Quanta Services Inc (PWR) — Q1 2024 Earnings Call Transcript

Thank you and welcome, everyone, to the Quanta Services First Quarter 2024 Earnings Conference Call. This morning, we issued a press release announcing our first quarter 2024 results, which can be found in the Investor Relations section of our website at quantaservices.com. As highlighted in our earnings release this morning, we've recently updated our earnings call format and supplemental materials. Shortly after the release of our financial results this morning, we posted our first quarter 2024 operational and financial commentary and our 2024 outlook expectation summary on Quanta's 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. Additionally, we no longer have a slide presentation to accompany this call as the information that has historically been included in the presentation can now be found in our operational and financial commentary. Please remember that information reported on this call speaks only as of today, May 2, 2024. Therefore, you're advised that any time-sensitive information may no longer be accurate as of any replay of this call. This call will include forward-looking statements intended to qualify under the safe harbor from liability, established by the Private Securities Litigation Reform Act of 1995, including all statements reflecting expectations, intentions, assumptions or beliefs about future events or performance 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 Quanta'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, if you would like to be notified when Quanta publishes news releases and other information, please sign up for e-mail 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, Kip. Good morning, everyone, and welcome to Quanta Services First Quarter 2024 Earnings Conference Call. This morning, we reported our first quarter 2024 results, which included double-digit growth in revenue, adjusted EBITDA, adjusted earnings per share, and strong cash flow, demonstrating an overall good start to the year. Total backlog at quarter end was $29.9 billion, which we believe reflects the value of our collaborative client relationships and evidences the momentum we see for 2024. 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 resources. With the complexities of 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 multiyear strategic initiatives and the goals we expect to achieve in this and 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 addressable market. Our portfolio approach and focus on skilled 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 accelerates. We believe our diversity and portfolio approach has also improved our cash flow profile and positions us well to allocate resources to the opportunities we find most economically attractive and to achieve operating efficiencies and consistent financial results. I will now turn the call over to Jayshree Desai, Quanta's CFO, to provide a few remarks about our results and 2024 guidance. And then we will take your questions. Thanks. Jayshree?

Thanks, Duke, and good morning, everyone. This morning, we reported first quarter revenues of $5 billion, net income attributable to common stock of $118.4 million or $0.79 per diluted share, and adjusted diluted earnings per share of $1.41. Adjusted EBITDA was $387.3 million or 7.7% of revenue. Of note, we generated healthy cash flows in the first quarter with cash flow from operations of $238 million and free cash flow of $181.2 million, both setting first quarter records. This earnings and cash flow performance allowed us to end the first 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, year-to-date, we've acquired four companies for aggregate consideration of approximately $500 million. 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. We believe our expectation demonstrates 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?

Congratulations on the quarter. I have two questions: one regarding the short term and another for the long term. Jayshree, could you discuss the renewable margins? It seems they fell a bit short of expectations. Additionally, what insights can you provide regarding that? Duke, for your longer-term perspective, there has been much discussion lately about AI and data centers. Could you share your thoughts on how your close relationships in this area might influence grid load growth? What insights are you receiving from your customers on their approach and how you view the trends in CapEx? Any details on how Quanta is positioned in this context would be helpful.

Thanks, Jamie. I’ll address the margin question. Regarding our renewables segment, we encountered some issues with about 5% of our portfolio in solar and wind projects that did not meet our execution standards or our customers' expectations. While this is a small portion, we acknowledge our responsibility for these shortcomings. The majority of our projects are exceeding expectations, and we anticipate this trend to continue. With growth comes some inefficiencies, and we recognize the need to address them. I'm not worried about this being part of the first quarter's seasonality and noise; overall, the segment is performing well, and the future looks promising. Our backlog in renewables is increasing, and we are pleased with our execution relative to the number of people we've deployed in the field. We invest in growth, which may lead to some inefficiencies initially, but we are optimistic about what we see moving forward. Regarding data centers, it's clear that the overall demand for electricity is increasing. Whenever there's demand, it benefits the business and our customers. If we reflect back about nine months, we were looking for some data center demand, but it wasn't anything like what emerged in January, February, and March. I was somewhat surprised by the scale of it. One customer alone is discussing a need for 100 gigs. When considering that a single customer can require 100 gigs, it's astonishing to think about the level of electricity needed, especially with a focus on renewables. Both our transmission and distribution business and our renewable sector are poised to benefit significantly, as will our customers. However, managing such large demands poses challenges, particularly when you're trying to plan for the long-term and have invested in building a large power plant, only to see it consumed in a day. I think planning within our business is quite challenging. It's definitely creating pressure for us and our customers, prompting everyone to enhance their planning capabilities and adopt a long-term perspective. We are trying to fit a project that typically spans over several decades into just 90 days, which is not feasible. This is a long-term endeavor, and I believe our company is positioned right in the center of it. I'm pleased with our involvement in the ancillary data center sector. We are in discussions with hyperscalers about how we can support and collaborate with our clients while addressing their power needs. The demand is unique at this time, and it's exciting. We are enthusiastic about working with our clients, who have high expectations of us. We simply need to ensure we deliver and execute effectively.

