Quanta Services Inc (PWR) 2008 Q3 法說會逐字稿

Welcome to the Quanta Services third quarter earnings conference call. During today's presentation, all parties will be in listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS.) The conference is being recorded today, Wednesday, November 5, 2008. I would like to turn the conference over to Mr. Kip Rupp with DRG&E.

Welcome everyone to the Quanta Services earnings conference call for the 2008 third 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 an e-mail or fax distribution list to receive future press releases for Quanta Services or if you had technical difficulties this morning and did not receive your e-mail or fax, please call our offices at DRG&E at (713) 529-6600.

If you would like to listen to replay of the call, it will be available via webcast by going to Quanta's website at QuantaServices.com. In addition, there is a telephonic recorded 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 lease and by dialing (303) 590-3000 and using the passcode 11122061#. Please remember that information recorded on this call speaks only as of today, November 5, 2008, and you are therefore, advised that time sensitive information may no longer be accurate as of the time of any replay of this call.

This conference call will include forward-looking statements that intended to qualify under the Safe Harbor liability established by the Private Securities and 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, particular markets, Quanta's strategies and plans, anticipated future projects, impact of current market conditions, expected benefits from the merger with InfraSource Services, and any other statements reflecting Quanta's expectations, intentions, assumptions or beliefs about future evens or performance, or that do not solely relate to historical or current facts. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict or are beyond Quanta's control. Actual results may differ materially from those expected or implied by forward-looking statements.

For additional information concerning some of the risks, uncertainties and assumptions that could affect our forward-looking statements, refer to the Company's annual report on Form 10-K for the year ending December 31, 2007, its quarterly reports on Form 10-Q for the quarter ending March 31, 2008 and June 30, 2008, and 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.

Management cautions that you should not place undue reliance on Quanta's forward-looking statements. Quanta does not undertake any obligation to update any forward-looking statements to reflect events or circumstances after this call. I would like to turn the call over to John Colson, Quanta's Chairman

Good morning, everyone. Welcome to the Quanta Service's third 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 an operational review with John Wilson, President of our electric power and gas operations, and a review of financial results by James Haddox, our Chief Financial Officer. Jim O'Neill, Quanta's newly appointed President and Chief Operating Officer, along with Ken Trawick, President of Quanta's telecommunications and cable operations, are also present. After our prepared remarks, we will open the call for questions.

The executive team is proud of Quanta's third quarter results for many reasons. First, despite an incredibly challenging economic environment, our operations remain strong and operating margins were 10% and in line with our operational objectives. It appears the impact of the current economic condition on our top customer has been minimal to date.

We believe our customers remain financially secure and committed to the maintenance and build out of their infrastructure. We recognize that some large utilities have recently announced reductions in capitol spending. We believe most of these reductions are related to generation and other areas, and will not materially affect the transmission buildout.

Second, we continue to achieve significant internal revenue growth. Third, our capabilities are unique in the marketplace and continue to be in high demand in the industries we serve. Lastly, one of the most destructive hurricanes in US history, Hurricane Ike, devastated the Gulf Coast region and directly impacted our corporate headquarters. Our emergency response plan operated seamlessly. Our customers received the services they required and we were able to focus on the immediate task at hand, insuring the safety of our employees and getting the power back on.

The third quarter of 2008 continued a strong trend of revenue growth and margin expansion for Quanta. We continued to perform well and recent strategic announcements further position the Company to leverage emerging opportunities, including wind and solar. Revenues for the quarter were approximately $1.05 billion, compared to $655.9 million in the third quarter of 2007. Pro-forma internal revenue growth was approximately 27%, compared to the third quarter of 2007, including revenue from all acquisitions since 2007 in both periods.

In the third quarter, operating income is a percentage of revenue, was in our target range of 9% to 12%. Operating income was 10% with amortization added back, and 9.1% with amortization deducted. Quanta's customer base remains diverse, which lends strength to the ongoing growth of our revenue base. The first nine months of 2008, our largest customer made up only 4% of our revenues. Our top ten customers in the first nine months represented 30% of our total revenues, and our top 20 customers made up approximately 43% of revenues.

The breakout of revenues by the type of work also shows diversity. When divided by type of work, our 2008 third quarter revenues were approximately 57% from the electric power services, 23% from natural gas services including pipeline integrity, 12% of revenues from telecommunications and cable services, 7% from ancillary services like a horizontal direction drilling and commercial and industrial wiring, and 1% from dark fiber leasing services.

Our employee count was 17,031 at September 3, 2008. This compares to 16,659 at the end of the second quarter, and 15,672 at the end of September last year. The increase in employees has occurred primarily in our operating units that serve the electric power industry, particularly high-voltage transmission infrastructure. We had a decrease in the number of employees in certain of our telecommunications underground and wireless operating units.

Our workforce and our service scope remain flexible. Quanta was designed with this scalability, flexibility and diversity in mind. This enables us to quickly respond to market shifts and increases in demand for our services.

This strategy is the one with which Jim O'Neill is very familiar. Jim, as previously announced and accepted a promotion to President and COO of Quanta. His joining Quanta almost a decade ago, Jim has been instrumental in the strengthening of our operations as we have acquired integrated companies into the Quanta culture and as we have evaluated margin enhancement and strategic growth. I am excited that Jim has accepted this challenge. He is a strategic addition to the already strong executive team. I know he will apply his expertise, dedication and drive with continued emphasis on sustained growth and earnings, margin enhancement and safety, as well as leveraging opportunities in the renewable energy industry.

It is time to look forward. Yesterday, we elected a new president. A bailout package has been deployed. Another one may come soon and the nation continues to need power and communications infrastructure.

A recurrent message you will hear throughout today's call is that most of our customers have not yet been affected by the current credit crisis, and due to the fact that most of them are regulated, access to the credit market currently is not a critical item. Several utilities are proposing a rate increases, others are leveraging tax incentives, but the bottom line is they remain committed to upgrading their infrastructure. Our perspective that the markets remain strong is also supported by what we are hearing from our customers, regulators, industry associations, financial analysis and other thought leaders in the utility industry.

