter, we completed the acquisition of CEI, upfront consideration of approximately $1.5 billion, excluding cash acquired and subject to customary adjustments. We funded $1.3 billion of the transaction with a combination of cash on hand, borrowings under our existing commercial paper program, and a new short-term loan facility, and we are currently evaluating debt refinancing options. This morning, we also provided an update to our full year 2024 financial expectations, which calls for another year of profitable growth with record revenues and opportunity for double-digit growth in adjusted EBITDA, adjusted earnings per share, and free cash flow. Of note, our increased guidance for revenues, adjusted EBITDA, and adjusted diluting earnings per share was attributable to the expected contributions from CEI, but otherwise our prior guidance for these financial metrics remain unchanged. We believe our expectations demonstrate the strength of our portfolio approach to the business, our commitment to our long-term strategy, favorable end market trends, and our competitive position in the marketplace. Additional details and commentary about our 2024 financial guidance can be found in our operational and financial commentary and outlook expectation summary, both of which are posted on our IR website. With that, we are happy to answer your questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone 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, while we poll for questions. Thank you. Our first question comes from the line of Justin Hawkey with Baird. Please proceed with your question.

Oh, great. Thank you very much. Good morning, everybody. I guess I wanted to start with just kind of a question of maybe the moving pieces, positives and negatives, within kind of the organic outlook. I mean, you said, you know, you're back here to unchanged. I guess, you know, it seems like, you know, some of your peers would maybe say that, you know, some of the base kind of low-voltage, I don't know if you want to call it more like retail market demand, maybe in your underground business, too, is a little bit weaker, some pressure with utilities. you know, offsetting, you know, storm was, was pretty good here. And I guess you had hurricane barrel, you know, obviously locally to you first couple of weeks of this month. And I guess, you know, can you just give us a little bit of the lay of the land of, you know, maybe what's moving a little bit stronger and what's a little bit weaker overall, getting you back to the same, same place for your outlook for the year.

Yeah. Thanks Jesse. You know, I think we've said all along that we run a portfolio and we look at it as a portfolio. So I, You know, the portfolio is performing as expected, and I expect it to continue. When we think through just the pushes and pulls, you know, for the most part, the business is performing well, better than what we anticipated in many cases. But, you know, I do think you can see some delineation between segments where you can have a segment that's a little off here or there. I would point out that our UI is, you know, when we forecasted the outlook on it, Certainly there's a mix and shift of work there. Utilities, when you think about their CapEx budgets, as they look at their own budgets, especially ones that have gas and electric, many of them are ahead of their leak replacements or don't have the capital there, so they move the capital over into underground distribution, transmission, whatever it may be, and it offsets into another segment for us. So that shift of work there, there's larger projects that move back and forth. We like the underground business. It's healthy. It'll continue. We will certainly take a conservative approach to how we look at that segment. Starts and stops on our large diameter pipe, things of that nature. We've always said we got to 500 million and we don't need it to make it. So I stand by that. We don't need it to make the midpoint of the range. The midpoint of the range is 860. And it's also... 15% organic growth at the midpoint of EPS. So I'll say that again, 15% organic growth at the midpoint.

Okay, great. Thanks. And then I guess maybe the second one is for Jayshree. So the renewables margins were really strong here in the quarter, but you mentioned there was still the drag from the handful of projects that you called out in the first quarter. I think in the Q last quarter, the hit from those was about 22 million. Do you have a similar number for 2Q, just so we can kind of have an understanding of what the margins would have been kind of excluding that drag?

Yeah, we had a little bit of a drag continue from one of those projects into the second. You'll see in the Q it's around 20 million, but the overall segment performed very well, better than we expected, overcame those challenges from those from the projects you mentioned in the first quarter. So we're pleased at where that segment is heading.

Yeah, and I'll add, we're performing really well there. There's the 95% or 99.9% of the projects that performed above what we thought as well. We just don't get to point those out.

