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Text: These include all statements reflecting Quanta's expectations, intentions, assumptions or beliefs about future events or performance or that do not solely relate to historical or current facts.
Please also note that we will present certain historical and forecasted non-GAAP financial measures in today's call, including adjusted diluted EPS, backlog, EBITDA and free cash flow.
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Additionally, we renamed our Pipeline and Industrial segment to Underground Utility and Infrastructure Solutions, which we believe is more reflective of the strategic changes we have made over the past five years to reposition the segment toward a greater level of resilient business services to our gas utility, pipeline integrity and industrial customers.
These services tend to be more visible and recurring in nature and are driven by safety, reliability and environmental regulations.
We continue to expand our capabilities in both segments to provide comprehensive end-to-end solutions with craft skill labor at the core.
We are proud of our successful focus on base business activity over the last five years, which now accounts for more than 90% of our revenues.
We continue to view large projects as upside opportunities and are well positioned to safely execute them when they occur.
Quanta performed well and delivered a solid year in 2020, which includes numerous accomplishments.
This was due to the performance of our field leadership and the people of this organization who continue to be exceptional.
Here are some of the accomplishments in 2020: Electric Power segment revenues achieved record levels, and we earned our best operating margin performance in six years, driven by strong execution across our operations.
Included in these results were record storm response revenues from supporting our customers' efforts to restore power to millions of people adversely impacted by numerous severe weather events during the year.
Our ability to quickly mobilize this level of resources to support our customers in times of need, even during a pandemic is unmatched in our industry.
After an 18-month competitive process, LUMA Energy, our joint venture with ATCO, was selected for a 15-year operation and maintenance agreement to operate, maintain and modernize PREPA's more than 18,000 mile electric transmission and distribution system in Puerto Rico.
LUMA and PREPA are making good progress toward transitioning operations of the system this year, and we continue to believe this opportunity is transformative for Quanta.
We grew our communication services revenue by more than 40%, meaningfully improved profit margins and ended the year with a total backlog of approximately $900 million.
We substantially completed the exit of our Latin American operations, despite the significant challenges and impacts to these wind down activities from the effects of COVID-19.
We continue to lead the industry in safety, which we believe starts with training.
We continue to incrementally invest in our training efforts through our Northwest Line College and Quanta Advanced Training Center.
Additionally, last year, we began site preparation for a new line worker training campus in Puerto Rico that will be operated by Northwest Line college.
The facility will provide world-class training to LUMA's employees and develop Puerto Rico's future craft skill workforce.
Our industry-leading training and recruiting initiatives are driving improved productivity in the field and ensures that we have the very best craft skill labor.
This enhances our ability to collaborate with customers and labor affiliations on future workforce needs and further differentiate us in the marketplace as a strategic solutions provider.
We invested approximately $400 million in strategic acquisition of seven high-quality companies with great management teams that expand or enhance our ability to provide solutions to our customers, are additive to our base business and advance our strategic initiatives.
These companies add to our self-perform capabilities, which typically accounts for approximately 85% of our work and are key to providing cost certainty to our customers.
We believe our approach to acquisitions and our operating model helps derisk our work portfolio through improved execution and results in more consistent earnings.
We strengthened our financial position with the closing of our $1 billion investment-grade senior notes offering, which we believe points to the resiliency and sustainability of our business model and positive multiyear outlook.
We demonstrated our commitment to stockholder value and confidence in Quanta's financial strength and continued growth opportunities through the acquisition of approximately $250 million of common stock and a 25% increase in our dividend.
And finally, the diversity of our services, proactive cost management and execution through significant uncertainty caused by the pandemic and challenged energy markets, allowed our Underground Utility and Infrastructure Solutions operations to perform well under the circumstances.
We are optimistic that the most challenging market conditions are behind us, and we see opportunity for revenue and margin improvement in 2021 and continue to believe the segment can achieve upper single-digit operating income margin as operating conditions further normalize over time.
We believe our strategic position in the marketplace remains strong, and we are well positioned for continued profitable growth over the near and longer term.
Despite unprecedented operating conditions and uncertainties caused by the global pandemic proportions of our business, the strong performance of our Electric Power and Communications Operations resulted in record adjusted EPS, adjusted EBITDA, cash flow and backlog in 2020.
While we are proud of the achievements last year, we remain focused on getting better to ensure that Quanta continues to evolve to effectively collaborate with our customers and business partners and helping them achieve their goals and to capitalize on the opportunities ahead of us.
