Quanta Services Inc (PWR) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Quanta Services third quarter 2010 earnings conference call. During today's presentation all parties will be listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Wednesday, November 3, 2010. I would know what to turn the conference over to Kip Rupp of DRG&L. Please go ahead.

Thank you, Operator, and welcome, everyone, to Quanta Services conference call to review 2010 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&L at 713-529-6600. You can always sign up for email information alerts by going through the Investors and Media section of Quanta's website at quantaservices.com. If you would like to listen to a replay of today's call, it will be available via webcast by also going to Quanta's website at quantaservices.com. In addition there is a telephonic recorded instant replay that will be available for the next seven days, 24 hours a day that can be accessed as set forth in the press release.

Please remember that information reported on this call speaks only as of today, November 3, 2010, and therefore you are advised that any time sensitive information may no longer be accurate as of the time of any replay of this call. 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's 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, uncertainties, and assumptions that are difficult to predict or are beyond Quanta's control and actual results may differ materially from those expected or implied as forward-looking statements.

Management cautions that you should not place undue reliance upon the forward-looking statements, and Quanta does not undertake any obligation to update any forward-looking statements to reflect events or circumstances after this call. For additional information concerning some of the risks, uncertainties and assumptions that could affect Quanta's forward-looking statements, please refer to the Company's annual report on Form 10-K for the year ended December 31 2009, its quarterly reports on Form 10-Q and its other documents filed with the Securities and Exchange Commission, which may be obtained through the SEC's website at SEC.gov. With that, I would now like to turn the call over to Mr. Don Colson, Quanta's Chairman and CEO. John?

Good morning, everyone, and welcome to Quanta Services third quarter 2010 conference call. To start the call this morning, I will provide a summary of the quarter results with added insight of the impact of current industry circumstances and overall economic conditions. My comments will be followed by an operational review by Jim O'Neil, President and Chief Operating Officer, and a review by James Haddox, our Chief Financial Officer. As always, we welcome your questions following our remarks.

Revenues for the third quarter increased over 50% to $1.2 billion, compared to $780.8 million in the prior year's third quarter. Third quarter revenues for 2010 include revenues from Price Gregory, which was acquired on October 1, 2009. Additional activity in our electric power segment was the other main contributor to the revenue increase. Emergency restoration revenues had no significant effect on the quarterly comparison. The revenues in our electric power and natural gas and pipeline segments were about as expected for the quarter. However, various weather and regulatory-related project delays reduced our margins. We believe this is a temporary impact that affected our third quarter and will affect our fourth quarter, but we remain committed to maintaining the appropriate margins for our work. This is the first decline in margins that we have had in 12 consecutive quarters. We did not achieve -- we did achieve notable accomplishments during the quarter and are starting to see increased project momentum in certain segments of our business.

During the quarter, we secured contracts for the construction of two solar facilities totaling approximately 39 megawatts near Avenal, California. Work under this contract with Avenal Solar Holdings has already been initiated. We were awarded a 200-mile fiber project at North Carolina. This is the first construction project we have secured under the Broadband stimulus program award. The groundbreaking ceremony on this project was held last month. Work progressed under our contract with the construction of 200 miles of natural gas pipeline in Wyoming for Bison Pipeline LLC, and we progressed with construction of two solar parks in Ontario, Canada, totaling 18 megawatts under a contract with SunEdison.

Subsequent to the third quarter end, we completed the acquisition of Valard Construction, one of Canada's largest electric power line contractors. Valard is expected to contribute $225 million to $250 million of revenues in 2011. With an expanded Canadian footprint, we are better positioned to leverage the emerging opportunities in the Canadian energy market. Although there have been some delays, some projects such as the Northeast Utilities New England East-West Solution, has begun. We also expect the Sunrise project in California to start soon following several months of delays. Additionally, five of the six utilities charged with building transmission lines in Texas' Competitive Renewable Energy Zone, or CREZ, have issued bid requests, and we are participating in most of them. Two BC Hydro projects are also out to bid.

The latest report for the North American Electric Reliability Corporation, or NERC, reinforces that reliability concerns continue to exist in some regions, particularly we're electric transmission facilities have not been allowed to be constructed as planned. NERC reports that more than 39,000 circuit miles of new high-voltage transmission lines are projected to be added in the United States over the next 10 years. Regional delays, however, continued to plague projects. NERC estimates that across North America, 10 projects, comprised of almost 6500 miles of transmission, that are considered delayed. Most of these are 400,000 volts or larger. Our natural gas and pipeline segment has also seen a robust bidding season for projects that would commence in 2011.

The quarter brought significant activity on the Bison project as well as other large transmission pipeline spreads. However, a couple of projects were negatively impacted by record rainfall. The pipeline explosion in California and other high-visibility events have placed scrutiny on the country's aging pipeline infrastructure. More than 98,000 miles, or 35%, of the pipelines in the United States were built before 1960, meaning that many are approaching or past their 50-year lifespan. New legislation and bills introduced to enhance natural gas pipeline safety standards have approved oversight and increased public communications regarding pipelines As this legislation progresses, it has the potential to drive demand for pipeline integrity testing, maintenance and new construction, all services, which we offer our customers.

Additionally, the wide-scale focus on reducing carbon emissions continues to place a attention on natural gas as a clean fuel choice. Although the production opportunity related to unconventional basis is still in its infancy, infrastructure is being put in place now of some states' movement of natural gas as it is produced in the future. This is a secular spending trend and is occurring despite natural gas prices being at lower levels.

While telecom revenues decreased quarter-over-quarter, we are starting to see allocations of stimulus funding with dozens of projects being bid. Our organization, which were awarded stimulus funds in the summer/early fall, are progressing through the environmental permitting process. When this is complete, awardees will move to the engineering phase and the award of construction contracts. We have secured over $50 million of these projects in the past 60 days. Many of these were awarded after the first of October, so they are not included in our backlog numbers at September 30.

