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 covering the machinery sector and the electrical infrastructure companies. I'm really pleased to have Quanta Services here who is a leading electrical infrastructure solutions provider. And joining me from the company is Duke Austin CEO; and Jayshree Desai, CFO. So if you have any questions during this fireside chat, there is a link somewhere around here, where you can actually plug in your questions by a pigeon hole and then I'm more than happy to read them off and we'll get your questions answered. So we'll begin with a brief prepared remarks from Duke, And then we'll jump right into questions. Duke, over to you.

Yes. Thanks. Thanks for having us and I appreciate everyone being here. So Quanta in general, is a solutions provider to 3 addressable markets, which is utility infrastructure, renewable infrastructure and then the technology infrastructure. So really providing solutions around craft skill labor at the core. We're bolting on engineering and technology and other things to really provide solutions. We do have some vertical supply chain initiatives that we have that really around the pull-through, through those solutions that adjust those markets, markets are growing. They're converging and we sit at the nucleus of what I consider one of the biggest builds of infrastructure that we've seen. So I'm really, really excited to be here to talk about the company and kind of tell you guys where we're going. So thank you for having us.

Okay. So Duke, first question for you. So you've talked about Quanta as being evolving from an electrical contractor to an electrical infrastructure solution provider. So why is owning more of the electrical supply chain a better way to do business for Quanta and its customers. And I'd love to get just any anecdotes on how this is being received by your customers?

Yes. I mean I think the companies that we've acquired or how we think about it is independently when you acquire a company, typically, they're a contractor, really you try to stay not commoditized, but virtually commoditized as a contractor. When you think about a solution, the way I think about it, you're putting multiple companies together, providing multiple things when you're collaborating with the client to provide that solution that they're after. So really a good example, when we look at SunZia is a project that we've built, it was putting wind, our transmission capabilities, all of our permitting, all of our front-end solutions towards one of the larger infrastructure projects in the country and providing in a turnkey solution. So I think as we see it, before COVID, things like that, we could see supply chain constraints. We acquired transformer capabilities there because we felt like the industry was -- it was necessary. So U.S.-based transformers. We've continued to lean into that. And really for the pull-through against substations and our own work, not really to be a manufacturer, we have invested, we'll continue to invest, but I wouldn't consider us a manufacturer or really that solution that the client is looking for and not only our electric utility clients, but it's also our technology. Technology is buying transformers. So as we sit and we talk to them about data centers, we talk to them about how the interconnections, it's just a holistic view of the markets that we see where we're working with the utilities and what I would consider technology renewables as we're backing up the grid for that overall solution. So when you think about a data center, really the constraint is power. We sit in the middle of that. We obviously want to build as much as we can of the data centers. So one day you're talking to a technology company, a utility and renewable customer the same day, but for some reason, they can't connect. And so we're really in the middle of that trying to connect those things and provide those solutions that really are impediments to what I consider that solution about going forward, and you hear a lot around constraints of power getting in the queue, do a lot of planning. So really on the front side of the business, trying to get to the customer, listen to what they're saying and really be collaborative at the customer level at the highest level. So we can see further out and really talk about the company in a multiyear, multi-decade type situation at this point.

So how does that change your addressable market? And then how do you think about the shift in the risk profile now that you're potentially doing the full turnkey project?

Yes. I mean I think a lot of -- I would say the majority of our work is negotiated when you put yourself in a position where you're talking about time typically, we have -- like I said, 3 addressable markets, 2 big markets. Utility capital is around $250 billion to $300 billion, your technology capital is around $200 billion, $300 billion, somewhere in there, what they're spending on the addressable markets that we're in, Let's just call it $200 billion and growing at the technology and the new renewables and generation backing that up. So those 3 markets are large in nature, so we sit right in the middle of those markets and really try to address them as they come together, Chad, I think that's important. Independently, you may see us building a transmission line to feed data center or you may see us building a data center, substation and transmission line. So I think our ability to really work with the client and what they're trying to accomplish early and address those markets is really making the company grow. As we look at service lines, you can see it, we're really craft centric. And when I say that for generations in the business, the craft business, understand electricians, line workers it doesn't matter what craft it is. So we self-perform 85%, which I think is really critical to your question because difference in the past or with others, they don't know their labor. And so you can say I'm going to show up with 5,000 people, but who are they? We know exactly who we're showing up with on any given day. We're looking at the work. We're looking at it. So we're able to understand cost, on time, on budget. I really feel like we were resilient in markets and have not taken the risk of EPC lump sum where there's some kind of commodity risk or output risk. I've been there in the past. I've seen it. We've obviously a decade ago, we're in the middle of those kind of builds. But as it sits today, look, linear construction, the things that we do best generation, it's really a collaborative effort with the client to look at total cost and drive the total cost down versus the risk and less risk sometimes you give up a little margin for less risk. But typically, I feel like we're trying to hit singles and doubles and that's how the company is built and it's built around craft and our craft.