Duke or Jayshree, can you give us a little more color into electric power? What happened in the quarter going forward? Revenue was, as you know, down just a little bit, but margin was quite a bit higher than you forecast and I think quite good for a seasonally weak Q1. You didn't change your expectation for the segment for the year, but maybe you could talk about your confidence that distribution-focused revenue does improve in the second half. And does the higher margin Q1 signal potential for margin upside in the segment?

Sure. We've previously discussed the integration of electric power and renewables, so I want to elaborate on that. If you examine the electric business, which includes transmission, substation, and distribution, you'll notice that the way the segments are currently defined creates some confusion when looking at the numbers. In terms of electric work types, we saw an increase of over 5% for the quarter. This is partly because some components of the business are categorized under the renewable segment while others fall under the electric segment. Overall, when combined, the business has grown by 5.3%. The way these segments are structured is leading to some misleading figures. I wanted to clarify that electric work types, encompassing substation, distribution, and transmission, are up 5.3% this quarter, and our backlog is nearly unchanged. Yes, I believe the business backlog is influenced by timing, particularly with MSA. It's still early in the first quarter, and we fully anticipate reaching record levels. The larger projects and renewal pricing are complex and require lengthy negotiations, so we won't rush the process. We'll be patient and we're not worried. We were just discussing load growth, and an increase in load translates to more business, which is straightforward. We are experiencing more demand than ever before, and I feel optimistic about this situation. We have been performing well in the electric print sector, and even though there has been a slight decline, we believe it's possible to maintain double-digit margins regardless of revenue levels. Our focus remains on driving earnings per share and improving those margins. In this segment, I feel we have had a strong performance and I'm optimistic about our direction. Although it's still early, we're not planning to alter our guidance for the next 90 days. Overall, the outlook is positive, and I believe we have greater potential for growth than for setbacks moving forward in this segment.

Very helpful. And maybe just to follow up on your commentary, last quarter, you mentioned sort of the better visibility around large transmission projects. You just talked about MSAs in answering my question. So just the conviction level in sort of the backlog increase again, I know it doesn't happen in the quarters over the year. But is it more base business you think that grows or larger project business that grows in '24? Is it both?

I believe that in the second half of 2024, your distribution business will see an increase in activity. You'll begin to book more work, and your Master Service Agreements and crude counts should rise again. There is a shift in focus between transmission and distribution in certain areas, particularly in the Southeast. We're noticing an influx of data centers and increased demand on the transmission side. Additionally, your utility customers have already allocated their capital, necessitating the build-out of transmission infrastructure. This means some capital will be reallocated from distribution to transmission systems. This is fine; it's part of our diversification strategy, and it allows us to be flexible. While this realignment is occurring, our MSA work in distribution has been softer than usual, as we indicated in the fourth quarter where we were putting in 40 to 50 hours a week instead of 70. I expect that as we approach the end of the year, we will start to see an uptick in our workload, although I wouldn't necessarily anticipate a return to the more intense 60- or 70-hour weeks. Our headcount is still nearly 54,000, which is an increase of 4,000 compared to last year. I am very confident that as electric vehicles begin to gain traction in the West, we're already seeing progress. However, we need to establish the necessary infrastructure, and we certainly observe this development in certain regions.

I wanted to take a few moments to talk about some of the M&A activity in the quarter, both as an active quarter from bolt-on acquisitions and also some divestitures. So talk to us a little bit about what excites you about what you added to your portfolio. And how does this all fit into the strategy?

