3 Q 2 0
E a r n i n g s C a l l P r e s e n t a t i o n
O c t o b e r 2 9 , 2 0 2 0
Notice to Investors
This presentation (and oral statements regarding the subject matter of this presentation) includes forward-looking statements intended to qualify under the "safe harbor" from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any statements reflecting Quanta's expectations, intentions, strategies, assumptions, plans or beliefs about future events or performance or that do not solely relate to historical or current facts. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expected, implied or forecasted by our forward-looking statements due to inaccurate assumptions and known and unknown risk and uncertainties. For additional information concerning some of the risks, uncertainties, assumptions and other factors that could affect our forward-looking statements, please refer to Quanta's Annual Report on Form 10-K for the year ended December 31, 2019, Quarterly Report on Form 10-Qs for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020 (when filed) and other documents filed with the Securities and Exchange Commission, which are available on our website (www.quantaservices.com), as well as the risks, uncertainties and assumptions identified in this presentation. Investors and analysts should not place undue reliance on Quanta's forward-looking statements, which are current only as of the date of this presentation. Quanta does not undertake and expressly disclaims any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this presentation or otherwise, and Quanta expressly disclaims any written or oral statements made by any third party regarding the subject matter of this presentation.
Certain information may be provided in this presentation that includes financial measurements that are not required by, or presented in accordance with, generally accepted accounting principles (GAAP). These non-GAAP measures should not be considered as alternatives to GAAP measures, such as net income and cash flow provided by operating activities, and may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. For a reconciliation to the most directly comparable GAAP financial measures, please refer to the accompanying reconciliation tables.
The information contained in this document has not been audited by any independent auditor. This presentation is prepared as a convenience for securities analysts and investors and may be useful as a reference tool. Quanta may elect to modify the format or discontinue publication at any time, without notice to securities analysts or investors.
2
Call Participants and Agenda
Duke Austin
President and Chief Executive Officer
Derrick Jensen
Chief Financial Officer
Kip Rupp
Vice President, Investor Relations
- Introduction and Forward Looking Statements Disclaimer
- Third Quarter Results, Operational and Strategic Commentary
- Financial Review and Discussion
- Outlook
- Q&A
3
3Q20 Highlights
- Strong 3Q20 results that exceeded expectations
- Electric Power and Pipeline & Industrial segment margins
- Adjusted EBITDA
- Earnings Per Share
- Cash flow
- Record backlog of $15.1 billion
- Results demonstrate our ability to adapt, the resiliency of our business and the operational excellence of our people, which is nothing short of impressive
- Strong balance sheet and ample liquidity
- Completed offering of $1 billion of 2.9% senior notes due 2030
- Expanded capacity and extended term of senior credit facility
- Received investment grade corporate credit rating
Adj. | |
EBITDA(1) | |
Operating | |
Income | $353 MM |
$242 MM
Revenue
$3.0 B
Strong
Results
Adj.
EPS(1)
$1.40
Cash from
Operations
$115 MM
- Published first Corporate Responsibility Report, which focuses on Quanta's commitment to People, Planet and
Principles
S T R O N G 3 Q 2 0 R E S U L T S D E M O N S T R AT E B U S I N E S S R E S I L I E N C Y A N D O P E R AT I O N A L E X C E L L E N C E
4 | (1) Refer to appendix for a reconciliation of this non-GAAP measure to its most directly comparable GAAP measure. |
Electric Power Infrastructure Services
- Record quarterly revenue and solid operating income margins
- Driven by strong demand, effective cost management, high utilizations, operational excellence and record levels of emergency response activity
- Utilities continue to actively deploy capital into their systems
- Grid modernization, storm and fire hardening, renewables integration, reliability, etc.
- Efforts to transition towards carbon neutral/free environment
- Actively performing renewable-related work and pursuing additional opportunities, including onshore and offshore wind, solar and hydroelectric
- Demand for substation, transmission interconnects, battery storage and larger transmission projects
Top 25 Quanta Utility
Customer Spend
CAGR: 2000-2018
($ in billions)
8%
CAPEX
5%
OPEX
2019E U.S. Utility Capex | Quanta Core Solutions |
= $136 B (1) | = $61 B |
$61 B | 87% |
13% | ||||||
Quanta Core | Quanta Est. | Opportunity | ||||
Addressable Market | ||||||
2019 Share | ||||||
L A R G E , V I S I B L E , C O N S I S T E N T A N D G R O W I N G M A R K E T W I T H A M P L E O P P O R T U N I T Y
5 | (1) Sources: Edison Electric Institute and Quanta estimates. |
Electric Power Infrastructure Services
- Significant resources deployed to provide emergency response services to utilities
- Hurricanes Isaias, Laura, Sally and Delta, and the Midwest derecho storm
- Supported efforts to restore power to millions of people
- Quanta crews providing emergency response and rebuilding damaged infrastructure for +90 consecutive days
- Deployed more than 7,000 line workers and support staff from 20 different operating units