We hosted our sixth annual and largest utility perspective symposium in Washington, DC, last month. The utility perspective symposium is designed to be an environment for collaborating various financial, regulatory, independent public perspectives on the industry. Speakers at the meeting included Joseph [Kelliher], the chairman of PERC, Harry [Smitherman], chairman of the Public Regulatory Commission of Texas, [Dale Kline], chairman of Nuclear Regulatory Commission, Tom [Coon] president of Edison Electric Institute, [Wendall Swisher] the executive director of the American Wind Energy Association, along with various current and former PERC commissioners. The message we heard from them as well as other state regulators, financial and industry consultant experts, and more than 40 utility executives in attendance, was basically the same. Economic crisis or not, utilities must strengthen power delivery infrastructure and the funds should be available to them although costs may be higher.

This is reinforced by announcements, like the one we were awarded this morning, that we have been awarded a contract to Oklahoma Gas and Electric, for the construction of 120 miles, or 345,000 volt transmission infrastructure just outside Oklahoma City. John Wilson will discuss this award in more detail shortly. This project will involve collaboration of at least four operating of our units, each contributed to a specialty service.

We will provide all services related to foundations, helicopter transport, construction and installation of the new transmission line. Despite the ongoing credit crisis, renewable revenue for 2008 is forecasted to exceed our goal of $150 million. We expect these revenues to continue to increase in 2009.

So far in 2008, revenue from the renewable energy industry has been derived from 40 different customers. Our renewables backlog continues to increase and we anticipate renewable revenues will double in 2009. While wind constitutes the majority of our renewable revenues today, we have also see very attractive opportunities in solar power generation. As we have previously discussed, 29states are mandated to achieve renewable standards designed to reduce their carbon prints, some of which include specific targets between of seven and nine gigawatts of required solar capacity.

As additional incentives, investment tax credits have been extended for eight years under the recent financial rescue package. These tax credits can reduce the initial investment for the solar system by up to 30%. Quanta is well-positioned to take advantage of these opportunities and we anticipate that solar power will become increasingly important to Quanta in the near future.

We anticipate a softening on maintenance spending related to distribution because of lower returns and limited capital. We expect however, that utilities will invest their available capital in transmission, as it produces a higher return. We think that increases in transmission spending in coming years will more than offset decreases in distribution spending.

Looking to now summarize the performance of our telecom and cable operations, as mentioned in our second quarter conference call, we are in the process of renewing several master service agreements that expired this year. This impacts the appearance of our telecom backlog numbers. We have already secured renewals on some of them, but continue to negotiate the remainder. We expect most of the MSAs will be renewed. Looking to the last quarter of the year, there are a couple of items to note when reviewing backlog numbers and comparing to prior years. First, we have completed a significant wireless project in the Midwest. While we are optimistic this will continue to be a growth area for us, there is currently not a comparable project in our backlog. Telecom and cable internal growth for the fourth quarter last year, was 60%, creating some very difficult comparisons.

Also AT&T has revealed capital expenditure reductions for the remainder of 2008. Originally it seemed AT&T's fiber to the node program was immune to CapEX reductions, however in the third quarter, we began to experience a decrease in revenues from this customer. We expect this reduction will continue through the fourth quarter of this year. We have no indication this is a strategic change in direction, but all indications are this is appears to be a timing issue relative to 2008 capital commitments.

For the year-to-date,Telecom and cable operations have shown 19% revenue pro forma internal growth when compared to the first nine months of 2007. Verizon is also slowing spending in the fourth quarter. We have been told that spending will return early next year and will be substantial in the areas that we serve as in 2008.

There remains some M&A activity in the industry. Century Tel recently announced that it will acquire Embark. We do not anticipate this will impact our existing MSAs with Century Tel. In fact, it provides broader access to additional markets for our operating units due to our strong relationship with this customer. Reduction in spending by our wire line customers and a lack of significant replacement projects for our wireless group will affect our backlog growth and profitability for the fourth quarter of 2008. Over the next 12 months, most of the spending will return and with the continued expansion of the electric transmission and renewable energy markets, our internal growth, overall for the Company will be in double-digit range.

To close, I want to remind you that Quanta was founded with a vision to create a diverse customer and revenue base. We have navigated many challenging paths from the telecom deterioration early in this century to the aftermath of 9 /11. The strength of our executive team and our workforce will enable us to navigate these challenging times as well.

As we move forward, we will continue to meet the growing needs of our customers in the safest, highest quality, most cost-efficient manner possible. I will turn the call over to John Wilson who will discuss the most recent developments in our electric power and natural gas operations.

Good morning, everyone. As was evident in John's remarks, despite the current economic concerns in our country, we believe this is a dynamic time for Quanta and the power industry as a whole. Even in the current credit situation, people still need power. Demand for power combined with a strong financial health of our customers influences us to maintain our positive outlook for the future. The current economic climate will not improve overnight, but with the election complete, we hope a solid path to recovery may begin.

In the meantime, we maintain our unwavering focus on meeting the needs of our customers who continue to be driven by increasing consumer and commercial demand for green power and an outdated power delivery system unable to deliver the product, managing our business to optimize efficiencies and solidify margins and ensuring the safety of our workforce. Ongoing demand for our services and the electric power, natural gas and renewable industry is evident in our performance in a third quarter of 2008, and in our 12 months of total backlog levels. In the third quarter 2008, revenues from electric power and natural gas operation, including renewables and emergency restoration, were $837.7 million. This compared to $450.1 million in the third quarter of 2007.

Restoration work, which I will discuss in more detail shortly, accounted for approximately $114 million in revenues in the third quarter of 2008, and approximately $13 million as reported in the third quarter of 2007. Twelve month backlog for the electric power and natural gas operation on September 30, 2008, was approximately $1.906 billion. Total backlog for the electric power, natural gas operations, at September 30, 2008, was approximately $3.967 billion compared to $3.75 billion at the close of 2007. James will discuss comparative backlog in more detail shortly.

Throughout the quarter, Quanta crews supported several utilities following four hurricanes. The hurricanes that made U.S. landfall during the third quarter, Hurricane Ike was the largest and most destructive. In fact, Hurricane Ike was the third most destructive hurricane to ever to hit the United States, and the third costliest which damages in U.S. coastal areas estimated at $27 billion.

