Greetings and welcome to the Quanta Services Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kip Rupp, Vice President and Investor Relations. Thank you, Kip. You may begin.

Thank you, and welcome, everyone, to the Quanta Services third quarter 2023 earnings conference call. This morning, we issued a press release announcing our third quarter 2023 results, which can be found in the Investor Relations section of our website at quantaservices.com, along with a summary of our 2023 outlook and commentary that we will discuss this morning. Additionally, we’ll use a slide presentation this morning to accompany our prepared remarks, which is viewable through the call’s webcast and is also available on the Investor Relations section of the Quanta Services website. Please remember that information reported on this call speaks only as of today, November 2, 2023. And therefore, you are advised that any time-sensitive information may no longer be accurate as of any replay of this call. This call will include forward-looking statements intended to qualify under the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995, including all statements reflecting expectations, intentions, assumptions, or beliefs about future events or performance or that do not solely relate to historical or current facts. You should not place undue reliance on these statements as they involve certain risks, uncertainties, and assumptions that are difficult to predict or beyond Quanta’s control, and actual results may differ materially from those expressed or implied. We’ll also present certain historical and forecasted non-GAAP financial measures. Reconciliations of these financial measures to their most directly comparable GAAP financial measures are included in our earnings release and slide presentation. Please see Slide 2 of the appendix of the slide presentation for additional information regarding our forward-looking statements and non-GAAP financial measures. Lastly, if you would like to be notified when Quanta publishes news releases and other information, please sign up for e-mail alerts through the Investor Relations section of quantaservices.com. We also encourage investors and others interested in our company to follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would now like to turn the call over to Mr. Duke Austin, Quanta’s President and CEO. Duke?