So actually, yes, speaking of craft. So it's pretty well understood that Quanta was ahead of the curve when it comes to setting up craft labor and the training. But where to from here, is there anything that any different that you need to do or more you need to do to further enhance that labor strategy?

I mean I think we're always looking at -- the company is still in a considerable amount of free cash. We look at 3 ways to deploy it. And as we see -- when I see great companies, great family businesses that we've known a long time, such as Cupertino or Blattner or others, we don't pass those up. We lean into them. We believe that the right management teams, the right culture, the way that we look at the markets if they fit with us and where we're going and try to provide those solutions, the more that we can provide in a craft to those addressable markets, the larger the company can go, the further we can go and really trying to leverage supply chains and the things that we can do in a centralized way to create that overall solution is really important. But really at the craft and the service lines and multiple crafts, like I said before, it doesn't matter, you could see us in 1 day, we're putting gas distribution in pipelines, transmission, so many ways that we can lean into craft, but philosophically, we think the same. Everyone thinks the same, and the way we treat our people and I think is really, really important for us. And we've had colleges. We really -- we start early. We built colleges out a decade ago and started building training centers, all the things that we need to do to lean in. I mean I know we're hearing a lot about Pell Grants and things like that. We don't need Pell Grants. We are what I consider we're taking them on military. We're bringing kids in. We're training, training, training and training. And like I always say, if you want to be a surgeon of line work, then you want to come to us, if you don't care, maybe it's not us, but we want to train up and we want to train where someone from the field can take my job or vice versa someone from college can go into the field and come up the same way. So we're really trying to work out that craft and lean into it and making sure that we can address the markets that are in front of us.

So moving on to the demand part of the equation. So investors have been very focused on data centers and AI as the main demand drivers for electricity. But that's only part of the picture. So can you help us fill in the rest of what's driving load growth? What's needed from a grid infrastructure perspective? And based on your conversations from some of the largest utilities and renewable developers. And just ultimately, by how much does the grid need to grow to support this growth?

I mean I think when we look at it, knowing a lot about it generationally, transmission is the cheapest form of generation. So the more transmission we can build, the more flexible the system becomes much like a highway system. So I know we talk a lot about well, it's only about 60% utilized things like that. So I look at it, there's a 24-lane highway in Houston, I've said this before. And if you took 8 lanes, yes, it could happen, but you would back all the way up to San Antonio and take about 10 hours to get into Houston. So it's the same thing, congestion. You're building for peaks at times and so you need the transmission flexibility to move load. So that's a fallacy to think you don't need. I think the grid could really double generation for sure and what we see going out, call it, 20 years or so, I think, somewhere in there. But in general, I see a great demand. Some of it is data center driven, some of it's onshoring, some of it is just growth. I mean we had appliances, and we made a lot of headway there. We do have battery vehicles, probably, I would say that slowed, it's lower than kind of how I thought about it. But I would say data centers and everything else has exceeded that demand. And I think we can see out a decade or more of really kind of good build growth. I know sometimes these articles and big jobs, monuments, I'll call them, they take the headlines. But underneath is just solid growth and just a very, very paced infrastructure build. You can look at our capital on utility capital or you can look at technology capital and see that growth come and then we can't meet demand today. I mean if you look at turbines, they're out, I don't know, 5 years, I guess, is the average, someone else would know better than me. But at least, call it 5 years in turbines. And so when you look at gas being out that long, you have to come in with the renewables and things that you can -- batteries, things that you can do today. And so that's -- really the angst is to go faster in AI, push the data centers, push onshoring. You can't do that without generation and transmission. So I continue to believe you'll see significant amounts of transmission build as well as generation behind it, lots of renewables, probably solar batteries for the time being, some wind, and you'll get some gas generation built in here for really what I consider to probably double the load of the system.

