BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - QUANTA SERVICES INC

All right. Good evening, everyone. Thank you for joining us as we wrap up day two of Baird's Global Industrial Conference. My name is Justin Hockey. I'm the Senior Analyst covering specialty contractors, engineering construction, facility services, along with Andy Whitman. We're very pleased to have Quanta Services here, a name that we've covered for a very long time. And you guys, in a lot of ways, you've never changed. In a lot ways, we've changed a whole lot. But we've got Duke Austin, the company's CEO, and Jay Shree, Desai, the company's CFO. I'm going to let Duke give us just two, three minutes' lay of the land, and then we'll go into Q&A. This is a big room, so if you do have a specific question that I don't otherwise get to, session1 at rwbaird.com, and we'll try to get you in. And then there is a breakout next door once we finish up here. So, Duke, take it away. Thanks for having us, and thanks for the interest. We don't take it for granted, so thank you for being here. We got to go last, so I guess we're not waiting on lunch, anyway, so that's good. So Quanta, just for those of you not aware, we've built a company around craft-skilled labor as a solution provider to the energy infrastructure, infrastructure business that you see today. Two large addressable markets, one of which is utilities, the other is your large load customers technology and you know each market is in the trillions on both sides of that so I think it converges in the middle we play a unique role we self-perform about 85% of our business 95,000 employees 41 billion top-line growing nicely we've really put the put the strategies in place I believe to capitalize on what we see is great markets for a long period of time and lots of opportunity for us to expand markets so I look we look forward to talking about it today and thanks for having us yeah so I mean we'll get to the election just kind of lay the land on that but maybe just you know big picture I want to start with you know the fact that you guys had an analyst day back in March you know you laid out targets you know I guess seven to ten percent organic growth and uh you know 15 to 20 percent eps growth obviously this first year has been way above that i know duke you made some comments that you know we started off strong we might have to look at those in the future i'm not asking you to revise the 2030 targets but maybe just start with you know from a high level what is what is moving better than expected and it seems like the other thing probably maybe to emphasize more on that is the margins i feel like your commentary has been a little bit more positive on kind of structural margin potential that you guys have exhibited. So just maybe start there. Yeah, look, I think the analyst day, we did our best to lay out kind of a five-year plan on 15 to 20 type adjusted EPS growth. And when we looked at it, I, you know, two addressable markets that I just said, and we walked through that um we're ahead and you know i think by considerable amount we we did say kegger it's not going to do me any good on anything i say because we're not going home and going to sleep and basically if you play that out or kegger we could we could do probably not a lot um over the next four years and still be fine but i do think like structurally where what we changed i think the technology, Tim, and how that came together, the strategy around it with the utility went much faster than I thought it would. The demand's stronger. We're short power in the country much greater than I anticipated. The willingness to pay for power, the demand for AI is much bigger for compute, for cloud. And so when you have a supply and demand issue that's so imbalanced it's going to create you know market expansion for us we saw it we continue to lean into it and expand it I do think you know we're having a great year this year we will grow next year we talked about in the upper upper side of that range and then you know the opportunity to grow in the 20% range next year and so we look at two years and you get a good look at it I think you there's opportunities to grow faster than that as well and we continue to see the inbounds today you know across both segments that from our standpoint fit right down the middle of what we're trying to accomplish in a strategy and you know we also leaned into the utility side of the business to take supply chain we went vertical in our supply chain, we own transformer we you know It was supply breakers, poles. We do a lot of things there. So that expanded nicely. And then we started our fossil generation business that has done very well early. And I think that'll do well late. So I like how we're stacking up. Renewables did not fall off. Jay Shree told me they were going to and they didn't. So we're still doing well there and growing faster than we thought. But I would tell you it's broad-based growth, faster than we thought, and the outward growth in the MEP business, it really has propelled the business in a much faster pace than we thought on Investor Day. And as far as margin expansion, we have a $20 billion kind of utility business that's regulated around regulated environments. That's not going to change. I think it grows just like it's been growing, double digits, organic growth there. And anything that we acquire leans into that. Our fossil generation business is in the same, so it probably grows a little faster. And saying that, I just think that's kind