Quanta Services Inc (PWR) 2009 Q3 法說會逐字稿

Good morning ladies and gentlemen, and thank you for standing by, and welcome to the Quanta Services third quarter 2009 evenings conference call. (Operator Instructions) As a reminder, this conference is being recorded today, November 4, 2009.

At this time, I would like to turn the conference over to our host, Ken Rupp, who is the Managing Partner with DRG&E. Sir, you may begin your call.

Thank you, Greg, and welcome everyone to Quanta Services conference call to review 2009 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 the email or fax distribution list to receive future press releases for Quanta, or if you had any technical difficulties this morning and did not receive your email 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 Services website at www.quantaservices.com. In addition, there is a telephonic instant replay that will be able for the next seven days, 24 hours a day, that can accessed as set forth in the press release by dialing 303-590-3030 and using the pass code 4178458#.

Please remember the information reported on this call speaks only as of today, November 4, 2009. And therefore you're 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 any statements reflecting Quanta expectations, intentions, assumptions or beliefs about future events or performance, or that do not solely relate to historical or current facts. Forward-looking statements involve certain risks and uncertainties and assumptions that's are difficult to predict or are beyond Quanta Services's control. Actual results may differ materially from those expected or implied as forward-looking statements. For additional information concerning some of the risks, uncertainties and assumption that could effect our forward-looking statements, please refer to the Company's annual report on Form 10-K for the year-ended December 31, 2008, the Company's quarterly reports on Form 10-Q for each of the quarters in 2009, and its other documents filed with by the Security and Exchange Commission which may be obtained through the SEC website at SEC.gov Quanta cautions you, that you should not put undue reliance upon it's forward-looking statements. And Quanta does not undertake any obligation update any forward-looking statements to reflect events or circumstances after this call. With that, I would now like to turn the call over to Mr. John Colson, Quanta's Chairman and CEO. John?

Good morning, everyone, and welcome to Quanta Services third quarter conference call. To start the call this morning I will provide a general overview of the quarter, insight on the impact of the current economic conditions. development in the industries we serve and perspective on emerging opportunities. My comments will be followed by an operational review by Jim O'Neil, President and Chief Operating Officer, and a review of financial results by James Haddox, our Chief Financial Officer. As always, we welcome your questions following our remarks. Revenues for the third quarter were $780.8 million compared to $1.053 billion in the prior year's third quarter. The third quarter of 2008 had approximately $115 million of emergency restoration work, compared to approximately $4 million this year. Diluted EPS for this quarter was $0.32. Compared, included in net income, attributed to common stock to the third quarter of 2009, is $22.4 million of income, from the release of income tax contingencies.

We continue to strength gross margins with 130-basis point increase, compared to the third quarter of 2008. That increase occurred without the benefit of the higher margins storm work. We are deliberately selective in our projects, and continue to not pursue unprofitable or break-even projects, simply for the sake of growing revenues. While our customers are experiencing decreasing revenues, and continue to be impacted by uncertainty related to funding, legislative changes, and the economy overall, we believe our strategic approach and diverse customer base continue to even enhance our ability to navigate this challenging environment, and maximize our financial performance.

For the third quarter of 2009, our largest customer made up 5.3% of our revenues. Our top ten customers represented 33.6% of our total revenues, and our top 20 customers made up approximately 44% of revenues. The break out of revenues by type of work also highlights the diversity of our business. Our 2009 third quarter revenues by type of work were approximately 66% from our electric power infrastructure services segment, 17% from our natural gas and pipeline infrastructure services segment, 14% from our telecommunication infrastructure services segment, and 3% from our fiber optic licensing segment. Remember, since the acquisition of Price Gregory closed at the beginning of the fourth quarter, these numbers and all third quarter financial results do not include any Price Gregory revenues. But they do include certain costs related to the acquisition that under recent accounting rule changes are now required to be expensed when incurred.

Our employee count was 13,623, at September 30, 2009. This compares to 14,654 at June 30th of 2009 and 17,031 at September 30th of 2008. The reduction in employees since June 30, 2009, occurred primarily in natural gas, as we completed a mid continent pipeline project. The September 30, 2008, employee count included additional employees to support the Hurricane Ike emergency restoration work ongoing at quarter-end of last year. As we look forward, our focus is twofold. First, to leverage our strengths, both financial and operational, to successfully navigate this environment of uncertainty, while maintaining margins. Second, to keep our eye on the long-term opportunities and position our company accordingly.

Our acquisition of Price Gregory is a prime example of this strategy. The energy and communications portfolios of our country are changing. The fact remains that our current electric transmission grid is not capable of meeting future power demand, or connecting renewable generation sources to demand centers. We also see an increasing demand for transmission pipeline to connect new natural gas fields to markets. And as communications technologies emerge and evolve, telecommunications service providers seek fast, efficient and cost effective methods to drive their high bandwidth networks to consumers. We believe demand for our strategic services will continue to grow over the long-term.

The elements that will fuel our long-term success fall into specific categories. First, the strengthening of the nation's electric power delivery infrastructure. Next, integration of new technologies to smarten the grid, incorporation of wind and solar generation into the grid to meet renewable portfolios standards, and the associated transmission lines and substations. The evolution of natural gas as the clean transition and base load power for wind and solar. New infrastructure to deliver natural gas from the unconventional shale formations to market. Increased electric and natural gas demand as the country searches for an alternative to gasoline powered vehicles. Demand for fiber reliant high bandwidth telecommunications services that deliver voice, video and data. Growth of 4G wireless technologies. And finally, growing need for secure private networks in educational, healthcare and government facilities.

We anticipate these evolving developments will move our business forward in the future, as we apply our infrastructure expertise to support our customers business strategies in each industry we serve. Overall, during the third quarter, our operations and financial results continue to be impacted by poor economic conditions. In the third quarter of 2009, we experienced a decline in revenues in all industries we served, except the fiber optic licensing. We attribute this decline primarily to reduced spending in a down economy, which was compounded by general uncertainty, as many of our customers awaited government funding. The third quarter brought ongoing softness in electric distribution work, as utilities continued to postpone maintenance of existing distribution lines, and new housing starts continue to be at historic low levels.

