Quanta Services Inc

NYSE:PWR

Earnings Call Analysis

Double-Digit Growth Highlights Quanta's Strong Q2 2024

Quanta Services reported a robust second quarter with revenues hitting $5.6 billion, a 10% increase year-over-year. Net income was $188.2 million, translating to $1.26 per diluted share. The company’s adjusted EBITDA stood at $523.2 million, and adjusted diluted earnings per share were $1.90. Quanta posted a record backlog of $31.3 billion and completed the $1.5 billion acquisition of Cupertino Electric, enhancing its service offerings and customer base. The company raised its full-year 2024 guidance, anticipating double-digit growth in adjusted EBITDA. Utility capital expenditures and technology-driven demand continue to fuel Quanta's optimistic outlook.

Strong Revenue Performance and Strategic Acquisitions

Quanta Services kicked off the year with robust revenue growth, reporting a second-quarter revenue of $5.6 billion. This translates to a net income of $188.2 million, or $1.26 per diluted share. Notably, the adjusted diluted earnings per share stood at $1.90, driven by an adjusted EBITDA of $523.2 million, representing 9.4% of the revenue. The acquisition of Cupertino Electric (CEI) for approximately $1.5 billion reflects Quanta's strategic move to diversify its service lines and customer base, with essential contributions expected from CEI in future earnings .

Cash Flow and Financial Stability

Quanta Services showcased sound financial health by generating $391.3 million in operational cash flows and $258.6 million in free cash flow during the quarter. The company's liquidity position is strong, bolstered by a combination of cash on hand and borrowings. This financial stability grants Quanta the flexibility to support organic growth and capitalize on opportunistic investments, further solidifying its balance sheet .

Guidance for Fiscal Year 2024

Quanta provided an optimistic update for the full fiscal year of 2024, forecasting continued profitable growth. The company expects record revenues with a double-digit increase in adjusted EBITDA and free cash flow, driven significantly by the supplemental contribution of CEI. This projection demonstrates the efficacy of Quanta’s diverse portfolio approach and its proactive strategies amidst favorable market trends .

Market Dynamics and Enduring Demands

Quanta’s performance underscores the persistent demand for infrastructure development, driven largely by technology advancements, renewable energy, and burgeoning data center requirements. Federal policies and regulations aimed at energy transition further heighten the necessity for significant enhancements in power grids, thereby augmenting Quanta’s market opportunities. The company’s consistent execution and diversified service offerings place it strategically to navigate and exploit these dynamic market conditions .

Portfolio Strategy and Operational Efficiency

Quanta’s portfolio strategy, emphasizing a collaborative, solution-based approach, is pivotal in managing risks and optimizing resource allocation across diverse service lines and geographies. This strategy not only drives consistent financial results but also positions the company to achieve operational efficiencies. The strategic emphasis on craft skilled labor offers a distinct competitive advantage, especially against the backdrop of increasing infrastructure complexities due to evolving technology requirements .

Challenges and Mitigation Strategies

Despite the overall positive outlook, Quanta acknowledged some challenges pertaining to specific projects that impacted margins. The company reported ongoing drag from select renewable projects, although the segment showed better-than-expected performance in the quarter. Mitigation strategies include leveraging the company’s scale, expertise, and flexible resource management to navigate these hurdles and drive segment accretions moving forward .

Regional Performance and Future Outlook

Performance across geographic regions like Canada is improving, with expectations for prolonged improvement into 2025. The Canadian market, known for its volatility, is showing signs of stabilization, which Quanta intends to capitalize on. The company’s adaptability in shifting resources across states and countries highlights its capability to manage regional market fluctuations effectively, ensuring sustained growth and margin enhancements .

Capital Investments and Customer Relationships

Quanta's strategic capital investments, bolstered by increased utility and technology sector capital expenditures, underpin the company’s growth narrative. The continued rise in these budgets, especially driven by AI and data center investments, validates Quanta's market positioning and growth strategies. The focus on enhancing existing customer relationships and expanding service offerings remains central to Quanta’s long-term growth ambitions .

Earnings Call Transcript 2024-Q2

[Operator]

Greetings, and welcome to the Quanta Services Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kip Rupp, Vice President of Investor Relations. Thank you, sir. You may begin.

