Quanta Services Inc (PWR) 2013 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Quanta Services' first quarter 2013 earnings conference call on the 2nd of May, 2013. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions.

(Operator Instructions)

I will now hand the conference over to Kip Rupp. Please go ahead, sir.

Great. Thanks Mikayla, and welcome everyone to the Quanta Services conference call to review first quarter 2013 results.

Before I turn the call over to management, I have the normal housekeeping details to run through. If you would like to have Quanta's news releases and other information e-mailed to you when they occur, please sign up for e-mail information alerts by going to the Investors and Media section of Quanta Services' website at quantaservices.com. In addition, Quanta recently launched the Quanta Services Investor Relations App for iPhone, iPad, and Android mobile devices, which is available for free at Apple's App Store and Google Play. From your mobile device, go to the App Store and search Quanta Services IR to find and download the App.

The Quanta Investor Relations App allows users to navigate the Company's Investor Relations materials, including the latest press releases, SEC filings, presentations, videos, audio caps conference calls, and stock price information. A replay of today's call will be available on Quanta's website at quantaservices.com. In addition, a telephonic recorded instant replay will be available for the next seven days, 24 hours a day. It can be accessed as set forth in the press release. Please remember that information reported on this call speaks only as of today, May 2, 2013, 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 all 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 on Quanta's forward-looking statements, and Quanta does not undertake any obligation to update any forward-looking statements to reflect events or circumstances after this call. 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 10K for the year ended December 31, 2012, and its other documents filed with the Securities and Exchange Commission, which may be obtained on Quanta's website or through the SEC's website at sec.gov.

With that, I would now like to turn the call over to Mr. Jim O'Neil, Quanta's President and CEO. Jim?

Good morning everyone, and welcome to Quanta Services' first quarter 2013 earnings conference call.

I will start the call with an operational overview before turning it over to Derrick Jensen, Quanta's Chief Financial Officer, who will provide a detailed review of our first quarter results. Following Derrick's comments, we welcome your questions.

Quanta is off to a great start this year, posting record first quarter revenues and operating income. Our first quarter results reflect strong demand for our services and continued solid project execution. For the quarter, revenues increased approximately 19%, and GAAP diluted earnings per share from continuing operations increased almost 55%, compared to the same quarter last year.

Our 12-month and total backlog increased both sequentially, and on a year-over-year basis. Our total backlog is also at record levels. Our Electric Power segment continued to experience an increase in demand for electric transmission and distribution services. Regulation to improve grid reliability, renewable inner connections, the impact of coal to gas generation switching, and other industry dynamics continued to drive power industry's investments in electric infrastructure. The electric power industry is investing at record levels to upgrade and modernize North America's power grid. We believe this trend will continue over the next several years, as the current level of investment is not sufficient to keep pace with the rate at which transmission and distribution systems are aging.

Today, available construction resources in the electric power industry are in short supply, and skilled labor is in high demand. In the future, we expect demand for our services in an already tight labor market to grow. As such, we see attractive opportunities for our Electric Power segment for the remainder of this year and beyond. We continue to be awarded large transmission projects. During the quarter, we announced two large electric transmission projects, a 186-mile, 230 Kilovolt line for SAS Power in Northern Saskatchewan, and a 310-mile, 500 Kilovolt HV/DC line for ATCO Electric in Eastern Alberta. We are currently mobilized on 17 large transmission projects throughout North America, with each project's contract value averaging over $200 million.

Smaller transmission project activity also remains very active, as customers continue to upgrade existing transmission infrastructure to meet reliability standards and to interconnect with the significant number of large transmission projects that have been constructed over the last several years. Also, growth in distribution activity has continued to accelerate, following nearly three years of deferred maintenance during the recession, as our customers increasingly focus on distribution asset management initiatives, such as reliability and smart grid deployment. Our Natural Gas and Pipeline segment delivered comparable revenues in this quarter versus the first quarter of last year, but operating income increased almost $20 million year-over-year.

We are pleased with the improvement in this segment's profitability in the first quarter, and we expect continued profitability improvements throughout the year. In the first quarter, Quanta was selected by Pacific Gas and Electric Company, or PG&E, to provide comprehensive pipeline system integrity solutions as part of PG&E's pipeline safety enhancement plan. Quanta was awarded a three-year alliance agreement with subsequent annual extensions to provide services, such as pipeline replacement, hydrostatic testing, and valve automation services. Quanta has begun working under this alliance agreement, and we estimate its value at approximately $100 million per year in revenues over the initial three-year term.