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services third quarter 2023 earnings conference call. On the call today, I will provide operational and strategic commentary and we’ll then turn it over to Jayshree Desai, Quanta CFO, to provide a review of our third quarter results and full year 2023 financial expectations. Following Jayshree’s comments, we welcome your questions. This morning, we reported our third quarter results, which included strong double-digit revenue growth and a number of record financial metrics, which we believe reflects robust demand for our services and solid execution. Of note, our Electric Power Infrastructure Solutions and Renewable Energy Infrastructure Solutions segments drove our revenue and profit growth, reflecting ongoing capital deployment into grid modernization and hardening. Power grid expansion and construction of new renewable generation and other necessary investments needed for North America’s emerging energy transition. Total backlog at quarter end was $30.1 billion, an all-time record high, which we believe reflects the value of our collaborative client relationships and indicates momentum for 2024. We are positioning Quanta for decades of expected necessary infrastructure investment and continue to believe our operational portfolio is a strategic advantage that provides us the ability to manage risk and shift resources across service lines and geographies, which we believe will become increasingly important as the energy transition accelerates. We believe our portfolio approach positions us well to allocate resources to the opportunities we find most economically attractive and to achieve operating efficiencies and consistent financial results. Our Electric Power Operations are performing well. Demand for our Electric Power Infrastructure Solutions is robust, driven by broad-based business activity from utility grid modernization, grid security, and system hardening initiatives, as well as our reputation for consistent and safe execution. This is further evidenced by the meaningful increase in backlog for the segment in the third quarter. Accordingly, we continue to invest in resources ahead of the anticipated start-up of multiple multiyear utility programs and projects. We believe Quanta Solutions offering and ability to safely and consistently execute is industry-leading, and we are uniquely positioned to collaborate with our clients on their multiyear grid programs. Additionally, our communications operations continue to execute well with double-digit revenue growth and margins. We believe these results reflect our focus on being selective with the risk and margin profile of the work we pursued as well as solid execution. Renewable Infrastructure Solutions segment revenues increased significantly in the third quarter as construction of renewable generation projects ramped up, including solar, wind, and battery storage. High voltage electric transmission and substation work also remained active. Segment total backlog reached a record $7.9 billion at quarter end, driven by the addition of a portion of the SunZia Wind contract and various renewable generation, transmission and substation projects. We have mobilized resources for the SunZia project and are performing early stage construction activities, though the vast majority of the work is expected to be performed in 2024 and 2025. We believe the infrastructure solutions we provide to the renewable industry are gaining momentum as the energy transition gains pace. We are continuing to make the necessary investments to scale our resources and capacity to handle large-scale multiyear renewable programs that we expect will yield record levels of renewable generation over the coming decade, driven by the IRA and the acceleration of North America’s energy transition. Additionally, we are pursuing billions of dollars of high-voltage transmission projects that are designed to support connectivity of current and future renewable generation capacity growth and overall system reliability. In this morning’s earnings release, we also announced a strategic acquisition of Pennsylvania Transformer Technology or PTT, led by an experienced management team with dedicated employees. PTT is an established and reliable domestic manufacturer of power transformers and components for the investor-owned utility, renewable energy, municipal power, and industrial markets. Transformers are a critical part of the power grid that facilitate the safe and efficient transmission of electricity from generators to end users. North America’s energy transition and other megatrends that are driving current and anticipated future demand for our electric power and renewable energy solutions are also driving significant demand and growth for the transformer market. As a result, lead times are extended and demand and supply imbalances are only expected to intensify as energy-intensive sectors such as electric vehicles, renewable energy, data centers, and manufacturing challenge power infrastructure capacity. As we have discussed previously, several years ago, Quanta began developing its strategy to create supply chain solutions that are designed to help our clients navigate equipment shortages and delays, reduce cost, improve availability, and enhance capital deployment efficiency, all of which can ultimately benefit the consumer. For Quanta, the addition of PTT should allow us to better manage the availability of certain critical grid components, which in turn should help us better manage our work schedules and productivity. We believe PTT provides Quanta and our clients an important, secure, and domestic supply chain solution that is consistent with our strategy. The strong and visible demand dynamics for the transformer market provide a favorable long-term profitable growth opportunity for PTT. The company also possesses intellectual property for certain grid components not currently in its production, but that are also in high demand by the utility industry. As a part of Quanta, we believe there are opportunities to enhance and expand PTT’s capacity and product offering, which could accelerate PTT’s growth and provide incremental growth synergies for Quanta’s Electric Power and Renewable Energy Infrastructure Solutions. The Underground Utility and Infrastructure Solutions segment continues to deliver with double-digit revenue growth and solid profitability. Our industrial services operation executed well, and we had strong demand for our gas utility and pipeline integrity operations, driven by regulated spending to modernize systems, reduce methane emissions, ensure environmental compliance, and improve safety and reliability. Additionally, we are increasingly leveraging our underground resources and capabilities to perform underground electric work. While that work is recognized in our electric power segment, it evidences the value and flexibility of our solutions portfolio. The transition towards a reduced carbon economy continues to progress, and we believe is gaining momentum. We believe we are in the early stages of capitalizing on significant opportunities across our service lines and geographies, driven by our collaborative solution-based approach designed to ultimately benefit consumers. Additionally, the growth of programmatic spending with existing and new customers, as well as increased renewable generation activity and favorable megatrends provide greater visibility into our near- and long-term growth outlook. We are currently pacing ahead of long-term financial targets articulated at our Investor Day last year and are increasingly comfortable with our ability to achieve them. This belief is driven by the long-term programmatic spending from customers and favorable long-term megatrend opportunities across our portfolio of services, which we believe are in the beginning stages of a multi-decade process. Quanta is investing in the future to meet the needs of our customers and take advantage of the visible opportunities ahead of us, which we believe positions us well for double-digit EPS growth in 2024 and beyond. We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best-in-class build leadership. We will pursue opportunities to enhance Quanta’s base business and leadership position in the industry and provide innovative solutions to our customers. We believe Quanta’s diversity, unique operating model, and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for all our stakeholders. I will now turn the call over to Jayshree Desai, our CFO, for her review of our third quarter results and 2023 expectations. Jayshree?

