Quanta Services, Inc. (PWR) Earnings Call Transcript & Summary

Hi. Good morning, everyone. My name is Chad Dillard. I'm the lead analyst here at Bernstein for U.S. Machinery and Engineering & Construction. And today, I'm really pleased to have Quanta Services. And joining me from Quanta is Duke Austin, the Chief Executive Officer; and Jayshree Desai, the recently appointed Chief Financial Officer. So we're going to start off with a couple of prepared remarks by Duke, and then we'll go into the broader Q&A session. [Operator Instructions] Without any further ado, let me hand it up to Duke.

Thanks, Chad. Thanks, everyone, for being here. It's good to see everyone in person. So Quanta in general, what philosophically that the nucleus is craft skill labor. And that's what we've invested in, in the company is the people in the graph. So off that, where we're at, we really are in the forefront of the utility industry as far as in the energy transition. And so the big place, the big macro drivers there are fuel switching, fossil fuels moving towards a renewable state as well as your EV penetration that's ongoing. So the underlying capital spend and what's necessary to modernize grids and systems really requires a lot of infrastructure build over a period of, call it, the next 20, 30 years. So when you look at, well, what's the backdrop? About 65% of the business is around utility spend. And that is backed up by all the CapEx that you see across the spectrum there. And where -- how we fit in that and what makes Quanta unique is we just measured a lot acquisition as well with Blattner last year, which builds down the plant, both solar and wind and battery as well. They've built about 25% of the renewables in North America, both solar and wind. That said, all the interconnections, all the things there, it allows us to really talk broadly around that transition as a company. And so those things anyway, both performed about 85% was self-performed by us and Blattner. So it makes us unique. We really work on people, the craft in the company. So that's the nucleus of us. And the macro markets are certainly there, driving the top side, which is, like we said, around $16.20 billion and $16.50 billion this year, growing nicely, as we said recently. So we can get into more of that, I'm sure.

That sounds good. So Jayshree, since you're the newest person on the management team. I want to start with you.

So maybe you can talk about what your vision is for the role of CFO? And how you plan to put your own personal stamp on that role in Quanta?

Yes. Thanks for that. I joined the company 2 years ago. My background is in renewables, spent over 20 years developing solar wind projects. So I think just having that experience, seeing the growth of that industry, all the ups and downs, it gives me a perspective that I think I can bring in this role as we are moving into the energy transition. Quanta is obviously going to be very much in the center of that as Duke just explained. And also in the rest of the conversation. Just that market knowledge, just the customer base that I'm very familiar with, I think it allow me to think very strategically on how we're going to approach the market. And think about capital allocation along those lines as well. The good news is Derrick, the former CFO, has laid an incredibly strong foundation for this company. I think a lot of where we are is because of that very prudent approach to capital allocation and capital deployment. So I don't think I'll have radical changes to that approach, but we are growing significantly over the next 5 years, we laid that out in our Investor Day. And as a result, there will be things that we'll have to think about differently in order to capitalize on that growth. And so I do -- a lot of my time will be spent around thinking through that what's the right balance between organic growth and the M&A that we've been doing and we'll continue to do. And then, of course, we've been very prudent about thinking about shareholder returns, and we'll keep doing so.

Sounds good. So this is a question I've been asking all throughout the conference, just given that there are growing concerns about the recession and how companies will fare if that were to materialize? So I guess, my question more specifically to Quanta is, how has your business model changed since the last cyclical downturn? And how should we think about earnings being more potentially resilient this time versus the prior downturn?