Revenues derived from our transmission operations, although growing were not able to offset the decrease in distribution spending. We're working on large transmission projects for Lower Colorado River Authority, National Grid, Northeast Utilities, and Allegheny Power. All of these projects should ramp up in 2010. Every indicator suggests that utilities, large and small, remain committed to strengthening of their power infrastructure, particularly as they integrate new renewable generation sources. We are not experiencing significant delays or cancellations of secured transmission contracts, and new projects continue to move forward beyond planning, and approvals into the bid process.

In the next two weeks, excuse me, in the last two weeks, we've bid two major transmission projects. Their award will be determined over the next several months. On October 28th, LCRA filed an application with the Texas Public Utility Commission for the 80 to 90 mile Gillespie to Newton transmission line, which is considered by the PUC to be a priority project. This line is estimated to be in service near the end of 2012. Also, LCRA has indicated plans to file applications related to two additional CREZ projects on January 15th and July 6, 2010, respectfully. These projects, which includes McCamey D to Kendall to Gillespie transmission line are expected to be in service in 2013. Throughout this application process, we continue to perform work under our original $194 million contract for LCRA.

Momentum surrounding the power delivery market continues to increase, particularly related to transmission infrastructure and Smart Grid technologies. For example in September, the Department of Interior announced that it was fast tracking applications for seven transmission projects in the west. The projects in Idaho, California and Nevada are expected to clear the permitting process before the end of 2010. Also, funding from the American Recovery and Re-investment Act is starting to be awarded. The Department of Energy announced that the ARRA would provide financing for the $213 million Montana Alberta Tie Limited project for the Western Area Power Administration. The 230,000 volt transmission project will deliver 300 to 600 megawatts of renewable wind energy to more than 150,000 homes.

Funds from the ARRA are also being applied to Smart Grid developments. Following the release of its Smart Grid report, the Department of Energy announced the grant of $57 million to fund eight projects in seven states. A study by Parks Associates estimates US smart meter market penetration, that's one element of the intelligent grid technology, to reach 13.6 million meters by the end of 2010, and 33 million by year-end 2011. This compares to approximately 8.3 million smart meters in use as of May of 2009.

Related to renewables during the third quarter, there continued to be a holding pattern caused by pending American Clean Energy and Security Act, compounded by a weak supply of tax equity financing in the market, heightened credit requirements, and yet to be determined Federal grants and loan guarantees. However, we're beginning to see more activity in our renewable energy markets. We continue to respond to inquiries related to our utility-scale photovoltaic solar solutions, including full engineer-procure-construct services installation or grid interconnect services. Our services are comprehensive, unique in structure and deliver efficiency and added value to the customer. We expect to perform $110 million in renewable revenues from both solar and wind by year-end.

Our natural gas division had a difficult third quarter for two basic reasons. We completed our work on the mid continent pipeline early in the quarter, and did not have a replacement for that contract. And, the gas distribution industry continues to be very slow. We continue to focus on the development of our natural gas services with a strong belief that the market has a promising future. With the closing of acquisition of Price Gregory services at the beginning of the fourth quarter, and integration of their operations in full swing, we're well positioned to leverage the full expertise and strong reputation of this operating unit.

We started to see some stabilizing in revenues from our telecom services during the quarter, and believe this quarter may represent the start of increased spending. We saw some increased revenues for Verizon, but have not yet seen much activity from AT&T. The best news on the telecom front is that operating margins have improved from percentages in the low single digits in the third quarter of 2008, to double digit range this quarter. Federal funding for broadband initiatives is moving at a faster pace than energy-related funding. Applications have been received, with awards expected in the late 2009 and into 2010. Additionally, a national broad band plan is expected to be presented by the Federal Communications Commission by mid February, and the large telecom service providers are following suit.

AT&T announced that it is investing $865 million in social and environmental efforts on top of the $17 billion to $18 billion in capital expenditures, two-thirds of which will be allocated to enhance the company's wireless and wire line broadband network. Because of the tight time lines associated with projects funded through the ARRA, telecom service providers, large and small, will be aggressively seeking reliable infrastructure services. We believe we're well positioned to leverage this opportunity, and have already initiated outreach to applicants to introduce them to our patent-pending micro-trenching turn key fiber deployment capabilities. Jim will provide more information on the competitive advantage that we have in this area.

Looking forward, we're still optimistic that the bottom of the economic cycle's negative impact on our business is here, or perhaps behind us. We continue to believe that 2010 will be a better year for Quanta than 2009. We believe our healthy balance sheet, superior services, extensive training, and variable workforce will ensure that we emerge from this challenging economic environment stronger then ever, and poised and prepared for growth. Now, I'll turn the call over to Jim O'Neil, who will talk in more detail about key operational accomplishments during the quarter.

Thank you, John. We continue to successfully manage the challenges impacting the industries we serve. As John mentioned in the third quarter, we increased our gross margins compared to the same period last year despite record low storm revenues for the quarter, and continued softness in the electric and gas distribution markets. Our total backlog is down, compared to the end of the second quarter, due to the decline in 12-month backlog. Our strategy not to pursue low margin revenues, is a primary contributor to this shortfall. This strategy will better position our Company to maintain market leadership, when our customer spending returns to normal levels.

Looking beyond 12 months, our backlog continues to improve. Let's begin with the review of our electric power operations. In the third quarter of 2009, revenues from our electric power infrastructure services segment were approximately $513 million, including $4 million in emergency restoration work. This compares to approximately $646 million in the third quarter of 2008, which included $114 million in emergency restoration work. Electric power revenues were down compared to the same period last year, largely due to the significant lower revenues from emergency restoration work, and continued softness in the electric distribution market. However, gross margins in this segment increased, as our electric transmission activity remains strong.

During the quarter, we completed a key transmission project in Texas, and are nearing completion on the construction of 120 miles of a 345,000-volt transmission line, from Woodward, Oklahoma to Oklahoma City, for Oklahoma Gas and Electric. Several of our operating units worked simultaneously on this line, performing foundation insulation, structure erection and wire stringing operations. We continue to operate on schedule in the construction phase of the TrAIL project, with wire stringing initiated in the third quarter. The construction phase will last about 2 and 1/2 years with targeted completion by early to mid 2011. Our work on the Southern California Edison to Hatch project continues to proceed on schedule, with the completion target of early next year.