Thanks, Duke, and good morning, everyone. Today, we announced record third quarter revenues of $5.6 billion. Net income attributable to common stock was $273 million or $1.83 per diluted share and adjusted diluted earnings per share were a record $2.24. Our third quarter electric power revenues were $2.5 billion, and operating income margins were 11.9% as a result of the exceptional performance by our base business activities and telecom operations. Renewable Energy Infrastructure segment revenues for third quarter 2023 were $1.7 billion with operating income margins of 8.7%. The revenue strength in the quarter reflects continued momentum behind renewable energy infrastructure, the quality of our customers, and our comprehensive solutions-based approach to the energy transition. Segment margins improved sequentially as construction activities accelerated across our portfolio of projects. However, they were pressured somewhat by lower-than-expected contingency releases on more mature projects that progressed during the quarter. It’s also worth noting that profit associated with revenues from early-stage work is generally recognized at a lower margin as risk contingencies are included in the cost to complete. During periods of high growth and new project starts, this margin dynamic can be exacerbated, which is influencing 2023 segment margins as year-to-date renewable revenues have grown roughly 50% from 2022. Underground Utility and Infrastructure segment revenues were $1.4 billion for the quarter, and operating income margins were 8.9%, driven by high volumes, solid execution, and better fixed cost absorption on increased revenues. For additional commentary comparing third quarter 2023 to third quarter 2022, please refer to the slides accompanying this call. At September 30, 2023, total backlog was a record $30.1 billion, an increase of $2.9 billion compared to June 30, with growth coming from both large project awards and our base business activities. Our 12-month backlog is also at a record level of $17 billion, approximately $1.4 billion higher than June 30. For the third quarter of 2023, we had free cash flow of $280 million. DSO measured 79 days for the third quarter, aided by favorable billing arrangements associated with certain awards during the quarter. Regarding the Canadian renewable transmission project we’ve discussed in prior calls, the contract asset balance grew during the quarter as we progressed closer to completion. We continue to have favorable discussions with the customer regarding significant portions of the balance representing approximately seven days of DSO as of September 30, and we remain confident in our position. As of September 30, 2023, we had total liquidity of approximately $2 billion and a debt-to-EBITDA ratio of 2.2 times as calculated under our credit agreement. During the quarter, we made a small acquisition that will primarily report through our Electric segment, and as we announced in today’s release, earlier this week, we closed on the strategic acquisition of Pennsylvania Transformer to help address a critical supply chain constraint for our utility, renewable, and industrial customers. While we always measure capital deployment against the return opportunities presented by stock repurchases, we continue to see an active pipeline of strategic opportunities that we believe can be executed at accretive valuations and have the ability to drive significant stockholder value. Turning to our guidance. We performed well through the first nine months of the year, and demand for our portfolio of solutions remains robust. As a result, we are raising our consolidated revenue expectations for the year to a range between $20.1 billion and $20.4 billion. From a segment perspective, last quarter, we expected electric volumes to ramp in the fourth quarter. However, as it stands today, we now see revenues in the fourth quarter comparable to the third quarter. Part of the fourth quarter reduction reflects the transferability of resources between the Electric and Renewable segments as renewable revenues continue to expand and encompass both interconnection and generation projects, with interconnection work being performed by crews that would otherwise be captured in the Electric segment. Additionally, we are seeing pockets of inefficiencies due to supply chain dynamics as well as the timing of capital deployment in certain regions shifting into 2024. This variability is a periodic disruption to an otherwise growing demand for our electric solutions, as evidenced by our backlog growth from June 30 levels. Accordingly, we now see Electric segment revenues for the year between $9.6 billion and $9.7 billion, with full-year margins for the segment ranging between 10.4% and 10.6% as we continue to build crews and carry costs necessary to execute on the anticipated growth in multiyear utility programs. Of note, we are forecasting storm revenues for the year of around $300 million, roughly 3% of segment revenues for the year, which is the lowest level since 2019. Regarding our Renewable segment, given the performance of the third quarter and continued backlog growth, we are raising our full-year revenue expectations to a range between $5.8 billion and $5.9 billion. Because of the previously described margin dynamics, as well as continued investments in labor, training, and equipment required to address the segment’s building backlog, we now expect margins for the segment to be around 8% for the year. After another strong quarter, we now expect revenue from our Underground segment to range between $4.7 billion and $4.8 billion, a $300 million increase at the midpoint. From a margin perspective, we expect full-year margins for the segment to range between 7.6% and 7.8%, an improved outlook and above the previous high end of our range. Not included in our expectations are contributions from Pennsylvania Transformer, which will be captured in both our Electric and Renewable segments. We are working through purchase price allocation and accounting considerations and aren’t prepared to give any definitive guidance, but given the size of the business today, we don’t expect the contribution to be material to our quarterly results. In the aggregate, we expect revenues for the year to be almost 20% higher than 2022, and we’ve increased our expectations for the full-year adjusted EBITDA to range between $1.91 billion and $1.95 billion. For the full-year adjusted diluted earnings per share attributable to common stock, we’ve now narrowed our prior range, maintained our previous midpoint, and now expect between $7 and $7.20. With regard to free cash flow, we continue to expect between $800 million and $1 billion. We slightly modified other aspects of our guidance, the details of which are included in our outlook summary, which can be found in the Financial Information section of our IR website at quantaservices.com. Our growing backlog and favorable multiyear outlook continue to give us confidence in our ability to achieve the multiyear targets we laid out in our April 2022 Investor Day. Additionally, we believe the acquisition of Pennsylvania Transformer further cements our ability to provide differentiating solutions to our core customers and elevates the critical role we play in the North American energy transition. We are uniquely positioned in the markets we serve and believe we have the opportunity to continue improving our return on invested capital and generating significant stockholder value through organic growth and strategic capital deployment. I’ll now turn it back to the operator for Q&A.