[Kip Rupp, executive]

Thank you, and welcome, everyone, to the Quanta Services Second Quarter 2024 Earnings Conference Call. This morning, we issued a press release announcing our second quarter 2024 results, which can be found in the Investor Relations section of our website at quantaservices.com. This morning, we also posted our second quarter 2024 operational and financial commentary and our 2024 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 [indiscernible] on additional time for questions from the institutional investment community. Please remember the [indiscernible] interim reported on this call speaks only as of today, August 1, 2024. And therefore, you are advised that any time-sensitive information may no longer be accurate as of any replay of this call.

We will include forward-looking statements and information intended to qualify under the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995, including statements reflecting expectations, intentions, assumptions or beliefs about future events or financial performance that -- or that do not solely relate to historical or current facts. You should not place undue reliance on these statements as they involve certain risks, uncertainties and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expressed or implied.

We will also present certain historical and forecasted non-GAAP financial measures. Reconciliations of these financial measures to their most directly comparable GAAP financial measures are included in our earnings release and operational and financial commentary. Please refer to these documents for additional information regarding our forward-looking statements and non-GAAP financial measures.

Lastly, please sign up for e-mail alerts through the Investor Relations section of quantaservices.com to receive notifications of news releases and other information and follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would like to now turn the call over to Duke Austin, Quanta's President and CEO. Duke?

[Earl Austin, executive]

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services Second Quarter 2024 Earnings Conference Call. Quanta's first half of the year is off to a good start. Their second quarter results highlighted by another quarter of double-digit growth in revenue, adjusted EBITDA and adjusted earnings per share, record total backlog of $31.3 billion and strong cash flow. We believe our results reflect the power of our portfolio, sound execution and continued demand for our services, driven by our customers' multiyear programs to build the renewable generation and power grid infrastructure necessary to support North America's energy transition, load growth, security and reliability.

We recently completed the acquisition of Cupertino Electric or CEI, which provides a platform of new service lines and dynamic customer base, with technology companies driving load growth and demand for renewable energy, [indiscernible] CI brings an exceptional management team and a premier craft skilled workforce that complements Quanta's culture and will create a comprehensive, self-performed, electric-infrastructure solutions offering for renewable developers, utilities and large power consumers from electron generation to transmission to consumption.

Utilities across the United States are experiencing and forecasting meaningful increases in power demand for the first time in many years, driven by the adoption of new technologies and related infrastructure, including artificial intelligence and data centers as well as federal policies designed to accelerate the energy transition and [indiscernible] intended to strategically reinforce the domestic manufacturing and supply chain resources.

There is momentum building across our portfolio of solutions with the complexities of the energy transition, its impact on the power grid and the significant upgrades and enhancements required to facilitate load growth, our collaborative solution-based approach is valued by our clients more than ever. We continue to look forward to then of our multiyear strategic initiatives and the goals we expect to achieve in the coming years. We are positioning Quanta for decades of expected necessary infrastructure investment and believe our service line diversity creates platforms for growth that expand our total addressable market.

Our portfolio approach and focus on craft school labor is strategic -- is a strategic advantage that we believe provides us the ability to manage risk and shift resources across service lines and geographies, which is increasingly important as the energy transition and new technology add complexity to infrastructure programs. We believe our diversity and portfolio approach has also improved our cash flow and returns profile and positions us well to allocate resources to the opportunities we find the most economically attractive and to achieve operational efficiencies and consistent financial results. We'll now turn the call over to Jayshree Desai, Quanta's CFO, to provide a few remarks about our results and 2024 guidance, and then we'll take your questions. Jayshree?

[Jayshree Desai, executive]

Thanks, Duke, and good morning, everyone. This morning, we reported second quarter revenues of $5.6 billion. Net income attributable to common stock of $188.2 million or $1.26 per diluted share and adjusted diluted earnings per share of $1.90. Adjusted EBITDA was $523.2 million or 9.4% of revenues. We generated healthy cash flows in the second quarter with cash flow from operations of $391.3 million and free cash flow of $258.6 million.

This earnings and cash flow performance allowed us to end the second quarter with ample liquidity and a balance sheet that supports both our organic growth expectations and the opportunistic deployment of capital to generate incremental returns for our stockholders. To that end, and as Duke commented, subsequent to the end of the second quarter, we completed the acquisition of CEI for upfront consideration of approximately $1.5 billion, excluding cash acquired and subject to customary adjustments.

We funded $1.3 billion of the transaction with a combination of cash on hand, borrowings under our existing commercial paper program and a new short-term loan facility, and we are currently evaluating debt refinancing options. This morning, we also provided an update to our full year 2024 financial expectations, which calls for another year of profitable growth, with record revenues and opportunity for double-digit growth in adjusted EBITDA after earnings per share and free cash flow.

