Q2 2025 Earnings Call Transcript

Good morning, and welcome to the Quanta Services Second Quarter 2025 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. [Operator Instructions]. 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 Second Quarter 2025 Earnings Conference Call. This morning, we issued a press release announcing our second quarter 2025 results, which can be found in the Investor Relations section of our website at quantaservices.com. This morning, we also posted our second quarter 2025 operational and financial commentary and our 2025 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, July 31, 2025, 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 and information 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 that do not solely relate to historical or current facts. You should not place undue reliance on these statements as they involve certain risks, uncertainties and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expressed or implied.

We 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 follow Quanta IR and Quanta Services on the social media channels listed on our website.

With that, I would now like to turn the call over to Mr. Duke Austin, Quanta's President and CEO.

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services Second Quarter 2025 Earnings Conference Call. This morning, we reported our second quarter 2025 results, which included strong double-digit growth in revenue, adjusted EBITDA and adjusted earnings per share, along with record backlog of $35.8 billion and a number of other record financial metrics. This morning, we also announced the acquisition of Dynamic Systems, a premier turnkey mechanical, plumbing and process infrastructure solutions provider with a diversified customer base that strengthens Quanta's craft-skilled led critical path capabilities to provide certainty for growing technology, manufacturing and other load center markets.

Dynamic Systems, highly synergistic mechanical workforce adds to Quanta's growth platform and expands our total addressable market across several strategic verticals. Additionally, Dynamic Systems brings an exceptional management team and a premier craft-skilled workforce that complement Quanta's culture. As a result of our solid second quarter results and the addition of Dynamic Systems, we are increasing our full year 2025 financial expectations for revenue, adjusted EBITDA and adjusted EPS. Additionally, in the second quarter, we made a strategic investment in Bell Lumber and Pole Company, which is the largest private producer of round wooden poles and other mass timber products, primarily serving the utility, telecom and construction industries.

Quanta's investment and Bell expands Quanta's portfolio of core utility infrastructure equipment and enhances Quanta's ability to offer critical path supply chain solutions to our customers. Quanta's core strategy is built on the foundation of craft-skilled labor, execution certainty, investment discipline and clear strategic rationale. At the heart of Quanta's success is our unmatched craft workforce. We deliver essential infrastructure solutions with dedication to safety, quality and performance.

Our execution certainty, combined with strategic investments in talent, technology and complementary business strengths -- businesses strengthens Quanta's leadership position across our expanding addressable markets. Our investment decisions are guided by a disciplined strategic rationale aimed at reinforcing Quanta's differentiated platform growing customer partnerships and driving long-term sustainable value creation. Quanta differentiates itself through a unique solution-based approach that integrates craft labor with engineering, technology and program management expertise to deliver comprehensive self-perform infrastructure solutions.

Rather than providing isolated services Quanta partners with customers to solve complex challenges across the full project life cycle, which creates deeper strategic relationships. Our collaborative model drives higher value for our customers and positions Quanta as a trusted partner and solutions provider, not a contractor. As demand accelerates for resilient electric grids, power generation, technology expansion and energy infrastructure, Quanta's large addressable market continues to grow. Quanta has a proven track record of consistent profitable growth across both favorable and challenging conditions, demonstrating the resilience and sustainability of our business model, which is a testament to the strength of our portfolio approach, a diversified solutions-based strategy that enables us to adapt to evolving industry dynamics while delivering mission-critical infrastructure.

The energy and infrastructure landscape is undergoing a fundamental transformation, and Quanta has positioned at its center. Utilities across the United States are experiencing and forecasting meaningful increases in power demand, which is being driven by the adoption of new technologies and related infrastructure, including data centers and artificial intelligence, policies intended to reinforce domestic manufacturing and supply chain resources and the need for all forms of energy generation. We continue to believe these drivers are leading to a potential historic investment in and an expansion of high-voltage transmission infrastructure.

And at Quanta's self-performed platform, execution track record and solution-based mindset enabled us to capitalize on these expanding opportunities, positioning Quanta for sustained leadership and long-term growth. I will now turn the call over to Jayshree Desai, Quanta's CFO, to provide a few remarks about our results and 2025 guidance, and then we will take your questions. Jayshree?

Thanks, Duke, and good morning, everyone. This morning, we reported strong second quarter results, including revenues of $6.8 billion, net income attributable to common stock of $229 million or $1.52 per diluted share, adjusted diluted earnings per share of $2.48 and adjusted EBITDA of $669 million. Additionally, we generated healthy cash flows in the second quarter, with cash flow from operations of $296 million and free cash flow of $170 million. Our second quarter performance was ahead of our expectations across most financial metrics and similar to the first quarter, is allowing us to increase our full year expectations before considering the contribution from acquisitions.