Two of our largest customers, Cedar Point and Energy, experienced the greatest damage to their infrastructure. The hurricane hit close to home. I speak for the entire executive team when I say we are proud of our employees and their ability to get the job done in a very challenging situation.

We initiated an emergency response plan to continue our daily operations and support all of our customers; those impacted by the hurricane, as well as those who were not impacted. Many of our Houston based employees were significantly impacted, or without power for more two weeks, yet our operations did not miss a beat. That is thanks to the skill and dedication of our employees throughout the nation. While power has been restored to most of the area, some of our line personnel remain in the Gulf Coast region and are focused on rebuilding the infrastructure that was swept away by the storm surge or severely damaged by winds.

Industry developments; our industry is now feeling somewhat of a perfect storm. Demand is increasing and is expected to increase 30% by 2030 to over 6 billion -kilowatt hours, based on information from the Energy Information Administration. New generation is required. 258 megawatts of new generating capacity will be needed to meet this growing demand. The estimated cost of this buildout is $412 billion.

Capacity margins are declining. Capacity margins are the management of extra generating capacity required to be prepared to meet emergency situations, based on generation capacity margin which was at 17% in 2007, down to 30% to 40% in the early 1990s, and dangerously close to the 12% to 15% minimum requirement needed to ensure reliability and stability of the nation's power system. Infrastructure, the nation's transmission grid consists of 200,000 miles of high-voltage lines, most of which are 40 to 50- year of age or older.

In addition to all of this, the industry needs to build a new grid to transport renewable energy from the source to the load centers. This is not just an urban issue. According to USDA, the demand for generating capacity is increasing just as fast in rural America as in urban areas. This will require cooperatives which generally serve rural areas to double generation capacity by 2020. Because of this situation, momentum of what can be called, the big transmission buildup, continues with no end in sight.

This is good news for power consumers because if focus on expanding the power delivery system is lost, we believe there will be dire consequences. A study by Nextgen Energy Council released a month ago states the United States faces significant risks of power brownouts and blackouts as early as next summer. These brownouts end blackouts have the potential to cost tens of billions of dollars and threaten lives.

The study found the U.S. will require 14,500 miles of new transmission lines by 2016 which is less than eight years away. All of these are the circumstances driving our electric power, renewables and natural gas business. In a nutshell, work under existing contracts continues to gain momentum. New contracts are being signed and utilities are securing approval for hundreds of miles of transmission lines.

I will provide an update on a few of our spotlight projects. As announced this morning, Quanta was awarded a contract from Oklahoma Gas and Electric for the construction of approximately 120 miles or 345,000 volts of transmission infrastructure just outside Oklahoma City. The contract is expected to be completed over a 12-month period. Four of our operating units will work together to provide all installation services including salvation construction, structure installation and conductor streaming. Work is projected to begin in the fourth quarter with an estimated completion in the fourth quarter of 2009.

Allegheny Energy -- Trans Allegheny Interstate Line are the trail projects -- 500,000 low transmission lines has recently reached two significant milestones. The first milestone is the commencement of the work at the Meadow Brook substation in Virginia. The construction on this substation is planned to start in November 2008 with all permit conditions being satisfied. Construction on the 502 junction substation in Greene County, Pennsylvania is planned to start in December of 2008 with all permit conditions again being achieved. We will perform the work on both of these facilities as part of our previously announced contract with Kitty Construction, for the construction of a substation and transmission lines for the Trail project. Allegheny has also indicated it has secured $550 million in financing through credit facilities for this and other transmission facilities and activities.

We continue to perform work in central Texas on the $190 million contract for lower Colorado River Authority, our LCRA. Our work supports LCRA's commitment to strengthen its transmission infrastructure and to build additional infrastructure to support increasing demand in its service territory that may include the renewable generation sources being developed throughout the state of Texas. For Northeast Utilities, we continue pre planning and pre construction services under $750 million contract. However, this work will continue to be minimal until the project is in full swing in about a year.

Other industry developments include the Potomac Appalachian transmission highline or PATH project, which is a joint venture of American Electric Power and Allegheny Energy. [BGA] interconnection announced this month a reconfiguration of PATH to incorporate additional [765,000] volt segments of the proposed line. This reconfiguration is a result of constraints identified through comprehensive citing studies, interaction with governmental agencies, public input and a desire to identify a solution that reduces line mileages and minimizes the impact on communities and the environment. The joint venture remains focused on identifying the complete line route and expects to file application for approval by state regulatory commissions during the first quarter of 2009. Allegheny announced earlier this week that the deadline for this project has shifted slightly.

Development of the Texas competitive renewable energy zone or PREZ, continues to progress. The public utility Commission in Texas has clearly stated that it does not expect the credit crisis to impact transmission spending in Texas. The Texas PUC continues to work diligently through commissioner testimony and official recommendations regarding which groups will build the transmission required by the additional 50,000 megawatts of power capacity. It is estimated that it will take approximately $5 billion, and 2400 miles of additional infrastructure to interconnect these wind farms into the grid. We believe this is a major opportunity for Quanta, and we are well-positioned to leverage this opportunity and be part of this monumental task in our home state.

There have been other significant developments in strengthening the nation's transmission grid. MERC has approved rate incentives for various transmission projects, including energy gateway transmission expansion project that will deliver up to 3,000 megawatts of capacity in the West. The main power liability program, a $1.4 billion transmission project that will increase reliability and capacity to export hour to southern New England. The New York regional interconnect, of the condition that New York Public Service Commission determines that the 190-mile transmission line either ensures reliability or reduces congestion and approves siding for the project.

We see a strong future for Quanta in the area of renewable energy infrastructure. This is a natural and logical application of our skills and strength and we bring many years of experience to the industry. According to the American Wind Energy Association, the U.S. wind energy industry installed 1,389 megawatts in the third quarter, bringing the total wind projects completed to 4,204 megawatts in what is expected to be another record year.

Key wind generation developments occurred in Texas, West Virginia, Utah and the Dakotas. Texas added 693 megawatts in the third quarter, giving Texas the most wind power capacity of any state. The state with the fastest wind power capacity growth was West Virginia, which more than tripled in existing capacity with the addition of 164-megawatt project and another 100-megawatt project is scheduled to come online in West Virginia by the end of the year.