Yeah. Yeah, no, the margins were strides. So it sounds like $20 million was still kind of the same source of pressure in the segment, so.

Okay, great. We've stated three projects. It's the same. It's the same. And, you know, there was some drag in the segment, some drag on it. But as you clear out, you can see it performed in kind of double-digit ranges on the way out.

Yeah. Going forward, let's take into our expectations. That's what you're seeing with the back half strength. And we feel like we've got the execution on those things under control. And we're confident in our back half expectations on renewables.

Great. Okay, thank you for taking my questions.

Our next question comes from the line of Sangeeta Jain with KeyBank Capital Markets. Please repeat your question.

Yeah, thanks. Good morning for taking my questions. So, Duke, if I can go back to the earlier question. Earlier this year, you had talked about a shift between transmission and distribution spending, and so far we are seeing that utility CapEx budgets are growing. under 50% for the first half. So can you help us understand what you're seeing now for the second half, if we should see a ramp back in that distribution spend, or are you still seeing kind of like air pockets there?

I mean, I think when you look at our transition distribution as a service line and not as a segment, we're up 9% for the year. So we haven't seen too much of a drag. Whether it be T or D, we're able to shift from one to the other You get some segmentation delineations. We said last time that we're up 9% if you just look at the work itself. So that said, yes, there's movements around utilities and whether they're T or D. We have a great deal of EV penetration out west, and so you're seeing some distribution spend there on coming to the budgets because of the penetration. Like we said before, 70% of EV sales are in California and the states, and so that's pushing. I will say that you can see the push on the distribution system and it validates what we've been saying. As that push, I can't tell you the pace of it. If it slows down, certainly it'll slow down. But nevertheless, as it pushes through, it certainly impacts our distribution systems, as you're seeing in California, where the load's substantial. There's a rebuild ongoing out there, and I think that will continue as you push into EV. So you have storm hardening in areas which are coming into play. We're strengthening, certainly, in the back half. You can see the numbers, and we like where we sit, and, you know, we're able to, the portfolios allowed us to, you know, go through the transition. There is ups and downs with different utilities, regulatory impacts, things of that nature. We're ahead of those things. We know what's coming. So the company's done a really nice job of putting ourselves in great positions to take advantage of our portfolio as we move through the year.

Great. That's very helpful. Thanks. And if maybe this one is for Jessie. On the renewables book to bill in the quarter, how much do you think was the result of Sunsea burning at high rates, and how much was it an actual lag in booking renewables, maybe?

Oh, yes, for sure. The Sunsea burn has an impact on that burn, but we are booking work. In fact, as we pointed out, we're booking additional work past the quarter. We are held to a higher comp because of that SunZia impact from last year, no doubt about it. But work is coming. We still feel very good about the year, and we continue to book work in that segment.

Yeah, and also I would add that the top line is one thing, but I also think that there's margin of creation in this segment as well that will certainly – look differently in the next year as we operate better through and execute better through this work. And I'm not concerned at this point around the top as well. We see growth. We see growth in 25. You know, some of you will be there in 25, and we've always said you'll have some stacking effect along the way as you stagger the growth. And multi-year outlook, we've talked about it over and over and over again, that you will stack on top of your base. Your base grows nicely. We stack some larger projects on top. That stacking effect is certainly there and will continue.

Thank you.

Our next question comes from the line of Brian Brophy with Staple. Please proceed with your question.

Yeah, thanks. Good morning, everybody. Just wanted to stick with renewable energy here. Obviously, there's some trade uncertainty out there, election uncertainty out there. Are you guys seeing any impact from this from customers? Are customers pulling back away at all as we await some clarity? Just curious what you're hearing and seeing there. Thanks.