of the platform, that 10 to 12 is where we're going to be there. And then we are getting some leverage on training. And I think It's important to talk about because our training was around just certain classifications. as we as we looked at craft and from bullet makers to plumbers to electricians inside electricians versus just lime and and other things that we were doing welders things like that it's allowed us to take someone from military that may not want to climb or anywhere really that may not want a climb and they can be a plumber a pipe fitter so we're getting a lot of leverage out of all the curriculum and all the emphasis that we put on craft skill. And you can see it. I mean, we added 13,000 employees organically over a six-month period, nine-month perio. And we also acquired 12,000, so 26,000. So pretty remarkable growth on the employee count. So that's got some help for expansion to leverage. Yeah, no, that actually went right into my next question, which is, I mean, it seemed like that was another thing that was really apparent this last quarter, but really all year, is that these new legs. I mean you mentioned the concern about your renewables were going to fall off a cliff, and maybe you can talk about – obviously you have a data center exposure, but you have so many broad-based parts of it. but it feels like the company has moved to a position where every single project is integrated in so many different ways. Maybe that's what's different about Quanta today than someone was looking at it 10 years ago, it feels Like. I mean, I think, look, when we say solution provider, that's What that is, really. It's moving across these segments. And that fungibility of labor that we have, I mean, the more that we're concentrated in an area, whether we're building power plants, solar, MEP, or the electric side of a data center, electrician can move across that whole spectrum and never leave home. And so it's really, to me, it says a lot about how the company's expanded that solution to be much more than it was with the same craftsmen, and sometimes with the same form and the same team, allow them to expand who they are, up train in many ways. So that does, and it also gives us certainty and when we talk about where we're going, what happens if, I mean, we're definitely like, we get a question a day on there's no more data centers in 2028 is the peak and 2030 is done, like we're never gonna build another one. Like, we don't see that at all. We see long markets with our craft. And I do think, as we see that, we're also looking for other things that are coming, which AI is creating healthcare. I mean, it's curing things. And so you're building Pfizer facilities, Lilly facilities, all over the place, and that's what we do. I mean it, so it doesn't matter whether we're building a Lilly facility or we're buildin' a data center. the same electricians and they can move. So I do think we've done a nice job there from that standpoint, which has allowed the company a lot of breadth. I can kind of anticipate the answer based on that, but the question would be, what are the kind of key bottlenecks of what could happen that would change the growth trajectory? I mean, maybe for example, you've talked about, there's these big 765 KV lines that could start next year. there's still some regulatory steps they have to go through. The data center work, you tend to be more later stage in them, so it's hard to see that there would be cancellation risks, but just what are some of the puts and takes that would change the trajectory, maybe not even in 27, but in 28? Yeah, look, I think it's some, it would be a fundamental change with some political, something extreme that we couldn't control, and you can't see it today, COVID. That didn't really slow us down, but like it just a little bit. So I think you could have some pause on something, but everywhere we're started and the way that we're having conversations with our customers, or we talk about compounding earnings, I mean our approach is, yeah, if you need help in 27, 28, we want to talk about 2032. And those discussions are ongoing, and I think we're have a great long discussion. we haven't started 765 at all in the field and probably won't until sometime next year. And when we do that, yeah, look at compounds and stacks, but it doesn't mean that our underlying business that we're doing today is not growing double digits plus, because I think you gotta look at that as well. We have none of that going on and the company's still growing at the rates it's growing at. As well as, I'm still, I look back I think about how much growth we've had internally organically our electricians we've moved people out of the industrial base and over into the the you know our technology TAM and things like that we've been you know I think taking great opportunities and really really transferring that into EPS growth and like if you look at the UI segment you see the expansion civil capabilities on pipeline moving over into other things not just sitting on iron or anything like that so you know look getting getting utilizations out of all our people maximize what we can do and the solutions we can provide why the ask is we want more now yeah we can give you more now because we can move we can be extremely fungible we have a scale of 95,000 people and that allows us a lot of flexibility but for that we want longevity and the compound ability to compound earnings versus be very transactional not transformational in the business and you know some