Regarding our acquisition program, we take great pride in our ability to attract exceptional management teams and industry-leading solution providers into the Quanta family. And the acquisitions and investment we announced this morning are great examples of that core competency. As Duke mentioned, these strategic deployments of capital expand both our portfolio of solutions and our addressable markets. And we believe acquiring great businesses while maintaining a prudent leverage profile, adds significant value to our customers and our stockholders.

We are currently evaluating refinancing alternatives to increase our post-transaction liquidity profile, ensuring we can continue to support operations and opportunistically invest capital. As a result of the solid performance in the second quarter and the expected contributions from the acquisitions and the investment made subsequent to our first quarter release, we are raising our financial expectations for the year. Revenues are now expected to range between $27.4 billion and $27.9 billion, adjusted EBITDA between $2.76 billion and $2.89 billion and adjusted EPS between $10.28 and $10.88. While we recognize the variability in the regulatory environment, demand for Quanta's differentiated portfolio of self-performed craft labor solutions remains strong.

As our strategy continues to advance, we are deepening customer relationships and establishing new platforms for growth. As evidenced by another quarter of record backlog, we remain confident in our ability to continue growing revenues and earnings over the years ahead. We believe our increased 2025 financial expectations demonstrate the strength of our portfolio approach to the business, our commitment to our long-term strategy, favorable end market trends and our partnership approach with our customers. Additional details and commentary about our 2025 financial guidance can be found in our operational and financial commentary and outlook expectation summary, both of which are posted on our IR website.

With that, we are happy to answer your questions. Operator?

[Operator Instructions] Your first question comes from the line of Andrew Kaplowitz from Citi Research.

Duke, obviously, this quarter, there's been, let's call it, some noise with the big beautiful bill and some increased politics out there. But of course, AI-related CapEx continues to ramp up. So maybe you can help us parse the noise. Would you say even with the bill and its impact that you're more confident in sequential backlog growth for Quanta, as you did again in Q2, really on the strength of the incremental transmission bookings you're seeing.

And then at your last Investor Day, you talked about megatrends and capital deployment giving 15% plus EPS CAGR sort of an upside? Should we start thinking about that kind of growth for 2026?

Yes. Thanks, Andy. I think when you look at the company, it's 20-plus growth in actuality. What we're talking about is the ability to do that.

And at the midpoint and tend to derisk everyone. So I want to be clear on that, the company over the 9-year, 10-year period that we've seen, it's 20-plus. So yes, I do believe the things that we're doing today set us up for the future, '26, '27, '28 and '29. What we've done is, we basically built platforms against TAMs that compound. And when we make acquisitions, it starts day one and compounds for the future.

And I think it's our ability to acquire companies, great companies, great family businesses. And into the TAMs that we're addressing certainly is a strategic rationale around the company, and it's something that I believe goes unnoticed about how we compound free cash into earning streams. And we've done it. We've done it over and over again.

And when we talk about TAMs of technology, the $300 billion or so of capital, you see it going up. The calls that I'm listening to on the utilities, such as AEP, others, every one of them basically have gone up in their CapEx as well. And I don't see anything other than the upper trend of the business. The demand on power is exponential.

It continues to come in. AI continues to prove out, both economically as well as what we see from power demand under any scenario. And if we're going to lead the country in the world, you have to have power and we're right in the middle of the infrastructures on both the largest TAMs that create the AI of the future.

Your next question comes from Jamie Cook with Truist Securities.

All right, Jamie. We can't hear you. We'll come back to you.

Your next question comes from Sherif El-Sabbahy with Bank of America.

Sherif Abdul-Fattah El-Sabbahy: I guess I just wanted to touch on your backlog has continued to build fairly consistently. And just with the obviously large amount of work out there, has this changed the bidding process at all? Are terms becoming more favorable? And are you able to increasingly be selective on your projects?

Man, when we're looking at it, we're really trying to provide solutions. And so I think the strategic rationale around the solutions is something different where it's longer term in nature. It's programmatic in nature, and there is constraints in certain areas of craft. And our self-perform capabilities are what separates is 80%, 85% of what we're doing is self-perform.

So our ability to have certainty, if you think about quantity, you should think about certainty. And that certainty in the marketplace to be able to deliver on time, on budget is something that allows us to have a different discussion. And I would say, yes, it's longer in nature. We're talking about '26, '27, '28 type time frames of growth and CAGR growth and EPS growth and EBITDA growth and our ability to continue to compound.