- These events and the wildfires in western region of the U.S. highlight need for grid hardening programs and investment
- Recent acquisition of North Carolina-based specialty contractor serving southeast and Mid-Atlantic region
- Electric distribution, transmission and substation maintenance and construction services
- Increases Quanta's resources in the region to support utilities' modernization, hardening and renewables programs
2020 Atlantic Hurricane Season
Source: Wikipedia
U N M AT C H E D A B I L I T Y T O M O B I L I Z E S I G N I F I C A N T R E S O U R C E S T O S U P P O R T C U S T O M E R S
6
Puerto Rico Electric T&D System Operation & Maintenance Agreement
LUMA Energy, LLC (LUMA), 50% owned by Quanta and 50% owned by ATCO, was selected in June 2020 for this historic opportunity - the transformation and modernization of the Puerto Rico electric transmission and distribution (T&D) system, in order to provide significant benefits to the people of Puerto Rico through an Operation and Maintenance Agreement (O&M Agreement) with the Puerto Rico Electric Power Authority (PREPA) and the Puerto Rico Public-Private Partnership Authority (P3)
-
LUMA is making good progress towards satisfying the necessary steps to facilitate the full transition of
PREPA's T&D operations to LUMA in mid-2021 - Site preparation has begun for a new line worker training campus in Puerto Rico, which will be operated by Northwest Lineman College
- First pre-apprentice class in Puerto Rico scheduled for Spring 2021 with 32 Puerto Rican students
- Quanta and ATCO have sponsored several Puerto Rican lineman to attend pre-apprenticeship program at Quanta's Northwest Lineman College
- U.S. federal government recently announced the allocation of $12.8 billion to Puerto Rico, primarily to rebuild the island's electric power grid
T R A N S F O R M AT I V E O P P O R T U N I T Y F O R T H E P E O P L E O F P U E R T O R I C O A N D Q U A N T A
7
Communications Infrastructure Services (within Electric Power Segment)
- Performed extremely well in 3Q
- Strong double digit revenue growth
- Double-digitoperating income margin
- Total backlog of $975 million - a record
- Recent acquisition of Utah-based specialty contractor serving mountain west region
- Short- and long-haul fiber optic cable and utilities installation, engineering and design of small- and large-scale projects
- Enhances Quanta's capabilities in the region
- Work, educate and entertainment from home, which has increased due to COVID-19, continues to drive increased investment in core fiber networks
- Expect 5G deployments to accelerate in 2021
- Federal Communications Commission established the Rural Digital Opportunity Fund with +$20 billion available to bring high-speed fixed broadband service to underserved rural homes and small businesses
Source: Emerging Tech Brew, reproduced from Pew Research Center
Q U A N T A W E L L P O S I T I O N E D F O R T H E S E L A R G E O P P O R T U N I T I E S
8
Pipeline and Industrial Infrastructure Services
- Gas utility services operations gradually returning to pre-COVID-19 activity levels
- Multi-decademodernization programs to replace aging gas utility infrastructure
- Demand for pipeline integrity services is solid
- Regulations and asset owners' efforts to extend the life of existing pipeline infrastructure driving spending
- Industrial services has most challenged end market
- Global pandemic significantly impacting our customers due to reduced demand for refined products
- Performing well in current environment but do not anticipate return to normalcy until 2H21
- World class management team leading operations, with opportunity to strengthen competitive positioning and emerge stronger as conditions improve
- Although a smaller portion of the segment, solid execution on larger pipeline projects positively contributed to segment results
Focus Services
Gas Utility | Pipeline |
Integrity | |
Downstream
Industrial Services
2020E Pipeline & Industrial
Segment Revenues
+70% Total Revs.<30%
~$3.45B
Focus Services Revenues Remaining Services Revenues
S O L I D 3 Q 2 0 R E S U L T S I N U N P R E C E D E N T E D O P E R AT I N G C O N D I T I O N S
9
Increasing 2020 Outlook and Positive Multi-Year Outlook
- Increasing Quanta's full-year 2020 outlook
- Strong third quarter results
- Healthy end market drivers
- Contribution of recently announced acquisitions
- Currently expect growth in consolidated revenues, net income, adjusted EBITDA and earnings per share in 2021
- Perhaps more importantly, believe Quanta has a long runway for generating repeatable and sustainable earnings
- Have executed well on our strategy, which is designed to mitigate risks through diversification and a strong financial profile
- Believe Quanta's diversity, unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for all our stakeholders
S O U N D S T R AT E G Y, R E S I L I E N T B U S I N E S S M O D E L A N D S T R O N G F I N A N C I A L P R O F I L E
10
3Q 2020 Segment Results versus 3Q 2019
($MMs)
Revenues | Op Inc % | Commentary |
Change (bps) | ||
Electric Power ex Latin America |
$2,107 | 13.5% |
Up 14% | Up 390 |
- Revenue growth due to increased contributions from large projects, ~40% increase in communications revenues versus 3Q19, and a $65MM increase in incremental revenues from acquisitions
- Increased margins due to higher utilization associated with a record amount of emergency restoration services revenues in response to storm damage along the Gulf Coast and solid execution on remaining base business
Latin America |
NM | NM | - Orderly exit is proceeding | |
- | $15MM losses primarily related to early termination and close out costs associated with projects in the region and | ||
