Greetings and welcome to the Quanta Services Third Quarter 2022 Earnings Conference Call. [Operator Instructions] 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. Please go ahead..

Thank you, and welcome, everyone, to the Quanta Services Third Quarter 2022 Earnings Conference Call.

This morning, we issued a press release announcing our third quarter 2022 results, which can be found in the Investor Relations section of our website at quantaservices.com, along with a summary of our 2022 outlook and commentary that we will discuss this morning.

Additionally, we will use a slide presentation this morning to accompany our prepared remarks, which is viewable through the call's webcast and is also available on the Investor Relations section of the Quanta Services website.

Please remember that information reported on this call speaks only as of today, November 3, 2022, and 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.

These include all statements reflecting Quanta's expectations, intentions, assumptions or beliefs about future events or performance that do not solely relate to historical or current facts.

Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expressed or implied.

For additional information concerning some of the risks, uncertainties and assumptions, please refer to the cautionary language included in today's press release and the presentation, along with the company's periodic reports and other documents filed with the Securities and Exchange Commission, which are available on Quanta's or the SEC's website.

You should not place undue reliance on forward-looking statements, and Quanta does not undertake any obligation to update such statements and disclaims any written or oral statements made by any third party regarding the subject matter of this call.

Please also note that we will present certain historical and forecasted non-GAAP financial measures in today's call, including adjusted diluted EPS, backlog, EBITDA, adjusted EBITDA and free cash flow. Reconciliations of these measures to their most directly comparable GAAP financial measures are included in our earnings release.

Lastly, if you would like to be notified when Quanta publishes news releases and other information, please sign up for 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 would now like to turn the call over to Mr. Duke Austin, Quanta's President and CEO.

Duke?.

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services Third Quarter 2022 Earnings Conference Call. On the call today, I will provide operational and strategic commentary, and we'll then turn it over to Jayshree Desai, Quanta's CFO, to provide a review of our third quarter results and full year 2022 financial expectations.

Following Jayshree's comments, we welcome your questions. This morning, we reported our third quarter results, which continue to reflect strong demand for our services and solid execution.

We believe the results highlight the benefits of our diverse, repeatable and sustainable earnings streams and our ability to successfully leverage our portfolio approach in managing our service lines. Our third quarter results include a number of record financial metrics, including revenues, adjusted EBITDA and adjusted earnings per share.

Additionally, total backlog of $20.9 billion was a record and is considerably higher than the same period last year. Notably, we also see the opportunity to significantly increase backlog as we move into 2023. Our Electric Power Infrastructure Solutions segment continued to perform well with record revenues and solid margins.

We achieved these results despite some delays caused by ongoing supply chain challenges that led to resource imbalances and utilization inefficiencies.

As we commented on our second quarter earnings call, these supply chain challenges are not causing meaningful delays in our overall utility capital spending that we are seeing, and we believe these dynamics are shorter term conditions that should be resolved over the coming quarters.

Demand for our services continues to be driven by broad-based business strength from utility grid modernization and system hardening initiatives, as well as our reputation for solid and safe execution.

Overall, our electric power outlook remains strong, driven primarily by increasing service line opportunities and market share gains for our base business. Quanta deployed emergency response resources to utility customers for 2 hurricanes late in the third quarter.

Hurricane Fiona made landfall in Puerto Rico and damaged 50% of the island's distribution feeders, 30% of its transmission lines and submerged 7 substations.

Quanta sent more than 200 skilled line workers to the island to support LUMA's restoration efforts and has strategically prepositioned a fleet of trucks and equipment on the island prior to the storm, which allowed us to quickly respond when the hurricane hit.

While the fragile state of the island's existing power grid and the heavy rain and flooding from the hurricane made restoration efforts more challenging, LUMA still managed to return power to more than 90% of its customers in less than 2 weeks.

We are proud of the way LUMA responded to this event, which was much faster than previous storm responses by prior grid operators and comparable to, if not better, than restoration times following major hurricanes in the mainland United States.

At the end of the third quarter, Hurricane Ian made landfall in Florida as a large and destructive category 4 hurricane, which left more than 3 million customers across the Southeast United States without power.

Quanta deployed significant resources to support utility customers whose electrical power infrastructure was damaged or destroyed by the hurricane, including more than 3,500 line workers and front-end support services staff from 18 different Quanta operating companies.

Although restoration efforts for Hurricane Ian were largely a fourth quarter event, we believe our industry-leading, comprehensive emergency restoration capabilities highlights our ability to rapidly mobilize substantial resources to support our customers in times of need.

Importantly, the system hardening investments that Florida utilities have made over the past 10 years proved beneficial during Hurricane Ian and enhanced the ability to restore power to many customers after the first full day of restoration efforts.

We believe Florida's leading role in system hardening and its demonstrated benefits will serve as a model for utilities and regulators throughout the country as they plan and implement their own hardening programs.