I mean I think our utility-backed business grew actually in a recession in prior years. So we've grown through recessions, where I think the company is much different chart today. I do believe -- if we look and we think about, well, all the OEMs that we're doing ones we have already announced or in the process of announcing primarily a battery-backed fleet. So that's coming, the fossil fuel, the dynamic around moving towards a renewable state in your fuel sources. The countries move towards this environment, even in recession in inflationary periods. If you're going to move this direction, the grid itself today will not perform with the amount of renewals we're going to put on it as well as EV penetration. And that is also layered on by other large mega trend type things that are affecting us. So I don't think you can stop what's already started. And in many ways, the infrastructure that we build, everything that we do, the solutions that we provide will allow all the things that the country has moved towards. So that transition is already ongoing in many ways, whether it be Democratic Party, Republican Party or the dynamics around recession or nonrecession. If you look at the incremental cost of what it costs for a person a month on just infrastructure alone, you'll offset that tremendously by the modernization of the grid, which gives you different fuel sources, even wind, solar as well as just a hardening aspect of it and allow the EV penetration.

Okay. So if you look at your utility customers, they're generally growing CapEx by kind of like a mid- to upper single-digit CAGR. But the point that I want to dig into is the outsourcing side, right, which could potentially give you some growth beyond that. And so can you talk a little bit more about just why -- I guess maybe why the outsourcing is happening to begin with of labor and why Quanta is consolidating some of that outsourced opportunity?

Sure. So 4 generations in the business, my great grandad, granddad and dad were all in the utility as in the field, but my father -- but in general, what's happened over time is utilities primarily work on assets and on generation. They do have local workforces, some are heavier than others. But they're not -- they're not going to build their workforce for peaks really just try to stay consistent and deliver. And I think we're more cost effective in general when it comes to being able to flex our resources as well as move across, and it's been that way for a long period of time. And as that's transpired, they've really stayed flat. And now you're seeing attrition in the workforce. And when you think through, it's primarily around craft. It's not the workforce. Craft, some engineering capabilities, but mainly craft. We've really prided ourselves roughly between 48,000 and 50,000 employees on craft. And we thought through colleges, we've thought through how that happens. So they lean on us when it comes to craft. So the attrition -- there's numbers out there 100,000 over the next 5 years. They are coming out while you have the growth going on in capital spend. That said, someone's going to fill that gap. And I do believe we will fill a significant piece of that gap.

And so one part of the story is the grid modernization opportunity. And if you look at places like California with wildfires, there's undergrounding to be had. So can you frame just the scale of that opportunity? And then how should we think about the timing? So when should we start seeing like a greater portion of that work is showing up in like the backlog, the revenues, and then in terms of like structure of the work. Is it going to be more like one-off projects? Or is it going to be more programmatic?

Yes. So I think it will be both, honestly, on the back side of the question. But what we're seeing -- a couple of things. There's grid modernization. That's one thing. So I'll separate that from the undergrounding piece because I think they're different in my head. When you're talking about grid mod, that's the penetration of EV. And so that's just starting really. I do think it's a long, long-term build. It's really primarily around your distribution systems. And what happens there is, as EV penetrates onto circuits, onlines, it overloads to some degree or your system just won't handle it. So it's every single car adds load. And I do think you have to go back from whatever voltage you're sitting at now and step it up again, and it requires a rebuild or to some degree, get a transformer or maybe the whole line in many cases, depending on what city you're in and where you're at. So that is ongoing or will be ongoing across the whole nation for that matter as that penetration. And it's coming faster than really in my head at least I thought. Well, we had time, but I -- from what I see and that we have the third largest fleet in North America, dealing with the OEMs on a daily basis. We just did a large partnership with GM on Silverados to the west and having talked to them around how they're thinking through it. I do believe that penetration is much faster than we think, and it's also heavy on the system. So the systems got to get upgraded to handle EV. Look, that ship's sailed, and it's moving. On undergrounding, years past, the difference between overhead and underground was so significant that you couldn't really justify undergrounding line. The problem in areas now where you have violent weather that's much different than in the past, you have fires in California, all across California, it's affecting lives. And the utility itself -- you face bankruptcy and things of that nature due to your lawsuits and things of that nature from fire, but the way that you can mitigate that is underground. And the difference between the insurability -- many homes in California, you can get insurance on there's -- the choice is the underground. And they've already announced at PG&E being the largest utility in California. 10,000 miles that they will underground, they're doing like 120 this year. It ramps to 1,000 miles a year. I believe it starts next year, the year after, but it ramp significantly up. Like we have not projected any of those kind of things in our growth when we talk growth, but that is something that we'll drive on top of what we've already discussed. That's all across California. When you go into your Southern territory, Southeast Florida, Texas, all through, everyone there energy has system upgrades to harden their systems either by undergrounding or the hardening thereof undergrounding in a lot of places due to the hurricane impacts. And I do think any of those things that we're doing as an industry ultimately, inter ability comes into play and someone's insurance goes down due to the fact that you're doing this or you can get insurance. So everything that utilities are doing today really it impacts us personally by reducing cost but we need to make the initial investments. The biggest piece of the utility bill really is your generation. And that's called -- the infrastructure is a small, small piece compared to everything else. And if we get in a good place as a country by just investing in our country with these assets, it will allow costs to go down and environment to get much, much cleaner as well along the way.