Several of Quanta's operating units are involved in this alliance agreement, illustrating the depth of expertise and the value proposition that Quanta brings to its natural gas utility customers. Demand for pipeline services to support shale gathering infrastructure buildout was active in the first quarter, and should remain so throughout the year and for many years hereafter, as customers continue to invest in infrastructure needed to support the exploration of shale plays, particularly in liquid-rich shale formations. Active discussions with customers regarding mainline projects continue. While we can't provide details at this time, we believe we will receive some project awards and mobilize on mainline projects in 2013.

We also expect mainline project awards to make a significant positive impact on our Company's overall performance in 2014 and beyond. In our Fiber Optic Licensing and Other segment, revenues for the quarter increased nicely over the prior year period, with consistent operating margins. The increase in revenues was primarily due to strong growth in providing telecommunications infrastructure services to non-telecom customers, coupled with steady growth in our fiber optic licensing revenues. As discussed in our earnings release, we have adjusted our full year 2013 guidance. We increased the lower end of our guidance, primarily due to superior performance in the first quarter that exceeded our original expectations, and slightly increased full year operating margin expectations for our Electric Power segment.

We continued to reflect prudent expectations in our financial forecast, particularly in the fourth quarter, as the timing of electric transmission project awards, construction start dates, and seasonality can impact our overall financial performance. Additionally, we have no uncommitted mainline pipe construction revenues in our guidance for the remainder of 2013. While we believe mainline project construction revenues are likely this year, we will not include any projects in guidance until we have a signed contract and firm construction start dates. In summary, we had an exceptional first quarter. We continue to believe we are in a multi-year energy investment cycle, and remain well positioned to maintain our leadership role in the industries we serve.

We will continue to leverage this leadership position, and execute on our strategic initiatives to grow both organically and through selective acquisitions as we actively pursue opportunities to expand the solutions we are currently offering to our customers.

Before I turn the call over to Derrick, I want to recognize John Colson, Quanta's Founder and current Executive Chairman of the Board, who announced his plans to retire later this month. John had a vision in 1997 to form Quanta Services, as small or private contractors would not be able to keep up with the pace of transmission construction activity that we are experiencing today. As a first mover in the industry, Quanta Services is today an S&P 500 Company. There have also been many other public companies that have modeled their business to be like Quanta.

Not only is John a true friend and mentor to me, as well as my entire leadership team, John Colson is a true pioneer and recognized leader in this industry. The electric power industry would not be where it is today without John's contributions. John, you will be missed greatly, and we wish you and your family the best. I will now turn the call over to Derrick Jensen, our Chief Financial Officer, for his financial review of the first quarter.

Derrick?

Thanks Jim, and good morning everyone.

Today we announced revenues of $1.59 billion for the first quarter of 2013, compared to $1.33 billion in the prior year's first quarter, reflecting growth of approximately 19% quarter-over-quarter. Net income from continuing operations attributable to common stock for the quarter was $72.1 million, or $0.34 per diluted share, as compared to $45.8 million, or $0.22 per diluted share in the first quarter of last year. The growth in consolidated revenues in the first quarter of 2013 was driven primarily by increased revenues from our Electric Power Infrastructure Services segment. However growth was seen in all three of Quanta segments.

Our consolidated gross margin increased to 15% in the first quarter of 2013, from 14.0% in 1Q '12. This improvement was led by the profitable first quarter performance of the Natural Gas and Pipeline Infrastructure Services segment, as compared to last year's first quarter losses, as well as the impact of higher overall revenues, which improved our ability to cover fixed operating costs.

Selling, general and administrative expenses were $113.7 million, reflecting an increase of $15.6 million as compared to last year's first quarter. This increase is primarily attributable to $11.6 million in higher salary and incentive compensation cost, associated with increased levels of activity and profitability, as well as administrative costs associated with companies acquired in 2012, and $1.3 million in higher costs associated with various development initiatives.

As a percentage of revenues, selling, general, and administrative expenses decreased to 7.2% in the first quarter of 2013 from 7.4% in the first quarter of 2012, primarily due to the impact of higher overall revenues. Our consolidated operating margin, before amortization expense, increased to 7.9% in 1Q '13 from 6.6% in 1Q '12. Amortization of intangible assets decreased from $9.2 million in 1Q '12 to $5.3 million in the first quarter of 2013, as certain of these assets became fully amortized.

To further discuss our segment results, the Electric Power segment's revenues were up about $248.8 million quarter-over-quarter, or approximately 27%. Revenues during the quarter were positively impacted by higher revenues from electric power transmission projects and solar power generation projects, as a result of increased capital spending by our customers.