one-off margin profile that doesn't matter long term and we got to get it to think bit larger longer the way I see it maybe one of the other things that that seems that it's changed in the businesses we've already talked craft is obviously the core of what you do but you guys have made some really strategic investments, it feels like, over the last several years in some of these manufacturing, not for manufacturing sake, but as kind of a critical supply chain investment that maybe it's de-risked the way the business traditionally went to market. So is there more of that to come? Is that something where there's other areas that you think would be additive? And just how has that changed the way that you structure contracts now that you've got some of these supply chain certainties? Yeah, look, I think when we look at it, we want to keep our people busy. If we stop and start on things like it's just hard, it's hard on our people. It's hard for us. More training, more costs. So when we started, transformers were short, especially domestic. So we leaned into transformers. We were now expanding that up to 765 kV. It's helped us a lot from a standpoint that I feel confident in our ability to go out and deliver a substation or transmission line. We do have some internal capabilities of 20% or so that we can move on to a project to make it go. And the pull-through is significant on those type of things. Breakers were short, couldn't get breakers, so we were building breakers and then formed a JV with Heiko there on breakers. So meaningful to me to have that capability on breakERS. In the quarter, we acquired a pole manufacturing business. why are we acquiring a pole mount because we're short on poles we don't want to be valmont they do a great job they're great partners in areas we work with but there's places that you know others couldn't supply we were on there and we help both our end user out which is our utility customers and keep our projects moving for that look it's it's domestic they they want more can we build it up can we integrate it into these models and I think we can we are we're absolutely integrating that supply chain in our delivery capabilities we've leaned into it for the third or fourth largest buyer of high voltage medium voltage equipment so I think our ability to really flex that supply chain in the future is there and we're continuing down a path I mean I still think it's poles wires transformers whether we partner you know use our balance sheet to partner or build vertical we will we're expanding every facility we have I believe there so that expansions ongoing I mean it's really different because there's there's just not really another contractor that's out there that has some this degree of kind of vertical integration I mean I mentioned to being a solutions provider but it almost it feels like you've moved away from you know what people would think of an EPC where you know you've been a discrete project and these are more like programs that you know have many years involved behind it and maybe that segues to another area that's newer is the gas generation stuff that you've been talking about and the partnership with with nisource but um in light of you know the potential for more regulatory push on data centers i guess more behind the meter work could be a potential which obviously necessitates a lot of on-site you know generation work so So maybe just talk about your capabilities there and how you get comfortable with the risk profile of building those plants. Yeah, so I think the company was asked to look at how do we build fossil generation, combined cycles, single cycles. We're pretty comfortable with single cycles, large frames are a little different, but it's okay. We can build them, I felt comfortable there. When we started talking combined cycles, we formed a joint venture and went to Nisource with it. They asked us to look at this. What I think is unique about it is we did de-risk it to where we got comfortable with our risk profile that we could operate at parity to the segment, which, you know, call it 10 to 12 percent. And as we went through it, we built the model with them. you know they talk to their customers on the back side of all the risk to go and build it we're self-performing the majority of the craft on on the project we needed some engineering help so it was a single project and we've done that we built you know a nice group in alabama we had the capacity to do it so we're in the business and we listen to the customer we're willing to work with them but the risk profile I've been around a long time and like you can go off the rails on these things and I we don't want to be that and so I we've really told that to our clients to say like we're not going off the trails on these things this is a risk profile we're willing to take and this is how we can build it and the capacity that we have and saying that craft short other things are short and our ability to self-perform you know interfab acquisition was a really nice acquisition for us that did you know 50 60 70 percent of a power plant and so like I just we continue to add to that add to the front end part of the business and you know on the back side it's our job to de-risk that into a profile that we can go and be consistent with the investor base I that business every day gets better and better for us the imbalance get better we'll continue to stack that on it won't start it starts some in 27 but i think you'll see you know nine source was a program other customers