Good morning, and welcome to the Quanta Services third quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow management's prepared remarks, and we ask that you please hold all questions until that time. I will then provide instructions for the question and answer session. As a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Kip Rupp, Vice President, Investor Relations, for introductory remarks.
Thank you, and welcome everyone to the Quanta Services third quarter 2026 earnings conference call. This morning we issued a press release announcing our third quarter 2026 results, which can be found in the Investor Relations section of our website at quantaservices.com. This morning we also posted our third quarter 2026 operational and financial commentary, and our 2026 outlook expectation summary on Quanta's Investor Relations website. While management will make brief introductory remarks during this morning's call, the operational and financial commentary is intended to largely replace management's prepared remarks, allowing additional time for questions from the institutional investment community. Please remember the information reported on this call speaks only as of today, October 29, 2026, and therefore, you're advised that any time-sensitive information may no longer be accurate as of any replay of this call.
This call will include forward-looking statements intended to qualify under the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995, including statements reflecting expectations, intentions, assumptions, or beliefs about future events or financial performance. You should not place undue reliance on these statements as they involve certain risks, uncertainties, and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expressed or implied. We will also present certain historical and forecasted non-GAAP financial measures. Reconciliations of these financial measures to their most directly comparable GAAP financial measures are included in our earnings release and operational 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 email alerts through the Investor Relations section of quantaservices.com to receive notifications of news releases and other information, and follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I will now turn the call over to Mr. Duke Austin, Quanta's President and CEO. Duke?
Thanks, Kip. Good morning, everyone, and welcome to Quanta Services third quarter 2026 earnings conference call. I want to begin by thanking our approximately 95,000 employees. Their commitment to safety, to our culture of absolute performance, and to the certainty we deliver for our customers makes everything we will discuss this morning possible. This morning, we reported third quarter results that meaningfully exceeded expectations, with robust double-digit growth in revenues, adjusted EBITDA, and adjusted EPS, healthy cash flow, and record backlog of $64 billion. These results reflect broad-based strength across our segments, service lines, and end markets, and also the successful multiyear strategy we are executing and the investments we have made in it. Given this outperformance and the expected incremental strength in the fourth quarter, we are significantly increasing our full year 2026 financial expectations across all metrics.
This quarter, again, demonstrated the ability for our operating model to deliver with certainty at scale. The breadth of our portfolio, combined with the fungibility of our skilled workforce across multiple end markets, provides a significant competitive advantage. This flexibility allows us to strategically deploy resources where demand is strongest, mitigate exposure to individual market cycles, and deliver more consistent, predictable outcomes for our customers and stockholders. Quanta is embedded in the long-term planning of our industry-leading customers across the utility, power generation, and large load markets, and inbound demand is accelerating. We stay in front of our markets by remaining deeply customer-focused.
Our customers want a partner that can plan with them for years in advance, align craft labor and supply chain solutions to their capital programs, and bring certainty to their projects and programs at a reasonable cost and in a way that delivers lasting economic benefits to the communities where these projects are built. Our reputation for delivering and our ability to mobilize people and supply chain quickly is driving the demand for our solutions. That reputation was built in our utility business, which remains the foundation of Quanta. Utilities are being asked to double in size over time, and we believe the need to significantly expand and enhance the power grid for reliability, resiliency, and load growth is visible and necessary.
We expect additional opportunities, including high voltage transmission, power generation, large load and technology to stack on top of what we view as long duration compounding utility base, where we continue to extend our leadership position. These opportunities extend our visibility well beyond 2030. We see large transmission programs across the country making positive progress, from permitting and approvals to planning and engineering, and moving closer to contract execution and backlog. Power generation opportunities are also active and in various stages. We are encouraged by the stacking opportunity we see across our diverse markets building over the coming years. Technology is moving as fast as it can. Utilities are working to protect stakeholders, and Quanta sits at the nexus of facilitating both. The proven success of our operating model on the utility side of the business is also why technology and large load customers are embracing it.
The collaborative solution-based approach we have built over decades serving utilities is exactly what we bring to those customers. As evidenced by our results this year, the demand for our solution is significant and growing. In this market environment, our scope and scale, the fungibility of our resources, and the solutions they enable are valuable. Committing our resources to the best overall opportunities has never been more important. We prioritize high quality, well-capitalized, industry-leading customers that value our collaborative long-term approach and have multi-year infrastructure programs. We believe the power of our portfolio is that it does not overly rely on the pace of a single market. It builds on broad, diverse, and resilient base and is supported by increasingly flexible craft workforce. Our self-perform model is designed to deliver on time and on budget at scale. None of this is possible without our craft labor.
You cannot buy craft, you have to build it. We are investing in curriculum and innovative training programs across our operations and creating industry leading training environments, which allows us to attract and retain talent. We are growing our foreman and superintendent leadership, which we believe has a multiplier effect on our ability to enhance our craft and self-perform capabilities. Craft builds craft. We have invested heavily in our workforce for more than a decade. With a decade of strong double-digit compound earnings growth, the results speak for themselves. We are also investing in the expansion of our integrated fabrication solutions, which we believe is a workforce multiplier that increases speed and efficiency, quality, and schedule certainty. We apply the same absolute performance mindset to our capital deployment decisions. Each high-quality company that has joined Quanta is a relationship often cultivated over many years.