Revenues from emergency restoration services are relatively consistent between periods, with approximately $33.4 million occurring in the first quarter of 2013, and $32 million occurring in the first quarter of 2012. At the end of the first quarter, 12-month backlog for the Electric Power segment increased slightly to $2.8 billion, as compared to the first quarter of 2012. Sequentially, 12-month backlog decreased slightly by 3.4% from the end of the fourth quarter of 2012, as certain renewable projects proceeded into construction during the first quarter of 2013. Total backlog for the segment remains strong at $4.84 billion. Operating margin in the Electric Power segment decreased to 11.2% in the first quarter of 2013, as compared to 12.3% in last year's first quarter.

The prior year's first quarter performance was positively impacted by favorable winter weather conditions, providing for excellent production on various electric projects. Natural Gas and Pipeline segment revenues increased slightly quarter-over-quarter by 1% to $358.9 million in 1Q '13. However, operating income for the Natural Gas and Pipeline segment as a percentage of revenues increased to 2.9% in 1Q '13 from a negative 3% in 1Q '12.

The operating loss for the quarter ended March 31, 2012 was primarily due to increased project costs as a result of performance issues caused by adverse weather conditions on certain projects. The operating margins for this quarter are more representative of the margin we would expect with the seasonal effect in volumes and production during the typical first quarter, absent mainline pipe work.

At the end of the first quarter of 2013, 12-month and total backlog for this segment increased about 7% and 17% respectively, compared to the end of the first quarter of 2012. As we've commented before, Keystone XL is not in any of the backlog figures presented for our pipeline segment. Fiber Optic Licensing and Other segment revenues were up $6.2 million, or 15.7%, to $45.8 million in 1Q '13, as compared to $39.6 million in 1Q '12. Additionally, operating margin remained relatively constant at approximately 36.9% in 1Q '13, as compared to 36.7% in 1Q '12. When calculating operating margins by segment, 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 $1.1 million in the first quarter of 2013 as compared to 1Q '12, primarily as a result of an increase of $5 million in various overhead expenses, the largest of which was $2.6 million in higher salary and incentive compensation costs associated with current levels of operating activity and profitability, partially offset by lower amortization expense of $3.9 million, as a result of the burn off of acquired backlog. Adjusted diluted earnings per share from continuing operations as calculated in today's press release was $0.38 for the first quarter of 2013, as compared to an adjusted diluted earnings per share from continuing operations of $0.26 for 1Q '12.

Operating cash flow from continuing operations was approximately $44 million for the first quarter of 2013, as compared to a use of cash of $73 million for the first quarter of 2012. Capital expenditures net of proceeds from equipment sales were about $56 million, resulting in approximately $12 million in negative free cash flow for the first quarter of 2013. This compares to $104 million in negative free cash flow for the first quarter of 2012. Specifically, cash flow has been impacted by higher day sales outstanding, or DSOs. Our DSOs were 87 days at March 31, 2013, compared to 82 days at December 31, 2012, and 80 days at March 31, 2012.

Continuing to impact DSOs are the change orders associated with the Sunrise project, which remain in costs in excess of billing. Several meetings occurred throughout the quarter, and progress continues to be made. Substantive meetings are scheduled within the next 30 days, and we currently aren't aware of any circumstances warranting any adjustments to the amounts invoiced.

EBITDA for the first quarter of 2013 was $119.3 million, or 7.5% of revenues, compared to $83.8 million, or 6.3% of revenues, for the first quarter of 2012. Adjusted EBITDA was $159.8 million, or 10.1% of revenues for the first quarter of 2013, compared to $119.3 million, or 9% of revenues for the first quarter of 2012. The calculation of A, EBITDA, and adjusted EBITDA, all non-GAAP measures, and the definitions of these and DSOs can be found in the investors and media section of our website at quantaservices.com.

At March 31, 2013 we had about $184 million in letters of credit outstanding, primarily to secure our insurance program, and we had no borrowings outstanding under our credit facility. In addition, at the end of the quarter, we had approximately $367 million in cash, with $112 million of the balance related to foreign operations. Considering our cash on hand and availability under our credit facility, we had nearly $883 million in total liquidity as of March 31. Concerning our outlook for 2013, we expect revenues for the second quarter of 2013 to range between $1.45 billion and $1.55 billion, and diluted earnings per share from continuing operations to be $0.30 to $0.32 on a GAAP basis.