So to go on to go back to that comment about 60% utilization. So what is it? Is -- are the transmission lines just in the wrong place? Or is there something else going on? Like why can't we just go from 60% to call -- just call it 80% without building more physical infrastructure?

Yes. I mean, because it loads up. Some of them are in the wrong places. So that's a problem. But the other part is, you can't load them all day. At times, they're 100%, on the average they're 60%, never 100% but call it 90% and sometimes they're at 60%. So it's the average, it makes good headlines to say it's only utilized 60%. But I'd venture to say, if you go out early in the morning 8:30 in New York, it's pretty crowded on the street. If you go out 3:00 in the morning it's not very crowded. So why is the street only 50% loaded. So it's the same scenario on a line. And I think you'll hear a lot of dialogue around it. And I just -- it's just wrong. I don't know how to say it any other way. It's wrong to think 60%. 60% is full when it needs to be. And so it's just -- you have to build more line and more infrastructure in order to meet the demand. And some of it's point-to-point demand, like a data center, yes. But look, the more load you have, eventually, you'll create NPV. We have not built a line in this country that is not NPV positive to the rate payer. We haven't. And so it's a fallacy to think or build in line out there in the world or in North America that is not what I would consider a benefit to the rate payer is just wrong. It's absolutely beneficial.

So let's shift over to Cupertino. That was the most recent acquisition you made and expanded your market into more like behind-the-meter opportunities. So how has that acquisition changed Quanta's addressable market? And how are Cupertino and Quanta better together? And maybe you can give some specific examples to illustrate that.

I mean we bought Cupertino for a couple of reasons, great platform company. It was something that was a decade long in the making, very, very good management team, young, just sit on top of us, We were primarily high voltage and they were primary low voltage. But 2 things that gave us the ability to lean into more of the electric package of a data center provider solution in a broader way. I mean we're building substations, the high voltage, some of the medium voltage, but this allowed us to really go inside the center. And they had been in San Jose for decades and grew up with technology. And really, when I think about it and think about the business at the strategic level, it's really the client and access to the client and understanding the trust that goes into that. You don't go up to Silicon Valley and say, "Hey, I'm here, I'm willing to go to work." They laugh at you. And so you really have to have credibility up there. And so I think Cupertino gave us a lot of credibility and what we could do with that versus a contractor that they were into a solution provider that we can be with multiple clients, not just hyperscalers, but across the board, the labor is fungible and so it can be health care 1 day, it can be chip plants the next day. It can be other things. But look, it's all around some kind of technology or what I consider us leaning into the markets that we see where we can get the most value for the client.

So is the work that Cupertino is doing, is it becoming more programmatic compared to what your traditional heritage Quanta business has been? And if so, why?

I would consider it repetitive in nature. We're certainly -- yes look, we're not looking at a magazine, looking for work. I'll say that. Like we can see out a decade or so with them. And it's really how fast can we get there. And what does the labor look like? Where can we go as we sit and look at long-term plans of technology, we're afforded the opportunity to really lean into long-term plans of technology. And so the question is, what's the pull through? What can we do to get you there quicker? Lots of the bottleneck is the interconnection queues and generation. And I think that's the moat that we have is to really help there. So once they see that we can actually help with the high voltage with the generation, with the real issues that are out there and not just say, "Hey, we're Quanta and we're going to be a knuckle dragon contractor today," that's not who we are. We're there to say, okay, if you build here, we think there's an opportunity with this client. Let's go talk to that client. We can get the renewable client in here. Let's have that discussion and build what I consider a good consortium to try to go in and what do we want to do? We want to build it. And so the first thing they ask is, do you have your transformers? Yes, we have them. Do you have your -- lots of different things. It's just where is your labor, how you're getting labor, all those kind of things that we can answer and when you can answer all those with -- the hard questions and show up and do it and do it on time, that's where you get the solution that we talk about daily. So they've allowed us really to access into that in that collaborative nature that we had what I would consider in the renewable business. The same thing with Blattner very much, sits just like Blattner in the technology arena.

