Good morning, and welcome to the Quanta Services Third Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Kip Rupp, Vice President, Investor Relations, for introductory remarks.
Thank you, and welcome, everyone, to the Quanta Services Third Quarter 2026 Earnings Conference Call. This morning, we issued a press release announcing our third quarter 2026 results, which can be found on the Investor Relations section of our website at quantaservices.com. This morning, we also posted our third quarter 2026 operational and financial commentary and our 2026 outlook expectation summary on Quanta's Investor Relations website.
While management will make brief introductory remarks during this morning's call, the operational and financial commentary is intended to largely replace management's prepared remarks, allowing additional time for questions from the institutional investment community. Please remember that information reported on this call speaks only as of today, October 29, 2026. And therefore, you're 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 statements reflecting expectations, intentions, assumptions or beliefs about future events or financial performance. 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 will 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 operational and financial commentary. Please refer to these documents for additional information regarding our forward-looking statements and non-GAAP financial measures. Lastly, please sign up for e-mail alerts through the Investor Relations section of quantaservices.com to receive notifications of news releases and other information and follow Quanta IR and Quanta Services on the social media channels listed on our website.
With that, I will now 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 2026 Earnings Conference Call. I want to begin by thanking our approximately 95,000 employees.
Their commitment to safety, to our culture of absolute performance and to the certainty we deliver for our customers makes everything we will discuss this morning possible. This morning, we reported third quarter results that meaningfully exceeded expectations with robust double-digit growth in revenues, adjusted EBITDA and adjusted earnings per share, healthy cash flow and record backlog of $64 billion. These results reflect broad-based strength across our segments, service lines and end markets and also the successful multiyear strategy we are executing and the investments we have made in it.
Given this outperformance and the expected incremental strength in the fourth quarter, we are significantly increasing our full year 2026 financial expectations across all metrics. This quarter again demonstrated the ability for our operating model to deliver with certainty at scale. The breadth of our portfolio, combined with the fungibility of our skilled workforce across multiple end markets, provides a significant competitive advantage.
This flexibility allows us to strategically deploy resources where demand is strongest, mitigate exposure to individual market cycles and deliver more consistent, predictable outcomes for our customers and stockholders. Quanta is embedded in the long-term planning of our industry-leading customers across the utility, power generation and large load markets, and inbound demand is accelerating. We stay in front of our markets by remaining deeply customer-focused.
Our customers want a partner that can plan with them for years in advance, align craft labor and supply chain solutions to their capital programs and bring certainty to their projects and programs at a reasonable cost and in a way that delivers lasting economic benefits to the communities where these projects are built. Our reputation for delivering and our ability to mobilize people and supply chain quickly is driving the demand for our solutions. That reputation was built in our utility business, which remains the foundation of Quanta.
Utilities are being asked to double in size over time, and we believe the need to significantly expand and enhance the power grid for reliability, resiliency and load growth is visible and necessary. We expect additional opportunities, including high-voltage transmission, power generation, large load and technology, to stack on top of what we view as a long-duration compounding utility base, where we continue to extend our leadership position. These opportunities extend our visibility well beyond 2030.
We see large transmission programs across the country making positive progress from permitting and approvals to planning and engineering and moving closer to contract execution and backlog. Power generation opportunities are also active and in various stages, and we are encouraged by the stacking opportunity we see across our diverse markets building over the coming years. Technology is moving as fast as it can.
Utilities are working to protect stakeholders, and Quanta sits at the nexus of facilitating both. The proven success of our operating model on the utility side of the business is also why technology and large load customers are embracing it. The collaborative solution-based approach we have built over decades serving utilities is exactly what we bring to those customers.
As evidenced by our results this year, the demand for our solution is significant and growing. In this market environment, our scope and scale, the fungibility of our resources and the solutions they enable are valuable. So committing our resources to the best overall opportunities has never been more important.
We prioritize high-quality, well-capitalized industry-leading customers that value our collaborative long-term approach and have multiyear infrastructure programs. We believe the power of our portfolio is that it does not overly rely on the pace of a single market -- it builds on a broad, diverse and resilient base and is supported by an increasingly flexible craft workforce. Our self-perform model is designed to deliver on time and on budget at scale.
None of this is possible without our craft labor, and you cannot buy craft, you have to build it. We are investing in curriculum and innovative training programs across our operations and creating industry-leading training environments, which allows us to attract and retain talent. We are growing our foreman and superintendent leadership, which we believe has a multiplier effect on our ability to enhance our craft and self-perform capabilities.
Craft builds craft. We have invested heavily in our workforce for more than a decade. With a decade of strong double-digit compound earnings growth, the results speak for themselves.
We are also investing in the expansion of our integrated fabrication solutions, which we believe is a workforce multiplier that increases speed and efficiency, quality and schedule certainty. We apply the same absolute performance mindset to our capital deployment decisions. Each high-quality company that has joined Quanta is a relationship often cultivated over many years.
We are patient in buying great companies, and we are disciplined around our strategy with culture and fit a primary criteria. Our recently completed acquisitions are great companies that strengthen our fabrication, engineering and supply chain capabilities and extend our ability to deliver integrated solutions for customers, and we welcome them to the Quanta family. We are proud of the exceptional results of our teams have delivered this year and the larger programs across the utility, generation and technology and load center markets are still in front of us.
