Greetings, and welcome to Quanta Services First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kipp Rupp, Vice President, Investor Relations.
Please go ahead, sir.
Great. Thank you, and welcome, everyone, to the Quanta Services Q1 2021 earnings conference call. This morning, we issued a press release announcing our Q1 results, which can be found in the Investor Relations section of our website at quantaservice.com, along with a summary of our 2021 outlook and commentary that we'll discuss that we will discuss this morning. Additionally, we will use a slide presentation this morning to accompany our Please remember that information reported on this call speaks only as of today, May 6, 2021, 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.
These include all statements reflecting Quanta's expectations, Intentions, assumptions or beliefs about future events or performance that do not solely relate to historical or current facts. Forward looking statements involve certain risks, uncertainties and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expressed or implied. For additional information concerning some of these risks, uncertainties and assumptions, Please refer to the cautionary language included in today's press release, along with the company's periodic reports and other documents filed with the Securities and Exchange Commission, which are available on Quanta's or the SEC's website. You should not place undue reliance on forward looking statements, Sequana does not undertake any obligation to update such statements and disclaims any written or oral statements made by a third party regarding the subject matter of this call. Please also note that we will present certain historical and forecasted non GAAP financial measures in today's call, including adjusted diluted EPS, backlog, EBITDA and free cash flow.
Reconciliations of these measures to their most directly comparable GAAP Financial measures are included in our earnings release. Lastly, if you would like to be notified when Quanta publishes news releases and other information, Please sign up for e mail alerts through the Investor Relations section of quantaservices.com. We also encourage investors and others interested in our company to follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would now like to turn the call over to Mr. Duke Austin, Quanta's President and CEO.
Steve? Thanks, Kit. Good morning, everyone, and welcome to
the Quanta Services' Q1 2021 earnings conference call. On the call today, I will provide operational and strategic commentary and will then turn the call over to Derek Jensen, Quanta's Chief Financial Officer, We will provide a review of our Q1 results and full year 2021 financial expectations. Following Derek's comments, we welcome your questions. This morning, we reported solid first quarter results with revenues of $2,700,000,000 in GAAP and adjusted diluted Earnings per share of $0.62 $0.83 respectively. Backlog at the end of the quarter was a record $15,800,000,000 which we believe reflects the continued advancement of our long term growth strategies.
We continue to see opportunities for multiyear growth Across our service lines driven by our solutions based approach and the growth of programmatic spending with existing and new customers. The recognition that the country's infrastructure needs to be modernized to support economic growth, improve safety And reliability and for a cleaner environment is evidenced by the Biden administration's recently proposed $2,000,000,000,000 infrastructure plan. The proposal will evolve and take time to move through the political process. But as proposed, the plan includes funding and policies to encourage new and broadband infrastructure expansion. While this infrastructure proposal could accelerate activity in these areas and provide incremental opportunity Quanta, over several years, I want to stress that our positive multiyear outlook and strategic plan are not reliant on this infrastructure proposal.
We have been collaborating with our customers for many years to Delivery and to integrate higher levels of renewable generation. Our Electric Power Solutions operations performed well during the quarter, reflecting fraud based business strength driven by ongoing grid modernization, system hardening, renewable energy interconnections and solid and safe execution. During the quarter, we signed a significant multiyear master services agreement with a utility in the Western United States, which made a substantial incremental contribution to our record Q1 backlog. We believe our record backlog in these initiatives will continue to drive multiyear growth Opportunities for Quanta. Though COVID-nineteen has created some near term challenges in Canada, we see opportunities to pursue Additional large projects there for the coming years.
Additionally, our discussions with high voltage electric transmission project sponsors in the United States have increased As the need for large scale electric transmission infrastructure to support growing renewable generation and achieve carbon neutrality goals become evident. Luma Energy and its employees as supported by Quanta and its joint venture partner ATCO are all working diligently towards Transitioning the operations and maintenance of the Puerto Rico electric power grid to Luma in early June. Luma's efforts Under the agreement are intended to deliver long term social and economic benefits to the people of Puerto Rico. As stated previously, we believe this opportunity is transformative for all the parties involved, including the people of Puerto Rico And the work to be performed by Luma under the 15 year contract aligns with Quanta's strategy of providing sophisticated and valuable solutions to the utility industry that benefits consumers. The majority of our communications operations are off to a solid start this year, driven by strong demand for fiber densification to reach homes and businesses and the early stages of 5 gs network deployments.
