Quanta Services Inc (PWR) 2013 Q4 法說會逐字稿

Welcome to the Quanta Services fourth quarter and full year 2013 earnings conference call on February 20, 2014. 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.

Thank you, Catherine, and welcome everyone to the Quanta Services conference call to review fourth quarter and full year 2013 results. Before I turn the call over to management, I've the normal housekeeping details to run through.

If you would like to have Quanta news releases and other information emailed to you when they occur, please sign up for email information alerts by going to the Investors & Media section of Quanta Services' website at quantaservices.com. In addition, Quanta has an investor relations app for iPhone, iPad and Android mobile devices, which is available for free at Apple's app store and at Google Play. The Quanta investor relations app allowsusers to navigate the Company's investor relations materials, including the latest press releases, SEC filings, presentations, videos, audiocast conference calls, and stock price information.

A replay of today's call will be available on Quanta website at quantaservices.com. In addition, a telephonic recorded instant replay 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 as of today, February 20, 2014, 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 historic 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 forward-looking statements, and Quanta does not undertake any obligation to update 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, 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.

Before I turn the call over to management, I wanted to remind the institutional investors and sell-side analysts on this call that we are hosting the Quanta Services 2014 Investor Day in New York City next week, on Tuesday, February 25. Attendance of this event is limited to the in institutional investment community. If you are an institutional investor or sell-side analyst and would you like to attend the event, please contact me for registration information. We'll be webcasting the event over the Internet for anyone to listen to and will also have archived audio and other material available after the event on our website.

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

Thank you, Kip. Good morning, everyone, and welcome to the Quanta Services fourth quartered and full year 2013 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 fourth quarter and full year results. Following Derrick's comments, we will welcome your questions.

We are pleased to report solid results for the fourth quarter and record results for the full year of 2013. We ended the year with record revenues, record operating income, record earnings per share, record adjusted earnings per share, and record 12 month and total backlog to name a few. It is noteworthy that our 2013 accomplishments compared to our prior year's performance, which included unusually high levels of emergency restoration revenues and income primarily associated with Hurricane Sandy.

This morning, we announced our financial outlook for the full year 2014, with a revenue of $7.4 billion to $7.8 billionand a diluted earning per range share of $1.65 to $1.85. Clearly, we expect momentum to continue in our end markets, as we see continued opportunity for double digit growth for at least the next two years. We continue to believe that we are in unprecedented times, not only in Quanta's history, but in the history of the electric power and oil and gas industries.

Our electric utility customers continue to invest in the power grid, deploying capital at record levels to address reliability challenges and regulatory mandates. As a result, investments are being made to replace aging infrastructure, and to interconnect transmission and [substation] facilities with renewable generation, and to modified transmission [inter], as coal generation plants are retired and replaced with natural gas generation. We're also seeing upgrades to distribution networks as distributed generation, demand response and other technologiesare deployed.

Quanta is the largest electric power specially contractor in North America, and we provide services to the majority of services to utilities in the United States and Canada. In many cases, we have first-hand knowledge of our customers' capital programs. Our internal research into several of our major utility clients indicates continued record investment in transmission, with up to 15% annual growth in capital expenditures through 2017.

The electric power infrastructure initiatives I spoke of earlier will take years to play out and hundreds of billions of dollars of investment. We believe Quanta is uniquely positioned to capitalize on these opportunities.

Electric power segment revenues rose to reported levels in 2013, and operating margins were strong considering we performed approximately $140 million less storm work in 2013 compared to the prior year. Demand for our day-to-day transmission, substation, distribution and other electrical power services remain strong, and we do not anticipate any slowdown in activity for the foreseeable future.

Further, we are experiencing increasing demand for our propriety energized services technology as customers are choosing to reconduct their existing infrastructure in an energized state, either because the line cannot be taken out of service or additional right-of-way to construct a parallel line cannot be secured. Developing additional resources for energized capabilities is one of the major catalysts for building our state-of-the-art training facility in La Grange, Texas. Overall, our intent is to ensure that we continue to have a trained and qualified workforce to provide technical solutions to our customers' ever growing needs.

In addition to our day-to-day electric power transmission and distribution activity, we have also experienced an increase in large project awards in our electric segment. Over the last three months, we have been awarded in aggregate over $650 million of projects that are individually valued in excess of $100 million.