Thank you. Our first question comes from Michael Dudas with Vertical Research Partners. Please go ahead with your question.

Hello, thank you very much. Good morning, Jayshree, Kip, Duke.

Morning.

Good morning.

Duke, as you might have noticed, there’s been a lot of noise, a lot of difficult news flow around the utility sector the last four to six weeks and competitors and concerns about renewable energy pace, et cetera. Maybe you can kind of share your observations on that relative to what your customers are engaging with you, especially as you’re looking into the planning budgets for 2024 and beyond and how that differs or confirms those expectations, again, given your position in the utility sector, with the lens that you look through with your electric utility and development customers?

Yes. Thanks, Mike. For us, when we look at the customer base and when we think about where we’re at and where the industry sits, I think it’s a great time to be in this business and its growth. We see growth. We see load growth at the customer level as an industry. You have trends, megatrends that are really pushing on interconnections and EV penetration in the distribution systems. So from our standpoint, at a philosophical level, you have a supply and demand issue, and you have a significant amount of build necessary for infrastructure. So the macro market is great. As far as the noise, I believe, look, from my standpoint, what we said, we’re trying to provide solutions to our clients, we get pushed into a contractor, which we’re not; we provide the solutions. And our customer bases are much different than you may hear from others on calls. So our customers are different. And the way that our customers view the markets versus others is different. They don’t have tax equity problems. They don’t have some of the problems that you hear, and we do a really nice job of talking to them and collaborating with them about where we’re going, not where we’re at. And so that’s the difference. We’re ahead years of planning and with these clients long term versus what you may hear in the market over the next 30 days, 60 days, 90 days; we’re talking decades. So I really feel comfortable with where we’re at. I feel comfortable that the industry will solve the issues. Yes, there are some affordability issues running around, and you're hearing about it. But this industry will solve those issues.

Appreciate that, Duke. My follow-up is regarding your PTT acquisition. Obviously, you see a tightness in the marketplace, and you expect revenue growth from the company. Do they have the capacity to meet the needs now and is there a lot of investment required, given, certainly the demand for their products and how you’re going to be able to leverage that through your customer base?