However, during the quarter, we experienced short term challenges largely associated with efficient subcontractor work in a specific geographic area, which required rework. We have addressed our quality assessment protocol shortcomings on this issue and are pursuing compensation from the subcontractor. This was an isolated issue and we believe we are on track to generate high single or double digit operating income margins for the remainder of this year. Additionally, we continue to believe we can achieve at least $1,000,000,000 in annual revenue with double digit operating income margins in the medium term. As service providers continue to push fiber closer to the customer, fiber backhaul densification continues, 5 gs wireless infrastructure development increases and meaningful federal funding is provided for broadband network expansion initiatives in underserved markets.
On prior calls, we have shared our belief that Quanta is uniquely positioned between the communications and utility industries to provide Solutions for broadband and 5 gs technology deployments, leveraging existing infrastructure. We have made significant progress Working with our customers and a broadband technology partner and during the Q1 made a minority financial investment in this partner, We also entered into a strategic alliance with them, where Quanta will serve as the program manager for large scale deployments of their fixed wireless Broadband Technology, which we utilize our customers' facilities where appropriate. We believe this relationship advances our solutions with Customers to accelerate and improve access to affordable and reliable broadband in rural and underserved markets. We believe our proactive strategy and the unique solutions Quanta provides the marketplace enhances our opportunity to expand Our Telecom Infrastructure Solutions with other utility and communication customers. Our Underground Utility and Infrastructure Solutions segment performed well in the quarter with better than expected profitability despite seasonality and continued challenges caused by COVID-nineteen.
We are confident in our full year expectations for the segment, driven by solid demand for our gas utility and pipeline integrity service. Additionally, there are encouraging signs supporting our expectations of improved demand for our industrial services beginning in the second half of this year. We believe deferred maintenance and capital spending due to the effects of COVID on the downstream market is creating pent up demand for our services, which should prove beneficial as market conditions normalize for our customers. However, we would like to see how the summer travel season develops, which could influence activity levels of our downstream customers before making adjustments to our full year expectations for this segment. The solutions Quanta provides support our customers' efforts to increase reliability, safety, efficiency and connectivity, all of which have favorable environmental and social impact.
Our end markets and multiyear visibility are solid, We have built a strong platform that positions us well to capitalize on favorable long term trends, particularly grid modernization and hardening. The transition toward a carbon neutral economy and the adoption of new technologies such as 5 gs, battery storage and hydrogen. Previously, we have discussed our strategic focus on enhancing our front end capabilities, such as engineering and permitting. To complement our world class construction expertise, our strategy is designed to provide differentiated, Comprehensive and industry leading solutions to our customers, which we have achieved through organic investment and select acquisitions. This strategy is contributing to our backlog growth, increasing our total addressable market and providing meaningful growth opportunities for the future.
In our earnings release this morning, we raised our 2021 guidance due to solid first quarter results and confidence in the business. We believe this demonstrates the strength and sustainability of our business and long term strategy, Favorable end market trends, our ability to safely execute and our strong competitive position in the marketplace. We continue to believe we are in a multiyear upcycle with continued opportunity for further record backlog and results in 2021. We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best in class build leadership. We will pursue opportunities to enhance Quanta's base business and leadership position in the industry and provide innovative solutions to our customers.
We believe Quanta's diversity, unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long term value for all our stakeholders. I will now turn the call over to Derek Jensen, our CFO, for his review of our Q1 results and 2021 expectations. Derek?
Thanks, Duke, and good morning, everyone. Today, we announced Q1 2021 revenues of $2,700,000,000 Net income attributable to common stock was $90,000,000 or $0.62 per diluted share and adjusted diluted earnings per share, a non GAAP measure, was $0.83 The Q1 was another strong quarter for Quanta led by continued strength from electric power and better than expected profitability from our underground utility and infrastructure segment. Our electric power revenues were $2,100,000,000 a record for the Q1 and a 17% increase when compared to the Q1 of 2020. This increase was driven by continued growth in base business activities as well as contributions from larger transmission projects underway in Canada and revenues from acquired businesses of approximately $70,000,000 Also, revenues associated with emergency restoration services attributable to Woodford storm response efforts were approximately $80,000,000 a first quarter record. Electric Segment margins in 1Q 'twenty one were 9.7% versus 7.3% in 1Q 'twenty.