This includes transmission projects in Canada for AltaLink and Nalcor, additional major segments of the Tehachapi Renewal Transmission Project for Southern California Edison, an a EPC contract for a combined cycle thermal power plant in Alaska for Anchorage Municipal Light & Power. We believe our current backlog in the electric power segment coupled with project opportunities on the horizon provide double digit growth opportunities.

Today we are announcing a change in the name of our natural gas and pipeline segment to better align with our expanded service offerings and growing customer base in this segment. Going forward, the segment has been renamed the oil and gas infrastructure services segment. No change has been made to the segment's financial results.

Our oil and gas infrastructure services segment revenues grew over 20% in 2013. Perhaps more importantly, operating income more than doubled. We believe the market for our oil and gas infrastructure services will remain dynamic in 2014. As you are aware, the unconventional shales in the Canadian oil sands are reshaping the North America energy market. As unconventional as these geologies -- as the geology is in these formations, their geographic locations areunconventional as well.

As a result, hundreds of billions of dollars could be spent over the next several decades on new infrastructure required to gather and move hydrocarbons to market [throughout] North America. Main line and gathering system construction activity has been ramping up over the last 2.5 years. Our pipeline gathering activity remains active, and we experienced accelerationin demand for our main line pipe construction services in 2013, having booked more than $700 million in contract in the second half of last year.

By the beginning of 2015, we believe customer demand to install pipeline infrastructure will likely outpace the industry's construction resources. As the largest pipeline construction company in North America, we have the largest employeebase and equipment fleet in our industry. We have the reputation, track record, and customer relationships that position us to be an important participant in this historic time in the North American energy market.

In our view, Australia too is one of the most dynamic energy markets in the world. We believe we have entered Australia at the right time to expand our service offerings and what we believe will be an attractive energy market for years to come. We see continued opportunities to book additional main line opportunities in the United States, Canada and Australia in 2014 and beyond.

Although our gas distribution and integrity services are a smaller portion of our overall oil and gas segment revenues, we see continued opportunities to deploy our services as customers seek to comply with requirements regulating pipeline safety. Like our electric power segment, we see double digit growth opportunities for our oil and gas infrastructure segment, and we expect continued improvement in operating margins as we capitalize on these projects throughout 2014.

Now let's transition to our fiber optic licensing segment. Today we are announcing an expansion of our service offerings of our fiber -- in our fiber optic licensing business. This business has principally been focused on providing dark fiber or providing fiber optic capacity to customers in various market verticals without lighting up the fiber. We are now expanding our offerings to include lit services.

Under the lit services model, not only do we provide access to the extensive fiber networks we own, we also provide advanced networking equipment and are responsible for network equipment and service quality. As we deploy our lit service strategy, our initial investment in people and equipmentto support the lit service platform will negatively impact margins in 2014.

In the midterm, margins will decline slightly in the segment, as lit services generate lower margins than dark fiber. However, we believe increased revenue opportunities will more than offset the margin decline once the lit strategy is fully developed by 2016. We are enthusiastic about our lit service expansion, as the lit service market is significantly larger than the dark fiber market and offers significant growth opportunity.

Equally important, the lit service market enables us to more fully utilize our dark fiber network while providing more robust network service offerings to existing and potential customers. There's a continued appetite for fiber bandwidth for business continuity, cloud computing, data center connectivity, and private wide area network services. We continue to invest in our networks to expand our service offerings to meet customer demand and to capitalize on new opportunities in the marketplace.

In summary, we had another excellent year and believe 2014 could be another record year for Quanta. We believe momentum continues to build in all of our end markets, with opportunity for double digit growth in 2014 and 2015. As electric power and oil and gas infrastructure projects get larger and more complex, more customers are turning to Quanta to provide comprehensive infrastructure solutions.

We believe we have the scope and scale, the technology, the expertise, and the track record that differentiates us in the markets we serve. We continue to execute on strategies that differentiate Quanta and position the Company for near and long-term growth.

I want to highlight that our achievements would not have been possible without the skills, dedication and hard work of nearly 21,000 employees. I want to thank our employees for their commitment to safety and project execution. We have the very best employees in the industry, and they are the key to our past and future success.

I will now turn the call over to Derrick Jensen, our CFO, for his financial review of the fourth quarter and the year. Derrick?