It was a little more than a year ago that we closed the acquisition of Blattner, and I can tell you that we are more excited about the key drivers of the transaction now than we were then, including the value proposition to our customers, the multiyear growth opportunities available to us and the strong operational and cultural fit between the organizations.

Since closing, we have largely completed integration. Our teams are working collaboratively. We have enhanced existing customer relationships and created new ones. We are jointly pursuing project opportunities that leverage our expertise and industry-leading position.

We have accomplished a great deal with Blattner over the last year, but more importantly, we believe we are just getting started. Our Renewable Infrastructure Solutions segment performed well overall during the third quarter, led by solid performance on high voltage transmission, substation and interconnection work.

The utility-scale solar industry faced increased levels of supply chain delays during the third quarter, which impacted our revenues, but our operations managed through these dynamics. We are optimistic that these conditions are shorter term in duration and will resolve themselves over the coming quarters.

We continue to collaborate closely with our customers on our renewable build plans for 2023 and beyond.

While still early in the process, we are beginning to see a more normalized cadence with respect to limited notices to proceed for renewable projects moving to contract in 2023 as well as forward movement on projects that were delayed in 2022 that are now slated to be built in 2023.

According to the Federal Energy Regulatory Commission, or FERC, there are approximately 1,400 gigawatts of proposed generation, mostly wind and solar, and energy storage projects that are actively seeking interconnection to the U.S. power grid.

These create both opportunities and challenges for our customers, and demand for Quanta's comprehensive solutions and collaborative delivery model is increasing as a result.

Further, there are several large renewable energy-related high-voltage electric transmission project opportunities that we are pursuing, which we believe we are well positioned for and could be awarded over the coming months. Furthermore, this past August, the Inflation Reduction Act, or IRA, was signed into law.

It includes nearly $400 billion of tax incentives and financial support designed to accelerate the country's energy transition to a low-carbon economy.

This legislation is considered by many to be the nation's most ambitious legislative action ever taken on climate, which we believe should have a meaningful positive effect on a number of our end markets for at least the next decade.

In particular, we believe the IRA will drive investment in the development and construction of utility-scale renewable generation facilities and the transmission and substation infrastructure required to support them.

Additionally, there are attractive financial incentives in the IRA to expand domestic manufacturing of key renewable energy components such as solar panels.

This could reduce the country's reliance on overseas manufacturers and, in turn, reduce supply chain risk by ensuring domestic product availability to meet the growing demand for renewable generation development in the United States.

These are just some of the dynamics that give us a high degree of confidence in our ability to meet or exceed long-term growth and earnings targets. Our Underground and Utility Infrastructure Solutions segment continues to perform at a high level. Revenues grew strongly, and margins demonstrate solid execution across our operations in the segment.

Our industrial services operation continue to execute very well and experienced robust demand as capital spending resumed and pent-up activity from 2 years of deferred maintenance moved forward.

We also continue to experience solid demand for our gas utility and pipeline integrity operations, which are executing well and are driven by regulated spend to modernize systems, reduce methane emissions, ensure environmental compliance and improve safety and reliability.

For several quarters on our earnings calls, we have discussed our views about the emerging opportunities within the segment that center around the evolving and increasing efforts of our customers' strategies to reduce their carbon footprint and diversify their operations and assets toward greener business opportunities.

To that end, the IRA includes incentives that are designed to support and accelerate certain technologies as part of the energy transition for the traditional energy and industrial industries.

For example, there are significant production tax credits for clean hydrogen that can make the energy source cost competitive today, which is expected to accelerate interest and investment in hydrogen technology as another tool to produce clean power and reduce carbon emissions.

The IRA also includes incentives to invest in carbon capture projects and technology.

Prior to the passage of this legislation, we had been supporting several customers as they pursued hydrogen and/or carbon capture projects and believe the IRA will further encourage a broader set of current and potential customers to accelerate their pursuit of opportunities around these technologies.

As we discussed at our Investor Day earlier this year and as I hope you take away from our comments today, demand for our services is robust across our portfolio and driven by what we believe are long-term, visible and resilient megatrends.

We are successfully executing on our strategic initiatives to drive operational excellence, total cost solutions for our clients and value for our stakeholders. We have profitably grown the company and executed well this year and expect to continue to do so.

Our strategic initiatives are designed to uniquely position us to not only capitalize on the megatrends of our end markets, but also to enhance our customer relationships and market positioning. Quanta's infrastructure solutions bite the tip of the spear of the energy transition in North America.

Our customers are leading the effort to transition towards a lower carbon economy, which industry experts believe could require trillions of dollars of investment in renewable generation, energy storage and great investment, all areas where Quanta is an industry leader.

In order to meet the needs of our customers and capitalize on the large and visible opportunities ahead of us, Quanta is investing in resources necessary to do so. We are innovative with our safety, training and recruiting efforts to ensure we have a world-class workforce and adding to and enhancing our operations leadership and management.

We are also making and evaluating value-creating acquisitions that further our strategic initiatives and investing capital in equipment and facilities to support organic growth.