As John referenced, we continue to provide transmission infrastructure services under $194 million contract with the Lower Colorado River Authority, or LCRA. Also work under the $256 million addendum for the construction of transmission infrastructure for the Competitive Renewable Energy Zone, or CREZ is expected to begin in early 2010, and extend into the 2013. As we've discussed previously the vast majority of services to be performed under our Master Service Agreement with Northeast Utilities valued at approximately $950 million, will begin in the latter half of 2010 and continue through 2015. We currently have four Quanta companies engaged to perform constructability reviews, sub station design and construction, technical planning and load analysis, energized and routine transmission maintenance, and distribution construction.

Also, work under the five-year contract between National Grid and the New Energy Alliance or NEA to upgrade transmission infrastructure in the northeast is in the initial phase with more than 175 employees currently deployed. NEA is a joint venture between a Quanta operating unit and Balfour Beatty Infrastructure. American Transmission Company or ATC, recently awarded Quanta a contract valued approximately $100 million for transmission line and sub station services. Under the agreement, MJ Electric, a Quanta operating unit will provide resources including labor, equipment and program management to cost effectively execute ATC's program. This contract is part of ATC's program to invest $2.5 billion in infrastructure improvements over the next ten years.

Due to the timing of large projects, we may experience some lumpiness in our electric power revenues in the first quarter 2010. However, our outlook for this market remains strong. All indications are that our customers are committed to their transmission initiatives. We've seen very little delay, and no cancellations of projects in our backlog. We are pursuing several significant transmission opportunities that are in the bid or negotiations stage. The commitment to the transmission grid is echoed at the Federal level.

Just last week, nine Federal agencies including the Environmental Projection Agency, the Department of Energy, and the Federal Energy Regulatory Commission, or FERC, signed a memorandum of understanding, to simplify and streamline the siting approval process related to building new transmission lines on Federal lands. This shows widespread level of governmental commitment to modernizing our nation's transmission grid, reducing congestion, improving reliability, and increasing access to renewable energy sources. Also, FERC recently outlined their commitment ensuring reliable, efficient and sustainable energy in a strategic plan for 2009 through 2014, with significant efforts focused on transmission infrastructure development.

The renewable energy market is showing signs of recovery in the fourth quarter of 2009. We expect revenues from renewable energy generation projects to be approximately $110 million for the full year of 2009. Almost half of these revenues will be generated in the fourth quarter. We remain on track to complete approximately 20 megawatts of Utility Scale and distributed solar projects in 2009. We are also seeing an increase in activity from our wind generation customers. Our engineering-procure-and-construct, or EPC capabilities are critical to customers who need to accelerate their projects, to more efficiently meet aggressive portfolio standards.

During the quarter, we began the construction of the CalRENEW-1 project, a five-megawatt solar facility in Mendota, California. This is an EPC contract with Cleantech America, Inc This project, is expected to be complete by the end of this year, and will be the largest solar array in the state of California. This project, along with small Utility Scale projects currently under construction in North Carolina and Colorado, demonstrate our strong position as the EPC provider of choice in the Utility Scale solar market. Our national footprint positioned us to transfer our EPC capabilities for Utilities Scale projects to distributive generation opportunities. Primarily large commercial customers. Additionally, we believe our utility relationship will enable us to bring distributed solar solutions to our customers. We anticipate significant growth in the development of Utility Scale and distributed solar projects in 2010 and beyond.

Smart Grid continues to be a significant benefactor from funding from the American Reinvestment and Recovery Act, or ARRA. Just last week more than $3 billion in awards were made. Of the more than 400 applications received, 100 were selected for award. The grant funding allocated to investor-owned utilities represents the installation of nearly 13.6 million smart meters. Certain Quanta customers such as CenterPoint Energy, Florida Power & Light, Progress Energy, PECO Energy and Duke Energy, each received the maximum award of $200 million. Under our contract with CenterPoint Energy and Itron, we continue the installation of smart meters throughout the Houston area. At September 30, we deployed more than 100,000 of the 2.2 million meters to be installed under the agreement. The success of our Smart Grid initiatives, which also involve our technology group assisting utilities with Smart Grid planning feasibility studies, and the Department of Energy application process, positions us to well capitalize on future opportunities.

Now let's turn our attention over to our natural gas and pipeline operations. In the third quarter of 2009, revenues from our natural gas and pipeline infrastructure services segment were approximately $132 million. This compared to approximately $264 million in the third quarter of 2008. We continued to experience softness in our natural gas distribution and gas gathering services, as compared to the same period last year, when natural gas prices were at double digit levels. However, we are optimistic about the future of our natural gas and pipeline operations. We remain confident that natural gas will be the fossil fuel of choice over the next several decades, and the bridge to nuclear energy as our nation's quest for energy independence, and a cleaner environment moves forward.

A recent report by the International Gas Association of America estimates that $108 billion will be invested in pipeline infrastructure by the year 2030, as the current infrastructure is insufficient to meet future demands. Our newly-formed Natural Gas and Pipeline division provides comprehensive services, including transmission, distribution and pipeline facility construction and maintenance services, pipeline integrity and rehabilitation services. We are currently involved in an active bidding season in our natural gas operations, although we cannot predict which of the projects will be awarded to us. The acquisition of Price Gregory services, allows Quanta Services to leverage emerging opportunities in the natural gas market, and provide solutions to our pipeline customers. We continue to believe that Price Gregory will achieve our previously reported guidance for 2010 revenues of $700 million to $900 million.

The Natural Gas and Pipeline division is lead by Duke Austin who now serves as President. Paul Bailey has been appointed Executive Vice President, and Tom White continues to serve as President of Price Gregory Services. This team brings a strong balance of industry experience, operational excellence, and leadership to drive strategy and solidify the successful path of our natural gas and pipeline operations. As a result of the Price Gregory acquisition, Quanta is not only the largest specialized contractor in the electric power and natural gas transmission markets in North America, but also one the largest full service solution providers of natural gas services in the nation.

Now turning our attention to our telecom operations. In the third quarter of 2009, revenues from our telecommunications infrastructure services segment were approximately $114 million. This compares to approximately $127 million in the third quarter of 2008. This area of our business continues to show signs of recovery, as Verizon and other providers begin to increase spending. Additionally we expect broadband stimulus funding to be awarded beginning next month, and continuing throughout 2010. Customers anticipating awards are preparing to meet stringent deadlines to deploy broadband technologies and services to unserved and under served areas.

