Quanta Services Inc (PWR) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Quanta Services second-quarter earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded today, Wednesday, August 6, 2008. I would now like to turn the conference over to Kip Rupp with DRG&E.

Thank you. Welcome everyone to Quanta Services's conference call to review 2008 second quarter results. Before I turn the call over to management I have the normal housekeeping details to run through. If you would like to be on the E-Mail or fax distribution list to receive future press releases for Quanta or if you had any technical difficulties this morning and didn't receive your E-Mail or fax, please call our offices at DRG&E at 713-529-6600. Also, if you would like to listen to a replay of today's call, it will be available via webcast by going to Quanta's website at quantaservice.com. In addition, there's a telephonic recorded instant replay that will be available for the next seven days, 24 hours a day that can be accessed as set forth in the press release by dialing 303-590-3000 and using the passcode 11116519.

Please remember that information reported on this call speaks only as of today, August 6, 2008, and therefore you are advised that any time-sensitive information may no longer be accurate as of the time of any replay of this call. Also this conference call will include forward-looking statements intended to qualify under the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to projected revenues, earnings per share, tax rates, capital expenditures and other projections of financial and operating results and information, growth in particular markets, Quanta's strategies and plans, anticipated future projects, expected benefits from the merger with InfraSource Services and any other 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.

Management cautions that you should not place undue reliance on Quanta's forward-looking statements and Quanta does not undertake any obligation to update any forward-looking statements to reflect events or circumstances after this call. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict or are beyond Quanta's control and actual results may differ materially from those expected order implied as forward-looking statement. For additional information concerning some of the risks, uncertainties and assumptions that could affect our forward-looking statements please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2007, its quarterly report on 10-Q for the quarter ended March 31, 2008, and its other documents filed with the Securities and Exchange Commission which may be obtained through the SEC's website at www.sec.gov. All forward-looking statements, whether written or oral are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements.

With that I would like to now turn the call over to Mr. John Colson, Quanta's Chairman and CEO. John.

Good morning, everyone, and welcome to Quanta Services second-quarter 2008 conference call. To start the call this morning, I will provide a general overview of the quarter, insight on developments in the industries we serve, and perspectives on emerging opportunities. My comments will be followed by a review of our telecommunications, cable television and wireless operations by Ken Trawick, President of those operations; and a review of the financial results by James Haddox, our Chief Financial Officer. John Wilson President of Quanta's Electric Power and Natural Gas operations is also present to answer questions. After our prepared remarks, we will open the call for questions.

The second quarter of 2008 continued a strong trend of revenue growth and margin expansion for Quanta. We continued to perform well in the industries we serve and are well positioned to leverage emerging opportunities. Revenues for the quarter were approximately $961 million compared to $552 million in the second quarter of 2007. The second quarter of 2008 revenues include the contribution from operations added through the acquisition of InfraSource completed in August of 2007, as well as a couple of smaller acquisitions we have completed since the end of the second quarter of 2007. Internal revenue growth however was strong at approximately 20% compared to the second quarter of 2007. Performance include these acquisitions in both areas.

We continue to be optimistic although we are closely monitoring current and projected economic conditions. By design, Quanta's revenue base is diverse. Our service scope is broad and our operations are efficient, minimizing the impact of a fluctuating economy. Our oil prices increased significantly during the first two quarters of this year. Our margins remain strong in most of the industries we serve. This is primarily attributable to growing demand for our services. However, multiyear strategic initiatives focused on increasing efficiencies, strengthening of our operations and our ability to strategically manage our business also contributed.

Our diversity resonates through our customer base and type of work. Our largest customer for the quarter made up only 4.8% of our revenues. Excuse me. Our top ten customers for the quarter represented 33% of our total revenues and our top 20 customers made up approximately 46% of revenues.

The breakout of revenues by type of work also shows diversity. When divided by type of work, our 2008 second-quarter revenues were approximately 55% from electric power services, 21% from natural gas services, including pipeline integrity, 16.5% of revenues from telecommunication and cable services, 6% from ancillary services such as horizontal directional drilling and Commercial and industrial wiring and 1.5% from Dark Fiber fiber leasing services. Our employee count was 16,659 at June 30, 2008. This compares to 15,909 at the end of the first quarter and 11,713 at the same time last year. The increase in employees has occurred primarily on the electric power side of our business to support large transmission projects, natural gas work, and renewable energy infrastructure construction. We have also grown our employee base to support the ongoing fiber-to-the-home initiatives which Ken will discuss shortly.

Looking now at our electric power and natural gas operations, revenues from electric power work totaled $532 million in the second quarter compared to $314 million in the second quarter of last year. We continue to support various utilities to restore pow her to their service territories throughout the second quarter and in through the third quarter. Our crews remain in Iowa following the June flooding of the Mississippi River. We are working to repair gas distribution lines and restore service back to the customers this those impacted areas. Additionally we deployed crews to South Texas last week to help with the restoration efforts following Hurricane Dolly. The National Oceanic and atmospheric administration predicts a 60% to 70% chance of 12 to 16 named storms including 6 to 9 hurricanes during the 2008 season. With the 2008 hurricane season almost one-third complete, our crews remain poised to support our customers' restoration efforts as needed.