Got you. So if we truly got serious about reshoring, what will we need to do to get the grid ready? And how does your acquisition of Cupertino help Quanta participate behind the meter?

I think when you think about Cupertino, a lot of about, call it, $1.5 billion of backlog is data center driven. That's not to say that there's not an ancillary or things like that. But it's really straight up data center driven. So majority of it is Cupertino, but it's other things that we do as well. So when I think about that, it's not -- we can build a chip plant too. I mean -- so we can go in and do all the electrification that you would do inside of a data center, same thing. Before there was data centers, there was hospitals, there was buildings, there was all kinds of things, had a great business. and continue. So I don't think it's really -- when I look at it, data center is not even 10% of the business at this point. I think it could be much greater. I think the business is going to grow anyway. But I think that the data center piece can be -- will be our fastest-growing piece of the business, but it's not to say we won't build out the chip plant or other things, clean rooms, all kinds of different things that we can do. We do fabricate -- our fabrication facilities. I really like what we're doing there. We can go faster. Right now, it's not, the top line of the company to continue to grow. It's just how fast can you get there and make sure that our quality and our word means something and we're going to continue to value that and make sure that we can deliver, Chad. I think that's the big thing here is us being able to deliver and execute and do the things that we've done over the last decade.

So what's the biggest obstacle to scaling that business?

I think we can scale it. It's just a matter of us. I really want to be more of a solution to the client versus just to the electrical package. So as we move forward, you'll see us, I believe, provide that holistic solution to other craft, other things that we can do in a data center because they're asking us to do it, make sure the high voltages, all the supply chain, all the things that we can do. I'm not seeing a lot of impediments there. Scale it, it's much like we've done with the high-voltage side. We need more craftsman. So it's probably the most constrained group that we have of craft would be that group. So colleges and a lot of people don't want to climb. So as we say, okay, you don't want to climb poles, we'll come into this site. So we're building out curriculum. We're building out preapprentice programs, things like that for low-voltage pipe electricians, takes 4 years. So as we see that, we'll look at fabrication, and we'll do all the other kind of things that we can do to speed it up. But in general, we need more craft.

So let's shift gears to more current events. So with the house version of the tax bill headed to the Senate and recognizing it could potentially change when it comes out of there. What are your thoughts on the impact on renewable project activity as the bill stands as it's currently drafted?

Yes. I think, yes, the House Bill came out a little bit harder than initially expected. But I'll tell you the general view of the customers that we work with, right, which are the higher quality developers who've been in this industry for many, many years, decades, who've lived through the cycles of PTC on and off. They've done a really good job of anticipating the changes, getting ahead of it. A lot of them have strong balance sheets, have been very good about supply chain themselves, have worked through these things in the past, have a really robust pipeline to be able to manage through the complications that may arise with the bill. A lot of work was safe harbored in '24. So I think you're going to see very good growth in the next few years. We'll see where the Senate bill comes out. I think there's still some room for improvement in the bill A lot of it is going to be hinged around the foreign entity of concern. Clarity is required more so than necessarily having to get it fully repealed, but there does need to be some clarity in the bill. But the demand side for renewables continues to be strong as ever, as strong as ever. In fact, PPA prices continue to reflect that. If you have a project ready to go, you're going to get that built. And that's what we're seeing. We haven't seen any significant slowdown. The conversations like Duke was saying are on our solutions-based approach is even stronger. I think another thing to point out is with the way the credits now are potentially going to fall out, you're going to see a rush to quality again. You're going to see customers wanting to come to quality solution providers who can ensure that they meet the deadlines as now implemented potentially. So I think all we're seeing is opportunity. Again, you may see some slowdown here and there as developers figure out which part of their portfolio best is suited for the new rules. But the demand side continues to be so strong and the build over the next few years continues to be very, very strong. And even post '28, we're just not seeing any concern around the demand side, which means the growth should be strong going forward.

So actually, let me double quick on that. So I guess like the question is how necessary are the tax credits for sustained growth? Because I think through -- Duke talked about 5 years to get a turbine, maybe you can talk about just where the levelized cost of energy of renewables are versus gas? Are there any other state-level mandates for renewables? Just kind of give some color on that.