Thanks, Jim, and good morning, everyone. Today we announced revenues of $1.82 billion for the fourth quarter of 2013, compared to $1.67 billion in the prior year's fourth quarter, reflecting consolidated growth of approximately 9% quarter-over-quarter.

Net income from continuing operations attributable to common stock for the quarter was $166.7 million or $0.77 per diluted share, as compared to $102.4 million or $0.48 per diluted share in the fourth quarter of last year. Included in net income from continuing operations attributable to common stock for the fourth quarter of 2013 was the after-tax gain of $70.5 million or approximately $0.32 per diluted share from the sale of our equity ownership interest in Howard Energy on December 6, 2013.

Adjusted diluted earnings per share from continuing operations, as calculated in today's press release, was $0.50 for the fourth quarter of 2013, as compared to $0.51 for the fourth quarter of 2012. The growth in consolidated revenues in the fourth quarter of 2013 was primarily due to a 28.4% increase of revenues from our oil and gas infrastructure services segment and, to a lesser extent, by a 2.1% increase in revenues in electric power infrastructure services segment.

Our consolidated gross margin was 16.7% in the fourth quarter of 2013, as compared to 17.1% in the fourth quarter of 2012. This decrease in gross margin was primarily a result of the quarter-over-quarter decrease in higher margin emergency restoration service revenues, partially offset by the impact of higher overall revenues across our segment.

Selling, general and administrative expenses were $104.3 million in the fourth quarter of 2013, reflecting an increase of $26.4 million as compared to last year's fourth quarter. This increase is primarily attributable to $14.3 million in incremental administrative costs from recently acquired companies and $11.8 million in higher salary and incentive compensation costs, associated with increased levels of profitability.

Also contributing to the overall increase in selling, general and administrative expenses was approximately $2.9 million in higher acquisition and integration costs in 4Q 2013 associated with acquisitions closed in the fourth quarter of 2013 and first quarter of 2014. As a percentage of revenues, selling, general and administrative expenses increased to 7.9% in the fourth quarter of 2013 from 7% in the fourth quarter of due to the impact of the items previously discussed.

Our consolidated operating margin before amortization expense was 8.8% in 4Q 2013 compared to 10.1% in 4Q 2012, also due primarily to the Q4 record level of emergency restoration services. Amortization of intangible assets increased from $8.9 million in 4Q 2012to $10.1 million in the fourth quarter of 2013, primarily due to amortization of additional intangible assets associated with the 2013 acquisitions.

To further discuss our segment results, the electric power segment's revenues were $1.2 billion, reflecting an increase of $25.3 million quarter-over-quarter or approximately 2.1%. Revenues were positively impacted by increased capital spending by our customers for both transmission and distributing projects, as well as a contribution of approximately $56.1 million in revenues from companies acquiredin 2013. Growth in this segment outpaced a quarter-over-quarter decrease in emergency restoration service revenue of $97.7 million, from record levels of $130.5 million in Q4 2012 to approximately $32.8 million the fourth quarter of 2013.

For the electric power segment, 12 month and total backlog increased from 2012 year-end, as well as sequentially from the third quarter of 2013. Twelve-month backlog increased 15%, and total backlog for this segment increased by 12% to a record $5.96 billion for the third quarter of 2013. Excluding the impact of acquisitions completed during the fourth quarter, this segment experienced double digit backlog growth from incremental transmission awards and the renewal of certain master service agreements when comparing to the third quarter of 2013.

Operating margin in the electric power segment was 12.1% in the fourth quarter of 2013 as compared to 13.4% in last year's fourth quarter, again, primarily due to the lower levels of higher margin storm work in the current period.

Oil and gas infrastructure segment revenues increased quarter-over-quarter by 28.4% to $572.4 million in 4Q 2013, primarily as a result of approximately $111.7 million in revenues generated by companies acquired in 2013. Revenues for the fourth quarter of 2013 were also favorably impacted by increased revenues from the contribution of certain main line pipe projects as compared to no main line work in last year's fourth quarter, as well as projects related to unconventional shale developments in certain regions of North America.

Operating income for the oil and gas infrastructure segment as a percentage of revenues increased to 8.9% in 4Q 2013 from 6.2% in 4Q 2012. This increase is due primarily to successful project execution, the additional contribution of main line activity, as well as the overall increase in segment revenues, which improved the segment's ability to cover fixed and overhead costs.