If we continue to believe that 2011 and beyond will bring strong demand for our services and increased infrastructure spending in the industries we serve, our strong balance sheet, strategic comprehensive service offerings and extensive resources remain our competitive advantages through which we will maintain our leading position in the industries we serve. Now I will turn the call over to Jim O'Neil, who will talk in more detail about key operational accomplishments during the quarter. Thank you, John.

Good morning, everyone. As John stated, the industries we serve are currently in transition. During the third and into the fourth quarters, we experienced certain challenges in meeting our financial goals. However, we are beginning to see meaningful indicators of increased spending, strong bidding activity and release of stimulus funds. We believe these developments will positively affect our business in 2011 and beyond. My review will provide more detail and address factors contributing to both the third and fourth quarters.

Starting with our electric power segment in the third quarter of 2010, revenues from the segment were approximately $532.6 million. This compares to approximately $512.8 million in revenue for the third quarter of 2009. 12-month backlog in the electric power segment was up $147 million compared to backlog at June 30 of 2010. We are also seeing positive indications, like distribution spending, which has been at low levels since the fourth of last year, are showing signs of recovery.

In addition, the much anticipated large transmission projects which were previously awarded to us are moving toward the construction phase. Several of these projects were previously forecasted to begin in the third and fourth quarters based on project awards and start dates communicated to us by our customers. Subsequently, start dates for three of these projects were pushed out, adversely impacting revenues and margins for the second half of the year.

During the past month, we started preliminary appropriations on San Diego Gas and Electric Sunrise Powerlink projects. Recently, we were also awarded another major contract for the site preparation, tower foundation and assembly and stringing conductor on a large transmission project on the West Coast. In late September, Northeast Utilities Greater Springfield Reliability Transmission project received the remaining key approvals to proceed with construction of its $714 million transmission project, which is part of Northeast Utilities New England East-West Solution, or NEWS, project. There's much-anticipated project will provide stronger interconnections across Connecticut, Massachusetts, and Rhode Island. We have initiated work under this contract and receive materials late in the fourth quarter. Construction will be in full swing in 2011, with completion anticipated in 2015.

Bidding activity in the Texas Competitive Renewable Energy Zone, or CREZ, has increased significantly in the past several weeks. Since our last earnings call, we have submitted proposals to five of the six CREZ utilities for services ranging from engineering, substation construction, transmission construction or comprehensive engineer procure and const, or EPC services. We are currently developing three more proposals which will be submitted over the next two weeks. We expect awards to be made over the next several months. We also continue to work on Lower Colorado River Authority's CREZ and non-CREZ transmission projects.

Work under our contract with Allegheny Energy on the TrAIL project progressed on schedule during the quarter. Currently 97% of the structures and 80% of the conductors have been installed. This project is expected to complete in the first quarter of 2011. BP Hydro has recently prequalified contractors on their Northwest and Interior to Lower Mainland transmission lines. We expect contractor selection to occur in the first quarter and construction to begin in the second quarter of next year. We believe our recent acquisition of Valard Construction, one of Canada's largest electric power EPC contractors, positions Quanta with the necessary resources to potentially capitalize on these projects as well as other growth opportunities throughout Canada.

We continue to make progress with the deployment of smart technologies such as meters, switches and required system upgrades to support CenterPoint Smart Grid initiatives. Additionally, we have been actively supporting Smart Grid efforts for other utilities across the US. For example, in Louisiana we are conducting Smart Meter change-out services and installation of automatic meter reading substation equipment. We are performing similar substation work in Alabama. In Florida, we successfully installed a pilot program and will start the full Smart Meter deployment later this month. Water meters and (inaudible) systems are part of this project, as well. For a different customer, we are installing Smart Single-phase Electric Meters, and in Ohio we are supporting AEP's roll out of Smart Meters by the end of the year.

The third quarter brought increased momentum to the renewable portion of our business. We remain on track to meet our 2010 renewable energy revenue projections. Renewable revenues for the third quarter of 2010 totaled $91 million compared to $34 million for the same period last year. Our year-to-date renewable revenue through September 30, 2010, is $182 million compared to $61 million over the same period last year. In the third quarter, we continued to work under an EPC contract with SunEdison for two nine-megawatt solar parks in Ontario, Canada. Both solar facilities near completion.

During the quarter, we secured two EPC contracts for utility-scale solar installation, owned jointly by Eurus Energy America and NRG Solar, under the contracts we are providing comprehensive design and construction services for the 20-megawatt Sun City project and the 19-megawatt Sand Drag project. Engineering is almost completed and construction has recently started. We had expected these projects to begin construction on September 1. Also, during the quarter, we were awarded a contract by constellation energy for the construction of the 4.4-megawatt solar facility at the Denver International Airport. Upon completion, this will be the third utility-scale solar projects we have installed at DIA.

In all, we expect strong double-digit growth in renewable revenues next year, largely due to the growth in the PV solar industry, which is projected to grow from a one gigawatt to a two gigawatt market. While wind installation across the US continue to be at low levels, it remains an active part of our business, and we expect moderate growth over the next several years.

During the quarter, revenues from our natural gas and pipeline segment were approximately $552 million. This compares to approximately $132 million in the third quarter 2009. Most of his revenue growth is attributable to the operations of Price Gregory, which we acquired at the beginning of the fourth quarter 2009. During the quarter, we were in full construction mode on eight transmission pipeline projects using all of our nine spreads. Two of our pipeline projects generated lower gross margins for the quarter compared to our third and fourth quarter forecast due to adverse weather conditions. One project in Kansas experienced above average rainfall in some areas over twice the average throughout most project. As a result, this project incurred substantial cost overruns due to slower production than planned. This project mobilized in the beginning of the third quarter and is now more than 95% complete.

Our second project in the Florida Panhandle was impacted by tropical storm Bonnie and Tropical Depression No. 5, which also significantly increased project costs. This project mobilized in the third quarter and is now 90% complete. Both the Kansas and Florida jobs remain profitable despite the adverse weather conditions. The remaining five pipeline transmission projects are on schedule, and we anticipate completion as planned. Our transmission pipeline construction revenues will exceed $900 million for the full year 2010. 12-month backlog for our natural gas to pipeline segment decreased $354 million at September 30, as compared to June 30 2010. This reduction was expected as we near completion on existing projects and are now just entering into the bidding season for 2011 which expands into the second-quarter of next year. Despite these challenges, the natural gas and pipeline segment generated a respectable 9.6% operating income. We have already identified more than $2 billion in potential pipeline construction opportunities not yet awarded and expect backlog in this segment to increase significantly over the next two quarters.