So you can't do that without having longer-term discussions. And I would say it's better and better as we move forward, those discussions.

Sherif Abdul-Fattah El-Sabbahy: Understood. And with those discussions, the longer-term work, and you touched on this a bit in your opening comments. Just the -- we've seen increased signs of utility CapEx pivoting towards transmission projects, larger projects. There's clearly multiyear demand for this type of work that's likely contributing to your backlog. Can you give us some color on what indication you've received from conversations with your customers on how they see the pipeline for this work evolving over the coming years?

I mean look, I still think the business is 85%, what I would consider, base business. We're still 80% to 85% is still that way. The larger projects, the larger programs are stacking. Our LNTP are probably I'm sure -- I'm confident they're at record levels.

We convert to LNTP into contracts. We can look at them, we don't book -- we don't talk about LNTPs. And we're not going to start it. So -- but I would say everything that we're seeing on both TAMs, large TAMs that are at record levels of inbounds or LNTP or verbal or what we're discussing over the long term.

And so I think those relationships and our collaboration are showing up daily. We're at the very early stages of a large transmission build that's coming. It continues to compound, and we really like where the company sits in that bill.

Your next question comes from the line of Atidrip Modak with Goldman Sachs.

Duke, I just wanted to ask on what prompted the acquisition of Dynamic Systems, because it seems like it has a broader end market exposure. And how that fits into your strategy for the segment. It also seems like it will open up the door to other EPC domains? And then is it reasonable to expect more M&A in that direction?

I think when we looked at Dynamic Systems, we've said all along, we're not looking for M&A, but we are addressing the strategic rationale around the markets that we serve. And when we looked at technology, it's really the customer asking us to do more. It's a customer saying, "Can you build more? Can you give us certainty across their addressable markets?

And what does it take to go faster? What does it take to be certain." And when we're looking at it, and we see a company like Dynamic Systems that culturally fits us, that the craft is really the key to the company. They have advanced technology solutions on it when you think about their digital solutions upfront and that advancement what they do on the pre-engineering and things of that nature. It really complements Cupertino, it complements all the other companies that we have and surrounded by craft.

So I believe that the craft concentric nature of dynamic and the TAMs that we're addressing why wouldn't we look at that? And why wouldn't we lean into that market with a great company. And yes, we will continue to look at great family businesses that add value to our strategy and our shareholders, and I believe we've done that here, and you've seen the numbers, and we've talked about it a little bit, but what you haven't seen is the synergies that we believe we will get. We don't talk about synergies in these deals.

And certainly, we believe it will cross both utility and technology, addressable markets and give us something that we don't have today that we can grow exponentially with a solution-based approach.

Your next question comes from Philip Shen with ROTH Capital.

With the ITC winding down by year-end '27, to what degree can you pull forward renewables work? A lot of it depends on labor. And so just wondering to what degree you guys are trying to accelerate that as much as you can. And then if you can, can you share what your outlook for renewables might be for 2028 and beyond after the credits wind down?

I mean I'll let Jayshree comment on some of the things that you're seeing. But I do think when we look at our renewables and you look at really the low cost of energy, if you add solar, wind in some places and batteries into a backstop of natural gas on the line, you get the lowest cost to the consumer. And so I still believe, it's really about the lowest cost, the speed to market that the renewables provide, we are seeing pull-ins on LNTPs. I would expect us to -- our customer base has safe harbor nicely.

We can see out multiyear here. And I don't think when you look at it long term, we're not concerned with where renewables are going. There will be noise in it, but that's nothing new. It's been that way for 2 decades.

And I think our ability to work through that with our customers. Our collaborate is an opportunity for us. I see it nothing but an opportunity, but I'll let Jayshree comment on the overall market.

Yes. I echo everything Duke is saying firmly. And I think the working with Tier 1 customers who lived through regulatory dynamics over 20-plus years who understand how PTC, ITC cliffs can manifest and then being able to get price discovery as they're working through their projects on the demand side. We just see more and more strength, especially with the customers we're working with.

No doubt there's going to be some effects as the executive order comes in, as the tariffs come in, in terms of just getting that price visibility. But the demand side from every one of our customers we keep hearing is as strong as ever. And a lot of them are safe harbored well into '28 and even into '29, and beyond that, they're already starting to think through about their pipelines and how with the speed to market that's necessary, the fact that data centers and technology continues to want power, capacity, solar, battery and even wind provide value for both on the energy side as well as the capacity side.