The recent severe weather conditions that impacted living conditions in Texas and other parts of the country shows how a critical infrastructure that we design, build and maintain is to our everyday well being.
The solutions Quanta provides supports our customers' efforts to increase reliability, safety, efficiency and connectivity, all of which have a favorable environmental and social impact on both the markets that we serve and society.
Additionally, our solutions facilitate policies and goals aimed at the adoption of new technologies and transitioning toward a carbon-neutral economy.
As a result, we believe our business is levered to favorable and sustainable long-term goals.
Our utility customers, who account for more than 70% of our 2020 revenues, are leaders in the effort to reduce carbon emissions with aggressive efforts to modernize and harden their systems, expand their renewable generation portfolios and implement new technologies for current and future needs.
A number of utilities have committed to providing 100% of their power by clean energy or achieving net-zero carbon emissions by 2050.
Achieving these goals will require substantial incremental investment in transmission, substation and distribution infrastructure to interconnect new renewable generation facilities to the power grid and to ensure grid reliability due to the significant increase of intermittent power added to the system.
Further, developed economies are expected to be increasingly driven by electricity to meet carbon reduction goals over time.
Vehicle electrification offers a large carbon reduction opportunity, in addition to residential and commercial space and water heating and industrial and agricultural electrification.
According to a report from the WIRES Group, increased electrification and electric vehicle adoption in the United States could require 70 to 200 gigawatts of new power generation by 2030.
The majority of which is expected to be renewables and could require incremental transmission investment of $30 billion to $90 billion by 2030.
We believe these investment requirements associated with electrification are in addition to the significant multiyear investment programs already in place for the coming years to modernize the existing power grid, to ensure reliable power delivery under current market conditions.
The outlook for our communications operations, which is within the Electric Power segment, remains bright.
We expect to generate approximately $700 million in revenue this year, which would represent approximately 30% growth over 2020.
Our communications services support the technology we use every day for work, education, entertainment, connecting with friends and family, all of which are critically important.
To that end, the effects of COVID-19 have caused communication providers to increase investment in the fiber networks to ensure adequate speed, capacity and reliability to meet these needs.
Additionally, we believe Quanta is well positioned to leverage our Electric Power and communication Solutions capabilities to assist many of our rural and municipal electric customers, who are expected to participate in the rural digital opportunity fund.
This fund provides more than $20 billion to bridge the digital divide that exist for millions of people living in rural America without access to adequate broadband connectivity.
Further, we expect 5G deployments to accelerate in 2021, which we remain well positioned to continue to participate in.
Our Underground Utility and Infrastructure Solutions segment experienced meaningful challenges during the year to the effects of COVID-19, such as shutdowns in certain cities that had short-term impacts on our gas utility services and a significant reduction in demand for refined products that materially impacted our industrial service customers.
As discussed previously, we believe the greatest impact from these dynamics are behind us.
Going forward, we expect to continue our focus on our gas utility, pipeline integrity and industrial services businesses, consistent with our strategy over the last five years due to the favorable long-term trends, driven by safety, reliability and environmental regulations.
Our gas utility services supported with regulated programs that will replace and modernize aging infrastructure, which can be leak prone and post potential safety concerns.
They also support customer efforts to reduce methane emissions and position their gas distribution systems to potentially deliver hydrogen to users in the future.
Our pipeline integrity services seek to ensure that existing pipelines operate safely and in an environmentally friendly manner.
And many of our industrial services support customers compliance with regulations aimed at minimizing environmental impacts caused by methane gas release and increased operational efficiency and safety.
We believe these favorable, safety, reliability and environmental initiatives and long-term industry trends, such as electrifications and technology implementations, will continue to drive growth opportunities for Quanta for the foreseeable future.
Quanta is actively engaged in collaborative conversations with many of our customers about their multiyear, multibillion-dollar programs extending as far as 10 years, regarding how Quanta can provide solutions throughout our customers' value chain to meet their strategic infrastructure investment goals and support of these initiatives.
We believe -- which we believe demonstrates the strength and sustainability of our business and long-term strategy, favorable end market trends, our ability to safely execute in our strong competitive position in the marketplace.
Our expectations call for growth in revenues, adjusted EBITDA and earnings per share and improved profit margins.
Additionally, we see opportunity to achieve new record levels of backlog in 2021.
In summary, we generated solid results in 2020 that we believe will reflect the resiliency and sustainability of our business, the benefit of our strong financial position, the successful execution of our strategic initiatives and the excellence of our people.