Of note, our increased guidance for revenues, adjusted EBITDA and adjusted diluted earnings per share was attributable to the expected contribution from CEI. But otherwise, our prior guidance for these financial metrics remain unchanged. We believe our expectations demonstrate the strength of our portfolio approaches, our commitment to our long-term strategy, favorable end market trends and our competitive position in the marketplace.

Additional details and commentary about our 2024 financial guidance can be found in our operational and financial commentary and outlook expectation summary, both of which are posted on our IR website. With that, we are happy to answer your questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Justin Hauke with Baird.

[Justin Hauke, analyst]

I guess maybe to start with just kind of a question of maybe the moving pieces, positives and negatives within kind of your organic outlook. I mean you said you're back here to unchanged. I guess, it seems like some of your peers would maybe say that some of the base kind of low voltage, I don't know if you want to call it more like retail market demand maybe in your underground business, too, is a little bit weaker, some pressure with the utilities -- offsetting storm was pretty good here.

And I guess you had Hurricane Barrel, obviously, locally to you. first couple of weeks of this month. And I guess can you just give us a little bit of the lay of the land of maybe what's moving a little bit stronger and what's a little weaker overall getting you back to the same place for your outlook for the year?

[Earl Austin, executive]

Yes. So I think we've said all along that we run a portfolio and we look at it as a portfolio. So the portfolio is performing as expected and I expect it to continue. When we think through just the push pull for the most part, the business forming well better than what we anticipated in many cases. But I do think you see some delineation between segments where you can have a segment that's a little off here or there. I would point out that [indiscernible] -- is when we forecasted the outlook on it, certainly, there's mix and shift of work there.

Utilities -- when you think about their CapEx budgets, as they look at their own budgets, especially ones that have gas and electric. Many of them are ahead of their weak replacements or don't have the capital there, so they need the capital over into underground distribution, transmission, whatever it may be, and it offsets into another segment for us.

So that shift of work there, there's larger projects to move back and forth. We like the underground business. It's healthy. It will continue. We're certainly a conservative approach to how we look at that segment, starts and stops on our large diameter pipe in the guide nature. We've always said -- we guide to $500 million, and we don't need it to make it. So stand by that. We don't need it to make the midpoint of the range. The midpoint range [ 860 ] -- and it's also 15% organic growth at the midpoint of EPS. So I'll say that again, 15% organic growth at the midpoint.

[Justin Hauke, analyst]

Okay. Great. And then I guess maybe the second 1 is for Jayshree. So on the renewables margins were really strong here in the quarter, but you mentioned there was still the drag from the handful of projects that you called out in the first quarter. I think in the Q last quarter, the hit from those was about $22 million. Do you have a similar number for 2Q, just so we can kind of have an understanding of what the margins would have been kind of excluding that drag?

[Jayshree Desai, executive]

Yes. We had a little bit of a drag continues from one of those projects into the second in the [ Q ] is around $20 million, but the overall segment performed very well, better than we expected, overcame challenges from the projects we mentioned in the first quarter. So we're pleased at where that segment is heading.

[Earl Austin, executive]

Yes. And I'll add. We're performing really well there. There's the 95% or 99.9% of the projects that performed above what we thought as well. We just don't get to point those out.

[Justin Hauke, analyst]

Yes. No, the margins were stride. So it sounds like $20 million was still kind of the same source of pressure in the segment. So.

[Earl Austin, executive]

We've stated 3 projects. It's the same -- and there was some drag in the segment -- some drag on it. But as you clear out, you can see it performing in kind of double-digit ranges on the way out.

[Jayshree Desai, executive]

Yes, going forward, that's take to directions. That's what you're seeing with the back half strength. And we feel like we've got the execution on those things under control, and we're confident in our back half expectations on renewable.

[Operator]

Our next question comes from the line of Sangita Jain with KeyBanc Capital Markets.

[Sangita Jain, analyst]

So Duke, if I can go back to the question. Earlier this year, you had talked about a shift between transmission and distribution spending. And so far, we are seeing that utility CapEx budgets are under 50% for the first half. So can you help us understand what you're seeing now for the second half, if we should see a ramp back in that distribution spend? Or are you still seeing kind of like air pockets there?