And so we just believe that it's going to be -- continue to be a good market for us. If you recall, we actually entered the renewable market higher to the IRA because we understand these dynamics very well, we understand those customers and we understand how to manage these things. I do believe that strength of being through this historically is going to be an advantage for us, and we can be helpful to our customers as they as well navigate through these dynamics. So just continued positive momentum is what we see.

Great. One follow-up here. Can you give us some more color on the core growth in Q2? And then share any expectations for inside electrical growth and the outlook there.

I mean I think the company itself organically is growing EPS very close to double digits. And on the top line, I would tell you, mid-single digits. And what the things that we're doing from supply chain and all the things that we're able to do is accomplishing -- you can't see the top line growth, but you can sure see it on the ROIC accretion and the EPS accretion. And so we're really looking at quality of earnings where we don't believe that the risk is there on earnings from a top line, we'll shrink it and figure out how to put it in the portfolio and expand it.

So those things are always something we're looking at, never happy with margins that are [ degradating ]. Where we continue to believe that we're getting better as a company overall, and you can see it in the margin profile and the quality of earnings. The top line will take care of itself. And so we're really focused on where it counts, and that's driving cash and EPS.

Your next question comes from the line of Jamie Cook with Truist Securities.

I'm so sorry. So 2 questions, Duke. I understand you have a lot of growth opportunities ahead of you and you're very bullish on the marketing, you can pivot to different directions. But are you doing -- I understand you're still bullish on renewables, are you doing anything internally to prepare for potential short-term slowdown in terms of allocating resources or people to other projects, maybe prioritizing transmission projects.

I'm just trying to think about what you can do to manage for any sort of short-term hiccup in this business. So I guess that's my first question. And then my second question, and if this was asked, for me to get -- I can read the transcript later. But my second question is just as it relates to dynamic, have you -- I assume revenue synergies aren't in your targets.

Can you talk to potential revenue synergies? And do you think this is a business that has an opportunity to improve margins relative to where it is today. And thank you again for bearing with me today.

Thanks, Jamie. I'll struggle with that mute button too. So I think we're not concerned what we see with renewables at this point. But our -- we've talked about one of the reasons we didn't separate wind and solar when we bought Blattners because we were fungible across wind and solar, those same people can build transmission substations, all kinds of different things on the front side of the business.

So we do move labor quite a bit across segments across TAMs. And I think it's really important to realize that it's fungible and we're able to move in these different markets. And even with Dynamic Systems, they can move across markets. If you go, well, what about health care?

What about farm? Yes, they're in it? Well, what about technology? Yes, they're in it.

What about power plants, yes, they can do that. So I think in general, we're able to move that craft across these markets, and it's what we've done. We didn't do this today. We've been doing this for the last decade, where we've derisked this company in a portfolio way.

So everything you're saying, we never intended to operate at 100%. We've always attended to operate at 80%. If we get to 90%, we'll blow the margins out the window. So 80% of our work is better than expected.

We do have a downturn. We do have inefficiencies we have this all the time. You've seen it in Canada. You've seen it across.

We're able to operate through that because of the portfolio and because of the derisked. So what you're saying is absolutely right. And when we hear a market, we've already moved past that. We've already thought about that.

When we were looking at acquiring these companies, we're not acquiring it because it's a data center boom. We're acquiring them because they're a great company that's long-standing well before data centers. And when you think about what dynamic does for us, yes, I mean, we're on the same job in the revenue opportunity is the 30%, 40% of the solution-based that comes with it. And when you start thinking about our Cupertino and Dynamic on the same projects, yes.

Are they talking to the same customer? Yes. And are we on the high voltage side? Yes.

So I mean, when you start to look at it and you have a large customer and they say, "Well, that's Quanta, well, that's Quanta." It's just something that I believe will separate us over time. I think our strategies are sound. Actually, I'm thinking about 2030 truthfully. And what we're doing in 2030, we'll let you know soon.

But I think that's where we're at. And I continue to really like the markets that we're in today, we'll continue to earn. We'll continue to work through this nicely. But we derisked the company with the portfolio, no question.

Your next question comes from the line of Brian Brophy with Stifel, Nicolaus.

Yes. Looks like you've made a couple of acquisitions in the civil space here recently. Obviously, that's a very fragmented industry and continues to be. Just curious how you're thinking about opportunity to continue to deploy capital here from an M&A perspective? And just thoughts around doing a larger platform-like acquisition in the space.

I mean, I would consider Dynamic a platform for us, and we'll continue to grow off of it, much like we've done with Cupertino and Blattner. So that, to me, is a platform acquisition that has exponential growth to it. The synergies we don't put in, we've not talked about it. I would tell you that the deal model on Cupertino, we've blown it away.