We are patient in buying great companies, and we are disciplined around our strategy, with culture and fit a primary criteria. Our recently completed acquisitions are great companies that strengthen our fabrication, engineering, and supply chain capabilities and extend our ability to deliver integrated solutions for customers, and we welcome them to the Quanta family. We are proud of the exceptional results our teams have delivered this year, and the larger programs across the utility, generation, and technology and load center markets are still in front of us. We are pacing ahead of the multi-year growth targets outlined at our 2026 Investor Day, and our conviction in Quanta's ability to compound profitable growth over the longer term continues to strengthen. We see the opportunity to deliver strong double-digit adjusted EPS growth again in 2027, supported by our record backlog and growing workforce.
We remain focused on executing our customer success, deploying capital with discipline, and compounding earnings and stockholder value over the longer term. I will now turn the call over to Jayshree Desai, Quanta's CFO, to provide a few remarks about our results and 2026 guidance, and then we will take your question. Jayshree?
Thanks, Duke, and good morning, everyone. The third quarter was an excellent one with record results across the board. Revenue was $12 billion, up 57% from $7.6 billion a year ago. Adjusted EBITDA was $1.4 billion, up 69% from the third quarter of last year. Our adjusted EBITDA margin expanded to 12.1%. Adjusted diluted earnings per share was $6.06, up 82% from $3.33 last year, and GAAP diluted earnings per share was $4.55, more than double last year's $2.24. Third quarter operating cash flow was $1.5 billion, and free cash flow was $1.2 billion, both quarterly records. Turning to 2026 guidance, we now expect revenue to range between $41.3 billion and $41.6 billion, up approximately $1.9 billion at the midpoint from our prior outlook.
We expect adjusted EBITDA to range between $4.4 billion and $4.49 billion, an implied margin profile of 10.7% at the midpoint, and adjusted EPS to range between $17.90 and $18.30. Regarding cash flow, after a historically strong first nine months of the year, we now expect free cash flow to range between $2.5 billion- $3 billion, which would represent another annual record and reflect greater than 60% conversion of adjusted EBITDA at the midpoint. During the quarter, we used our operating and financial strength to bolster our liquidity and financial flexibility, positioning Quanta to continue deploying capital in support of our growth strategies. In July, we upsized our revolving credit facility commitments to $2.98 billion and extended its maturity to July 2031. In August, we issued $2 billion of senior notes, and in September we prepaid the remaining outstanding balance on our term loan.
We ended the quarter with $2.3 billion of cash and had only $20 million drawn on our revolver. Total liquidity was $5.2 billion, and our bank-defined leverage ratio was approximately 1.3 x, affording us ample capacity to support our strategic initiatives. Regarding acquisitions, we continued to deploy capital with discipline. Subsequent to our second quarter earnings release, we completed two acquisitions for approximately $245 million of consideration, net of cash acquired. As Duke mentioned, these companies bring leadership and management talent, and strengthen our front-end engineering fabrication and supply chain capabilities, enhancing our ability to self-perform more scope and deliver cost and schedule certainty for our customers. We believe our strategy is materializing into improved forward visibility. As of September 30th, we had record backlog of approximately $64 billion, a $10 billion sequential increase from June 30th, with backlog growth across each of our key markets.
To close, we delivered a record quarter, significantly raised our full-year expectations, and strengthened our balance sheet, all of which position us well to continue investing our resources from a position of strength. As Duke mentioned, our conviction in our ability to compound profitable growth over the long term continues to strengthen. Additional detail and commentary on our 2026 financial guidance can be found in our operational and financial commentary and outlook expectation summary, both available on our investor relations website. With that, we're happy to take your questions. Operator?
Thank you. We will now move on to the question-and-answer session. For today's session, we will be utilizing the raise hand feature via the webinar. If you would like to ask a question, simply click on the raise hand button on the bottom of your screen. If you have dialed in, please press star nine to raise your hand and star six to unmute. Once you have been called on, please unmute yourself and begin to ask your question. Again, that is star nine to raise hand and star six to unmute if you have dialed in. We ask all participants limit themselves to one question and one follow-up. If you have additional questions, you may re-queue and those questions will be addressed, time permitting. Thank you, and we will now pause a moment to assemble the queue. Our first question will come from Ameet Thakkar with BMO Capital Markets.
Please unmute your line and ask your question.
Hi. Good morning. Thanks, and congratulations, and thanks for the update. Your electric continues to run well above your long-term growth framework. Given what you are seeing in utility generation and large load center demand, what are the biggest constraints to sustaining this level of growth in 2027? Is it customer spending, labor, or simply ability to execute? Then just on margins, how much of the strength reflects favorable project execution versus a mix or something more structural that we should think about as being sustainable? Thanks, guys.
I think the margin question, we had a great quarter. It is the third quarter. We have got some leverage as well. I do think that when you are thinking through it, if you think about the employee count, how much growth we had, organically, you are growing 7,000 employees, 6,000 employees on both the previous quarter and this quarter, and then 25,000, 26,000 this year. It gives you some leverage with our training, and that is showing up. We have always said, look, we are pressing margins because of the training, but if we are getting that kind of leverage out of it, which I think is great, it is something that is certainly helping the margin profile of the company. Look, we can operate the utility business 10-12. We have said that all along. We are getting some leverage out of MEP in the business.