So I wanted to go back to your revenue guidance on the Analyst Day. You talked about revenue growth, roughly, I think it's like 5% to 8% CAGR over time. So if the energy transition starts to ramp up. Like how should we think about that revenue growth algorithm relative to what you guys published on the Analyst Day?

Yes. I mean we're comfortable around talking to -- we're trying to grow adjusted EPS with all levers of the balance sheet. So when we think about it, it's the growth of EPS. When I get my head around it, we said we'd grow at 10%. That's kind of the floor. We have the ability to grow at 15-plus percent. And the big drivers that I've been talking about allow the 15 plus, but it also derisks the 10% down. So we had drivers that drive it up and as well as hold it, there under the environment that we're in. And I -- that's with noise to the environment. Because I do think it's not perfect, nothing is or we go as 20%, let's go. It's not. There's things that will push solar tariff, I'm sure we'll get into or something is going to happen, but the portfolio itself is derisked to intend kind of growth on that. And then as well as the opportunities to grow much higher due to the trends that are hitting EV, all kinds of different things that are hitting the company. So I mean, we can segment the growth. And we talked about high single-digit growth in the Electric segment, high single-digit growth in the renewable segment and then you get back into mid- to high kind of growth there in the underground segment, but each one of them have the ability to grow higher.

So to support all that growth and contracting -- the contracting business tends to be fairly labor-intensive. So how much incremental labor do you need to actually realize that growth? And can you talk more about the Northwest Lineman College and your ability to scale that capability to address those -- the labor demands?

Yes. So you said something that I found interesting. 10 years ago, we were a contracting business. We're a solution provider today. We provide various solutions that make this transition. That's the difference. You asked me a minute ago, where Quanta is a difference, that's a difference. We're no longer a contractor. We provide everything that a consultant can provide to the client and deliver it on the same time and it gives certainty. It's much, much different. That said, what we've done around labor and Northwest Line College. We acquired a -- we actually invested first into a, what I consider world-class, the world-class training center in Grange, Texas, made that initial investment. What we figured out fairly quickly is academia played such a role in this and how they recruit. So there was a pre-apprentice college or credit at a college called Northwest Line College that we acquired probably 2 years after. That gave us the ability to build curriculum and also academia and how that comes in. And it allows kids to come out with military, high school, go right into trades very quickly. We're training 18 weeks, 12 weeks, depending on what craft you're in, and we also have mobile training for ourselves. But to perpetuate the workforce, the attrition rates, when you go back and look in time, they were very high, like over 50% for the industry. And now if you go through a pre-apprenticeship program, it's like close to 90%. A kid will go through and stay in the business and top of his adjournment status and in a much shorter time because you're really focused on training someone 18 weeks and they stay there, you're focused. OJT takes more time because you're also working at the same time -- very focused training. I think it's really affected us even in -- as we move on into the apprenticeships, we'll be able to shorten some of that due to the fact that we can concentrate. Train on a competency base, not time-based over time. And so that's allowed us to get our heads around all those things and get ahead of the markets that we're in and build the infrastructure necessary to train kids to go into the fields, whether it be intercity, diverse. We can pull all that in. We also help clients on that area as well. So I do believe it will separate. We're more productive, safer due to the training that we put in. We spent about $200 million previously in that investment, but it's certainly paying off for us.