In the third quarter 2010, revenues from our telecom segments were approximately $93.6 million this quarter compared to approximately $114 million in the third quarter 2009. This decrease in revenue is due primarily to decreased spending by service providers on the fiber-to-home initiatives. However, during the last several weeks, we have seen increased activity relative to stimulus products and in wireless, Long-Term Evolution, or LTE initiatives. 12-month backlog in this segment increased $19 million compared to June 30 of 2010. We recently were awarded a contract by MCNC, an independent non-profit organization that employs advanced networking technologies and systems to continuously improve learning and collaboration throughout North Carolina's education community. Under this agreement, Quanta will install approximately 200 miles of fiber in the western part of North Carolina. We have also recently been awarded a project in Oregon for similar fiber installation services funded by the Broadband stimulus program.

Although slow to be funded, ,we continue to view stimulus projects as an important opportunity over the next three years. We believe we are well-positioned to provide the required engineering, outside plan construction and equipment installation services to our customers awarded funds under the federal program. Since our last call, we have secured several contracts for engineering services on stimulus projects as our customers successfully progress through the required environmental impact process. Between now and the end of the year, we expect most approved stimulus projects will complete the environmental assessment phase. We consider this a favorable indicator of customer spending to come as the phase of contracts released to construction will increase throughout the end of the year and into the first half of 2011. As projects reached construction phase, we will capture our share of these projects that have a three-year window to complete construction and commission.

Looking forward, we expect Long-Term Evolution, or LTE initiatives, to continue to gain momentum over the next 12 to 24 months. We are in the final stages of negotiation on certain LTE awards and expect WiMAX and LTE initiatives to stimulate capital spending by wireless carriers over the next several years. In the third quarter of 2010, revenues from our fiber licensing segment were approximately $28 million. This compares to approximately $22 million in revenue for the third quarter 2009. Backhaul fiber from cell sites related to LTE initiatives is proving to be a nice opportunity for our fiber licensing business moving forward.

In summary, project delays and weather-related performance issues did affect the third quarter results, as well as our estimate for fourth quarter revenues and margins. However, we believe this issues are short-term. Our business outlook is bullish, we are seeing positive indicators in all the industries we serve. This leads us to believe that 2011 and beyond will be strong years for infrastructure spending as customers work to address the aging systems, strengthening their networks to support demand for new technologies and plan for the future of energy and communications. Now I will turn the call over to James Haddox, our Chief Financial Officer.

Thanks, Jim, and good morning everyone. today we announced revenues of $1.21 billion for the third quarter of 2010, compared to $780.8 million on the prior year's third quarter. Net income attributable to common stock for the quarter was $62.8 million, or $0.30 per diluted share. Our GAAP results were in line with our guidance for the third quarter, however, included in our GAAP earnings per diluted share for the third quarter of 2010 is $9.4 million of income, or a benefit of $0.04 per diluted share due to the release of income tax contingencies from the expiration of various statutes of limitations related to federal and state tax returns.

As I've said, consolidated revenues for the quarter were $1.21 billion, reflecting growth of approximately 54.5% with compared to last year's third quarter. The growth in consolidated revenues in 3Q 2010 was driven primarily by an increase in revenues from our natural gas and pipeline infrastructure services segment, as a result of a major acquisition on October 1, 2009, as well as an increase in revenues in our electric power infrastructure services cycle. These increases were partially offset by decreased revenues from our telecommunications infrastructure services segment, primarily due to a decrease in spending by our customers on their FTTx build-out initiatives.

Our gross -- our consolidated gross margin declined by 310 basis-points from 18.9% in 3Q 2009 to 15.8% in 3Q 2010. The decrease in gross margin was primarily due to lower margins in our electric power infrastructure services and telecom infrastructure services segments, partially offset by improved margins in our natural gas from pipeline infrastructure services segment, despite the weather issues discussed previously. Although our natural gas margins were higher in 3Q 2010 then 3Q 2009, these margins were still lower than our overall gross margins, and as a result, our overall gross margins were negatively impacted by this segment, making up a higher proportion of total revenues in the current quarter.

Our G&A expenses increased $11.0 million to $82 million quarter-over-quarter. The majority of this increase was due to additional administrative expenses associated with the acquisition in 4Q of 2009 For the third quarter 2010, we recorded $3.3 million in losses on the sale of equipment, compared to $1.0 million in 3Q of 2009. Selling and administrative expenses as a percentage of revenues decreased from 9.1% to 6.8% of revenues during the third quarter 2010, primarily due to the substantial increase in revenues. Our consolidated operating margins before amortization expense decreased 90 basis-points from 9.8% in 3Q of 2009 to 8.9% in 3Q in 2010. Amortization of intangible assets increased from $5.4 million in 3Q 2009 to $13.4 million in 3Q 2010, due to the increase in intangibles' amortization resulting from a large acquisition we completed in 4Q of 2009.

Drilling further down into the details of our results by segment. Electric power infrastructure services segment revenues were up about $19.8 million quarter-over-quarter, or about 3.9% Electric distribution and renewable revenues increased, but were partially offset by reductions from electric power transmission services revenues due to the timing of major projects. Emergency restoration revenues were lower than expected and came in at about $10 million for the quarter. Operating margin in the electric power infrastructure services segment was 11.3% in the third quarter, compared to 13% in last year's third quarter, primarily due to decreased margins in electric distribution services and electric transmission, partly due to continued pricing pressures on our distribution projects and certain higher-margin transition projects completing in last year's third quarter that were not replaced with comparable margin projects this year, again, due to the timing of major projects.