Twelve-month backlog for the oil and gas infrastructure segment at year end increased as compared to 3Q 2013 primarily due to backlog associated with acquisitions and to a lesser extent to new awards that replaced work that was completed during the fourth quarter, while total backlog was relatively constant. When compared to the end of 2012, total backlog increased 41.6%, primarily due to increases in main line pipe project awards, along from contributions of companies acquired in 2013. Also, as we've commented before, Keystone XL is not in any of the backlog figures presented for our oil and gas infrastructure segments.

Fiber optic licensing and other segment revenues were down $7.4 million, or [15].5%,to $40.3 million in 4Q 2013 as compared to $47.8 million in Q4 2012 due to lower levels of ancillary telecommunication service revenues, as certain larger projects completed in the prior year that did not recur to the same extent in 2013. Operating margin was 25.1% in 4Q 2013, as compared to 34% in Q4 2012, primarily as a result of a $3.2 million charge associated with gross receipt taxes on fiber optic licensing revenues in certain state jurisdictions.

For sometime, we've been monitoring a court case of another large service provider, and based upon findings in that case we have concluded that our historical position may longer be sustainable, and we amending our tax filings in this state accordingly. This charge is cumulative effect in the change of position, and we anticipate that in the future much of this tax will likely be passed through to our customers and will therefore have a minimal effect on future margins.

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 $16.2 million in the fourth quarter of 2013 as compared to 4Q 2012, primarily as a result of $11.5 million in higher salary and costs associated with current levels of operating activity and profitability,$2.9 million in higher acquisition and integration costs, and a net $1.2 million increasein amortization expense related to 2013 acquisitions, partially offset by previously acquired intangible assets that became fully amortized.

EBITA for the fourth quarter 2014 was $268.2 million, or 14.8% of revenues, compared to $166.8 million or 10% of revenues for the fourth quarter of 2012. Adjusted EBITDA was $202.8 million or 11.2% of revenues for the fourth quarter of 2013, compared to $203.8 million or 12.2% for the fourth quarter of 2012. For the 12-month ended 2013, adjusted EBITDA was $712.1 million or 10.9% of revenues, compared to $635.3 million or 10.7% of revenues for 2012.

The calculation of EBITA, EBITDA, and adjusted EBITDA, all non-GAAP measures, and the definitions of these and days outstanding, or DOS, can be found in the Investors & Media section of our website at quantaservices.com.

As we commented in our last earnings call, our guidance for the quarter included expectations for certain tax contingency releases for the quarter. Our results for the fourth quarter of 2013 and 2012 included the release of income tax contingencies of approximately $3.5 million and $2.7 million of income, or a net benefit of $0.02 per diluted share for the fourth quarter of 2013 and a net benefit of $0.01 per diluted share of the fourth quarter of 2012, due to the expiration of various statute of limitation periods and settlements of certain income tax audits.

For the full-year 2013 cash flow from operations of about $447 million, less net capital expenditures of about $249 million, resulted in approximately $193 million of positive free cash flow, as compared to negative free cash flow of approximately $30 million for the full-year 2012. The fourth quarter of 2013 had free cash flow of approximately $157 million, which contributed to the overall year and was driven by reduced DOSs.

Our DOSs were 72 days at December 31, 2013, 82 days at September 30, 2013, and 82 days at December 31, 2012. Contributing to the decrease in DOSs from September 30 were certain large [retainer] collections as well as growth in advanced billing positions. Contributing to the decrease in DOSs from December 31, 2012, was the favorable impact of nine days from reclassifying the previously disclosed change order receivable balance of $165 million on the Sunrise Powerlink project from current assets to other long-term assets.

Other noteworthy investing activities during the fourth quarter of 2013 include the sale of our equity interest in Howard Energy for after-tax net proceeds of approximately $177.5 million, and the closing of three acquisitions for aggregate considerings of $245 million, including the use of approximately $176 million in cash.

At December 31, 2013, we had about $240 million in letters of credit outstanding, primarily to secure our insurance program, and we had no borrowings outstanding under our credit facilities. In addition, at the end of the quarter, we had approximately $489 million in cash, with approximately $237 million in US funds and $252 million of this balance relating to our foreign operations. Considering our cash on-hand and availability under our credit facility, we had nearly $1.57 billion in total liquidly as of December 31, 2013.