NM | NM | disruptions caused by the COVID-19 pandemic | |
- | |||
Losses in Latin America receive no tax benefit | |||
Pipeline & Industrial |
$913 | 8.4% |
Down 38% | Down 60 |
- Reduced revenues from our industrial operations due to the negative impact of COVID-19 on the demand for refined products and from a reduction in contributions from larger pipeline projects
- Lower margins due to reduced revenues from larger pipeline projects and our industrial operations, but a solid performance despite COVID-19 related headwinds and the continued challenges across the segment
Corporate & Non- Allocated |
N/A | (3.4%) |
Up 110 | Up 50 |
- $4MM increase compared to 3Q19 primarily due to a $13MM increase in non-cashstock-based compensation expense, a $4MM increase in intangible asset amortization, and a $3MM incremental increase in the fair value of deferred compensation liabilities (for which an approximately equivalent offsetting change is recorded below operating income in Other Income (Expense), net), offset by $6MM decline in acquisition and integration costs, $4MM associated with the change in fair value of contingent consideration liabilities, and $6MM of other cost reductions associated with the current operating environment
S O L I D M A R G I N S A C R O S S B O T H O P E R AT I N G S E G M E N T S
11
Free Cash Flow & DSO
3rd Quarter Recap | ||||
Free Cash Flow (1) ($MMs) | Days Sales Outstanding (2) (DSO) | |||
3Q20 | 3Q19 | Free Cash Flow driven by: |
$70$30
$115
$91
$(45)
$(61)
• Increased earnings compared to 3Q19 | |||||
• Deferred payment of $41MM of payroll taxes | |||||
as permitted under the CARES Act and | |||||
related state actions | |||||
DSO of 82 was: | |||||
91 | • 9 days lower than 3Q19 due to lower levels | ||||
of retainage compared to 3Q19 and billing | |||||
82 | 82 | 82 | 80 | process changes for certain customers that | |
pressured DSO throughout 2019 | |||||
2Q20 | 3Q20 | 3Q19 | 3Q20 | 20 Qtr | |
Avg (3) |
Cash provided by (used in) operations
Net CapEx
S T R O N G T H I R D Q U A R T E R C A S H G E N E R AT I O N
- Refer to the appendix for the definition of Free Cash Flow, a non-GAAP measure, and a reconciliation to Net Cash Provided by Operating Activities
12 (2) Refer to the appendix for the definition of Days Sales Outstanding
- 20 quarter average from October 1, 2015 through September 30, 2020
Balance Sheet & Liquidity
Dec 31, | Sep 30, | |||
($MMs) | 2017 | 2018 | 2019 | 2020 |
Cash | 138 | 79 | 165 | 217 |
Debt |
Liquidity Highlights
• Completed offering of $1B aggregate principal |
amount of 2.9% senior notes due in 2030; |
Credit Facility
Term Loans
Senior Notes
Other
Total Debt
Operating Lease Liabilities
Total Debt including Operating Lease Liabilities
668 | 479 | 105 | 195 |
- | 593 | 1,241 | - |
- | - | - | 1,000 |
4 | 34 | 21 | 17 |
672 | 1,106 | 1,367 | 1,212 |
- | - | 289 | 273 |
672 | 1,106 | 1,656 | 1,485 |
received net proceeds of $987MM which, |
together with cash on hand, was used to |
prepay, in full, $1.2B of term loans outstanding |
under our credit agreement |
• Amended our credit agreement for our senior |
credit facility, increasing revolving |
commitments from $2.1B to $2.5B and |
extending the maturity date from 2022 to 2025 |
Net Debt / EBITDA Ratio (1) | 1.4x | 1.6x | 1.6x | 1.3x | |||
$2,167 | |||||||
Liquidity | (2) | ($MMs) | $1,811 | ||||
$1,173 | $1,950 | ||||||
Available Credit Facility | $867 | $1,646 | |||||
$729 | $1,094 | ||||||
Cash & Equivalents | |||||||
$79 | $217 | ||||||
$138 | $165 | ||||||
4Q 17 | 4Q 18 | 4Q 19 | 3Q 20 |
• Received investment grade credit rating |
• Bank-defined leverage ratio of approximately |
1.3x |
• Ample liquidity and balance sheet strength to |
navigate operational uncertainties due to |
COVID-19 dynamics |
C O N S E R V AT I V E L E V E R A G E & A M P L E L I Q U I D I T Y F O R S T R AT E G I C I N I T I AT I V E S
13 | (1) | The Net Debt to EBITDA Ratio is calculated as defined in our credit agreement for our senior credit facility, which includes letters of credit issued under the facility |
(2) | Liquidity includes cash and cash equivalents and availability under our senior credit facility, which is reduced by letters of credit issued under the facility |
Capital Allocation Priorities
Capital Allocation | ||||||
Capital Deployment - 1Q16 through 3Q20 | ($MMs) | |||||
• Working capital and capex required to | ||||||
Working Capital & CapEx, net of sales | support the organic growth of the business | |||||
Working Capital $647 | Capex $1,048 | |||||
remain our first priorities and have been | ||||||
the largest use of capital from 1Q16 to | ||||||
3Q20 | ||||||
M&A and Investments | $1,292 | • Acquisitions and strategic investments | ||||
totaled approximately $1.3B from 1Q16 to | ||||||
3Q20, led by the acquisitions of Stronghold | ||||||
in 2017 and Hallen Construction in 2019, | ||||||
Share Repurchases | $713 | which strategically bolstered our base | ||||
business capabilities in the Pipeline & | ||||||
Industrial segment | ||||||
• Our recent bond offering and amended | ||||||
Other Uses | $111 | credit facility have given us more flexibility | ||||
to meet the future capital needs required to | ||||||
support our growth expectations | ||||||
Dividends | $45 | |||||
M A I N T A I N I N G B A L A N C E D A P P R O A C H T O C A P I T A L A L L O C AT I O N
14
Electric Power Segment Guidance (excluding LATAM (1) )
2020 GUIDANCE RANGE
Revenues
Op Inc %
2019 | 2020 Initial | 1Q20 | 2Q20 | 3Q20 | ||||||
Guidance | Guidance | Guidance | Guidance | |||||||
+ Continued base | - | Reduced levels | ||||||||
of electric | ||||||||||