As announced in this morning's press release, Allegheny Energy's Trans-Allegheny Interstate Line or TrAIL, 500,000-volt transition line has received final approval from the Public Service Commission of West Virginia. Last Friday the commission issued an order approving TrAIL Cos. preferred route in West Virginia as well as certain modifications South of Morgantown. The order follows FERC's July approval of the agreement of the TrAIL formula rate treatment which established formula rates for the proposed transmission line through West Virginia, Virginia, and Pennsylvania and other transmission-related projects. Also, the hearing examiner in Virginia recommended that the state corporation commission authorize construction of their Virginia segments of the line. He stated that the line is necessary to resolve overloads projected to occur on the transmission system as soon as 2011. [Stelco] is waiting final approval of this route in Virginia and Pennsylvania.

In 2007, Quanta was awarded the contract for construction of transmission infrastructure for this 210-mile, 500,000-volt project which is expected to be completed by June of 2011. Under the $190 million contract with lower Colorado River Authority, we have completed an initial project and are in the planning stages for additional projects excepted to ramp up over the next several months. Through the five-year period of the contract, Quanta will provide new construction, repair, and maintenance services, including right-of-way preparation, environmental controls, structural foundations, structure insulation, conductor screening, and energizing of new transmission lines, as well as the reconstruction of existing transmission lines. As I will discuss shortly, LCRA is one of several utilities that has publicly stated its commitment to build a transmission system required by new wind generation in Texas.

Under our $750 million contract with Northeast Utilities which is separate from the recently completed Middletown to Norwalk project we are continuing in the preplanning stages. The work under this contract is projected to begin in the fall of 2009.

There were significant developments related to -- to delivery of power via the transmission grid in the second quarter. These developments occurred in several areas, transmission related to renewables, regulatory rulings, and the initiation of projects to increase reliable power deliveries. Most visible and publicized of these developments were related to the advancement of renewable generation, particularly wind power in Texas.

Three weeks ago, Texas officials gave a nod to the nation's largest wind power project. Texas is already the leader in US wind power generating approximately 5,000 megawatts of wind power. The new plan would increase this capacity to 18,000 megawatts and enable that power to be moved from the plains of West Texas to the more populated energy-consuming urban areas in North and Central Texas. It is estimated that it will take approximately $5 billion in transmission infrastructure to interconnect these wind farms into the grid.

Several long-standing Quanta customers joined together to form a joint venture called Electric Transmission Texas. This joint venture of EAP and Mid America Energy Holdings has now joined with LCRA, Encore and Sherry Land Utilities to submit a proposal to the Texas PUC to build 2400 miles of new 345,000-volt transmission lines. Lone Star transmission also submitted a proposal to build as much as $2.4 billion of transmission line. It goes without saying that this is a significant opportunity for Quanta. We believe we are well positioned to leverage this opportunity and will be proud to be part of such a monumental task in our home state.

California, as the State with one of the highest increases in energy consumption and one of the most aggressive renewable portfolio standards, remains a hot spot for transmission projects. In recent weeks, California Independent System Operator or CalISO outlined $6.5 billion in plans for major transmission projects. The plans encompass six transmission projects that could provide 9550 megawatts of additional transmission capacity to meet the state's 33% renewable portfolio standards sold by 2030. Two projects critical of this goal and the previous goal of 20% by 2010 are the Tehachapi Transmission project and the Sunrise Powerlink. As we mentioned in our last call we have begun work on the Tehachapi Transmission line. The contract encompasses installation of 75 miles of 500,000-volt transmission line which will be part of a $1.8 billion program to provide the high voltage transmission infrastructure necessary to interconnect and deliver renewable wind resources being developed in the Tehachapi wind resource area to California electricity customers.

As you know the push for renewable power generation is not limited to Texas and California. It spans the country. At the end of the second quarter, we were in the midst of more than 30 projects related to renewable energy. These projects were related to wind, solar, and biofuel and fall into one of several categories--General construction, electrical construction systems, transmission and substation infrastructure. We continue to see an increase in requests for proposals as more renewable initiatives, many of which have been in development for years become a reality. We expect our revenues from out renewable projects for the year 2008 be approximately $150 million.

In addition to the emergence of the Wind Energy Initiatives I have already discussed, we have seen an increase in opportunities related to solar energy. In our last call, we discussed the installation of the solar electric generating plant at the Denver International Airport, which was completed this month. We will participate in a ribbon cutting later this month which will have added visibility because of the upcoming Democratic National Convention being held in Denver. Under the contract with World Water, Quanta provided site preparation and installation services for the more than 9,000 panels required for the 2 megawatt ground-mounted solar system. The system spans more than nine acres, the equivalent of seven football fields and it is projected to provide 40% of the power supply required to run the airport, saving the airport about $13 million over the next 20 years. We believe success of this project will lead to additional opportunities in the near future for Quanta. We are currently in negotiations for several independent solar projects in the Central and Southern United States.