Yes. I mean the levelized cost of energy for solar is the lowest LCOE. And in many markets, it's even lower than even without the credits, right? It depends, in some areas, the credits are critical just because the resource isn't as strong or the interconnection challenges around it, it depends. But in general, the LCOE of solar continues to be very, very strong. I do think because investments were made around a certain view of where credits are going to be, what you don't want to do create sudden changes around investment thesis. If you give the industry time to work through any sort of changes around the regulatory framework you're going to see the industry adjusting just like it has happened in the past around supply chain, you'll see the same thing around credit. This 4-year runway that even with this house version, there's effectively a 4-year runway since a lot of this was safe harbored in late '24, and you have until '28. So I believe that you're going to see, again, the quality developers be able to work through this with the right frameworks in place because, again, the fundamental view is the demand is so strong while gas is going to be necessary, you can't get to where you need to be on the gas side for at least 5 years with the supply chain constraints that we're seeing. You're seeing the gas prices now at $2,500 a kw and that's effectively a $100 a megawatt hour price of power. That's quite competitive solar and batteries are quite competitive against those. So if that market sustains, you're going to see this market still have a very strong mix of all forms of generation, including renewables, still be one of the biggest parts of that energy mix.

Yes. I think it's a really important point. It's not one or the other. It's all of the above. And I do think if the right answer is to build the biggest line you can build probably 765 if you ask me. Because you can drop load and fill it up with gas and renewables and some batteries across the board. And if you do it and you blend it right, it creates the lowest cost to the customer. And that's what you're trying to accomplish, gas plants have gone up. I mean, they're probably 60% where they were up and so that cost is up there, and you're not going to get a turbine cheaper and you're not going to get someone to build it at risk, cheap like you can. And so that's part of the issue. The same labor force that's building a gas plant, it's also building a data center. It's also building other things. And I mean, it's what I consider it's a good environment. And so I -- when I look at it, the answers are going to be, you've got to continue to build solar out here and batteries, some wind in areas that make sense and just have a sense of a plan going forward. Gas should have never been like we always thought, I always thought it would be 20%, 25% or more of the system to balance the load. It's the right way to balance load. And some nuclear, obviously, the administration is pushing nuclear. It'll -- SMRs are coming along. We haven't built anything in the states yet. So I do think that's coming. But it's longer out. And then there's a cost there and there'll be a cost to it. So I think, in general, the way you can see it today is, it's a lot of solar, gas-backed, with batteries on peak and in the line full.

So you answered some of this. But I guess longer term, like where do renewables fit in the generation mix? And how does your battery business complement this, and if you can, how big is that today?

Yes. I mean the battery business is what's fastest growing. I mean we're in excess of $1 billion, Going on $2 billion probably. But in general, the battery business is nice business. I think if you look at Texas, I was looking at the curves the other day. Obviously, it's a topical, so the amount of batteries at peak that it's really holding the load there is -- I was astonished at how much it's really helping. I was probably at some point. I'm not anymore. I do think batteries at peak makes tons of sense. And obviously, we have to get the country, tariffs and all those lot of safe harboring going on. But batteries are making a lot of sense here and in the markets that we're in especially. You can build them quick, 5-acre sites, you can build a lot of batteries.

So talk about the 765 KV transmission build-out that's ahead of us. What's driving it? And maybe you can contextualize the scale of that build versus what we've seen over the last decade. And just how do you think about Quanta's win rate for that sort of project?

I mean I think the good part about 765 is you can move vast amounts of power across areas and bring in load. And so as you do that, you get flexibility. In Europe, you get a lot of DC lines, DC lines in the states you cross states, you cross RTOs and very, very difficult to build DC in the states for state rights mainly. So I prefer 765. it's easier from permitting and everything else. That said, it's heavier, it's a heavier load, corridors, tough to build. And we built, I don't know, probably well over 50%, probably in the 75% of non states. And so I consider for us, that's a core competency to us. We say we've invested in it. We always have. And so I like our chances on building 765 all the time. And we do believe, as you see it, it will create the right what I would consider load growth where bringing load into load centers that's necessary for data centers for onshoring really just -- you've got 4%, 5% load growth in places, you need big corridors, either you build two 345 lines or 765. You're building 2 lines or corridors are much bigger. And I think 765 allows a lot of flexibility for us as an industry.