[Earl Austin, executive]

I mean I think when you look at our transition distribution as a service line and not as a segment, we're up 9% for the year. So we haven't seen too much of a drag, whether it be T or D, we're able to shift from one to the other. You get some segmentation delineations. We said last year, we're up 9%. If you just look at the work itself. So that said, yes, there's movements around utilities and whether we are T or D. We have a great build EV penetration out west. And so you're seeing some distribution spend there on coming to the budgets because of the penetration. We've said before, 70% of EV sales are in California and the states. And so that's pushing.

I will say that you can see the push on the distribution system and it validates what we've been saying as that push, I can't tell you the pace of it. If it slows down, certainly, it will slow down. But nevertheless, as it pushes through, it certainly impacts our distribution systems as you're seeing in California, where the load still be there's a rebuild ongoing out there, and I think that will continue as you push into EV. So it does -- you have storm hardening in areas, which are coming into play.

We're strengthening certainly in the back half. You can see it in the numbers, and we like where we sit, and we're able to -- the portfolio allowed us to go through the transition. There is ups and downs but different utilities, regulatory impacts, things of that nature, we're ahead of those things. We know what's coming. So the company has done a really nice job in ourselves in great positions to take advantage of our portfolio as we move through the year.

[Sangita Jain, analyst]

Great. That's very helpful. And if -- maybe this one is for Jayshree. On the renewables book-to-bill in the quarter, how much do you think was a result of SunZia burning at high rates? And how much was it an actual lag in booking renewables maybe?

[Jayshree Desai, executive]

Yes, for sure, the SunZia burn has an impact on that burn, but we are booking work. In fact, as we pointed out, we're booking additional work past the quarter. We are held to a higher comp because of that SunZia impact from last year, no doubt about it. But work is coming. We still feel very good about the year, and we continue to book work in that segment.

[Earl Austin, executive]

Yes. I would add that the top line is one thing, but I also think that there's margin accretion in the segment as well, that we'll certainly look differently in the next year as we operate better through and execute better to do this work. And I'm not concerned at this point around the top as well, right? We see growth. We see growth in '25. SunZia will be there in '25. And we've always said, you'll have some stacking effect along the way as you CAGR the growth and multiyear outlook, we've talked about it over and over and over again, that you will stack on top of your base, your base goes grows nicely, we stack some larger projects on top. That's stacking that's certainly there and will continue.

[Operator]

Our next question comes from the line of Brian Brophy of Stifel.

[Brian Brophy, analyst]

Just wanted to stick with renewable energy here. Obviously, there's some trade uncertainty out there, election uncertainty out there. Are you guys seeing any impact from this from customers? Are customers pulling back away at all as we await some clarity. Just curious what you're hearing and seeing there?

[Earl Austin, executive]

A couple of things on the renewable side. I think you have a technology factor that is certainly backstopping most everything when you consider elections and the way the budgets are. And from our standpoint, technology continues to want renewable generation, and they're driving whether it be chips or data centers or hyperscalers or whatever, they're driving the renewable business behind the -- what you would consider policy from the Otloking. So that drive will continue to as far as I'm concerned to Republican or Democratic, we've done well.

We've been pretty agnostic to let parties in power. And that drives in the backstop of technology is what's driving the load growth, which continues. And whether it's renewables or gas power generation to back it, all those things planned certainly in where we're at and the cheapest former generation transmission, the country still needs a significant amount of transmission to facilitate any kind of deal switching or low growth.

[Brian Brophy, analyst]

That's helpful. And then I just wanted to ask about TS Conductor. Can you talk about details on that investment? What was the rationale there? And just broadly, how are you thinking about opportunities in the manufacturing space -- this is now the second deal you've done with the manufacturer here in the last year.

[Earl Austin, executive]

You have small investment there alignment really to understand kind of where we're at. We like the technology. We think it's helpful when you're talking about we do a lot of interdiseconductoring or reconductoring in these corridors and being a part of that solution, a great customer base in there that's invested as well. So -- we invested alongside our customers as well, and we like the technology. I know a lot about it, have worked many years [indiscernible]. So -- we think it's a good technology. It has some solutions across the board and certainly something that we want to be a part of.

[Operator]

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

[Jamie Cook, analyst]

My first question -- just on underground and utility, I think in the quarter, you mentioned a mix issue. If you could elaborate on that. And I think you lowered your margin target, just why I'm wondering how stronghold is performing given some -- you're hearing industrial weakness in other parts of the industrial landscape. And then my second question, Duke, its for you just strategically. You've had some pretty good success recently with M&A and some of the questions I get from investors are it's going to be harder for Quanta to continue to grow organically just because of the law large number starts to work against them.