So last point on labor. So obviously, you're seeing a lot of labor cost inflation or just as a country are and given the labor intensity, what is the risk to margins? And how does this Quanta try and mitigate that cost inflation risk?

I mean we're working with the client on the total cost. But when we think through it, our MSAs primarily have as utilities, all crafts. And one thing I'll say is craft is where maybe some of the rest of the economy and the rest of the people in the economy haven't had raises or whatever it may be. Craft continues, it always has 3% to 5% raises with pensions, with health and welfare. That being said, so the impact is not as much to build for the gap. So it's really still 3% to 5%. You might get a 7% here or there, but very rarely. Well, you see that? And what happens from my standpoint is we've covered a lot of that off. We're able to push rest on the MSAs and most of the contracts are short term in nature, if they're not MSA. So we really build all those things in. Even fuel, as fuel moves up or down, most of that's built into our cost as well. Fuel is about 2% of cost. The impact thereof is not great, and we're able to move most of that anyway.

Got it. And so as the U.S. undertakes the energy transition, can you just articulate exactly what work needs to be done on the grid? And just like how to think about the ROI profile?

Yes. Just the way we see it, the way I see it at least, it's much of a rebuild in many areas from all the way now from generation as you just start from your distribution levels and you say, okay, well, EV is going to penetrate significantly. I'm always related back to Christmas lights at your home. If you have breakers and you overload the Christmas lights, your breakers start to flip. It's irritating, it still happens. More Christmas lights you put in the house, it's going to flip. And very similar is the more EV penetration you have, it really puts that load there. So I do think that rebuild has to happen to get more moderate there. As you also -- we are also involved in the chargers ourselves. As you put charging, how [indiscernible] charging in across the country, those things will also drive growth for us as well as utility systems. And then when you start looking at renewables and interconnections, you'll still build a significant amount of solar wind that are not in load centers and all vast land thousands of acres of land that's necessary for solar farms or wind. And they're building all that transmission back to the part that where everyone is working through is batteries and how batteries really back up the intermittency of renewables, can we burn hydrogen on your systems. Those kind of things and all that infrastructure that it takes to do that as well. So those things are ongoing. I do -- I still believe we'll have some blended hydrogen as we go forward. but a significant amount. We're about 20%, call it, wind, solar. Now, if you're going to get to 80, I'll call it, 80 a significant amount of wind and solar to build and transmission around. The grid is not interconnected. So there's regional transmission authority. I mean you saw it in Texas or we had ERCOT. You need more transmission in the load centers there as well as other things, but there's no interconnection east to west. So it's going to require some interconnections along the way to get us where we want to go as a country, and I do think it's probably not 2030, it's more 2040. It will take us longer to get there. But our projections would say at least that we'll get the growth that if it moves in grows higher.

Got it. So if most of the auto OEMs are talking about transitioning a large -- or the majority of their product portfolios to EV. I think it's somewhere by the end of the decade or a little bit thereafter. Can you just like walk us back? I mean, what is the timeline for getting the grid ready for this uptick in low demand?

Yes. I mean just still you'll have combustion engines long after we go towards batteries. But the grid itself, I think that we've underestimated it as an industry at this point and the investment in it will be much more significant than anyone thinks. We're seeing it now in places. It just depends on where you're at very suburbia, no subway systems, things like that, very much requires significant upgrades. Some of the cities that have subways some things like that, we're not penetrating as much it's not as bad. But we've just seen the load on the system. It goes up significantly. And it's going to take a long -- distribution builds or take longer. They are more labor intensive just by design. And you're very much intercity. So you're moving around traffic, you're moving around existing systems that are already built. You're now in the middle of nowhere. And so you're really having to work out on existing while they're energized. So you have an energized system that you'll be working on, no one wants a lights out. It just takes a different level of skill set and for us, we've been preparing and are preparing for that build. I just think it takes longer.