And we call it -- you can't see it because we won't talk about it as organic growth. But if you say organic growth is beating the deal model, we're killing it. So I think in general, we see the synergies. We see what we're doing there on these platform-type acquisitions and our ability to exponentially grow.

When we look at the civil piece of it, it's something that on every site we're in on all the things that we do internally that we're able to self-perform -- have self-perform capabilities, what we can do in the industrial space with our industrial business. It's something that was a great company, a great family company that the management team is fantastic and all the characteristics that we won and provides to the overall solution. So following the strategies, of the TAMs and really addressing what the customer is asking us to do with great companies that they're not we're not out looking, I'll say this again, they're coming inbound and we're really able to discuss the longer term if they fit, they fit.

And so we'll lean into them when it makes sense. I do want to clarify, when I'm talking organic growth, organic growth, when I'm saying that the organic growth is what we've stated in the past, but we don't get credit for the beating the DEAL model. So that was to clarify that. So I can keep accounting and legal off me that I want to clarify that we beat the DEAL model, and we don't get credit for that piece of the organic but I consider synergies that we don't talk about.

Your next question comes from Chad Dillard with Bernstein.

So I was hoping you could talk about the cross-sell opportunities with Dynamic. So how much customer overlap is there worth Cupertino is MEP usually an integrated service? And like what sort of white space do you see to actually make that so within your customers? And then lastly, are there programmatic contracts in the space?

Or is this like a potential expansion opportunity that you see ahead for Quanta?

Yes. I mean I think when you think about Dynamic and Cupertino and really data centers, Dynamic's business in the past about 30% was, call it, data centers, the rest 50% was technology or better. So we really got their in chips. I mean that's where they really started.

It was Texas Instruments years ago and following them across the country, they were a great supplier to Texas Instruments. And I think the chip -- clean room is very technical mechanical type, processing type business. That's what they're known for, the advanced process technology that they have upfront is superior. We really like that part of it.

So we're early, early in these projects. Cupertino is early in these projects. We don't -- they don't really look at it. They look at them independent.

The key to this is, can we provide the solution? Can we provide the high voltage? Are we providing the high voltage. I think are we providing the transformers?

Are we -- at the civil. What can we do to really expedite this to the client? And how does that look in the next 5 years? Who are they asking?

What we give them uncertainty and self-perform capabilities of 85%. The markets that show up with both Dynamic, you can cross-sell from Dynamic's customers back over into Cupertino, Quanta. I just think there's a lot of customer synergies here that we're not discussing. There's a lot of things that we can do with craft and cross-selling many, many things.

So we really like this acquisition and we really like the craft piece of it and the family that is there, they're top-notch, best-in-class and we're super excited about having them on board and what we can do with the company.

That's super helpful. And then secondly, how are your renewable customers navigating the safe harbor executive order? I know we're supposed to get some, I guess, some final clarity in later in August. Are they taking like a wait-and-see approach before taking FIDs.

Or are they like going to the ground like as soon as possible? And then also, like what sort of opportunity from an engineering or procurement standpoint, yes, does this Quanta have to help customers given the situation?

Look, I mean we can certainly help them with safe harboring and things of that nature and certainty to get the projects done in the time frame that's necessary. So yes, a lot of inbounds there, a lot of opportunity there and many, many things that we can do from the standpoint of helping them with the bill. It's noisy tariffs and everything is noisy. But we put our head down, we operate.

We really try to collaborate on that. And our job is to see the issues before they happen and help the client. I think our Transformer acquisition and what we're doing with poles now as part of that solution. Having certainty to these things in our cross-skilled labor and our completion, customers lean on us to finish.

And I really, really like where we sit it. We can cross different segments, bring different companies in for solutions and cross-sell that across our customer base. So yes, lots of inbound calls, lots of discussions there. I expect our backlog to continue to increase.

And I want to say, too, like you can have periods of backlog where you may sign large, large projects and on a CAGR basis, we continue to see upward movement. You could get some quarter-over-quarter fluctuate, so I don't expect it, but we could. But on a year basis, you're going to continue to see backlog rise, for sure. I just -- we see it coming in at this point.

Your next question comes from Justin Hauke with Robert W. Baird.

Great. Duke, I guess I just wanted to ask, I mean, you talked about the 85% of your work that's still that base business. But you do have these bigger jobs. You booked this, the Boardman-Hemingway job here.