The challenges we faced and the way we continue to support and collaborate with our customers last year, particularly as it relates to the pandemic, brought out the best of this organization, and I believe, make Quanta stronger.
Overall, our end markets and multiyear visibility are solid, and we have built a strong platform that positions us well to capitalize on favorable long-term trends, particularly the transition toward a carbon-neutral economy and the adoption of new technologies.
Considering our organic growth opportunities and the levers available to us to allocate future cash flow generation into creating opportunities such as stock repurchases, acquisitions, strategic investments and dividends, we believe Quanta will continue to generate meaningful stockholder value going forward.
Quanta is a portfolio of exceptional businesses with geographic and service line diversity.
We are anchored by our commitment to craft skilled labor and our self-perform capabilities.
We are focused on operating the business for the long-term and expect to continue to distinguish ourselves through safe execution and best-in-class build leadership.
We will pursue opportunities to enhance Quanta's base business and leadership position in the industry and provide innovative solutions to our customers.
We believe Quanta's diversity, unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for all our stakeholders.
Today, we announced fourth quarter 2020 revenues of $2.9 billion.
Net income attributable to common stock was $170.1 million or $1.17 per diluted share and adjusted diluted earnings per share, a non-GAAP measure, was $1.22.
Overall, the fourth quarter closed out another exceptional year of operational performance for Quanta, a year in which we delivered record results across multiple metrics despite headwinds faced related to the pandemic.
Our Electric Power revenues, excluding Latin America, were $2.11 billion, a 15.7% increase when compared to the fourth quarter of 2019.
This increase was driven by mid single-digit growth in our base business, increased contributions from the timing of certain larger projects and $75 million in revenues from acquired businesses.
Contributing to the base business growth was approximately 13% growth from our communications operations and record fourth quarter demand for our emergency restoration services of approximately $150 million, primarily associated with efforts to restore infrastructure in the Southeastern and Midwestern United States, although it came at the expense of certain other work in progress.
Partially offsetting these increases was the expected reduction in fire hardening work in the Western United States during 4Q '20 as compared to 4Q '19.
Electric segment margins in 4Q '20 were 11.6%.
And excluding our Latin American operations, segment margins were 12.9% versus 9% in 4Q '19.
The robust operating margins were driven by increased profit contributions from the elevated emergency restoration services, which typically present opportunities for higher margins due to higher equipment utilization and fixed cost absorption as well as improved margins in our Canadian operations, primarily associated with certain larger transmission projects.
However, although difficult to calculate the direct incremental effects, excluding revenues and profit from storm response efforts, our margins were still comfortably in double digits, reflecting continued strong execution across all of our Electric Power operations.
Of note, our communications margins continue to improve against the prior year with a margin of 9% during the quarter.
Regarding our Latin American operations, included within the Electric segment, we have substantially completed the wind down activities required to exit those markets.
Our year-long effort to shut down our operations across the region was significantly impacted by COVID-19 dynamics as well as political and regulatory uncertainties and customer challenges, all of which contributed meaningfully higher losses than anticipated.
In the fourth quarter, we took the additional step of reserving remaining property, equipment and inventory assets as the uncertain market conditions minimize likely recoveries upon disposition.
As a reminder, we currently receive no tax benefit for losses in Latin America, so the $27 million in losses impacted the quarter by approximately $0.19.
With minimal contractual obligations remaining, we feel comfortable that other than arbitration updates on the terminated Peruvian Communications Network Project, we will no longer provide commentary on Latin America.
Revenues from our underground utility and infrastructure Solutions segment were $806 million, 36% lower than 4Q '19.
Similar to prior quarters, expected reduced contributions from larger diameter pipeline projects contributed to the decline.
The variability attributable to larger pipeline projects is why we've taken strategic steps to reposition our service offerings around more predictable utility-backed revenue streams.
While we remain well positioned to opportunistically deploy resources for larger pipeline projects, we expect most future work will consist of smaller pipeline transmission and integrity-oriented projects.
Additionally, the lingering negative impacts of COVID-19 have reduced some level of demand for broader services across the segment with the reduction in demand for refined products substantially contributing to reduced quarter-over-quarter revenues from our industrial operations.
Operating margins for the segment were 5.1%.
these margins were 190 basis points lower than 4Q '19, primarily due to reduced revenues as well as some degree of execution challenges during the quarter and costs associated with the exit of certain ancillary pipeline operations.