The improved operating margins were driven by double digit performance from our electric operations within the segment, including the benefit associated with increased profit contributions from emergency restoration efforts, which typically present opportunities for higher margins in our normal base business activities due to higher utilization. Operating margins also benefited from approximately $5,000,000 of income associated with our Luma joint venture. Negatively impacting Q1 margins were recorded reserves for the identified issues Duke discussed, which when combined with normal seasonality, exacerbated by severe weather challenges from winter storm Yuri, created an operating loss within our U. S. Telecom operations for the quarter.
Again, we believe we have addressed the issues and expect margins atorneardouble digits going forward. Underground Utility and Infrastructure segment revenues were $643,000,000 for the quarter, 35 percent lower than 1Q 'twenty, due primarily due to reduced revenues from our industrial operations and a reduction in contributions from larger pipeline projects. Operations within this segment and last year's Q1 results has yet to be impacted by COVID-nineteen headwinds and in fact our industrial operations had record results in the period. In 1Q 'twenty one, the segment continues to be negatively impacted by COVID-nineteen with 1st quarter revenues from our Canadian operations and our industrial operations, both meaningfully below pre pandemic levels. Despite the COVID related headwinds, the segment delivered margins of 1.4% And although 170 basis points lower than 1Q 'twenty, primarily due to the reduced revenues, the results exceeded our original expectations for 1Q, led by execution across much of our base business activity, including our gas distribution and industrial services.
Our total backlog was a record $15,800,000,000 at the end of the Q1, with 12 month backlog of $8,900,000,000 representing solid increases when compared to year end as well as the Q1 of 2020. This marks the 3rd consecutive quarter where we posted record backlog, a trend driven primarily by continued growth in multiyear MSA programs with North American utilities, which we believe continues to validate the repeatable, sustainable nature of the largest portion of our revenues and earnings. For the Q1 of 2021, we generated free cash flow, a non GAAP measure, at $49,000,000 $115,000,000 lower than 1Q 'twenty. However, 1Q 'twenty included The collection of $82,000,000 of insurance proceeds associated with the settlement of 2 pipeline project claims. Days sales outstanding or DSO measured 89 days for the Q1, an increase of 4 days compared to the Q1 of 2020 and an increase of 6 days compared to December 31, 2020.
These increases are primarily due to the expected ramp in work on 2 larger electric The Canadian response to COVID has significantly hampered production for which we will seek recovery and delay this in meeting certain billing milestones. We had approximately $200,000,000 of cash at the end of the quarter With total liquidity of approximately $2,100,000,000 and a debt to EBITDA ratio as calculated under our credit agreement of approximately 1.3x. Integration activities associated with acquisitions Closed in the back half of twenty twenty are ongoing, and we closed another small acquisition during the Q1 of 2021. We continue to take an opportunistic view towards acquisitions and maintain the balance sheet strength to support strategic capital outlays in this area. Additionally, through the date of this earnings release, we acquired approximately $29,000,000 worth of stock as part of our repurchase program.
We remain committed to delivering shareholder value through prudent capital deployment. Turning to guidance. Based on the Electric segment's strong Q1 and continued confidence in our ability to execute on the opportunities across the segment, We've increased the low end of our full year expectations for segment revenues, resulting in a range between $8,400,000,000 $8,500,000,000 for 2021. Similarly, we are increasing the low end of our full year margin range for the segment with 2021 operating margins now expected to range between 10.2% 10.9 Regarding the Underground Utility and Infrastructure Solutions segment, while we had a nice start to the year, we are not And yet in a position to change our full year expectations. Accordingly, we are reiterating our original full year guidance for the segment, with revenues expected to range between $3,650,000,000 $3,850,000,000 and segment margins ranging between 5.5% 6%.