You get a big one last quarter. Another one that's been out there is the Grain Belt Express. You didn't comment on it here, but I guess that's been press release that you and Kiewit picked up work there. And I guess I was just -- I guess the question is just thinking about the puts and takes on the start of those and the wind down with SunZia and status of kind of all those and anything we should think about from, I don't know, a start-up or shutdown noise thing between those as you navigate between those bigger jobs.

Yes. No, we're complete on the transmission line out in SunZia, and we haven't missed a beat yet and then continue to rise. Our transmission business is growing. We didn't talk about Grain Belt.

It's not backlog. It's a great project. All transmission at this point is NPV positive to North America and to the shareholders -- I mean, to stakeholders. So look, I think in general, a great project.

It's certainly facing some political ramifications there, and we're working with the client and be a great customer and great line. We'd love to build it. So we'll work together to try to get it across the finish line, and we really like the project. So I do believe at some point, it will get built.

But in general, we watch this and watch what we put in our backlog. And I think we want to be certain when it's in there, I don't like to pull things out of it, that's for sure. So it's part of our conservatism as a company that we really try to give you the stories and make sure that we're transparent on how we look at work. So that said, I think you're going to see compounding markets in large transmission that's just in the early stages.

Some of the things that we've done as a company to create markets, to create our markets with larger transmission. I like it. I like the acquisitions that we've made there to help us and front-end capabilities that we have as we collaborate with the client. You're going to see larger 765 builds across the country.

We're excited about it. We're excited where we sit in early stages, but as you start to see these things come along. And you're seeing the capital budgets of the clients, so we'll follow those capital budgets. And as they move forward, we'll move forward with them.

I appreciate that. And then just one more quick one maybe for Jayshree here on the free cash flow outlook is unchanged. Your adjusted EBITDA is a little bit higher. You still have, I guess, some bigger collections here in the second half on that. But can you just maybe talk about the dynamics of why the free cash flow outlook is unchanged with the higher EBITDA?

Yes. I mean we're pleased with what happened in the first half of free cash flow. Our operators are continuing to do a great job on DSOs and working capital. But as I mentioned before, we want to give ourselves the best possible outcome around our large Canadian receivable.

As you know, that's part of our -- it's within our range. We do believe that's going to be settled favorably this year. Timing of cash, though, can sometimes be a little hard to predict. So we want to give you guys a prudent range.

I think it's the right number where we are from $1.2 billion to $1.7 billion. Do I believe we can be at the high end of that? Yes, I do. We're seeing some things on the type of work mix as we move into the back half of the year.

That also gives us some confidence in that higher end. But right now, we think the right thing to do is stay where we are.

[Operator Instructions] Your next question comes from the line of Drew Chamberlain with JPMorgan.

Yes. Just one quick one for me and kind of following up on that last line of questioning there. How do you think about the balance sheet leverage exiting the year now with this deal being done? And then what type of flexibility does that give you for deals throughout the rest of the year? And maybe what cadence we can expect there? I'll leave it at that.

Yes. As we tend to want to stay between a leverage ratio profile of 1.5 to 2x, and you've seen us do that even after significant acquisitions where we can push up above 2x. But we buy companies that we believe will allow us to rapidly delever. And this one is no different.

We're right now a little bit above 2x. We ended the second quarter below 2. We're a little bit higher than that. But going towards the end of the year, we fully expect to be below 2x. You'll see -- I made the comment that we're evaluating various financing alternatives to continue to ensure that we have the most flexible balance sheet and give us the liquidity we need to ensure, we can invest in organic growth as well as if there are opportunities to deploy capital in various ways, we want to be able to do so.

So we're going to continue doing that. But you can expect that the types of companies we acquire, our capital allocation strategy, there no change going forward. We still want to remain prudent in our balance sheet. We want to stay within that 1.5 to 2x and do so in a way that continues to give great strategic value for our shareholders.

Just to comment, we intend to remain investment grade.

That's right.

Your next question comes from Sangita Jain with KeyBanc.

So one, I don't know if you guys quantified the backlog for Boardman to Hemingway, if you did, I apologize if you didn't, could you help us size that?

It's meaningful.

All right. That was quick. And another one, I would say, is on the safe harbor treasury guidance that is pending, how are you safeguarding Quanta's backlog in case that changes to, let's say, more than a 5% safe harbor rule or they pull that 4-year window to complete a project down to, let's say, 2 or 3 years?

I mean any of those would be better for us or as good for us. Look, we're not seeing that, but anything that makes things go faster, people want certainty. So I don't know what does it do for us? It just moves it forward. And we're not -- like I said, we're not seeing that right now. But if it happens, anything that people want to go faster and be more certain [indiscernible].