electric growth | ||||||||||
infrastructure | ||||||||||
+ U.S. telecom | + Increase due to | |||||||||
services | = Revenues in line | |||||||||
$7.1B | growth | $7.6B - $7.8B | provided to | $7.5B - $7.7B | $7.5B - $7.7B | contributions | $7.7B - $7.8B | |||
+ Larger projects | industrial | with 1Q20 | from M&A and | |||||||
expectations | ||||||||||
increase | customers due | improved | ||||||||
- | Fire hardening | to COVID-19 | visibility | |||||||
both impacting | ||||||||||
normalizes | ||||||||||
facility access | ||||||||||
+ Canada | and refined | |||||||||
product | + Solid execution | |||||||||
improvement | ||||||||||
demand, | ||||||||||
with larger | in 1H20 followed | + Solid execution | ||||||||
causing | ||||||||||
projects | by opportunity | and record | ||||||||
customer | ||||||||||
commencing | for double-digit | storm revenues | ||||||||
budget | ||||||||||
margins in 3Q | through YTD | |||||||||
9.6% | + Telecom | 9.5%- 10.0% | pullbacks | 9.4% - 9.7% | ~10% | ~11% | ||||
and 4Q | 2020 with | |||||||||
improvement | - | Permitting | ||||||||
continued | ||||||||||
+ Continued U.S. | + Incremental | |||||||||
delays due to | opportunity for | |||||||||
$10M | ||||||||||
execution | local | double-digit | ||||||||
contribution | ||||||||||
- | Fire hardening | government | margins in 4Q | |||||||
from LUMA | ||||||||||
normalizes | office closures | |||||||||
I M P R O V E D E L E C T R I C P O W E R R E V E N U E & M A R G I N E X P E C T AT I O N S
-
We have concluded to pursue an orderly exit of our Latin American (LATAM) operations. As such, the information on this slide excludes the LATAM operations to provide visibility
15 into the performance of our ongoing operations. The Electric Power segment as reported includes the results of operations from our LATAM operations. Refer to the appendix for a reconciliation of the Electric Power Segment as reported to the Electric Power Segment excluding LATAM.
Pipeline & Industrial Segment Guidance
2020 GUIDANCE RANGE
Revenues
Op Inc %
2019 (1) | 2020 Initial | 1Q20 | 2Q20 | Current | ||||
Guidance | Guidance | Guidance | Guidance | |||||
- Reduced levels of | - Further deferral of | |||||||
gas distribution | customer spend | |||||||
+ Full year of | services due to | on smaller capital | - Further reduced | |||||
regional COVID- | projects and gas | |||||||
Hallen | levels of customer | |||||||
19 stay-at-home | distribution | |||||||
+ Continued base | spend on smaller | |||||||
$5.0B | $4.6B - $4.8B | orders | ~$4B | activities due to | $3.5B - $3.7B | $3.4B - $3.5B | ||
capital projects | ||||||||
business growth | ||||||||
- Reduced levels of | current operating | and project delays | ||||||
- ~$700MM larger | environment | |||||||
industrial | push revenues | |||||||
project reduction | turnaround and | - Reduced levels of | into 2021 | |||||
maintenance | larger pipeline | |||||||
services due to | project revenues | |||||||
COVID-19 both | as project delays | |||||||
impacting facility | push revenues | |||||||
+ Continued base | access and | into 2021 | ||||||
refined product | ||||||||
business | ||||||||
demand, causing | ||||||||
improvement | + Stabilizing | |||||||
customer budget | ||||||||
margins for | ||||||||
+ Accretive Hallen | pullbacks | |||||||
6.9% | margins | 6.8%- 7.2% | - Energy | Likely < 5% | remainder of 2020 | 4.75% - 5.25% | = Maintaining full | ~5% |
+ Further | after positive | |||||||
environment | second quarter | year margin | ||||||
elimination of oil | causing reduced | expectations | ||||||
results | ||||||||
influenced assets | levels of smaller | |||||||
- Larger project | capital projects for | |||||||
industrial and | ||||||||
reduction | ||||||||
pipeline related | ||||||||
infrastructure | ||||||||
C O V I D - 1 9 D I S R U P T I N G B A S E B U S I N E S S A C T I V I T I E S A C R O S S T H E S E G M E N T
-
The Pipeline & Industrial segment as reported includes asset impairment charges in 2019. Refer to the appendix for a reconciliation of the Pipeline & Industrial Segment as
16 reported to the Pipeline & Industrial Segment excluding asset impairments.
2020 Guidance Summary
($MMs except per share data) | LOW | MID POINT | HIGH | ||
Revenues | $11,100 | $11,200 | $11,300 | ||
Adj. EBITDA (1) | |||||
$986 | $998 | $1,010 | |||
Free Cash Flow (2) | |||||
$600 | $700 | $800 | |||
Net Income | $378 | $387 | $395 | ||
Diluted EPS (GAAP) | $2.61 | $2.67 | $2.72 | ||
Adjusted Diluted EPS (3) | |||||
$3.52 | $3.58 | $3.64 | |||
Net Income and Adjusted EBITDA guidance includes an estimated $55MM - $60MM of operating losses associated with our orderly exit of Latin America, an impact to both Diluted EPS (GAAP) and Adjusted Diluted EPS between $0.38 and $0.41.
- Refer to the appendix for the definition of Adjusted EBITDA, a non-GAAP measure, and a reconciliation to Net Income Attributable to Common Stock
17 (2) Refer to the appendix for the definition of Free Cash Flow, a non-GAAP measure, and a reconciliation to Net Cash Provided by Operating Activities
- Refer to the appendix for the definition of Adjusted Diluted EPS, a non-GAAP measure, and a reconciliation to Diluted EPS
Closing Remarks
- Continue to deliver solid results driven by the resilient nature of the largest portions of our revenue, which represent a repeatable, sustainable foundation for the future
- Full-yearexpectations include Adjusted EBITDA of approximately $1B at the midpoint, which we believe is set to expand in 2021 and beyond
- Fortified our balance sheet with a bond offering and expanded credit facility; investment grade credit rating further validates the strength of our business and positive multi-year outlook.