A couple things on the removal side. I think you have a technology sector that is certainly backstopping most everything when you consider elections and elections. You know, the way the budgets are, and from our standpoint, technology continues to want renewable generation, and they're driving, whether it be chips or data centers or hyperscalers or whatever, they're driving the renewable business behind the, you know, what you would consider policy from road switching. So that drive will continue to, you know, as far as I'm concerned, Republican or Democratic, they've done well in both. has been pretty agnostic to what parties empower. And that drive in the backstop of technology is what's driving the load growth, which continues. And whether it's renewables or gas-fired generation to back it, you know, all those things play in, you know, certainly in where we're at. And, you know, the cheapest form of generation is transmission. The country still needs a significant amount of transmission to facilitate any kind of fuel switching or load growth.

That's helpful. Thanks. And then I just wanted to ask about TS Conductor. Can you talk about details on that investment? What was the rationale there? And just broadly, how are you thinking about opportunities in the manufacturing space? This is now the second deal you guys have done with a manufacturer here in the last year. Thanks.

Yeah, with TS, small investment there, alignment really to understand kind of where we're at. We like the technology. We think it's helpful. When you're talking about we do a lot of energized reconductoring or reconductoring in these corridors and being a part of that solution, great customer base in there that's invested as well. So we invested alongside our customers as well, and we like the technology, know a lot about it, have worked many years pulling conductor. So, you know, we think it's a good technology. It has some solutions across the board and certainly something we want to be a part of.

Appreciate it. I'll pass it on. Thank you.

Our next question comes from the line of Jamie Cook with Truist. Please proceed with your question.

Hi. Good morning. My first question, just on underground and utility, I think in the quarter you mentioned a mixed issue. If you could elaborate on that. And I think you lowered your margin target. Just why? And I'm wondering how Stronghold is performing today. given some, you know, you're hearing industrial weakness in other parts of the industrial landscape. And then my second question, Duke, is for you just strategically. You've had some pretty good success recently, you know, with M&A. And some of the questions I get from investors are, you know, is it going to be harder for Quanta to continue to grow organically just because of the law? A large number starts to work against them. And with your success in acquisitions, I'm just wondering, you know, going forward, should we expect... you know, greater balance or even potentially more growth or the portfolio driven by M&A versus organic growth. If the mix shifts more to M&A versus organic growth for those reasons. Thank you.

Thanks, Jamie. I'll go to the UI segment. The industrial business performed great. I mean, I think we set records. I continue to believe that it will going forward. So we like the business. We invested in Evergreen. We like that business as well. So early in the year, we continue to see good margins. It stabilizes a lot of the fluctuations in it. We did have some shift in business, some larger work. You can't predict when those things start. We never like to. So I would just say some of it just pushed. From my standpoint, I'm unwilling to put it in in the forecast. It may come back in, but we're going to be prudent about how we look at it. We are facing an election year and things of that nature, so we're going to be prudent about how we guide. I didn't like the way it looked, and so we made some decisions on the EUI segment. And then we had some MSA movement within the distribution business, LDC business, where you had some consolidated utilities move capital from LEC into underground electric or storm hardening or whatever it may be. So we picked it up on the other side. We also moved those crews to the other side. It shows up in the renewables and electric segment. So most of the resources and things like that will move over. We're not really, our head count's 58,000 plus today. So our head count's up. And we see some segment movement as well. So some shift there, some shift. and outward work on bigger projects, but the industrial business we like, and it's growing nicely. I'm a conservative on guidance there. So M&A, I think you can't predict M&A when we look at it. I will say organically over the past two years, you're growing at least at the EPS line, 15% at the midpoint of our guide this year, and what we've done last year and probably the year before wouldn't surprise me. I didn't look that far back, but We've been able to grow the business organically, and I know a lot of big numbers, and I look at them too. They were big when it was a billion-dollar company. They're big when it's five, and they're big when it's 20. So we just have to put our heads down and go to work and execute. I'm not worried about what everyone else is doing. Quanta needs to focus on solutions, and we really have a good strategy on M&A. I like what we see. We acquired a great platform that provides multi – verticals off of it. So I think we actually put ourselves in a position to have more M&A opportunities. Now, whether we do it or not, it just depends. It depends on the company. It depends on timing. We're going to be conservative with the balance sheet like we have been, leverage it. But I think you invest in Quanah for a couple reasons. One, we're going to execute our macro markets. And lastly, how we deploy free cash. And if we deploy free cash the way we have the past decade, I like our chances going forward.