These segment operating ranges support our increased expectations for 2021 annual revenues of between $12,050,000,000 to $12,350,000,000 and adjusted EBITDA, a non GAAP measure, of between $1,100,000,000 $1,200,000,000 The midpoint of the range represents 10% growth compared to 2020's record adjusted EBITDA. In addition to these improved operating expectations, Our full year expectations for net income and adjusted net income, a non GAAP measure, are expected to benefit from a reduced annual tax rate driven by higher benefits realized in the Q1 associated with the fair value of vested stock compensation awards. We now expect our full year tax rate to range between 25 25.25 percent 25.75 percent. As a result, our increased expectation for full year diluted earnings per share attributable to common stock is now between $3.25 $3.69 and our increased expectation for adjusted diluted earnings per share attributable to common stock, A non GAAP measure is now between $4.12 $4.57 We are maintaining our free cash flow guidance for the year, Expecting it to range between $400,000,000 $600,000,000 and we'll reiterate that quarterly free cash flow is subject to sizable movements due to various customer and project dynamics that can occur in the normal course of operations.
For additional information, please refer to our outlook summary, are pleased with the start to the year and remain confident in the strength of our operations and prospects for profitable growth. As our backlog continues to grow and our visibility into duration of this infrastructure cycle continues to improve, we have increasing conviction in our ability to capitalize on the opportunities across our end markets. We firmly believe the repeatable nature of our base business solutions, coupled with opportunistic larger project deployments, disciplined and A. Operator?
Thank Our first question today is from Chad Dillard of Deutsche Bank. Please proceed with your question.
Hi. Good morning, guys. Just wanted to dig a little bit into the infrastructure plan. So beyond the headline Whether that could actually have an impact on the process of construction or even before that on the permitting side? And then secondly, The spill was also allocated a decent amount of money to water pipe infrastructure.
Is this an area of interest
The policy and the plan under administration, I do think it benefits us. As always, states have a lot of say in Right of ways and easements and permits. So I do think that will be a sticking point as we move forward. But even without the plan, I would say The sentiment around a carbon free environment neutrality is there. We continue to see larger projects that are moving forward.
So It's a robust environment in my mind with or without the federal funding. So while it's Good. I believe every bit of that would be incremental to anything we've commented on in the past. As far as water, we do some water now. Anything that involves craft skilled labor, we're right in there on it, looking at it.
We believe that's kind of our core to us is Our ability to perform that, so we do look at water quite a bit. I'm not signaling anything on that. I just we do look at it.
Got you. Okay. And just a question, I mean, I know that your utilities and underground guide was On the revenue side, it hasn't necessarily changed. But just curious about how you're thinking about the industrial business in particular. Can you talk about how it trended in 1Q versus your expectations?
And has there been any change in terms of how you're thinking about guidance for that business? Are you still expecting flat 4 this year?
When we look at the underground business, again, we look at these businesses as Folio, so I would just say the LDC business, the integrity business there is working out nicely. We like what we've said from a base business and repeatable sustainable model. But the industrial business was down as talked about through COVID. We do see signs of life there. We have a really nice model.
The things that we perform on the industrial sector are certainly necessary. There's signs of life there. As Derek commented, I think when we get to the Q2, we'll know a lot more about where the economy is going and what we think about the industrial side. In my mind, certainly opportunity on the backside of the year in 'twenty two looks really robust.
Okay. Thank you.
The next question is from Sean Eastman of KeyBanc Capital Markets. Please proceed with your question.
Hi, guys. Thanks for taking my questions. I just wanted to start on the underground segment. I mean, obviously, the margins There in the Q1 stood out. I was surprised you didn't call out the Texas Deep Freeze.
I would assume the Stronghold business would have You've been dislocated around that. And I was just wondering if we could flesh out Whether there was something else? We got
a lot of press and certainly loss of life and but really it was 3 or 4 days. And While it was an impact to the quarter, the industrial sector performed well. I mean, we did some emergency work, but Very little when we think about it. All in all, I just think it's performing better than we anticipated a bit. We do see signs of life in that business, but all in all, it's really the portfolio of the company that performed throughout.
Okay, got it. That's helpful. And I hate to do this guys, but just following this 1Q performance, I mean, $412,000,000 at the low end. I mean, what set of operating conditions put us there at this point? It just seems Hard to get down there and it would just be helpful to sort of frame that low end case at this point.