So is the mix of transmission line moving towards 765?

I wouldn't go -- I mean, I think, look, you build a 765 line, there's 25% more line coming behind it's either 345, 230 or 138 like coming right behind it. It's a good -- it's a good, what I would consider backbone infrastructure that we need in North America. So as we see that get built out, a lot of 500s, still a lot of 345 line out there. But if you can build 765, makes a lot of sense.

Got you. And how do we think about your win rate, the higher the kV, the higher Quanta's win rate?

Yes. I mean, look, I don't really like to look at it like that, Chad. Obviously, I think it's -- I like our chances on it all. I don't really -- we don't really care whether it's a 69 line or a small line. We look at it all the same. I expect the company to not get enamored with bigger lines. I want the company to really concentrate on all of the above, But we're successful in bigger lines for sure. I mean, we're around the edges and do quite a bit of bigger work just from helicopters and all the ways that we can construct. I like what we're doing there.

Okay. So shifting back to more near term. So how are tariffs impacting final investment decisions for our utility customers as well as renewables. And is there any change in like the volume, more like the type of work that you're seeing coming out of the utility customers?

Not really. I mean I think the utilities, you've seen their CapEx, a lot of it is domestic sourced. We also, given our strong supply chain capabilities, our transformers, we've been able to help our customers be able to source materials. On the renewable side, with -- we'll see there's still some noise around the house bill around -- really around the FEOC and some tariff language that's causing a little bit of just wait. What's going on here? How do we through this more on the battery side than I would say on the solar and wind side. So you may see a little bit of pickup as people are working through that. But again, because of how smart a lot of our customers have been on the renewable side as well by getting ahead of it and really sourcing around the globe and because they just have the experience to understand and figure this stuff out, they've gotten ahead of a lot of this. So we're not -- nothing so far is giving us any concern around dramatic shifts in our work thus far.

Yes. I think the company is in a position to see it coming. And -- we're not talking about '26, '27 today. I mean we're talking about '32. So I think it's really important that when you look at the company and you see what we're doing, these decisions were made 5 years ago where we're at today. We're not just going, "Oh, let's go buy companies" and that's that who we are. We're going to be a habitual acquirer of companies and that's how we're going to grow the business. That's not true. There's a strategy around it. We see it. We can see multiyears out. We knew the administration would press renewables, we knew this, we said it. And we've set the company, I believe, to withstand these things and not give a bunch of excuses on weather and politics and everything else that can come up. Yes, it's painful. You read Twitter as well. We just don't run the company by Twitter. So like, look, I just -- we can't -- we just got to put our heads down, execute. Everyone's got issues. We've got to operate through it and see where it's going and really set the company for the long term, and I think we've done that.

So Quanta's compounded earnings at a high teens CAGR over the last decade. And that's when loan growth is 0. So why shouldn't that be faster over the next 5 to 10 years when we do have growth?

I mean the company is bigger. And so I do think as you see load growth and you see the press, it will grow and it will grow at I'll consider high upper single-digit growth, organic growth. And as you -- look, it's bigger. So every year gets bigger, the CAGR gets bigger. And so it's hard for me to get my head around. Can we grow faster, we grow -- certainly can grow more. And there's more verticals and more ways to provide solutions. The returns are better from my standpoint because we -- our supply chain is a big piece of this as we go forward and how we look at the supply chain level. So look, I think our returns grow faster, kind of the same pace on organic growth. We will have years at 5%, 6% and years at 9% to 10%. I just -- that's what you're going to see. And it depends on really how we deploy capital, what we deploy capital in, against strategies and things like that, because it's not -- I would have said 5 years ago, our distribution business will be growing faster because I thought there would be more EV penetration. We're getting EV penetration to the west. It's kind of slowing down in other areas. But still grid hardening, all the other things that are out there are certainly in play. But it's kind of like fiber, for example, until it gets to the home that getting to the home build of electrification is so enormous that it goes on for decades because that's where as the load gets down to the very house where you'll see this continued build as you see more electrification in vehicles and things of that nature.