We expect to see significant increase in stimulus awards directed to rural areas in the first quarter of 2010, and believe this to be a growth opportunity for our telecommunications division over the next three years. During the recent quarters, we have focused our efforts on strategically positioning our operations to meet the emerging needs for fiber deployment for telecom service providers. Quanta recently introduced into the marketplace a new and innovative micro-trenching solution. A collaboration with Ditch Witch, an equipment manufacturer and with input from our customers and other strategic partners, Quanta micro-trench solution provides a alternative to our customer to dramatically reduce construction time and cost. It is will minimize disruption to communities and environment during their fiber optic cable deployment projects. Our micro-trench solution is expected to open up new markets previously not viable to our customers. This patent-pending process is another example of how we continue to lead the development and delivery of innovative solutions to meet the future needs of our customers.

Our fiber optic licensing business continues to show strong revenue and earnings growth. We are focused on, on well-defined market areas, expanding our networks and adding new customers to our existing infrastructure. The bidding season for the E-rate program is just beginning for the 2010 fiscal year, and will conclude in February. In summary we are proud of our management and operation team's ability to improve gross margins in a challenging business environment. Looking forward the opportunities for our business are clear. Particularly related to the strengthening of the nation's transmission infrastructure, and building and connecting mandated renewable energy generation. We believe our diverse service offering, strong balance sheet, and strategic solutions for our customers position us for continued growth, as spending in the industries we serve returns. Now, I will turn the call over to James Haddox, our CFO.

Thanks Jim and good morning, everyone. Our as reported results this quarter include the effects of a couple of unusual items. The unusual items include, the reversal of approximately $22.4 million in tax contingency reserves, due to the expiration of the statutes of limitations related to certain Federal and state returns during the quarter which had a positive effect on our 3Q 2009 diluted EPS of $0.11 per share. And approximately $1.3 million in out of pocket transactions costs incurred during the quarter, primarily related to the Price Gregory acquisition, which was completed on October 1st. We announced third quarter revenues of approximately $781 million, compared to $1.05 billion in the prior year's third quarter, reflecting a decrease of approximately 26%, quarter-over-quarter.

The most significant reason for the decreased quarter-over-quarter was the lower volume of work performed by our gas segment, with gas revenues being down $132 million quarter-over-quarter. The second most significant decline in revenues during the quarter was related to lower revenues from emergency restorations services. Last year's third quarter experienced three major hurricanes, which caused significant damage to the power grid, generating $115 million in revenues for Quanta. This year's third quarter experienced no major damage to the power grid in the US, since no major storms affected the coastal areas. Emergency restoration areas totaled $4 million this quarter, versus our forecast of $21 million for the quarter.

Revenues from our electric power infrastructure services segment during the third quarter of 2009 decreased by approximately $133 million, or about 21% to $513 million, compared to the third quarter of 2008. Excluding all emergency restoration revenues from both periods, electric power revenues would have decreased about 5%. Electric power revenues were negatively impacted by reduced capital spending by our customers. Our electric distribution, power plant, and substation services were the most impacted. These declines were offset partially increases revenues from electric transmission services, primarily due to an increase number of larger projects being performed in the third quarter of this year.

Our natural gas and pipeline work decreased quarter-over-quarter approximately 50% to $132 million in 3Q 2009. Revenue from gas transmission services decreased approximately $100 million, as numerous larger projects were being performed in last year's third quarter, while due to the timing of a awarded projects, we did not perform similar projects in the third quarter of 2009. Revenues from our telecommunications infrastructure segment decreased from about $127 million in 3Q 2008, to about $114 million in 3Q 2009, or about 10%, due primarily to reduced spending from a specific customer for fiber build out initiatives due to the weakened economic environment. Excluding this customer, revenues from other FTTX initiatives, as well as other telecommunications work, was relatively constant as compared to last year's third quarter. Fiber optic licensing revenues contributed approximately $22 million to the third quarter, compared to $17 million in last year's third quarter, or about 33% growth, as a result of our continued investment in fiber optic network expansion, and the associated revenues from licensing the right to use point-to-point fiber optic telecommunications facilities. We generated gross margins of 18.9% for the third quarter of 2009, compared to gross margins of 17.6% during third quarter of 2008, for an increase of 130 basis points, in spite of a significant reduction in the amount of higher margin storm restoration revenues in 3Q 2009, and lower margins on our in the natural gas work.

Our G&A expenses increased from, to $71.0 million in third quarter of 2009, primarily the result of lower compensation and bad debt expenses along with lower professional fees. We also incurred out-of-pocket expenses of approximately $1.3 million, primarily related to the Price Gregory transaction that's included in G&A expenses during Q3 2009. G&A expense are up from 7.6% in revenues in 3Q 2008 to 9.1% in 3Q 2009, primarily due to lower revenues earned in the third quarter of 2009. G&A was down sequentially from $73 million in 2Q 2009, to $71 million in 3Q '09. EBITDA for the third quarter of 2009 was about $77 million or 9.8% of revenues, compared to about $105 million or 10.0% of revenues for the third quarter of 2008. The calculation of EBITDA is set forth in the financial news section of our website at www.quantaservices.com.

You will see in our 10-Q this quarter that we have redefined and expanded our operating segment disclosure. In the future, we expect to report revenues and operating income for electric power infrastructure services natural gas and pipeline infrastructure services, telecommunications infrastructure services and fiber optic licensing. Results of our ancillary operations have been allocated to the segment most closely matching the type of work performed. For example, inside electrical services have been included within electric power, and airport fueling systems and water and sewer work has been included in pipeline infrastructure. There were several positive and negative variances by segment that resulted in very little net variance to operating margins on a consolidated basis.

We do not allocate certain selling general and administrative experiences, or amortization expense to our segment, therefore the following discussion about operating margins by segment, excludes the effect of such expenses. Operating markets in the electric power segment were 13.0% in 3Q 2009, compared to 12.8% in 3Q 2008. This increase was due to the contribution from higher margin electric transmission services, as well as generally higher margins for the other services offered, which combined offset the effective a lower value of higher margin emergency restoration services than in Q -- 3Q 2008. Operating margins in the natural gas and pipeline segment, were 1.6% in 3Q 2009, compared to 10.2% in 3Q 2008. This decrease was due to lower margins on transmission pipeline and compressor services, due to less absorptions of fixed cost as a result of lower revenues, coupled with substantial rainfall during the third quarter of 2009, and its negative impact on production.