As a result of our solid year-to-date financial results and continued overall favorable end market drivers, we remain confident in our 2022 consolidated financial expectations.

We also believe that our business and opportunities for profitable growth in 2023 are gaining momentum, driven by our solutions-based approach, the growth of programmatic spending with existing and new customers, growing renewable generation activity and opportunities for larger electric transmission projects.

We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best-in-class build leadership. We will pursue opportunities to enhance Quanta's base business and leadership position in the industry and provide innovative solutions to our customers.

We believe Quanta's diversity, unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for our stakeholders. I will now turn the call over to Jayshree Desai, our CFO, for her review of the third quarter results and 2022 expectations.

Jayshree?.

Thanks, Duke, and good morning, everyone. Before I get into the results, I wanted to quickly thank Duke and Derrick for their support last quarter. I'm incredibly excited to expand my leadership role as we deliver against the multiyear plan we laid out at our Investor Day earlier this year.

Today, we announced record third quarter revenues of $4.5 billion. Net income attributable to common stock was $156 million or $1.06 per diluted share, and adjusted diluted earnings per share, a non-GAAP measure, was a record for the third quarter of $1.77.

Our electric power revenues were $2.3 billion, a quarterly record and a 14% increase when compared to the third quarter of 2021.

This increase was primarily due to growth in spending by our utility customers on grid modernization and hardening, resulting in increased demand for our electric power services as well as approximately $85 million in revenues attributable to acquired businesses.

These increases were partially offset by approximately $175 million in lower emergency restoration services revenues. Electric segment operating income margins in 3Q '22 were 11.2% compared to 12.6% in 3Q '21.

The margin reduction is largely attributable to lower emergency restoration service revenues, which were a record level in third quarter of 2021. Also included within our electric segment are our communications operations, which grew over 25% year-over-year.

Communications margins in the quarter were mid-single digits, an improvement compared to 3Q '21, and we remain on pace for upper single-digit to double-digit margins for the year.

Renewable Energy Infrastructure segment revenues for 3Q '22 were $979 million, a substantial increase from 3Q '21 primarily due to $480 million in revenues attributable to acquired businesses. Operating income margins in 3Q '22 were 9.1% compared to 10.8% in 3Q '21.

The margin reduction is due to normal project variability and a change in the mix of work as a result of the acquisitions, but otherwise was in line with our expectations. Revenues, however, came in lower than we were anticipating, driven by continued supply chain challenges as we alluded to on last quarter's call.

Underground Utility and Infrastructure segment revenues were $1.2 billion for the quarter, 17% higher than 3Q '21, reflecting increased demand from our gas utility and industrial customers as well as an increased contribution from larger pipeline projects.

Operating income margins for the segment were 8.5%, resulting from the solid performance by our base business activities, notably gas distribution and industrial services, and the impact of a favorable project closeout.

Below the line, we recorded an unrealized loss of $26.5 million associated with our common equity interest in fixed wireless broadband technology provider Starry Group Holdings. As required, we remeasure the fair value of this investment based on the market price of the publicly traded company stock as of September 30, 2022.

At that time, our investment had a fair value of approximately $15 million. Although there has been further deterioration in Starry's equity value, we remain committed to our partnership with Starry to provide high-speed, affordable Internet access to underserved markets.

Our total backlog was a record $20.9 billion, an increase of $1 billion compared to last quarter. The increase is primarily attributable to additional awards and an increase in expected volumes under MSAs.

Our 12-month backlog is also at a record level of $12.4 billion, which we believe is another indicator of the steady, growing demand for our base business solutions. We remain confident in our ability to capitalize on opportunities that can lead to new record levels of backlog in subsequent quarters.

For the third quarter of 2022, we had free cash flow, a non-GAAP measure, of $256 million compared to $40 million of negative free cash flow in 3Q '21.

The strong free cash flow for the quarter was led by the collection of a significant portion of the receivables associated with the large Canadian electric transmission project that we've discussed in prior quarters.

Regarding the other Canadian renewable transmission project that we've discussed in prior quarters, we continue to work with the customer to address the contract asset balance. Discussions with the customer are progressing, and we remain confident in our cost position.

The resolution of certain of these amounts will likely extend beyond this year and will continue to impact cash flow and DSO in the near term. DSO measured 81 days for the third quarter of 2022, a decrease of 8 days compared to the third quarter of 2021.

The decrease was primarily due to the aforementioned collection associated with the large Canadian electrical transmission project as well as the favorable impact of the acquisition of Blattner, which historically operates with a lower DSO than certain of our other larger operating companies.

As of September 30, 2022, we had total liquidity of approximately $1.8 billion and a debt-to-EBITDA ratio of 2.5 as calculated on our credit agreement.

As of October 31, 2022, we had repurchased approximately $127 million of our common stock since the beginning of the year, and as we mentioned in today's release, we continue to identify and execute on strategic acquisitions.