We are pacing ahead of the multiyear growth targets outlined at our 2026 Investor Day, and our conviction in Quanta's ability to compound profitable growth over the longer term continues to strengthen. We see the opportunity to deliver strong double-digit adjusted EPS growth again in 2027, supported by our record backlog and growing workforce. We remain focused on executing our customer success, deploying capital with discipline and compounding earnings and stockholder value over the longer term.
I will now turn the call over to Jayshree Desai, Quanta's CFO, to provide a few remarks about our results and 2026 guidance, and then we will take your questions. Jayshree?
Thanks, Duke, and good morning, everyone. The third quarter was an excellent one with record results across the board. Revenue was $12 billion, up 57% from $7.6 billion a year ago.
Adjusted EBITDA was $1.4 billion, up 69% from the third quarter of last year, and our adjusted EBITDA margin expanded to 12.1%. Adjusted diluted earnings per share was $6.06, up 82% from $3.33 last year, and GAAP diluted earnings per share was $4.55, more than double last year's $2.24. Third quarter operating cash flow was $1.5 billion and free cash flow was $1.2 billion, both quarterly records.
Turning to 2026 guidance. We now expect revenue to range between $41.3 billion and $41.6 billion, up approximately $1.9 billion at the midpoint from our prior outlook. We expect adjusted EBITDA to range between $4.4 billion and $4.49 billion, an implied margin profile of 10.7% at the midpoint and adjusted EPS to range between $17.90 and $18.30.
Regarding cash flow, after a historically strong first 9 months of the year, we now expect free cash flow to range between $2.5 billion to $3 billion, which would represent another annual record and reflect greater than 60% conversion of adjusted EBITDA at the midpoint. During the quarter, we used our operating and financial strength to bolster our liquidity and financial flexibility, positioning Quanta to continue deploying capital in support of our growth strategies. In July, we upsized our revolving credit facility commitments to $2.98 billion and extended its maturity to July 2031.
In August, we issued $2 billion of senior notes. And in September, we prepaid the remaining outstanding balance on our term loan. We ended the quarter with $2.3 billion of cash and had only $20 million drawn on our revolver.
Total liquidity was $5.2 billion, and our bank-defined leverage ratio was approximately 1.3x, affording us ample capacity to support our strategic initiatives. Regarding acquisitions, we continue to deploy capital with discipline. Subsequent to our second quarter earnings release, we completed 2 acquisitions for approximately $245 million of consideration, net of cash acquired.
As Duke mentioned, these companies bring leadership and management team -- management talent and strengthen our front-end engineering fabrication and supply chain capabilities, enhancing our ability to self-perform more scope and deliver cost and schedule certainty for our customers. We believe our strategy is materializing into improved forward visibility. As of September 30, we had record backlog of approximately $64 billion, a $10 billion sequential increase from June 30, with backlog growth across each of our key markets.
To close, we delivered a record quarter, significantly raised our full year expectations and strengthened our balance sheet, all of which position us well to continue investing our resources from a position of strength. As Duke mentioned, our conviction in our ability to compound profitable growth over the long term continues to strengthen. Additional detail and commentary on our 2026 financial guidance can be found in our operational and financial commentary and outlook expectation summary, both available on our Investor Relations website.
With that, we're happy to take your questions. Operator?
[Operator Instructions] Our first question will come from Ameet Thakkar with BMO Capital Markets.
Congratulations and thanks for the update. Your electric continues to run well above, kind of, your long-term growth framework. Kind of, given what you're seeing in utility generation and kind of place load center demand, what are the biggest constraints to sustaining this level of growth in 2027?
Is it, kind of, customer spending, labor or simply available to kind of execute? And then just on margins, how much of that strength kind of reflects favorable project execution versus kind of the mix or something more structural that we should think about as being sustainable?
I think the margin question, we had a great quarter. It's the third quarter. We've got some leverage as well.
I do think that when you're thinking through it, if you think about the employee count, how much growth we had organically, you're growing 7,000 employees, 6,000 employees on both the previous quarter and this quarter and then, like, 25,000, 26,000 this year. It gives you some leverage with our training, and that's showing up. We've always said, look, we're pressing margins because of the training.
But if we're getting that kind of leverage out of it, which I think is great, it's something that's certainly helping the margin profile of the company. Look, we can operate the utility business 10% to 12%. We've said that all along.
We're getting some leverage out of MEP in the business. You're able to do some off-site manufacturing, do a lot of different things to increase efficiency in the field. So we're super happy with what we're doing and where it's going.
Has it fundamentally changed? Look, it's moved up. The UI is still down.
I do think we can do much better there. We can get in the double digits. The profiles and things of that nature as old work burns off and we start to get into the newer business there, that should move up.
So look, I like where we're going. I do think we can increase some margins, but it's not a margin story. I go back and say we're going to compound, kind of, the margin profile we've talked about.
The utility business is still, call it, $20 billion or so of the electric segment. That's in the 10% to 12%, call it, 11%. And then you have the other businesses that we're getting efficiencies out of.
I would turn to the ROIC, though, and look at that growth. To me, like, we watch that a lot of what we're doing with return on invested capital, and Jayshree can go through the numbers on that at some point. But I do think that's what's driving that.