Thank you.

Yes, ma'am.

Our next question comes from the line of Michael Dudas with Vertical Research Partners. Please proceed with your question.

Good morning, Kip, Duke, Shashree.

Good morning.

So maybe update us on the communications business. You highlighted the $900 million or so revenue this year. What's the tone of that business? It seems like you're probably targeting more value on the margin side relative to growth, and do you see some visibility as we move out the next couple years? Any trends or, you know, client discussions that could give it some improved traction going forward?

Yeah, we like the business. I mean, I think, you know... It's not something that the company certainly has some nice clients and we continue to invest with them in our resources. The business has always been fairly dynamic and moves quickly and budgets move in and out and so we're pretty what I would call prudent about how we invest in the business. We can grow it or not grow it and it doesn't really impact us too much so the growth It hasn't come from the segment at this point, and not to say it won't. We just haven't really pushed on it. You know, I really look at customer bases, whether they're regulated or non-regulated, how much exposure we want to communications and how we invest and allocate capital. So as we see that, you know, we make adjustments here or there to support our clients. But the business is fine. You know, the RDOF money or whatever the nomenclature is these days, You know, they say it's coming, it's coming, it's coming. Big spins, big spins. I haven't seen it yet. When it gets there, I'm sure we'll grow.

Got it. That's great. Thanks, Duke.

Our next question comes from a line of Alex Rigel with B Reilly Securities. Please proceed with your question.

Thank you. Good morning, Duke. A lot of tailwinds here driving your business. Any chance you could rank which ones might have the greatest impact on your business over the next three years?

Yeah, Alex, I think the technology customer base is what's driving low growth and what really gives me what I believe is something that we can point to that backstops most everything, the amount, the demand side of that. And no matter how you think about it, if it's even half what we're talking about from a gigawatt standpoint, it's substantially more than anyone thought. The capital budgets of our customers continue to rise, whether it be technology, whether it be utilities. So that rise is certainly something that we can point to. But I would just say the backstop of technology against all things power or data center, whatever it may be, is there, and then you roll it back and go, well, do they have a product to sell? And they absolutely do. I mean, I think people are willing to spend money on AI. People are willing to spend. So, you know, there is a product against the infrastructure that's necessary to be put in place. So I do believe the builds that are necessary to backstop generation are really being driven by technology. So I would point to that at this point for the driver of growth.

And then... With sort of this new big backdrop of technology driving your business, are you going to market and selling a broader portfolio of services in a different way today than maybe you did in the past?

I mean, I think we're more solution-based in trying to understand where the client's at and trying to have end-to-end solutions, whether it be front side of the business and provide the solution to the client. You know, as clients start moving faster, if you want to go faster, You really need to be inclusive, and we have to understand what the bottlenecks are from transformers all the way through it. And so our ability to really take out the bottlenecks to go faster to market is something that the company prides itself on. I think everyone that we deal with wants to go faster today. Can we do it faster? Can we do it faster? So our ability to get it to market quicker and on time and relatively in line with budgets It's something that people want and we're able to provide that. Thank you.

Our next question comes from the line of Steven Fisher with UBS. Please proceed with your question.

Thanks. Good morning. Just a question on cash flow related to the Canadian receivable. It sounds like you're still pretty confident in the position. that you have there, maybe if you could just give us a little more color on the timing of collection and thoughts around the guidance raised or the guidance maintaining there against the general guidance raised. And how tied is your deleveraging post-CEI to the collection of that Canadian receivable?