Our natural gas and pipeline infrastructure services segment revenues increased quarter-over-quarter approximately 319% to about $551.7 million in 3Q 2010, due primarily to the contribution of gas transmission revenues from the major acquisition in 4Q of 2009. Our operating margin and natural gas from pipeline infrastructure services segment was 9.6% in 3Q of 2010 compared to 1.6% in 3Q 2009. This increase is primarily due to the increased revenues from gas transmission services, which typically our earn higher margins than the remainder of the gas business.

Revenues from our telecommunication infrastructure services segment decreased approximately $20.4 million, or 17.9%, to approximately $93.6 million in 3Q 2010, Primarily due to lower revenues from fiber to the premiss build-out initiatives as a result of reduced capital spending by our customers in the third quarter 2010 as compared to the third quarter of the prior year. Operating margins in the telecommunications infrastructure services segment were 6.0% in 3Q 2010 compared to 10.8% in 3Q of 2009. This decrease is a result of less revenues available to cover fixed costs and overall lower margins on work being done in the third quarter 2010 as compared to the third quarter of 2009.

Fiber-optic licensing segment revenues were approximately $28.1 million for the third quarter of 2010 for an increase of about 25.7% as a result of our continued investment of fiber-optic network expansion and the associated revenues from licensing the rights used point-to-point fiber optic telecommunications facilities. Operating margins in the fiber optic licensing segment were 47.2% in 3Q of 2010, which is typical for this segment.

When discussing operating margins by segments, we do not allocate certain selling, general and administrative expenses and amortization expense to our segment. Therefore the previous discussion about operating margins by segment excludes the effects of such expenses. Corporate and unallocated costs increased about $16 million to $37.8 million in the third quarter of 2010, as compared to 3Q 2009, primarily due to $7.9 million in increased amortization expense of intangible assets associated with the major acquisition in 4Q of 2009. $1.8 million of higher salaries and related benefits costs primarily due to increased personnel in our business development and technology areas, and $1.4 million in additional professional fees and acquisition costs.

Net income attributable to common stock for the quarter was $62.8 million, or $0.30 per diluted share. Net income attributable to common stock in 3Q 2009 was $63.4 million, or $0.32 per diluted share. The third quarter of 2010 includes $9.4 million of income, or a benefit of $0.04 per share and the third quarter 2009 included $22.4 million of income, or benefit of $0.11 per diluted share, in both cases from the release of income tax contingencies due to the expiration of various statutes of limitations related to federal and state tax returns.

Adjusted diluted earnings per share, as calculated in today's press release, rose to $0.32 for the third quarter of 2010 as compared to $0.25 for 3Q 2009. Cash flow from operations, less net capitol expenditures of about $24.5 million, resulted in approximately $79.2 million with negative free cash flow for the quarter. The negative free cash flow during the third quarter 2010 was due to an increase in working capitol required as revenues increased $336 million, or 39%, over the second quarter of 2010.

EBITA for the third quarter 2010 was about $108 million, or 9.0% of revenues, compared to $76.6 million, or 9.8% of revenues, for the third quarter 2009. Adjusted EBITDA was about $141.4 million for the third of quarter 2010, compared to $103.5 million for the third quarter of 2009. Our days sales outstanding, or DSOs, were 76 days at September 30, 2010, versus 79 days at June 30, 2010, and 79 days at September 30 of 2009.

Cost in excess of billings, which is a component of DSO calculation, was $266 million as of September 30, and is substantially higher than at year-end and compares to $62.4 million as of third quarter last year. This increase is primarily due to increased working capitol requirements associated with a natural gas for pipeline infrastructure services segment due to the seasonal ramp-up of the larger gas transmission projects in the third quarter of 2010. These projects represented a significant portion of the total cost in excess balance. However, since quarter-end, the predominant amount of the balance has been billed on these projects. Various other projects during the period have billing milestones that were not met until after quarter-end. We anticipate substantial billings in the fourth quarter on these projects as well. Despite the significant increase in cost and excess of billings, day sales outstanding for the quarter were three days lower than at June 30, 2010, or September 30, 2009. The calculation of EBITA and EBITDA and adjusted EBITDA, all non-GAAP measures, and the definitions of these and the DSOs can be found in the Investors and Media section of our website at QuantaServices.com

At the end of the quarter, we had about $441 million in cash. We had $191 million in letters of credit outstanding under our $475 million credit facility, primarily to secure our insurance programs and no outstanding revolving loans, which left $284 million of availability under the facility. The combination of our cash balance and availability under our credit facility gives us about $725 million in total liquidity as of September 30, 2010, of which we used about $119 million in October of 2010 for the acquisition for the acquisition of Valard.

We received a few questions regarding the acquisition of Valard, so we thought we'd take this opportunity to provide more information. In order to help analysts with their models, the purchase price paid for Valard was in the mid-fives multiple on a trailing 12-month EBITDA. Valard is expected to have a negative effect on our fourth quarter EPS, due to contributing only two months of operations, which will be more than offset by amortization backlog and acquisition-related expenses. Valard currently has approximately $100 million in backlog for 2011. We expect Valard to contribute between $225 million and $250 million in revenues in 2011. We have not yet completed the property and intangibles valuation work on Valard as of the acquisition date. However, we anticipate that Valard's pre-amortization results will be $0.06 to $0.09 accretive to Quanta's 2011 results. We currently estimate amortization expenses for Valard to be in the $9 million to $11 million range for 2011.

Concerning our outlook for the future, we estimate revenues from the fourth quarter of 2010 to be from $950 million to $1.05 billion, and that includes revenues from Valard for a portion of the quarter. Our estimate for 4Q 2010 EPS based on revenues are between $950 million and $1.05 billion is $0.15 to $0.17 per diluted share on a GAAP basis. This estimate compares to $0.21 from GAAP EPS from 4Q 2009. Our GAAP EPS forecast for 2010 includes an estimate of $5.6 million for non-cash compensation expenses, $7.5 million related to acquisition expense, and $10.2 million of amortization expenses. Excluding these expenses, our non-GAAP adjusted diluted earnings per share for the fourth quarter expected to be between $0.23 and $0.25.