Utah added its first multi turbine project, the nine turbine Spanish Forks project. [Asion] Energy, a land turbine manufacturers brought its first US turbines o line at a 120 turbine project straddling the North Dakota/South Dakota border. Our work in wind is primarily related to construction of the wind farms as well as the collection system, required substation and transmission infrastructure required to transport the renewable power to areas with the highest demand for power.

Building on the success of the Denver International Airport's solar project and leveraging the growth in commercial utilities in solar systems, we also continue to be active participants in the development and construction process for photovoltaic and thermal solar systems. I look forward to continuing to work with General O'Neill as we secure Quanta's position in this segment of the market. As you can see from these industry circumstances and Quanta's operational developments, we expect we will continue to be busy over the next several years. With transmission infrastructure spending somewhat oscillated from the impact to the credit crisis, and with continuing financial strength of our customers, we believe there exists a strong formula for success and growth.

We also continue to aggressively pursue emerging opportunities in solar and ongoing opportunities in wind power. We closely monitor the state of the economy, the strategic direction of our customers to ensure that we meet the evolving needs of our customers and deliver value to our shareholders. Now, I will turn the call over to James Haddox who will review our financial results for the third quarter.

Good morning, everyone. Today we announced revenues of $1.05 billion for the third quarter compared to $655.9 million in the prior year's third quarter, resulting in an increase of $397.5 million or 61%. Pro forma revenues in the third quarter of 2007 were $832.4 million. When I refer to pro forma information throughout my discussion, I am referring to the data prepared on a combined company basis, taking into account the acquisition of IntraSource and smaller acquisitions as if they occurred on January 1, 2007. Pro forma revenue growth for 3Q '08 compared to 3Q '07 totaled approximately 27%.

The as reported results of operations covered in my discussion for the third quarter 2008 are compared to Quanta's historical results for the third quarter of 2007, which included only one month of results from InfraSource. This year's third quarter revenues included record emergency restoration revenues of approximately $115 million, compared to approximately $18 million being earned in pro forma revenues in 3Q 2007. Excluding emergency registration revenues from both periods, pro forma revenue growth would have been about 15% in the third quarter.

On an as reported basis, revenues from electric power work in the third quarter of 2008 increased by $233 million or about 64% over the third quarter of 2007. On a pro-forma basis, electric power worked increased by $145 million or 32% quarter over quarter. Excluding all emergency restoration revenues from both periods, electric power revenues would have grown 12% on a pro forma basis.

We believe however, that not all emergency restoration revenues should be deducted to determine internal revenue growth for the quarter. Since our crews would have been working elsewhere had the storm's not occurred, we should only remove incremental storm work in order to calculate internal revenue growth. The calculation of incremental storm work is unprecise and judgmental so we don't calculate it. Because storm restoration revenues this quarter were considerably higher than normal, we feel that we should point out the electric power revenue percentage growth would have been higher, had only the incremental storm restoration revenues been removed from the calculation of internal revenue growth.

Gas work increased approximately $154 million or 180% on an as reported basis, and about $108 million or about 81% on a pro forma basis quarter over quarter. Telecom and cable work excluding dark fiber leasing increased approximately $4 million or 3% on an as reported basis, and decrease $24 million for 16% on a pro forma basis quarter over quarter. Ancillary work decreased about $6 million or 8%, and decreased about $12 million or 15% on a pro forma basis quarter over quarter.

Fiber revenues contributed $16.8 million to the quarter, compared to $4.5 million in the last year's third quarter on an as reported basis. Dark fiber revenues for the third quarter of 2007 included one month of operations since this revenue was acquired as part of the InfraSource acquisition. On a pro-forma basis, dark fiber revenues grew 38%. 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 the information we have just provided by type of work is directionally accurate.

We generated gross margins of 17.6% for this quarter, compared to 17.5% during last year's third quarter. On a pro forma basis, last year's gross margin was 16.9%. On an as reported basis, gross margins only improved 10 basis points quarter over quarter. However, delving deeper into the discussion of margins, electric power and gas margins improved quarter over quarter due to better pricing, market conditions and higher volumes of storm restoration revenues.

Dark fiber margins also contributed to the net increase in margins during the quarter. These margin improvements were mostly offset by declines in margins in the telecom and ancillary areas, due to lower revenues and experiencing losses on a telecommunications contract completed during the quarter and a couple of ancillary contracts. We are not expecting any additional difficulties under these contracts.

On an as reported basis, G&A expenses were $80.1 million in the third quarter of 2008, compared to $59.8 million in the third quarter of 2007. The increase over 3Q '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 7.6% in 2008 of revenues in 3Q or '08, compared to 9.1% in 3Q '07 and compared to 7.9% in 2Q '08, due to better absorption of overhead expenses as we achieved record revenues during the quarter.

Operating income before amortization or EBITDA on an as reported basis was approximately $105.4 million or 10.0% of revenue, compared to $55.2 million or 8.4% for the third quarter of 2007, for an increase of 160 basis points quarter over quarter. The table showing the calculation of EBITDA is set forth in the financial news section of our website at quantaservices.com. We believe that EBITDA has become an important metric as amortization expense associated with InfraSource and other acquisitions has become a more material component of our income statement. Amortization of intangible assets increased from $4.9 million in the third quarter of 2007 to $9.0 million in 3Q 2008, because '07's third quarter included only one month of amortization related to InfraSource.

Interest income decreased approximately $3.4 million during the third quarter of 2008 versus the third quarter of 2007, as a result of a lower average cash balance and lower investment rates quarter over quarter. Our effective tax rate during the quarter was 41.1%, compared to 5.9% during 3Q 2007. The effective rate for 3Q '07 was favorably impacted by the tax benefits of $17.9 million, primarily associated with the reversal of tax contingencies due to the expiration of various federal and state tax ventures of limitations during the period. Including these benefits in 3Q 2007, the effective tax rate would have been 41.7%.