I would like to close with an observation about the importance of our work. Since Quanta's inception, we have been stressing the need to upgrade the nation's power delivery system. And now it is a discussion in mainstream America. And it has become evident to most that transmission is not just about power. It is about livelihood. A recent study titled "The Cost of not Building the Transmission" conducted by Idaho National Laboratory under a grant by the Department of Energy stated that transmission is the key to economic growth in the Pacific Northwest and Western Canada. It further stated that the region will lose out on tens of billions of dollars of economic activity each year if -- if proposed interstate and transboundary electric transmission projects are not built. Realizations like this and the increased momentum in the industries we serve are reflected in our backlog. 12-month backlog for electric power and gas operations at 6/30/08 was approximately $1.9 billion. Total backlog for the electric power and natural gas operations at 6/30/08 was approximately $4.2 billion.

Quanta was founded with a vision to meet the need for infrastructure, to deliver electric power, natural gas, telecommunication and cable TV to the homes and businesses throughout our nation. Our employees have been making this a reality for decades, and in many cases for generations. Now I will turn the call over to Ken Trawick who will discuss the recent developments in our Telecommunication and Cable Operations. Ken?

Thank you, John. Good morning, everyone. I am very pleased to report continued strong results from Quanta's Telecommunication and Cable Operations. In the second quarter of 2008, these operations had approximately 29% organic revenue growth compared to the second quarter of '07 on a pro forma basis including acquisitions in both periods. Our ability to maintain margins while growing revenues as a result of our ongoing focus on quality of revenues. This growth is driven primarily by the services we provide to deploy fiber networks for the RBOCs, rural Telcos and municipalities as well increased activity in our wireless division.

The growth in our fiber installation services reflects a continuing commitment by the service providers in the municipalities to deploy their fiber networks closer to the homes and businesses that demand them. Our largest customers in this area are Verizon and AT&T, both of whom continue to announce expansion of their broadband services and communities throughout the nation. Our work is reflective of this and has been largely concentrated in California, Washington, Oregon, Pennsylvania, Florida, Texas, Delaware and New York. In the second quarter, Verizon unveiled its plans to expand availability of its high-speed triple play FiOS service. The network currently reaches 10 million homes and small businesses throughout Verizon's 16-state territory.

The Company plans to initially reach 18 million homes and businesses by 2010, and recently indicated that there is potential for that target number to increase during the same time period. This represents an $18 billion investment by Verizon. We think this provides some insight into Verizon's commitment and the continued demand that we expect will exist for our proven quality of installing services.

AT&T also recently stated that it is on target to secure more than 1 million customers with its U-verse offering by year end and reiterated that it will deliver on this $4 billion commitment. The Company's current subscriber total is 549,000 with service available to 11 million homes in 53 markets.

I know I have stated this in previous calls, but I want to stress that Quanta is committed to continued performance to support these customers and their network strategies to meet their deployment targets. Our relationships continue to grow because of the quality work that our construction installation crews provide, our commitment to safety, and our knowledge of the industry. It is not just about trenching and placing fiber and conduit. In many cases such as with multiple dwelling units, we are providing a turnkey operation to these customers. From community communications to marketing to scheduling and equipment installation, Quanta's National footprint is providing a wide range of services to assist our customers in reaching their goals.

As fiber initiatives by the Telcos reach full speed, additional competitive pressure is being placed on the cable operators to maintain and grow their subscriber base. Comcast recently announced that it plans to increase upstream bandwidth for its high-speed Internet customers at no additional cost. The Company also recently announced a significant increase in subscribers for both high-speed Internet and their voice services. We believe this healthy competition is not only good for the end user, but speaks positively to the continuing demand of the services provided by Quanta to these customers. Our revenues from traditional outside plant maintenance services have been flat to down as a result of the downturn in the housing market. This is the start of the bidding season for business-as-usual type master services agreement expiring this year, and we anticipate renewals in our current agreements.

Total backlog or four Telecom services excluding Dark Fiber remain flat since first quarter. This is somewhat affected by the expiration of those MSAs at the end of this year. As I had mentioned previously, we expect the wireless industry has turned the corner and we expect continued strong revenue opportunities in this part of our business. This follows a period of mergers and acquisitions as well as questions about the most viable path for new technologies. Today the market leaders are aggressively deploying new third-generation or 3G technology to keep up with growing demand for cross platform services, reliable service, and strong connections. In the second quarter, we completed a major wireless project in the Midwest to support these efforts. Under the contract, Quanta provided complete services from site acquisition to construction and installation of electronics. The customer has commended our work, and we expect this strong relationship to lead to future opportunities of similar scope.