As Jim previously commented, subsequent to the fourth quarter, we completed five additional acquisition for aggregate combined considerings of approximately $116.5 million, of which approximately $79.9 million was paid with cash on-hand, a large portion of which was Canadian funds.

Concerning our outlook for 2014, we expect revenues for the first quarter 2014 to range between $1.65 billionand $1.75 billion and diluted earnings per share from continuing operations to be $0.36 to $0.38 on a GAAP basis. These estimates compare to revenues of $1.59 billion in GAAP diluted earnings per share from continuing operations of $0.34 in the first quarter of 2013.

Our GAAP EPS forecast for the first quarter of 2014 includes an estimate of $7.8 million for non-cash stock based compensation expense and $8.2 million for amortization expense. Excluding these expenses, our non-GAAP adjusted diluted earnings per share from continuing operations for the first quarter of 2014 is expected to be $0.41 to $0.43 and compares to $0.38 in the first quarter of 2013.

We expect revenues for the full-year 2014 to range between $7.4 billion and $7.8 billion and diluted earnings per share from continuing operations to be $1.65 to $1.85 on a GAAP basis. Our GAAP EPS forecast for 2014 includes an estimate of $35.3 million for non-cash stock-based compensation expense and $33.1 million of amortization expense. Excluding these expenses and others, comparable to our historical calculations our non-GAAP adjusted diluted earnings per share for 2014 is expected to be between $1.85 and $2.05, which compares to $1.71 in 2013.

Our forecasted non-GAAP measures are estimated on a basis similar to the calculations of historical adjusted earnings per share from continuing operations presented in our release. We are currently forecasting net income attributable to noncontrolling interest to be approximately $3.5 million to $4.5 million in the first quarter of 2014, and $12 million to $13 million for the year.

For additional guidance, we are currently projecting our GAAP tax rate to be between 34.5% and 35.5% for 2014, and our diluted share count to be about 219.6 million shares. We expect CapEx for all of 2014 to be approximately $300 millionto $325 million, which includes CapEx for our fiber licensing and other segments of $50 million to $60 million. This compares to CapEx for continuing operations for all of 2013 of $264 million.

We also had several other financially oriented events and accomplishments in 2013. We continued to leverage our balance sheet strength over the course of the year to win work and provide a significant working capital to our operations to fund the simultaneous ramp up of a number of large projects while ultimately maintaining a strong balance sheet, leaving us well-positioned for continued internal growth and strategic initiatives In considerings of these growth opportunities, Quanta's acquisition strategy and continued approach to leveraging our balance sheet on larger infrastructure scale infrastructure projects, we amended our revolving credit facility in the fourth quarter to increase our availability under the facility to $1.325 billion and extended the maturity date to October 30, 2018, while increasing our flexibility and decreasing our pricing.

Also in the fourth quarter, our Board of Directors authorized the repurchase of up to $5 millionof Quanta's common stack through December of 2016. Overall, our capital priorities remain the same, with the focus on adequate resources for working capital and capital expenditure growth, and an opportunistic approach toward acquisitions, investments and repurchases of stock.

2013 was another exceptional year for Quanta. We ended the year with numerous record breaking achievements. As Jim commented, wecontinued to execute within all of our segments, and we believe that we are operationally and financially well-positioned for continued solid growth in 2014 and beyond.

This concludes our formal presentation, and I'll now open line for Q&A. Operator?

Thank you, sir. (Operator Instructions). comes from Tahira Afzal from KeyBanc Capital Markets. Please go ahead, your line is now open.

Hi, good morning, this is actually Saagar on for Tahira.

Good morning, Saagar.

Good morning. Congratulations on A solid quarter and healthy 2014 guide.

Thank you.

My first question is related to our oil and gas infrastructure services segment. Jim, I think you mentioned in your prepared remark that you guys booked $700 million in long haul work in the second half of 2014. Is that on top of the $550 million in the long haul work thank you guys announced on the second quarter -- for the second quarter?

No, that $550 million -- we actually didn't announce -- the $550 million is in the $700 million, and that came out in the second --

(Inaudible -- multiple speakers).

That's right, and that announcement on that pipeline backlog was on our second quarter call in August, so that is inclusive up to $700 million.