Net income for the quarter was $54.9 million, resulting in earnings per diluted share of $0.29, compared to net income from continuing operations of $47 million or $0.30 per diluted share in the third quarter of 2007 which included a benefit of $0.11 per diluted share from the reversal of the tax contingencies previously mentioned. Netting back non-cash compensation of intangibles and non-cash compensation expense net of taxes, resulting in adjusted income from continuing operations of $62.8 million or cash earnings per diluted share of $0.32 in the third quarter of 2008. This compares to adjusted income from continuing operations of $33.5 million or adjusted cash earnings per diluted share of $0.22 in the third quarter of 2007. The reconciliation of GAAP to EPS to cash EPS is provided in the tables attached to our press release issued today.

Cash flow from operations totaled approximately $16.8 million for the quarter. Cash flow from operations, less $49.7 million of capital expenditures net of proceeds from sales, resulted in approximately $32.9 million of negative cash flow for the quarter. Cash flow was negatively impacted by higher working capital requirements associated with the impact of storm restoration services performed late in the third quarter. The addition of IFS, specifically the dark fiber leasing operations, also impacted free cash flow. Of the $49.7 million in net CapEX this quarter, $32 million was related to dark fiber initiatives.

Adjusted EBITDA was $129.2 million or 12.3% of revenues for the third quarter of 2008, representing an increase of $57.0 million or 130 basis points over adjusted EBITDA in 2007's third quarter. For the nine months in 2008, adjusted EBITDA was $311.8 million or 10.9% of revenues which is 140 basis points higher than adjusted EBITDA in the first nine months of 2007. Calculation of this nonGAAP measure is detailed in a separate analysis in the financial news section of our website, QuantaServices.com.

Cash flow from operations for the first nine months of 2008 totaled $50.1 million. Subtracting net CapEX of $153.8 million yields $103.7 million in negative free cash flow year to date. We expect free cash flow will be positive by a significant amount for all of 2008, as we are paid for the emergency restoration services provided late in their third quarter coupled with our forecasted fourth quarter produces lower revenues on a seasonal basis thereby requiring less work investment.

Turning to backlog, three quarters ago, we began expanding our disclosure related backlog by adding a discussion of total backlog to 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 management 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 four master service agreements includes our estimate of future billing, based on our knowledge of our customer spending patterns under T&E and unit cross 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 on September 30, 2008, was approximately $5.088 billion which is approximately $201 million or 3.8% lower than total backlog at 6-30-08. This decrease during the quarter was due to burn off of revenues under MSAs during the quarter while no material renewals were signed and no material multi year contracts were added. For the past several quarters, total backlog has increased due to new contracts or renewals being signed in excess of the contract terms. While that did not occur this quarter, we feel it was a timing issue relative to the award of new contracts such as the OG&E contract we announced today that was not a backlog at 9-3-08. Based on current negotiations on several new contracts, we feel the total backlog will increase by year end.

Total backlog at the end of 3Q 2008 increased by about $1.3 billion or 34%, compared to the end of 3Q 2007. Current backlog of work to be completed during the next 12 months is approximately $2.428 billion, compared to $2.394 billion in the 12-month backlog as of the second quarter of 2008, for an increase of approximately $34 million. The 12 month backlog at 9-30-08 has increased by about $211 million or 9.5% compared to 9-30-07.

Our day sales outstanding which we calculate by using some of the current accounts receivable, plus costs and earnings in excess of billings, less billings in excess of cost, divided by the average revenue per day during the third quarter were 85.5 days at September 30, 2008 versus 83 days at September 30, 2007. The increase in DSOs is partially attributable to a large volume of storm restoration occurring during the last months of the quarter.

At quarter end, we had $266.4 million in cash on our balance sheets. As of 9-30-08, we have $197 million in letters of credit outstanding, primarily to secure our insurance program, leaving us with approximately $278 million on our available borrowing capacity under our credit facility. Subsequent to the end of the third quarter, we've reduced our outstanding letters of credit by $37 million, thereby increasing our available borrowing capacity to about $315 million. Subsequent to the end of the third quarter, the holders of almost all of our $270 million 4.5% convertible debt, exchanged their notes for equity in Quanta. This leaves Quanta with no significant maturities of debt until September, 2012. With our strong cash position and credit availability, Quanta has the financial strength to continue to serve our customers' needs and has the ability to capitalize on opportunities that may arise as a result of high credit markets.

Concerning our outlook for the future, our fourth quarter results can vary significantly due to the effect of winter weather and emergency restoration work may have on the quarter. Our estimate of revenues for the fourth quarter of '08 is from $875 million to $930 million. This estimate includes approximately $25 million of revenues from emergency restoration services versus $54 million earned in 4Q of '07. Our estimate for 4Q '08 EPS is between $0.18 and $0.20 per diluted share on a GAAP basis. Our GAAP forecast includes an estimate of $10.7 million for non-cash amortization of intangible assets and non-cash compensation expenses. Excluding these expenses, our cash EPS for the fourth quarter is expected to be $0.21 to $0.23 per diluted share.

For additional guidance, we're currently projecting our tax rates for the fourth quarter to be approximately 41.5%. We expect diluted share counts to be 202 million shares, excluding the effect of any acquisitions. We continue to expect CapEX for all of 2008 to be somewhere between $180 million and $190 million. In summary, we're very pleased with our performance during the third quarter and first nine months of 2008. With that, this concludes our formal presentation and we will open the line for Q&A.

(OPERATOR INSTRUCTIONS.) The first question comes from Jamie Cook of Credit Suisse. Please go ahead.

Good morning. Congratulations on a nice quarter. My first question relates to the fourth quarter guidance. I understand the fourth quarter is difficult to forecast, given seasonality and winter months. If you exclude storm work, the mid point is 6% topline growth. I wonder if there is any one segment that is driving that and also it implies a nice deterioration on the margin front. If you can walk me through your thought processes behind the guidance.

I will start, maybe James can follow in there with the margin discussion. The telecom business is down as we indicated in our conference call, from Verizon and AT&T. That is not a strategic shift in direction for them, but merely a cash allocation situation. We think revenues will increase in 2009. But that, plus the difference we are forecasting for storms and what we realized in storm for the fourth quarter of last year, pretty much makes up for any shortfall.

Same applies to margins. We expect margins to hold up on a electric power and gas, but we are seeing lower margins on telecom and ancillary than we did in the fourth quarter of last year.

Are you still forecasting double digit growth -- top line growth on the electric power side?