Got it. And so just on the engineering side because I imagine that's the tip of the spear. Can you talk about like what Quanta is doing to organize and capture the incremental, I guess, engineering opportunity?

I mean -- I think from our standpoint, constructions of bigger construction materials, the larger piece of any project, engineering is around 5%. And so for us, there's engineering and there's all the things from land right away to access to all different things on the front and before the project even goes, environmental. The client itself was really asking, can we do, will you do, how will you -- when people were in front of us and the client, it wasn't getting built. And so when we have access to the client, we can turnkey those type of arrangements and work on total cost of the projects where we can bring cost in, bring costs down and bring certainty to the client. So after doing that, a few times, and we believe that where we can get in front. We already have, call it, 1,500 to 2,000 between draftsman and engineering. We do a lot of high substation and hub dissipations as well as distribution and anything today, that's going to ramp up significantly for us over time due to the builds that you see our ability to give constructability to the client uncertainty. We are moving in that direction.

Okay. We've got some questions from online. [Operator Instructions] So first one is as places like California see more grid instability as they focus on renewables, have you seen any change in how customers are approaching you for your solutions?

Yes, we certainly have seen a difference there. Again, the environmental impacts in California are different, laws are different, permittings much, much different. So no matter what you do, it takes longer. We have local knowledge of the systems. So I do think our best -- when we perform the best is when we look at total cost at a high-level solution versus a one-off build and we're being asked to do those kind of things and want to do those kind of things. I do think it's the right answer for us and the client is to collaborate on what's the right approach to the build given labor constraints, given even supply chain or whatever it may be, we typically can come up with the right solution if we do it together over time. So we are being asked to collaborate much, much more at very, very high levels across the board.

So next question from online. How do you evaluate and look at M&A? And how would you frame your track record there?

I think when we look at M&A, we really -- we put out what we believe is a 5-year plan. We put it out when we started 6 years ago, we put out a 5-year plan with a strategy behind it. Our M&A strategy based we look for a certain type of company, which is typically a family business, long in nature, 50 years old or more, provides either a regional solution or a service line solution that which fit that model of growth. But with any M&A, when we look at it, we're not out actually looking at M&A, it's inbound more so than us going out and trying to drive acquisitions. We do value it against our 5-year plan organically. And so it would have to exceed the 5-year plan from a growth, return, everything else standpoint, where we wouldn't do it just buy our stock, pay a dividend. I mean I don't think the company will get into capital allocation. We're building cash. I think it would devalue like our debt structure, our long-term debt structure. So the way we would devalue the company I think is build a bunch of cash and sit on the balance sheet, it doesn't make much sense. So we'll continue to be prudent about how we look at debt. But I do think, given the cash flows, given where we're going, and the long-term nature of the builds in the macro markets, you will see us deploy cash, whether it be from M&A, which we'll typically do some bolt-ons. We just did the larger one with Blattner in the renewable space. But that said, we're still in good shape on balance sheet and continue to see good markets.

Got it. Okay. Another one from online. So how would you consider the outlook for a fully fossil fuel-free business model versus one that's more transition oriented based on -- and more based on renewable energy.

Our model or the industry's model?

Maybe both.