Yeah, so there's, I'll just get to the numbers, but the receivable itself, we're confident in our position. You know, we said it would start to happen in the second half of the year. So part of this is just the whole way the settlement works and the way we're working through it with the client. I expect it to be in chunks like you've seen today. But, you know, we're getting closer and closer every day. If it's not by the end of the year, it's very shortly thereafter. So we're making great progress working with the client in a collaborative manner. I see no issues. With that receivable, as you can see, some of it's starting to move forward now. So I like where we sit there. How much is your comment on the rest?

Yeah, I mean, we'll be under two times. Our expectation is under two times the leverage by the end of the year. And even without, if for whatever reason we weren't able to collect, which, again, we don't expect that, but to answer your question, we'd still be below two times.

Okay, excellent. And then, Duke, just a bigger picture question to follow up on the M&A. I mean, you've really broadened the capabilities of the company over the last several years. What does service line diversity mean for you going forward? Is it just sort of tweaks from here? Do you think there's still a lot more you can do to kind of diversify the service lines?

I think we really understand craft skill and how they think and how we think about it and how we respect that. So we have a workforce development. We have training that we've invested a significant amount in across craft. And I truly believe it doesn't matter what craft it is. So if it's inside electric, it gives us a whole new craft skill workforce because the high voltage and low voltage, the transferability between the two is not – I mean, you have to be trained on both sides of that. And so you can't move them across. A little bit you can. Some can, some can't. It's not as easy as it sounds. So there is extra training required on both sides of that movement. So I do believe that the voltage workforce gives us a whole new venue there. And then the things that we can do to meet customer demands across that from a craft standpoint are there. We like the front side of our business. As we've discussed before, we need to get, we need to basically get more scale out of the front side of the business. And so we'll continue to try to either organically grow that or make acquisitions in that side of the business. So we're not afraid to make acquisitions. It makes sense. I think we, we try to be prudent about that and we're patient. We're not, there's nothing imminent ever. We talked to Cupertino probably over seven or eight years, and it happens when it happens. And I think we're patient. And I want to make world-class companies, and I think we have the very best in the business in craft. So we want to lead the way there, and we'll be patient until we see the right kind of opportunities to add to the comprehensive solutions that we already have.

Sounds good. Thank you.

Our next question comes from the line of Neil Meadow with Goldman Sachs. Please proceed with your question.

Yeah, good morning, Duke and Jayshree. First question is more of a big picture question around the regulatory environment. There is no doubt there's an enormous demand for your services and the need for utility CapEx to upgrade the grid. But as we've seen in some tough regulatory outcomes, including in places like Illinois, Sometimes questions about the commitment of the regulator to push those capital increases through. And so I just love your perspective on the regulatory environment and the juxtaposition of the enormous need for the services relative to the constraints from a regulatory perspective.

Yeah, I think it's a couple of things. I do believe that energy is top of everyone's mind. Affordability is on top of everyone's mind. You're in a political environment. Sitting here in Houston watching the hurricane with our own customer, knowing that they did a really nice job getting people in here and the political outcry on day two of 27, 2.7 million people out with pine trees 100 foot tall falling across wire all throughout to expect them to have service back in two days. And the outcry and what it's done politically is not even close to fair for the money that's spent. If you want that and you want certainty and you want it up in two days, spend a trillion dollars and underground it. You'll fix it. Until you do, it doesn't matter what poll you put in. When you put a 100-foot tree across the water, it's coming down. And so I just – that outcry that we see from a regulatory standpoint, it doesn't match where the country wants to move. And it's expensive. It costs money. So that affordability is something that every single customer we have, whether – it doesn't matter where you're at. We all face it. We have to help them. I mean, I have to be out there and try to be prudent about how we look at costs. That's why we're looking at solutions that are different. We're certainly there to help and try to make this smoother, and they depend on us to do so. So I do believe, whether it's political or whether you're in political season, so it's fun times around. Once we get through that, I think some of this will die down and we can get the country moving in the right direction towards a transition. And if it's not, if we don't believe it's EV, if we don't believe it's renewables and the heat will continue and you'll have 114.15 and we'll need another air conditioner in every house. So either way, you're going to push load.

