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

Hi, Good afternoon, everyone. So my name is Chad Dillard. I'm the lead analyst at Bernstein for the machinery, engineering and construction sector. And today I'm really pleased to have Quanta Services joining us and representing Quanta is Duke Austin, he is the CEO of the company. And so the way we're going to run this is going to be a fireside chat, but I certainly encourage all of you out in the audience to ask your questions. [Operator Instructions] Without further ado, let me actually hand it over to Duke to give a brief overview of Quanta, then we'll dive into questions.

Yes. Yes. Thanks. Thanks for having us. So Quanta, basically, when you think of where we sit in the energy transition and who we are, we're in 3 segments. Renewable segment, electric segment and underground segment. So that said, I think we play -- the core to us would be cross-skilled labor. We then bolt-on technology, engineering capabilities really a flip to construction-led type organization that provides solutions to the transition utility-backed quite with about 60% of our spend comes our -- sales come from utilities, regulated type utilities. We made a large acquisition last year, 1.5 years ago, which would provide a balance of plant, wind and solar. We've traditionally been in the interconnections there with utilities and then driving the industrial segment towards the transition. So I think we play roles in across the pendulum of the transition and it gives us a different viewpoint, the infrastructure piece of this, I think, is vitally important. And then that's the role we play with our clients in a collaborative manner.

Excellent. So Duke, I want to take us through a couple of themes. First of all, addressing like the mega trends, maybe some quanta-specific opportunities. And then maybe talk about some of the downside risks potentially -- well limit. what could potentially limit growth over the future. So just like starting off with mega trends. Maybe you could talk about how the transition e.g. is going to impact the demand for great infrastructure and the role that Quanta will play in enabling that part of the energy transition.

Yes. I think electric vehicles is probably the most unknown as far as what it does to distribution system of electric utility or anything for that matter. So there's 2 ways that we play in that. One would be we would partner -- we have a partnership with Navistar recently on -- when you think about bus depots or truck fleets, how do we charge them if you take every over-the-road truck and you turn it into battery trucks, it's 14% of the load today. And so how do we charge that load. It takes a lot of planning and it takes substations at times, it takes transmission systems at times. Depending on what you're trying to charge. So I think those things in that planning process, we're doing it for our own fleet. So as we do it for our fleet, obviously, we would do it for others. That said and behind that is the whole grid when you start penetrating with GM and Ford and others going towards this battery vehicle at mass at scale, which you're seeing, that transition on every single house, if you're charging at home, which most will, that creates a load. And that demand becomes too much for the system to handle. So the infrastructure behind it, I believe, is probably the most unknown and I believe it's trillions of dollars that will -- if we stay the pace we're at, the requirement behind it and how do we as an industry, make sure that we educate the regulators and educate the end user on the demands that we require. We can't say, for GM and have federal policy pushing that Tesla, pushing now while the industry says, Hey, we can't charge a vehicle. It won't work. And so I do believe we have a finite amount of time to start that planning process and then start building out the infrastructure necessary underneath to handle not only just chargers, but even high-voltage, high-density chargers, I think that's really, really important when you think through it. Those high-density charges are even more impacted to the system. So the system load at a distribution level will certainly be something that we're in front of.

Got it. So let's actually just like focus on California, for example, right? So I think there was either early this year or last year, some commentary coming out talking about ending internal and combustion engine sales, I think it's probably 2035. Maybe we can like walk backwards, let's say, 2035 is the stop date. When do you actually need to see like that construction gets started? When do you need to actually start seeing like the planning, just like walk us backwards for like how to think about the time line from that kind of terminal date?