These estimates compare to revenues of $1.39 billion in GAAP diluted earnings per share from continuing operations of $0.27 in Q2 '12. Our GAAP EPS forecast for Q2 13 includes an estimate of $11.1 million for non-cash compensation expenses, and $5.1 million for amortization expenses. Included in our estimate of non-cash stock-based compensation for the second quarter and year of 2013, is approximately $4.2 million of expense, or $0.01 per diluted share, related to the accelerated vesting of equity-based awards associated with John Colson's retirement as Quanta's Executive Chairman of the Board of Directors, effective May 23, 2013. Excluding these expenses, our non-GAAP adjusted diluted earnings per share from continuing operations for the second quarter are expected to be $0.35 to $0.37, and compared to our non-GAAP adjusted diluted earnings per share from continuing operations of $0.32 in Q2 '12.

This non-GAAP measure is calculated under the same basis as the historical calculations of adjusted diluted earnings per share from continuing operations presented in this release. We currently expect revenues for the full year 2013 to range between $5.9 billion and $6.3 billion, and adjusted diluted earnings per share from continuing operations to be between $1.20 to $1.40 on a GAAP basis. Our GAAP EPS forecast for 2013 includes an estimate of $32.8 million for non-cash compensation expense and $20.5 million of amortization expenses. Excluding these expenses, our non-GAAP adjusted diluted earnings per share from continuing operations for 2013 are expected to be between $1.37 to $1.57.

We are currently forecasting net income attributable to non-controlling interest to be approximately $3 million to $4 million in the second quarter of 2013, and around $14.5 million to $15.5 million for the year. For additional guidance, we're currently projecting our GAAP tax rate to be between 35.5% and 36% for 2013, and our diluted share count to be around 214 million shares. We expect CapEx for all of 2013 to be approximately $210 million $225 million, which includes CapEx for our Fiber Licensing and Other segment of about $35 million to $45 million. This compares to CapEx from continuing operations for all of 2012 of $209 million.

This concludes our formal presentation, other than to add an additional thank you to John from all of the employees of Quanta. We couldn't have had a greater leader.

We will now open the line for Q & A. Operator?

Thank you, sir.

(Operator Instructions)

The first question comes from Alex Rygiel from FBR Capital Markets. Please go ahead.

Good morning, Jim.

Hi, Alex.

So easy question. You beat the first quarter by $0.05 on the bottom line, you raised your low end of the guidance by $0.10. Was the first quarter -- did you have an extra $0.05 of cushion in the first quarter, or do you have better visibility on the next nine months, such that you sort of raise the back end by $0.05?

Well, I'd say that's the first quarter -- I mean, obviously we had 17 big transmission projects in construction, and we did have some fairly good weather throughout the country, particularly in Texas and California. So you just can't predict the weather. So I wouldn't have said we baked in $0.05 before the quarter. You've got to understand the seasonality in the quarter, and weather can be a big impact. For the rest of the year, we're just taking the same approach that we've taken six weeks ago when we talked to you guys in late February. We're being prudent about the second half of the year because a significant amount of our upcoming work will be big projects that are subject to the start dates or subject to movement, and we're just being prudent about that until we get more visibility.

And then secondly, your natural gas margins improved very nicely on a year-over-year basis. Could you give us a little bit more background on that? Was it pricing, was it type of revenue or type of project, or was it just purely better execution?

I think it's a combination of all of those. We've worked really hard in that segment. The first quarter is typically a very seasonal -- the segment is very seasonal all over the year with the first quarter. Several years ago, we strived to break even in that segment. And now because of the diversity of the services that we're providing with the shale gathering works and pipeline integrity work, we've rebuilt our gas distribution business. We've done a really nice job bringing that to profitability, and we expect if we can execute margins, we will improve over the year to where we'll have our full year margins without big pipe. Full year margins should be in that mid- to upper single digit operating income range without big pipe. So we're real pleased with the first quarter and how we've moved that segment to profitability in the most seasonal quarter of the year.

Thank you. Our next question comes from Tahira Afzal from KeyBanc. Please go ahead.

Good morning, gentlemen. Congratulations.

Thank you, Tahira.

Your bookings in the quarter were really strong on a year-on-year basis. Is this strength going to continue in general to trend up as you go into your seasonally high quarters? And is the mix increasingly going to be on the pipeline side, or should we expect the same type of mix?

Well we're going to be -- we've been consistent with our comments on backlog in electric. We haven't seen any changes, it's a very strong market. The timing of projects awards quarter-over-quarter can be lumpy, but overall we're saying backlog in electric should be strong. Now, with that, if we get big pipe work toward the end of the year, the mix could shift somewhat. It could get a little bit higher percentage in backlog in pipeline, obviously because those could be some fairly big projects, but overall, we haven't seen any changes in the overall business environment that we've been communicating to you guys over the last two years.