Also of note, during the quarter, we commenced a commercial paper program, which is backstopped by our credit facility and allows for up to $1 billion of borrowings outstanding at any time. The program provides access to short-term borrowings at a cost below our existing credit facility rates.

We expect continued earnings growth and cash generation to support our ability to efficiently delever over the coming quarters while continuing to create stockholder value through incremental capital deployment. Turning to our guidance.

We've executed nicely through the first 9 months of the year, and as we close out 2022, we remain confident in our ability to execute within a tightened range of our previous expectations. However, the composition of our revenue and earnings continues to shift somewhat as we react to certain factors impacting our end markets.

Overall, we believe our ability to deliver against our plan reflects the benefit and strength of our portfolio of solutions. Demand for the services across our electric segment remain robust, and we now expect revenues to range between $8.8 billion and $8.9 billion, a $300 million increase from our previous range.

With respect to segment margins, it's important to note that the second half of both 2020 and 2021 had significant emergency restoration revenues, which contributed favorably to margins in those periods. As it stands today, we expect 2022 emergency restoration revenues to be around $300 million for the year, over 30% lower than prior year levels.

Despite this reduction, margins are expected to be at double-digit levels, ranging between 10.6% and 10.8%, consistent with our previous guidance.

Regarding our renewables segment, on last quarter's call, we raised our expectations for the segment with a view that the anti-circumvention moratorium would revitalize solar construction activities in the second half of the year. Unfortunately, panel delays due to other tariff dynamics persisted and remain problematic today.

Additionally, owners are reviewing and repositioning their project pipelines in light of the positive changes in the Inflation Reduction Act, or the IRA. The combination of these dynamics resulted in several projects pushing out of 2022 and into 2023.

In light of those near-term delays, we now expect full year revenues for the segment to be around $3.8 billion, a $300 million reduction from the previous midpoint. The revenue reduction has also pressured margins as we continue to invest in the resources required to execute on the growth opportunity in 2023 and beyond.

For the year, we now expect segment margins to range between 8.5% and 8.75%. Despite the delays in 2022, we remain confident in our 5-year outlook for Blattner and believe that the passage of the IRA both accelerates and extends the growth opportunity associated with renewable energy infrastructure.

Our underground segment has performed well over the first 3 quarters, and we now expect full year revenues for the segment to range between $4.2 billion and $4.3 billion. The strong year-to-date performance was led by our industrial services, which delivered significantly improved results following 2 challenging years across their end markets.

However, we expect a pullback in industrial activity in the fourth quarter driven by reduced scopes of work as refiners defer maintenance efforts to capitalize on current market conditions. With this expected reduction, we now see segment margins ranging between 7% and 7.25% for the year.

In the aggregate, our consolidated expectations for full year diluted earnings per share attributable to common stock are now expected to range between $3.19 and $3.43 and full year adjusted diluted earnings per share attributable to common stock, a non-GAAP financial measure, to range between $6.15 and $6.39.

Additionally, we now expect adjusted EBITDA, a non-GAAP financial measure, to range between $1.65 billion and $1.70 billion for the year. We expect free cash flow for the year to range between $600 million to $700 million, narrowing around our previous midpoint.

This free cash flow range represents 35% to 40% of our expected adjusted EBITDA, consistent with our previous guidance of cash generation during periods of double-digit revenue growth rates.

For quarterly commentary and additional details on our financial expectations, please refer to our outlook summary, which can be found in the Financial Info section of our IR website at quantaservices.com.

From a long-term perspective, our end markets continue to strengthen, with utilities investing heavily in grid hardening and modernization and North America investing in the infrastructure required to deliver a carbon-neutral future.

We believe we are uniquely positioned to deliver comprehensive solutions to the markets we serve and continue to have the opportunity to deliver significant stockholder value through organic growth and strategic capital deployment. I'll now turn back to the operator for Q&A.

Operator?.

[Operator Instructions] The first question today is coming from Andy Kaplowitz of Citigroup..

Maybe just starting with the bigger picture question.

Could you elaborate on your comments regarding significant backlog growth as the company enters '23 that should support your expectations for profitable growth next year? How would you characterize your visibility at this point in the year for next year's potential bookings and EPS? I think you've guided longer term to 7% to 10% organic growth, double-digit EPS.

Any reason to think that you couldn't do that despite the recession fears that are out there?.

Thanks. When we look at it, when we look at the business long term, we stand by our adjusted 10% EPS growth using all levers of the balance sheet. We still remain confident on that. What I would say is based on what we see today, we believe those metrics move in, we see more business quicker.

We continue to see all aspects, all macro markets, kind of the megatrends that we talked about in our Investor Day coming to fruition here. And when we look at backlog, when we look at what's in front of us, we see significant growth. I don't know how else to say it. It's significant.

And I think it will continue, and our backlog will continue to set records. So that's what we see. We see it long term. We're looking into '24, '25. The company has great visibility against these macro markets and trends..