Yes, Mike, we’ve worked on the acquisition for quite a while and also philosophically, how to help our customers with supply chain. So I think in general, Pennsylvania Transformer, U.S.-based domestic product that really fits the goals of the interconnections, the queues, the larger transmission substations that are necessary to facilitate renewable load growth. When I look at it, and we think about it, yes, we can. It’s not a manufacturing play for Quanta. It’s more of a solution to the client. So, I wouldn’t expect us to go out and buy 20 transformer companies. What I would expect us to do is add capacity to our facility. It’s a one-million-square-foot facility, one of the biggest in the U.S. We're able to really add to it. And I don’t see a lot of manufacturing investment needed to increase productivity. Yes. We will increase; there are some component lines that we’ll start making that are about 1,000 days plus that we have the IP on. So there are some things there that we can do to really enhance where we sit as a solution provider in the industry.

Thank you, Duke.

Thank you. Our next question comes from the line of Justin Hauke with Baird. Please proceed with your question.

Yes, good morning everyone. I guess, I just wanted to piggyback on the renewables question. And you guys took up your revenue guidance there. I’m just curious how much of that is coming through projects that you’re procuring and the costs are going up, resulting in more of a pass-through that is driving the revenue higher, and maybe you’re not picking up margin on that versus how much is volume? So I know it’s hard to think about volume price in this business, but any context around that would be helpful.

I mean, look, I think we price it the same, honestly; our customers may be passing on PPA pricing and things like that if that’s what you’re asking. But as far as from where we stand, we’re on 60-plus large-scale renewable-type projects that, as we said in the past, are moving up our revenue. So I feel like it’s—we’ve got a really, really good customer base that we’re serving, and they continue to build their backlogs, and they’re not having tax equity problems and things of that nature.

Yes. Justin, and the margins are improving in that segment. We have been able to absorb some of the fixed costs that we had built in earlier in the year, ramping up for the significant growth that we had this quarter and continue to see. So it’s moving in the right direction. There are some material components to the segment, no doubt that are higher than our electric segment. But overall, we’re seeing margins moving in line with what we had said to you all in the Investor Day in that 9% to 10% range. We did have a little bit of pressure this quarter because of our expectation of some contingency releases that didn’t materialize. Those projects still are performing quite well; it just didn’t knock it out of the park, which we had thought we could have in the second quarter. It’s really some of that. And then, at the same time, you have the significant ramp in renewables, that new project dynamic as it comes in; they’d come in at a lower margin because you need to execute the contingencies before we can raise those margins. And so that is providing some dilutive pressure, and that’s what you’re seeing in the third quarter. There is no other dynamic around the business itself that’s causing anything. It will get better, and it is continuing to get better.

Okay. I appreciate that. And then I guess the second question here on PTT. I understand you’re still finalizing the purchase price allocation. But can you give us some context on just the size of that acquisition? And then two manufacturing facilities, I’m just trying to understand how accretive is this to margins from a materiality standpoint because I would think that its margins are much higher than probably your base business, but I just don’t know how big this acquisition is. And then maybe the last question as part of that would be, is there any change in CapEx outlook considering the expansion of additional facilities for them?

The company itself, the revenue size is over $100 million. We’re not going to disclose the purchase price; I’m sure you can find it in the K. But in general, it’s really not about the manufacturing capacity. It’s what we can do with it, the synergies we can get with it with the client. We can add some production fairly quickly as it's an underinvested facility. We will put some money in it. I don’t see our capital structure changing at all, and next year we don’t need to do a lot to the facility. So I feel good about the capital deployment in there and the productivity lines and things like that, the things that we can do with the manufacturing facility. So I like that part of it. It is booked pretty good in 2024, 2025. And so it will be about us getting more productivity out of it and really working with our clients on what capacity looks like in the future. So that’s what we’ll be working on and putting that into the way that we provide the solution to the client.

Okay. Great. We’ll look forward to the K then later. Appreciate it.

Thank you. Our next question comes from Neil Mehta with Goldman Sachs. Please proceed with your question.

Yes. Thanks so much. Duke, I wanted to start off on the customer base because I think there’s an important point, which is a lot of your renewable-focused investment is with the large utilities as opposed to some of those private developers. So is there any way you can quantify that customer composition for you as you think about your backlog there? And as you have conversations with utility CEOs, are you seeing any change in their commitment to the business? We did, for example, note, Accel, if anything, accelerated their renewables investments in Colorado? Thanks.