Okay, and the follow-up question is on the pipeline side, and I'm cleverly trying to make it a twofold question because you only allow me two questions. So if I look at the Keystone pipeline being officially pushed out by a little more -- by around six months, even if you start at what you assume to be early 2014, I assume it does now project out a more stretched construction time frame. Does that allow you to look at your spreads appropriately, and see if you can bid on more projects going forward than you thought you could? And the second part of the question is, the timing on some of these mainline prospects, clearly there are a huge number out there. Isn't their [group] timing going to be dictated by how economical rail looks as an alternative on the crude side?

Well, let me just say that the Keystone project has never impacted our ability to pursue other projects. So your question about Keystone getting pushed into '14, whether that's given us the ability to pursue more work, that -- we've always pursued as much work as we could. If we could get work at the margins that we expect to get work for, which we've been very disciplined on bidding these projects. I would say that we should hear some announcements, hopefully, about pipeline. We said for this year, we said it's likely that we'll probably do some big pipe work this year. So we're in some pretty detailed discussions right now. So hopefully we will be able to talk about that in the near future. I mean, when you're building pipelines, the most active parts of a pipeline season is in the second and third quarter, and I don't expect that would change because the weather is more favorable then, and there's less risk in building those lines for the customer and for the contractor.

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

Hi. Good morning. Nice quarter. Sorry, a couple questions on guidance again. And before I forget, congratulations, John, on a fantastic job. But anyway, the guidance in the quarter, I'm just trying to figure out, like if I look at your second quarter guide relative to where you came in at the first quarter it doesn't make a lot of sense, because seasonally the second quarter is generally stronger. So was there any pull-forward? Or I'm just trying to understand if there's something in there that I'm not thinking about, on just why your second quarter wouldn't be up more significantly relative to Q1.

And then on the Electric Power margin side, I'm just trying to get a feel for how you're thinking about your margins in 2013 relative to 2012, whether you think we can -- the pricing environment is strong enough and utilization is high enough that we could exceed sort of your targeted range of 9% to 12%? And then last question, if we were to handicap where the upside comes from in 2013, do you feel it's more a function of your first quarter good execution, or is it a function of the big gas pipeline stuff like Keystone finally getting done? Thanks.

Yes, Jamie this is Derrick. Actually, from a first and second quarter perspective, we had commented last time that we thought the seasonality was going to start to flatten out a little bit, and when you look at 2012 in fact, you can see that on an after discontinued operations that the first and second quarter are relatively flat. When -- the other thing that's coming into consideration is, we've got a lot of these large projects that Jim has talked about. A lot of that work was in California and Texas, which contributed to larger revenues in the first quarter relative to a seasonality perspective. And then lastly, we had a couple of solar projects that came through. So all those things kind of came to a combination of effects for the first and second quarter. There was, as you alluded to, some pull-forward from the second quarter into the first quarter, based upon the good production we had for the period.

Then relative to margins, we continued to guide at that 9% to 12% for the Electric Power. As we've commented, I think last time, the 2012 was the phenomenal year for us throughout. We had great execution. We had very good weather. We had high storm work. So all those things contributed to margins that were above that 9% to 12% range, but we continue to feel as though that the 9% to 12% range is a prudent guidance for us for in that segment, and as we stand here right now, I think that you'll see that the modeling works out that we're probably in the mid-portion of that range in our current guidance. And for the last component of it, as far as what could lead to some of those upsides, I think as Jim's alluded to, the opportunity for execution, that's really where it can come from, similar to 2012. That's probably the primary driver.

Thank you. Our next question comes from Will Gabrielski from Lazard Capital. Please go ahead.

Thanks, good morning.

Good morning.

Can you guys talk about the distribution market, and we're seeing a little bit of recovery in housing, or at least the Wall Street Journal says so every day on the cover, and I'm wondering how that's impacting your distribution business. And then on the maintenance side within that market, how far from peak levels we are, or how that's progressing back towards what we saw a few years ago?

Will, I would say we're hearing the same news about housing starts, and there's a lag to the impact, a positive impact it would have to us. We're not really seeing any meaningful impact in our revenues related to housing right now. All of the growth that we've seen in distribution over the last two years, and going into this year, has been maintenance-related, reliability-related, and as far as where that goes, we're not seeing it slow down. I can't predict what the peak would be, but we're still growing distribution revenues related to reliability work, and maintenance continues to grow at healthy clips, and we don't see it slowing down any time soon.

Okay, and then in the pipeline integrity, or pipeline modernization market, I think there's been some new laws passed over the past few months, at least here in the Mid-Atlantic states, that allow utilities maybe better cost recovery on a more timely basis in that market, and I guess you had success with PG& E in the quarter. So I'm wondering how big that market opportunity is starting to look to you versus 12 months ago, and what type of interaction you're having with the customers about maybe MSA-type relationships, or just bigger framework agreements?

