So — and have opportunities to do — operate through at a very, very high level on the rest of them. So I feel really good about it. I feel good about the year and next year and the next and on and on.
Operator: Our next question comes from the line of Justin Hauke with Baird.
Justin Hauke : So that — the renewables margin progression is what I was going to ask about, too, and I think we’ve covered some of the thematic questions here. So I had a couple of numeric ones. I guess, first, just on the M&A, given that there’s a lot of moving pieces here, both new additions and divestitures, can you give us some context of what the net kind of revenue contribution from that is for the year in terms of your guidance? And then also is the $500 million that you talked about, is that inclusive of the proceeds from the divestitures you announced?
Jayshree Desai : So I would say the revenue — inorganic revenue contribution from the deals we did in the second half of last year as well as the announcements this year contributes around $500 million to $600 million. I’d tell you the two recent acquisitions, the revenue contribution there pretty much is offset by the divestiture of the oil and gas business. So we’re still around $500 million to $600 million and EPS contribution around $0.15 to $0.20.
Justin Hauke : So that’s not changed in net versus what you had before. Okay. And I guess the second question, again, sorry, it’s a numeric one, but we’ve covered some of the other grounds. Just on the other income line, it was $25 million seemed a little high. What was that?
Jayshree Desai : Well, that is we had the sale of an investment in a pipeline. The gain on that, so which we did adjust out of EBITDA and adjusted EPS. So that’s the biggest factor in that $25 million. You also had some gains on our deferred comp but that gets offset in SG&A. So the real impact is around that gain around the pipeline investment, which we backed out in adjusted EPS and EBITDA.
Operator: Our next question comes from the line of Gus Richard with Northland Capital.
Gus Richard : When I think about the data centers, typically, tip companies run their road map until they hit wall. Typically, the scale of the infrastructure or a power constraint in the chip. And AI is about to have a huge shift from training, which is very power-intensive to inference, which basically reduces the power consumption by 10%. I’ve seen this over the last 30 years where these guys changed their minds like they changed their stocks. And I’m just kind of wondering, maybe I’m wrong, but if all of a sudden, the load demand from AI drops significantly and these guys change their plans, what happens?
Duke Austin : I mean we had a great business prior to the AI coming in that we see fuel switching, we see EV penetration, we see renewables, fuel switching from coal. This is additive. And look, I — you can’t — you’re 24 months out, 36 months out today, if you say go. So no one is going to go, and that’s why you’re seeing exactly what you’re seeing. Everyone is saying, why are we going to build this infrastructure, why are we going to build a generation that lets someone guarantees the load. So yes, I agree with you. That’s not every utility. Every customer we have is making sure that the other side — the party on the other side is signing up for load growth that’s sustainable to pay the investment or if not, the rate payer pays. I mean that’s your dilemma. And I agree with you. That’s why you’re stalling again instead of going forward as fast as you can because everyone’s got to get that right, including tech.
Gus Richard : And then the second question I’ve got, I’ve been reading about reconduction of transmission lines, particularly in Europe. And I was wondering, is that a way to at least mitigate some of the construction on the grid and reduce the need for new routes? Is that something people are considering? And sort of how would that impact your business?
Duke Austin : Yes. I mean look, we’ve reconductored my career. And the new high-density wires, they run hard. They work in certain areas. It’s helpful. But what I would say is — what makes it easier, better, you’re still — it’s still a rebuild, basically. You’re just in the corridors that exists today. So yes, we can. We can even do it in energized state. We’re doing 250 miles now energized while the line is hot and reconducting, which is — we’re specializing in it, we train in it. So it’s certainly an advantage to the company. We’ve spent tons of R&D here. We’d like to conductor. We certainly have installed plenty of the other high-density conductor and we like it. So I think in general, yes, it makes sense. Technology will be a piece of this.
It will — and I — when you look at mining machines and you look at everything we see from a power demand, AI is a piece of it. But the onshoring, the shifts, the Amazon centers that are fully electric, you can imagine all the things that are drawing load right now. And it’s in my mind, we talked about data centers, I don’t know, four years ago, and said it would be a big push. We had no idea that AI would come in as well. And I just think as you move forward, if you haven’t used auto power or ChatGPT that ain’t going anywhere. That’s fantastic. I love it. It’s great. I think the country is in that direction and it’s certainly demand there and the jets and everything else we do on any given day, even if you reduce power. It’s kind of like appliances.
We’re going to get great things out of appliances what we did for about three, four, five years, and it helped us with load growth. You had negative load growth for a long time. You got positive load growth throughout the country for the most part, just in general. And so now when data shows up, it’s more significant than anyone thought and myself included.
Operator: Our next question comes from the line of Alex Rygiel with B. Riley Securities.
Alex Rygiel : Very nice quarter. First question here, cash flow in the quarter was very strong, yet I don’t believe you changed your full year guide. Are you incrementally more confident with the high end of your range now? And has your view on uses of free cash flow changed at all? And I have a follow-up.
Jayshree Desai : Yes. So free cash flow, I think just sitting here in the quarter, we did have a good free cash flow quarter. Pleased with that. But it’s early. We think it’s prudent given that our typical profile is the first half of the year tends to be cash flow-neutral or slightly negative with most of the free cash flow coming in the fourth quarter. We still think that’s where we need to sit right now. There is opportunity to be at the high end of that range. But I think the range where we are today is where we should be.