Yes, we are. For the entire company -- for my presentation earlier, we believe was spending returning from the telecom customers in 2009, along with extreme growth in the transmission business and the renewal business in '09, the whole company will have 10% growth in 2009.

10% internal growth. It is interesting to hear your positive commentary on the transmissions. But at the same time, we have seen some CapEX reductions announcements from utilities.

Florida Power and Light said there were going to cut their CapEX by 20%. Some of that would come from wind -- we're in an environment where financing is more difficult. When we think about your backlog growth in 2009, do you think you can see a double digit backlog growth. Do you think that project with all the transmission that will happen at some point? Does it get pushed to the right and does it become a 2010 story?

Transmission lines always get pushed. That is pretty normal. In discussions, as I mentioned earlier, at the utility perspective conference where we had a number of industry experts including the chairman of PERC, the chairman of the Texas PUC, 40 customers -- discussions with them -- they are fairly optimistic. Yes, it was going to be more expensive to continue to build the transmission because of the credit crisis, but they were going forward with those plans. Things do change and have changed, but that was less than the two weeks ago. I don't think anything major has changed since then.

Most of these utilities are regulated. They're getting a guaranteed return on their money and a guaranteed return of their money for these transmission projects. It will be fairly easy for them to raise capital. These projects are going forward. We are seeing announcements by major customers that they are cutting back on CapEX, but most of that CapEX is related and they're saying that most of that CapEX is related to generation and other things rather than their transmission projects.

Besides credit award that we hope to be announced sometime late 2008 or early 2009, are there any major projects that you expect to move forward in 2009 that we should be tracking? What is your latest update?

I don't want to be too specific because we're talking to our customers about those projects. We don't want to give our competition all of the projects that we are doing, but we haven't seen the cancellation of any of the projects we have talked about in the past. Those projects are going forward. PATH as Wilson mentioned has been delayed, but that is not unusual for those types of things. It wasn't a delayed because of the credit situation, it was delayed because the PGM didn't think they needed it until 2013.

I will get back in queue, thank you.

Next question is from Tahira Afzal of Keybanc Capital Markets.

Good morning. Just wanted to go over a couple of projects I know of and get your sense. SPLE has got their budget on the wind side and so had several other companies, but I believe there is another large project that might get awarded in the fourth quarter timeframe. Given your competitive advantage, I won't give more details. Is it still on track?

I have a confidentiality agreement. As far as I know, everything's impact with the transmission group.

From what I can gauge, that would be a fairly large project -- much larger than what you have been seeing.

I can't comment because of confidentiality agreements.

Fair enough. The Pacific project that just got approval for a higher rate, that is a $6 billion project?

I don't know. This is John Wilson. I don't know about the size of it as far as dollar value, but it is significant because the line mileage is shallow.

The official number they was given out is around $6 billion. Do you have an idea of the timing on that?

I really don't. I am thinking it is somewhere around 2010. I don't have the exact dates on that.

In terms of the Sunrise following a decline, it seems an alternate line has been essentially unofficially approved and that might go through. Would that be a project that could happen for you in 2009?

If you remember, that was one of the projects we listed several conference calls ago. Every day that goes by, there continues to be reliability studies and focuses on these lines. These lines can shift in locations, they can shift in magnitude, increasing in size and voltage. It is not static.

Just because something has been out there once in the public domain, it can change quite significantly. We are well aware of all of those projects that you mentioned. They are still on track. As John said earlier, all the projects that we happen to be tracking, we have not heard of a single cancellation of any of those projects. That happens to be one of them that you just mentioned.

Two steps back, I have a list of $56 billion of high-voltage projects over the next three or four years that will be potentially awarded and $4 billion that is guarantee under progress. If I look at what you are seeing in terms of what you are tracking right now -- three months ago, would you say what you are seeing comes up -- the basket is increasing or decreasing?

It's probably increasing.

Let me add a little bit of color to that. The FERC filings for transmission lines have not decreased, and in fact they have increased slightly over the past three months. One thing that was brought out in our utility perspective symposium that I thought was interesting is that if there are $100 billion of money spent on transmission lines, it would increase the average rate payors bill by $2 a month. It is fairly insignificant, even at $100 billion of spend on transmission.

That would be incremental, lines added or just would it be just oil spend as well.

It would be additional CapEX.

One last question. The last thing you mentioned on the telecoms side, in the third quarter, would it be possible to get an idea of the size?

If you combine the losses on the telecoms side and the ancillary side for those projects, it was $10 million, equal to 100 basis points of margin.

You have said that would be a one time issue. Would you provide some color on that?

We had some performance issues on those projects and those projects are pretty much done or substantially completed, so we don't expect continuing deterioration on those projects.

As you look at your fourth quarter guidance that came up with it -- would you have some cushion on a project with a similar profile in the fourth quarter?

No.

The only thing in the fourth quarter is less storm work, less telecom work.

If I look at your margin in the third quarter, it was more like 11% operating margin.

If it hadn't been for those losses I just mentioned, it would have been closer to 11%.

If I look at 2009, obviously your Telecom work is going to be facing much tougher comparisons. When I look at margins for next year, given what you are seeing right now and assuming no execution issues, should one assume margins could go back to those levels? Ex-storm work?

Back to which levels?

Let's say that you take a adjustment numbers for storm work -- by whatever margins are on the side quarter underlying excluding storm work?

There is no reason to -- you have to exclude storm work from that. But there's no reason they won't. That's providing of course for telecom recovery.

Thank you very much.

Next question comes from Sanjay Shrestha of Lazard Capital Markets. Please go ahead.

Thank you. Good morning and good quarter. To follow-up on that question. When you talk about 10% organic growth for 2009, what is the underlying assumption as to the gross dynamics that you guys see coming out of the electric, natural gas and telecom side of the business?

We are assuming telecom will come back and be slightly positive in growth. We expect our renewable revenues will double and we expect electric utility to continue at the rates that it has over the past year.

You guys made a comment that there is a decrease in the distribution side related work and increases in transmission line related work, and historically, the transmitter has been a higher margin in business. Is it fair to say that organic growth is the top line of 2009, but we could also see additional margin expansion in 2009?