Yes, we are having active discussions with many customers on integrity programs throughout the country, and we've always said that our integrity business, although it's a smaller base, probably has more opportunity to grow at better clips than any other parts of our business. So it's an exciting part of our business, and we think it could be meaningful within the next three to five years.

Thank you. Our next question comes from Vishal Shah from Deutsche Bank.

Yes, hi. Thanks for taking my question. Jim, just curious to get a sense of the margin profile of the pipeline backlog, or the new orders that you're getting. Are you seeing better pricing and better margins in some of the upcoming orders? And I have a follow-up.

Well, most of the work that we have in backlog is probably out two to three months at the max, it's pipeline gathering work in these shale fields, and the margins have been pretty predictable over the last several years. We haven't seen much increase in those margins, but margins in backlog would either be equal or slightly higher than what we're experiencing today. We don't have any big pipe revenues to speak of in our backlog, other than a project that starts in '14, and certainly those margins would be higher in backlog when we start booking mainline pipe work, hopefully over the next few months this year.

That's very helpful, thank you. And then on the Electric Power segment, just wanted to understand to what extent the improvement in margin expectations is driven by pricing versus better execution? Are you seeing this, the pricing environment continue to get better, and is there further upside to your margin expectations for the rest of the year? Thank you.

Yes, Vishal. I think it's a combination of both. I mean, certainly we could have a year like last year where we had better execution, favorable weather, and that certainly would put better margins to the bottom line, but also margins in backlog are strong, and they continue to be equal to or better than what we're currently experiencing today. So it's a combination of both execution and the bidding environment in margins and backlog.

Thank you. Our next question comes from Steven Fisher from UBS.

Hi, good morning.

Good morning.

Good to see the Q1 profits in pipeline, but I guess the revenues were only up less than 1% year-over-year. So I guess I'm just wondering if we should assume a general slowdown in the outlook for shale pipeline projects, and if not, why was it only up, I guess, 1%?

Well, that's going to be your seasonally low quarter for revenues in that segment. It's more difficult to build pipeline in the first quarter because of weather, particularly in the Marcellus, which is one of our most active areas. So that's by design. That should pick up in the second quarter and into the third quarter. In the fourth quarter, it's kind of a wildcard. It could be your second highest quarter, or it could be -- you could continue to have revenues equal to what you experienced in the third quarter. But the first quarter is always going to be your seasonally low quarter for your pipeline segment, and even in your gathering world.

So would you assume, though, that the year-over-year growth in the next few quarters should be better than kind of flattish?

This is Derrick. I mean, when we provided previous guidance for that, we basically assumed that 2013 would be comparable to 2012. I would say at this stage in the game, we would see that at the mid and high points, you would see small single digit revenue growth, though.

Thank you. Our next question comes from William Bremer from Maxim Group.

Good morning, gentlemen.

Good morning, Bill.

John, I hope to read about you catching the largest bass in your area. All the best to you. Okay, here are my questions. Was wondering if there was any particular substation work that impacted electrical transmission this quarter? My second question is, if we go into a little bit, you called out a little weather issues. There's been a lot of talk of some high degree of rain in the Midwest. How much did that, if any, can you call and tell us about that impacted the pipeline arena? And then thirdly, on the pipeline integrity, is there any components at this time that you feel as though you need to either develop in-house, or potentially acquire, to really fulfill your portfolio in that area?

The impact of weather on pipeline business in the first quarter was negligible. We didn't have any negative or positive impacts due to weather. As far as our integrity business, we believe today, Bill, that we are a full service solution provider, and there's really not any gaps in our integrity business that we need to fill today, other than just continue to pursue opportunities and build that business, and the first question?

Are there any particular substation?

Yes, the substation work pretty much flows with the amount of transmission work and distribution work. It rises and falls with that activity. So there was nothing out of the ordinary on substation in the first quarter, other than it's very active, just like transmission construction is today.

Thank you. Our next question comes from Craig Irwin with Wedbush. Please go ahead.

Thank you, and good morning. And first off, John, congratulations again on your retirement. So my first question I wanted to ask is can you update us on the approximate size of the electric power opportunities that you're bidding right now, how this has changed versus last year, and whether or not you're seeing a mix shift, either in the character of the projects or in the specific geographies that are offering the most exciting opportunities?

Well, there's still opportunities throughout the US and North America in general, Craig. I mean, we are having a shift, obviously, CREZ rolling off in Texas. But there's still a significant amount of work to be done in Texas. But there are other areas of the country that certainly we will be redeploying resources to. There's opportunities for coal to gas switching. So when you talk about the drivers, we are seeing coal to gas switching being one of the bigger drivers of transmission opportunities going forward for the remainder of the year and into '14.