You are able to do some offsite manufacturing, do a lot of different things to increase efficiency in the field. We are super happy with what we are doing and where it is going. Has it fundamentally changed? It has moved up. The UI is still down. I do think we can do much better there, that we can get into double digits. The profiles and things of that nature, as old work burns off and we start to get into the newer business there, that should move up.
Look, I like where we are going. I do think we can increase some margins, but it is not a margin story. I go back and say we are going to compound the margin profile we have talked about. The utility business is still, call it, $20 billion or so of the electric segment. That is in the 10-12s, call it 11.
You have the other businesses that we are getting efficiencies out of. I would turn to the ROIC, though, and look at that growth. To me, we watch that a lot, what we are doing with return on invested capital, and Jayshree can go through the numbers on that at some point, but I do think that is what is driving that. As far as the growth and what is inhibiting the growth, I think the markets are there.
We cannot be everything for everybody. We continue to think that both the TAMs, what gives me a lot of what I would consider optimism of the growth and us keeping that up is that we have done it for 12 years, well plus 20% growth. I would not bet against us on growth. Yes, big numbers, but it has been big numbers my career, so we are just going to continue to compound those.
When you think about the two TAMs, our utility business in the past, if you go back five years, we could not take advantage of the generation, the fossil generation, even the renewable generation. That was not us. We were in T&D. Now we have that whole addressable market, and I think it is a big deal, and it goes unnoticed, of how much TAM we have in the utility business. If you look at that TAM, it is there, and then you roll it over into what we are doing very early in our technology business. The five largest technology companies will spend three times the capital budget of the utility side. We can perform vast majority of that capital other than chips. So, I like our chances to grow. We talked about, it is not just next year. We gave five year guidance, and we said 10-15.
If we can compound it would be 20 +. We had a hell of a year. We are setting up. I am looking at 2028, 2029. I think we got growth out there as well. We are not going to give guidance today, but I feel highly comfortable with the 15-20%, and we will compound that as well. But it is super early. I got five months. I am going to take my time.
Our next question will come from Justin Hauke with Baird. Please unmute your line and ask your question.
It's with Baird, but that's okay. So obviously really strong quarter here. I think the thing that stands out the most is the sequential backlog gain. There was a tiny bit of the contribution from the M&A, and you talked about the NiSource scope. It looks like there was a lot more beyond that, and there wasn't anything specifically quantified as a large project win. Just curious if there was anything chunky, any of the 765 lines you've talked about. I know there was some questions on some hearings, on some of those in Texas that seemed like they went favorable. Anything you can comment on the contribution makeup of the backlog. Thank you.
No, look, it was broad-based backlog growth. Our renewable business is fantastic. It went all the way across the segments. We did book the one NiSource, but that's a program. If you can listen to their capital and what they're doing, it's a larger program. I expect us to book more there against that. It was both T&D and the power plant that we had discussed. I really like what we're doing with the largest customers in the industry. We're standing behind them. They want to build fossil, we'll go build fossil. We're super happy to do it. We believe we have a good model to do that and de-risk the end customer as well as us. I think that's key for us in that business. When we look at just straight up T, our distribution business is growing nicely. Transmission business is growing nicely.
Nothing really pulled in. We haven't started really the 765 build. It's much bigger than Texas. You have the Ohio work. You have MISO work. There's a lot of work out there that is not in backlog yet. In many ways, it's just getting started. We say it all the time, but I'm not seeing big projects. That's not what's making up the company today. It's a heck of a growth underneath it without the stacking of those in here yet. I believe in the future, you'll start to see the generation business come into the business as well as the large transmission, which is not in there today. But we talked about growth, that's growth, that's stacking growth that we'll see in the outward years. Super happy where we sit. We think that we've done a real good job.
I think the business 10 years ago, five years ago was very transactional, and today I think it's more transformational. We're running a transformational business that compounds earnings over time, and that backlog is broad-based.
If I could just squeeze one more in for Jayshree, just on the cash flow. It looks like there was a decent amount of prepayments in the contract liabilities. Is that favorable terms on the contracts, or is that really a function maybe of some of the prepayments on some of the modular and the capital investments you've made on the supply chain? I'm just curious the contribution of that in the working capital.
Yeah, thanks, Justin. No, as you can see, our working capital is continuing to improve. That is more of a function of the contract terms we're getting on a significant part of our revenue, especially from our MEP, our EPC business, as well as our renewable business. All of those are contributing to that favorable working capital profile you're seeing. Our DSOs continue to improve. So we're pleased at where our free cash flow is coming in. That's why we raised it for the year. There are some things we're doing around our supply chain as well as Duke mentioned in his prepared remarks, around the expansion around our OSM facilities that actually are a use of cash. So I would just say in general, what we told you in March continues to be the right way to think about our cash flow profile around 55-60.
This year, we look to be at the high end of that, actually higher than that. Our expectation going forward will depend very much on the mix of work around those factors I talked about. But 55-60 is still the right way to think about it, Justin.
Our next question will come from Julien Dumoulin-Smith with Jefferies. Please unmute your line and ask your question.
Hey, good morning, team. Nicely done. I got to hand it to you guys. Seriously. Wanted to come back to a couple of things you said. First off, you said inbound interest is accelerating, I think to quote you from the transcript. Yet at the same time, Duke, you've put up two quarters in a row. Well, several quarters in a row, but more to the point, just really exceptional quarters. Is it conceivable that you accelerate on the cadence of backlog additions, if I'm hearing you right? Then related to another point you made earlier here on ROIC, how do you think about the scope of possible here, economic ROIC here? You've been putting up a point or so every year or maybe even more than that of late.