We acquired Sherman+Reilly, which specializes in blocks and pullers. If you're in the industry, you grew up with Sherman+Reilly as a significant part of it; the company has been operating since 1927. From our perspective, our field teams deserve safe products and the training necessary for effectively using pullers and tensioners. The research and development they invest in aligns well with our goals, making this acquisition quite compelling. There is considerable discussion about wire being pulled and the introduction of new conductors, along with various technologies we believe we can introduce to the market. Furthermore, we're always mindful of supply chain capacity and safety, as this area is specialized and requires careful handling. Many of our clients also utilize pullers alongside our internal resources. This acquisition is something we value greatly and are proud to add to our business. The divestiture pertains to an oil and gas legacy business we've held since 2015 or earlier, and it's been on our radar for quite some time as something we don't plan to invest in further. It's better suited for other owners. The company has decided not to pursue international opportunities right now, making this divestiture necessary. The new owners will likely thrive with this business, and the management team is excellent.

And then the follow-up is just on the SunZia project. Obviously, it's a very important project for the company. Just give us the latest temperature or latest progress report there. And anything we should be watching out for, whether it's some of the litigation stuff or just in terms of managing through execution challenges that inevitably happen with big projects?

SunZia is performing very well. The team has developed a solid plan and I am optimistic about the outcomes. We are making good progress and have encountered no significant issues. While there might be minor challenges, our production remains strong. Safety standards are excellent and we are collaborating effectively with the client. I am very positive about this project and believe there will be opportunities to mitigate risks as we advance. I actually wish I could be more involved in it.

Just continuing the conversation on the load growth discussion around data centers. We've seen some pretty eye-popping estimates in terms of what that may mean. You alluded to some of that earlier in your comments. Just curious how you're thinking about the industry's capacity to meet some of these demands and what that might mean ultimately for your pricing and margins?

Yes. It's primarily about utilization and returns when considering pricing. We need to implement the double-digit platforms we've discussed over time. I believe it's more about that than any pricing pressure. However, it is clear that the demand, especially in the tech sector, is high right now; they have the funds and are willing to invest. The challenge lies in establishing fair rates for everyone due to regulatory concerns. It’s becoming evident that solutions are being developed nationwide to manage the loads we are experiencing, but it won’t be resolved quickly. If you want renewable resources, it adds another layer of complexity to the discussion. We are already switching fuels, and now we are also increasing loads rapidly. Overall, I can confirm that the load is significant and consumers are willing to pay for it. This creates demand for renewables as well as our electric segment. A strong grid is essential; the most cost-effective aspect of generation is transmission, and that will always remain true. I am pleased with our position and our ability to assist. We are definitely focused on a solution-oriented approach. If there has ever been a solution-based method that will succeed, it is certainly within this context, due to the complexities involved in connecting renewables to load sources. We are witnessing nuclear power plants being acquired with the intention of serving data centers. I never thought I would see this in my lifetime, but now it is becoming a reality. It is creating unique circumstances across the country, not just in Virginia, but for every customer we have. There is a demand for 3 megawatts, 4 megawatts, and they want it immediately in a renewable form. I believe we are well-positioned to help with this situation and to support both sides of the equation. I am optimistic about what we can achieve. We just need to plan more effectively, both in terms of distribution and transmission, and work closely with our clients. By serving our customers better, our company will also thrive.

That's great. And I guess one other one. I think the DOE announced some permitting reform to some grid capacity transmission lines, streamlining some of the environmental reviews here a few days ago. Curious how impactful you think that might be?

It's increasingly beneficial, especially in the western regions. However, we still need to navigate state policies, regulations, and public utility commissions, as the demand is significantly higher. We have an investment grid that is already lagging, and we need to catch up to ensure that this transition remains on track. It's essential to invest in infrastructure, as a more modern infrastructure lowers rates on a net present value basis in the long run. Therefore, investing now will benefit the next generation. It’s crucial to proceed with this investment, and I believe we need to maintain our momentum.

The first question I wanted to ask is about the load growth outlook related to data centers that everyone has been discussing. What role do you see for gas-fired generation, and how might your business be affected if some of that occurs behind the meter at the customer site?