Yes. So Noah, as you can see, we raised the low end of the guidance here for the Q1 to some way to comment to We continue to think that there's strength in the business model itself. But we very regularly put through a range of guidance on an annual basis That considers a low end because the fact we work in a volatile workspace. Oftentimes, it comes down to the way that the weather patterns impact the year, most specifically in the Q4. The Q4 is where substantial types of inclement weather can come in and really impact the type of dynamic, Let alone the fact that through the year, we work in a range of circumstances creating volatility.
So we think it's always prudent to recognize those But what I would also say is we think we have a tendency to execute throughout, I think also as we've seen this do in the last few years. So as we stand here today, we think our business model is intact. We think we continue to do the margin improvements that we think are available to us. But it's just the right thing to do to recognize the volatility of what we're working.
Okay, terrific. Thanks for the time.
Thank you.
The next question is from Noelle Dilts of Stifel. Please proceed with your question.
Hi, guys. Good morning. So given the challenge that you're facing on the Telecom with the telecom subcontractor that you're working through. Could you kind of just remind us of your model there? I think at one point you were kind of 50% self perform, 50% subcontracting.
And could you touch on kind of where you'd like to see that go and how you're thinking about investing in training folks to work on the self perform side. Thanks.
Thanks, Noah. As we discussed earlier, we kind of threw out a $770,000,000 type Number on telecom as guidance and I think in my mind the opportunity is still there for us to perform at those levels. I wouldn't call it such as a problem other than we had some shallow ditch. We identified it. We're remining it through rework.
We'll Go after when I say go after, we'll work with the subcontractor to try to recoup that and go forward. That being said, We like the business. It is about a fifty-fifty model as we stand today. We continue to see broadband activity, book work, Like the business a lot and on our way to $1,000,000,000 in it organically for the most part. So I would just say, I think the company has done a real nice job.
It is Part of the electric segment, we probably wouldn't have talked about it, honestly, if it was just normal stuff. Since it was telecom, Derek and I thought it was a we talk about the good all the time. So we'll take our lumps and talk about the bad a little bit here and move forward. But in general, It just shows the strength of the quarter of the electric segment as well. And if you look at it and you add you do an add back, Call it $10,000,000 to $15,000,000 of impact on the telecom business, you can see the quarter would have been substantially higher in the electric segment.
Thanks. That all makes sense. And then second, just given what we're seeing with commodity price increases in steel and concerns about availability. What are you kind of watching around that dynamic? Are there any concerns about Some of the larger transmission poles getting to you on time, just kind of curious how you're thinking about the supply chain Challenges that are kind of dominating headlines right now.
Thanks.
Yes, I mean we're seeing some challenges in commodities not really impacting us at this We'll watch it fairly closely on the larger projects to make sure that our material comes in on We don't have commodity risk per se. So our jobs that they're impacted will work, collaborate with the customer on those impacts. But in general, We're able to work through most of those areas where we do have impacts. I would tell you like in my mind Canada is probably One of the ones that have impacted the most and I don't think it's really material per se, it's just how it's delivered. And For the most part, that's been more of a COVID issue than material in my mind, but not no really commodity impact at this point.
Okay, great. Thank you.
The next question is from Michael Dudas of Vertical Research. Please proceed with your question.
Good morning, gentlemen.
Good morning, Matt. Good
morning. You called out an MSA that you Signed earlier this year. And how are the when you think about your MSAs with these customers, There are typically there are several a year, are they long term with annual kind of budget requirements? Are there any margin or utilization benefits from those types that type of agreement and the work that you flow through relative to 1 or 2 off type opportunities that arise from maybe that same or other customer base?
Mike, we really don't call them out that much. The reason why we called out the West is fairly incremental. And one of the things that we continue to talk about is kind of that hasn't Started really ramping yet. We were primarily signaling that ramp By calling it out and the incremental backlog growth on this MSA, typically when we think about it, the 85% to 90% of the It's kind of base business is MSA type business and in my mind, so that's how we Look at it. We book MSAs and re up them probably monthly in my mind.
So there's no real systematic way. I do think our backlog will continue to grow to record levels. We will have MSAs that renew that are larger. We continue to see a robust Environment, even when we have an MSA, the growth on the MSA is there as well. We take a pretty prudent look at it to make sure that From our standpoint, the next 12 months and beyond are what the backlog would interpret.