Also in the second quarter, one note of interest to the wireless space, Verizon Wireless acquired Alltel in an effort to expand the Company's wireless network. With both Verizon and Alltel being long-term customers with Quanta for different services, we do not anticipate this acquisition to have a significant impact on our business. We expect the wireless industry to remain a strong opportunity for the foreseeable future. We have secured new contracts with major carriers that will position us to respond to these needs as they expand their networks and the capabilities of these networks. Now looking to our Dark Fiber business as we continue to leverage this competitive advantage, which was added to our services scope with the acquisition of InfraSource. We remain pleased with the strength of the existing business and the future growth opportunities. Revenues for the quarter were up 18.5% over the second quarter of '07 with improved margins.

As we previously mentioned, this is a vertically integrated service which can leverage growth in key markets where secure high-speed networks are critical in areas such as education and healthcare. I recently provided some insight into measuring this business growth and the potential through evaluation of new contract sales. In 2007, new contract sales reached about $147 million. New contract sales for 2008 have increased over 35% compared to the same period in 2007. These amounts represent additional revenues to be recognized over the contract period. Beginning upon completion of construction of the networks. This area of our business is just entering the bidding season as the target vertical markets evaluate budgets to the coming year.

Our outlook for our combined telecom and cable operations remains strong. The first half of 2008 has delivered 42.5% pro forma revenue growth and strong margins while we strengthened our market position. We expect the strong performance to continue as we leverage our industry leadership, diverse services, and competitive differentiators to meet the evolving needs of our customers. While there is a potential that a prolonged recession could have a negative impact on our customers' spending patterns, statements by the various service providers, combined with our recent results, our near term forecast, and continued high demand for bundled services and high bandwidth applications, both data and video, wireless and fiber-based support our positive outlook and opportunities to grow revenues with strong margins in 2008. Now I will turn the call over to James Haddox for a review of our financial results. James?

Thanks, Ken. And good morning, everyone. Today we announced revenues of $960.9 million for the second quarter, compared to $552.2 million in the prior year's second quarter, resulting in an increase of $408.7 million or 74%. Pro forma revenues in the second quarter of 2007 would have been $806.4 million. When I refer to pro forma information throughout my discussion, I am referring to data prepared on a combined Company basis taking into account the acquisition of InfraSource and two smaller acquisitions as if they occurred on January 1, 2007.

Pro forma revenue growth for 2Q '08 compared to 2Q '07 totaled approximately 19.6%. The as reported results of operations covered in my discussions for the second quarter of 2008 are compared to Quanta's premerger historical results for the second quarter of 2007. This year's second-quarter revenues included emergency restoration revenues of approximately $23 million compared to approximately $10 million being earned in pro forma revenues in 2Q '07. Excluding emergency restoration revenues from both periods, pro forma revenue growth would have been about 18% in the second quarter.

I want to remind you that we have change our methodology for combining -- for compiling revenue by industry. We now discuss revenue by type of work performed. For example, in the past, when we performed Telecom work for an utility, the associated revenues would have been classified as utility work. Under our current methodology, the revenues would be classified as Telecom work. Keep in mind many times we may be performing all types of work on one job at the same time which requires us to estimate revenues and costs by type of work; however, we believe that the information by type of work is directionally accurate. On an as-reported basis, revenues from electric power during the second quarter of '08 increased by approximately $218 million or about 69% over the second quarter of 2007. On a pro forma basis, electric power work increased by about $69 million or 15% quarter over quarter. Gas work increased approximately $136 million or 208% on an as reported basis and about $83 million or 71% on a pro forma basis quarter over quarter.

Telecom and cable work, excluding Dark Fiber leasing increased approximately $66 million or 73% on an as reported basis and about $36 million or 29% on a pro forma basis quarter over quarter. Ancillary work decreased about $25 million or 31% on an as reported basis and decreased about $33 million or 37% on a pro forma basis quarter over quarter. Dark Fiber revenues contributed to $13.5 million to the quarter. Since this revenue was acquired as part of the InfraSource acquisition, is it did not contribute any as reported revenues in the second quarter of 2007. On a pro forma basis, Dark Fiber revenues grew 18.5%.

We generated gross margins of 16.5% for this quarter compared to 15.4% during last quarter's -- last year's second quarter for an improvement of 110 basis points quarter over quarter. On a pro forma basis, last year's gross margin was 15.9%. The overall margin improvement quarter over quarter continued to be due to improved pricing, the contribution of the higher margin Dark Fiber segment, and better fixed cost absorption as a result of higher revenues. On an as-reported basis, G&A expenses were $76.3 million in the second quarter of 2008, compared to $47 million in the second quarter of 2007. The increase over 2Q '07 was due primarily to the acquisition of InfraSource, higher salaries and benefits associated with increased personnel, salary increases and increased performance bonuses. G&A expenses were down to 7.9% of revenues in 2Q '08 compared to 8.5% in 2Q '07 and compared to 8.4% in 1Q '08.