That is difficult to say. The real difference between transmission and distribution wasn't transmission or distribution, it was the type of contracts, whether it was a fixed-price contract or it was a cost plus contract. We are anticipating some fall-off in distribution. We have not seen a lot yet, but we are anticipating that. And that is one of the messages we received at the utility symposium.

Maintenance distribution -- maintenance work is reliant somewhat on rate base and rate cases that the return on that investment is lower than transmission investment. Therefore in a limited capital environment, the utilities would focus more on transmission and less on distribution. That was a forecast of distribution spending being reduced. The real difference between the two is cost plus work or fixed price work.

We have been able to negotiate significant amounts of work -- transmission work based on some type of cost basis. It may not in itself switch between transmission distribution be in increased margins.

One last question, with your balance sheet where it is -- you are in one of the best positions given your skill and that sort of stuff. What do you think is the appropriate use of cash at this time? Are you potentially evaluating some acquisition candidates? Can you talk about that a little bit?

It is nice to have the cash on the balance sheet in these difficult time, but we have too much cash on the balance sheet, we're looking at alternatives at this time. There are some attractive acquisition opportunities out there and we need to decide when the right time to acquire is and if that is the best use of capitol. There are other uses as well. If we don't do acquisitions, there could be under uses for the capital whether it be stock buybacks or -- we haven't decided that.

That is terrific.

Next question comes from Curtis Woodworth of J.P. Morgan.

Good morning. In terms of the distribution outlook for next year in term of the capital allocation shift and more transmission projects, is your thinking right now -- what you're seeing in the fourth quarter that distribution spending will be down for you guys?

In the fourth quarter?

In the fourth quarter and for 2009.

We are anticipating the distribution spending for 2009 will be down. I don't fit we are anticipating a reduction in distribution spending in the fourth quarter. 2009 as I say is a forecast . It's a theme we've heard from our customers and regulators in Washington, DC two

In terms of the telecom outlook for -- the ability to be positive on revenue growth in 2009. You will face difficult comparisons and it clearly feels like the next couple quarters at least, spending is going to be on a negative growth trajectory. Correct me if I am wrong. That would seem to imply that you would have to see pretty massive recovery in spending levels above where you were the first half of 2008 to get positive in 2009.

We don't expect to see telecom immensely positive in 2009, but we expect revenue to come back to 2008 levels in 2009. That is what customers are telling us. We don't see a shift in strategic direction by our customers on the telecom side. We just see a cash allocation problem on that side.

They are telling us the work is coming back next year. They don't say it is increasing an extreme amount, but we have been gaining market share in that field. We expect when they are telling us is correct. Telecom may not be a lot of growth, but it shouldn't be negative

If you take your telecom and distribution business together, that is a about -- under 40% of your revenue. If that is going to be flat next year, the other 60% of the business would have to grow roughly, call it 33%. Is that fair? Is that how you are coming up with your 10% forecast for 2009?

There are a lot of moving parts in our forecasted we don't want to get into an issue. The bottom line is we think we can grow at double-digit levels in 2009. That is because of robust transmission growth, plus renewable energy growth -- double in renewable energy, as I said.

Thank you very much.

Next question is from Jeff Beach of Stifel Nicolaus.

Good morning. Can you talk a little bit about your gas business? You have been growing through a shift from the utilities into the private sector and where you stand with that. Is there some vulnerability in 2009 to growth opportunities from seeing gas price come down in the market over the last few months.

We have done very well with that transition. We all know that that is a highly cyclical business. Right now, we are anticipating continued growth on that side of the business for the foreseeable future. It remains to be seen whether there is going to be significant cutbacks or not because of gas prices, but right now we have not seen that.

All right. The backlog, do you have a strong enough backlog in the natural gas business to give you good visibility ahead through 2009 for growth?

Natural gas backlog burns off very quickly, because we build those projects very quickly. The projects that we are seeing in our bidding today, and that we have in backlog, give us fairly good confidence that it is strong for the foreseeable future.

Just a little more expansion on the electric utility spending on distribution. Maintenance, you are saying, will likely be reduced. What about spending on the reliability aspect of this. If you look at the combined spending of transmission and distribution next year, do you see a lower growth rate in 2009 than you would have expected three to six months ago?

Probably we'll see lower than we expected six months ago. Let's talk in more detail on the distribution business. Many of our customers will not be cutting back. We expect that some will because they are dependent upon getting reimbursed through rate cases for some of that spending.

Others in other states, particularly California, that is not the case. Distribution spending will probably be robust. Texas the same way. There are some states that that won't be true in and we are talking -- trying to be as honest and forward as we can about what we heard at the conference and what we see going on.

And again, some comments on the reliability part of this. Is that becoming less important in the near term?

Maintenance can be put off for a period of time -- months or as much as a year, but reliability will catch up with you pretty quickly. They can put off maintenance for a while, but not long term. One thing I should point out, the wind business we do -- the gathering lines in wind farms is very much like the underground distribution business so of those assets can be transferred over to the wind side fairly readily, pretty seamlessly actually.

Thank you.

Next question comes from the line of Alex Rygiel of FBR.

Good morning. A few questions. First, can you run through your top five customers on the natural gas side of your business?

You got that, James? This is for nine months, enterprise products, energy transfer. Way on down after that, past our top 20 customers. I don't know where they rank in the top five. Only have the top 20 in front of me and those two were in the top 20. The rest were in the top 20.

Can you possibly give us backlog by service type?

Give you 12 months and total? Or what?

Both would be great?

12 months electric, $1.000000424 billion, total $3.000000309 million. Gas 12 months, $482 million, total $658 million. Telecom, $311 million 12 month, total $495 million. Ancillary, $140 million 12 months, $26 million total. Dark fiber, $71 million 12 months, and $400 million total.

John, you mentioned the outlook for distribution electric in 2009 would likely be down. What occurred with your electrical distribution business in 2008 versus 2007?

It showed growth over '07.

Distribution was up in 2008 versus 2007, despite the headwind of the negative residential market?

That is correct. Part of that -- remember, the increased outsourcing came from the distribution market. Distribution spending throughout the 90s was relatively flat if you look back. We had internal growth through increased outsourcing during that period of time. Also remember that we didn't have much residential impact.

Is that on a pro forma basis?