So when we look at it, you probably have around $600 million of long haul work going into 2014 versus maybe $100 million of long haul work going into 2013?

I would say directionally that's correct.

Okay. So overall, with those numbers, could you talk a little bit about, just in terms of the bidding environment and the recent headline news around Keystone, what your pipeline capacity utilization maybe was in 2013, what is expected right now in 2014, and then what's really available with or without Keystone looking into 2015?

Well, I think we were only on to two to three spreads of main line pipe at any given time in 2013, so we have got the ability to flex up to nine to 12. So we have plenty of capacity, both to pursue gathering work and main line pipe. We're well-positioned for the ramp up. We do expect that the main linepipe market will accelerate as we move into 2014, certainly into the second half of 2014 and into 2015, with or without Keystone.

Thank you. The next question comes from Will Gabrielski from Stephens. Please go ahead, your line is open.

Thank you very much. Nice quarter.

Thank you, Will.

Can you talk about the -- so you provided what sounds like a multiyear 15% CAGR target for the electric business, if I heard you correctly, and you also talked very bullishly about energized services. So do you think that's the fastest growing part of that 15%? And can you just talk about what the margins in energized services looks like versus the rest of your electric business?

Well, I would say that energized services today, while a very important and strategic part of our business, is not material to the overall transmission revenue opportunities that we see in 2014 and 2015. That's going to be primarily new construction of lines, which don't require our energized services capabilities, and that market is going to be very active we believe as we go through 2014 into 2015. Throughout 2015 as well.

Okay. And then as a follow-up, lookingat the pipeline market, your commentary around the demand for resources outstripping the supply of contractor capacity aswe look into 2015. You did you a lot of work pre this transmission boom, if I remember correctly, training and making sure your equipment is in place. Can you talk about how far along you are, or how much more needs to be done, whether it's training or spending, to get ready for that level of fast-[paced] demand in the pipeline market?

Yes, we'rewell-prepared for any uptick in main line pipe, and our field leadership -- our superintendents and foremen -- are exchangeable. They can do work on gathering [or on] main line pipe, so we're well-positioned for any increase in activity in main line for the next two years.

Will, this is Derrick. Also, I want to come back and address relative to the 15%. There's an aspect of acquisitions in 2014, the full-year effect of our 2013 revenues, so not all of that is organic as far as the 15%.

The next question comes from Alex Rygiel from FBR Capital Markets. Please go ahead, your line is now open.

Thank you, good morning, and very nice quarter.

Thank you, Alex.

Jim, could you give us a little bit more qualitative commentary about pricing and margins that you expect over the next 12 months within the electrical segment? Obviously, margins were very strong in the fourth quarter, and recognizing obviously there was some weather impact there, but qualitatively can you just comment on where we stand on pricing and margins for electrical over the next four months?

Well I think when you look at our bag backlog, and margin and backlog, that's the best indicator of margins going forward. Our margins and backlog are comparable or better than what we're experiencing today on a consolidated basis, in both electric, natural gas, and oil and gas segment. So margins should be improving as we ramp up activity.

Great. A follow-up question. As we look at your pipe margins of 8.9% in the fourth quarter, which was very strong both sequentially and year-over-year, can you help us to understand if there was anynegative weather impact on that business in the fourth quarter, and what your thoughts are with regards to weather outlook in the first quarter for pipe?

Alex, this is Derrick. Relative to the fourth quarter, we had pretty decent weather, allowing us to continue to execute. It's not uncommon for us in the fourth quarter to have kind of a downtick in margins, so that's why you see a little bit of a downtick, and I would continue to expect that fourth quarter dynamic next year.

Relative to the first quarter, we definitely have weather effects more likely in pipe than electric power, so I would expect that, similar to the last few years, you would have a lower margin profile in the first quarter. Having said that, I do expect that we'll still yet have a better margin performance within the oil and gas segment in the first quarter of 2014 than we saw in 2013.

I also want to go back to kind of the overall margins for election power. When we consider margins for electric power in our guidance right now, we've kind of looked at more of a 10% to 12% range. We've kind of raised the bottom end from a 9% to 12% to kind of now a 10% to 12%. And I'd look for electric power right now to probably be somewhere in the midpoint of that as to what we think about for 2014.