Thanks, Neil. When we look at our customer base, we’ve said all along, we work for the top 10 developers as well as the utilities in the world for that matter. So I feel good about where they’re at. I feel good about where they’re going; all of basically the trends and what we see from backlog, as well as opportunities continue to grow, both with the utility business as well as developer business. I go back and say we look at our portfolio that we put together, we’ve dereisked it, and then we’ve also said we could stack on to it. The company has grown in 2021; we’ve grown 16% in 2022. We grew 30%; this year, we’re expected to grow 18%. So I don’t think we have a problem with the customer base. I think we are doing really nicely. We are working on margins, as Jayshree said. But that said, sequentially, when you look at quarter-over-quarter, we said there were some cadence issues in our renewables; there are some cadence issues in the jobs. It’s not a margin issue; it’s a cadence issue. And every single quarter, we’ll get better. We expect to operate in double digits next year.

Okay. Thank you. And then the follow-up for Jayshree. You made a comment that you’re on track for the plan and are tracking ahead of the long-term plan. Any early thoughts on 2024? You mentioned you’re on track to have double-digit EPS growth, but what considerations should we keep in mind as we build up the model for next year?

I think when we look at it, we still feel comfortable with kind of the model that we put together. It’s way too early to give guidance on exactly what that will look like. It would be a disservice to you and us. But I do expect us over time to have the opportunity to operate above double digits on the EPS line at times, and I feel comfortable with the opportunity next year to operate in double digits.

Thank you. Our next question comes from Andy Kaplowitz with Citigroup. Please proceed with your question.

Good morning, everyone.

Good morning.

Duke, I think I know the answer to this, but you mentioned you’re still pursuing many large new T&D projects. Do you still have good visibility toward backlog growth as you go into 2024? And how do you compare this T&D cycle to other cycles? You mentioned that just to Neil’s question, you mentioned you’re ahead of the long-term plan, but what part of the upside, I think when you did your Investor Day, it was going to come from megatrends? Have you seen the megatrends develop faster than you would have expected then?

It’s – I see when we look at the market, it’s the best it’s been in our career, and it’s all about the macro market demands. People are underestimating data centers and the loads on data centers; they’re underestimating EV. You’re up to about 7% of new car sales into EV globally. That’s a big number for everyone. Your interconnections; you’re even on batteries just to make the batteries and the demand on the power cycle there. So I think all those things are underestimated when you start looking at where the business is going. And so for us, the long-term nature and the megatrends that we see continue to compound, you can delay some things. It’s really—for us, it’s really worrying about the ultimate customer and affordability at the ultimate customer level and how do we help our clients and help the ultimate customer get a cost price that makes sense. And as you see, as you get leverage across what you’re building with more demand, what you’re seeing is 3% demand almost every single place has at least some demand growth, load growth, that load growth itself is really, really enhancing what a utility can spend on capital. Obviously, the market's a little constrained there on the capital markets, but the demand is outfitting supply. So it’s some timing in places. But like I’ve never seen where we see so many things at once coming at you from a macro market. So we’re real proud to be in this business. And look, I get up every day happy about being here and trying to execute on the work that we have. I think that’s the big thing—execution at this point.

And then, Duke, yesterday, there was quite a bit of angst that I thought you were caught up in a little bit with actually offshore wind, and I don’t think you have any exposure there or very little, but could you remind us of if you have any on that side?

Yes. Thanks for the question. We’re very deliberate about no boats, no water. So we’ve been there, done that. We’re not involved in anything offshore other than onshore approaches and some—we will help others onshore to fab or whatever it may be offshore, but we’re not in the water at all and have no exposure really to offshore wind other than transmission that may be built onshore.

Appreciate that, Duke.

Thank you. Our next question comes from Marc Bianchi with TD Cowen. Please proceed with your question.