And with your success in acquisitions, I'm just wondering, going forward, should we expect greater balance or even potentially more growth or the portfolio driven by M&A versus organic growth? If the mix shifts more to M&A versus organic growth for those reasons.

[Earl Austin, executive]

Okay. Jamie, I'll go to the UI segment. The Industrial business has performed great I think we set records there. I continue to believe that it will going forward. So we like the business. We invested in Evergreen and we like that business well. So early in the year, we continue to see good margins. It stabilizes a lot of the fluctuations in it. We did have some shift in business, some larger work that you can't predict when it was being [indiscernible] I would like to. So I would just say some of it just pushed.

From a standpoint, I'm unwilling to put it in and the forecasted it may come back in. But we're going to be prudent about how we look at it. We are facing an election year and things in nature. So we're going to be prudent about how we guide. I didn't like the way it looked and made some decisions on the UI segment. And then we had some MSA movement within the distribution business, LDC business, where you had some consolidated utilities move capital from LDC into underground electric or storm hardening or whatever it may.

Be. So I pick it up on the other side. We also move those crews to the other side. It shows up in the renewables and electric segment. So most of the resources and things like that will move over. We're not really -- our headcount is 58,000 plus today. So we're -- our headcount is up and is segment movement as well.

So some shift there, some shift and outward work on bigger projects, but the industrial business we like, and it's growing nicely. [indiscernible] conservative on guidance there. So M&A, I think you can't predict M&A, when we look at it. I will say, organically over the past few years, you're growing at least at the EPS line [indiscernible] at the midpoint of our guide this year and what we've done last year and probably the year before it wouldn't surprise me. I didn't look that far back. But we've been able to grow the business organically. And I know a lot of big numbers and I look at them too.

They were big, when is a $1 billion company. They're big when its [ 5 ] and they're big when it's [ 20 ]. So we just have to put our heads down and go to work and execute. I'm not worried about what everyone else is doing. But Quanta needs to focus on solutions, and we really have a good strategy on M&A. I like what we see. We acquired a great platform that provides them multi-verticals off of it. So I think we actually put ourselves in a position to have more M&A opportunities.

Now whether we do it or not, it just depends. It depends on the company. It depends on timing. We're going to be conservative with the balance sheet like we have been, leverage it. But I think you invest in Quanta for a couple of reasons. When we're going to execute our macro markets and lastly, how we deploy free cash. And if we deploy free cash the way we have the past decade, I like our chances going forward.

[Operator]

Our next question comes from the line of Michael Dudas with Vertical Research Partners.

[Michael Dudas, analyst]

So maybe update us on the communications business. You highlighted the $900 million or so of revenue this year. But what's the tone of that business? It seems like you're probably targeting more value on the margin side relative to growth. And do you see some visibility as we move out the next couple of years? Any trends or client discussions that could give us some improved traction going forward.

[Earl Austin, executive]

Yes, we like the business. I mean I think it's not something that the company certainly has some nice clients, and we continue to invest in and our resources. The business has always been fairly dynamic and moves quickly and [indiscernible] move in and out. And so we're pretty, what I would call prudent about how we invest in the business. We can grow it or not grow it really, and it doesn't really impact us too much. So the growth hasn't come from this segment at this point.

And not to say it won't. We just haven't really pushed on it. I really look at kind of basis, whether they're regulated, nonregulated, how much you want to communications and how we invest in capital. So as we see that, we make adjustments here or there to support our clients. If the business is fine, or of money or whatever the [indiscernible] is these days. They say it's common, it's coming. It's coming on big spends, big spends. I've seen it. When it gets to, I'm sure we'll grow.

[Operator]

Our next question comes from the line of Alex Rygiel with B. Riley Securities.

[Alexander Rygiel, analyst]

A lot of tailwinds here driving your business. Any chance you could rank which ones might have the greatest impact on your business over the next 3 years?

[Earl Austin, executive]

Yes, Alex, I think the customer base -- the technologies is what's driving loan growth and what really gives me what I believe is something that we can point to that backstops most everything, the demand side of that. And no matter how you think about it, if it's even half what we're talking about from a gigawatt standpoint is substantially more than anyone thought.

The capital budgets of our customers continue to rise, whether it be technology, whether it be utilities. So that rise is certainly something that we can point to. But I would just say the backstop of technology against all things, power or data center or whatever it may be, is there, and then you roll it back and go, do they have a product. They absolutely do.

I mean I think people are willing to spend money on AI people want to spend. So if there is a product against the infrastructure that's necessary to be put in place. So I do believe the builds that are necessary to back stock generation are really being driven by technology. So I point to that at this point for the driver of growth.