The next question comes from Steven Fisher from UBS. Please go ahead, your line is open.

Hi, good morning. Wondering if you can help with your expected revenue mix in 2014. Burn rates over the last few years would imply around $4.9 billion for electric power and maybe $2.9 billion for the oil and gas segment, which would all ready be at the high end of the guidance range, which makes me think the pipeline -- or the oil and gas would be lower than that. I mean, are we thinking -- is it 15% for electric power in 2014? Maybe just help with the mix a little bit there.

I do think that you'll see the opportunity for a little bit of a higher growth rate relative to the pipeline side versus the electric power. What we've considered in the overall guidance is the upper end range considers a double digit growth rate for either electric power and pipeline, but I think the pipeline does have a component for an opportunity for slightly higher growth rate than the electric power in total.

Okay. And then can you talk about how you expect the Canadian market to evolve over the next year or two, and how might the next projects and bidding be different than the work you've seen ramping up over the last year or two? And what do the most recent acquisitions in January do for you in that business and marketplace?

The acquisitions that we made in Canada here recently just helps support the overall uptick in opportunities that we have in Canada. It helps build our geographical presence in Canada. Canada has some significant opportunities, but so does the US. So -- and I don't want to get lost in Canada, Canada is where all of the growth is. I mean, we have significant opportunities and are executing on large opportunities in the US today.

But we think that Canada and US both grow as a percentage equally over time. Right now we're probably seeing a little bit more increase in Canada, but we'll certainly see some US opportunities in the future as well.

The next question comes from Jamie Cook from Credit Suisse. Please go ahead, your line is now open.

Hi. Good morning, and congratulations on a nice quarter. I guess two questions. First, Derrick, as it relates to your guidance for this year, I mean, if we were sitting here last year, I think on a non-GAAP basis you guided $1.23 to $1.53 and you came in this year at $1.71, which was almost $0.20 better than what you -- $0.20 better than the high end. So I guess as I think about your guidance for this year, your closer to the Street than you usually are. Is there any different approach in your guidance? Were you more conservative last year because were you more worried about the oil and gas business not hitting the margin numbers? I'm trying to get a feel for the potential for upside in 2014 just as we think about how well you did in 2013.

And then my second question just relates to the investment that you're making in lit services. Can you just talk about what you think the market opportunity is for you guys in that business, and just a little more color on the level of investment that you think you'll have to make between now and 2016, and how potentially big that business could be for you? Thanks.

Relative to 2014, I mean -- or our approach to guidance in 2014 versus 2013, I think one of the differences is in 2014 right now, as I [commented] a second ago, we came into 2013 and guided at 9% to 12% for electric power, and we're now we're leaning towards a 10% to 12% range based upon our ability to execute within the last few years. And so kind of a midpoint of that would be around an 11% versus last year we were guiding at a midpoint of 10.5%.

And then -- but probably another component of this that is overall pipeline. Last year, we had limited visibility still, but as we go into 2014, we see greater visibility based upon the dialogue we've had in the last few years, and we've been talking about that for the last 18 months or so. So with the greater amount of backlog and visibility in pipe, we continue to see the ability to have a higher margin profile in pipe, approaching at the high end of our range our 9% to 12% guidance. 9% at the high end of our range right now.

Relative to the fiber side of the business, I'll answer the last part, then let Jim talk about the business side. From a CapEx perspective we see fiber being about $50 million or $60 million, which is higher than what we've seen. That includes components of get being ready to approach the lit fiber side of the business. There's a reasonable amount of CapEx associated just with that implementation.

As we look at 2015 and 2016 I think we'll actually see that start to trend back down into something maybe in the $40 million to $45 million range, and that may be a little bit lower than what we've seen in the past in pure dark fiber, because the lit fiber component is less capital intensive. From a business perspective --

But I guess, Derrick, my point would be you have greater -- to everything you said, you have greater visibility as you're sitting here this year versus last year, and this year you blew away your numbers. So the pointwould be is -- there is -- as you're sitting here this year, there's probably just as much room for potential for upside just given the visibility that you have this year and the turn around you've seen in the oil and gas side?

The hedge I'd say is that a lot of our backlog right now on the main line side is in the front half of this year, which is where we have more of the weather effects. And so we think we need to get through and see how the weather effects come into play relative in what we would expect in our ability to execute in main line. And then at the same time we have a degree of uncommitted in the main line at the high end of the range, and we'll need to see how that fills through and the timing of that relative to the overall year.