Great, and then can you update us on dark fiber? Your last call you said you thought that that could grow double digits, maybe better this year. There was some pretty solid bookings in that segment in the quarter. How do you see dark fiber progressing over the course of 2013? Have the sort of headwinds of the fiscal discipline out there maybe lifted off enough where we can see a number of these projects actually supported by the local customers?

Sure, this is Derrick. As it relates to the fiber, your call now, we have the non-telecom revenues buried within fiber, but as far as from a segment perspective, but fiber overall is growing at a high single digit rate at this stage in the game, from a revenue perspective. The sales continue to be strong. 2012 sales for future revenue installs was basically double digit. So from a revenue perspective, as we go through and buildout those new networks on sales, I think we'll continue to see growth, high single digit to double digit growth. Relative to the commentary of any of the sequestration or anything from spending, we're not seeing that really impact our business right now. I mean, a lot of the work we're doing is associated with ongoing contracts, and a lot of the sales that we're doing are for other incremental verticals, like the financials, rather than just relying on K through 12s, but the K through 12 spending right now is still going good for us.

Thank you. Our next question comes from John Rogers from D.A. Davidson.

Hi. Good morning. Congratulations to John, as well. I guess first thing, in terms of the pipeline project opportunities, Jim, are they -- how quickly do you need to see that work actually get booked to actually execute it this year? Is this something that we need to see in the second quarter, given that's the time periods where normally those projects come out?

No, John. I would say that in the pipeline business on mainline pipe, once you're noticed of award, you get the notice of award, you could mobilize immediately, within the next week or two, on that project. So it's a very quick mobilization from time of award. At least the projects that we're seeing here in the near term, that is the way it will be. So it's not like we get an award and then it goes to construction six months later. It moves fairly rapidly.

Okay, and then on the large electric transmission projects, are you seeing a shift at all in that market towards more sequential small projects and away from large lump sum projects?

We are seeing our smaller project revenues ramp at the same pace as the large projects. So they are both very active right now, or they have been. We continue to believe that the small transmission market will continue to grow for the next several years.

Much of that work, though, still is lump sum work.

That's right. Most of it's lump sum work, and the visibility is limited in backlog and when projects will be awarded and moved to construction. But it is a very active market right now.

Thank you. Our next question comes from Andrew Wittmann from Robert W. Baird. Please go ahead.

Good morning, guys.

Good morning.

So thanks for the color on the electric side. You kind of gave an idea of what the average project size that you're working on today is. Just curious if you could give us some similar context like that for the pipeline stuff? Obviously not on what you're working on today, but on the large diameter stuff that you could be working on, you're looking at bidding on today for the future, obviously excluding Keystone, just to give us some sense about what the opportunity set might be like.

You know, Andy, I'd rather stay away from that right now. I would say that we typically announce projects that are at $100 million or greater in size, and that's just a general rule that we've applied the last -- over the last several years, but we really don't want to talk about any of these pipeline projects until we have a signed contract and a start date, and then we'll be glad to provide as much information and color as we're allowed to by the customer.

Very responsive. Figured I'd try. The balance sheet is still sitting with, as you mentioned, over $800 million worth of liquidity, and still the cash from the telecom sale. Just as you're thinking strategically here, Jim, haven't really commented on the M&A environment, always part of what you do. You talk about the activity level there, and maybe the potential -- or the size of deals that you're looking at here today, adjacencies to what you currently do, et cetera.

Yes, this is Derrick, actually. From a use of capital perspective, our obviously number one areas of focus continues to be working capital, and we use -- just to the extent that the large project that Jim spoke about, those will demand a fair amount of working capital. So our number one priority is to assure we have plenty of working capital, our cash availability to support the growth. And then, as well, associated CapEx, but then, yes, acquisitions and our investments are our next priority. From that, we continue to be quite active. We haven't had a material transaction close in a bit. We did have a small transaction close in the first quarter, a reasonably small transaction, but we're active, we're opportunistic, and we don't have anything that we target from a size of an acquisition or a timing of an acquisition, but we continue to be quite active in the pursuit of those opportunities.

Thank you. Our next question comes from Dan Mannes from Avondale.

Hey, good morning everyone. Congrats on a good quarter, and congrats to John Colson.

Thanks, Dan.