Yes, I think you should be planning now. Your long-term plan is a utility and the problem it's inputs that you put into the plan. And then when you -- the manufacturers are giving inputs, but they're exceeding the inputs or whoever is telling you something is going to happen or temperatures matter? What's the temperature. And so you're not -- you got to stress test the grid towards failure. And I think those things, when you start planning for it, even in California, everywhere else, you're starting to see those impacts. And when you start to -- you're seeing $100 billion budgets come out of one utility, I think that's the kind of magnitude you're going to see. Honestly, I think it's plus-plus, that start. But that impact over time, we need to start today really getting our heads around how do we get the system ready in a systematic way for that impact because it's coming and we know it is, how quickly is always -- is it a 20-year build, a 25-year build a 30-year build. There's no doubt it's coming our way, just how quickly do we -- used to be able to think about it, most Teslas were expensive. And so pretty much knew what part of California that we're going in. When you start to get a $30,000 car eventually, I'm sure Tesla will get there or someone, GM, Ford. We'll get there and you get a rebate against it from federal government. Its policy that pushes that EV to an area that the grid can't handle. And so that's -- the issue is updating the whole grid to handle a $20,000 car. And it's going to be punitive to go to the pump. So it's going to be total cost of energy, how do we get there? How do we think through EV penetration. I think while we can handle it on a macro level, people talk about it all the time in a macro way, yes, you can invert batteries back into the grid. I do understand that. You got to charge it the first time. And the whole -- get the generation right, you'll get it right, eventually, we'll get there. It's not as hard as that -- it's like last mile fiber. We're still in the last mile fiber today as a country. And I don't think people -- you might get away with your TV being a little slower, your internet being a little slower. I doubt you'll get away with your car not working.

So let's actually move on to the Inflation Reduction Act. That's been a driver of a lot of excitement, a lot of expectation. Can you just give us a sense for where are we from like a funding design and construction environment, particularly given that a good portion of your business is involved with building utility scale, wind and solar. When do you start seeing the awards flowing from this act?

I mean we've seen awards -- LNTP certainly were out there. The act, I think it gives certainty to the industry, for sure, as you long term, look at it more investment long term, derisk some of that ups and downs of PTCs and everything else you're worried with. Tariffs were a big thing that came in. We've built about 25% of solar, wind in North America. And I believe that we should pace that way going forward or more. But when we see it, we see long-term LNTPs or what I would say, verbal awards or however you want to look at them and outward years, where normally you would look at it like that. So you get more visibility longer term now. As you see it now, I think you had a pent-up demand from tariffs and panels as the panels start to come in. The first quarter, second -- first part of the second quarter, you're moving into mobilization, we're mobilizing on all these projects. while you're building backlog or at least LNTPs against the latter half of the year into '24 5, 6 and beyond. So that really gives it a good cadence as it moves forward and your scalability of the company and some of the things that you were holding on to or knew the market was there after it should flush out and stay fairly consistent from an earnings power standpoint throughout.

Got you. So the LNTP or the limited notice to proceed. So it sounds like that's what's driving a lot of like your activity this year. And you really haven't seen a lot of the work from IRA?

We've seen -- what -- we haven't seen a work. What we've seen is we've seen inbounds on, okay, this is -- these are all go projects versus variable. We work for the bigger players in the business. They had very good pipelines of projects. So we were able to really -- they made them go and made them firm more so than what I would say and just kind of while we might do that next year, we might. Everything turns into a that's a go, that's a go, that's a go. And I do think when they get tax credits, wouldn't give good guidance on tax credits, are they transferable? How do you get tax credits, what's the pool of tax credits that will even get better. We haven't got there yet.

Got it. Okay. So moving on to the other Cisco Bill, the other infrastructure bill, that IIJA. The IIJA is probably the first time where transmission has been considered proper infrastructure, I think it's about $65 billion of spending tied to that. So have you started -- it's a similar question, right? So like have you started to see any opportunity from that front? And then, I guess, secondly, maybe you can talk about what's the mechanism to convert that $65 billion of stimulus into actual like construction activity?