[Alexander Rygiel, analyst]

And then with sort of this new big backdrop of technology driving your business? Are you going to market and selling a broader portfolio of services in a different way today than maybe you did in the past?

[Earl Austin, executive]

Yes. I mean I think we're more solution-based and trying to understand where the clients at and trying to have the end solutions, whether it be front side of the business and provide the solution to the client as clients start moving faster, if you want to go faster, you really need to be inclusive, and we have to understand what the bottlenecks are from transformers all the way through it. And so our ability to really take out the bottlenecks to go faster to market is something that the company prides itself on. I think everyone that we deal with wants to go faster today. Can we do it faster? Can we do it faster? So our ability to get it to market quicker and on time and relatively in line with budget is something that people want, and we're able to provide that.

[Operator]

Our next question comes from the line of Steven Fisher with UBS.

[Steven Fisher, analyst]

Just a question on cash flow related to the Canadian receivables. It sounds like you're still pretty confident in the position that you have there. Maybe if you could just give us a little more color on the timing of collection and thoughts around the guidance raise or the guidance maintaining there against the general guidance raise? And how tied is your deleveraging post CEI to the collection of that Canadian receivables.

[Earl Austin, executive]

Yes. So there's -- I'll let Jayshree get to the numbers, but the real itself, we're confident in our position we said it would start to happen in the second half of the year. So part of this is just the whole -- the way the settlement works and the way we're working through it with the client, I expect it to be in chunks like you've seen today, but look, we're getting closer and closer every day. If it's not by the end of the year, it's very shortly thereafter. So we're making progress working with the client on cloud and [indiscernible] issue with that receivable, as you can see, some of it's starting to move forward now. So I like where we sit there. I'll let Jayshree comment on the rest.

[Jayshree Desai, executive]

Yes. I mean we'll be under 2x. Our expectation is under 2x leverage by the end of the year. And even without for whatever reason, we weren't able to collect, which again, we don't expect that. But to answer your question, we'd still be below 2x.

[Steven Fisher, analyst]

Okay. Excellent. And then Duke, just a bigger picture question to follow up on the M&A. I mean, you've really broadened the capabilities of the company over the last several years. What does service line diversity mean for you going forward? Is it just sort of tweaks from here? Do you think there's still a lot more you can do to kind of diversify the service lines?

[Earl Austin, executive]

I think we really understand craft skill and how they think and we think about it and how we about trade. So we have a workforce development. We have training that we've invested a significant amount in across craft. And I don't really believe it doesn't matter what craft it is. So if it's inside electric, it gives us a whole new craft skill workforce because the high voltage and low voltage, the transferability of the [ 22 ] is not -- I mean you have trained on both sides of that -- and so you can't move them across a little bit you can. Some can, some can't. But it's not as easy as it sounds.

So there is extra [indiscernible] required on both sides of that movement. So I do believe that the voltage workforce gives us a whole new venue there. And then the things that we can do to meet customer demand across that from a craft standpoint are there. We like the front side of our business as we before, we need to basically get more scale out of the front side of the business.

And so we'll continue to try to either organically grow that or make acquisitions in that side of the business. So we're not afraid to make acquisitions that make sense. I think we try to be prudent about that. And we're patient. We're not -- there's nothing in there. We talked [indiscernible] probably over 7 or 8 [ years ], and it happens when it happens. And I think we're patient. And I want to make by world-class companies, and I think we have the very best in the business in craft. So we want to lead the way there and we'll be patient until we see the right kind of opportunities to the comprehensive solutions that we already have.

[Operator]

Next question is from the line of Neil Mehta with Goldman Sachs.

[Neil Mehta, analyst]

First question is more of a big picture -- big picture question around the regulatory environment, there is no doubt there's an enormous demand for your services and the need for utility CapEx to upgrade the grid. But as we've seen in some tough regulatory outcomes, including in places like Illinois, sometimes it [indiscernible] about the commitment of the regulator to push those capital increases through. And so I just love your perspective on the regulatory environment and the juxtaposition of the enormous need for the services relative to the constraints from a regulatory perspective.

[Earl Austin, executive]

Yes. I think it's a couple of things. I do believe that energy is top of on everyone's mind, affordability is on top of everyone's mind. You in a political environment. sitting here in Houston watching the hurricane and with our own customer knowing that they did a really nice job getting people in here and the political outcry on day 2 about [ 27 ] million people out with pine trees 100-foot telephone across wire all throughout to expect them to have service back in 2 days and the outcry and what it's done politically is not just a fair for the money to spend. If you want you want certainty and you want it up in 2 days, spend $1 trillion and underground it, you'll fix it.