For additional guidance, we are currently projecting our GAAP tax rate to be approximately 45% for 4Q 2010. This rate is higher than normal due to the assumed non-deductibility for tax purposes of the acquisition expenses previously mentioned. We expect our diluted share count to be about 214 million shares for 4Q 2010. We expect CapEx for all of 2010 to be approximately $170 million to $180 million. This compares to CapEx for all of 2009 of $165 million. This concludes our formal presentation, and we will now open the lines for Q&A. Operator?

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Please ask one question and one follow-up, and re-queue for additional questions. Our first question comes from the line of Tahira Afzal with KeyBanc. Please go ahead.

Morning, gentlemen.

Good morning.

First question is in regards to your existing electric transmission projects. If you can talk about how Northeast Utilities, CREZ, TrAIL, and Sunrise Powerlink are ramping up into the fourth quarter versus your expectations? And if you can talk about what you think their ramp will be in 2011? And then if you can just also highlight -- my estimate is still a huge chunk, if not half, of your transmission business, still comes from small to midsized projects. If you can talk about what the outlook for that business looks, which has obviously been soft in the past.

Okay. There's a number of projects that are moving forward in the fourth quarter just getting started that won't have much impact -- positive impact on the fourth quarter, but should have an impact -- positive impact on 2011. The Sunrise project is just now getting started, The National Grid project is cranking up, I think we are installing footings on that project at this time. Northeast Utilities project is ramping up, but we won't see much activity from it until 2011. National Grid, I think I've mentioned that.

The Colorado River Authority project for CREZ is ongoing and will be for several years, it's up to speed. The TrAIL project is one that will carry over into 2011, it is in full construction mode now as well. And then you've got a few things that are out there that should start in 2011. The Maine Reliability Project, that's three different projects, we might pick up one of those. We have CREZ. I think Jim outlined that there were five utilities that are bidding CREZ stuff, we should -- wiiith that reasonably think we should pick up at least one of those projects.

And then there is several projects in Canada. One, Canada Hydro that's just getting started with Valard that we'll be doing in 2011. And then there is BC Hydro projects that are coming, and some others up there that reasonably should expect to get started in 2011. So if my count is right, we have six large transmission projects in hand with the possibility of doing another two or three for a total of nine big transmission projects for 2011.

Then we, you're talking about the smaller transmission projects. We haven't seen much change in direction there. It's a very competitive market as people have moved out of the distribution market and into the small transmission market, trying to earn some revenues there. But one thing we are seeing is some increased spending on the distribution side. We are hearing it from our customers, we are seeing that some of the material suppliers in their conference calls are talking about increased orders from utilities for distribution materials. And in fact, we are seeing some ramp-up in distribution spending with requests for additional crews. Hopefully, that answers your question.

Our next question comes from the line of Jamie Cook with Credit Suisse. Please go ahead.

Hi, good morning.

Morning.

A couple questions. One, I appreciate the color on the weather issues in the quarter, but is there any way you can quantify what the hit was in Q3 and what you are assuming in Q4? And my two follow-up questions, it sounds like there is a lot of bidding activity on the electric utility transmission side. Is there anyway you could quantify the bids you have outstanding today versus last year? Like you did on the gas side? I think on the gas side you said you had $2 billion in bids outstanding that should materialize over the next two quarters or so, and any color on that as well?

Okay. I think maybe to help -- it would help to quantify the two jobs at the end of the quarter that had weather issues had about $30 million in cost overruns compared to the forecast.

Okay.

On those two jobs, we built 400 miles of 36- and 42-inch pipeline in just over a four-month period. The job's, of course, obviously been moving very rapidly, so you can make up significant project shortfalls in one week with good weather, or have a pretty bad shortfall in a week with bad weather. We also have contract adders and change orders that are reviewed and submitted related to the quarter. And we also have other spreads working during the same period that obviously could offset the production downfalls on those, too, and in fact, they did because the shortfall was not that great.

Bottom line is that to be able to project what these contracts are going to do is very difficult because of the speed which you're moving, and normally, one project does better than you expect and one does worse. But these two, because of the significant amount of rainfall, were more difficult than normal to make up for. Probably, I think, Jim, is it about $2 billion of transmission work that we're looking at this time?

Yes, $2 billion of work that has either been bid or is going to be bid.

And that's electric.

That's electric.

And there's another $2 billion on the pipeline side, as well.

That's correct.

How would that have compared just to last year? You know what I mean? I am trying to figure out how much bidding activity's up in those two markets relative to last year. Is it up 30%? Just round numbers.

Yes, I think pipeline, it's about the same as last year's bidding season. I don't think there's going to be a tremendous increase there, there should be some increase. We are expecting revenues to increase next year on the pipeline side, but so far bidding season is not 30% more or anything like that. But on the transmission electric side, I would think it's probably 30% or 40% more than we have seen at the same time last year. Maybe as much as 50%. Jim keeps giving me the up finger, but that is significantly more than we have seen last fourth quarter.

Our next question comes from the line of Will Gabrielski with Gleacher & Company. Please go ahead.

Thanks, good morning, guys.

Morning.

Two questions. First one, you mentioned another win in California on the transmission side. I am not sure if you can disclose who the customer was there or what the project is, but can you disclose whether that was in your third quarter backlog?

It was not in the third quarter backlog, and the contract was Tehachapi and we were awarded six and 11.

Okay. Very helpful. The other question, your revenue for the quarter came in around the mid-point of the range that you had guided for, yet you talk about weather delays and cost overruns on some pipeline projects, and delayed start-ups on transmission, which impacted your margins. So I'm just curious -- I'm still trying to reconcile those two points. Because it looks like you had good revenue performance, so how far behind schedule where you, or how good could this quarter have been if I add back this $30 million in cost overruns you talked about? It is certainly positive. And how much of that do you think you are recovering in Q4, if any?

Well, the one thing we hate to do is to sit in these conference calls and have to explain the weather or downturns or why things are -- margins are down and so forth. So we were fairly conservative in our estimates, because we are seeing delays in projects and so we anticipate some delays. However, the weather just got us in this particular one, and it was significant weather.