As far as the growth and what's inhibiting the growth, I think the markets are there. We can't be everything for everybody. We continue to think that both the TAMs, what gives me a lot of what I would consider optimism of the growth and us keeping that up is that we've done it for 12 years, well plus 20% growth.
So I wouldn't bet against us on growth. And yes, big numbers, but it's been big numbers in my career. So we're just going to continue to compound those.
And when you think about the 2 TAMs, our utility business in the past, if you go back 5 years, we couldn't take advantage of the generation, the fossil generation, even the renewable generation, that wasn't us. We were in T&D. Now we have that whole addressable market. And I think it's a big deal and it goes unnoticed of how much TAM we have in the utility business.
So if you look at that TAM, it's there and then you roll it over into what we're doing very early in our technology business, but the large -- the 5 largest technology companies will spend 3x the capital budget of the utility side. And we can perform the vast majority of that capital is in chips. So I like our chances to grow.
We talked about -- it's not just next year. We gave 5-year guidance, and we said 10% to 15%. If we can compound it would be 20% plus.
We had a hell of a year. It's setting up. And I'm looking at '28, '29.
I think we got growth out there as well. And we're not going to give guidance today, but I feel highly comfortable with, kind of, the 15%, 20%, and we'll compound that as well. But it's super early.
I got 5 months. I'm going to take my time.
Our next question will come from Justin Hauke with Bai...
That's with Baird, but that's okay. So obviously, a really strong quarter here. I think the thing that stands out the most is the sequential backlog gain.
And there was a tiny bit of the contribution from M&A and you talked about the NiSource scope. But it looks like there was a lot more beyond that. And there wasn't anything like specifically quantified as a large project win.
Just curious if there was anything chunky, any of the 765 lines you've talked about. I know there were some questions on some hearings on some of those in Texas that seemed like they went favorable. But anything you can comment on kind of the contribution makeup of the backlog?
Look, it was broad-based backlog growth. I mean our renewable business is fantastic. It went all the way across the segments.
We did book the NiSource, but that's a program. If you can listen to their capital and what they're doing, it's a larger program. I expect us to book more there against that.
It was both T&D and the power plant that we had discussed. And I really like what we're doing with the largest customers in the industry. We're standing by.
They want to build fossil, we'll go build fossil. We're super happy to do it. We believe we have a good model to do that and derisk the customer -- the end customer as well as us.
And I think that's key for us in that business. And when we look at just straight up, our distribution business is growing nicely. Transmission business is growing nicely.
So no -- nothing really pulled in. We haven't started really the 765 build. It's much bigger than Texas.
You have the Ohio work. You have MISO work. There's a lot of work out there that is not in backlog yet.
In many ways, it's just getting started. We say it all the time, but I'm not seeing big projects. That's not what's making up the company today.
And it's a heck of a growth underneath it without the stacking of those in here yet. So I believe you'll see -- in the future, you'll start to see the generation business come into the business as well as the large transmission, which is not in there today, but we talked about growth, that's growth, that's stacking growth that we'll see in the outer years. So super happy where we sit.
We think we've done a real good job. I think the business 10 years ago, 5 years ago, it was very transactional. And today, I think it's more transformational.
And we're running a transformational business that compounds earnings over time, and that backlog is broad-based.
If I can just squeeze one more in for Jayshree, just on the cash flow. It looks like there was a decent amount of prepayments in the contract liabilities. Is that just -- maybe just -- is that favorable terms on the contracts?
Or is that really a function maybe of some of the prepayments on some of the modular and the capital investments you've made on the supply chain? I'm just curious the contribution of that in the working capital.
Yes. Thanks, Justin. No, as you can see, our working capital is continuing to improve.
That is more of a function of the contract terms we're getting on a significant part of our revenue, especially from our MEP, our EPC business as well as our renewable business. All of those are contributing to that favorable working capital profile you're seeing. Our DSOs continue to improve.
So we're pleased at where our free cash flow is coming in. That's why we raised it for the year. There are some things we're doing around our supply chain as well as the -- as Duke mentioned in his prepared remarks around the expansion around our OSM facilities that actually are a use of cash.
So I would just say, in general, what we told you in March continues to be the right way to think about our cash flow profile around 55% to 60%. This year, we look to be at the high end of that, actually higher than that. And our expectation going forward will depend very much on the mix of work around those factors I talked about.
But 55% to 60% is still the right way to think about it, Justin.
Our next question will come from Julien Dumoulin-Smith with Jefferies.
Nicely done. I got to hand it to you guys seriously. I wanted to come back to a couple of things you said.
First off, you said inbound interest is accelerating, I think, to quote you from the transcript. Yet at the same time, Duke, you've put up 2 quarters in a row -- I mean, several quarters in a row, but more than the point, just really exceptional quarters. Is it conceivable that you accelerate on the cadence of backlog additions?
I mean, if I'm hearing you right. And then related to another point you made earlier here on ROIC, how do you think about the scope of possible here, economic ROIC here? I mean, you've been putting up a point or so every year or maybe even more than that of late.
Trajectory-wise, do you think that's the right cadence here through the forecast in as much as you say you're focused on that ROIC metric? Just how do you think about what that trajectory could look like, if not margin expansion, just to use your economic term you're focused on?