Third largest fleet in North America, your largest in our engines and the bigger trucks that are -- so as it progresses, I mean, I think we've leaned into batteries with the Silverados and with our commitment with GM. So we did that as a company. And I do believe it's prudent and it's also cost-effective. So we've tried to make good prudent cost-effective decisions to decarbonize our fleet. We went to all of our small hand tools. We used to use -- to cycle oil, everybody did not only use batteries across. It makes us more efficient, but we use batteries everywhere. We got to keep the engine running just to charge the batteries. So we have issues as an industry to figure out, well, how do you decarbonize. That said, on the utility side of the business, about 60% of California in last year, which is further along than most in this lowest gas back. The good. So you can see how far you have to go to get off gas where you're at today and one of the places that is the highest penetration of EV. And I also I think the understanding that you have load that's going up, probably will double in the next 10 to 15, call it, 20 years doubling of load due to bitcoin and data centers and vertical farms alone as well as a U.S.-based manufacturing, all those kind of things are really driving along with EVs, driving load up. And you got to build generation against that as well. So I just think it's going to take a long time to decarbonize, you will -- you're going to get some hydrogen blending along the way into the natural gas to get it cleaner. It's pretty clean fuel as it stands. But if you blend hydrogen, it will get even cleaner. Green hydrogen will come along, along the way. Batteries will back up some of the grid. But to say fully decarbonized, I'm not sure. Natural gas is going to play a large role in that for a long period of time. And we'll gradually get that last 20% is going to be -- it's going to take a long time. You can get it a long way. And then it's going to take a long, long time to get the rest of it. Just think the balance of the grid until you interconnect it as the sun sets, just you have no flex -- you're seeing it today where you have heavy transmission board orders in a connected Europe and then double, probably double the transmission we have here and the issues. And those issues would be exponential. Here if we move to 5, so it's going to move at a pace where the grid and how much transmission, how much storage -- what can you do with this, and it takes time.

So another one from online. So with regards to your competition, how would you say Quanta's placed in terms of the level of barriers to entry? Would you qualify them as high versus low? And what would you call out as the barriers?

Yes. It's the barrier to entry into the businesses that we're in. I mean people just depends on what you're trying to accomplish. Parts of it, you can move in, we have competition all over. But I do believe we separate ourselves from scale, how we interact with customers. The companies that we've acquired has really separated us the investments that we've made, the strategy we put in place really allow a different conversation with the client. We'll never do it all. But we do have good conversations and really good teams that act very local at times but can also be a multinational company to the client. And so the model works. We understand it. Our ownership stays with us. If we acquire, we always acquire where every family really stays with the company. And it's a unique model, and we've done a nice job, I believe, before me as well, both culturally and how we think. So I like our position. I really -- honestly, if we just focus on ourselves and getting better, it takes care of the rest of it. We're focused on execution and strategy of how we help the client. And ultimately, it's in the model that's worked for generations of all the companies that we own, and we'll continue on that path.

Okay. So let's shift gears and talk more about your -- if you made some comments about charging infrastructure a little bit earlier. Can you talk about the role that you foresee Quanta playing within that space? Could it be -- I think you guys talked about new business that you enter into, potentially being maybe like $1 billion businesses in some cases. You can actually grow there. And what sort of customers are you pursuing in this endeavor?

Yes. So the charging stations ourselves. I mean, I think our role really is how do we help our utility customers, how do we help the OEMs and the larger chargers are going to be like EVgo or others. How do we help deploy with the client because we interface with the utility. So we'll be doing the backside of the infrastructure. Makes a lot of sense for us to put the charger in and through the backside of the infrastructure. So we're having those conversations. What we can't do is like go one-off and deal a one-off project. It doesn't make sense for us. We want to do the program. We're going to do it nationwide. We want to do it all? Or it really just doesn't make a lot of sense on the release regionally and then have the client with us at the utility and benefit both sides of it and really expedite it. So that's -- I think our role in that is that integration between the utility and the charger -- charging company or if the utility is putting in charger is the same thing on the other side, and being able to go both sides of that. But the big spend is the grid penetration and what needs to be done to modernize.

So now that Blattner is fully part of Quanta, can you talk about like the revenue synergy opportunities? And particularly, like where you see like the incremental growth potential with the regulated utilities looking to shift their -- the generation mix from fossil to renewable.