Operating income before amortization ir EBITA on an as reported basis was approximately $82.4 million or 8.6% of revenues compared to $38.2 million or 6.9% for the second quarter of 2007 for an increase of 170 basis points quarter over quarter. A table showing calculation of EBITA is set forth in the financial news section of our website at www.quantaservice.com. We believe that EBITA has become an important metric as amortization expenses associated with InfraSource and other acquisitions has become a more material component of our income statement. Amortization of intangible assets increased from $692,000 in the second quarter of 2007 to $9.9 million in 2Q '08 due to the acquisition of InfraSource and two other small acquisitions. Excuse me.

Interest income decreased approximately $3.6 million in the second quarter of '08 versus the second quarter of '07, as a result of a lower average cash balance and lower investment rates quarter over quarter. Our effective tax rate during the quarter was 41.8% compared to 42.3% during 2Q '07. Net income for the quarter was $40.5 million, resulting in earnings per diluted share of $0.22 compared to net income from continuing operations of $21.8 million or $0.17 per diluted share in the second quarter of 2007. Adding back noncash amortization of intangibles and noncash compensation expense net of taxes for both periods resulted in adjusted income from continuing operations of $49.3 million or cash earnings per diluted share of $0.26 in the second quarter of 2008. This compares to adjusted income from continuing operations of $23.3 million or cash earnings per diluted share of $0.18 in the second quarter of 2007. A reconciliation of GAAP EPS to cash EPS is provided in the tables attached to our press release issued today. Excuse me again.

Cash flow from operations totaled approximately $18 million for the quarter. Cash flow from operations, less $53 million of capital expenditures net of proceeds from sales resulted in approximately $35 million of negative free cash flow for the quarter. Cash flow was negatively impacted by higher working capital requirements associated with sequential revenue growth between the first and second quarters of 2008 of $116 million and higher CapEx requirements during the first half of 2008. The addition of IFS, specifically the Dark Fiber leasing operations also impacted cash flow. Of the $53 million in net CapEx this quarter, $31.4 million was related to Dark Fiber additions. Adjusted EBITDA was $106.4 million or 11.1% of revenues for the second quarter of 2008, representing an increase of 103% over adjusted EBITDA in 2007's second quarter. The calculation of this non-GAAP measure is detailed in a separate analysis in the financial news section of our website at Quantaservices.com. For the first half of 2008, adjusted EBITDA was $182.6 million or 10% of revenues which is 92% higher than adjusted EBITDA in the first half of 2007. Cash flow from operations for the first half of 2008 totaled $33 million, subtracting net CapEx of $104 million yields $71 million in negative free cash flow year to date. We expect that free cash flow will be -- will be positive by a significant amount during the second half of the year, particularly during the fourth quarter as the fourth quarter generally produces lower revenues on the seasonal basis, requiring less working capital.

Turning to backlog. Three quarters ago we began expanding our disclosure related to backlog by adding a discussion of total backlog of our normal discussion of 12-month backlog. I will take a moment to provide you with a definition of total backlog. Total backlog includes the amount of revenues we expect to derive in the future from signed contracts, project work and master service agreements. Backlog for project work includes the remaining revenues to be earned under lump sum projects and our estimate of the remaining revenues to be earned under time and equipment or unit price contracts. Backlog for master service agreements includes our estimate of future billings based on our knowledge of our customers' spending patterns under T&E and unit price arrangements through the end of the initial contract periods and through the end of any renewal periods provided by the contract for which we reasonably expect the contract to continue. Our total backlog of work at June 30, 2008, was approximately $5.290 billion, which is approximately $121 million or 2.3% higher than total backlog at 3/31 of '08 three months ago. Our current backlog of work being completed during the next 12 months is approximately $2.394 billion, which compares to $2.385 billion, in backlog as of the first quarter of 2008 for an increase of approximately $9 million.

As Ken mentioned earlier, we have several Telecom MSAs that expire at the end of the this year. While we fully expect that these MSAs will be renewed, these renewals are not included in our backlog at June 30, '08 and had a negative impact on sequential 12-month backlog growth. We also finished the Northeast Utilities job five months ahead of schedule while the Allegheny project is just now ramping up. Our days sales outstanding which we calculate by using the sum of current accounts receivable plus costs and earnings in excess of billings less billings in excess of cost divided by average revenues per day during the second quarter were 81 days at June 30, 2008, versus 82 days at June 30, 2007. At quarter end, we have $304.8 million in cash on our balance sheet. We have approximately $174 million in letters of credit outstanding primarily to secure our insurance program, leaving us with approximately $301 million in available borrowing capacity under our credit facility.