So In my mind, we're doing a good job with that and our customer base certainly is spending the capital. The macro market is there From our end, so we see those MSAs just grow.
Appreciate that. And my follow-up, Duke, you mentioned again in your prepared remarks partnership with broadband opportunity. Is when we see the from the administration and the infrastructure plan and money they want to spend on broadband technically, Is the private sector doing enough to make this happen? Are these funds are these 2, 3, 4 year out type opportunities? It Sounds that way, but I just want to get a sense of you from that point.
And what made this unique partnership to call out for that you entered into This company and are others like that going to help the growth in getting to that $1,000,000,000 target that you've put out in the medium term?
Mike, we've talked a bunch about how the infrastructure on the utilities And broadband are converging. I think when we looked at it, we continue to look at the rule in the underserved markets that were out there and for the last 2 years have really tried to find the solution with our customer and a collaborative effort to utilize that infrastructure. We found technology in a company that had the capabilities to do that, work with clients. I do think it's broad based Small cell type deployment that you'll see ongoing when we have a programmatic way to do that On this, we'll have a programmatic way to do it with every one of our customers. And it's really beneficial for us to be on the front side of this, Providing the solution, pushing the Rural Development Opportunity Fund forward and not just waiting for something to come to us.
We're actually out Making sure this happens in front of it, not just waiting on an RFP or get commoditized with labor. I think that's part of what We're saying as a solution based provider is we're out in front of that with technology.
Excellent. Thanks, Duke.
The
next question is from Brent Thielman of D. A. Davidson. Please proceed with your question.
Hey, great. Thank you. Hey, Duke, any color on some of the larger project pursuits in the Electrical Power business in 'twenty one that you're seeing And maybe how that could potentially influence the segment through the year. I think the guidance for the business is sort of more reflective of the programmatic spending you see with the customers. I'm wondering if there are some other larger projects that can potentially layer on here this year?
I could name them for 5 minutes, but it doesn't It's not. What I'm concerned about is just in general, we start talking about it. In my mind, we got a long way Going to some permitting, it's a robust environment out there around every one of them, every one you can name, I could name them for days. There's a bunch of nice projects moving the renewables and the interconnections, almost every RTO Regional plan has a large piece of work in it, not only 1, probably 2 or 3. In order to get to With the plan and the carbon free footprint, you need a significant amount of transmission.
And in order to do that, we need big projects. And Certainly, they're tough on the permitting side. The administration said that they're going to help that. There are some that are ongoing that are closer than others. I believe Mid America and some of that on the Buffett call was he talked about So there's a bunch of projects that are out there that were around the edges on.
Okay. Appreciate that. And I guess another question I have is just, are you seeing anything that suggests your customers are shifting some capital plans From the gas portion of the business toward the electrical portion of the business, I just wonder if these commitments and sort of profound interest in grid reliability Are stealing any thunder from the gas programs that drive the underground segment?
No, I mean I would say we're seeing our pipeline customers try to build solar or build solar. We're seeing quite a bit of that happen per se. We're not the LDC business, It's a safety concern as well as reliability of just what you have on any given day. I mean, you can see the freeze. We had In Texas, you saw actually pipe freeze, which caused problems on your plant.
So I think all that integrity that needs to be done is a safety concern As well as a balance until we figure out carbon free and you can't do that without significant amount of transmission. So the company sits in a really nice
The next question is from Steven Fisher of UBS. Please proceed with your question.
Thanks. Good morning. I just wanted to come back to the telecom business and the challenge in the quarter. And if you could just Sort of talk a little bit more broadly about why you do need to go the route of subcontract models in the first place Because it seems like that is perhaps bringing in an element of additional execution risk here. And then the bigger picture, Guess I'm seeing is that you have a great market opportunity across your businesses at the moment.
And I guess I'm just wondering What you might be able to do to enhance your potential to execute smoothly and capture that upside market opportunity without some sort of the risks of the hiccups here?
Yes, Steve, I think when you look at the business, our performance From a margin standpoint in the segment, we beat our expectations. I think we've raised the guidance on the year. We continue to do it. We look at it as a Folio, we're getting operating leverage out of all of our offices whether they're doing telecom, gas or electric. We're reporting in segments.