Yeah. Thanks, Duke. And then the follow-up is Cupertino really built on your data center platform. But as you think about what data center-focused opportunities could look like five years from now, How could you envision Quanta really scaling that business and what could success look like to capture the 15% type of growth and CAGR that you allude to in your slides?

Yeah, they're a real nice renewable business as well. So I wouldn't discount what they're doing there with batteries and solar. So I do think they're doing a nice job there as well. You can see it show up in the solar and the guidance. We like that as well, but The data center piece and onshoring of chips and, you know, all those kind of things, factories, right down the wheelhouse of where we think Cupertino can grow. They were limited by resources, bonding capacity, things of that nature. I do think our solution base, you know, a more comprehensive solution to their client base and balance sheet, speed to market, ability to manufacture transformers, you know, it just, everything that we're trying to accomplish to speed or speed to market is something that their client base values. So I like where we sit. Um, we're early. I know there's synergies in the market and, you know, we were talking around kind of an 8%. I know it's better. I know we can do better than that. I know they know we can do better than that. So, We'll continue to find synergies, and I think you'll see the growth not only in the top line, but also in the bottom line of the company. Our cash flow profile looks different. If you look at our returns, they look different. So we continue to push the company in the right spot, and the macro markets that we're in, they want solutions. We continue to say we're a solution provider, so here it is.

Thank you, Jim.

Our next question comes from the line of Chad Dillard with Bernstein. Please receive your question.

Hey, good morning, everyone.

Morning.

So a couple questions for you on the implied second half guidance. So first in your electric business, it seems like the second half, there's going to be a pretty significant ramp in revenues, half, over half, or year on year, even if you factor out the recent acquisition. So I was hoping you could help us bridge that and get comfortable with that. And then secondly, in the renewable business, at least based on the guide, again, excluding CEI, it looks like growth starts to flatten out as we exit the year. So I just want to get some color on how confident you feel about the reacceleration of that growth in that business.

Yeah. Hey Chad, on the, let me start with renewables. Again, we are sitting in a good spot. We feel good about where our customers are headed. As Duke pointed out, we're not seeing any concerns yet from our major customers around election noise, et cetera. I do think, again, the quality of the customer base matters a lot in the renewable market. So we still feel very confident about our end-of-year expectations there. We are, of course, as you know, we tend to be conservative. We want to see the market develop over the next six months. So any sort of perceived pullback is only that. We continue to enter contracts. We continue to build projects. We don't see any concern sitting here today. And on the electric side, it is a strong back half. But that is, we've touched on it. We're seeing our utility customers continue to want to spend capital. We believe that that capital is coming. We've got big programs that we've entered into, and that will start ramping towards the back half of the year. So all of those things give us confidence in our revenue expectations that we've laid out in our guide for both the electric and renewable students.

I'll try to stick a little color to you on that. I would say that as we see it, it's difficult to build big solar. One of the reasons that we felt like we needed to lean into Blattner and give us the very best in the business was we're concerned with building big solar projects. It's not easy. It looks easy. It's just not. And so I think that is something we have a great deal of confidence in, so does the client base. The need for renewables to support the tech growth gives you what we believe is visibility for the long haul here. And continue. I'm not saying they won't build gas. I'm not saying there will be a new plant here or there. But you're backstopping renewables, and you want redundancy in their system. So if they don't build it day one, they'll build it day two. They're pushing renewables into the system. So I do believe that will continue to be like what we see going forward under any administration. Yes, I think we've taken a prudent approach to guidance, and Jayshree's right. I mean, we are starting programs that give us a lot of visibility into the back half on the electric segment as well as the renewable segment. So we feel confident. We just need to execute through here.

Great. That's super helpful. And I just wanted to return to a conversation earlier in the call about the shift from the distribution, both electric and gas, towards transmission at utility customers. So I understand that that's what's happening today, or at least for 2024. But any call you can give from your conversation with your customers about whether you'll see incremental dollars of capital flowing back to the distribution side of the CapEx equation?