I'm going to shift my questions over to the audience. So thinking about your exposure to utilities CapEx, what's the rough breakdown between maintenance CapEx, i.e., to modernize the grid versus growth CapEx to capture incremental load growth?

Yes. I mean we're doing both O&M and capital. I mean capital just stacks on top of O&M. So you have a very good day-to-day business. I don't know what the breakdown is these days.

I mean our base business is still over 80% of our revenues. And in terms of the utility T&D, I'd say, it's probably 35% O&M and spend 65% new builds. Something around that 40%, 60%, it can vary depending on the time.

But your -- I mean the way capital works about, call it, 80-plus percent of the utility's budget is capital, something like that. That's not -- it's not generation on T&D. So big numbers of capitalization in their budgets. So that's kind of how we would look. We look just like they look.

So looking at Quanta's contracts, about 60% of the contracts are fixed price. Given how dynamic things are today, how do you, if any at all, how do you manage cost risk of these contracts?

The majority of the work is negotiated. When it says fixed, we know our cost. We're fixing a price but it's -- it could be unit-based fixed. It can be lots of ways to derisk a fixed-price contract. I would just say like we have a long track record of executing against these type of contracts, know the areas, know the geographic areas. It's not like a fixed firm nuclear plant by any means. It's more -- I think the average contract is probably less than $5 million these days.

$6 million.

$6 million, okay $6 million. So you're in and out. We have our labor, like we said, self-performing and the fixed-price nature is really negotiated. And look, we want to be productive. We want to give the client efficiencies and things like that. But really, you're looking at it on a megawatt basis on big fixed numbers, not little big numbers.

So how are you thinking about Congress's new tax bill, particularly as it relates to the elements of the IRA that had been saved and some of the new factory and bonus depreciation division provisions?

Yes, I think it's what we talked about earlier. I think -- again, the Senate, we'll see what the Senate version is. But based on the house bill, our customers are still ahead. I think you're seeing -- you're going to see some acceleration because of how the bill has been set up with the 60 days as well as 28 in-service days. I think you're going to see the benefit of bonus depreciation go for the lot of these projects. The safe harbor provisions of '24 were still kept in place. So I think you're going to see again, the better quality developers continue to push forward and because demand side is so strong, it's -- there's a rush and speed to market that's far more important than maybe an extra 10%, 15%, 20% increase in cost. So I think in general, it's been -- it's -- we're not seeing any slowdown in our activity from our core customer base.

So what can we expect from Quanta in terms of acquisitions? Are there any end markets, products, services that you would like to address through further consolidation through Quanta?

I mean our customers push us to do more. And I think as we're answering customer demands on craft on different craft. Now we've talked about all the things that we get asked to do. I mean mechanical somewhere you could see us from a standpoint that a competency is being asked to fund us to -- we don't have really a platform there that I would say we can go lean on. As we look at that, that's certainly something that I would think we would look at and nothing -- we've got to find the right companies that fit our culture, but really a client dictates a lot of where we go, both regionally and how we look at it. So -- there's not 1 single thing we're looking at. We're looking at, as the clients move into different areas, they're asking us our front-end capabilities more and more and more. So as we think about it, if can't provide the solution internally and we can't grow it fast enough, is there good companies to acquire. I do believe the family business today, generationally lots in the third generation, they're all getting bigger. And I see more inbounds on they want to put their businesses somewhere that perpetuate the name, perpetuate the culture, take care of their people. We really don't get in auction processes for the most part in the companies that we acquire. So they come to us or we see them and know who they are and look at that profile, and then it has to fit the culture, has to fit the strategy. Obviously, we look at our stock price and our dividends and things that we can do. But typically, the best way that we can benefit the shareholders is make great acquisitions that what I would consider the returns are above where we're at today and the growth rates are higher on them. So as long as we continue down the path we've done in the past around craft, the front-end services, we continue to grow our engineering. I don't think we're invested in Australia and Canada but primarily the growth will be in the .

So do you expect renewable backlog to grow sequentially through the rest of this year? And will 2026 and '27 be bigger than '25?