These negative impacts were partially offset by net positive project closeouts, primarily driven by the recognition of previously deferred suspension and milestone payments and the reduction of remaining contingency balances associated with the Atlantic Coast pipeline project, which was officially terminated on December 31, 2020.
Our total backlog was $15.1 billion at the end of the fourth quarter, slightly higher than 4Q '19 and comparable to the third quarter of 2020, yet remains at record levels.
12-month backlog of $8.3 billion is an increase from both the fourth quarter of 2019 and the third quarter of 2020.
As a reminder, the LUMA joint venture is accounted for as an equity method investment, and therefore, does not contribute to revenue and is not included in backlog.
However, assuming an operating margin profile consistent with our Electric Power operations, LUMA's contribution over the 15-year operation and maintenance agreement would imply a backlog equivalent of more than $6 billion for Quanta.
For the fourth quarter of 2020, we generated free cash flow, a non-GAAP measure of $200 million.
And although $381 million lower than 4Q '19, it was higher than we anticipated, driven by stronger profits in the quarter and a cash cycle consistent with our third quarter results.
For the year, we generated record free cash flow of $892 million.
Days sales outstanding, or DSO, measured 83 days for the quarter, which was comparable to the third quarter of 2020 and fourth quarter of 2019.
Cash flows in the fourth quarter and full year 2020 did partially benefit from the deferral of $37 million and $109 million of employer payroll tax payments permitted by the CARES Act with the payments due in equal installment at the end of 2021 and 2022.
We had $185 million of cash at the end of the year with total liquidity of $2.2 billion and a debt-to-EBITDA ratio, as calculated under our credit agreement, of approximately 1.2 times.
We continue to deal with some level of COVID-19 uncertainty as we assess the near-term prospects of our operations, primarily in our underground utility and Infrastructure Solutions segment, and we remain prudent with our expectations for 2021.
However, as we look ahead to 2021 and beyond, we see the base business propelling multiyear growth opportunities for both segments.
Electric segment revenues grew to $7.8 billion at the end of 2020, and we continue to see our base business providing mid-single to double-digit growth opportunities, coupled with some degree of increased contributions from larger projects, primarily associated with previously announced projects in Canada.
In the aggregate, we expect Electric Power revenues to range between $8.3 billion and $8.5 billion, which includes expected revenues from our communications operations of around $700 million.
As it relates to Electric Power segment revenue seasonality, we expect revenue growth in each quarter of '21 compared to 2020, with quarter-over-quarter growth in the first and second quarters, potentially exceeding 10%.
We expect first quarter revenues to be the lowest of the year due to normal seasonal weather dynamics impacting certain construction activities.
We expect the high end of our revenue range to represent greater revenue growth opportunities in the third and fourth quarters relative to 2020.
We expect 2021 operating margins for the Electric Power segment to range between 10.1% and 10.9%, which includes contributions of approximately $29 million or $0.20 per share from the LUMA joint venture and earnings from other integral unconsolidated affiliates.
LUMA is expected to contribute around $9 million in the first half of the year and then increasing in the back half of the year as we exit the front-end transition services period.
Although we are proud of our overall Electric Power performance in 2020, our 11.6% margins, excluding Latin America, are above historical averages and are the highest since 2013, due in part to record annual emergency restoration service revenues of $450 million.
As outlined in our accompanying slides, our 2021 expectation for margins for this segment are consistent with historical averages and are also based on expectations for more normalized emergency restoration service revenues of approximately $200 million, also in line with historical averages.
As is typically the case, we expect that first quarter operating margins will be the lowest for the year, possibly slightly below 10%.
However, we expect margin to increase into the second and third quarters and then slightly decline in the fourth quarter.
We believe communications operating income margins, which have been dilutive to segment margins in prior periods, could be at parity with electric operations on a full year basis.
The underground utility and Infrastructure Solutions segment continues to be impacted by COVID-19 and the challenging energy market conditions.
However, we are anticipating upper single-digit to double-digit revenue growth off of 2020 with full year revenues expected to range between $3.65 billion to $3.85 billion.
Over 90% of our revenue expectations for 2021 represent base business with larger projects representing their lowest level of contributions in the last seven years.
From a seasonality perspective, we see first quarter revenues being our lowest for the year, likely more than 20% lower than the first quarter of 2020.
This decline is primarily due to significantly reduced industrial service revenues compared to the record results in 1Q '20, as industrial customers are still dealing with lower demand stemming from decreased global travel activity associated with the pandemic as well as reduced contributions from larger pipeline projects.