Yes. So -- it's hard for me to get my head around the $65 billion where it goes. I haven't seen it like shovel-ready projects that are out there. Certainly, we announced SunZia it would be one of them that was out there. I'm not sure the stimulus went to SunZia. But that said, we have 1 customer that just announced a $110 billion capital budget. I mean I just -- there's so many big capital budgets were concerned yourself with. The $65 billion, yes, it's incremental. Where it goes, it's hard to say. And from the axle, you can't see it, but you know it's helping something. It's probably BPA, TVA, something like that, where they have projects internally that can move faster through government money than the IOUs. So I'm confident we're seeing it. We will see it somewhere. I can't put my finger on it today.

So let's spend a little bit of time on grid modernization and specifically, the undergrounding of electrical lines. So that's probably a bigger opportunity out West. Can you just talk about your dialogues with the utilities out there? How to think about the timing for these sorts of projects and how Quanta is positioned to execute and potentially win these sorts of projects?

I mean California is even the whole west. I mean, it's probably -- California is the second largest state for us. When we look at it and look at the clients, I think what you see is they have 3 things coming out of them at once, the undergrounding as Chad said for fire. It's necessary, will create bankruptcy in human life. So it's the first priority for the utilities in California. That said, the EV penetration is at the front end of everything in California and they just announced, what, $7 billion of transmission interconnections from ISO that's on top of everything else they had. I guess I'm more concerned with capital structures and where you get the capital and how it moves through rate base. So those things are important. And I think as those utilities get themselves around what's coming at them it's all good things. It's a growth company. It creates growth for the utility. That said, I do think there's prioritization to the underground and it's moving forward in a nice cadence, and they're not deviating at all from it. And it's the right answer. Long term, 2 things. It's uninsurable to -- for most and almost anyone in fire-prone areas in California can get insurance. So very much necessary. And then when you start looking at tree-trimming and everything you had to do for it, if you do it over time, I think it's the right decision. I would have never said that 15 years ago. But today, given the environment, given where you're at and the way California looks, it's necessary to underground or some form of mitigation -- significant mitigation to fire prone areas.

So in your Analyst Day, you guys laid out an organic growth algorithm that basically suggesting you should expect growing at upper single digits. That was before the IRA, that was before like the recent slate of large-scale transmission projects. So where do you think your growth algorithm goes after you factor some of those recent fill wins in?

I mean, I think we were hesitant to talk about top line growth for the reasons you're talking about because you couldn't get your head around the top line growth. I always thought it was better. What I was concerned with was our EPS guidance. We said we could derisk our EPS guidance on a go-forward basis over the plan, about a 10% CAGR. And so when you think, okay, you derisked it to 10%, all levers of the balance sheet and had the opportunity to grow at 15% plus. So when you start stocking on SunZia and other major projects to it, you would get in those outer numbers within the plan, can we do it consistently, not signing up for it yet. But that said, there's opportunities to do so. If we continue to see it and continue to stock on top of what we think the 10% is, we'll have a 2-year plan, we'll start a good.

All right. So now I want to spend a little bit time on more like the Quanta-specific opportunities. So where are we in the revenue synergy journey post the Blattner acquisition. Maybe you can talk about SunZia. To what extent do you think that's a proof point. And what does that tell you about the combined business model going forward?

I think when we look at it, the acquisition, we based everything on those synergies straight up. We knew there were synergies in the business. A couple of things it does for us. We see internal spends of HVDC equipment. They're a large buyer of HVDC equipment. That would be transformers and gear everything around substations as well as wire. So large buyer of product. We were a large buyer our product consolidated. It very much drives a big HVDC spend yearly. I think we can look at that different, get synergies out of that, for sure, we will, we are. That's one thing. And then at the customer base, we were heavier at the utility level where you're seeing utilities now develop, which will give us opportunities there. We're seeing that. Those are showing up on that side of the business. And the developer side, where Blattner was building the win such as SunZia, had a very good relationship, had built the last wind farm. We were able to talk to them about the substation, they were having issues on the substation. So we were able to build a subform. And when we started talking about that, we found synergies in aggregates and lots of different things. And so we were able to really drive home the value of 1 person building a project. We have the scale to do so, the certainty to do so. And we know Blattner well. And so a great client. It made sense for us to look at it and look at this, collaborate on the constructability of everything. Where we could find synergies and really, I believe, have a great project for both of us and really proof of concept that the acquisition did create synergies that we didn't see and we should see them on a go-forward basis.