Sure thing. Two questions. First, just want to focus a little bit more on Q1 as well on the electric side. Given that this, as far as I can see, this is the strongest quarterly revenue you've ever put up, and you put it up in a first quarter, just wondering if there was any material impact, either from the maybe counter-seasonal work in Canada, or number two, was there any sort of post-Sandy work that maybe fell through into the first quarter that was maybe more or better than previously anticipated?

Yes. I would say that there was probably limited post-Sandy work going into the first quarter. Most of that was completed in early December. The seasonal, the performance in the first quarter, I think it's just good execution and good weather throughout the country. I mean, we've got a significant amount of activity going on in Texas. We've had great production on CREZ, great production in California, and other parts of the country. So it's just overall having good weather elements over the, on average, on 17 projects that are throughout North America, and great execution. So we're very pleased with the results, and hopefully we'll be able to continue that into the next few quarters, and beyond.

And then a quick follow-up on that. With some of the CREZ work winding down, I think some of it wound down in the first quarter on Lone Star, and some it maybe later in the year, but then a big pick-up in Canada. How mobile is your labor force in terms of project management, or how do you manage that internally, given pretty different geographies for this work?

Yes, I mean, we're -- that is one thing that I say that we excel at, is moving resources across the country to mobilize on opportunities that come to us, and we're not concerned at all right now. I mean we feel that we still have the ability to take on additional work, even at today's level of activity, and we'll continue to pursue opportunities, if we can get the right margins and projects, we'll certainly pursue them in the future.

Thank you. Our next question comes from Noelle Dilts from Stifel. Please go ahead.

Thanks. Hi, good morning.

Good morning.

First, on looking at transmission orders, I know a few folks have cited how strong they were, but if I strip out the Island Falls to Key Lake project in Eastern Alberta, it actually looks like orders kind of outside of the identifiable projects over the past few quarters have slowed a bit, and that seems counter to what you're saying. So I'm just want to know if that's attributable mostly just to lumpiness, or if you have any thoughts on that?

It's lumpy. I mean, and that's one thing we try to convey and communicate every quarter, is that large project awards can be lumpy quarter-over-quarter, and you have to look at the long term, and we've continued to say that our electric segment backlog will remain strong going forward. And we do not see any fundamental changes in the drivers of transmission over the next year, and we'll continue to say that. So you can't get caught up in not seeing awards in the quarter, or if you get three or four awards in the quarter doesn't mean we're going to grow 50% or 80%, like we did last year either. So you just -- it's going to be strong going forward, and until we see otherwise, we'll continue to communicate that same message.

Okay, great. And then secondly, I appreciated your comment when you talked about being disciplined on bidding on some of these larger pipeline projects. I'm just curious, as I think we've seen a lot of smaller and large projects, but NGL-type projects in the South that you don't really participate in, but some of your maybe are more competitive competitors do. So I was curious, as you've seen some of that capacity tighten up, are you starting to see more disciplined bidding on some of these jobs? Are you seeing just any change in how competitive that bidding is, and also we've heard quite a bit about a shift toward more negotiations, away from competitive bid, and can you comment on if you're seeing that trend in the industry?

I would say capacity in the industry is tight, and one of the big drivers is that a lot of the big pipe or mainline resources are mobilized in shales doing gathering work. We're going to continue to remain disciplined in bidding, and only pursue opportunities where we believe we have the right margins in projects to mitigate the risk of doing those jobs, and I don't see -- I think that as far as negotiated work and so forth, I would just say that we aren't seeing that right now. It's your traditional bidding environment, but probably with only the players that customers have the comfort that they've got the capacity to carry out their capital programs in the future, because it is a tight market.

Thank you. We have a follow-up question from Craig Irwin from Wedbush. Please go ahead.

Thank you. Just a housekeeping question. I noticed you bumped your CapEx guidance for the year. Can you comment about whether this is due to limited availability of equipment out of the rental houses? Maybe if there's something specific that had you increase your capital requirements for the year? If this is maybe something for gas or electric power? Or if this is just due to greater project activity, possibly, in the back end of the year or next year?

Yes, this is Derrick. Actually, it's really none of those. It's us moving forward on the development of a training facility. We committed this year to put forward somewhere between $10 million to $15 million for the development of a training facility, which will be used for both Pipeline group and our Electric Power group, which we think provides us a much more steady and reliable location to provide that training to our employees, and at the same time we ultimately think it will reduce our cash out-of-pocket costs associated with any of that training.

Thank you. There appear to be no further questions. Please continue with any other points you wish to raise.

I'd like to thank you all for participating in our first quarter 2013 conference call. We appreciate your questions and your ongoing interest in Quanta Services. Thank you. This concludes our call.

This concludes the Quanta Services' first quarter 2013 earnings conference call. Thanks for participating. You may now disconnect.