That's great to hear, Duke. And then Duke or Jayshree, can you give more color regarding what you're seeing across your renewables markets? Obviously, Jayshree, you just mentioned you're lowering revenue a little bit for the year, but your backlog is up.

Have you started to see your customers get their act together in solar? Because I think they do have relatively robust plans. And then maybe you could give us more detail regarding what you're seeing in wind..

Yes. I'll give you a little bit on renewables, and Jayshree will follow up. But I think what we see is clarity against the long-term PTC with the IRA. That said, as you see it today, you're still trying to get clarity against what it means. So while you see it long term, there's still interactions ongoing with your panels basically.

And so as those panels -- or you're getting manufacturing capacity, you get clarity long term, your developers get clarity long term and you get longer-term PPAs. So it causes some issues. I would say, as we sit today, we would -- I would give you an example. We have 6 projects that we're waiting on panels. Everything else is done.

And so it just causes some intermittency in the supply chain and in the work from a production standpoint. That said, we think that plays out fairly quickly here as we move into '23, but I'll let Jayshree comment on the rest..

Yes. I think -- Andy, thanks for the question. I would echo what Duke is saying. We do believe that these short-term issues around supply chain, as Duke talked about on the solar panels, has delayed some projects. But the longer-term view from developers is very optimistic and exciting given the passage of the IRA.

It gives what the industry has wanted for decades, which is long-term visibility in the ability to invest and grow in both the solar and wind space. So we are -- we do believe that as we -- as you pointed out, our backlog is starting to pick up on renewables.

We do believe that we'll start accelerating here over the next several months, and we are very confident in our long-term outlook for the segment. I will say -- you asked about wind. I do think the IRA has been very positive for the long-term aspects for wind.

I do think in the near term, solar, the IRA does provide even greater incentives to make solar that much more competitive. So it will take a little bit for wind to ramp up.

I see it definitely ramping up in the latter half of the decade given all the benefits that -- passing the IRA, but it will take a little bit of that time for the developers to restock their wind pipeline and be competitive against the near-term solar projects..

Our next question is coming from Adam Thalhimer of Thompson, Davis..

I just wanted to ask, Duke, about the carbon capture opportunity.

What are some of the individual projects that you're seeing? And when could that revenue actually hit?.

Yes. I mean we're in discussions constantly on carbon capture or hydrogen. It's very difficult on those type projects when you're crossing linear construction, you get permitting. And while we're talking about it, honestly, I really don't think about them.

If they come, I believe those are those kind of plus 10% type things we talked about as megatrends. We'll view them as that. But the customer base that's building that is a very good customer base. So we have very good contacts with -- and we're certainly right in the middle of every one of those projects at the very front end.

So we took a very long approach to hydrogen, long approach to carbon capture. We built carbon capture lines before. It's not -- it's the same in my mind as it is anything else. When you building pipe, you're building pipe, So whether it's water or carbon, whatever it may be, gas, we can build it.

And I think our ability to do so efficiently and work collaboratively with the developers and our carriers make sense, and we'll continue to do that..

The next question is coming from Justin Hauke of Robert W. Baird..

I guess I wanted to ask just on the underground segment because it's been so strong in the last couple of quarters, at least kind of relative to your expectations. I know you talked about an earnout there. And I guess I was just hoping to clarify that and maybe just -- maybe level set.

So as we think about '23 and the margin expectations or potential for that segment, just how material was that in the quarter?.

Yes. I'm not sure about the earnout. We -- I'm not -- we had an acquisition. That's all that I'm aware of. There may be a small earnout somewhere, I don't know. I'm not familiar. I don't think, Jayshree....

No, I'm not sure what you're referring to on the earnout. But -- go ahead..

So I think one thing that was a comment, we did have a small release there or a release there in the quarter on some contingency. So that could have been what you saw. That was done, and we had contemplated that as we move forward. We take a pretty conservative approach to all of our projects. And when things come through, they come through.

So that's certainly the way we risk base our project work and -- project work going forward. The main thing I would say is underneath, we're getting operating leverage by a portfolio approach across the company, as we said we would. We said that we can -- believe we can deliver at upper single digits in the segment.

We're continuing to do that through operating leverage. So I'm really proud of that as a company, and this portfolio that we're putting up now is allowing us to pull through, to work through any kind of issues across the board for the most part on our macro markets, whether it be supply chain, tariffs.

Whatever it may be, we can work through that through the portfolio as we've discussed before..

Okay. Yes, that was what I was referring to. I guess my second question, so obviously, it was good to see the free cash flow come in, and I know you guys talked about that. The AR that's tied up on the remaining Canadian renewable project that you guys are seeing is probably a '23 resolution.

How material is that? Or how big is the collections associated with that? And is that project done? Or is that going to continue to progressively build until that's resolved next year?.

Yes. I'll give you some color, and I'll let Jayshree clarify the amount. We talked about last quarter, Canadian project, one of them we've completed and worked through the claims. The second one is ongoing. So we're working through that. We'll finish in the second half of '23.