Trajectory-wise, you think that's the right cadence here through the forecast in as much as you say you're focused on that ROIC metric? Just how do you think about what that trajectory could look like if not margin expansion? Just use your economic term you're focused on.
Look at better terms on our contracts. I do think we're generating free cash at a faster pace. Jayshree is probably unwilling to go there and guidance yet. But I do think that's happening. We are leaning into some supply chain, Julien, which I'm worried about copper, I'm worried about other things. So we will use that balance sheet to mitigate risk for our clients. If they can't see it, I can. So I get to see it broad-based, so we'll lean into some of those supply chain constraints to keep our people busy. Margins are expanding. The use of capital in these lighter capital businesses that we have, such as inside, that's certainly a bigger portion of what we do, so it's going to expand the ROIC. And how fast?
I'm not signing up for that quite yet, but it's certainly something that we're highly focused on and the cadence thereof. As far as backlog expansion, look, I believe we'll set records and continue to set records. The timing on that, it gets lumpy for us. A lot of MSAs coming in, a lot of good things happening. So what I would say is, we've stayed true to it's not in backlog till it's signed. So that for us, some of that kind of billion-dollar beat over the last two quarters is because it's book to bill. We're moving building to building or job to job without it ever hitting backlog. So, I'm not sure how to classify that. GAAP says for us at least, not GAAP, but the way our SEC requirements and the way we think about it, is it's signed.
That's just how we're going to go about it, and over time, we've been doing it that way 10 years. We're not changing now, so it's just going to be that way. I think you're going to get some lumpiness in it. I would say as far as what the outlook of the business and what we see, the inbounds coming in certainly is moving at a faster pace than it's ever moved in my career.
Got it. Then just on the data center front, real quickly to ask about that, how do you think about the right to win and what this is going to look like? Is this a partnership like with NiSource example, where you have multiple sites? Or how do you think about moving into that sector? Obviously, there's stuff beneath the surface you guys haven't press released formally, already cooking. But how do you think about that TAM and tackling it and what we'll see more visibly?
Yeah, I just think we're doing it now. We're providing behind-the-meter generation that's going to utility generation. So utility scale generation today. And balance of plant and balance of facilities in multiple areas. So we're doing that today. We just didn't press release it, we didn't say anything about it. We don't need to. We just go up, put the numbers up, and I think that's the key. But the clients, and both from the technology side as well as our utility customers, we're in the middle of that, building that whole thing out. When you look at it in a geographic area, if we're doing everything in that area with our people, which we self-perform 85%, we have a lot of control of certainty. And we don't have people jumping trucks. We don't have the issues that others have.
The scale of the company, the growth of the company, and what we're able to accomplish because we can perform all of it, is certainly beneficial to the end user and to the ratepayer. I just think as we're able to do more, we can certainly help with labor on those sites, those big areas. You have 5,000, 6,000, 10,000 people. If we can control that environment, it's certainly helpful. It keeps the wage pressures down and things like that. Yes, the clients are coming to us. They see it on both sides. We're able to really give them something they want. They want certainty, and they want speed. If that's the two things, the criteria, I like our chances. That's what we're seeing today out there.
I do think as we see it, we're in the right spot doing the right things, and you'll continue to see more and more. If you look on a megawatt basis for MEP and say it's $15 million a meg, everybody has a different classification, so don't CEO math or whatever you want to call it, but it's $15 million a meg. Say that the company was getting $3 million or $4 million a meg a year ago. We're able to expand that into $5 million- $7 million. As it goes farther, that'll be $7 million- $10 million. You can see us just capturing more and more of what the spend is per location, and that's not counting generation or utilities behind it. We're getting more and more as we move forward. We're creating more verticals in the business.
I like our growth patterns, I like our strategies, and we're doing well. Thank you.
Our next question will come from Nick Amicucci with Evercore. Please unmute your line and ask your question.
Hey, good morning, everyone. Duke, I just wanted to see, it seems like you guys are, especially this year, positioning for the higher end of that 15%-20% EPS CAGR growth target through 2030. Just wanted to see, the probability seems in your favor that you are going to get to that full-stack scenario. I would just ask, how do you see the opportunities that would drive the full stack really coming together, and where do you see the company really going from here?
Yeah, look, we are performing well above expectations. If you take the 20% onto this year, you are already in basically the low end of the plan. Very close to it. The acquisition profiles, the companies that we are able to acquire, what we see out there, what we see, and I am not signaling that we are going to go make acquisitions, but we have in the past, and I continue to see opportunities for us to deploy capital in the right places with the right businesses. If we see that and we continue down this path, sure, we are going to be well above plan and probably be talking about something different earlier than five years because we are going to have to. I do think, as we see it, there is risks to the markets, there is things that are out there in these long plans.
That is why we give you a good CAGR basis, and we are ahead. We are certainly above 20, but we have operated above 20 on a CAGR basis for 12 years. I think it is one thing to say it. A lot of people go out and they talk about it, talk, talk about what they have done. I just say, look at our past, look what we have done, and it is predictive of the future.
Definitely fair. As we think about the past too, you guys have always been very prudent on the risk profile of contracts. Just wanted to make sure, that less than 15% of revenue that was tied to fixed price contracts exceeding $300 million that you guys outlined at the Investor Day, is that still representative, just given the magnitude of the recent awards and your recent acquisitions?