Certainly, when you think about Blattner, I mean, 10 large customers have really nice pipelines growth. And some are acquiring now as you issue, so that will require more growth and keeping up with their pipelines, is really when we thought through it or when Blattner was thinking through it, that growth is what really the family felt like well, we can't really service this growth being private. So that was -- what led them down the path for ultimately what we acquired. So facilitating those customers as well as taking on new customers as they start transitioning. We're in early stages of walking through those pipelines to make sure Quanta as a whole can handle the current customers. Our utility customers, a couple of things there. You either have -- they're either saying going to market for a certain amount of renewables, both wind solar, batteries, even or they're building internally or they'll go like 50-50. That model goes across the pendulum. And so our customers that are building internally and developing internally, we're certainly having those conversations there. The ones that are 50%, yes. And the ones that even aren't we're certainly facilitating how they think about the transition. So on all sides of that, and then backside to the developer, as they need to interconnect. It's a much easier conversation today with the line, with the substations that it requires and things of that nature have those conversations on the other side of that development. How do we do this more efficiently? What can we do, what's possible, what kind of standards, what does it look like? Those synergies are there. So I think people say, like, is it 1 plus 1 equals 3. No, it's way more than that for us because the conversation at the very highest level about no matter if you're downstream, how do we transition out of a possible environment and is something different because many clients or even our downstream clients are saying, well, we want to sell the portfolio to offset. We want something to offset. Well, I mean we sit right there and can help those developments. So I really like the whole synergy, but it's really about now we're able to be in the forefront of the transition.

So I want to spend some time on the solar tariff situation. That was something that cropped up back in March when the Department of Commerce announced an investigation in terms of illegal dumping. So if an adverse judgment gets passed down in August, do you think the business can grow as we look towards like '23, or is there potentially like an air pocket from now over the next couple of years until there's like a full resolution?

So I'm going to let Jayshree comment on the tariff. But in general, what I would say about the company and the portfolio of the company. Number one, for the year, we set the expectations. Early there would be some fluctuation. So any solar -- we've started solar. We're on multiple solar projects. We're building solar. I know some have taken it and said we have no solar. We're not going to build in solar, that's all out of our guidance. It's impossible to take it of our guys when we're building it, quite a bit of it and ongoing still signing solar to build. So that's still ongoing today. I don't -- I do believe the industry in the past, when things have happened the supply chain worked ourselves through. And you have an administration that's there, that sees it. You have unions that have said they support the developers here, they don't want large tariff. They don't want the down. So on both sides of the aisle, I see good markets for both sides. It doesn't make a lot of sense to slow the industry down when you said we're going to a fossil fuel environment as quick as we can. Any kind of slowdown in this market is bad. So I think they'll work with the developers. There'll be some slaps on the hand here because I think things were done improperly at a very, very small [indiscernible] That's how I see it. But Jayshree, you can talk about the tariff, which I think is important.

Yes. I mean I think it was -- came out of left field this tariff in March and did surprise the industry. That's why you heard a lot of the industry pushing back hard and making the administration know what an impact this potentially could be. And I think it forced the Commerce Secretary to come out. She's going to have to investigate it. That's just part of it, but she did send signals early on that, look, this is something we have to go through. We have to deal with this. But highly unlikely that the tariff situation is going to be on the draconian end, which people had initially feared. And I think she also tried to send signals that even if there are going to be folks who are going to get their wrist slapped, it should be a small minority of the supply chain. And then the rest of it should be able to be absorbed by the supply chain. Of course, it will shift some things. And you've heard players say, okay, this is going to shift our timing a bit. But the overall trajectory for solar and wind eventually, it's very, very strong. And I don't see this tariff situation slowing things down in the medium to long term. The supply chains have dealt with tariffs that have come out in 2012, I believe, 2014, 2017 even, and they figured out how to deal with it, right? I mean it takes months, not years for the supply chain to adjust. So the administration could do something radically against their environmental policy. I think that's unlikely. I'm not sure, it could happen. But I think sitting here today, while it's frustrating and which shouldn't have happened and we're going to have -- developers are dealing with it. I think in general, people are realizing that this is, if anything, a short-term issue that will get resolved here over the next several months.