- Remain focused on successful execution of our five key objectives
- Focus on and grow our base business
- Improve margins
- Create growth platforms through service line expansion in the utility, communications and industrial industries, and adjacent industries where craft skilled labor is critical to providing cost-certain solutions
- Be the industry leader in safety and training by investing in craft skilled labor
- Deploy capital in a disciplined and value-creating manner
- Continue to have a positive multi-year outlook and believe Quanta has opportunity to generate meaningful stockholder value
- Recognize and thank our world-class employees for their hard work and dedication
R E S I L I E N T B U S I N E S S M O D E L , S T R O N G F I N A N C I A L P R O F I L E A N D P O S I T I V E M U L T I - Y E A R O U T L O O K
18
Appendix
- Definitions
- Reconciliation Tables
- Forward Looking Statement Disclaimers
19
Definitions
- Days sales outstanding is calculated by using the sum of current accounts receivable, net of allowance (which includes retainage and unbilled balances), plus contract assets, less contract liabilities and divided by average revenues per day during the quarter.
- Free cash flow is defined as net cash provided by operating activities less net capital expenditures. Net capital expenditures is defined as capital expenditures less proceeds from sale of property and equipment and from insurance settlements related to property and equipment.
- EBITDA is defined as earnings before interest, taxes, depreciation, amortization and equity in (earnings) losses of non-integral unconsolidated affiliates.
- Adjusted EBITDA is defined as EBITDA adjusted for certain other items as described below:
- Non-cash stock-basedcompensation expense may vary due to acquisition activity, changes in the estimated fair value of performance-based awards, forfeiture rates, accelerated vesting and amounts granted;
- Acquisition and integration costs vary period to period depending on the level of Quanta's acquisition activity;
- Change in fair value of contingent consideration liabilities varies from period to period depending on the performance in post-acquisition periods of certain acquired businesses
20
Definitions
- Adjusted Earnings per Share is defined as diluted earnings per share adjusted for the after-tax impact of certain other items as described below:
- Non-cash stock-basedcompensation expense may vary due to acquisition activity, changes in the estimated fair value of performance-based awards, forfeiture rates, accelerated vesting and amounts granted;
- Amortization of intangible assets is impacted by Quanta's acquisition activity, and therefore can vary from period to period;
- Acquisition and integration costs vary period to period depending on the level of Quanta's acquisition activity;
- Change in fair value of contingent consideration liabilities varies from period to period depending on the performance in post-acquisition periods of certain acquired businesses;
- Impairments of non-integralunconsolidated affiliates vary period to period depending on various market factors outside Quanta's influence or control
- Net working capital is defined as (1) total current assets less cash and cash equivalents, less current assets of discontinued operations, less
- total current liabilities less current maturities of long-term debt and short-term debt, less current portion of operating lease liabilities, less current liabilities of discontinued operations.
21
Reconciliation of EBITDA and Adjusted EBITDA
ESTIMATED RANGE | |||||||||||||
($000s) | 2020 | FY 2020 | |||||||||||
3Q | Low | Mid | High | ||||||||||
Net income attributable to common stock (GAAP as reported) | $ | 162,913 | $ | 377,600 | $ | 386,050 | $ | 394,500 | |||||
Interest expense, net | 10,969 | 43,000 | 43,000 | 43,000 | |||||||||
Provision for income taxes | 70,477 | 164,000 | 167,500 | 171,000 | |||||||||
Amortization of intangible assets | 19,687 | 76,300 | 76,300 | 76,300 | |||||||||
Equity in (earnings) losses of non-integral unconsolidated affiliates | (140) | 8,400 | 8,400 | 8,400 | |||||||||
Income taxes and depreciation included in equity in earnings of integral unconsolidated affiliates | 1,275 | 3,000 | 3,000 | 3,000 | |||||||||
Depreciation expense | 56,244 | 221,900 | 221,900 | 221,900 | |||||||||
EBITDA | 321,425 | 894,200 | 906,150 | 918,100 | |||||||||
Non-cashstock-based compensation | 21,431 | 78,300 | 78,300 | 78,300 | |||||||||
Acquisition and integration costs | 10,352 | 12,900 | 12,900 | 12,900 | |||||||||
Change in fair value of contingent consideration liabilities | 78 | 700 | 700 | 700 | |||||||||
Adjusted EBITDA | $ | 353,286 | $ | 986,100 | $ | 998,050 | $ | 1,010,000 | |||||
22
Reconciliation of Adjusted Diluted Earnings per Share
ESTIMATED RANGE | |||||||||||||
($000s, except per share information) | 2020 | FY 2020 | |||||||||||
3Q | Low | Mid | High | ||||||||||
Reconciliation of adjusted net income attributable to common stock: | |||||||||||||
Net income attributable to common stock (GAAP as reported) | $ | 162,913 | $ | 377,600 | $ | 386,050 | $ | 394,500 | |||||
Adjustments: | |||||||||||||
Non-cashstock-based compensation | 21,431 | 78,300 | 78,300 | 78,300 | |||||||||
Amortization of intangible assets | 19,687 | 76,300 | 76,300 | 76,300 | |||||||||
Acquisition and integration costs | 10,352 | 12,900 | 12,900 | 12,900 | |||||||||
Change in fair value of contingent consideration liabilities | 78 | 700 | 700 | 700 | |||||||||
Impairments of non-integral unconsolidated affiliates | - | 8,700 | 8,700 | 8,700 | |||||||||
Write-off of deferred financing costs | 2,492 | 2,500 | 2,500 | 2,500 | |||||||||
Income tax impact of adjustments | (14,169) | (46,800) | (46,800) | (46,800) | |||||||||
Adjusted net income attributable to common stock | $ | 202,784 | $ | 510,200 | $ | 518,650 | $ | 527,100 | |||||
Weighted average shares: | |||||||||||||