Revenue should then increase sequentially into the third quarter than seasonally decline in the fourth quarter.
Quarterly revenues for the second through the fourth quarters are expected to be higher on a quarter-over-quarter basis as compared to 2020 with double-digit growth expected for each quarter.
Operating margin improvement for the segment continues to be a focus for us.
We see segment margins ranging between 5.5% and 6%, led primarily by continued execution within our gas LDC operations.
Our full year margin expectations include a breakeven contribution from our industrial services operations in 2021 due to the continued challenging environment.
However, to put our current segment margin guidance in context, if our industrial operations contributed at historical pre-COVID margin levels, our segment margin guidance would increase by over 100 basis points.
Consistent with years past and similar to Electric Power, our first quarter traditionally has lower activity in the segment due to weather seasonality, which impacts our revenues and pressures margins.
With current inclement weather across much of the U.S., further pressuring those operations, we expect first quarter margins between breakeven and a small loss.
However, we expect solid improvement into the second and third quarters with a seasonal decline in the fourth quarter.
These segment operating ranges support our expectation for 2021 annual revenues of $11.95 billion to $12.35 billion, and adjusted EBITDA, a non-GAAP measure, of between $1.09 billion and $1.19 billion.
This represents 8% growth at the midpoint of the range when compared to 2020's record adjusted EBITDA.
With these operating results, we estimate our range of GAAP diluted earnings per share attributable to common stock for the year to be between $3.16 and $3.66, and anticipate non-GAAP adjusted diluted earnings per share to be between $4.02 and $4.52.
Turning to cash flow.
We expect free cash flow for 2021 to range between $400 million and $600 million with the standard disclaimer that quarterly free cash flow is subject to sizable movements due to various customer and project dynamics that occur in the normal course of operations.
Included in our free cash flow expectation is the anticipated payment of $54 million in the fourth quarter related to payroll taxes that were deferred in 2020.
As we have discussed during prior investor events, our cash flow generation moves counter to our revenue growth rate.
For instance, a large driver of our significant free cash flow in 2020 was reduced revenues of approximately $900 million compared to 2019, decreasing working capital needs.
However, higher revenue growth, like we're guiding for 2021, will like to require a meaningful investment in working capital to support the growth.
While our 2021 free cash flow may be negatively impacted by increased working capital required to support our return to 2019 revenue levels, we believe the consistent, sustainable growth profile and solid margins of our base business provides for repeatable levels of free cash flow generation in line with our 2021 guidance in future periods.
Looking back on our 2020 performance, although there were headwinds to the year, we ended the year with $11.2 billion in revenues, which represents an 8.1% revenue CAGR since 2015.
More importantly, we ended the year with slightly over $1 billion of adjusted EBITDA, a record for Quanta and equal to our goal established five years ago, which represents a nearly 15% CAGR since 2015.
Lastly, our record adjusted earnings per share of $3.82 represents a 28% CAGR since 2015, with our adjusted earnings per share growing faster than profits, which are growing faster than revenues.
Over the last five years, we have deployed approximately $1.4 billion in cash for M&A and strategic investments and $760 million for stock repurchases.
While we acquired $250 million of common stock in 2020 and $7 million of common stock through February 24, 2021, we have approximately $530 million of availability remaining on our current stock repurchase program.
Our first capital priority remains supporting the growth of our business through working capital and capital expenditures, however, we remain committed to the deployment of remaining available capital to stockholders through our stock repurchase and dividend programs, and we continue to expect opportunistic acquisitions.
Our $1 billion bond offering in 2020 established a fixed level of debt that nicely complements our current EBITDA profile, which we believe is a repeatable, sustainable baseline of earnings.
Simultaneously, we secured an expanded credit facility, further enhancing our ability to meet incremental capital needs.
Overall, we remain confident in the strength of our operations, our prospects for profitable growth and the repeatable and sustainable nature of our core markets.
We've developed a platform for Quanta to capitalize on the trends driving the spend in our markets, and we firmly believe delivering base business solutions through world-class craft skill labor, opportunistic larger project deployments and continued balance sheet strength will be the key to delivering long-term shareholder value.

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q4 earnings per share $1.17.
q4 adjusted non-gaap earnings per share $1.22.
expects 2021 revenues to range between $11.95 billion and $12.35 billion.
expects 2021 earnings per share to range between $3.16 and $3.66 and adjusted earnings per share to range between $4.02 and $4.52.

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