Concerning our outlook for the future, our third-quarter results can vary significantly due to the effect that emergency restoration work may have on the quarter. Our estimate of revenues for the third quarter of '08 is from $1 billion to $1.040 billion. This estimate includes approximately $30 million of revenues from emergency restoration services versus $18 million earned in 3Q '07. Pro forma for the -- pro forma revenues for the third quarter of 2007 were $832.4 million. Therefore, our forecast represents approximately 22% internal revenue growth to the third quarter of 2008. Our estimate for 3Q '08 EPS based on revenues of between $1 billion and $1.040 billion, is between $0.23 and $0.26 per diluted share on a GAAP basis. This compares to revenues of $655.9 million and diluted earnings per share from continuing operations of $0.30 during the third quarter of '07. 3Q '07 EPS of $0.30 was positively impacted by approximately $0.11 related to the release of certain tax contingencies.

Our GAAP forecast includes an estimate of $12.6 million for noncash amortization of intangible assets and noncash compensation expenses. Excluding these expenses our cash EPS for the third quarter is expected to be $0.27 to $0.31 per deluded share. For additional guidance, we are currently projecting our tax rate for the third quarter to be approximately 41.8%. We expect our diluted share count to be about 202.5 million shares excluding the effect of any acquisitions. We expect CapEx for all of '08 to be approximately 180 million to $190 million.

In summary, we are very pleased with our performance during the second quarter and first half of 2008. We look forward to continuing to meet our customers' growing need for infrastructure services. This concludes our formal presentation. And now we will open the lines for Q&A.

Thank you, sir. (OPERATOR INSTRUCTIONS) One moment please. Okay, I do apologize. Our first question comes from Tahira Afzal with Keybanc Capital Markets. Go ahead, please.

Congratulations, guys, on a very good quarter and outlook.

Thank you.

Just a couple of questions. It seems in terms of your third-quarter guidance, the implied operating margins seem be well above the 9.5 -- well, closer to the 9.5% range which sort of enters into that 9% to 12% territory that you always alluded to. If you look back a year back from now and today, how do you feel about that the 9% to 12% range?

I don't think we have changed our mind at all about the 9% to 12% range. And our core businesses, our electric power and Telecom are typically close or into that range. The other -- our challenges, of course, are the gas distribution business and our other businesses, the C&I businesses and ancillary businesses getting those to acceptable levels where they don't drag our core businesses down.

Well, given that we are sort of maybe six months closer versus where we were six months ago, would you say that 9% to 12% range is achievable over the next 12 months, i.e. should we see the continued momentum that is implied in third quarter to continue into '09 in terms of margins?

Yes, we do. We think that is probably achievable.

Okay. Well, that is pretty confident.

Sure. Okay. I will try not to sound so confident.

That is a good thing. I don't mind at all. In terms of -- in terms of the timing and I am sure you have been getting a lot of questions on this. In terms of the timing of the credit awards and any of the other large other awards, to the extent that you can comment, is there anything you can add?

John, you want to take that one?

Well, we are continuing -- we have seen an increase in our bidding activity this year, and we expect to see activity increase over the next several months due to things just like what you said the Texas credit zone and other initiatives around the country. Without saying too much about specifics kind of leave it at that. We are seeing increased activity and pretty robust market starting to develop.

Okay. The 20% organic growth rate, do you that is sustainable as we look past 2008? Or should we build in something that's a little more tempered?

No, I would not anticipate 20% growth. I suppose some quarters as we did in the second quarter and as we are projecting for the third quarter, we will have 20%, but I think stick with the guidance of double-digit internal growth for the foreseeable future, but 20 is probably stronger than -- than what is going to turn out to be for the entire year for sure?

Great. And one last question in terms of your convertibles. Any change in your views on how you are going to approach that?

Tahira, this is James. No. We haven't changed our view on that. We actually haven't made the decision yet. The discussion has not been held at our Board and there haven't been any decisions made on a formal basis yet.

Thank you for the commentary and congratulations again.

Thank you.

Okay. Thank you. Our next question comes from Alex Rygiel with RBR. Please go ahead.

Well, gentlemen, a nice quarter.

Thank you.

James, question for you as it relates to storm revenue in the quarter. I had in my notes that last year pro forma storm revenue was $58 million not $10 million. Are my notes incorrect or did you change?

No, I don't think your notes are correct.

Okay.

Didn't have that much of a storm -- we didn't have much storm revenue in the third quarter of last year?

Fair enough. As it relates to renewables in 2008, I believe you said that you plan on doing about $150 million in revenue in renewables. How do you anticipate that number changing in 2009?

Well, it is difficult to say exactly. It depends on the success we have for our projects, but if we are reasonably successful, that should increase significantly from the $150 million level for 2008. There's just a lot of opportunity out there, and we expect it to be maybe double that or more.

Great, thank you.

Thank you.

Okay. Thank you. Our next question comes from Jamie Cook with Credit Suisse. Please go ahead.

Hi, good morning. Just to follow-up on -- on the possible, [Crez] award. I think you talked about it being a $5 billion opportunity. Of that, what is the addressable market for Quanta and, John, how do you think that project will be bid out.