I mean, it's regional. You have some movements in there. I didn't say our electric business was moving one way or the other, by the way. I just said we have the ability to move them around if necessary. I feel like our distribution on the electric side is fine. There is some push in certain regions, but it's growing in others, so I'm not too concerned there. The gas side of the business, they're moving some capital off. gas into electric where, you know, you're caught up in some gas things and nothing releases, things like that. So they're moving over into electric for the year. It happens. They're able to move budgets around. We're able to accommodate. So there is some movement. There's always movement, though. I'll say it. Always. They're always moving into substations or transmission, distribution, it doesn't matter. We're fungible. Our skill sets are fungible. We can move them around. That's part of the solution that we provide to the client. It gives it the ultimate, what I consider, flexibility. Our job is to provide that flexibility to the client and that solution, and we can give it to them.

Great. Thank you.

Our next question comes from the line of Andy Kaplowitz with Citi. Please proceed with your question.

Good morning, everyone.

Hey, Andy.

Duke, you talked about a bit of a lull in contracting last quarter as your customers were trying to figure out how to deal with the higher load growth, but you obviously had a nice uptick in electric power backlog this quarter. So did that lull effectively come to an end? And then can you talk about your confidence level about going backlog from here? Are you starting to see these larger MSA renewables accelerating again?

Yeah, I think what we saw, you know, when I said low, I just think you reset a bit in this transition and continue to see that. I've been looking at their capital budgets, and you're talking about, you know, 15 gigs of solar land or below for that matter. Again, I see some movements across the segments consistently. I do think, you know, everyone's maintaining their capital budgets. We continue to point to it. And they're going up because load's going up. You can't deny the fact that if you're going to add 15 gigs, 10 gigs, 7 gigs of generation, load's going up, capital's going up. How you do it, whether it's gas fire, whether it's renewables, it's still moving up. If we build gas fire across the system, it stabilizes renewables and it actually makes renewables faster and better. So I wouldn't get to, I mean, you'll see some of those movements across, and you'll see those capitals move. We've just got to be flexible with how we look at it. So I think transmission is something that's extremely important. We saw PGM yesterday go out, and you can see the pricing at the capacity market. I just, and you can say, okay, it's one time, but the fact is demand's far out seeing supply. It's 101 economics and I, it just is there. It's been there. It's been coming. We need transmission in this country and we got to build it.

Very helpful. And then could you give us a little more color into how your Canadian business deal is doing? I think it's been a drag on you guys for quite a while. I know you expected some improvement in the second half of this year. I think you had some positive commentary regarding still expecting improvement in Canada in your release, but could you update us on where you are in that geography?

I mean, it's certainly getting better. The macro market's getting better. We expect the second half to increasingly better quarter over quarter and into 25 because the market's getting better. Canada's always a fickle market. It has high highs and low lows, and so you move along with it, but we were able to move a lot of, The resources into the states still are in the states, helping and supporting some of the growth in the states. And as we see Canada come back, we'll push into Canada more. Australia's a nice business as well. It's been very, very nicely. So we like the business long-term. We just got a right size on the backside of it, and we'll grow off that again and just be cautious about how we look at that and go for a basis. But I do think in the next year that we see We book the work and see where it will allow us to bring the margins up very close to parity with the rest of the segment throughout the year. It's incremental, though. It's not all at once.

Appreciate all the color. Sure.

Thank you. We have no further questions at this time. I would like to turn the floor back over to management for closing comments.

Yeah, so we appreciate the 58,000-plus employees and their dedication to the clients and what they go through every day with the heat and rain. They work 16-hour days, 20 days in a row. It doesn't go unnoticed. It doesn't go unnoticed from the management team and the clients. We appreciate you. And we'd like to thank all of you for participating in the conference call. We appreciate your questions and your ongoing interest in quantum services. Thank you. This concludes our call.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.