Got it. So to what extent does it, I guess, allow you to, I guess, generate like a higher win rate on new sorts of like turnkey projects? Maybe you can start there.

There's 2 things that I think when we go through it, we should be able to find value within on the win rates. If we find value for our customers, ultimately, their projects become more profitable, we should become more profitable and it's a win. The other part of this is we're not going to win them all and it takes a certain kind of developer, a client to really sit down with you and actually believe that you can collaborate and get a better end result on a total cost basis. I think the customers that we work for today, all believe that, and we certainly prove it up. And you want certainty, you want bankability. The balance sheet allows them to point it investment-grade balance sheet. And so I think when you're going to get funding for your project, they know it's our name on it. We got to continue to execute at a high level, make sure there's certainty in the work we do. It means something, the name means something. And that collaboration is key. The constructability is key. And from right away to interconnections to everything else that we can do for the client, we should. And I -- we should be more than just a build, it should be a solution to them and provide more value than just building it.

So you talked a little bit about the Navistar partnership and at the top of this hour. But maybe we can revisit that. Just want to understand, I guess, what exactly is Quanta's role in the partnership. Is this somewhat of a, I guess, a framework for working with other OEMs on a go-forward basis?

I mean primarily, we were -- we used a lot of Navistar to -- third largest fleet in North America who use a lot of Navistar vehicles in our equipment. So that said, we were trying to find the safest truck, asking questions, what can be done? Can you have super cruise-type kind of what drive itself, all this kind of stuff. I believe we need to stay in front of technology, we're trying to get in front and work with the client. So that turned into what else can we do together then we talked about bus depots, how do we electrify them. We talked about our role in planning what we can do. So it just made sense from where they sit when they're selling electric vehicles is someone that doesn't have anywhere to charge that to how do we think about the stations. What do we do for them? So different viewpoints from us. It can go a lot of places here. But from our standpoint, the engineering, the planning, the consulting per se towards a client of theirs or ours, for that matter and give them a product that they can actually use day 1, I think, is necessary for our fleets. And so that -- our ability to do that is paramount, not only tell them but engineer it but also build it on time. And a lot of people say they can give that service, but they don't build it and we build it. And when you start talking about high voltage chargers on large fleets. You're talking substations and transmission. And so I do think it could be a really nice partnership. We get along really well and collaborating on other things. So we're excited about it.

So a question for you on your renewable business. So why can't renewable margins be higher than the upper single-digit range that you guys have guided to? I mean especially since like your projects have gotten bigger, labor is more scarce. So you should theoretically be able to price and capture that advantage.

I mean we've operated in double digits in the past on both sides of that segment. It's the interconnections as well as the balance of plant, solar, wind. Historically, over decades, we've operated in double digits. That said, I mean, the tariffs, the reforms, everything that you were seeing, we were hesitant to not hedge the margins down, and we did. I do believe over time, we will operate in those levels.

Okay. So can you talk about Quanta's focus on growing the front end side of your business? How much does it represent today? And maybe you can contrast that to what like the industry operates at typically?

Primarily be engineering firms would operate the front side. We have a large engineering group and firms. That said, it's minor part of the business on $19 billion, it's not as big. So I think the way we look at it is we probably have 2,500 engineers and support around that. So that group, in general, provides [indiscernible] type engineering or whatever it may be to the client. But more importantly, when you start looking at programs, we can lead with constructability. We can lead with a lot of different things. And then put engineering with it or environmental or whatever it may be and really help the client on right away selections, different things like that from a construction standpoint of actually who's going to build it. And then we're talking directly to the client, we construct our standards and our towers, our structures the way that we believe is the most optimal way to build and the most optimal cost in a holistic way versus saying, hey, you go put that tower up. It's much, much better for us to be at that side of it. We didn't have the capabilities in the past. We've been growing that business since 2009. Substations, we probably self-perform, EPC more than anyone in North America by far have for a long time, but we weren't on the line side. And I think we've really separated ourselves a bit to push that forward, and we'll continue to add engineering capacity to the business. It really facilitates our construction crews on the back side. If we don't have the capacity or the utilities don't have the capacity, then we get hung up on the construction on the back side of it. So we really want to make sure that the system runs smoothly against the construction on the backside where utilities capital spend stay within the realms that they want. And that allows us a lot of flexibility.