I mean, look at better terms on our contracts. So I do think we're generating free cash at a faster pace. Jayshree is probably unwilling to go there in guidance yet.
But I do think that's happening. We are leaning into some supply chain, Julien, which I'm worried about copper, I'm worried about other things. And so we will use that balance sheet to mitigate risk for our clients.
And if they can't see it, I can. And so I get to see it broad-based. So we'll lean into some of those supply chain constraints to keep our people busy.
Margins are expanding. The use of capital in these lighter capital businesses that we have, such as inside, that's certainly a bigger portion of what we do. So it's going to expand the ROIC.
And how fast? I'm not signing up for that quite yet, but it's certainly something that we're highly focused on and the cadence thereof. As far as backlog expansion, look, I believe we'll set records and continue to set records.
The timing on that, it gets lumpy for us. A lot of MSAs coming in, a lot of good things happening. So what I would say is, I mean, we've stayed true to -- it's not in backlog until it's signed.
And so that for us, some of that, kind of, $1 billion beat over the last 2 quarters is because it's book-to-bill, we're moving building to building or job to job without ever hitting backlog. So I'm not sure how to classify that. GAAP says for us, at least not GAAP, but the way our SEC requirements and the way we think about it is it's signed.
So that's just how we're going to go about it. And over time, we've been doing it that way 10 years. We're not changing now.
So it's just going to be that way. And I think you're going to get some lumpiness in it. I would say, as far as what the outlook of the business and what we see, the inbounds coming in certainly is moving at a faster pace than it's ever moved in my career.
Got it. And just on the data center front, real quickly to ask about that. How do you think about the right to win and what this is going to look like?
Is this a partnership like with NiSource example, where you have like multiple sites? Or how do you think about moving into that sector? I mean, obviously, there's stuff beneath the surface, you guys haven't released -- press release formally already cooking.
But how do you think about that TAM and tackling it and what we'll see more visibly?
Yes. I just think we're doing it now. I mean we're we're providing behind-the-meter generation that's going to utility generation.
So utility-scale generation today, I mean, and balance of plant and balance of facilities in multiple areas. So we're doing that today. We just -- we didn't press release, we didn't say anything about it.
We don't need to. We just go up, put the numbers up. And I think that's the key.
But the clients and both from the technology side as well as our utility customers, we're in the middle of that building that whole thing out. When you look at it in a geographic area, if we're doing everything in that area with our people, which we self-perform 85%, we have a lot of control of certainty. And we don't have people jumping trucks.
We don't have the issues that others have, the scale of the company, the growth of the company and what we're able to accomplish because we can perform all of it is certainly beneficial to the end user and to the ratepayer. And I just think as we're able to do more, we can certainly help with labor on those sites, those big area, I mean you have 5,000, 6,000, 10,000 people. If we can control that environment, it's certainly helpful.
It keeps the wage pressures down and things like that. So yes, I mean, the clients are coming to us. They see it on both sides.
We're able to really give them something they want. They want certainty and they want speed. If that's the 2 things, the criteria, I like our chances.
So -- and that's what we're seeing today out there. So I do think as we see it, we're in the right spot doing the right things, and you'll continue to see more and more. We were about -- if you look at on a megawatt basis for MEP and say it's $15 million a meg, everybody has a different classification.
So CEO math or whatever you want to call it, but it's $15 million a meg, say that the company was getting $3 million or $4 million a meg a year ago. We're able to expand that into $5 million to $7 million. And as it goes further, that will be $7 million to $10 million.
So you can see us just capturing more and more of what the spend is per location, and that's not counting generation or utilities behind it. So I just -- we're getting more and more as we move forward. We're creating more verticals in the business.
I like our growth patterns. I like our strategies, and we're doing well. So thank you.
Our next question will come from Nick Amicucci with Evercore.
So Duke, I just wanted to see, it seems like you guys are, especially this year, kind of positioning for the higher end of that 15% to 20% EPS CAGR growth target through 2030. Just wanted to see, like, kind of, the probability seems in your favor that you're going to get to, kind of, that full stack scenario. So I would just say -- I would just ask how do you see the opportunities that would drive the full stack really coming together?
And where do you see the company really going from here?
Yes. Look, we're performing well above expectations. If you add -- if you take the 20% on this year, you're well -- you're already in the basically the low end of the plan.
And so very close to it. And I just -- the acquisition profiles, the companies that we're able to acquire, what we see out there, what we see, and I'm not signaling that we're going to go make acquisitions -- but we have in the past, and I continue to see opportunities for us to deploy capital in the right places with the right businesses. If we see that and we continue down this path, sure, we're going to be well above plan and probably be talking about something different earlier than 5 years because we're going to have to.
I do think as we see it, the markets -- there's risk to the markets. There's things that are out there in these long plans. So that's why we give you a good CAGR basis, and we're ahead.
We're certainly above 20%. But we've operated above 20% on a CAGR basis for 12 years. And I think it's one thing to say it, a lot of people go out and they talk about it, talk, talk, talk about what they've done.
I just say, look at our past, look what we've done, and it's predictive of the future.
Definitely fair. And then as we kind of think about the past, too, just you guys have always been very prudent on kind of the risk profile of contracts. And so I just wanted to make sure that kind of less than 15% of revenue that was tied to fixed-price contracts exceeding $300 million that you guys outlined at the Investor Day.