I believe gas generation will play a significant role in this transition. There is still demand for renewables, especially from data centers. Balancing the load is essential, as values aren't increasing quickly enough, which means some reliance on natural gas will be necessary. The concern is that an influx of gas-fired generation is on the rise. Even if we consider 1 to 4 gigawatts of gas-fired generation, we are still short by 96 gigawatts. Therefore, we cannot build enough renewable generation to meet the anticipated demand. I think balancing the load is crucial, and it will indeed be beneficial. We're also seeing advancements in battery technology.

Yes, yes. Sorry, Duke, go ahead.

That's it.

Okay. The other question I had was about the progress in renewable margins. If I look at the second quarter, it's expected to be just below 8%, and then you anticipate double-digit growth in the second half of the year. Can you explain what's driving this confidence in the improvement? Additionally, I recall you mentioned a potential contingency release that might occur later in the project timeline. I'm interested in your current status regarding that for the latter part of this year.

Thank you for the question. We are observing that progression. We believe that as these projects advance and address various risks and contingencies, we will be able to release some of that in the latter half of the year. It's important to note that the segment encompasses more than just solar and wind; there is significant transmission substation work involved. We anticipate a substantial acceleration in that area in the second half, which will enhance margins through improved cost absorption and contingency releases.

I believe the conviction has a historical basis. Both companies and segments have traditionally operated in double-digit growth, but we are currently below that level. Growth is slowing somewhat. We reviewed our staffing and noted some margin declines, which can be attributed to new personnel and roles, and we need to improve our education and training for field leadership. We've also evaluated the projects. We feel confident about the 50 to 60 renewable jobs available today, as they are essential for us. We're analyzing our backlog and see a strong decade of opportunities ahead. I am assured that we have invested wisely and the year remains promising with further chances for growth. However, we are not satisfied with our quarterly performance, and our field leadership shares this sentiment. We hold ourselves to high standards, and our customers expect the same. Even during favorable conditions, we are pushing ourselves hard. We've made necessary adjustments to ensure we not only perform at a high level but also avoid surprises. We noticed early signs of challenges and took proactive measures. Although we will face limitations on a few projects, it represents only about 5% of our operations, amounting to roughly $15 million. Meanwhile, we have opportunities to excel in the majority of our projects. Overall, I am optimistic about this year and the years ahead.

So the renewables margin progression is what I was going to ask about too, and I think we've covered some of the thematic questions here. So I had a couple of numeric ones. I guess, first, just on the M&A, given that there's a lot of moving pieces here, both new additions and divestitures, can you give us some context of what the net kind of revenue contribution from that is for the year in terms of your guidance? And then also is the $500 million that you talked about, is that inclusive of the proceeds from the divestitures you announced?

Yes. Justin, the inorganic revenue from the deals we completed in the second half of last year, along with this year's announcements, contributes approximately $500 million to $600 million. The revenue from our two recent acquisitions is mostly negated by the divestiture of the oil and gas business. Therefore, we remain in the range of $500 million to $600 million, with an EPS contribution of around $0.15 to $0.20.

Okay, great. So that's not changed in net versus what you had before. Okay. And I guess the second question, again, sorry, it's a numeric one, but we've covered some of the other grounds. Just on the other income line, it was $25 million seemed a little high. What was that?

Well, that is, we had the sale of an investment in a pipeline, the gain on that. So which we did adjust out of EBITDA and adjusted EPS. So that's the biggest factor in that $25 million. We also had some gains on our deferred comp, but that gets offset in SG&A. So the real impact is around that gain around the pipeline investment, which we backed out in adjusted EPS and EBITDA.

When I think about the data centers, typically, chip companies run their road map until they hit a wall. Typically, the scale of the infrastructure or a power constraint in the chip. And AI is about to have a huge shift from training, which is very power-intensive to inference, which basically reduces the power consumption by 10%. I've seen this over the last 30 years where these guys changed their minds like they change their stocks. And I'm just kind of wondering, maybe I'm wrong, but if all of a sudden, the load demand from AI drops significantly and these guys change their plans, what happens?

We had a solid business before the arrival of AI, with trends like fuel switching, increasing electric vehicle adoption, and the shift towards renewables and away from coal. This development is an addition to our current progress. However, it’s important to note that planning for infrastructure takes time, typically 24 to 36 months. Consequently, many are hesitant to invest in new infrastructure without assurances of demand. Every utility and customer is focused on ensuring that the parties involved commit to sustainable load growth that can justify the investment. Otherwise, the burden falls on ratepayers. This situation creates hesitation, preventing rapid advancement as everyone needs to ensure that their plans align, including technology companies.