Operating margins in the telecommunications segment, were 10.8% in 3Q 2009, compared to 2.3% in 3Q 2008. This increase was due to the 008 quarter being negatively impacted by substantial customer cost delays and productivitity issues associated with a telecommunications project, which caused a loss on this project in the third quarter of 2008. Operating margins in the fiber optic licensing segment were 52.6% in 3Q 2009, compared to 54.6% in 3Q 2008. This decrease was due to the timing of various system maintenance costs. Amortization of intangible assets decreased from $9.0 million in 3Q 2008 to $5.4 million in 3Q 2009, due primarily to the runoff of the amortization of backlog associated with the InfraSource acquisition. All of these variances resulted in consolidated operating margins for the quarter being flat at 9.1%, for both 3Q 2008 and 3Q 2009.

Interest expense decreased from $9.8 million in 3Q 2008 to $2.8 million in 3Q 2009. During 4Q, 2008 our $270 million convertible security was converted into equity, thus eliminating the interest expense associated with it. In addition, interest expense in 3Q 2008, included $4.6 million of non-cash interest expense associated with the adoption of FSP APB 14-1. Interest expense in 3Q 2009 includes about $1.1 million of non-cash interest associated with the adoption of 14-1.

Interest income decreased from $2.0 million in the third quarter of 2008 to $0.3 million in the third quarter of 2009, primarily due to lower interest rates on our investments during 3Q 2009. Net income from, net income attributable to common stock for the quarter was $63.4 million or $0.32 per diluted share, compared to $54.9 million or $0.28 per diluted share in 3Q 2008. Adding back non-cash amortization of intangible, non-cash interest expense, and non-cash compensation expenses, net of taxes, and certain adjustments related to tax contingency releases, and acquisitions cost, acquisition cost would have resulted in adjusted net income attributable to common stock of $49.4 million, or adjusted diluted earnings per share of $0.25. This compares to $0.32 adjusted diluted earnings per share for 3Q 2008. The reconciliation of GAAP net income attributable to common stock to adjusted net income attributable to common stock as provided in the tables attached to our press release issued today.

Cash flow from operations totaled approximately $105 million for the quarter. Cash flow from operations less net capital expenditures of about $34 million, resulted in approximately $71 million in free cash flow for the quarter. Cash flow from operations for the first 9 months of 2009, totaled about $275 million. Deducting net CapEx of $116 million year-to-date, yielded free cash flow of $159 million for the first 9 months of 2009. EBITDA was $103.5 million for the third quarter of 2009. EBITDA for the first 9 months of 2009 totaled approximately $261.4 million. Calculation of this non-GAAP measure can be found on financial news section of our website at www.quantaservices.com. We have also posted to our website, a calculation of adjusted EBITDA. Our day sales outstanding or DSO's were 79 days in September 30, versus 79 days at June 30, 2009 and 86 days as of September 30, 2008. The definition of days sales outstanding can be found in the financial news section of our company website.

Now I'll turn to discussion of backlog. 12-month backlog is defined, as the amount of work expected to be completed over the next 12 months under signed contracts. Total backlog includes the amount of revenues we expect to derive in the future from signed contracts, project work, and master service agreements. A much more detailed definition of backlog can be found in the financial news section of our company website. Our total backlog of work at 9-30-09 was approximately $5.484 billion, which is $396 million or about 7.8% higher than total backlog at 9-30-08. Total backlog has decreased about $44 million, or 0.8% since June 30 of 2009. Our 12-month backlog currently stands at $2.026 billion. This compares to 12-month backlog $2.427 billion at 9-30-08 and represents a decrease of $401 million or about 16%. Our 9-30-09 12-month backlog of $2.026 billion, also compares to 12-month backlog of $2.224 billion as of June 30 of 2009, a decrease of $198 million or approximately 9%. These amounts do not include any backlog from Price Gregory. As of October 1, 2009, Price Gregory had about $200 million in backlog for 4Q 2009, and about $425 million in backlog for 2010.

At the end of the quarter, we had about $584 million in cash. We had approximately $291 million in available borrowing capacity under our $475 million credit facility. We had about $184 million in letters of credit outstanding, primarily to secure our insurance program. The combination of our cash balance and availability under our credit facility, gives us about $875 million in total liquidity as of September 30, 2009. Regarding our outlook for the future, our estimate of revenues for the fourth quarter of 2009 is between $900 million and $950 million, and includes revenues from Price Gregory for the full quarter. This compares to revenues of $922 million in the last year's fourth quarter.

Last year's fourth quarter included about $47 million in emergency restoration revenues, versus $11 million in emergency work being included in our 4Q 2009 forecast. Our estimate for 4Q 2009 EPS, based on revenues of between $900 million and $950 million, is from $0.16 to $0.17 per diluted share on a GAAP basis. Our GAAP EPS forecast includes an estimate of $34 million for amortization, non-cash compensation expenses, and non-cash interest expense, and an estimate of about $2 million related to Price Gregory transaction costs. Excluding these expenses our non-GAAP adjusted diluted earnings per share for the quarter are expected to be between $0.26 and $0.27.

This EPS outlook is based in our gross margins being the same or better than last year's fourth quarter, even with last year having $47 million of higher margin emergency restoration work. This demonstrates our effort to grow and maintain margins, even if it requires us to sacrifice revenue growth. For additional guidance we're currently projecting our tax rate for the fourth quarter to be approximately 40.5%. And we expect our diluted share count to be about 210 million shares during the fourth quarter. We expect CapEx for all of 2009 to be approximately $170 million, which is -- which compares to $186 million for 2008. In summary, we're once, again, pleased with our performance for the quarter and our outlook for the future. This concludes our formal presentation, and we will now open the line for Q&A. Operator?

Thank you. (Operator Instructions) Our first question come from the line of Will Gabrielski with Broadpoint. Please go ahead.