Is that still representative just given the magnitude of the recent awards and your recent acquisitions?
Yes. I mean the way you define -- I would say our risk profile, whether how we define it because you can define it in what a fixed price, you can have UPIs or some measure that allowed it to be derisked. There's a lot of ways to derisk these things, the GMP profiles, all the different ways to contract.
No matter what you call it, I look at every one of them. And I would say the risk profile of the company is in a better position than it's ever been.
Our next question will come from Steven Fisher with UBS.
Just, Duke, you mentioned some of the larger transmission projects that you have in the pipeline here. How close do you think we are actually to getting those programs in backlog? And how should we think about in terms of maybe order of booking, Texas versus Ohio versus MISO?
Those are the few that you mentioned.
Yes. I mean I think we have LNTPs and things like that on multiple projects. We have things that we're doing with AEP.
So we've talked about that where we're doing some supply agreements and doing some agreements with them. And you can see what they're doing and with their capital. I think the business is tripling and super happy to work with our clients.
And I think I'm not rushing them to get them signed. We want to take our time, both sides need to. The environments are moving, and they have their own customers on the backside.
I want to get it right. But we'll be on 765 in '27 for sure. Some of that's not booked already.
So it's hard for me to say. Some are booking earlier LNTPs. We need to order material in places and do some things like that.
I think you'll see really good bookings, call it, first half of '27 and even some starts. I'm not sure the cadence on that. It's hard to say.
We're probably farther along in Texas, Ohio, probably be the first 2 to go.
Terrific. And then, Duke, on your mission to provide certainty of delivery, do you think there's still some important big pieces that are missing? Or are you really at this point, kind of just filling in the more kind of strategic-focused but smaller pieces of it?
I mean we talked about it in length, I mean, poles, wire and transformers, and we thought that those would be the short items, and we're not wrong. So we've leaned into transformers, breakers. This quarter, we acquired a pole manufacturing facility and a company, a nice company that we've been talking to for over 5 years.
And I think we see it -- we see poles coming out of Mexico in various areas that we're waiting on material today. So we're going to solve those problems. I mean it won't be -- our growth will be dependent on the OEMs. It will.
It always has been. Everyone is worried about our labor constantly, and we grew 26,000 people this year. So I'm waiting on material.
I'm hoping they hurry up. And if they don't, we will lean into it. We have to, to keep our customers moving, keep the supply chains moving.
And we're not a manufacturer at heart, but if we need to be, we will be. And we're going to provide the solution to these clients when we see it. If we see issues out there, the company will lean into those issues with our clients and move it forward.
It's the right thing for the ratepayer.
Our next question will come from Jamie Cook with Truist Securities.
Our next question will come from Michael Dudas with Vertical Research Partners.
Duke, you highlighted maybe your thoughts on over the next several quarters, several years, what is the risk to the market or what your utility or hyperscalers are thinking about that might cause some delays or slowdowns? Or is it just the supply chain and the labor issues that you guys have gotten your handles around to provide that turnkey solution because sometimes the market seems like the risk to the end of the cycle is quite dramatic relative to what a peer's reality is?
Yes. I would just say our inbounds are accelerating as far as what our clients are telling us. I don't -- they're doing things in years, 2 years kind of time frames and the demand is there when you listen to calls, when we listen to them and they're asking us for solutions out to well past 2030.
So we're just basically positioning the company for what we're asked by the client. We're staying very close to the customer. I do think when you think about it, if you think about demand that's out there, we're building a factory in 10 states, something like that, that's going to create close to 1,000 jobs against all these markets.
So I'm waiting on power hookups in 2 or 3 factories. And the people that are building it are the people that are building data centers. So the very fungibility of labor, what we see here, I don't think labor is going to be the issue.
I think it will be supply chain, critical items in supply chain to always lean into these things. I mean, you can see what GE did yesterday or day before whenever they did that. The criticality of their supply chain.
And we have to lean into it as well on the things that we do. So I like what the manufacturers are doing. Almost every OEM is expanding.
It certainly helps us. It makes me feel more comfortable with where the markets are going and our ability to be certain on the time frame. So as long as those things stay intact and the things that we're doing, the good that we're doing for the country out there with labor and communities and things like that, that I know the political rhetoric and all the rhetoric that's out there.
But the reality is it's a very good thing for people and for teachers and for communities. And it's much like the Industrial Revolution. We're doing great things.
The industries are doing great things. We're super proud to be a part of it, and we see growth.
We'll go back to Jamie Cook with Truist Securities.
Perfect. Sorry about that. All right.
I get a tough question because I screwed up on this. I guess my first question, understanding the growth that you're seeing in data centers and looking at the margins relative to some of your public peers, as data center is one of the higher growth markets and given where your margin -- the peers are of your margins, why wouldn't structurally Quanta's margins improve greater than the 10% to 11% that you target? Is there any like structural reason why your margins can't be where your public peers are?
And then my second question, I just want to understand how you're thinking about the M&A pipeline. Obviously, it's been focused on getting more in data centers. But I'm just wondering how -- if you want to move sort of out of power more so and consider other markets within your large load market that you talked about, like advanced manufacturing, infrastructure.
Just wondering if we're going to start moving beyond power, whether it's besides utility data center, if that makes sense?