Hey, thanks. I wanted to ask about the market structure and sort of go forward in electric power and infrastructure. And this relates to some of the concerns around utility ability to sort of spend in this higher interest rate environment. I appreciate that you guys are doing a good job in long-term discussions with the customers and so forth. But from a macro perspective, is there anything about the current rate environment that maybe limits the growth opportunity in that segment? Obviously, you can continue to grow, but maybe not quite at the rate. Just curious if you can talk to that dynamic at all.

I do think you can push some things out. I mean you can—EV penetration is not there, so you cannot plan and have interconnections at the distribution level. We’re seeing some where our crews, for example, are working 60, 70 hours; you’re working 50 hours, but you’re not losing crews; you’re just working fewer hours, and you’re seeing some of that in the fourth quarter where we have crews that are just working 40. And that’s fine, but we’re adding crews as well. So really, as you move into 2024, they move capital budgets up; things look better. I do think load growth will exceed what most people think—it really helps with higher interest and costs. So I think we can get through that as an industry. The only thing is if you had crazy interest, and I don’t see that coming. I do believe we’ve kind of stabilized there, and utilities either—you see some that are selling assets to put it back in the regulated business. But look, you have a duty to serve and you’ve seen in California where they have like 120 days to make interconnections now by law. That’s going to come—it’s going to be prevalent across the country. And I just don’t believe that you can delay interconnections nor can you delay the queue, and the queue is coming out of everyone, and we’ve got—as an industry, we got to plan a little better. We’ve got to do some things, and we’ve got to get in front of this. And then you can’t be selective in urgency here. We’ve got to get the planning done and the work done for the next couple of decades. So we feel confident, yes, you can have some bounces along the way, but we’ve always said that there’ll be starts and stops a bit, but the CAGR itself will continue to drive the market for long-term. Any kind of delay you have just means it’s pent-up demand, it’s coming at you. So we feel good. We feel good with our customers; our conversations have been—you may not see them grow capital 20%; they just grew at 15% or from upward levels, but I don’t see much pullback at all. In fact, I’m seeing more growth to capital with our clients.

That’s helpful. Thanks, Duke. And then on 2024, I know you don’t want to get into giving guidance, but double-digit growth is what you’ve said. And if I look at consensus, it’s up almost 20%. I’m curious if that’s attainable, knowing that you’re not guiding to it but just trying to understand the brackets around what’s possible in 2024.

Yes. We’re not giving guidance. So I’ve given the buzz all I’m going to give. And so we’ve talked about the opportunity to grow double digits. I think that’s there. We can stack on at times. It’s too early to say. The models that are out there, I don’t know what’s in their—which Kip or Jayshree can go look at it, but I didn’t look at it; I just feel comfortable in the double-digit—talking about double-digit margin growth at this point opportunity for that as well.

Double-digit EPS.

Yep. Okay, thanks so much.

Thank you. Our next question comes from Chad Dillard with Bernstein. Please proceed with your question.

Hi, how are you? This is Erico filling in for Chad Dillard. How should we think about the mix of large versus small projects going into 2024? How would that impact the margin profile?

Can you say that again? I’m sorry, you broke up.

Yes. Sorry. How should we think about the mix of large versus small projects going into 2024? And how will that impact the margin profile?

I think they’re both growing, and we stand by the state of margins to operate in double digits. We certainly have the opportunity to operate in double digits in the renewable segment as well as the Electric segment at upper singles in the Underground Utility segment, very much like we started—we’ll be prudent about how we guide. So you can expect us to guide prudently in 2024. I do—we do see growth into 2024. So the same approach we’ve taken for the last eight years, seven years will be taken going forward. As far as the mix, it’s still running mid 80%, 85% base business, something like that. And I believe that will be there. But the large project dynamic is certainly there; we’re seeing multiple fronts of large projects. It will be early, but we do believe that is starting to stack a bit.

As well as our base business growth.

Yes, it grows at the same rate.

How sustainable are underground margins?