Weighted average shares outstanding for diluted and adjusted diluted earnings per share | 144,363 | 144,900 | 144,900 | 144,900 | |||||||||
Earnings per share attributable to common stock: | |||||||||||||
Diluted earnings per share attributable to common stock (GAAP as reported) | $ | 1.13 | $ | 2.61 | $ | 2.66 | $ | 2.72 | |||||
Adjusted diluted earnings per share attributable to common stock | $ | 1.40 | $ | 3.52 | $ | 3.58 | $ | 3.64 | |||||
23
Reconciliation of Free Cash Flow
ESTIMATED RANGE | ||||||||||||
($000s) | 2019 | 2020 | FY 2020 | |||||||||
3Q | 3Q | Low | Mid | High | ||||||||
Net cash provided by operating activities (GAAP as reported) | $ | 91,167 | $ | 114,859 | $ | 850,000 | $ | 950,000 | $ | 1,050,000 | ||
Less: Net capital expenditures: | ||||||||||||
Capital expenditures | (66,244) | (50,780) | (250,000) | (250,000) | (250,000) | |||||||
Proceeds from sale of property and equipment | 5,344 | 5,917 | - | - | - | |||||||
Net capital expenditures | (60,900) | (44,863) | (250,000) | (250,000) | (250,000) | |||||||
Free Cash Flow | $ | 30,267 | $ | 69,996 | $ | 600,000 | $ | 700,000 | $ | 800,000 | ||
24
Reconciliation of Electric Power Segment excluding Latin America
2020 GUIDANCE RANGE | |||||||||||||||||||||||||||||
($000s) | 2019 | 2020 | Initial Guidance | 1Q Guidance | 2Q Guidance | Current Guidance | |||||||||||||||||||||||
FY | 3Q | Low | High | Low | High | Low | High | Low | High | ||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||
Electric Power Infrastructure Services | $ | 7,121,837 | $ | 2,107,621 | $ | 7,620,000 | $ | 7,840,000 | $ | 7,520,000 | $ | 7,740,000 | $ | 7,520,000 | $ | 7,730,000 | $ | 7,710,000 | $ | 7,815,000 | |||||||||
Less: Latin America | 63,226 | 471 | 20,000 | 40,000 | 20,000 | 40,000 | 20,000 | 30,000 | 10,000 | 15,000 | |||||||||||||||||||
Electric Power excluding Latin America | $ | 7,058,611 | $ | 2,107,150 | $ | 7,600,000 | $ | 7,800,000 | $ | 7,500,000 | $ | 7,700,000 | $ | 7,500,000 | $ | 7,700,000 | $ | 7,700,000 | $ | 7,800,000 | |||||||||
Operating income (loss): | |||||||||||||||||||||||||||||
Electric Power Infrastructure Services | $ | 591,177 | $ | 268,376 | $ | 702,000 | $ | 766,000 | $ | 675,000 | $ | 721,900 | $ | 697,500 | $ | 741,600 | $ | 786,500 | $ | 802,300 | |||||||||
Less: Latin America | (85,749) | (15,396) | (20,000) | (15,000) | (30,000) | (25,000) | (45,000) | (40,000) | (60,000) | (55,000) | |||||||||||||||||||
Electric Power excluding Latin America | $ | 676,926 | $ | 283,772 | $ | 722,000 | $ | 781,000 | $ | 705,000 | $ | 746,900 | $ | 742,500 | $ | 781,600 | $ | 846,500 | $ | 857,300 | |||||||||
Operating margin: | |||||||||||||||||||||||||||||
Electric Power Infrastructure Services | 8.3% | 12.7% | 9.2% | 9.8% | 9.0% | 9.3% | 9.3% | 9.6% | 10.2% | 10.3% | |||||||||||||||||||
Less: Latin America | (135.6%) | NM | (100.0%) | (37.5%) | (150.0%) | (62.5%) | (225.0%) | (133.3%) | (600.0%) | (366.7%) | |||||||||||||||||||
Electric Power excluding Latin America | 9.6% | 13.5% | 9.5% | 10.0% | 9.4% | 9.7% | 9.9% | 10.2% | 11.0% | 11.0% |
25
Reconciliation of Pipeline & Industrial Segment excluding Asset Impairments (1)
2020 GUIDANCE RANGE | |||||||||||||||||||||||||||||
($000s) | 2019 | 2020 | Initial Guidance | 1Q Guidance | 2Q Guidance | Current Guidance | |||||||||||||||||||||||
FY | 3Q | Low | High | Low | High | Low | High | Low | High | ||||||||||||||||||||
Revenues | $ | 4,990,316 | $ | 912,540 | $ | 4,600,000 | $ | 4,800,000 | $ | 3,900,000 | $ | 4,100,000 | $ | 3,500,000 | $ | 3,700,000 | $ | 3,400,000 | $ | 3,500,000 | |||||||||
Operating income | $ | 332,011 | $ | 76,220 | $ | 313,000 | $ | 346,000 | $ | 175,500 | $ | 205,000 | $ | 166,300 | $ | 194,300 | $ | 161,500 | $ | 175,000 | |||||||||
Plus: Asset impairments (1) | 10,196 | - | - | - | - | - | - | - | - | - | |||||||||||||||||||
Operating income excluding impairments | $ | 342,207 | $ | 76,220 | $ | 313,000 | $ | 346,000 | $ | 175,500 | $ | 205,000 | $ | 166,300 | $ | 194,300 | $ | 161,500 | $ | 175,000 | |||||||||
Operating margin | 6.7% | 8.4% | 6.8% | 7.2% | 4.5% | 5.0% | 4.8% | 5.3% | 4.8% | 5.0% | |||||||||||||||||||
Plus: Asset impairments (1) | 0.2% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | |||||||||||||||||||
Operating margin excluding impairments | 6.9% | 8.4% | 6.8% | 7.2% | 4.5% | 5.0% | 4.8% | 5.3% | 4.8% | 5.0% | |||||||||||||||||||
26 (1) Represents asset impairment charges excluding goodwill impairment, as goodwill impairments are included within Corporate and Non-Allocated costs
Cautionary Statement About Forward-Looking Statements
This presentation (and oral statements regarding the subject matter of this presentation) contains forward-looking statements intended to qualify for the "safe harbor" from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements relating to the following:
- Projected revenues, net income, earnings per share, EBITDA, margins, cash flows, liquidity, weighted average shares outstanding, capital expenditures, tax rates and other operating or financial results;
- Expectations regarding Quanta's business or financial outlook;
- Expectations regarding the COVID-19 pandemic, including the potential impact of the COVID-19 pandemic and of governmental responses to the pandemic on Quanta's business, operations, supply chain, personnel, financial condition, results of operations, cash flows and liquidity;
- Quanta's plans, strategies and opportunities, including the plans, timing, effects and other matters relating to the COVID-19 pandemic and the exit of its Latin American operations;
- Potential benefits from, and future financial and operational performance of, acquired businesses and investments, including Quanta's investment in LUMA;
- The expected outcome of pending and threatened legal proceedings;
- Beliefs and assumptions about the collectability of receivables;
- The business plans or financial condition of Quanta's customers, including with respect to the COVID-19 pandemic;