Yes. I got it. So for the margins, Jamie, I don't think anyone has a $20 billion utility business that we would be compared to.
I don't know who it would be, maybe all of them put together. So that said, I mean, if you fundamentally, we're not going above 10% to 12% in there by design. We're going to stay there.
The ratepayers, what we're pressing on, we're not doing it. So we'll compound it over time. It's been a great business for us.
We're part of that industry, and we understand what it takes to be long there. What I would say is I see decades of growth for this company. We've done a nice job staying part of that fabric.
And we're not going to get transactional. We're going to stay transformational and continue to compound. So that's going to be there in that business and continue to grow nicely in the utility business.
As far as MEP, we are getting some efficiencies with our advanced manufacturing. We're doing some good things there. It is pressing upward on those margins in that segment.
And it's still only 20% of the business, give or take, probably 15% to 20%. And when we look at it, I think that's -- because the utility business is growing nicely, our renewable business is fantastic. And that's another issue.
You got a real nice renewable business, $5 billion to $10 billion of renewables in there. So I think when you look at those 2 businesses and what we're doing from capital and return on invested capital, we're getting the right growth of return. And I think that's the key to it.
But it's compounding. And it's not something that's going to have wildly margin increases. We are enhancing the underground segment.
I do think there's room there. We are improving there. We're getting efficiencies.
You can see some leverage coming in. Our training now when you're looking at training, people get scared of heights. And instead of dropping out of programs, they can be a plumber, a boilermaker, electrician and stay on the ground.
So we're creating craft and that creates efficiencies within that. So we're picking up some efficiencies there. But as far as margins, I like what we're doing.
We're derisking the company along the way, better cash flows, better returns. So I like where it's going. It's got the right trajectory.
But as far as pure operating income margin expanding to some astronomical level, I don't see it. I just -- I think we'll compound it. We'll continue to increase a little bit, certainly have room in the UI.
But we execute through a lot of different variables that go unnoticed. I mean, fuel is up, insurance is up. I'm sure someone will be talking about fuel somewhere.
It's -- we run right through all that, never say a word, move along, compound earnings. And we make sure that we account for all those things and guidance and the things that we say. If we operate through all that and Canada becomes world-class like Lower 48, yes, margins are going to move up.
And as far as M&A, I do think like we're very cognizant of the hockey sticks on data center. We're not buying a pure data center company per se. Like I look at it constantly to say like the businesses that we acquired, our data center business cut in half, what would it do to the company long term?
And it's -- we're in a very good position. It does -- sure, it comes down a little bit, but it does not -- we don't fall off a cliff, and we continue to still see growth in the business. So we can still see growth without data center.
Our pharmaceutical businesses are -- what we're doing in power plants, what we're doing across the board, you have 50% of this growth in the utility business is not data center, by the way, like -- so we have growth in the utility sector without data center. We haven't had that in 20 years. Our distribution business, all the things that we're doing, all the things that they're doing, it's fantastic, I mean, across the board.
So super excited and it has -- we like the fact that data centers are there, but we're not acquiring against it for sure.
[Operator Instructions] Our next question will come from Sherif El-Sabbahy with Bank of America.
Duke, you've said you don't expect labor to be the restricting factor going forward and you talked about getting more productivity out of your existing labor base. But with demand the way it is, do you need to accelerate the rate of hiring from the 6,000 or 7,000 a quarter it's at now? And if so, where could that go?
And what investments do you need to make in training?
I mean I think we'll continue to train. I mean it's an expense. So that's not going anywhere.
We continue to invest in it. I don't think you'll invest any more than we already have and may actually go down some. But -- because we're getting some leverage.
But look, I don't -- you've got seasonality, you've got quarters that you won't grow as fast as well. I mean the first quarter certainly wasn't like the second and the third. And so you'll come down in some seasonality.
We're able to -- fungibility, you can see our fourth quarter kind of stays flat now to the third. And when you think about it, those -- the people in Northern climes are moving around our system and moving to other things. The first quarter still falls a bit, but it naturally does, it always has in seasonality.
So I think you'll lose some headcount in the first a little bit. But they're moving around more. We're moving segment to segment.
We're moving company to company. We're moving across our -- what I would consider verticals, which is good. So we're getting more efficiencies out of the labor that we're training, but we still -- I mean, I still see the company kind of in the, call it, 6,000 to 8,000 a year on the average and then you'll have outward years where you're growing like we did this year.
Some of it's acquisition, but I still think the organic growth is around, call it, 12,000, so something like that of organic growth. And I would say the organic growth of the company, we heard a lot about that organic growth, organic growth. I hope everyone looks at the numbers of the organic growth of the business, and maybe we can stop talking about that now and talk about what we've done organically.
That's because we invested in the labor.
Our next question will come from Andy Kaplowitz with Citigroup.
Duke, I'm going to take your softball about asking about fuel in a different context. I think this is a quarter that everyone in industrials is concerned about inflation and price versus cost. But obviously, you delivered strong electric power margin, as you said.
So obviously, there's some positive mix, but maybe it's your vertical integration that's helping you. But maybe you could talk about how much better positioned Quanta is to handle inflation versus a few years ago where it did kind of show up in your electric margins.