A couple of questions here. Can you comment how much work do you feel like your passing on right now because of margin? Obviously, you have competitors who are burning revenue as positive margins, and you guys are clearly staying very disciplined, how competitive are those margins, and how far off are we from when you can go after that work a little more aggressively?

Well it kind of depends on the industry you're looking at. I think Will, on the electric power side, we're seeing distribution margins falling fairly rapidly. We hardly are picking up any new distribution projects. Now we are able to renew our maintenance agreements and our, our long-term projects. We are able to renew those at pretty close to the same margins, in some cases even an increase in margins. However any project based distribution work is going at very low margins. Transmission work is still going at the reasonable margins, and that's a good things and of course, transmission continues to grow. The telecom side, the margins there, the same thing is happening on projects. Project on some places. Margins are down, a lot of our long-term maintenance agreements are able to be renewed at reasonable prices. So we're still participating there.

Has the downward pressure from NSA re-negotiations ended or are you still seeing some of that as it relates to some of your assumption as backlog? Also when you're looking forward to forecasting the business.

No, I think MSA margins are continuing to fall off in most cases. However I think our backlog is still at higher margins or equal margins to what we're producing at this time.

Okay. One last point. You guys committed that you submitted bids on a few transmission projects recently, can you provide some color on the size of those projects and any additional details you might be able provide us?

Yes they were major projects, and when we're talking about a major project we're talking over $100 million, so both those projects were over $100 million projects.

Okay. Great. Thanks very much. I'll hop back in the queue.

And our next question come from the line of Stewart Bush from RBC Capital Markets. Please go ahead.

Thank for taking my question. I wanted to dig into the Smart Grid opportunities. With the DOE money awarded to CenterPoint, can you quantify how this will accelerate the deployment there, and the number of units you expect to be installed now and 2010? And secondarily to that. How many other RFPs for Smart Grid installation projects are you guys bidding on?

Well yes there's, it's yet to be determined, I mean, this grant had just, been awarded, and we'll have to see how that plays out. We do expect them to accelerate. Also the number of project, I think there's 7 or 8 different projects that we're looking at at this point in time.

Okay. So and overall, in your alternative energy practice you mentioned you expect $110 million in renewables by year-end. Do you have any initial guidance or expectations on how much that business should deliver for you next year?

We expect revenues from renewables to be approximately $300 million next year.

So no change from your previous expectations there?

That's correct.

Okay. That's it. Thanks.

Thank you.

And our next question does come from the line of Sanjay Shrestha with Lazard Capital Markets. Please go ahead.

Good morning, guys. Just one more question on the margin front. So given your focus on higher margin business, how should we think about sort of margin on your total backlog and 12-month backlog compared to a year ago?

I think it's higher than it was a year ago. And in general, our backlog is higher than our existing margins, the margins of backlog are higher than our existing margins. That has been true for several quarters now. And it's, I would say it's not accelerating for sure, but it's still higher.

Got it. And then one more follow-up on that, how would you see that margin trend unfolding as distribution line related spending cannot keep sort of being as weak as it is, at some point it's going to pick up, that being the lower margin versus your transmission work. So once again, in the second half of 2010 does it become a revenue growth story rather than a margin growth story?. How should we think about that?

Absolutely. I think what you're going to see is also an acceleration of margins at that point. But revenues certainly should pick up as spending comes back, and as distribution spending, comes back and that's distribution electric spending, and distribution gas spending, as well as telecommunication spending, when we get those things working, we're going to start out from a nice margin base, and should be able to accelerate margins. And then as well be able to grow revenues as a fairly decent pace.

Can I ask one quick one then guys, this Price Gregory $200 million in backlog for 4Q.. So that's kind of the number we should be thinking about for your revenue contribution for the revenue guide answer for the fourth quarter, right? Is there any change for -- Price Gregory. As when you guys sort of announced the deal.

That's right think about $200 million in revenue for Price Gregory in the fourth quarter, and 700 to 900 is the guidance that we've given and that still is fine for 2010.

Perfect. Thanks a lot guys.

Thank you. And our next question comes from the line of Jamie Cook with Credit Suisse, please go ahead.

Hi, good morning.

Good morning.

Just one question on the, your comments about 2010, how you expect the first quarter to be challenging, but after that, you expect a meaningful for the second half of your business. I was wonder if you could give more color on how we should think about. I'm assuming you're talking about on revenue basis, how we should think about first half and second half, what businesses you expect to accelerate most off a depressed base?

Right. First of all we think we will see some recovery in our distribution business in 2010. But I don't expect that to happen in the first quarter because of winter weather. I expect it to start in the second quarter of next year, and third and fourth quarter certainly should be better. On telecom, I expect that to be better in, in 2010 as well. But again it's not going to be much better in the first quarter. Again, because primarily winter weather. And because of the, the telecom business generally doesn't do too much in the first quarter, even where the weather's good, as the companies do their engineering and procurement in that quarter. We expect to see a pretty good jump in telecom in 2010 from some of the stimulus money going to the RUSs and others, coming through as revenues for us in 2010. Probably later in 2010.

And then on the gas side, we expect that to stabilize as well. Of course, we're going to take some of the lumpiness out off our transmission business, by having a bigger business with Price Gregory. And we expect that to be -- predicted it to $700 million to $900 million range for them. But we also would hope to see a small distribution in gas spending. We're seeing increased drilling which bodes well for the gas gathering business, again probably not too much in the first quarter. But we should see some gas gathering business grow as we're beginning to see increased drilling. Also we're not too far, although it doesn't appear so, we're not too far off some pending labor shortages -- skilled labor shortages, if we start to see some recovery and distribution, that should drive margins very well as well.

But just to be clear on it, your revenues are going to be a nice bump because the Price Gregory acquisition. But if I take price out sort of, can you achieve, teams as type revenue growth on the base business, just because we're off the low base, and then we can take Price Gregory on top of that.

That, we haven't given any guidance for 2010 as regard to internal growth. But certainly because we're working off a lower numbers, when growth does occur, and where spending does return, it will be easier to reach those mid teen levels of growth internally. And of course, then you can add Price Gregory to that, but we're no projecting that. We'll have to see how it turns out. But we do realize that growth should be easier because of the low base we're starting from.