Look, we’ve always said we can get leverage out of the Underground Utility segment margins. Our industrial business is probably a record year this year. We still like the industrial business a lot. So the margins have picked up. We have got levers. We do move back and forth. But I caution everyone again that this is a portfolio. This portfolio moves around, and you’ve got to look at it as a portfolio. It derisks you down at the bottom. That’s why you’re not seeing the blips at the bottom. Now you’re seeing double-digit growth. And again, I’d caution that if we get into this segment discussion, it’s these crews go from electric to gas to telecom and we should perform well in all of them. And our goal is to make sure that the company itself grows and our margin profile stays sustained over time. And that’s the portfolio we’ve built to derisk the investor as well as provide opportunities for beyond double-digit growth. And look, we’ll talk about the segments, but I go back and I point to 18% top line growth, still performing at high margins across the segments, and we’re delivering double-digit EPS.

Thank you very much.

Thank you. Our next question comes from Steven Fisher with UBS. Please proceed with your question.

Thanks. Good morning. Duke, your comments on that last question notwithstanding, I will ask you a segment margin question. And maybe for Jayshree, I don’t know. But your guidance for renewables still implies ramping to double digits in Q4 margins. And so I’m just curious what’s going to be different in Q4 relative to Q3 that’s going to allow you to hit those double-digit margins. I mean, you’re still going to be in early stages of projects. So you mentioned about carrying lower accruals. It sounds like there is a cadence issue, not sort of an execution issue. So what’s going to be different in Q4? And then how does that carry into 2024?

Yes. I think it’s where you started on all your renewables. We kind of started early in the year and late last year with multiple large projects. So as those—and we booked all the way through, still booking. So you’re getting a better cadence in the larger project dynamics. Some of them are finishing up, and so that allows us to obviously look at contingent releases, things like that in the fourth quarter in the renewable segment. So that’s what you’re seeing. And you’re also getting scale out of that business as well. As you go into 2024, same thing, the cadence; you are starting some larger line projects on transmission there. And so it will have a little bit of effect, but you don’t have Canada coming in, things like that. And I can let Jayshree to comment on the rest.

Yes. I mean, that’s exactly right. There’s that—and then we’ll continue to progress on the other parts of the segment, right? As those projects mature, there are opportunities, and there were opportunities to release contingencies. We’ll continue to see that in the fourth quarter. And as Duke said, the scale it was for growing; you’re going to start seeing—you're seeing more and more of that fixed cost absorption. There will be more of that in the fourth quarter. So the combination of matured projects as well as that fixed cost absorption is allowing us to feel comfortable with the guide in the fourth quarter.

Yes, Steven, I would also add that we talked about adding 3,000 last quarter; we added roughly 4,000 in this quarter. So we’re up to 56,000 employees, adding 3,000 on cadence per quarter is not easy, and it does press a bit. So I’d just caution some of that’s in there. And as you start working through that and you get good cadence with it, we can absorb a lot.

That’s really helpful. And then maybe just to ask about the electric segment. You’ve talked in prior quarters about some efficiencies in terms of Canadian underutilization as that market structure is a little different than the U.S. Can you just give us an update on that influence and maybe supply chain as well for the broader electric segment? Is that any particular influence at this time? And what visibility do you have to those things smoothing out?

Yes. We’re operating really well in the electric segment. I mean, over time, I’ve always said double digits, 10%, 10.5% into 11%, between 10% and 11% is our comfort spot, and we’re operating at those levels. Canada is a drag. We’ve addressed a lot of things there. I think in the next year, we won’t have the drag this year. So pretty optimistic with some of that. We are getting some utilizations in the Lower 48 with some Canadian influence. But in general, we can do a lot of things on the front-end engineering. We can do a lot of things from our Canadian assets in the Lower 48. So I will be utilizing them here in those assets. So I’m comfortable with where we sit in the next year. We do expect and we’re still negotiating some, but I feel confident that the larger project dynamic will start stacking in 2024, albeit early, but you’ll start to see some stocking in 2024.

Perfect. Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for closing remarks.

Yes. First, I want to thank our 56,000 employees out in the field that put the numbers up every day that work hard and safe and allow us to have a good call this morning. They’re dedicated shareholders as well. So we do appreciate them. And I’d like to thank you all for participating in our conference call. We appreciate your questions and your ongoing interest in Quanta. Thank you. This concludes our call.

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