If we would've had some projects start as we had been told by our customers they would, that certainly would've made up for some of the shortfall. But unfortunately, that's just not the case. But it is certainly work what we have in hand and will be doing someday. Hopefully, it is next year. It is not going to be a robust fourth quarter. We have winter weather coming on, and these projects are just now beginning to ramp-up and won't be at full-swing until later on. But I think I most misspoke on the Tehachapi project, it was in backlog at the end of the third quarter.

Our next question comes from the line of Steve Sanders with Stephens Inc. Please go ahead.

Good morning, guys.

Morning.

First a question on the gas pipeline side, you talked about the level of bidding activity. Can you talk a little bit about the competition and how the margins feel in that business going forward relative to historical levels? And then the second question, and, Jim, I think you gave a piece of this, but on the electric transmission projects that you bid early in the second quarter, where are we on seeing awards there? And then as you look at these CREZ bids, I think you talked about seeing some awards over the next few months, what could cause a delay there?

Okay. Steve, on the question on the job that was bid in the second quarter, that was -- one of those jobs was Tehachapi. And we were just asked about that, we recently were awarded that and we'll start that work at the beginning of the year. We are beginning to mobilize now.

The question on the gas side on the amount of bidding activity that we're seeing and the amount of competition. You're going to have -- this project is very similar to the Fayetteville Express line that we had last year. You've got a lot of capacity in the market right now, the bidding season is just starting. This area that we're -- the southern part of this Rex job that was just bid -- not the Rex job, the Xcel project, there's a lot of non-union and union competition in there, and the price typically goes cheaper.

So we are seeing the same amount or more activity this year. The good thing about it is it is tying up capacity in the market, and we see plenty of activity left. So we're not worried about it. We have got projects out there that we feel we'll be awarded over the next couple of quarters.

Thank you. Our next question comes from the line of Alex Rygiel with FBR Capital Markets. Please go ahead.

Thank you. Good morning, gentlemen.

Morning.

John, James, your 12-month backlog is down year-over-year, your total backlog is down year-over-year; your fourth quarter guidance, organically excluding the acquisition, suggesting revenues are down 7.5% to possibly up 2% year-over-year. With all of that stated, how should we think about revenue growth in 2011? I know you're not giving us projections at this time, but how should we think about it?

I think that the shortfall in backlog is all related to gas. We have mentioned that we've been awarded $50 million worth of telecom work in the last 60 days. And I told you about the transmission projects and so forth. The shortfall is really in gas and the gas bidding season isn't started until actually right now. So I'm not too concerned about our backlog being down. I think we will have growth in 2011. Hopefully we will do double-digit growth in 2011. You have any color you want to add to that, James?

No. You're right. Backlog in gas -- well, Price Gregory wasn't in backlog as last year, it is in backlog this year, but that's really -- the backlog is down in gas and that's due to the bidding season, not really cranking up in gas sales.

And burning up $500 million.

We should see significant increases -- that's right and burning off $500 million during the quarter, we should see significant increases in backlog over the next quarter or two.

And one follow-up question. I noticed that Northeast Utilities on Monday lowered its CapEx budget for 2011 through 2013 by about 25%. Is that reflected in your backlog?

That doesn't really affect any of the projects that we are working on. So, no it doesn't affect our backlog.

Good to hear. Thank you.

Is still ongoing.

Our next question comes from the line of --

Northeast Utilities transmission backlog was forecasted up for 2011 through 2015, and that had an additional $845 million of additional transmission projects forecasted. So we hear about delays on one of the projects which is supposed to be built out several years from now, one of the news project lines, but the transmission backlog is good. We have the $950 million [re-- MoU] we we have at Northeast Utilities to operate their transmission infrastructure through 2015. They have increased their CapEx budget for transmission over that same period.

Our next question comes from the line of Jeff Beach. Please go ahead.

Yes. Good morning.

Morning.

There is a number of electric transmission projects in the continental US across the country that I think you've bid on or are bidding on. Have any other projects already been awarded either to you or competitors that you can talk about? Some of these domestic projects, can you expand on your expectations of timing of seeing those awards?

Yes. We've talked about that we were awarded a part of Tehachapi, some other pieces of Tehachapi went to competitors. The Maine Reliability project, the bid is in, but those projects have not been announced as far as who is going to receive those. The [Mona-Oquirrh] project has been awarded to a competitor. Is there anything else, Jim, that I'm missing?

I think the LS Power Line was awarded, we believe, to L.E. Myers. The [Mona-Oquirrh] line, they're still trying to determine who -- they're still reviewing bids there but they are in the final stages. I don't think we were going to probably win that project.

Okay. And there is a number of projects within CapEx 2020, any commentary there about whether there has been award activity?

No. We were providing indictive pricing on that and working with them, but that's it. There has been no firm RPs out on that project yet. We'll probably expect that in the middle of next year.

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

Good morning. On the gas business, if we normalize to the $30 million in cost overruns that hit in the quarter, it looks like your gas pipeline business, if I'm doing the math right, is mid-teens. I am wondering if the profitability of the underlying business is kind of consistent with your expectations. And secondarily, if we think about next year, the bidding season is just getting started, absent execution, would your expectations -- what are your expectations primarily for the gas business margins in 2011 versus 2010? Or is it really too early to say given where we are in the bidding season today?

Yes, it is probably too early, but we don't expect to see any major shifts in the margins on those projects. There should be more work in 2011 then there is in 2010, so margins should be well. Execution risk aside, we very seldom get those kinds of swings and those kinds of projects. Those were just very fast track projects that had a tremendous amount of rain. That's really unusual.

And then, secondly, if I have room for a second, on the renewable side, I think, Jim, you said you expected double-digit growth in 2011 in your prepared comments. I just want to confirm if that's right. Maybe you could talk anecdotally about the mix of wind and solar in 2011 versus 2010 if you could at this point?