I would say our risk profile, how we define it, because you can define it in what a fixed price, you can have UPIs or some measure that allowed it to be de-risked. There's a lot of ways to de-risk these things. The GMP profiles, all the different ways to contract. No matter what you call it, I look at every one of them, and I would say the risk profile of the company is in a better position than it's ever been.
Perfect. Thanks.
Our next question will come from Steven Fisher with UBS. Please unmute your line and ask your question.
Thanks. Good morning. Can you hear me okay?
Yes, Steve.
Hey. Duke, you mentioned some of the larger transmission projects that you have in the pipeline here. How close do you think we are actually to getting those programs in backlog? How should we think about in terms of maybe order of booking Texas versus Ohio versus MISO? Those are the few that you mentioned.
Yeah. I think, we have LNTPs and things like that on multiple projects. We have things that we're doing with AEP. We've talked about that, where we're doing some supply agreements and doing some agreements with them, and you can see what they're doing and with their capital, and I think the business is tripling. Super happy to work with our clients, and I'm not rushing them to get them signed. We want to take our time. Both sides need to. The environments are moving, and they have their own customers on the back. I want to get it right, but we'll be on 765 and 27 for sure. Some of that's not booked already. It's hard for me to say. Some are booking earlier, LNTPs. We need to order material in places and do some things like that.
I think you'll see really good bookings, call it first half of 2027, and even some starts. I'm not sure the cadence on that. It's hard to say. We're probably farther along in, I don't know, Texas, Ohio, probably be the first two to go.
Terrific. Then, Duke, on your mission to provide certainty of delivery, do you think there is still some important big pieces that are missing, or are you really at this point just filling in the more strategic focus, but smaller pieces of it?
We talked about it in length. Pole, wire, transformers, and we thought that those would be the short items, and we are not wrong. So we have leaned into transformer breakers. This quarter, we acquired a pole manufacturing facility and a nice company that we have been talking to for over five years. I think we see poles coming out of Mexico in various areas that we are waiting on material today. So we are going to solve those problems. Our growth will be dependent on the OEMs. It will. It always has been. Everyone is worried about our labor constantly, and we grew 26,000 people this year. So I am waiting on material. I am hoping they hurry up, and if they do not, we will lean into it.
We have to keep our customers moving, keep the supply chains moving. We are not a manufacturer at heart, but if we need to be, we will be. We are going to provide the solution to these clients when we see it. If we see issues out there, the company will lean into those issues with our clients and move it forward. It is the right thing for the ratepayer.
Thank you. Fantastic quarter.
Our next question will come from Jamie Cook with Truist Securities. Please unmute your line and ask your question. Jamie, if you are able to, unmute your line.
That is a good question.
We will move on to the next question and potentially come back to Jamie. One moment. Our next question will come from Michael Dudas with Vertical Research Partners. Please unmute your line and ask your question.
Morning, Kip, Duke, Jayshree.
Morning.
Duke, maybe your thoughts on, over the next several quarters, several years, what is the risks to the market or what your utility or hyperscaler, thinking about that, might cause some delays or slowdowns, or is it just the supply chain and the labor issues that you guys have gotten your handles around provide that turnkey solution? Because sometimes the market seems like the risk to the end of the cycle is quite dramatic relative to what appears reality is.
Yeah, I would just say our inbounds are accelerating, as far as what our clients are telling us. They're doing things in years, two years kind of time frames, and the demand is there. When we listen to them and they're asking us for solutions out well past 2030. We're just basically positioning the company for what we're asked by the client. We're staying very close to the customer. I do think when you think about it, if you think about demand that's out there, we're building factory in 10 states, something like that. That's going to create close to 1,000 jobs against all these markets. I'm waiting on power hookups in two or three factories. And the people that are building it are the people that are building data centers.
The very fungibility of labor, what we see here, I don't think labor is going to be the issue. I think it'll be supply chain, critical items in supply chain that always lean into these things. You can see what GE did yesterday or day before, whenever they did that, the criticality of their supply chain. And we have to lean into it as well on the things that we do. I like what the manufacturer are doing. Almost every OEM's expanding. It certainly helps us. It makes me feel more comfortable with where the markets are going and our ability to be certain on the time frame. As long as those things stay intact, and the things that we're doing, the good that we're doing for the country out there with labor and communities and things like that.
I know the political rhetoric and all the rhetoric that's out there, but what reality is, it's a very good thing for people and for teachers and for communities, and it's much like the Industrial Revolution. We're doing great things. The industries are doing great things. We're super proud to be a part of it, and we see growth.
Thanks, Duke.
Sure. We will now go back to Jamie Cook with Truist Securities. Please press star six to unmute your line.
Can you hear me?
Got it.
Can you hear me?
Yes, ma'am.
Oh, perfect. Sorry about that. All right, Duke, so now you get a tough question because I screwed up on this. I guess my first question, understanding the growth that you're seeing in data centers and looking at the margins relative to some of your public peers, as data center is one of the higher growth markets and given where your peers are with your margins, why wouldn't structurally Quanta's margins improve greater than the 10%-11% that you target? Is there any structural reason why your margins can't be where your public peers are? Then my second question, just want to understand how you're thinking about the M&A pipeline.