Yes. We've done a nice job with the supply chain as well as just in general, I think we've always had pass-throughs on labor escalations in our utility business just the way by design. So I think we've done a good job with labor and being able to really from a risk standpoint, mitigated.
We've done that forever, and it doesn't show up much. The things that are like for us, like health care, insurance, just risk and insurance, things like that have escalated faster than other things. And we have seen inflationary things in the business.
We've got a lot of efficiencies. We haven't passed all that -- had to pass all that through to the client, which is nice. And so we're -- I think the good thing is the industry is working together in a collaborative manner.
And as we do that, if we can do that with them, we can off-site manufacture. We can do a lot of things that make tons of sense where we both don't have to add people and what I would consider supply chain initiatives, all kinds of different things that we can do together. If we do that and think about it as a solution, we can reduce cost for the client.
And for us, it increases top line as well as our margin profiles in many ways on these solution-based approaches. So we've been able to do that, and that's why that inflationary piece hasn't came into the business because we've been able to absorb it. But I do think, look, scale matters.
It matters in the utility business. It matters in every business. We continue to create scale within the business.
And I wouldn't underestimate that. It means a lot for us, and it means a lot for the business for us to continue to scale it.
Our next question will come from Liam Burke with B. Riley Securities.
The Underground Infrastructure segment is seeing very steadily improving operating margins, both from the fourth quarter last year and then sequentially. Could you give us some color as to what's driving that improvement?
Thanks for noticing. Look, it's work mix a lot of it and a lot of it is the risk profiles that we're willing to take on 2 different things. I think we've added our mechanical businesses in it.
We have some of our civil business in it. It's on both sides of it. Those additions are certainly something that are pushing it up.
We'll continue to grow our mechanical business faster than anything else. With some growth in our traditional business, not as much. So we're -- what I see is the work mix is changing such that you can get into double digits fairly quickly.
And it's incrementally happening. You can see it throughout the quarters, the growth. And I think it's getting to sustain -- you'll have some seasonality in the first quarter.
But I do think in the next year, you could see us in double digits and quarters and get on a run rate there in the next year. So exponentially getting that up into the double-digit range.
Our next question will come from Philip Shen with ROTH Capital Partners.
And congrats on your strong bookings in the quarter. I wanted to explore the data center outlook some more. I know inbounds have never been greater, and you've spoken very positively about this opportunity.
That said, some of our checks suggest some data center work may be sliding or even going dark. Duke, can you give a little bit of color on some of this risk that projects could be sliding? And then what is the potential for maybe a slowdown or just some pushouts in '27 or '28?
Or are you able to just backfill some of the things that are pushing out? So a little bit of color on some of the -- if you can lift the hood a bit so we can see, that would be great.
Yes. I mean I think for us, it's much like our renewable business. We said all along when the sky was falling there that we work for the top 10 best.
And from a developer standpoint, I would say the same applies to the data centers. I mean we're working for the very best in the world at this and the most liquid balance sheets that you see in the world. And all I can say is we can't even get to 25% to 30% of what they have in front of us, and we're having to basically look out 5 years and see how much we can take at this point.
All I can do is tell you the inbounds that we see -- and when we sign contracts, we put it in backlog. Our backlog is growing nicely, not only 12 months, but beyond 12. All the investments in -- that you see in engines from GE that are 3 years out, all the investments that you see in factories that are coming.
It's creating businesses as well with pharma and things like that. We have fungibility of labor as well. So if they're not -- if they're not -- we're building chip plants or we're building pharmaceuticals or we're doing a lot of different things with that same workforce if we're not -- so we're able to move across segments and move across verticals.
If something was to slow, I'm not concerned at this point. But the data center demand is there. We see it.
That's all I can say is what we see on a daily basis, the inbounds that we get at the very highest level of everyone that we talk to. The cloud-based environment, just the cloud alone, which is the majority of what we do, that inference-based cloud-based business has been there for 10 years and has done nothing but go vertical. And I continue to believe that's the case.
You may get some learning centers that slow a little bit. It's very little of our work today. And I just -- I'm not as concerned as the market may perceive it at this point.
We still see large projects, and we see the cloud-based business growing much like our MSA business in the utility side, and we continue to capture more of the spend as we move forward. So I don't -- I think we're early stages for us. We're creating something like we did in the utility side and that's coming from the technology side now.
And if it was to slow, we -- the company will capture more of the spend anyway. So I don't know, it's growth on growth right now, and I don't see it stopping.
Our next question will come from Alexa Breno with Goldman Sachs.
Can you just talk a little bit about what the dialogue looks like on the hyperscaler side? Are you seeing them engage with you earlier in the development process similar to your utility relationships? And then how do we think about that in the context of the scope of the work that you could be doing?
Yes, they're engaging early. I think a couple of things, community-based engagement. We're seeing our labor, how do we collaborate on labor, how do we collaborate on hiring.
So yes, it's early. We can help a lot with the dialogue of actually what's going on with the workforce and the community. So I think just being a part of the industry there, the company is moving in the right direction.
We're having great conversations at very highest levels with that side as well. So we're working hard to create the same environment and the same trust that we have. It's a trust thing.
So I do think the company has a long track record on generationally in the utility business. And the same applies, I mean, Cupertino grew up with the industry. And their reputation is every bit as good as anyone in the world.
