Quanta CEO Austin: Shelter-in-Place Restrictions Due To COVID-19 Have Disrupted Some Operations

Shelter-in-place restrictions in some areas have created disruptions to portions of Quanta Services’ operations, particularly in major metro markets that have been meaningfully impacted by the COVID-19 pandemic, Quanta President and CEO Duke Austin said during the company’s May 7 1Q20 earnings call.

“This dynamic has also compounded challenges that the broader energy market is experiencing, which is affecting portions of our pipeline and industrial segment,” he said.

Quanta believes that April will prove to be the company’s most challenging month of the year due to shelter-in-place declarations throughout North America, as well as impacts on the company’s operations in some areas, Austin said. However, cities and states are beginning to ease community restrictions, he said, adding that Quanta will continue to communicate and collaborate with its customers while it experiences certain permitting delays.

“We’re not experiencing, and do not expect to experience, significant supply chain disruptions or work force availability issues,” Austin said, noting that some cost management steps that Quanta has taken include suspension of hiring at various operations and deferral of non-essential capital expenditures.

“Our portfolio of companies, geographic and services diversity, and focus on growing our base business gives us confidence in the resiliency of our business,” he said. “We estimate 80- to 90% of our revenues are derived from the utility, communications, and certain pipeline and industrial infrastructure services that we believe will be resilient even in today’s environment. The remaining less-resilient portion of our revenues, some of which are currently under pressure, should stabilize in the second half of this year, and, we believe, provide multi-year growth opportunities and reasonable returns.”

Demand for electric power services remains solid, he said, noting that utilities continue to actively deploy capital into their systems to modernize, harden, expand, and adapt to current and future needs.

Work on the Wataynikaneyap Transmission Project and on the East-West Tie Line Project is proceeding and, to date, has not been meaningfully impacted by COVID-19, Austin said.

As TransmissionHub reported, Quanta in September 2019 said that its operating subsidiary, Valard Construction, was selected by Wataynikaneyap Power LP to provide EPC solutions for the project in northwestern Ontario, Canada. Quanta said that its scope of work on the project consists of EPC services for more than 1,800 kilometers of transmission and distribution infrastructure ranging in voltage from 25 kV to 230 kV and 22 substations. The company noted that once completed, the project would be the largest electric infrastructure project ever implemented to connect remote communities in Ontario, including 17 First Nations communities, with electricity generation and distribution systems that are not currently connected to the provincial transmission grid.

Also, as reported, Quanta in December 2017 noted that it was selected by NextBridge Infrastructure through a competitive bid process to build the Ontario East-West Tie Transmission Project in northern Ontario. Quanta noted that through its operating subsidiary, Valard Construction, it will provide comprehensive construction services, including project management, material management, construction permitting, and the installation of about 290 miles of double-circuit, 230-kV transmission line connecting Hydro One‘s Wawa Transformer Station, Marathon Transformer Station and Lakehead Transformer Station.

During the 1Q20 earnings call, Austin also discussed Quanta’s gas utility operations, noting that utilities are in the early stages of multi-decade modernization programs to replace aging gas distribution infrastructure to meet regulatory requirements aimed at improving reliability and safety.
However, he said, as shelter-in-place orders were implemented across North America, community restrictions impacted Quanta’s operations in certain metro markets, beginning in late March. Those restrictions are beginning to lift and Quanta’s activity and utilization are gradually increasing as the company rehires employees and gets back to work, Austin said.

Also speaking on the call was Quanta CFO Derrick Jensen, who noted that for the company’s pipeline and industrial (P&I) segment, COVID-19 has impacted such metro markets as “New York, Detroit, and Seattle, where, despite our services being deemed essential, local governments are restricting and shutting down our work, which is creating material impact.”

Among other things, he noted that the exacerbating effect of COVID-19 on the challenged energy market is resulting in a meaningful revenue reduction in almost all of Quanta’s pipeline and industrial services in 2Q20, with revenues in the second quarter expected to be as low as $700m to $800m, or about 40% lower than Quanta’s original expectation, likely resulting in a small operating loss for the segment in 2Q20.

Earnings report

Quanta on May 7 said that 1Q20 revenues were $2.76bn compared to revenues of $2.81bn in 1Q19, and net income attributable to common stock was $38.7m, or 26 cents per diluted share, in 1Q20, compared to net income attributable to common stock of $120.5m, or 82 cents per diluted share, in 1Q19. Adjusted diluted earnings per share attributable to common stock (a non-GAAP measure) was 47 cents for 1Q20 compared to 96 cents for 1Q19, Quanta said, adding that both diluted and adjusted diluted earnings per share attributable to common stock for the three months ended March 31, 2019, include $60.3m ($43.9m after-tax), or 30 cents per diluted share, of earnings related to the recognition of previously deferred earnings on an electric transmission project in Canada.