have asked so i i think we'll continue to build that on out and you'll see a nice platform company that is growing um along with as all these all the generation assets all the engines come in that'll be us on the backside building you know large it won t be the biggest segment but it'll be a nice segment yeah for us maybe one other thing that's that's changed um from you know the expansion of what you're doing and everything else but it also feels like your your free cash flow has become more predictable and just sure you you guys increased your your guidance this this last quarter and maybe um it feels like the uh the MEP work is maybe additive to working capital you're more favorable cash advances and and maybe less capital intensive. So I'm not asking you to increase your guidance this year is, is above your long-term target, but I mean, how, how structural is that as a sustainable. If the, if the growth continues from our renewables business and the MEP business and our EPC work, then it's, it's sustainable. But these things, the growth rates make a difference because the working capital profiles around those, that type of work is more favorable than our typical MSA work where great customers were part of the system. But because we self-perform and we're on the system day to day, the working capital profile is just tougher. So it really depends on where that utility work growth is coming from, which will drive that. The other thing we're leaning into, as you guys talked about earlier, is our supply chain and our manufacturing expansion. And we started some of that this year, for sure. But we're also, as we mentioned, we're leaning into expanding our transformer facilities, our breaker facilities with our HICO partnership. You're going to see these things that can pressure free cash flow a bit. And we're Also expanding our OSM capabilities, our offsite manufacturing capabilities as well. So, you know, over the next couple of years, you know that's why I still give you that range of 55 to 60. But if the growth rate that we continue to see where it's coming from around these more favorable working profiles yeah there's there the ability to be on the high end of that range or even higher is definitely doable but these things I just want I'm always cut you know he teases me but I I'm just very careful of explaining what can happen in our business in a good way I mean it's all great the utility business growing faster doesn't necessarily mean it it's bad it just means it's a a different working capital profile and we gotta take that into account. Yeah. Well, in light of, if it is, you know, the better free cash flow version and you do have that come in, I mean, the balance sheet remains in a really good position. What is, with all the uncertainty that's out there, I mean what is the best, you know return on the incremental dollar invested? Is it in more of the supply chain stuff? I mean where do you wanna be investing for the next couple of years that you're not already in today? Okay, the only, I don't feel the uncertainty, number one. Okay, all right, well. That's the, I'm not sure who's creating that, but like I, Twitter maybe, I dunno, who knows, but like, I feel really good about the business from the inbounds, because we're in it every day, and so I feel good about that economy, I feel about where MAP's going, I feel a lot good about demand, I feel great about combined cycles, I feel real good about utility business, and I feel very good about MAP business. Great. It looks good. So, yes, there's things that we can watch and how things go. So I will continue to lean into if our stock gets disconnected, if it goes down 15 percent, 25 percent over a period of time, we're not going to let it sit there. We'll lean into it. And that'll be how we deploy capital. We're not scared to do that. We've done it and we'll do it again. And I also think, you know, I work for you. I work with our investors, and I'm going to use it. I work by myself, too, because I own plenty. And so I have to look at it like, okay, then it's acquisitions, and how do we think through that? It could go either way, but we have to be able to take the acquisitions and follow the strategies. We like 100-year-old companies, 50-year old companies, generational that have been through hard times. You know, I think a company that's been through hard times can can breeze through an easy time, makes them tougher, makes him grittier. It makes everyone more accountable. And I do think that accountability matters in this business. So I we like a certain profile of business along our verticals, along our TAMs that then enhance it. We can get synergies out of it. We've done some unique things and continue to advance the portfolio that de-risk everyone involved in our stakeholders while driving down total cost to the rate payer. I mean, that's key for us. And I think we're listening to the customer on that and really trying to lean into what they're asking us to do. Yeah, I mean it's – your acquisitions have not been kind of Johnny-come-latelys to markets. That's very apparent that, like, you guys have long history in a lot of these operating companies. Maybe on that, back to the MEP stuff, I guess how easy would it be to shift some of that internal craft labor that isn't a data center to some other, you know, high-load facility, whether it's, you know, semis or pharma or whatever? And then also, I think you've talked about, you know, the content per megawatt on all these data centers has increased. And