Yes. It is.

Lastly fuel as a percent to total revenue?

Fuel is down so I don't think we did a calculation this quarter. I didn't. It was running about 3% when the fuel was $3. It has probably dropped back down to 2.5% to 2.75%.

Thank you.

Next question is from John Rogers of D.A. Davidson.

Good morning. I was curious, as you look out into 2009/2010 and transmission becomes a larger portion of your revenue. Will it continue to be booked on a fixed price basis? Is that your expectation? What are you thinking about in terms of a split there versus 50/50 revenue levels.

What you are seeing is your smaller projects will still be bid on a lump-sum basis. When you get into your larger -- what we call our mega projects, we're seeing those types of projects extend over several years -- sizable builds being looked at differently in industry, because of the amount of risk we would have to put in them. We are looking at more hourly type work or guaranteed rate of return or something like that. You're still going to see a lot of good basis on your smaller projects of less than$5 million, $10 million maybe. But you start getting up to $200 million, $300 million, $400 million, $600 million projects, it takes on a little different perspective.

With those larger projects, will we see more -- higher margins, but also -- especially short-term volatility as a result of it?

I don't necessarily -- we see a little lumpiness in projects -- you have one winding down and the other ready to start up or something like that, but I don't see too much volatility. We mentioned we are getting ready to kick off the solid game line and you'll see revenues build pretty significantly. We just finished Northeast Utility. That job was ramping down, this one hasn't started yet. There could be a little lumpiness, but not volatility.

That is what I meant, the lumpiness. In terms of the mix between distribution and transmission work.

It runs about 50/50 at this point in time. Transmission has been growing rapidly. It used to be 70% distribution, 30% transmission, and we are counting substations in the transmission number. It is probably 50/50, I am sure transmission will pass it going forward.

Can you go as far as 70/30?

Yes. We could.

Thank you.

Next question comes from the line of Steve [Gambuzza] of Longbow.

Good morning.

Good morning.

On this distribution front, I think over time, you have been able to consistently outgrow your end market in terms of your revenue growth versus industry spending. Do you expect that might be the case next year?

Yes. I wouldn't see any change in that at all.

Thanks very much.

Next question is a follow-up question from Tahira Afzal of Keybanc Capital Markets.

I forgot to ask you your 9% to 12% operating margin range that you indicated before hand, given the changing environment, would you like to stick to that?

Yes, we would.

Was supposed to be 18 months back earlier on in the year. As we now look on with 2009 coming on, would you still expect margins to potentially expand in the 2009 timeframe? What seems to be in line -- with 8% operating margin?

If a telecom comes back as we suspect, and if the wind and solar renewables come on as they are projected to along with the transmission market, we should continue to see margins expand. They probably won't in the first quarter of next year as we start cranking up the telecom again, because of winter weather. We should start to see some margin expansion again.

If you look at 8%, based on what you implied for fourth quarter guidance -- 8% for 2008, the lowest we can go within that guidance would be 9%. Would it be fair to say in 2009 you expect 9%? I you condense -- have you done any sensitivity analysis to see if telecom does not come back, what the impact would be?

No. We haven't heard and we are not giving projections of 2009 being 9%. We are still sticking with our goal of 9% to 12% operating income margins.

That was earlier on this year. That would imply if you are sticking to the same timeframe, that you would be entering the lower end of that by 2009. Would that seem okay?

That is possible. What we are seeing now -- I am not making projections to that. I want to make that clear. The margins in our backlog are higher than our existing margins. It bodes well for increased margins moving forward. We can't have a drag from a significant part of the margins.

If you look at the backlogs in your margin right now, you have moved up around -- let's say to 100 basis points over the year in 2000 versus2007. If you look to the backlog at this point last year, was it a similar move up as well. What you see in your backlog margins today in terms of a leg up from last year. Is that similar?

I don't know if it is equated to that. You have to remember that we had storm work this year that was not in backlog last year. We did have higher margins in backlog than we were experiencing at this time last year, but I can't tell you whether it was 100 basis points. I don't recall. I just thought it was higher.

Our final question comes from the line of Curt Woodworth of JPMorgan. Please go ahead with your question.

In terms of once the allocations are made for the transmission capacity in Texas when the Texas commission signs off on that, what is the estimated timeline between that point and when you would expect bidding to occur in terms of necessary permitting, citing and some engineering work? Would that be a six-month process from that point in time? What would be your best guess?

You will see engineering work start fairly rapidly, because I am assuming there is a lot of work going on behind the scenes already. Once those announcements are made, it is going to be a fast track project to get these things built and get them online. You might even see some engineering work -- preliminary engineering work start prior to any announcement.

Then as soon as the announcements are made, they will evaluate the need of each individual line and it will be pedal to the metal at that point in time. Because they already have the wind built, they have a constraint transmission system and they can't get the load to the load set-ups. There are a lot of dynamics going on in west Texas were generators are having to pay people to take their power because of the constraints on the system. It is going to be pretty fast moving.

Wouldn't the permitting and citings still need to get completed before you could -- ?

In Texas, it operates a little different. One thing you see -- these allocations, that process is over with and it's go.

Okay. Thanks. In terms of the telecom margins, what would those margins look like now, when you are running it is a little bit lower revenue levels than you were 12 months ago? Rough numbers?

Except for the losses that we have shown in the quarter, they will be down a couple hundred -- maybe 300 basis points from what they would be normally.

Normally they are around 7% 8%? Is that correct?

No. No. I am saying that going forward, margins will probably be less if you take out the losses, they are probably 200, 300. They have been running very well with electric power margins in the second quarter and first quarter of this year. Third quarter, they were affected by losses, as James mentioned. As they are running right now, because telecom spending is down, they're probably 200, 300 points below the electric utility margins.

200 points.

The utility margins are running year-to-date around 8%, 9%?

There are better than that.

Okay.

There are no additional questions. I would like to turn it back to management for closing remarks.

Thank you very much for your attendance at our third quarter conference call. We look forward to seeing you at the next quarter call. Good bye for now.

That does conclude our conference for today. If you would like to listen to a replay of today's conference please dial (303) 590-3000, using the access code of 11122061 followed by the pound key. Thank you for your participation. You may now disconnect.