Solar, we believe solar is going to have huge growth in the United States going from a 1-gigawatt to a 2-gigawatt market, and we think we will be able to achieve double-digit growth in solar. We think wind will be flat to slightly up, but overall we think renewables will generate double-digit growth. Solar will probably be at least a half or maybe two-thirds of that revenue mix next year.

Our next question comes from the line of David Lowish with Generation. Please go ahead.

Yes, good afternoon, It's David Lowish here from Generation. I have a question now that the mid-term is out of the way, what impact do you think that will have on your operating environment? Will it make some of these delays go away, or do you think it is still going to be a slight headwind? And my second question, on the Valard acquisition up in Canada, is that a unionized workforce, and how do you see that playing out? Thank you.

The election, I think it's a little early to make any projections on what the election will do. I expect to see continued headwinds on these permits and approvals. Hopefully, it will help, but I am not certain that we are going to see much impact from the election. Valard operates both open shop and union.

Thank you.

Our next question comes from the line of Sanjay Shrestha with Lazard Capital Markets. Please go ahead.

Great. Thank you. Two quick questions, guys. So on the natural gas cost overrun, you exclude that, that's like a $0.09 hit for the quarter. Are you expecting that continued in Q4 and that is why your margin guidance for Q4 is what it is, as implied by your EPS guidance, or what's the status of this project and how much are we complete and how much is left to be done?

Well the projects are both -- the two projects that we've talked about that had weather-related issues are about 90% complete. And, yes, they will have an impact on fourth quarter because of POC accounting, we carry margins across the entire job so there will be an impact though the fourth quarter.

Okay, great. Then one quick follow-up, if I may. So when we really think about all of the bidding activity, large transmission projects, large natural gas work, and this has been a year where things seemed to have moved to the right before they really hit the backlog or P&L benefit. So as you guys sit right now, and look at all the opportunity that's out there and think about 2011 and 2012. How do you think about it as to the backlog trend? Should we see this meaningful sequential uptick in backlog into Q4, therefore a stronger 2011, or is it a gradual uptick in Q4 backlog and it's really not more second-half-2010 growth rate, which is more robust and meaningful rather than an 2011 growth rate. How do you think about that?

Sanjay, it's difficult. The bidding season for gas is in the fourth quarter and into the first quarter. And taking what the backlog is at fourth quarter, hopefully, we will have some increase in the gas transmission backlog. Seasonal business, in its annual, so you are going to have backlog burn-off at strong rates after three quarters, and then you are going to build it up into the fourth and first quarters. So I think once we get through the first quarter, we will have a pretty good feel for backlog for the year. But right now we are just going to be able to provide you forecast in the amount of bidding activity that we are seeing in the gas business.

Thank you. Our next question comes from the line of Carter Shoop with Deutsche Bank. Please go ahead.

Good morning. First, a clarification. The $30 million for the natural gas business, those cost overruns, can you split that between Q3 and Q4, or did you actually say that was all in Q3?

It was all in Q3.

Okay. Do you have a sense of how much that would be, then, in Q4?

Actually a piece of it would fall into the Q3 because the costs were incurred, but because of percentage completion accounting, you would lower the percentage profit on third and the fourth quarter, as a result of that. So some of it would fall into the third quarter, which is probably -- what would it be, Jim? Maybe 10% to 15%-- towards percentage completion?

The jobs were about 70% complete on average at the end of the third quarter.

Okay, so roughly speaking, $20 million hedge went into Q3 on an accounting basis, $10 million in Q4?

That's pretty close, yes.

Okay, and then in regards to the bidding activity on the transmission side, you are talking about that business, being up -- the bidding activity being up over 30%, 40%. Is that for the entire transmission business or is that just for these large contracts?

I was speaking to those large contracts.

Our next question comes from the line of Adam Thalhimer with BB&T Capital Markets. Please go ahead.

Good morning. Thanks, guys.

Morning.

Does it feel like to you guys that we are at the bottom of the cycle?

It sure feels better than it has. The second quarter conference call, I think was -- we were pretty beat up and feeling pretty bad.

That was apparent, yes.

This quarter I think we are much more optimistic. We are finally seeing those awards on the telecom side come. As I said, we are working on -- we have been awarded a number of projects that we will be working on in 2011, because -- how do I know that? Well, because we are starting to work on them this quarter. Once you get started, it's very seldom that you have to stop. And then, of course, there's the bidding activity. Finally we are seeing the CREZ projects come out, and others as well. Of course, the gas pipeline looks good too. It looks like maybe we are going to see some sunshine here on our business over the next few quarters.

And then as a follow-up, you mentioned you had a nice string of year-over-year increases in gross margin. Unfortunately, that was broken this quarter. How many quarters do we have to go through before gross margin starts to flatten out and increase again on a year-over-year basis?

It is hard to say. The first quarter is always difficult because it's a winter quarter and weather, it has a big impact on productivity. But I would suspect because of these big projects that are ongoing that second quarter we should be back on track with margins. Maybe the first quarter, but it's hard to say in the first quarter because of the impact of the winter weather. Of course, we are not giving guidance for next year yet, but to try to answer your question, I think second quarter next year we ought to be back on track.

Thank you. Our next question comes from the line of Stuart Bush with RBC Capital Markets. Please go ahead.

Hi, good morning. I was hoping you could expand a little bit on your feelings about the Tehachapi awards. I know you got six and 11 -- spanned six and 11 out of the total of the eight available. Is that indicative that there is more aggressive pricing environment out there? It seemed like you guys were set-up well given that you did the first portion at Tehachapi. And then I wanted to follow up also on your thoughts about the oil pipeline business, especially the TransCanada Keystone E project, and where you stand there and how you think that progresses through next year. Thanks.

Yes, we are happy with the awards. Tehachapi -- of course, we would like to do it all, but there are other competitors out there. I think that having done the last Tehachapi job probably bodes well for us getting the projects that we did get, because they are across the national forest lands, we're pretty experienced at doing that, and have a good reputation of being gentle on the environment, and so forth. So I think our experience did help us, but there are other competitors out there, and unfortunately, we are just not going to get all of them. You want to address the gas question, Jim?

yes there is 16 total spreads for -- on the Excel project. The first part was a south section that was awarded, and that took up six spreads, and the remaining work could be done is as early as the second half of this year and into 2012. So we do think that the federal scrutiny over the permitting or bringing those pipelines into the US from Canada has delayed that product somewhat, but we're hearing it'll be -- the northern portion could start as early as the second half of this next year. Certainly into 2012.