I believe we'll make progress against our AR across as we start to complete milestones, as we start to get through documentation. It's a typical Canadian project, big project, takes a lot of documentation.

And so we're definitely doing that now, and we expect to -- when I think about it from a sequence standpoint, we'll have multiple collections throughout and then work through the final there at the second half of next year. But we're making great progress with a collaborative approach.

There's no issues, and I believe we take a conservative approach to all of our claims. And I'll let Jayshree comment on the amounts..

Yes. I think we talked about this in the last quarter's call that the impact of the Canadian project is affecting our DSOs around 5 to 6 days. That's still what we're seeing today.

And as Duke talked about, we baked that into our forecast for the year, and we believe that going forward, we'll be working through that for the rest of the year, and we'll be able to make some progress around that as the project commences..

And I would say, I was thinking through that earlier, just -- we're just not a litigious company. We get our stuff upfront, we build, we execute and we move forward. And then any kind of -- when we say claims or things like that, it's typically a collaborative process, and it's just not litigious..

The next question is coming from Alex Rygiel of B. Riley..

A very nice quarter. A couple of quick questions here. To some degree, your business is driven directly by overall economic activity such as new home construction and whatnot.

Can you address this and your thoughts on how an economic slowdown moving forward could impact your business?.

I would say, in general, the economic slowdown always impacts your new builds, your kind of new construction. Small piece of the business at this point, when you look at what's happening to modernize the grids and infrastructure, it doesn't rely so much on your economics.

Again, it does from an interest standpoint at times, you could see some areas of constraint. But the way that carbon capture, batteries, EV, the way that, that's coming to market, it's different than it's ever been in the utility industry as well as all the renewable industries.

If we're moving at a pace that we're moving towards a carbon-free footprint, your manufacturers of vehicles, chip manufacturing, the load growth that you're seeing will not allow a stop at this point unless there's significant change in the way we view carbon. And I don't see that happening. We have long-term outlooks.

I mean we're looking at '24 or '25. While it might slow down a little bit, the offsets are much, much greater than any kind of economic offset at this point..

Very helpful. And then as it relates to inflation, obviously, you've been fighting some inflation over the last 12 months. I feel like we might be on the back side of that curve.

So how do you think about inflation in 2023 versus 2022? Clearly, it looks like fuel could help you out a lot -- a little bit, maybe some incremental headwind from labor, but I'd appreciate your comments..

Yes. I do think it helps. But what really -- the impacts are supply chain driven, such as transformers, for example, very difficult year for transformers, and that manufacturing capacity needs to move up. So we're seeing some of that come in.

It's those kind of things that -- where work can get sequenced and normal cadence, it gives us more problems than any kind of inflationary impact. So I do believe we're starting to see those things get past us. I do think in '23, we'll work through the transformer supply issues.

Your large AC/DC transformers are also an issue long term as you see the queues move up. I think the bigger clients, our bigger customers have it under control. The smaller ones are working through it. So just -- those kind of things, where your production and your -- we're growing over 1,000 employees a quarter at this point.

That growth against not a normal cadence in supply chain does give you a little bit of issues at times. And the company has done a phenomenal job. Our guys and men and women in the field has done phenomenal working through any of those issues and stayed in a collaborative manner with the client..

The next question is coming from Noelle Dilts of Stifel..

Kind of piggybacking off of that, Alex' second question. I'm curious if you've been able to make an estimate or sort of quantify how much you think the supply chain disruption has impacted margins this year.

Basically trying to get a sense of how to think about how some of that might reverse as we get into '23 and the opportunity for margin expansion..

Thanks, Noelle. I would just say, in general, it's caused us issues. I can't really quantify it. I mean I think our margins are good. Can we do better? Yes. Is there some small issues? Yes. But I do think those things, it's mainly the growth against your employee base against the intermittency of supply chain coming in.

It's those 2 things where they're not perfectly aligned where normally you would build against what you know from a supply chain standpoint, that -- the unknown and the pushout of 30 days, 60 days type things give you issues. So I think it's hard to quantify that in my mind, Noelle. I don't think anyone can.

I would just say as an industry, we've been able to overcome it for the most part, and there is some upside if we get this thing resolved..

Okay. And then quickly, I think last call, we discussed how much you're -- what you're looking at in terms of wage rate increases. I think it was kind of mid-single digits for 2023.

Is that still looking like the right level?.

Yes. I mean we bake in 3.5% to 5%. So you're probably on the upper end when you go through it now. And we typically are in multiyear agreements across the board. So I'm not too concerned with that..

The next question is coming from Sean Eastman of KeyBanc..

Nice quarter. I wanted to come back to the renewable revenue discussion and just this project timing element.

Are you guys essentially messaging that renewables -- the renewables revenue trajectory should be pretty outsized perhaps relative to that targeted range as we go into next year based on these timing elements? And I'm just curious about the line of sight there relative to what you're seeing in the supply chain..