Duke Austin : Alex, too, I would say the business itself we set out to change some of the cash flow profiles of the business. I think we’ve done a nice job from an internal-invested capital. When you look at the returns, the way we calculate them, certainly moving up in the business. Even when the margins are a little softer, the returns are fantastic. It’s certainly generating — in the first quarter, typically, we’ll be talking about free cash was bad. And we had growth in the business, we had growth in head count and free cash generation. So I really like where we sit. I know everyone is hesitant to say that the business has fundamentally changed, DSO has fundamentally changed. I think they have. I think it gives us more flexibility.
We’ve always talked about the free cash and how we deploy it is something that we, as the team, have to make sure that we continue to deploy capital in the proper way that we have in the past to create the outcomes that we have in the past. So I think our ability to look at M&A, to look at buybacks, to look at everything that we do and be opportunistic, certainly, the free cash generation gives us more opportunity.
Alex Rygiel : And then secondly, I don’t think we’ve touched on telecom or industrial on the call here. Any notable movements there either in the quarter or for the remainder of the year?
Duke Austin : We bought the environmental solutions, but it’s sitting in really nicely. We really like the synergies we’re picking up there on the industrial side. So that business is performing well. Telecom had a nice quarter. We got parity to the electric segment a little better. I mean we also added some backlog there. I like the business long term. Certainly, data centers — the other part of the data centers is you’re still going to have to put fiber into fiber data center to data center. And they can’t really say, I want to go to this hub or that hub at this point because they’re everywhere. So you’re going to start building on all fiber to feed it at some point.
Operator: Our next question comes from the line of Sangita Jain with KeyBanc Capital Markets.
Sangita Jain : I know we’ve discussed data center dynamics a lot on this call, but I was just wondering, Duke, if there is a way for you to engage directly with data center companies, whether it’s for substation build-out or some behind-the-meter solutions, something aside from your leverage to the grid?
Duke Austin : Yes. I mean we talk to them all the time. I do think there’s opportunities to help and collaborate with them. Look, our job, we support our clients and our clients are talking to them as well. So it’s just a — it’s something that we balance between the grid, what their demands are, try to help on both sides of that. I do believe that as we move forward, as you see the company move forward, the demand back on the grid and how they deploy — where they deploy it, where they build, what they build certainly one of the right in the middle of it. And we want to sit with them and understand what they’re trying to accomplish. It allows us to facilitate it. So I — look, it’s something that the company we’ve talked to them a lot.
Our PTT business, the transformer business is certainly something that they value a lot. They want the transformers. They want them now. So I think those things are — bode well for us. And our ability to communicate and talk about power consumption with tech is something that we can help our clients with and ourselves.
Sangita Jain : And if I can follow up with one on MSAs, is there anything particularly different this time around on MSA timing than in past years that’s causing the exceptionally slow start to the year?
Duke Austin : I don’t feel like it’s slow. I feel like we’re doing great. It’s a little bouncy on distribution system, which we said in the past. Like I said, we’re up 5.3% on transmission, distribution and substations, if you look at some look at the delineations of the segments as a whole. So I feel like we’re starting nicely. Our backlog is down in the UUI on big pipe, which fine with me. If you take out big pipe and you add renewables and you add electric, you’re up, your backlog is up. So yes, there’s a lot of opportunities. The negotiations are taking longer in some cases. MSAs, you’re looking at you’re trying to see how many people you have on the system today and the way we calculate it. But I continue to see our MSAs get renewed.
There is some timing, there always will be. They’re five years, three years, two years, and they cycle in and out. And you could be in year four of a $2 billion and I say that it’s going to renew for five years. When it renews, you got $2 billion in the backlog. So it just takes — it gets a little lumpy in some of the MSA work and it’s going to continue that way. But the overarching business and the way that we stack on the larger projects, programs, build, when that stack starts, it just continues to move on. But the industry stalled a bit trying to make sure that the demand for data centers and the demand for what we’re talking about is real. And that — so it did stall a bit on some of these larger projects because they’re not big enough.
So what you’re doing is go, I was going to build this. Now we’ve got to double the size of what we’re trying to accomplish. And so yes, it’s taken a little bit longer. And I do think the industry is going to have to think a little bigger and a little faster.
Operator: Our next question comes from the line of Michael Dudas with Vertical Research Partners.
Michael Dudas : So you mentioned in your comments during the call in your prepared remarks the importance of investing into the business. I just want to get a check on relative to the growth you’re seeing, we’ve so much demand growth here in this call but over the next three to five years and where you are today on staffing. Are there — what are the challenges to kind of meet get the bodies and get the capacity to meet the, it seems like a sustainable and extraordinary growth, over the next several years? Where do you — are you in fairly good shape? Or is there a lot more work to do?
Duke Austin : Yes. Mike, I think the company has done a nice job investing in craft certainly, which is what we’re known for and core to us. I do think when you — we saw some of the shortening of business in the quarter, where we had some growth and significant growth. And so it does, at times that growth, you’re investing in growth, you want to make sure that you can maintain the productivities and if you move geographies that you can maintain the type of productivities that we expect. And we expect high levels and we’ve got to make sure we’re looking back in the operations and helping make the young ones and the young people that are in the business go forward as far as and we are, and we have great programs and we get them to the field.
And there’s not replacing your footprints in the field with something on a piece of paper is a fallacy. It doesn’t work. So that footprint in the field, the people that mentor our management teams are paramount. And so we work hard on that. We work hard on that execution and it continues to get better and better. So as far as getting people in the business, look, we haven’t had the problem yet from a standpoint of craft and we’ve done a good job. I think the down — kind of the slowdown in distribution allows us to take a breath and actually gain market share. So I like it. I like where we sit. And sometimes what I call hard 12 months, it makes — you hone your skills. And I like it a little tough. It separates us. And I think we’ve done — whatever is showing up today, we did 12 months.