We may run the offices a little different than that. Overall, the performance of the company is exceptional in the field. The model around telecom, it was an organic growth strategy around it. It does have probably 50% of subcontract. It's due to the fact that it ramps up and down and we're not going to invest in something that just Ramps like that because it continues to weigh on it.
We want some balance in it and the balance allows us to have some variable cost in our equipment and things of that nature. Our returns are better that way in my mind. So that's the way we run the telecom business and that's How we'll go forward with it. That being said, we did have the amount QAQC issue in the quarter. We'll do a better job of catching that Next time or now for that matter and try to call back all we can.
But all in all, I mean, we're performing really well across the board in my mind.
Okay. That's very helpful. And I just want to ask you about Puerto Rico. It sounds like you're working Towards a timely transition there, but in the event that there is some delay, can you just talk about what the possible implications might be For the rest of the year, I think there's some implications for some incentive potential, but you may not have expected any incentives this quickly anyway and maybe when we should think about the real opportunities, when the real opportunities for incentives on that contract might be? Thank you.
Yes, I don't think we anticipated that this year. It will be in the next year for the incentive based piece of it, but we do anticipate going into And the service here in June, the transformation will happen, we'll take over in June. So from that standpoint, that'll move on. As far as work coming through the FEMA funds, that'll be into next year in my mind before you see any of it. And that's also an opportunity next year in Puerto Rico.
But all in all, it's moving along Like it should and I'm more pleased with where we sit.
We had commented previously that we thought that Post transition, we would see on an annual basis a run rate contribution of around $0.25 that is excluding inflation adjustments, Excluding all incentives and excluding any incremental construction opportunities. So all of those things would stay at the upside opportunities for us.
Terrific. Thanks.
Thanks, Steve.
The next question is from Adam Thalhimer of Thompson Davis. Please proceed with your question.
Hey, good morning guys. Nice quarter. I wanted to start on the energy side. Curious, Duke, if you've seen any pickup Just from the rise in oil prices, particularly around pipelines?
I would not say pipelines. We've seen much there. Just our industrial business stated there's tons of life there. I think It will get better. We've not seen pipeline movement.
Our Canadian operations, we see some long term Pipe, but not really in the Lower forty eight in my mind. It's pretty slow as far as I'm concerned, and I think we've transferred the business over to a more repetitive Sustainable business anyway. So nothing that affects us in my mind.
Okay. And on the you talked about a fixed Wireless award, can you give a little bit more detail on that? I was curious if that was like a Tier 1 telco or Kind of an emerging player, some detail on that would be helpful. Thanks.
Yes. So we made an investment in the quarter in some technology and A service provider there on fixed wireless, it's to really look at the R and D funds, the rural development funds as well as the underserved, so not a Tier 1 But certainly someone that would put it out across the Lower forty eight and beyond from that line in a programmatic Way. So we have the ability to do that. As the Tier 1s move forward, we'll have the ability to also do that in a programmatic way. Really, I think it's the convergence of the electric such as your cooperatives, your municipalities And the way to solve these issues around broadband, and it makes a lot of sense.
We've worked on it quite a bit, And this was our opportunity really to push it forward.
Maybe something we'll hear more about in the coming quarters. Thanks.
The next question is from Andy Kaplowitz of Citigroup. Please proceed with your question.
Hey, good morning, guys. Duke, so we know signing longer term electric power MSAs is one of your main strategies, but The electric power MSA is being up over 40% over the last year, give you more confidence regarding Quanta's ability to grow Core business, maybe even toward the middle to higher end of the longer term guide you have, we know you talk about mid single digits to low teens. I mean, do you start getting visibility even into 2022 in that regard?
I think we've talked about multi year type growth kind of mid to upper single digits on the 80 90% 80% of the business, I would say at this point, at least we've talked about that growth long term, 3 to 5 years at least. And so We continue to see that. We've stated that quite a bit and we think the MSA, the backlog that you're seeing, That grows there for a long period of time.
I guess, Duke, what I'm asking there though is that does it give you confidence in sort of Because it's a pretty wide range, right, between mid single digits and low teens. So I mean, given sort of the visibility you have, do you see actually Higher growth rate going forward. I know what the guidance is for this year, but just out of curiosity.