Jamie, this is John Wilson. We are probably looking at somewhere of total line mileage built in the Crez zone of somewhere around 2500 to 3,000 miles of line. We believe that the investor owned utilities in the region of where they operate will build out, their portion of the lines that are in their service territory. We also believe that there could be some other participants in that market, some merchant guys, wind developers building their own private transmission. Out of the $5 billion, we have always said that the construction piece of the line, the pieces that we actually do could be, oh, as high as maybe 50% of that number. So it relates to a very large significant piece of business that is going to have to be built in say, two to three or four years because of all of the renewable wind that is going in in West Texas. As naturally we were pretty excited about what's out there, because it is going to have to be built, and wer are going to have turbines standing and no place to put your power.

Can you just talk about -- I think as we look in 2007 you always said, yes, the renewable efforts were sort of ramping up but you guys stayed clear of it just because the margins on that business wasn't as high as your traditional electric power was below where you guys sort of wanted because of some of the smaller contractors. What are you sort of seeing on the pricing environment on the renewable projects you are bidding on, and how should we think about that impacting your -- your 9% to 12% margin target.

Let me clarify that. The portion of the renewables, particularly the wind -- the installation of the wind turbines is the part that has been fairly low margin in the past. The transmission lines, the substations, and the gathering lines have been in line with our traditional margins. So what we are seeing is that the margins on the installation of the turbines, in other words, the complete project, have been rising as there has been more demand for those services. They are not still in line with our expected margins, but they are better than they have been in the past. On the solar side, margins there vary depending on the size of the project and where they are located. Some of those are within our target margin range and some are not.

All right. And then last, can you just give us a feel for how much -- you talked about in the margin front, you are doing -- the margins are increasing because of increased pricing but also the contribution in the Dark Fiber business. Can you just give a little color how much was Dark Fiber versus pricing initiatives?

Dark Fiber in the as reported numbers was somewhere around half of the margin increase. On a pro forma basis, it made up very little of the margin increase. Because margins and Dark Fiber increased maybe 100 basis point quarter over quarter on a pro forma basis.

Great, thanks. I will get back in queue.

Thank you.

Thank you. Our next question comes from Sanjay Shrestha with Lazard Capital Markets.

Great, thank you. Once again, great quarter and outlook, guys. Quick question. John, I think you mentioned you guys are sort of watching the overall macro, economic environment closely because you guys are a late cycle industry and 12-month slowdown doesn't impact you. At the same time, you have got this massive wave of spending both on the utility and the telecom side coming to you guys. From the actual capacity and the planning standpoint, how are you guys sort of managing that and how are you sort of planning for that?

Well, as you know, we have started planning for the -- for this type of growth several years ago, so we started increasing the participation in our training programs back then. We had a significant increase in our employees from the first quarter to the second quarter and year-over-year as well. So we are building in capacity and what we think is going to be necessary going forward.

Sure.

Many of these projects, as we all know, will be delayed. So I think that bodes well for these projects getting done because there's probably not enough capacity if all these projects were to be completed in the time frame that they are talking about. Probably would be very difficult to do. But we all are know that delays are just part of -- part of the landscape for these industries and transmission lines are controversial things.

Sure, sure.

There will be some delay involved in them. And we are confident that we're going to have the resources we need to meet our customers' demands as they are required.

Got it. That is kind of where I was trying to go with it because that plays approximately in your benefit because you guys are the largest player in the industry. Does that then mean the pricing even goes up higher for you guys given these dynamics? And two, maybe we are at a point where we can even say the operating margin can even get to the prior levels where it was higher than 12%.

Right. The ideal environment is one where we have capacity and the industry as a whole is short of capacity and that allows us to increase margins and we think there will come a time when it will be more important to have the timely completion of a project than a few percentage points of margins. So we think that margins will continue to increase as demands continue to increase.

Okay, terrific. That's great. Thanks a lot, guys.

Thank you.

Our next question comes from John Rogers with D.A. Davidson. Go ahead, please.

Hi, good morning.

Good morning.

Congratulations on the quarter. First of all, in terms of your third-quarter guidance -- and I apologize if you said this, but what are your assumptions for emergency revenue in there? Emergency work?

We announced that we were going to do about $30 million. That is what is in our forecast.

Okay. And what was it last year?

$18 million.

18, James?

Yes.

$18 million.

Okay. Thank you. And then secondly, do you have a good or even a rough sense of what your market share is in terms of capacity for the distribution and the transmission -- electrical transmission work?

Well, I think the best judge of our market share relates back to our filings last year with Hart-Scott-Rodino filings where we did an extensive study and it showed that we had less than 15% of any market that we participated in.

Okay.

John, I also want to clarify that storm number that I just gave you. That $18 million number is a pro forma number.

Okay.

On an as reported basis it was $13 million.

$13 million, great. And just on the market share, do you think that -- I mean, is that changing?

I think--?