And then just last one, I appreciate the color now you're giving, the operating margins, the operating margins your giving by segment. But what type of, I understand the natural gas business is weak, is there any wake help us out with how much rain or productivity in the quarter, so I can think about a more normalized the natural gas pipeline business, because price has margins if I recall correctly.

Yes. They do, and, and the problem with our gas business was the lumpiness we finished a project and didn't have a transmission project to go to. Plus our gas distribution business was down and of course, our gathering business is down because drilling was down. But weather really didn't have much of an impact on any of our business in the third quarter.

(Operator Instructions) And our next question does come from the line of Carter Shoop with Deutsche Bank. Please go ahead.

Good morning. I wanted to try to better understand the sales miss here. When we back out the emergency restoration work, it looks like you guys came in about 7% below the midpoint of guidance. How much of it was a factor of the pricing environment being that much worse than you anticipated, and not seeing contracts come online, particularly on the distribution side, versus other segments?

Yes, we're still comfortable with the guidance that we've given for 2010 and we're not specifically addressing accretion from Price Gregory in the fourth quarter. On a GAAP basis, probably going to be $0.03 or $0.04 in the numbers for the fourth quarter. But we're not giving much more guidance than that as far as Price Gregory's margins or EBITDA or anything else.

And our next question comes from the line of Scott Levine with JPMorgan. Please go ahead.

Good morning, guys. With regard to price which I think is much more transmission-oriented than your existing gas business, without getting specific, or more specific than you're willing to be, should we look at roughly similar margin trends, or expect anecdotally similar margin trends in their trend or in the transmission versus distribution business and gas as we see in your power business transmission versus distribution?

Yes, I think that the margin differential is quite different between transmission and distribution gas. We in 2008 were fairly successful in improving the margins on the gas distribution side. But even what I would call at the -- near their best, they're half of the margins that we expect from robust transmission business. I should also correct something on Jamie Cook's question about rainfall. Rainfall did affect the gas transmission business, because we had one job in the third quarter. It did rain in that job, and so it did you affect that one transmission project but as far as the Company overall, it did not affect the entire Company, per se.

Okay. One follow-up I've got on renewables. You indicated a more balanced mix of solar versus wind this year. Could you roughly -- could you rough out maybe your expectations on that $300 million you're expecting for next year? Are you expecting that to be similar to this year? Higher tilt towards solar? Any comments there would be helpful.

I think we're seeing more momentum right now behind solar, as utilities in California and particularly on the West Coast are trying to meet more aggressive renewable portfolio energy standards. Solar is the of choice in those areas. So I think we're seeing more momentum in solar right now. In 2010 you'll probably see more solar revenues than wind. But I think over the long haul those revenues will probably even out.

Our next question comes from the line of with Tahira Afzal of KeyBanc. Please go ahead.

Good morning, gentlemen. And congratulations on a good quarter, given the circumstances.

Thank you.

I guess my first question is in regard to your annual utility symposium. Would love to hear the take-aways you had in terms of how customers are feeling around some of the large transmission projects, and really the direction you got in terms of energy and natural gas going forward.

Well, that was interesting because one of the major topics at the symposium was natural gas and our utility customers and the Chairman of FERC were very bullish on the future for natural gas which pleased us greatly. Overall, very bullish on transmission. We did see some exactly what we're expressing to you, I mean, that's where we get our opinions, obviously is, is from our customers and what we're experiencing. They're very bullish on transmission, very bullish on natural gas and somewhat optimistic about distribution spending returning. But again, probably not in the next -- not in the fourth quarter or the first quarter, but next year we expect to see some increase, but not at normal levels in 2010, but better than 2009.

Got it. Okay. That's very helpful to know. In terms of the smart meters, obviously it provides some interesting aspects perhaps of the distribution business in 2010. But if you look at what the smart meters and some of these demand response initiatives are doing in terms of impact on peak demand. Do you feel or do you get a sense from your customers that they might be concerned about potential impact on certain reliability oriented transmission projects?

No, I don't think that -- if I understand your question correctly, I don't think that the Smart Grid is going to have any impact on the transmission business.

And our next question comes from the line of Alex Rygiel with FBR Capital Markets. Please go ahead.

Thank you. Good morning, gentlemen.

Good morning.

John, James. First, with regards to your comments about transmission being up year-over-year, could you quantify the growth in transmission revenue year-over-year?

I don't know if I have that number off the top of my head, John. Yes, I don't think we have that readily available, but it was significant. It almost made up for the downfall in distribution.

Would you say transmission revenue was up greater than 15% year-over-year?

Yes, I would. I don't know, I would hate to guess, because -- but I would say it was probably near 20%.

That's close, yeah.

James is nodding his head that that's right.

Perfect. As it relates to solar, you mentioned that you will be constructing about 20 megawatts of solar in 2009. How many megawatts do you expect to construct in 2010 and possibly beyond?

I think you can look at it from a dollar standpoint. We'll do about $50 million in solar revenue this year. And next year it will probably be closer to 200, between 150 and $200 million. So you can just do the math on that. It's hard to give a -- pinpoint an exact megawatt, because commercial installations run differently than Utility Scales. So we could be off in order of magnitude if I tried to guess on the megawatts. but I think going from a dollar standpoint would be the best approach.

And our next question comes from the line of Jeff Beach with Stifel Nicolaus. Please go ahead.

Good morning, John and James.

Good morning.

Good morning.

I have two questions. First of all, can you give us an idea how weak AT&T is right now in the third and fourth quarters versus last year and maybe versus the first half of this year?

Yes. Well, for instance, one thing, one statistic that I remember seeing is that AT&T was probably our fifth or sixth largest customer in 2008. And they've dropped back to the mid-teens in this third quarter of 2009. So probably that indicates about a 50% reduction in revenues. Maybe as much as 70% reduction in revenues year-over-year.

Is that showing -- are they showing any indication of coming back here into 2010?

Yes, in fact, they've talked about coming back in the third and fourth quarters of 2009. And they have not changed their guidance. But the thing is, we're just not seeing that revenue and honestly, we're not bidding on that revenue either. It's not that we're passing on that revenue because of low margins. It's a matter that those margins or those projects are just not there. Now, they may be in other areas that we're not working in, which could be the case. But in any case, we're not seeing that revenue from AT&T.