Got it. Okay. So I guess on end represents what maybe like 30% something...

Of a capital spend, it would. Of the business, it's less than 10%, way less.

So actually, let me move on to some questions from the audience. You touched on this a little bit, but California has the highest number of EVs in the U.S. How has Quanta changed the grid so far there?

I think when -- in California, we've certainly worked with our utility customers to -- we know where the concentrations of the EV are within the state, so really upgrading the grid in those areas. We do some planning work in California. I do believe the manufacturers and any data you look at, it's moving faster than the data says. They've got to catch the data to if it's a competitive advantage or what for whatever reason, more EVs and put every year than what said. And so that, along with heat, air conditioners starting to come into SoCal, it really causes some havoc on your distribution system. So we work with them quite a bit on interconnections and transmission load as well as that distribution level. And what we're seeing across the country, I think, is really important on systems. A couple of times, I believe it was last year, could have been the year before last, I can't remember where there was days, weeks. They said you can't charge a car. But they just told everyone to get on your combustion engine. I don't think it's really good policy given your combustion engine and don't touch a car. I don't know you're getting here. Just work from home. We're not fortunate enough to do that at Quanta. So that said, like you have to change policy and make it work. I mean there's no way around it. It won't last, it will last a little bit. But as a penetration comes out and gets through the organization, it's going to be -- it's going to cause bigger issues.

So next question from the audience. Could you provide some color on the biggest bottlenecks you're currently experiencing?

I think federal policy and state policy is disconnected a bit from a standpoint of how we're pushing incentives for builds. I think that needs to be more of a collaborative environment everywhere from permitting down to funding, the ratepayer, certainly, if you ask the rate payer to bear the cost of the grid or EV or anything else, and we need to make sure that we're showing them why you should. And I think we can do a better job on total cost of energy, looking at it long term, looking at what fuel does to a bill and how that goes down as you penetrate with renewables, what EV does to your total cost synergy. We've got to do a good job at that. So I do think that could cause constraints in the business, in the rate base when you go to the regulator and you talk to them. They're going to be concerned with what does that do to the bill. And that day, that year instead of looking at this more in a long-term nature. It needs to be looked at long term, long-term plan to get us from where we're at today to a carbon-free environment with electric vehicles. That's the policy then we need to work towards it. So I think those hang-ups will be out there. You'll see some political strife on that over time. And then immediately, I would say supply chain transformers, poles, connection queues are difficult substations. If you're not in the queue on big transformers, things like that, you're 24 months away and that supply chain has not got better. It's got a little better. It's just -- I do believe in the next 12 months, you'll see it get much better, but it still has issues. And so I think, we've got to get through some of the supply chain problems that we see today. And as we move forward, they're just -- it's not terrible, but it's still an issue. And I think if you're a smaller utility or you're a developer trying to -- smaller developer trying to build, it's difficult, very difficult. Connection queue is going to be a problem too.

It's actually tying on to that question. So Quanta has a decent amount of scale relative to a number of your customers. Is there anything that Quanta can do to help the customers in terms of procurement? And is that something that you can price for?

I definitely think we can source materials, we can and should. I think we're doing it for ourselves. I don't think we do a good enough job internally. So when we get our internal situation -- Blattner just coming into the organization. I do believe that when we look to this in a centralized way, we'll get scale out of it and when we do that very, very well internally, then certainly, when we look to our clients, we can offer them something different than they have today. So I'd like to get ourselves fixed first, but definitely see a market there.