Obviously, it's been focused on getting more in data centers, but I'm just wondering if you want to move sort of out of power more so and consider other markets within your large load market that you talk about, like advanced manufacturing, infrastructure. Just wondering if we're going to start moving beyond power, whether it's besides utility data center, if that makes sense. Thanks.
Yeah. I got it. For the margins, Jamie Cook, I don't think anyone has a $20 billion utility business that we would be compared to. I don't know who it would be. Maybe all of them put together. That said, fundamentally, we're not going above 10%-12% in there by design. We're going to stay there. The ratepayers, what we're pressing on, we're not doing it. We'll compound it over time. It's been a great business for us. We're part of that industry, and we understand what it takes to be long there. What I would say is I see decades of growth for this company. We've done a nice job staying part of that fabric, and we're not going to get transactional. We're going to stay transformational and continue to compound.
That's going to be there in that business and continue to grow nicely in the utility business. As far as MEP, we are getting some efficiencies with our advanced manufacturing. We're doing some good things there. It is pressing upward on those margins in that segment. It's still only 20% of the business, give or take, probably 15%-20%. When we look at it, because the utility business is growing nicely, our renewable business is fantastic. That's another issue. You got a real nice renewable business, $5 billion-$10 billion of renewables in there. I think when you look at those two businesses and what we're doing from capital and return on invested capital, we're getting the right growth of return. I think that's the key to it. But it's compounding, and it's not something that's going to have wildly margin increases.
We are enhancing the underground segment. I do think there's room there. We are improving there. We're getting efficiencies. You can see some leverage coming in. Our training now, when you're looking at training, people get scared of heights, and instead of dropping out of the programs, they can be a plumber, a boiler maker, electrician, and stay underground. So we're creating craft, and that creates efficiencies within that. So we're picking up some efficiencies there. But as far as margins, I like what we're doing. We're de-risking the company along the way. Better cash flows, better returns. So I like where it's going. It's got the right trajectory, but as far as pure operating income margin expanding to some astronomical level, I don't see it. I think we'll compound it, we'll continue to increase a little bit. Certainly have room in the UI.
But we execute through a lot of different variables that go unnoticed. Fuel's up, insurance is up. I'm sure someone will be talking about fuel somewhere. We run right through all that, never say a word, move along, compound earnings. We make sure that we account for all those things and guidance in the things that we say. If we operate through all that and Canada becomes world-class, like lower 48, yes, margins are going to move up. As far as M&A, I do think we're very cognizant of the hockey sticks on data center. We're not buying a pure data center company per se. I look at it constantly to say, the businesses that we acquired, if our data center business cut in half, what would it do to the company long term? We're in a very good position.
Sure, it comes down a little bit, but we do not fall off a cliff and we continue to still see growth in the business. We can still see growth without data center. Our pharmaceutical businesses, what we are doing in power plants, what we are doing across board. You have 50% of this growth in the utility business is not data center, by the way. We have growth in the utility sector without data center. We have not had that in 20 years. Our distribution business, all the things that we are doing, all the things that they are doing, it is fantastic across the board. Super excited, and we like the fact that data centers are there, but we are not acquiring against it for sure.
Thank you.
Yes, ma'am.
Moving forward, we ask that participants limit their question to just one and re-queue for any additional questions to allow for remaining questions to be addressed. Thank you. Our next question will come from Sherif El-Sabbahy with Bank of America. Please unmute your line and ask your question.
Hi, good morning. Duke, you've said you don't expect labor to be the restricting factor going forward, and you talked about getting more productivity out of your existing labor base. But with demand the way it is, do you need to accelerate the rate of hiring from the 6,000 or 7,000 a quarter it's at now? If so, where could that go, and what investments do you need to make in training?
I think we will continue to train. It's an expense. That's not going anywhere. We continue to invest in it. I don't think you'll invest any more than we already have. It may actually go down some, because we're getting some leverage. But look, you've got seasonality, you've got quarters that you won't grow as fast as well. The first quarter certainly wasn't like the second and the third. So you'll come down in some seasonality. Fungibility, you can see our fourth quarter kind of stays flat now to the third. When you think about it, the people in northern climes are moving around our system and moving to other things. The first quarter still falls a bit. It naturally does. It always has in seasonality. So I think you'll lose some headcount in the first, a little bit. But they're moving around more.
We're moving segment to segment. We're moving company to company. We're moving across what I would consider verticals, which is good. So we're getting more efficiencies out of the labor that we're trained. But I still see the company in the, call it 6,000- 8,000 a year on the average, and then you'll have outward years where you're growing like we did this year. Some of it's acquisition. But I still think the organic growth's around, call it 12,000. So something like that of organic growth. I would say the organic growth of the company, we heard a lot about that organic growth. I hope everyone looks at the numbers of the organic growth of the business, and maybe we can stop talking about that now and talk about what we've done organically. That's because we invested [in the labor].
Our next question will come from Andy Kaplowitz with Citigroup. Please unmute your line and ask your question.
Good morning, everyone.
Good morning.
Duke, I am going to take your softball about asking about fuel in a different context. I think this is a quarter that everyone in industrials is concerned about inflation and price versus cost, but obviously you delivered strong electric power margin, as you said. Obviously there is some positive mix, and maybe it is your vertical integration that is helping you. Maybe you could talk about how much better positioned Quanta is to handle inflation versus a few years ago, where it did show up in your electric market margins?