They do a great job and very customer focused. So the whole company is customer focused. And as long as we stay like that, we'll continue to see inbounds from the very biggest in the world at the early stages of these projects where we can really make a difference in the community.
And certainly, I feel like if we're able to do that, that's what creates us to be a part of that fabric as well and create the moat that we have in the utility side is make sure that we are enhancing our customers' ability to build and perform much like we are.
Our next question will come from Alex Rygiel with Texas Capital Securities.
Duke, I was curious about your reference to increasingly flexible craft workforce. What do you mean by increasingly flexible? And what's, kind of, different today versus, say, 5 to 10 years ago?
Because obviously, you've had a pretty tremendous training program in place for many, many years. But the comment of increasingly flexible, kind of, caught my ear.
Good. It was intended to. So thanks, Alex.
I think what we're saying is we were really confined to the utility business. And if you can't climb, it's very difficult to stay in our craft. You can drive trucks, you can do other things.
But now, like, a person that can't climb, but has intellect for math and the things that you need for -- on the electric side or even plumbing, we're able to put them in a different craft because of our expansions in the verticals inside electrical voltage, boilermakers, pipe fitters, plumbers. We've really expanded the company over the last 2 to 3 years of what craft we have and how big we are in each one of them as we moved in. So I think the flexibility for us to take a person and say, where do you want to sit in this?
Here's the wage profiles and here's where we can go across the country. As we recruit, we can move people all the way through and our recruitment goes way up because of the things that we can do. I just -- it's certainly there.
And then when you get in the trade, I mean, you can -- an electrician can go from a power plant all the way through basically to a home, it doesn't matter where if you get in the high-voltage side, yes, they can come down and do some low-voltage work, but it's much -- it's just different. They usually don't. And so it's not as fungible.
So I think we've created the fungibility of a craftsman to move across the system. And if they don't want to be in the high-voltage arena, we can move them into low voltage or we can move them across. So I just -- we've done a nice job with that training and the way their curriculum craft and how we think about craft and how important they are to the heartbeat of this company.
We value it. And I think people resonate with that, especially in the field that just resonate with our ability to create an environment for them that they can go as far as they want in this company, and we're going to continue to do that.
Our next question will come from Dimple Gosai with Piper Sandler Companies.
We've heard a lot of commentary just about large data centers that have spoken about risk of just getting physical gas pipelines to data centers today. How do you think about leveraging this opportunity to win some of the programmatic work that you could potentially benefit from?
Yes. Look, on the gas side, we're winning. We're doing a nice job there.
We're in the business. And I do think you're starting to see expansions. You're going to need gas pipe.
It's going to expand. I think that market, if it's not -- I'm confident in '27, you're going to see expansion of pipe and things like that, that we're in that market, we're going to take advantage of. We've got great clients there that we're supporting.
Some of them are on the electric side now, building gas generation in places. So we're working for them there. And we're not giving up on it.
I just -- we're going to be cognizant of the risk. And I don't -- we don't want risk we can't control. I can't control the weather.
I can't. And so I'm -- we're not going to go into businesses where I have to give you a weather report, not doing it. We haven't done it in 7, 8 years, and I couldn't stand it when we did it in the past.
So we're really trying to derisk the company from weather and things we can't control. So if we can control it, we can execute against it. We have the very best craft in the world, I'm not concerned.
But we got to be able to control it. So we'll be risk tolerant on those things, but the market is there going forward, and you're right about what you're saying in a systematic way, you've got to feed all this gas generation with pipe. It's got to be done.
Our next question will come from Brian Brophy with Stifel.
Congrats on the very good quarter. A couple of quarters ago, you mentioned $500 million to $700 million of incremental manufacturing-related CapEx over the next few years. Just curious how your views have changed here given some of the supply chain constraints that you mentioned and any other opportunities you're seeing on that front?
Yes. I said it a minute ago, I think we have like 10 states that we're increasing our manufacturing capabilities, whether it be transformers, breakers, all across poles now that we acquired. So I don't think it's going to be a huge part of the business.
We're certainly going to lean into where we need to, to make sure we stay in front of the demand. We're also having great conversations with the OEMs to be good partners and to try to go along on things that we need to with them and partner with them. I think that's really important as well.
They're important to us. We value what they do. So we're probably in the top 5 buyer of -- we are in the top 5 buyer of HV equipment.
And so I think that's important that not only are we building and putting capital in, we're also partnering and doing some things with our OEM providers that allow us to be certain on projects. And that's going to be important going forward as we see constraints. And so we recognize those things, Brian, and we're staying in front of them as well as investing capital in them where we think we have good backstop, long-standing relationships that we're not just going to go out and build factories without the demand in front of them.
So we're trying to get long on those things. And we've been able to do that and primarily to keep the workforce busy and get exponential growth. It's -- the business itself is great, but what it can do for our overall business is 10x what the factory can do.
So those expansions are meant to grow the business and a multiplying effect as we move to the field and EPC and all those things. That's really what it's about. It's our ability to go EPC with certainty.
There are now no more questions at this time. I'd now like to turn the call back over to management for closing remarks.
I want to thank the men and women in the field. They make this possible. They are the very best in the world, and we want to thank our shareholders for participating in the conference call.
We appreciate your questions and ongoing interest in Quanta Services. Thank you. This concludes our call.
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