Not willing to give '23 guidance at this point. But what I would tell you is that what we see is a long-term robust market. We talked about Blattner having $3.5 billion in 2026. I believe that's pulled in. The exact timing on it, I'm not confident at this point. I got 4, 5 months here to get my head around '23. So I'm going to take every bit of it.

That said, I would say the inbound calls, what we see, our pipelines, our growth trajectory across that segment, not just Blattner, is robust, probably the best I've seen in my time frame, in my career on a macro market. It's there. We're in early stages of an energy transition. We're sitting at the tip of the spear.

And when you're there and you see it, you see it every day, the growth -- we're in '24 or 25. And we're not used to being out that far with our clients, trying to make sure that we can meet the demand of the industry. And I do believe we're doing a nice job of doing so. Once you get through the cadence on how quickly panels can get to the U.S.

or how quickly the panel issue can get resolved in a meaningful way, not just American may, but in a meaningful way, and we have a good cadence on that, it's certainly much, much easier to give you commentary against it.

So while the macro market's there and we could say outsized growth -- I don't know what the IRA and the way that it's interpreted at this point -- going forward in '23, I don't know yet. So until I can figure that out, I can't really give you good guidance on it other than to say it's robust. It's just a matter of how much plus-plus..

Okay. And then on the electric power margins, just this dynamic of now there being a sequential step-up from 3Q to 4Q. I assume that's the storm dynamic. Maybe you could talk about that a little bit. And then also just the outer year target, the midpoint is 11%. The midpoint of this year's guidance is intact at 10.7%.

Just kind of understanding what that 30 basis points is would be helpful as well..

I mean I think it's a couple of things ongoing. You have a storm year-over-year going on that's -- we're probably at $300 million versus $500-something million, $600-something million year-over-year.

So you're down $200 million plus-plus, give or take, year-over-year as we have guided, which it does -- when you have those large storms in multiyears, it does give you some utilizations and things like that, which increases. That's one thing.

The second thing is, as I've discussed earlier, when you're building people and you have 1,000 people per quarter you're training and you're putting out in the field, that against the supply chain disruptions doesn't allow you to be as efficient.

And so you're having some disruption, but it's not -- to me, we're building out long-term relationships with clients, and we're not going to nickel and dime our clients against that growth. So yes, there is some pullback on that type of dynamic, but I do believe we're starting to see those things normalize as we move forward into next year..

The next question is coming from Jamie Cook of Credit Suisse..

Nice quarter. I guess 2 questions. One, in the context of -- you guys like to talk about base earnings. If I look at your implied earnings in the back half of the year, like just the run rate, it's like $170 million a quarter, which implies -- you multiply that by 4, $680 million is a good base to think about.

I'm just wondering if that's a good base to think about earnings, the base of earnings for 2023, just given the run rate off of the back half of the year and that it's -- you don't have a lot of big, large projects that are rolling off or anything. So that's my first question, just trying to frame 2023.

My second question, Duke, on Blattner, just trying to understand where you are in terms of potentially diversifying the customer base and/or as you're aligning -- as you're talking to customers more, shifting that business model from a less of a CapEx one-off project to more of a -- your aligning with their sort of longer-term CapEx plans, where we are on that basis..

Thanks, Jamie. First one, we're not going to give 2023 guidance, but like theoretically, I'm not arguing with you. I just don't know, it might be better, it might be worse. So that said....

But my math isn't totally off?.

It's somewhere in the neighborhood. So I can't see it. I'm not sitting here on a piece of paper -- I'm not going to give you guidance, but I would say your math is somewhere in there, plus or minus..

Because I was a math major in college. So that's good..

I'm not jumping up and down, saying no, you're totally wrong, I won't say that. But I'm not giving you guidance, too. Okay.

So that said -- no, on Blattner, when we look at it, I do believe those relationships long term, and that collaboration has gotten stronger as the demand has gotten greater because the client base is the larger clients in the industry.

So as they either buy developments or they're looking long term and when their stated goals are very large, we need to be right in the middle of that long term. So -- and also how we look at interconnections queues, what can we do at the queue level from utilities, how do we help, how do we provide those solutions.

I mean I think the company has really moved forward with those synergies over the past 6 months with Blattner, and they've integrated very nicely. I like where we sit, and I do think it's going to provide unique opportunities as we move forward..

The next question is coming from Steven Fisher of UBS..

Just wanted to follow up on the backlog growth commentary.

How broadly do you expect that backlog growth comment to apply across your segments? And then kind of what's the timing of that? Is that -- are you expecting as soon as the fourth quarter? Or when you say into '23, that's -- you're talking more about sort of like the first half of 2023?.

I can't give you exact timing. It's just we see it. It's there. It's coming. We're not going to pin ourselves down on exactly when, but I would say we see the significant growth throughout '23 as well as earlier. Some of the things that we're looking at now are earlier rather than later, but we also see things that are later as well.