Okay, got it. I appreciate it. And then the second question I've got, I've been reading about reconduction of transmission lines, particularly in Europe. And I was wondering, is that a way to at least mitigate some of the construction on the grid and reduce the need for new routes? Is that something people are considering? And sort of how would that impact your business?

Yes, we've restructured my career. The new high-density wires operate effectively in specific areas, which is beneficial. However, it’s still fundamentally a rebuild. We're working within the existing corridors. We can even perform this in an energized state; currently, we're successfully working on 250 miles of line while it remains hot. We are focusing on this and training to enhance our expertise. This gives us a competitive edge, and we have invested significantly in R&D for this purpose. We are satisfied with the conductor, having installed plenty of high-density options, and believe it adds value. Overall, it aligns well with our objectives, and technology will play a crucial role in this process. I think the country is moving in that direction, and it's certainly demand there and the chips and everything else we do on any given day, even if you reduce power. It's kind of like appliances. We're going to get great things out of appliances what we did for about 3, 4, 5 years, and it helped us with load growth. You had negative load growth for a long time. You got positive load growth throughout the country for the most part, just in general. And so now when data shows up, it's more significant than anyone thought, myself included.

Very nice quarter. First question here, cash flow in the quarter was very strong, yet I don't believe you changed your full year guide. Are you incrementally more confident with the high end of your range now? And has your view on uses of free cash flow changed at all? And I have a follow-up.

Yes. So free cash flow, I think just sitting here in the quarter, we did have a good free cash flow quarter. Pleased with that. But it's early. We think it's prudent given that our typical profile as of the first half of the year tends to be cash flow-neutral or slightly negative with most of the free cash flow coming in, in the fourth quarter. We still think that's where we need to sit right now. There is opportunity to be at the high end of that range. But I think the range where we are today is where we should be.

Alex, I believe we have successfully altered some of the cash flow profiles of the business. From an internal capital investment standpoint, we have made good progress. When examining the returns based on our calculations, it is clear they are improving. Even when margins are slightly lower, the returns remain impressive. In the first quarter, we typically discuss poor free cash flow, but this time we experienced growth in the business, an increase in headcount, and free cash generation. I am pleased with our current position. While I understand the caution about declaring that the business has fundamentally changed, I believe the DSO has indeed changed. This change provides us with greater flexibility. We have consistently emphasized the importance of free cash flow and the need to deploy it wisely to achieve the desired outcomes we have seen in the past. Our capability to pursue mergers and acquisitions, stock buybacks, and to act opportunistically is enhanced by our free cash generation, which offers us more opportunities.

And then secondly, I don't think we've touched on telecom or industrial on the call here. Any notable movements there either in the quarter or for the remainder of the year?

We bought the environmental solutions, and they're integrating well. We appreciate the synergies we're gaining on the industrial side. The business is performing well, and telecom had a strong quarter. We are on par with the electric segment and even improved a bit. We've added some backlog, and I have a positive outlook for the business in the long term. As for data centers, it's important to note that deploying fiber from one data center to another is necessary. Currently, customers can't choose specific hubs since they're widespread, so we'll need to build all-fiber connections to support this in the future.

I know we've discussed data center dynamics a lot on this call, but I was just wondering, Duke, if there is a way for you to engage directly with data center companies, whether it's for substation build-out or some behind-the-meter solutions, something aside from your leverage to the grid.

Yes, we communicate with them regularly and see opportunities for collaboration. Our role is to support our clients, who are also engaging with these companies. We need to balance the demands of the grid with the needs on both sides. As we progress, the increasing demand for technology on the grid and its deployment are areas we want to be actively involved in. We aim to understand their objectives to facilitate our support. We've had numerous conversations, especially regarding our PTT business and transformer offerings, which they highly value and need immediately. This positions us well to assist both our clients and ourselves in discussing power consumption and technology.

Great. And if I can follow up with one on MSAs. Is there anything particularly different this time around on MSA timing than in past years that's causing the exceptionally slow start to the year?