Yeah. We have done a nice job with the supply chain as well as just in general. I think we have always had pass-throughs on labor escalations in our utility business just by design. I think we have done a good job with labor and being able to really, from a risk standpoint, mitigate it. We have done that forever, and it does not show up much. The things that are for us, like healthcare, insurance, just risk and insurance, things like that have escalated faster than other things. We have seen inflationary things in the business. We have got a lot of efficiencies. We have not had to pass all that through to the client, which is nice. I think the good thing is the industry is working together in a collaborative manner.
And as we do that, if we can do that with them, we can off-site manufacture, we can do a lot of things that make tons of sense where we both do not have to add people and what I would consider supply chain initiatives, all kinds of different things that we can do together. If we do that and think about it as a solution, we can reduce costs for the client, and for us, it increases top line as well as our margin profiles in many ways on these solution-based approaches.
We have been able to do that, and that is why that inflationary piece has not came into the business, because we have been able to absorb it. But I do think, look, scale matters. It matters in the utility business. It matters in every business. We continue to create scale within the business. And I would not underestimate that. It means a lot for us, and it means a lot for the business for us to continue to scale it.
Appreciate the color.
Our next question will come from Liam Burke with B. Riley Securities. Please unmute your line and ask your question.
Thank you. Good morning, Duke.
Good morning.
Duke, the underground infrastructure segment is seeing very steadily improving operating margins, both from the fourth quarter last year and then sequentially. Could you give us some color as to what is driving that improvement?
Yeah. Thanks for noticing. Look, it is work mix, a lot of it, and a lot of it is the risk profiles that we are willing to take on it. Two different things. I think we have added our mechanical businesses in it. We have some of our civil business in it. It is on both sides of it. Those additions are certainly something that are pushing it up. We will continue to grow our mechanical business faster than anything else. Some growth in our traditional business, not as much. So what I see is the work mix is changing as such that you can get into double digits fairly quickly. It is incrementally happening. You can see it throughout the quarter as a growth. I think it is getting to a sustain.
You'll have some seasonality in the first quarter, but I do think in the next year, you could see us in double digits in quarters and get on a run right there into next year. So exponentially getting that up into the double-digit range.
Thank you, Duke.
Sure.
Our next question will come from Philip Shen with Roth Capital Partners. Please unmute your line and ask your question.
Hey, thanks for taking my questions. And congrats on your strong bookings in the quarter. I wanted to explore the data center outlook some more. I know inbounds have never been greater, and you've spoken very positively about this opportunity. That said, some of our checks suggest some data center work may be sliding or even going dark. Duke, can you give a little bit of color on some of this risk that projects could be sliding? And then, what is the potential for maybe a slowdown or just some push outs in 2027 or 2028? Or are you able to just backfill some of the things that are pushing out? So a little bit of color on some of the, if you can lift the hood a bit so we can see, that'd be great. Thanks.
Yeah. I think for us, it's much like our renewable business. We said all along when the sky was falling there that we work for the top 10 best. From a developer standpoint, I would say the same applies to the data centers. We're working for the very best in the world at this, and the most liquid balance sheets that you see in the world. All I can say is we can't even get to 25%-30% of what they have in front of us, and we're having to basically look out five years and see how much we can take at this point. All I can do is tell you the inbounds that we see, and when we sign contracts, we put it in backlog. Our backlog is growing nicely, not only 12 month, but beyond 12.
All the investments that you see in engines from GE are three years out, all the investments that you see in factories that are coming. It's creating businesses as well with farm and things like that. We have fungibility of labor as well. If they're not on, we're building chip plants, or we're building pharmaceuticals, or we're doing a lot of different things with that same workforce. We're able to move across segments and then move across verticals. If something was to slow, I'm not concerned at this point, but the data center demand is there. We see it. All I can say is what we see on a daily basis, the inbounds that we get at the very highest level of everyone that we talk to.
The cloud-based environment, just the cloud alone, which is the majority of what we do, that inference-based, cloud-based business has been there for 10 years and has done nothing but go vertical. I continue to believe that's the case. You may get some learning centers that slow a little bit. It's very little of our work today, and I'm not as concerned as the market may perceive it at this point. We still see large projects, and we see the cloud-based business growing, much like our MSA business and utility side, and we continue to capture more of the spend as we move forward. I don't know. I think we're early stages for us. We're creating something like we did in the utility side, and that's coming from the technology side now, and if it was to slow, the company will capture more of the spend anyway.
I don't know. It's growth on growth right now, and I don't see it stopping.
Great. Thanks for the color.
Sure.
Our next question will come from Alexa Breno with Goldman Sachs. Please unmute your line and ask your question.
Hey, good morning, team, and thanks for taking our question. Can you just talk a little bit about what the dialogue looks like on the hyperscaler side? Are you seeing them engage with you earlier in the development process, similar to your utility relationships? Then how do we think about that in the context of the scope of the work that you could be doing?
Yeah, they're engaging early. I think a couple of things. Community-based engagement. We're seeing our labor, how do we collaborate on labor? How do we collaborate on hiring? So yes, it's early. We can help a lot with the dialogue of actually what's going on with the workforce and the community. So I think just being a part of the industry there, companies moving in the right direction. We're having great conversations at very highest levels with that side as well. So we're working hard to create the same environment and same trust that we have. It's a trust thing. So I do think the company has a long track record generationally in the utility business, and the same applies. I mean, Cupertino grew up with the industry and their reputation is every bit as good as anyone in the world. They do a great job and very customer-focused.