Until you do, don't matter what poll you put in and that when you put a 100-foot tree across a wire, it's coming down. And so I just -- that outcry that we see from a regulatory standpoint it doesn't match where the country wants to move. And it's expensive. It costs money. So that affordability is something that every single customer we have, whether doesn't matter where you're at.

We all face it. We have to help them, and we have to be out there and try to be prudent about how we look at costs. It's why we're looking at solutions we're certainly there to help and try to make this smooth. They depend on us to do so. And so I do believe, whether it's political, whether you're in an political season, so it's fun times around. Once we get through that, I think some of this will die down and we can get the country moving in the right direction towards the transition. And if it's not -- if they don't believe it's EV, if we don't believe it's renewables in the heat, will continue, and you'll have 114, 115, and we'll need another air conditioner every house. So either way, you're going to push load.

[Neil Mehta, analyst]

And then the follow-up is Cupertino, really built on your data center platform. But as you think about what data center focus opportunities could like 5 years from now, how could you envision the really scaling that business? And what could set look like to capture the 15% type of growth in CAGR that you alluded to in your slides?

[Earl Austin, executive]

Yes. They're really renewable business as well. So I wouldn't discount what they're doing there with batteries and solar. So I do think they're doing a nice job there as well, and you can see it show up in the solar in the guidance. We like that as well. But the data center piece and going of chips and all those kind of things, that's right down the wheelhouse. So where we think Cupertino can grow, they were limited by resources, bonding capacity, things of that nature.

I do think our solution base, a more comprehensive solutions to their client base and balance sheet, speed to market, clearly, the manufacture transformers, just everything that we're trying to accomplish to speed or speed to market is something that their client base values. So I like where we sit. We're early. I know there are synergies in the market, and we were talking around kind of an 8%. I know it's better. I know we can do better than that. I know they know we can do better than that.

So we'll continue to find synergies and I think you'll see the growth not only in the top line, but also in the bottom line of the company, our cash flow profile looks different. If you look at our returns, they look different. So we continue to push the company in the right spot in the macro markets that we're in, they want solutions. We continue to say we're a solution provider set here it is.

[Operator]

Our next question comes from the line of Chad Dillard with Bernstein.

[Charles Albert Dillard, analyst]

So a couple of questions for you on the implied second half guidance. So first on your electric business. It seems like the second half, there's going to be a pretty significant ramp in revenues, half over half or year-on-year even if you factor out the recent acquisition. Just hoping you could help us bridge that and get comfortable with that? And then secondly, in the renewables business, it looks like based on the guide again, like excluding CEI, it looks like growth starts to flatten out as we exit the year. So I just wanted to get some color on how confident you feel about the acceleration of that growth in that business.

[Jayshree Desai, executive]

Yes. Chad, on the -- let me start with renewables. Again, we are sitting in a good spot. We feel good about where our customers are headed. As Duke pointed out, we're not seeing any concern yet from our major customers around election noise, et cetera. I do think, again, the quality of the customer base matters a lot in the renewable market. So we still feel very confident about our end of year expectations there. We are, of course, as you know, we tend to be conservative. We want to see the market develop over the next 6 months.

So any sort of perceived pullback is only that. We continue to enter contracts or continuing to build projects. We don't see any concern sitting here today. And on the electric side, it is a strong back half, but that is -- you touched on it. We're seeing our utility customers continue to want to spend capital.

We believe that, that capital is coming. We've got big programs that we are -- we've entered into and that will start ramping towards the back half of the year. So all of those things give us confidence in our revenue expectations that we've laid out in our guide for both the electric and renewables segment.

[Earl Austin, executive]

Steve, a little color to you on that. I would say that as we see it -- it's difficult to build big solar. One of the reasons that we felt like we need to lean in the Blattner and give us the very best in the business, we're concerned with building big solar projects. It's not easy. It looks easy. It's just not -- and so I think that is something we have a lot of -- a great deal of confidence in. So does the client base. So the need for renewables to support the tech growth gives you what we believe is visibility for the long haul here and continue -- I'm not saying they won't do gas. We're not saying we will be a new plant here or there, but you're backstopping renewables and you want redundancy in their systems.