So another question from the audience. How big of an issue is permitting? How has this evolved? And maybe you can actually tie this into the debt ceiling negotiations and the permitting, I guess, opportunities related to that.

So permitting has been an issue, older now, but I would say my career, but I don't know if it's been quite that much. Yes, probably so. So permitting has been an issue in my career for generations in the business. It's probably my dad's and grandad's career as well. It's always when you have a federal policy against state rights, you never said it before, permitting is same. When you're trying to build across the state or anything in a regional, it's not located in the same state. It becomes extremely difficult. Utilities, you're trying to bypass the utility to build long-haul transmission. I don't -- it hasn't worked very well in the past. I don't think it works very well in the future. How do you play nice together in the same sandbox with an infinite amount of capital. I mean it should be -- sounds easy, it's not. I do think there is progress against different things I don't think you'll see a 20-year type time frame, much less than that. I don't know where that is yet especially when you're connecting renewables, you're trying to solve the connect renewables and you can get them in the same corridors, I believe we might have to change some standards. We might have to do some things different as an industry, but I do believe we'll make progress due to the fact that we are building out for renewables. So we got to educate better, why we're doing things, work with the land owners a little better. But I -- underneath, when you see it, you see the mega projects that are held up underneath from regional authorities and a lot of regional authorities because fines are a little different. But in the middle of the Lower 48, definitely, you're seeing some build there underneath that they may be cut-up projects and increments, but there's still on providing for resources for renewable generation.

So here's a related bottleneck question. So if labor is tight, why will salaries increase? How do you price for that? And can your employees earn more if they go to work at a utility?

Yes, that's a good question. I think in general, there's areas of the country, sometimes people want to stay home, sometimes people want to travel. It works different in different parts of the country. I don't -- you don't have -- fortunately, for Quanta, we have a lot of good little people that we've worked with many, many years that lead these projects and they require a following, down to stay with them through and through. We provide very good equipment, safety, career paths, many things that we can do for a craft, and we value that. So I don't -- we don't really see them running to the next highest job. Typically, we pay at the high end of the range anyway, not to say you couldn't see 1 or 2 move around, but masses know and the key people know. And we tend to be -- get the necessary resources in the work without significant escalations. Your work out West is union typically, and that union has got criteria around it. You work out of local jurisdictions. You can pay above scale if you want. Sometimes you'll see Saturday, Sunday type work versus straight work. But normally, if someone is traveling, they want to work 7 days a week. I don't like working 7 days a week. They don't just -- but they want to work 7 days a week. So we work through that and sometimes we'll do it, sometimes we don't, but they usually get double time on Sunday. So I like that. I do think you have to be flexible, you have to work with your work groups. But in general we were on 12 major projects [SunCrest] every bit as big as anything we put gotten own, we work right through highest margin as a company put up for in the electric segment for a long time. So I'm not concerned.

So one big tailwind that Quanta has benefited from has been the trend of utilities outsourcing their work but one question that I continue to get from investors is if you have this multiyear, multi-decade build, like why wouldn't the utilities just reverse that trend in source and capture that labor cost for themselves or save that labor cost for themselves.

I think a couple of things. For one, on the coast lines, you do have a big, large union workforce internally. You're not going to ramp up for these builds. You're going to keep us some study flow of the workforce typically. If you say, well, I'm going to ramp up internally, it will take you 4 years internally to ramp to train. And so 4 years of training, you've got too many things coming at you. At any given time to try to start building a workforce that you're going to say on spend -- if you have capital, you're going to spend capital on fleet, and you have a fine amount of capital aligns a 30-year line and you don't need a mechanic on typically the last 30 years. You don't have to do a lot of maintenance to it. [indiscernible] tried to buy a truck for 30 years and see what happens like it won't work. So it's a better place for capital in areas where like in the way the rate base works, they need a certain amount of workforce, internally. I just -- for them to ramp to try to get to these builds, I just -- we have not seen that. Matter of fact, seen it the other way. They want to go find an amount. And I think people, in general, I think we have to fill the gaps internally as long as we can fill those gaps, we can help them with the workforce that they may want internally. But it's difficult. They are under different circumstances as a utility in the way that they operate than we are. We can move people from utility to utility. We can move trucks from place to place. Our workflows move, we move. So they don't have that flexibility. I just -- they're not meant to really sustain the area that they're in and without levelized type work, not the growth -- outward growth, not to say if you don't, but I would just say, in general, that's the discipline that they have.