- The potential impact of the recent decrease in commodity prices and volatility in commodity production volumes on Quanta's business, financial condition, results of operations and cash flows and demand for Quanta's services;
- Expectations regarding opportunities, competitive positioning, future economic and regulatory conditions and other trends in particular markets or industries;
- Projected or expected realization of remaining performance obligations and backlog;
- The future demand for and availability of labor resources in the industries Quanta serves;
- Future capital allocation initiatives, including the amount, timing and strategies with respect to any future stock repurchases or expectations regarding the declaration, amount and timing of any future cash dividends;
- The ability to deliver increased value or return capital to stockholders;
- The expected value of contracts or intended contracts with customers;
- The scope, services, term or results of any projects awarded or expected to be awarded to Quanta;
- The anticipated commencement and completion dates for any projects awarded;
- The development of and opportunities with respect to future projects, including renewable projects and larger electric transmission and pipeline projects;
- The impact of existing or potential legislation or regulation;
- Potential opportunities that may be indicated by bidding activity or discussions with customers;
- Possible recovery of pending or contemplated insurance claims, change orders and affirmative claims asserted against customers or third parties; and
- Other statements reflecting expectations, intentions, assumptions or beliefs about future events, and other statements that do not relate strictly to historical or current facts.
27
Cautionary Statement About Forward-Looking Statements
Although Quanta's management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. These statements can be affected by inaccurate assumptions and by known and unknown risks and uncertainties that are difficult to predict or beyond Quanta's control, including, among others:
- Market conditions;
- The effects of industry, economic, financial or political conditions outside of the control of Quanta, including the outcome of the U.S. presidential election and resulting economic, energy and environmental policies and weakness in capital markets or the ongoing and potential impact to financial markets and worldwide economic activity resulting from the COVID-19 pandemic and related governmental actions;
- Quarterly variations in operating results, liquidity, financial condition, cash flows, capital requirements, reinvestment opportunities or other financial results, including the ongoing and potential impact to Quanta's business, operations and supply chain of the COVID-19 pandemic and related governmental actions;
- The severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of business and governmental responses to the pandemic (e.g., shelter-in-place and other mobility restrictions, business closures) on Quanta's operations, personnel and supply chain and on commercial activity and demand across Quanta's and its customers' businesses;
- Quanta's inability to predict the extent to which the COVID-19 pandemic and related impacts will adversely impact its business, financial performance, results of operations, financial position, the prices of its securities and the achievement of its strategic objectives, including with respect to governmental restrictions on its ability to operate, workforce availability, regulatory and permitting delays, and future demand for energy and the resulting impact on demand for Quanta's services;
- Trends and growth opportunities in relevant markets, including Quanta's ability to obtain future project awards;
- The time and costs required to exit Quanta's Latin American operations, as well as the business and political climate in Latin America;
- Delays, deferrals, reductions in scope or cancellations of anticipated, pending or existing projects as a result of, among other things, the COVID-19 pandemic, weather, regulatory or permitting issues (including the court ruling vacating the U.S. Army Corps of Engineers' Nationwide Permit 12), environmental processes, project performance issues, claimed force majeure events, protests or other political activity, reductions or eliminations in governmental funding, legal challenges or customer capital constraints;
- The effect of commodity prices and commodity production volumes on Quanta's operations and growth opportunities and on customer capital programs and demand for Quanta's services;
- The successful negotiation, execution, performance and completion of anticipated, pending and existing contracts;
- Risks associated with operational hazards that arise due to the nature of Quanta's services and the conditions in which Quanta operates, including, among others, wildfires and explosions;
- Unexpected costs or liabilities that may arise from legal proceedings, indemnity obligations, reimbursement obligations associated with letters of credit or bonds, multiemployer pension plans (e.g., withdrawal liability) or other claims or actions asserted against Quanta, including those not covered by, or in excess of, third-party insurance;
- The outcome of pending or threatened legal proceedings;
- Potential unavailability or cancellation of third-party insurance coverage, as well as the exclusion of coverage for certain losses, potential increases in premiums for coverage deemed beneficial to Quanta, or the unavailability of coverage deemed beneficial to Quanta at reasonable and competitive rates;
- Damage to Quanta's brand or reputation as a result of cyber-security or data privacy breaches, environmental and occupational health and safety matters, corporate scandal, failure to successfully perform a high-profile project, involvement in a catastrophic event (e.g., fire, explosion) or other negative incident;
- Quanta's dependence on suppliers, subcontractors, equipment manufacturers and other third-party contractors, and the impact of the COVID-19 pandemic on these service providers;