Or what are the project sequencing changes as a result of that?

It's not going to bother us. I feel like -- look, the way that we look at this, and I hear this a lot, we hear it in the Street a lot that the risk of Quantas they have too much work. We come at it from 20 different ways. If you go to another company, they come at it from one.

Would you rather derisk from 20 different avenues, 20 different sources of labor union, nonunion or would you rather go to one person. so I just feel like we have a different way to deliver on scale, and we're proud of it. We're proud of the men and women that build it every day. So we like our chances in all of it.

Your next question comes from the line of Liam Burke with B. Riley.

Yes. Duke, Bell Lumber, is that a platform you can grow organically? Or is that purchase just to serve your regional needs?

Look, I think it's a solution. It's 40% ownership in the business. And so I -- we really like the family, long-standing family in the business. The I know more about timber and pole solutions than I've ever known in my life.

And so I truly believe poles, wires, transformer are critical supply chain items as we look at this. And what they do for us with certainty, we're talking to the client about an overall solution long term. I think it's necessary for us as we move forward in our projects with the third largest -- fourth largest buyer of HV equipment. And our ability to -- I mean, the transformer capabilities, it's just a different discussion with the client when we had the asset and able to really sway where we can logistically source and how we source.

So I like it, it's a collaboration with the client. And what it does for us is certainly something that provides an overall solution to our supply chain initiatives.

Your next question comes from the line of Adam Thalhimer from Thompson, Davis & Co.

Duke, has the one big beautiful bill come up at all in conversations with your customers. Just curious if there are provisions in there that could cause them to go faster.

Yes. I mean we talk about it every day. So you can't ignore that. I mean I think it's part of the business and part of the discussions we have with them constantly about how do we get in front of it?

How do we help them politically, how do we get in front and provide the overall solution that matters. If you see tariffs and if you look at what we've done in supply chain, all the things that we've done in supply chain are U.S. based on purpose. Not because of the big beautiful bill because we thought we were going to move this way, like 10 years ago. So the things that we've done really separate us with the client and we can -- if we can help them, yes.

And it's early stages in this and what they see and how we deliver. But it doesn't go unnoticed at the client level. And those conversations to pull work in, to go long term in different areas to have sourcing capabilities is we're just scratching the surface. And what we're going to do for solutions over the next decade, we're in early stages of that.

It's certainly the difference -- I said it in the last call, and I'll say it again, 5 years ago, we were independent. We were a Cupertino and Blattner and Dynamic Systems, today where Quanta. And then Quanta provides a solution, and we're having the Quanta discussion constantly.

Your next question comes from Ameet Thakkar with BMO Capital Markets.

Just 2 quick ones for me. Well, just like the portion of your backlog from MSAs is down, I think, of $900 million kind of quarter-over-quarter, and it's now flattish versus the prior year. I was just wondering, do you -- does this reflect some of your kind of earlier comments on customers kind of more focused on longer-term solutions. And just I was wondering if you can give kind of us a bit of a sense or qualification on how much backlog will come from Dynamic when you guys update this next quarter?

Yes, I'm not concerned with the timing of MSAs. Maybe Jayshree, you can comment on, I didn't not even look at it. What it...

No, no. We're not at all. I mean these are just timing issues. And electric -- we continue to see growing backlog.

You see a little bit of pullback maybe on the underground. But again, we just think it's timing. And as for Dynamic, that's not in our backlog because we bought -- in the second quarter, we bought the company after the second quarter, but they came in with about $1.8 billion of backlog, and we'll update that in the third quarter as we work through it with them.

Yes. And that's a multiyear backlog to you there. They can see out '26, '27 and even into '28. So same scenario with them. So I think it's really important that the scale that they're having the same kind of conversations that we're having with the client.

This is not a small company with no scale, it has a lot of scalability to it. Operator Your next question comes from the line of Mike Dudas with Vertical Research Partners.

Given the news we saw on the 765 build-out expectations in Texas. Is that jarred some other RTOs in to kind of get moving forward. And are utilities continuing to underestimate transmission and the ability to have to solve a lot of their problems.

I mean, I think, yes, 765 is in MISO as well as PJM. I mean there are some lines in both. So I do believe 765 is going to be easier to build AC than trying to build DC these days. It's way easier to drop load in territories, states where state rights come in an RTO.

So I do believe you'll see more 765 due to load growth, lots of 500 out there as well. And then every -- it's probably a 10:1 when you build a big line, there's 10 more lines coming off of it. So I just -- we continue to see those inbound. You can see it outside the capital budgets of the utilities.