So if they don't build it day 1, they'll build it day 2, pushing renewables into the system eventually. So I do believe that will continue like what we see going forward under any administration. Yes, I think we've taken a premium approach to guidance, and Jayshree is right. I mean we are starting programs that give us a lot of visibility into the back half on the electric segment as well as the renewable segment. So -- we feel confident we just need to execute through here.

[Charles Albert Dillard, analyst]

Great. That's super helpful. And I won't just return to a conversation earlier in the call about the shift from distribution, both electric and gas towards transmission at our utility customers. So I understand that that's what's happening today or like at least for 2024. But like any color you can give for the conversation with the customers about whether you'll see less incremental dollars of capital flowing back to the distribution side of the CapEx equation?

[Earl Austin, executive]

I mean it's regional. You had some movements in there. I didn't say our electric business was maybe [ one ] way to other, by the way, I just said, we have the ability to move them around as necessary. I feel like our distribution on the electric side is fine. There is some push in certain regions, but it's growing and others. So I'm not too concerned there. The gas of the business than we in some capital off gas to electric, where you're caught up in some gas things and methane releases, things like that. So they're moving over into electric for the year.

It happens they're able to need budgets around we're able to accommodate. So there is some movement. There's always movement though. I'll say always are always moving into substations or transmission distribution, it doesn't matter. We're fungible -- our skill sets are fungible. We can move them around. That's part of the solution that we provide to the client and gives the ultimate what I consider a flexibility. Our job is to provide the flexibility to the client and that solution, we can give it to them.

[Operator]

Our next question comes from the line of Andy Kaplowitz with Citi.

[Andrew Kaplowitz, analyst]

Duke, you talked about a bit of a low in contracting last quarter as your customers were trying to figure out to deal with the higher load growth, but you obviously had a nice uptick electric power backlog this quarter. So did that will effectively come to an end? And then can you talk about your confidence level about growing backlog from here? Are you starting to see these larger MSA renewables accelerating again?

[Earl Austin, executive]

Yes. I think what we saw when I said low, I just think it's -- you reset a bit in this transition. We continue to see that. I'm looking at their capital budgets and you're talking about 15 gig solar, wind and the load for that matter. You're going to see some movements across the segments, consistently. I do think everyone is maintaining our capital budget, we continue to point to it. And they're going up because load's going up.

You can't deny the fact that if you're going to add 15 gigs, 10 gigs, 7 gigs of generation, loads going up, capital is going up. How you do it, it's got high, whether it's renewables, it's still moving up. If we build gas fired across the system, it stabilizes renewables and it actually makes renewables faster and better. So I wouldn't get to -- I mean you'll see some of those movements across and those capital spend is new. We just got to be flexible with how we look at it. So I think transmission is something that's extremely important. We saw PGM yesterday on go out and you can see the pricing at the [indiscernible] market. I just -- and you can say, okay, it's onetime, but the fact is the demand is far out seeing supply. 101 economics. And it just is there. It's been there. It's been coming. We need transmission in this country, and we got to build it.

[Andrew Kaplowitz, analyst]

Very helpful. And then could you give us a little more color into how your Canadian business is doing? I think it's been a drag on you guys for quite a while. I know you expected some improvement in the second half of this year. I think you had some positive commentary regarding still expecting improvement in Canada in your release. But could you update us on where you are in that geography.

[Earl Austin, executive]

I mean it's certainly getting better. The macro market is getting better. We expect the second half to increasingly better quarter-over-quarter and into '25 because the market is getting better. Canada is always the market has higher high highs and low lows. And so you move along with it. But we were able to move a lot of the resources into the states still are in the states, helping supporting some of the growth in the States. And as we see Canada come back, we'll be Canada more Australia is a nice business as well. It's been very, very nicely. So we like the business long term. It's -- we just got -- we rightsized on the backside of it, and we'll grow off that again and just be cautious about how we look at that on a go-forward basis. But I do think in the next year, we see we book the work and see where it will allow us to bring margins up very close to parity with the rest of the segment throughout the year. It's incremental, though. It's not all at 1.

[Operator]

We have no further questions at this time. I would like to turn the floor back over to management for closing comments.

[Earl Austin, executive]

Yes. So we appreciate the 58,000 employees in their dedication to the clients and what they go through every day with the heat rain and they worked 16-hour days [indiscernible] days in a row. It doesn't get in notice. It doesn't go on notice from management team and clients, we appreciate you. And we'd like to thank all of you for participating in the conference call. I appreciate your questions and your ongoing interest in Home Services. Thank you. This completes our call.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.