Yes. I mean I think that's the beauty of the larger segment, is the larger segment backlog will grow, whether it's renewable backed, line backed -- line back and renewables. I don't have to think about it anymore, but I do think our backlog overall will grow sequentially.

So the industry has several bottlenecks such as labor and permitting. Have you noticed any easing in those categories? What are your expectations for the future? And how is Quanta positioned?

I mean I think permitting all the things that on a linear infrastructure project, especially out West, that were giving us issues, the administration has really leaned into that and they've leaned into asking the question of what's wrong, why can't you move? And look, a lot of it is paper and so just paperwork balled up in someone's desk or things like that. And I do think that they've tried to alleviate a lot of those things. So I think permitting itself it's going to move faster. We watch interest. We're watching things that from a utility standpoint, they'll look at, which would be affordability things so that interest is a big piece of affordability as well as fuel pricing. And so as fuel prices come down, interest comes down, it's a great time to build. So I think it's setting up nicely, we are getting some relief in permitting. I think it will get better and better from a permitting stance.

So over the last decade, if you look at your return on invested capital, it's growing by about 800 basis points. What levers do you have to pull to continue that improvement?

I mean I still think we can expand margin. I do. I'm not saying I wouldn't lean into the company and say this is going to be a technology play, and we're going to expand margins that much. But the returns from my standpoint, as our vertical supply chain gets better, really, the investment is minimal and you take on more scope, and that scope creates more value. We need to get paid a little quicker in areas. I think utilities are vice versa, they'll hold cash until the end, put it in rate base at the end of the year. So that profile has always been that way, difficult for us to kind of get that piece of the DSOs up. But as we take more -- if we're taking more lump sum, if we're doing more EPC, our vertical supply chains, all of our front-end services require much less capital. So the company has become much less capital concentric to some degree. So I do think the returns will continue to climb faster probably than margin.

Got you. And maybe just on the margin front, like how would you kind of scaffold out the opportunities to drive margins higher?

I just think the supply chain and the things that we're doing there and will allow some margin expansion. It's not really -- it's more of a utilization than it is like, oh, we're going to go out and get more out of the client because look, they got returns, they're pressed to in order to really continue to grow the company the way we've grown in the past. We need to be cognizant of what we can do from a margin standpoint, but create the returns for us that I think we can get in a better spot. And there's pieces of the business that just haven't performed like it can with leverage and things of that nature where high like Canada has been down. And it's been a drag for 5 years. And I see that picking back up. They're mad at us and maybe that's rightfully so. But they're going to build infrastructure in Canada. So it will help us, I believe, in Canada. And we're already seeing some of the better margins and better utilizations out of Canada today. So that's coming into play. We're much better and our big solar works much better this year. You're seeing expansions. Our industrial business has come along nicely. So there is some pipe around. And I think even the pipe business is optimistic. We'll build some pipe these days. So around all the -- what I would consider the edges and the places that we've been depressed or have the ability to go up. So I do think we'll expand some.

Got it. So actually maybe sticking with Canada. So what green shoots are you seeing? And how far out would you say a recovery in that business segment is?

Canada is really cyclical. And I mean we've probably had a decade of down market there. I think you'll start to see it come back. And it was already coming back some, certainly, with the way the tariffs have worked, really a lot of infrastructure that's on the board there to get built. So I think it starts to speed up in Canada. [indiscernible] health in Toronto, certainly a great customer. So we're looking at their capital spend. I do see it moving back up. And I think you got a decade there of kind of upward trend.

So it looks like we've got one last question. So it's been more than a year since you acquired Pennsylvania Transformer, you recently acquired Niagara. I'd love to get a sense for how you're seeing those acquisitions play out in your negotiations with customers? And how is that better within the fold of Quanta?

Yes. I mean, look, they're great acquisitions stand-alone. They're even more impressive of what we can do with them, with the client. And I think a lot of that will come to fruition this year and people will see really why we acquired the companies and what can be done. And so I like what we said, we'll continue to invest some and try to make sure that we being U.S.-based transformer right now is a good thing. A lot of Chinese content that probably goes away here. So I really like what we're doing there.

Okay. We're out of time. Thanks, Duke. Thanks, Jayshree.

Thank you. Thanks, everyone.

Thank you.