So a couple of more questions from online. So there's a view that the majority of EV charging takes place overnight, which suggests the estimates for grid overload are vastly overstated. Can you comment on that?

Yes, I would say maybe in a certain area, but overnight, if you think about it, you had a certain amount of load at night. Nothing was at temperatures to run all night long. And the amount that was on, it's also when people are home. So during the day, people aren't home. So I disagree. I think as you penetrate at night, we already see it. I mean you get an app for Tesla. I was talking about the other day, someone was in town, they had an app and said, "Oh, you should charge doing this." Well, now there are 7 cars. It tells them exactly how many Teslas are in their circuit, there are 7 cars in your circuit, Oh, well, you can't charge at this point. And that's with 7 cars on a big street actually. So they're already limited to when they can charge and it's much, much slower. So I mean, I don't know what part of the country whoever is in, but I would say the facts say something substantially different.

So with gas prices high, coal not online and the grid under invested. What is the risk of brownouts for the summer? And how is Quanta preparing for such a potential outcome?

Yes. So I don't want to comment on brownouts. I don't think it's prudent. Hopefully, the industry can figure out how to get generation to the source. Usually, that's the case. At times, I do think you cannot prolong fixing generation. We need to fix it. If you're not going to build gas pipe, which we're not. We have to figure out how to bring transmission and load sources into areas such as the Northeast. Are you going to leave coal in gas plants, that's what we decide the country, leave coal, let it go. And it'll stay. But I don't believe we're going in that direction as a country. And you're already seeing some impacts of climate change and things that have happened and you can't deny it. So that being said, I do think coal's going away. Natural gas will still be there a bit. But if we're going to retire plants and fleet got to bring in load in generation. And you have it, it's also growing. We did a lot of this with negative load growth. So you're starting to see the load growth. We need generation, we need transmission batteries then that.

So another question from online. How does high commodity inflation impact utility CapEx? I mean is there a risk that -- there's so much inflation that the returns are just less attractive when you see like delays? How does that work?

I think there's a shock to the system, honestly. Like everything just went to exponential. And then have you seen lumber kind of fall down. I think everyone in the industry believes a bit that it's going to certainly not escalate the pace it has and also follow off some, already seeing those signs now. That said, I do believe in the -- when it does get tight like this, as an industry, we have to look at the cost in a different manner. How are we doing things? What's our processes? What's our standards? Can we do this more efficiently. And it really -- I actually think for us as a solution provider, it helps us really work with the utility on how to get cost down. So we like the environment. As I said before, we really understand labor and fuel and such that has moved up. But I don't believe the utility can afford not to invest in the systems to modernize as well as from a generation standpoint. We've already made the decision as a country to move forward where we're going. So I do believe while it might be painful and if you look at a 20-year build, you're going to have spikes along the way. It's a long game here and ideally, the overall impacts of any inflationary for the consumer overall, over time, will go down due to the impacts that we're making today.

So to what extent has the Russia-Ukraine conflict restarted conversations with your midstream customers? And what are they saying about adding more takeaway capacity? And how will Quanta play a role in that?

I mean I think LNG export is certainly prevalent and we've said all along that we believe that will happen. You'll build some pipe into the bigger LNG exports, primarily Texas, where you see most of it going. There will be some big takeaway pipe there. But again, you're probably running 80 big large diameter pipe spreads at one point, probably running 10, 8 on a given day, maybe less. So could you run 12,15. So some of that will happen. For us, we could invest in large diameter pipe, the systems a while back from an asset base. We have the ability to help the midstream or the large carriers. I don't have any stretch to that, but I just don't focus for the company at this point.

Okay. Well, it looks like we're all out of time. So I just want to say thank you, Duke and Jayshree, appreciate it.

Thank you.

Yes, thanks for your interest.