I mean if you go back in time and you look at how we've grown the segment, We've grown the electric segment double digits over the past 10 years on a CAGR basis. So I would tell you that That's what we've done in the past. It's bigger numbers. We're being prudent about how we talk about it. Do we have the ability to grow into double digits?
Yes.
And then let me ask you about someone I think asked you about large projects. So let me tackle maybe slightly different way. Again, you've talked in the past about this sort of $3,000,000,000 number and saying last quarter that you had quite a bit more than that in sort of opportunities. Is the funnel a lot larger than that, double that now? Like any sort of thoughts about quantifying the funnel now?
Is it $5,000,000,000 $6,000,000,000 just for perspective, Duke?
If we talked about all the jobs that were out there, There's not enough material to talk about it to begin with. So I think in our mind we're being prudent about how we discuss it. The larger projects Are growing especially with the sentiment around bringing renewables in a carbon free environment by 2,030, 2,050 even. So the transmission corridors will have to exponentially get larger than they are now in Significant way. In order for that to happen, you're going to need large project dynamics for the next Decade.
I just want to follow-up on one other thing that you talked about with the Luma. Luma's CEO recently talked about $10,000,000,000 in federal recovery funds now flowing in Puerto Rico. Do you think those funds just don't make their way into projects till next year as you said or is it possible that can
And you have about $1,000,000,000 budget down there, dollars 600,000,000 of a $1,000,000,000 budget down there a year on any given day. So there is Projects down on the island, what I would say is the FEMA funds are on top of that that would come in. I would be prudent to say it would be next year.
Great. Thanks, Steve.
The next question is from Chiyusa Kapuko of Credit Suisse.
Hi, this is Chigusa Katoku on for Jamie Cook. So our first question is we were wondering if you have any on securing labor this cycle, just given the current labor market and the robust outlook. And then if you could comment on what you're seeing in the pricing environment,
Thank you for the question. From a labor standpoint, tight labor market really suits us well. That's who we are. We really work on labor, have invested well over $100,000,000 over the last 6 to 7 years. So anytime you have a tight labor market, craft skilled labor market, Quanta does really well.
So we're in a good position there. We pretty much regulate some of The way that we look at wages, we have ability to pass through those costs if they escalate. So we're in good shape. As far as pricing power, I mean, I would just say in general, we'll stand by what we said in the past, The double digit margins over time, at times, it will go higher and we're in good times now, so you're seeing some push on that, Primarily around utilizations and things of that nature that is pushing up your margins more so than pricing power.
Thank you.
The next question is from Min Cho of FBR Riley. Please proceed with your question.
Hi, great. This is Min Cho for Alex Rygiel of B. Riley Securities. Just one question really, Derek. Given Your continuation of strong cash flow and liquidity, just want to know if there was any shift and change to your capital allocation strategy And want to know if there were any more kind of opportunistic M and A opportunities that you're seeing in the current market?
Thank you.
No, I'd say that we're still committed to the same allocation strategy really that we've held for a number of years. We look at 1st leaning into the growth of the business on the Working capital and CapEx front, very much still yet look at the acquisition and investment side of the equation, partly as an example I've highlighted through Duke's comments Here for the minority interest position here this quarter and then as well with the buyback of stock and dividends. We still look at all of those, we like to have our balance sheet positioned well to be able to lean into all of those areas at any given time, not having to choose which one creates the most value at a I would say that acquisitions has historically been kind of the largest component of recent years And we still see an active market there, ability to find good acquisitions. It will be sporadic because we're opportunistic with the deployment of capital there, Looking for strong management teams to supplement who we are. You can see over the last 4 or 5 years, we've probably averaged about $300,000,000 On average, deployment there, and I wouldn't take exception to that kind of view as we go forward.
There are no additional questions at this time. I would like to turn the call back to management for closing remarks.
Yes. I just want to thank everyone, our field leadership team and men and women working in the field through the pandemic, through all the things that We've done well. We performed well safely and it's to their credit. So I want to thank you for participating in the conference call. We appreciate your questions and ongoing interest in Quanta Services.
Thank you. This concludes our call.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.