especially now that the ones that you're coming on now are more, you Know, not your run of the mill data centers, but they're more, You know, these AI ones. And so I guess just, I guess it's two questions. How fungible is the labor into other places? And then what do you see as kind of the content scope increase on the data center work that you are doing? Yeah, when we look at that, I mean, I think it's extremely fungible for us. About, call it 15% of the business, 10 to 15% of the businesses data center of which, you know, have chips in that, you know some Tesla things in there, things like that that are also in there. So I like their electricians, electrician, we have journeymen, they can move across, they know how to do multiple things so I think that's not that difficult our OSM strategy offset manufacturing strategy is fungible as well it allows us to to cross you know into all kinds of different ways that we can offset manufacture so that engineering component on the front of that has been great we've been able to do a lot of things there our mechanical business is early but that but that has really grown nicely and give us a lot of flexibility and so when we start talking about civil business that we acquired that it's grown great and what we're really able to go to a client say look we can we can talk to you about your generation your substation your medium voltage your low voltage your mechanical in and out down to the TFO to rack the hack and you know if you want us to build the slab and the building okay we can do that but I just so I do think there is our ability to really talk to the client about a one-stop-shop get it done quicker use our offset manufacturing capabilities so that model is out there we get some I still think the general contract model be there we have great clients there as well so i it's what's the customer asking us can we go faster can we use our vertical supply chain but if you look at it we were around three to five million a meg or so of capture on call it 15 to 18 that's grown you know i'll call it five just call it four to six and then you know I continue to see that expanding because if we're on site and we're already doing so much of something. The client really is asking us to do more and more and we would like to get concentrated where we're at. We can do a lot of things the more concentrated we get on these sites. So if we're there, we have this labor, why not build everything we can? And I do think it's a benefit for us in scalability. So you'll continue to see us have more and More of that total cost per megawatt on MEP. And on that off-site manufacturing, my understanding is it's mostly for your own self-consumption projects that you're doing. But if there was anything that shifted, not that there is, but if you had something, would you be able to maintain that capacity by, would you have third-party sales on some of the things? We do some now. Do you? Okay. you know look good but we're still sometimes we just we're on other areas and we can't meet that and we but we can off-site so we have options we prefer to do it all um but we'll do it um yeah so i i do think our engineering capabilities are the things that we can do the way we do i mean cupertino led that probably 10 years ago first mover in this and the industry was not ready because they weren't moving this fast with the industry moving like this it's more than ready and you know that that allowed us to really think broader about how we do this and I think we're up to four four and a half million square feet four million square feet expanding a bit on that so I do think and we've got it in you know kind of from west to east with the falcon acquisition that allows us to to be more east centric as well so I I do think where we're at, how we deliver, how the logistic piece of it has put us in a unique position there, and we'll continue to expand it if we need to. Maybe as a closing message in the last minute or two here, you said, I don't think there's uncertainty, and I get it, that's from the analyst's perspective, it's obviously we look at the markets, but... It was probably your note that did it. There we go, exactly, it sparked everything. But maybe you can just say, what is the market missing, What would be your closing message that you would want to say that's misunderstood or that, you know? I mean, I think when you look at the compute environment that we're in, you either have cloud-based or inference type or you're learning. And so that cloud- based compute's been around for 15 years, been building a long, long time. I don't think cloud-base is going anywhere, and I think you're going to need more and more of it for a long period of time. so lots of avenues this business is very resilient and Yes, there's ebbs and flows to everything solar was gonna solar wind renewables was all gonna die right year or two ago I can't remember we have we'll have a record year this year So I would just say the company's positioned nicely to take advantage of markets We're fungible flexible and I think we've done a really nice job deploying capital super happy with where we sit and you know we continue to see good growth, you know, as far as we can see it. And we're looking at 29 and beyond. I feel good about 27, 28, and even into 29. So it's a good, I think it's a good place to stop. So thank you guys for joining us. We always appreciate it. We will have the breakout session, as I mentioned, just next door over here to the left. And thank you all for joining us. Thank you.