I don't think it's slow at all; I believe we're doing really well. The distribution system is a bit variable, as we've mentioned before. We're up 5.3% in transmission, distribution, and substations when looking at the segments overall. I feel we're off to a solid start. Our backlog for the utility infrastructure on large projects is down, which I view positively. If you exclude large projects and include renewables and electric, our backlog is actually up, indicating plenty of opportunities. Although negotiations are taking longer in some situations, I still see our Master Service Agreements being renewed. There can be timing issues, as there always are, with contracts that last five, three, or two years cycling in and out. For example, you might be in the fourth year of a $2 billion MSA that will renew for another five years, which means once it renews, that $2 billion gets added back to the backlog. The MSA work can be a bit inconsistent, and I expect that to continue. Overall, the business and our approach to bigger projects are progressing well, but the industry has hit a bit of a pause while assessing the genuine demand for data centers and the projects we're discussing. This has slightly delayed some larger projects since they’re not substantial enough yet. The need has shifted to larger-scale builds, which has caused some hesitation. Consequently, things are taking a bit longer than anticipated, and I believe the industry needs to adopt a broader and quicker perspective.

You mentioned the significance of investing in the business during your prepared remarks. I would like to understand the growth you are experiencing. We've discussed substantial demand growth in this call, but looking ahead to the next 3 to 5 years, what is your current status regarding staffing? What challenges do you face in acquiring the necessary personnel and capacity to sustain what appears to be extraordinary growth in the coming years? Are you in a strong position, or is there still considerable work needed?

Yes, Mike, I believe the company has made significant investments in craft, which is fundamental to our identity. We observed some of this investment reflected in the solar business this quarter, where we experienced notable growth. While pursuing growth, it is crucial to maintain productivity levels, especially when adapting to new geographies. We have high expectations for productivity and must ensure we are refining our operations to support and advance the younger talent in the business. We have great programs in place to ensure they are effectively integrated into the field. Replacing the actual experience in the field with something purely theoretical is a misconception; it simply doesn't work. The real experience on the ground and the mentorship provided to our management teams are crucial. We are dedicated to that aspect, focusing on execution, and it continually improves. Regarding our recruitment efforts, we haven’t encountered any issues on the craft side, and our performance has been solid. The recent slowdown in distribution provides us an opportunity to pause and increase our market share, which I view positively. I believe that challenging periods refine our abilities. A little adversity helps distinguish us, and what we see today reflects the groundwork we laid a year ago. Our forward-looking approach enhances our capacity to invest in our craft and our people for the long term. We are currently hiring with the future in mind and strategically positioning ourselves. At this stage, we face no challenges in hiring, training, and retaining talent in our craft. We simply need to align our efforts with the production levels we aim to achieve.

So Duke, you were talking about how utilities are shifting CapEx from distribution to transmission. Just trying to get a better sense for how that impacts Quanta's business. I think you have talked about better market share on transmission, but any sense on just like how to think about it from a margin standpoint, from a utilization standpoint? And then secondly, based on your conversations with utilities, is the case like some of the work that was pushed out to '24, is that actually going to expect on the '25 because you'll be a little bit more able to change your CapEx plan a little bit further out?

Yes, I believe we have heard from most of our customers that they are maintaining or even increasing their capital plans. If you look at the capital spending and what customers are indicating, it seems likely that they will start to raise capital again. I don’t see any other outcome. Over the next few years, as they discuss their plans, you can expect to see those capital initiatives go up to meet rising demand. Even with increased utilization of the grid, capital spending is still set to rise. While there are technological improvements that can be made, they are minor compared to the demand side of the equation. Both factors are likely to occur. Regarding distribution, we anticipated more growth than what we are currently experiencing. It's important to note that not all customers are reducing their distribution levels. In certain areas, particularly in the Southeast, a few customers are reallocating capital towards transmission. However, in other regions, distribution levels remain steady or are even increasing. There are ongoing initiatives like storm hardening and fire hardening, along with various other factors. The infrastructure continues to age daily, with deterioration occurring regularly; this has always been the case. Maintenance of the grid is essential, and we need capital to sustain the necessary infrastructure, especially with the rise of electric vehicles. While we’re seeing positive penetration in electric vehicles, it’s important to recognize that this will take time. We’ve consistently indicated that full penetration will occur over a span of three to four decades, not overnight, and we do not expect this to be achieved by 2030. We anticipate milestones around 2040 to 2050. The distribution process is lengthy, but it's significantly larger even compared to transmission, despite the longer timeline. I appreciate both aspects. The impact will become evident over time. The company needs this time to reconsider its resources and determine how to allocate them as new developments arise.