So I just think overall, when I said significant, we have significant projects, significant MSAs that are imminent for us in the first half of '23. So -- or the fourth quarter. I can't -- I'm not going to pin it down, but I can see it. I'm willing to say significant and talk about it, and that's not normal, obviously..

And was that across your segments? Or is that mainly focused on the electric side?.

I see broad-based growth..

Okay. And then if I could just follow up on Sean's question on the renewables visibility. I know, Duke, you want to take as much as -- time as you can, the full 4 or 5 months, you said, before commenting on the full year.

But I just -- I'm curious if there's anything you can say about how well you sense your customer base is set up in renewables for the first half of 2023.

Have they kind of given you indication of what projects they have slated for that time frame and how well they have availability of panels just for the first half, at least?.

It's not about like the projects. It's not the LNTPs. It's not the verbal awards. It's not the awards. It's clarity against the IRA. And what does it say, what exactly does it mean on panels, that clarity needs to happen. And you have just a backlog of panel deliveries, things of that nature on the solar side that has caused some disruption.

And I think when you look at that against the backdrop of the jobs, the market, it's -- we can't give you clarity until we have it. So we need the clarity on the IRA and what that means against our developers' backlogs. And that said, the work and the jobs and our ability to perform them are there.

So we're just basically waiting to get those kind -- that kind of clarity long term. But once we get it, I do think I said it in the call, there's some backlog that didn't happen in '23 from '22 that will go in '23. And then the outsized demand in '23 will come in.

And so I do think it -- you have some in the first half, but the back half will be robust into '24 and '25..

The next question is coming from Michael Dudas of Vertical Research Partners..

Duke, you highlighted in your prepared remarks about some -- seems like good progress on the telecommunications side.

Can you maybe elaborate, as we look into 2023, what are some of the puts and takes that you guys are seeing? Is the industry getting cadence and spending moving forward? And the targets that you put out generally, are they still appropriate for what we're looking at over the next couple of years to get that business to where you want it to be?.

Yes. I mean I think we grow the business double digits plus. We continue to do so. We like where we sit. I don't -- I've said it before, we've invested in that organically. It's been a nice business, very little acquisition. I do think there's opportunities there long term for growth. What I would say, it's not regulated, and it's not predictable.

And so I worry with the predictability of telecom.

That said, the RDOF money, the monies that are out there, the amount of bandwidth necessary for growth in this economy, whether you look at self-driving vehicles, small cells, it doesn't matter, 5G, that's there, and it will continue to drive demand against the services we provide for the infrastructure.

So the macro markets there, the timing of which is always moving around due to the nature of the business. So we're optimistic, but we will take a cautious approach on how we look at it, but double digits growth is there..

And on the margin side and utilization?.

I mean we can operate at parity. We're very close now. If not, in the next year, we should operate at double digits on a go-forward basis. But I would say -- I've said this before, the company in that market, we leverage our assets against gas, against underground electric. It doesn't matter.

So the portfolio itself, if it means go do gas work at higher margins, that's what we're going to do. If it means go do underground electric at higher margins, that's what we're going to do. It would offset some of the telecom, but the overall company would rise. So I'm not too concerned with the margins at one single telecom, for example..

The next question is coming from Gus Richard of Northland..

Just on the underground utilities.

Is some of the strength coming from LNG? And in terms of the IRA, is there some provisions where you're going to see increase in pipeline work?.

I mean I think when you look at the gas market, LNG market across the globe, you see tremendous amount of demand, not only war driven, but in Europe and things like that. So I do believe you'll start to see some pipe to feed LNG. Also I think your carbon capture pipe will be there. That's certainly something that's new.

Your hydrogen, there's a lot of money in the IRA against hydrogen, the development thereof. So that's there as well. It's still difficult to get permit, a piece of pipe. It just is. And the company has been in that many, many times. And I would say all that would be upside for us. We're thinking about it. We're on it. We're in front of it.

Can I guide to it? No..

Got it.

And then just in terms of the refiners, how long can they hold their breath on maintenance?.

We saw some maintenance early in the year, a lot of replacements, things of that nature. I do believe that you'll start to see that same kind of sequence in the first half of next year. You'll see some maintenance and things of that nature start to happen.

They're going to run them as long as they can in high markets, and they'll see a bunch of maintenance. But I do believe the view there is longer than people think. Your 20, 30 years of refining capacity that you still are going to have to think about. So I don't think it's short term in nature. I think it's longer term.

And we will see the plants that are in existence run longer. That said, they'll take more maintenance..

Ladies and gentlemen, this brings us to the end of the question-and-answer session. I would like to turn the floor back over to Mr. Duke Austin for closing comments..

Yes. I want to thank our men and women in the field, a couple of storms, tough environments, they performed really, really well, safety. And what they give for us every day, families -- being away from their families doesn't go unnoticed to us management team.

I want to thank Jayshree for her first call, and I'm sure the stock is going through the roof. That said, I want to thank you for your participation. This concludes the call..

Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time, and enjoy the rest of your day..