Got it. So a question for you on utility CapEx, especially utilities that run a network of electrical and gas distribution. Since CapEx is finite, how are utilities handling the trade-off between investing in the electric grid, which is clearly needed. And then there's also natural gas distribution and depending on where you live, maybe that may be at risk on a go-forward basis? And then, I guess, tagging on to that question, what do you think that means to the long-term growth algorithm for your underground business?

I think the LDC business, local distribution businesses, they're valuable number one, because they're probably not building a whole lot more in a lot of the areas, some they are, but in some areas are not. The ones that are not, the methane release, things like that. They have finite commission to over a period of time to replace x amount of miles of pipe. Typically, that's what we're doing over a 30-year period. So it's written and they'll do it. Now you can -- I guess, you can move it up and down over time, but typically, they like to stay within around they do have flexibility to move capital if necessary, over into electric side, I'm confident and they do. So I'm sure but vice versa. So they'll do that. I think the gas business in general, while we're not making acquisitions and investing capital there, it's a nice business, those nice free cash for us. It's certainly -- when we have combined clients where they have both gas and electric, it helps us with the client base as well. So I like it. from that standpoint as well. And we can move those crews if you look at Quanta as a portfolio, which I look at it that way, those underground crews can be building telecom one day, gas the next and electric the next. They're very flexible until you get to the end. And so I think our ability to get operating leverage while we move it, they move, if they move capital, we move. And same people doing the same thing. I just -- I like the structure, it works very well from an operations standpoint. It doesn't look as good when you have to look at it in segments. But if you look at the whole thing, the whole company, let's see return on invested capital coming up, you'll see margins coming up in certain areas. So I think that's the right answer for the business.

Got it. So just moving back to a question of labor and the ability to source. You've got this unique asset, the Northwest Lineman college, but you also have a tremendous amount of growth ahead of you and basically every dollar revenue you generate, it's a pre proportionate amount of labor you need to generate that. So how do you solve that problem? How do you scale the labor that we'll eventually need to see this energy transition through?

I think the big thing for us, we do have Lineman College and campuses, 6 campuses and another training facility for up training, I think all those -- all that that we've invested in over the last 9 years is significant for us to get to where we want to go. We do have to work with the unions and work with them as well here. Integral part of this, we work together often. And I think our ability to help them grow as well, we need everyone to grow here. And the union has to grow. We have to really facilitate that growth. And we've worked together quite a bit on can we -- does everyone train the same way? Are they trained? Does it take 4 years? Can someone do it in 2? Well, yes, they can do it in 2. I know they can. So how do we think through this? Is it time-based training or competency-based training. So there's a lot of ways to train. I think we can do it safely in our controlled environments. A little bit of a disagreement there, but we'll get there. As long as you have a controlled environment, we can have safety factors. And if you're really -- if you short-burst train, people don't like to sit in classrooms 10 hours. It doesn't work anymore. ADD came in somewhere, I don't know, but maybe my generation. It just doesn't work to sit there and be bored to death for 10 hours on books, like they've got to get them in the field, short-burst training, hit their hands on something, bring them back into the classroom. You use data that's used in colleges and curriculum and really, really work on the brain. And we've done that with the colleges. We proved we got AI against it. We can show them. We can tell them, we've got so many training hours. There's so many work hours. We've got all that data, that proves it out. And so we just got to use the data properly in our training. And if you want to think about how you use AI in the business, you use it in training, you use it in work methods. I use it in chat GPT, answer all my questions up here, kidding. But seriously, I do believe that we have to think through exactly how we use intelligence.