Have you seen consolidation among some of the private companies? Or alternatively are you growing faster? Do you think you are adding proportionally faster than your peers?

Yes, I think that we are gaining market share. As you said we are the largest, we are probably adding resources faster than -- than our competitors and there's a lot of things that we bring to the market besides just capacity that bodes well for our market share growth as well. Things like our energized services and storm response, reputation for timely completion. Quality products. A lot of things we bring to the market beside just traditional capacity.

I assume that is especially true on the larger projects?

That's true, absolutely.

Are you seeing or more less competition on those larger projects? Are any of your competitors, smaller ones trying to form JVs to compete for this work?

We expect that they will. We haven't seen anything yet that is much different than what we expected or what we have seen in the past. I don't know of any new competitors necessarily, but we expect there will be some formation of joint ventures and so forth by smaller contractors to try to participate in the larger projects.

Or larger contractors acting as a general as well as trying to do that?

That's -- that happens sometimes, usually when margins are higher than they are right now in that market. When the margins are approaching 30%, then you start seeing some of the E&C contractors try to enter our business and be a general and subcontract the work out.

Okay. But you haven't seen that yet?

Not really, no.

Great, thank you.

Thank you. Our next question comes from Jeff Beach with Stifel Nicolaus. Please go ahead.

Good morning and, again, congratulations on a great quarter.

Thank you, Jeff.

Last quarter you talked about the progress you had made in your gas services and shifting into higher margin business. Can you talk about where you are today this quarter compared with a year ago, the industry conditions and look out to where you think you will be a year from now and that shift to higher margin business?

Yes, sir. I think we have been fairly successful. We are pretty happy with -- particularly with the growth on that side the business. Margins continue to improve there. We've had really nice performance and we expect that to continue for probably the next several quarters. There will come a point where we will probably max those out and they will probably max out below our electric power and telecommunications margins, but they are doing very well, and I am very -- very happy and very pleased with where we are at with it.

All right. And back on the renewable energy at the last quarter, you had said you were hopeful that you -- that you might receive a sizable award, in I think a wind energy project in the northeast, and I have seen from other companies a flurry of awards, trying to get a lot of work done by the end of the year. You had talked last quarter about $150 million I think in revenues, and you are still talking about that. So are you -- are you participating in this flurry of activity trying to beat the deadline for the tax credits until some decision is made?

Yes, we are. I think we stated there is nearly 30 or over 30, around 30 projects that we are working on related to renewables right now. Many of these projects are big projects, but they are not $100 million projects which is kind of the threshold for an announcement by us, Jeff.

And, again, are you seeing a steady -- are you seeing an improvement in the -- in general in the profit margins across every -- all -- seeing in general across the whole swathe of opportunities you have? Are you seeing margins continuing to go up in the renewable area?

Yes, we are. They are not going up as fast as we with a like to see them obviously, but, yes, we are seeing margins go up, and that is simply supply and demand.

All right, thank you.

Okay, thank you. Our next question comes from Steve Gambuzza with Longbow Capital.

Good morning.

Good morning.

Can you talk what the impact of the Telecom's MSAs were on the backlog numbers for the quarter? You mentioned that -- you expect them to be resigned but you didn't include any amount in backlog, can you just give us some kind of order of magnitude of what the sequential decrease from that was?

We have several AT&T, Verizon particularly most noteworthy that -- those contracts are just coming up on their normal expiration dates at the end of the year and we expect those to be renewed and I would guesstimate the revenues -- they vary and we don't -- we put in backlog as we get close to the -- to the affected quarter. What we expect the revenues to be. And so we -- I would guess it to be -- to have an impact of $75 million to $100 million per quarter.

Per quarter?

That's correct.

Sort of -- okay, thanks very much. Appreciate it.

Okay. Thank you. And I would like to -- follow-up question from Tahira Afzal. Go ahead, please.

Hi, gentlemen. Just one follow-up question. We have been hearing a lot on the electric distribution side in terms of lines being cut and then essentially being reconnected. And this in essence being on account of people not paying their bills. I was wondering if you were seeing any impact from that and does that even impact your business with just the lines connect and reconnect and doesn't really impact things?

Yes, we are not seeing too much impact from that. The two things that impact -- are impacting the distribution business right now are housing starts which, of course, are down and -- also the utilities are focusing on their major transmission projects and maybe taking their eye off of their distribution projects at this time.

So you think the distribution spending allocation might be a little soft in a sense and that is being reallocated to some extent?

I believe that is the case. I believe that is what we are seeing.

Thank you very much.

Thank you.

Thank you, and ladies and gentlemen, that does conclude our question-and-answer section. I would now like to turn the conference back over to John Colson for closing remarks.

Thank you. I would like to thank all of you again for your participation in our second-quarter conference call. We appreciate your questions and ongoing interest in Quanta. Good bye

Ladies and gentlemen, this concludes the Quanta Services second-quarter earnings conference call. Thank you for your participation and you may now disconnect.