The whole company is customer-focused, and as long as we stay like that, we will continue to see inbounds from the very biggest in the world at the early stages of these projects where we can really make a difference in the community. Certainly, I feel like if we are able to do that is what creates us to be a part of that fabric as well and create the moat that we have in the utility side, is make sure that we are enhancing our customers' ability to build and perform much like we are.
Thank you.
Sure.
Our next question will come from Alex Rygiel with Texas Capital Securities. Please unmute your line and ask your question.
Duke, I was curious about your reference to increasingly flexible craft workforce. What do you mean by increasingly flexible, and what is kind of different today versus, say, 5 to 10 years ago? Because obviously you have had a pretty tremendous training program in place for many, many years. But the comment of increasingly flexible kind of caught my ear.
Good. It was intended to, so thanks, Alex. I think what we are saying is we were really confined to the utility business, and if you cannot climb, it is very difficult to stay in our craft. You can drive trucks, you can do other things, but now, like, a person that cannot climb, but has the intellect from math and the things that you need on the electric side or even plumbing, we are able to put them in a different craft because of our expansions in the verticals and inside electrical low voltage.
Boilermakers, pipe fitters, plumbers. We have really expanded the company over the last two to three years of what craft we have and how big we are in each one of them as we moved in. I think the flexibility for us to take a person and say, "Where do you want to sit in this?
Here is the wage profiles, and here is where you can go across the country." As we recruit, we can move people all the way through, and our recruitment goes way up because of the things that we can do. It is certainly there. Then when you get in the trade, an electrician can go from a power plant all the way through basically to a home. It does not matter. Where if you get in the high voltage side, yeah, they can come down and do some low voltage work, but it is just different. They usually do not, and so it is not as fungible. I think we have created the fungibility of a craftsman to move across the system, and if they do not want to be in the high voltage arena, we can move them into low voltage or we can move them across.
We have done a nice job with that training and the way the curriculum craft and how we think about craft and how important they are to the heartbeat of this company. We value it, and I think people resonate with that, especially in the field. They just resonate with our ability to create an environment for them that they can go as far as they want in this company, and we are going to continue to do that.
Thank you.
Our next question will come from Dimple Gosai with Piper Sandler. Please unmute your line and ask your question.
Hi. Good morning, guys. Thank you for taking my question here. We've heard a lot of commentary just about large data centers that have spoken about risk of just getting physical gas pipelines to data centers today. How do you think about leveraging this opportunity to win some of the programmatic work that you could potentially benefit from?
Yeah, look, on the gas side, we're winning. We're doing a nice job there. We're in the business, and I do think you're starting to see expansions. You're going to need gas pipe. It's going to expand. I think that market, if it's not. I'm confident in 2027 you're going to see expansion of pipe and things like that. We're in that market. We're going to take advantage of it. We got great clients there that we're supporting. Some of them are on the electric side now, building gas generation in places. So we're working for them there, and we're not giving up on it. We're going to be cognizant of the risk, and we don't want risk we can't control. I can't control the weather. I can't. So we're not going to go into businesses where I have to give you a weather report. Not doing it.
We haven't done it in seven, eight years, and I couldn't stand it when we did it in the past. So we're really trying to de-risk the company from weather and things we can't control. So if we can control it, we can execute against it. We have the very best craft in the world. I'm not concerned, but we got to be able to control it. So we'll be risk-tolerant on those things. But the market's there going forward, and you're right about what you're saying. In a systematic way, you've got to feed all this gas generation with pipe. It's got to be done.
Our next question will come from Brian Brophy with Stifel. Please unmute your line and ask your question.
Yeah, thanks, and congrats on the very good quarter. A couple of quarters ago, you mentioned $500 million- $700 million of incremental manufacturing-related CapEx over the next few years. Just curious how your views have changed here, given some of the supply chain constraints that you mentioned and any other opportunities you're seeing on that front. Thanks.
Yeah, I said it a minute ago. I think we have 10 states that we're increasing our manufacturing capabilities, whether it be transformers, breakers, all across poles now that we acquired. I don't think it's going to be a huge part of the business. We're certainly going to lean into where we need to make sure we stay in front of the demand. We're also having great conversations with the OEMs to be good partners and to try to go long on things that we need to with them and partner with them. I think that's really important as well. They're important to us. We value what they do. We are in the top five buyer of HV equipment.
I think that's important that not only are we building and putting capital in, we're also partnering and doing some things with our OEM providers that allow us to be certain on projects, and that's going to be important going forward as we see constraints. We recognize those things, Brian, and we're staying in front of them as well as investing capital in them where we think we have good backstop, long-standing relationships, that we're not just going to go out and build factories without the demand in front of them. We're trying to get long on those things, and we've been able to do that and primarily to keep the workforce busy and get exponential growth. The business itself is great, but what it can do for our overall business is 10 x what the factory can do.
Those expansions are meant to grow the business in a multiplying effect as we move to the field and EPC and all those things. That is really what it is about. It is our ability to go EPC with certainty.
Appreciate it.
Cool.
There are now no more questions at this time. I would now like to turn the call back over to management for closing remarks.
I want to thank the men and women in the field. They make this possible. They are the very best in the world, and we want to thank our shareholders for participating in the conference call. We appreciate your questions and ongoing interest in Quanta Services. Thank you. This concludes our call.