So there's another question from the audience. Can you discuss or quantify any benefits related to the IRA, related to prevailing wage benefits that would accrue back to Quanta?

I think we meet the criteria, the training programs, our curriculum and the things that we have that are DOL even on union not both in the union and non-union side of the business, we'll check that box for the -- you have as base bacon, we meet that criteria, and you have to have so many apprentices per -- I think it's per, you want [indiscernible] per 6, I can't remember what the ratio is, but the ratios are easy for us. I don't see any issue for us to check the box on that criteria that should be good.

Okay. There's another one for you. Is it unique to your renewables somehow that because they are more localized and within states that permitting will be inherently easier if you're not crossing borders?

I think when you think about renewables, yes, the building and renewable is fine like you can build it, no problem. It's just where you're going to below the PPA you're signing, who you sign it with and where is it going. And you can build solar all day long and it does in Nevada. What load is that going to serve? And I think it's a country we know where the best place to build solar is. And so it's probably where we should build it and we should build transmission against it, but it has to move across states to get to where it needs to go. So a lot. That's the problem. It's that line that runs across, if you run it from Nevada to California, and there's only a couple of 4 or 5 interconnections if that. We need more interconnections in the West. And so unfortunately, the grid doesn't tie very many places. And it just doesn't allow for the robust system that you need. In Europe, the corridors are all connected. It's probably 3x bigger than the corridors we have and they don't have enough. They're right now scrambling to upgrade their corridors. And so these corridors that we have are so small and not connected, it doesn't allow us to put generation in the right places at time, so you do it in a local way. So you'll see local generation sub-100 megs getting built out of it. It's not a bad thing. It's a good thing. I think you'll see some of that as well. It will fill in some of these gaps. And I think some of it will be rate base probably and some of it won't. And I do believe that continues on the sub utility scale kind of 70 megs and below will be prevalent widespread.

So another question for you. As an E&C player strategically, what does Quanta focus on to improve its long-term return on invested capital? Is it cost savings? Is there anything else that you would highlight?

Yes. I mean I don't think we're an E&C for one thing. I do believe we're a solution provider. I know we get stuck in the E&C world, but okay, fine. We build things. But I do believe we provide the solutions against this transition, and it's much different to me. I do think that we can actually have a great conversation around helping our clients be successful in the transition. And when you do that, when you think about the ultimate rate payer, when you think -- you know the models, you know the interconnection side, you understand solar, wind and you're able to really articulate that and know that with certainty, you can actually build it for what you say you can do it for it means something. And so I think our ability to continue to stay in front of that transition will ultimately allow us to continue to differentiate and that it will need to be nimble, we'll need to be able to predict the markets and where they're going to have constraints. So when we see constraints in the market, we need to be developing against it. And I think that's what we do is we see constraints. We see -- we think this is going to happen, how do we, as a company, get in front of that and how do we help our client. And as long as we can stay and use our capital, deploy capital in the areas long term, and we're thinking out 5, 7, 10 years from now, where do we deploy that capital at. We know they will be self-driving. We know that the yellow iron tractors they will be automated. How do we get ourselves ready for that as a company? It's necessary for us to make sure that we have design capabilities, we use artificial intelligence and our engineering and our people and think differently than everyone else. And you're not an E&C.

So since you brought up AI. So what's your ability to leverage technology? I know you talked about AI and engineering. You talked a little bit about AI and training but maybe more broadly, where do you see the ability to actually like drive just like a step function higher productivity growth for the projects that you execute.

I mean I think it gives you tons of intelligence on your engineering capabilities and also, it helps you train. It helps you move to the field faster. It tells you where you've gone wrong, proposals, bids, look you can run data across just about anything these days, just ask it. It will really help us become better as a company, just support all the way through data centers will, certainly support the low on data center. So just a lot of things there for us and we're excited about it.

Great. Well, we are all out of time. Thank you Duke.

Thanks, Chad. Thanks, everyone. Appreciate it.