You can see it in the RTOs as well and lots of those projects are not in their budgeting. So it's prevalent. I do believe utilities are seeing it. We're certainly in the middle of it with them.

There's -- you can see debt offerings. You can see equity offerings. There's no question that it's on everybody's radar that the need for transmission and generation has never been more prevalent in this country.

Your next question comes from [ Chris Young ] with Wolfe Research.

Just wanted to just ask, I think you noted large multiyear build programs in the data center market that's expanding your addressable market. And I know it's an acquisition while accretive, do you view these sort of acquisitions like Dynamic as necessary to compete for that type of work? Or could you have addressed these opportunities organically?

Yes. Certainly, we can -- we've done things organically and do things organically all the time. I felt like as fast as this is moving the large market that we're in. And the things that we see, this was a market that we needed a platform company to exponentially grow.

It was the right way to pursue capital and grow it from a standpoint exponentially off a platform. So some things we'll look at platforms like telecom, we grew organically market, it's a different market. So some things -- we're always growing things organically as well. I don't want to -- there's things that we're doing that we're going to address different markets that you haven't seen yet organically.

That I really like that I think will show up. And there's things that we believe that you can build a platform off of with great craft-skilled labor. And this is something that we leaned into from a platform standpoint that provides a greater addressable market allows us to provide a solution. So we look at them all and we look at it differently, but it's all following the strategy and the best use of free cash flow for the shareholder.

Your next question comes from the line of Steven Fisher with UBS ask your questions

Just a follow-up actually on that last question. I mean you clearly made the case, Duke, for the solution angle on the Dynamic deal, and it sounds like it's blending with everything else, that's a 1 plus 1 equals 3. I'm just curious how you compare that with the electrical side of things and wondering as you make it a platform and build it out to something bigger over time. Can you get the same returns on mechanical that you can from electrical? And if not, is that sort of reflected in the upfront purchase price that you paid?

I mean we're always looking at returns. So your return on invested capital, your returns on the company are certainly every bit as good or better than our electric use of capital. I think when you look at these acquisitions, what goes unnoticed is our fabrication capabilities at Quanta are well above 3 million square feet. So you're also adding significant fabrication, which is an initiative of the company along with the mechanical processing and plumbing capabilities here, it goes unmatched.

So I like what we're doing. We'll speed to market is so important in their advanced front-end services on technical capabilities or as good as anyone I've seen and will help the whole company be much better. So we're definitely leaning into all the things that are great about these companies for a lot of different reasons. And it's not just what you see on paper is what you don't see that shows up 3 years from now or 4 or 5. So we certainly have strategies that we follow, and this is one of them that provides access to 3 or 4 markets as well as gives us more capabilities internally.

Your next question comes from the line of Spark Li with Jefferies.

Just quickly come back to the IRA driven renewable pull-forward dynamic here. So is there really opportunity to increase near-term targets just by pulling forward renewable projects?

Yes. I mean, look, LNTPs are coming in. We're not seeing -- we gave guidance for the rest of the year, '25, '26, '27, '28. It's too early to tell you what renewables are doing. '26, '27, I believe we have growth. I don't know how much anything I'd tell you to be a disservice at this point.

So I -- we see growth in renewables in '26, '27, '28 and beyond. As long as the power demand stays where it's at, it will be a part of the solution. Batteries are -- you go look at the Texas curves and how much batteries are helping out during these -- in the heat. It's something that, to me, goes unnoticed about how renewables play into this.

And I know the rhetoric, I understand it. But what it's doing for the grid and also the consumer, there's affordability issues that renewables absolutely help that. And you're going to build the line, you add batteries and solar on there. It's going to be better and you're going to get pull in, you're going to get stacking.

Canada looks good from a renewable standpoint. So lots of opportunities there. I would say you'll have growth in the company for the foreseeable future.

There are no questions at this time. I'd now like to turn the call back over to management for closing remarks.

Yes. Thank you. I do want to say a little bit about people in Texas on the floods. We had some heroic acts from our people here and save lives and the call -- like the one step of a call, they went out and save lives.

And the things that we do, the heroism of our people, the 64,000 people that are out there, men and women, they're incredible. They're incredible what they do from their heart and they're incredible what they do every day. So I would be remiss from not saying we stand behind the families who lost lives and what we did to help that, it's more than just an earnings call. It's something that I believe culturally we're there to help and guide and do some great things.

So real proud of our people and proud of what they did there. And I want to thank you for participating in our call. We appreciate the questions and ongoing interest in Quanta Services, and thank you. This concludes our call.