Thank you. Our next question comes from the line of John Rogers with DA Davidson. Please go ahead.

Hi, good morning.

Morning.

Jim, you made a comment in your prepared remarks, and I don't think I quite got it. Relative to gas pipeline construction this year, saying that you thought it was $900 million? Is that the right number?

Yes. Well we've been -- we forecasted a year ago that Price Gregory would do between $700 million and $900 million in revenue for the full year 2011, and we've been updating everyone on the calls and, I think, the most recent last second-quarter call we said it would be close to $900 million, and now we are saying that -- are forecasting that Price Gregory will exceed $900 million in revenues, which is essentially our gas transmission business.

Okay. That's just what I wanted to confirm. And then the second question I had, in terms of the bidding activity, are you seeing any changes in the terms for the bids as it relates to the risks that are being put on contract or being pushed back to owners?

No, there has been no change over the last two years. There are firm-price contracts, and the contract terms are consistent with what they have been in the past several years.

Thank you. Our next question comes from the line of Justin Hawk with Robert W. Baird. Please go ahead.

Good morning, guys. Thanks for taking my call.

Morning.

Just one last question on the guidance reduction, I guess. Just to make sure that I do understand this correctly, would it be fair to say that well over half of the guidance reduction for Q4 was driven by these cost overruns rather than delays? I guess the guidance for the full year is maybe a better way to talk about it.

Well, it was actually a combination. There was -- we definitely did take the guidance down related to pipeline, but also the other project start-ups are occurring later than we had originally forecasted when we were at the end of the second quarter. So there was some affect on pulling the estimates down on electric, particularly transmission, on the renewable side and on the telecom side of the business. The majority of it was pipeline though.

The majority is pipeline. Okay. And then just a housekeeping question. On Price Gregory, and with your comment that is going to be above $900 million for the year, can you tell us what their contribution has been year-to-date through the third quarter in revenue?

We don't typically disclose one particular operating unit for the quarter. I've got the numbers, but I don't have them right here in front of me. I think the way to back into that is the gas segment revenues, probably 85% to 90% of that is transmission revenues.

Our next question comes from the line of Dan Mannes with Avondale Partners. Please go ahead.

Good morning.

Morning.

A quick follow-up on the pipe business. You talked about Keystone Excel and the TransCanada project. Could you talk a little bit more maybe about how that fits in? First of all, is that included in that $2 billion of bidding that you brought up in Q2? Given some of the uncertainty on the regulatory side, do you have some risk in waiting for that, especially given your relationship with TransCanada? Or do you just bid what you bid, and if that isn't what you end up with, it's fine. I guess I'm just trying to understand bidding strategy given the size of that project.

The part that has been awarded on Excel is not in the $2 billion in opportunities that we are seeing. And we are seeing $2 billion in opportunities in addition to the Excel project for TransCanada.

So the 10 spreads that are open are not included in the $2 billion?

That's correct. We've got more than $2 billion in opportunities. We have risk-weighted that it could potentially happen in 2012 more likely than 2011.

Okay. So from a bidding perspective, that's not something you are necessarily expecting to get. Got it.

No, we expect to bid on it if it comes out, but we are seeing $2 billion of projects that we believe will start in 2011.

Okay, great. That's good clarification. Thank you.

By the way, I have a follow-up number. Price Gregory's year-to-date revenues through the nine months were about $670 million.

Our next question comes from the line of Craig Irwin with Wedbush Securities. Please go ahead.

Good morning, gentlemen.

Morning.

Most of my questions have already been asked, but one question I have is really about the history of Price Gregory. I was wondering if they had any significant overruns in their past or if any other predecessor companies really had a history of overruns, given that the public financials actually showed some pretty impressive profitability? And whether or not the bid teams that are bidding on the different gas projects coming up are really the same bid teams that were bidding for Price Gregory?

Yes, there hasn't been any change in the bidding teams for Price Gregory. And, yes, you have some projects through the years that are good and bad. Price Gregory is doing very well. They had a couple of tough projects that, because we are a public company, they're exposed. But they're doing very well, they are a great company, good bid team. We expect good things from them going forward. Just unfortunately, no one can project the weather as severe as what we had there, it just really hurt us. But that's the way it goes.

Understood. So then, last quarter you mentioned one project, one solar project, 134-megawatt project that was really being pushed because of panel availability. I was wondering if this was something you thought would come back in 2011 and might be part of your expectations for substantial growth in the solar market?

Well, we are looking at several utility-scale programs that would start in 2011 in addition to that 130-megawatt program. That program is still on the table, and we are still working through issues there. But there are plenty -- there are going to be several utility-scale opportunities in 2011 that we haven't seen in the past.

Also, let me finish up a little bit of question on Price Gregory there. If some of these other projects had not been pushed, for instance the solar project or a couple of the transmission projects, if they hadn't been pushed to the right, then those shortfalls of Price Gregory would have gone unnoticed because we would have not had any issues.

Now, going forward and going backward, sometimes when Price Gregory makes up for when a transmission project goes south or is pushed to the right. So it is a good thing to have Price Gregory. More times than not, 99% of the time, they are going to perform very well. So it's a good company, and we are really proud to have them.

And this concludes the question-and-answer session. Management, please proceed with any closing remarks.

Okay. I'd just like to thank you all again for your participation in our third quarter conference call. We appreciate your questions and your ongoing interest in Quanta Services. Thank you.

Ladies and gentlemen, this concludes the Quanta Services third quarter 2010 earnings conference call. If you'd like to listen to a replay of today's conference, please dial 303-590-3030 with the access code 438 0675. Those numbers again are 303-590-3030, the access code 438 0675. ATT would like to thank you for your participation. You may now disconnect.