All right. The other question I have is by my work here you've had a third quarter revenues in your dark fiber, fiber leasing lower than the second quarter. And I thought this was fairly steady business coming off of contracts. Could you explain why the revenues are volatile there?

Yes. There's a couple of things that could be causing that. Some of it could be -- there's a small piece in that Company. There's a small piece of construction services that are done in addition to fiber optic licensing. And that could -- that work does fluctuate from one quarter to the other. You're pretty much right as far as the revenues from fiber optical licensing itself, being constant or trending upward as we turn on new contracts. But there's a small piece of work in there that's construction work. It's left in there because of the fact that it's all managed by the same management team.

And our next question comes from the line of Steve Gambuzza with Longbow Research. Please go ahead.

Good morning.

Good morning.

I was wondering if you could comment on the gross or sorry the margin trends implied in your fourth quarter guidance, the data you provided on the third quarter was extremely helpful, was particularly interested in the fact that you had low single digit margins in natural gas. And telecom and I'm just curious, are you expecting any improvement, any meaningful improvement in those margins in the fourth quarter?

Natural gas, certainly we expect to see improvement and those telecom margins were notice low single digits. Telecom margins were I think double-digit operating income, pretty strong margins. We were happy with our telecom.

I apologize, that was the third quarter of last year that you had the --

that's right.

Would you expect to get the gas margins back towards the high single digits, low double digits in the fourth quarter?

Yes, it depends a lot on weather. We're approaching winter weather and heavens knows we're not good weather forecasters. It depends on the weather in late November and December. They should approach the double-digit level of operating income, we hope, with the addition of Price Gregory.

On the revenue guidance for the fourth quarter, you did I think $513 million of revenue in the third quarter in electric power. Just curious what you look for in the fourth quarter. Is it kind of a normal seasonal dip of a few percent into the fourth quarter, or just generally what type of revenue trajectory are you looking for for electric power for the fourth quarter versus the third quarter?

Again, we're going to see pretty strong transmission revenues, which obviously will be affected by weather. And so I would expect that we would see a few points down in revenue growth because of simply winter weather. Distribution, we don't expect to see any huge increase in distribution this late in the year. But only thing that would affect electric power would probably be the weather.

It seems like a relatively normal seasonal pattern into the fourth quarter?

That's right.

Thanks very much.

And our next question comes from the line of [Justin Hock] with Robert W. Baird. Please go ahead.

Hi, guys, good morning. Not to beat a dead horse here but just one more quick question on the electric distribution market. I just want to make sure that I understand your guidance. So you are assuming that for the full year in 2010 that your electric distribution revenue will actually be up year-over-year or is that not the right way to be thinking about it?

Yes, we think that 2010 will be a better year for electric distribution than 2009. We don't think it will recover to normal levels in 2010, but certainly better than 2009.

Okay. Thank you very much. And then the second question, just kind of a housekeeping one, but on Price Gregory, have you given a GAAP accretion estimate for 2010 yet or have you rolled that up?

No, we have not given a GAAP accretion number on that because we haven't actually finalized the purchase price allocation and split it between goodwill and intangibles and determined what the final intangible number will be for Price Gregory for '09.

For -- I'm sorry, for 2010.

For 2010, we haven't determined what the amortization number will be.

Great. Thank you very much.

Our next question comes from the line of William Bremer with Maxim Group. Please go ahead.

Good morning, gentlemen.

Good morning.

Good morning.

Very nice enhancement of the gross margins for the quarter, considering lack of emergency work, as well as a 25% reduction in sales. Very nice initiative there. Staying with the fact that backlog, you had no cancellations in the third quarter of '09, could you provide some color for us in terms of what you're seeing in terms of any margin, increased pressure on margins that are actually in your backlog right now?

Yes, we have been very selective and that's some of the initiatives that we work on, is making sure that we don't take on low margin work. We don't want to tie up our workforce and our assets on low margin work, when we expect recovery to be around the corner. And so we're very disciplined. We do have pressure on margins. But as I stated earlier, through several quarters, we have seen margins in backlog increase over the margins that we're producing. And we're not really seeing any margin pressure on larger projects.

Okay. And staying with the larger projects, I know you don't give dollar amounts, but regionally, can you tell us where you won some in the past quarter?

The major win that we got in the last quarter, the last major win we got was up in Wisconsin area.

Okay. Thank you very much.

Does that answer your question?

Yes, it does.

Okay.

And our next question comes from the line of Adam Weissman with Luminus. Please go ahead.

Hey, guys, thanks for taking my question. Just on the renewable side, can you talk a little about the solar business, and I know that you had help for solar, 10-megawatt project for Sempra but seems like the 48-megawatt project you're not building. Can you talk about was that a choice to not take that business and how do you see that business going forward?

Yes, Adam, we would have been more than happy to build that 48 megawatts with First Solar, but didn't meet the margin returns for our shareholders. And we decided to move into EPC. We've done that successfully by building several EPC projects. We're in the process of building EPC projects. And we've also partnered with certain technologies to bring our customers more cost effective solutions to our larger solar programs. And we feel that we are going to make inroads there, which is reflective of our $300 million forecast on renewable revenues this year in 2010.

Understood. Can you talk a little bit more about those technologies you partnered with?

Well, I don't want to mention the names but we've got several folks we deal with, depending upon the technology. Depending upon whether it's a thin film, photovoltaic solution, or crystalline solution, we've got different partners that we're certain that the technology will perform. And that the pricing is attractive, in order for us to successfully be competitive and win the projects.

Okay. Great. Thanks a lot.

And gentlemen, at this time I would like to turn it back for any closing comments.

Okay. Thank you very much. To clarify one question, I believe Tahira asked the question, the Smart Grid certainly will become more important as more renewable generation is put into the transmission system, due to the intermittency of the renewable generation. I think maybe I didn't understand her question earlier. So I hope that answers your question, Tahira. With that, I'd like to thank you again for your participation in our third quarter conference call. We appreciate your questions and of course your ongoing interest in Quanta.

Thank you. Ladies and gentlemen, this does conclude the Quanta Services third quarter 2009 earnings conference call. Again, if you would like to listen to a replay of this conference, you may do so by dialing 303-590-3030, with the access code of 4178458. We do thank you for your participation. You may now disconnect your lines at this time.