- The ability to attract and the potential shortage of skilled labor;
- The ability to retain key personnel and qualified employees and the impact of the COVID-19 pandemic on the availability and performance of Quanta's workforce and key personnel;
- Quanta's dependence on fixed price contracts and the potential to incur losses with respect to these contracts;
- Estimates an assumptions relating to our financial results, remaining performance obligations and backlog;
- Quanta's ability to successfully complete remaining performance obligations and realize backlog;
- Adverse weather conditions, natural disasters and other emergencies, including wildfires, pandemics (including the ongoing COVID-19 pandemic), hurricanes, tropical storms and floods;
- Quanta's ability to generate internal growth;
- Competition in Quanta's business, including the ability to effectively compete for new projects and market share;
28
Cautionary Statement About Forward-Looking Statements
- The failure of existing or potential legislative actions and initiatives to result in increased demand for our services;
- The future development of natural resources;
- Fluctuations of prices of certain materials used in Quanta's or its customers' businesses, including as a result of the imposition of tariffs, governmental regulations affecting the sourcing of certain materials and equipment, or changes in U.S. trade relationships with other countries;
- Cancellation provisions within contracts and the risk that contracts expire and are not renewed or are replaced on less favorable terms;
- Loss of customers with whom Quanta has long-standing or significant relationships;
- The potential that participation in joint ventures or similar structures exposes Quanta to liability and/or harm to its reputation for acts or omissions by partners;
- Quanta's inability or failure to comply with the terms of its contracts, which may result in additional costs, unexcused delays, warranty claims, failure to meet performance guarantees, damages or contract terminations;
- The inability or refusal of customers or third-party contractors to pay for services, including as a result of the COVID-19 pandemic or the recent decrease in commodity prices;
- Budgetary or other constraints that may reduce or eliminate tax incentives or government funding for projects, which may result in project delays or cancellations;
- Risks associated with operating in international markets, including instability of foreign governments, currency exchange fluctuations, and compliance with unfamiliar foreign legal systems and business practices, applicable anti-bribery and anti-corruption laws, complex tax regulations and international treaties;
- The ability to successfully identify, complete, integrate and realize synergies from acquisitions, including retention of key personnel;
- The potential adverse impact resulting from uncertainty surrounding investments and acquisitions, including the potential increase in risks already existing in Quanta's operations and poor performance or decline in value of Quanta's investments;
- The adverse impact of impairments of goodwill, receivables, property and equipment and other intangible assets or investments;
- Growth outpacing Quanta's decentralized management and infrastructure;
- Inability to enforce Quanta's intellectual property rights or the obsolescence of such rights;
- The impact of a unionized workforce on operations, including labor stoppages or interruptions due to strikes or lockouts;
-
The ability to access sufficient funding to finance desired growth and operations, including the ability to access capital markets on favorable terms, as well as fluctuations in the price and volume of
Quanta's common stock, debt covenant compliance, interest rate fluctuations and other factors affecting financing and investing activities; - The ability to obtain bonds, letters of credit and other project security;
- The ability to meet certain regulatory requirements applicable to Quanta and its subsidiaries;
- Rapid technological and other structural changes that could reduce the demand for Quanta's services;
- Risks related to the implementation of new information technology systems;
- New or changed tax laws, treaties or regulations;
- Increased costs associated with regulatory changes, including labor costs or healthcare costs;
- Significant fluctuations in foreign currency exchange rates;
- Other risks and uncertainties detailed in Quanta's most recently filed Annual Report on Form 10-K, Quanta's recently filed Quarterly Reports on Form 10-Q and any other documents that Quanta files with the Securities and Exchange Commission (SEC).
For a discussion of these risks, uncertainties and assumptions, investors are urged to refer to Quanta's documents filed with the SEC that are available through Quanta's website at www.quantaservices.com or through the SEC's Electronic Data Gathering and Analysis Retrieval System (EDGAR) at www.sec.gov. Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expressed or implied in any forward-looking statements. Investors are cautioned not to place undue reliance on these forward- looking statements, which are current only as of this date. Quanta does not undertake and expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Quanta further expressly disclaims any written or oral statements made by any third party regarding the subject matter of this presentation.
29
Connect With Quanta Services Investor Relations
@QuantaIR
QuantaServicesIR
Investor Contact | Corporate Office |
Kip Rupp, CFA | 2800 Post Oak Blvd., Suite 2600 |
Vice President - Investor Relations | Houston, TX 77056 |
713-341-7260 | 713-629-7600 |
investors@quantaservices.com | www.quantaservices.com |
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Quanta Services Inc. published this content on 29 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 October 2020 14:04:11 UTC