Jamie, to answer your strategic rational for moving into lit services, we have one of the more unique networks, particularly in the New Jersey/Pennsylvania area, and we have opportunities to expand to existing customers who desire us to move into lit services. It's really no different than our electric power and oil and gas services, where we try to advance our solutions with customers.

There's been a big consolidation of fiber companies, as many of you are aware. Many of those are going -- standardizing their services. You've got many customers that want customize services, especially those that have private networks, so that provides a big opportunity for us to get into the market in a big way.

And the main thing, too, is that it's allowing us to leverage an asset -- our dark fiber asset to better utilize that asset to bring better returns to our shareholders over the long-term. So that's the strategic rationale for moving into lit services.

The next question comes from Vishal Shah with Deutsche Bank. Please go ahead, your line is now open.

Hi. This is [Jeremiah Booream] on the line for Vishal. I was just hoping we could follow-up on the pipeline segment, and specifically the cadence of new awards this year. It sounds like you guys are pretty bullish into 2015. Do you think that we could see new awards outside of the traditional bidding season, or is it going to be inline with other years?

Well, like we've said in the past, the bidding season has really changed over the last three years, where because of the level of activity that our customers expect over the next three or four years, many want to sit down in advance and talk about their capital programs. Not only is the industry -- construction industry resources becoming tight, the program are becoming bigger, customer programs are becoming larger, and it requires a different type of dialogue.

So there's more negotiations, more discussions with customers. So that gives us the visibility that Derrick talks about, and that's why we believe that 2015 -- the end of 2014and 2015 we'll see a ramp in main line. It's not necessarily a bid season, just an ongoing process year-around that we're going through with our customers.

Okay, that's helpful, thanks. Then also just on the transmission side, it also soundslike doing pretty well there, but I just wanted to touch on large versus small transmission? And you've talked in the past about some of the -- a shift to small transmission, but with the recent awards, could you see a lot more larger projects pick up as well?

I would say our small transmission, which we define projects individually less than $100 million, the pace of that activity even with our recent awards on large projects is very similar. It keeps pace. AndI do want to remind everybody that in our total electric segment, probably small transmission is the biggest contributor to that segment. It's a very important part of our business, and it continues to ramp up as well.

The next question comes from Andy Wittmann from Baird. Please go ahead, your line is now open.

Hi, guys. Good morning.

Good morning.

Good morning.

Hi. I wanted to dig into the pipeline segment. Jim, thinking back a year, two years, I think the secular themes behind the energy build-out has been strong. You guys have been bullish for a while. We're seeing early signs here. But it still sound from some of your comments that while you're up on main line work now, and there's an expectations that's build into the commentary here that the back half of the year might be when some of the larger awards come in.

First off, I guess, am I hearing that correctly? And can you talk about what it's going take for that stuff to break loose? Is it just time? Maybe an update on the regulatory and environmental permitting processes of some of the things you're looking at? I think just some color around what needs to happen for those projects to go forward will be helpful.

Well, you have to remember that the seasonality in main line pipe really doesn't change. Our customers prefer to build main line pipe in the second and third quarter,and into early fourth quarter, or they get into potential weather issues. So that's normally when you start seeing increased activity. So that tends get -- to make it back-end loaded.

Then the second question -- what was the second question?

Is there anything holding you back? Is it project economics? Is it permitting, the FERC, what have you? Is there something going on that might be slowing it down?

No, it's the normal process. I mean, projects are becoming longer in miles and in size, so the permitting process is consistent, but it just takes longer because of the sheer size of these projects.

I also want to add on my earlier comment that Canada does provide some aspect of counter-cyclicality to that seasonality, which is why -- one reason why our first quarter margins continue to be higher than what they've been historically if we can execute, because there's a lot of pipeline opportunity in the northern clime. So you do have some aspect of that US seasonality in pipeline that's offset by some of our Canadian activity on pipeline as well.

The next question comes from Adam Thalhimer from BB&T Capital Markets. Please go ahead, yourline is now open.

Hey, good morning, guys, great quarter.

Thank you, Adam.

Thanks.

I wanted to ask about the large transmission market in the US. I had kind of been under the impression that the bidding activity for large transmission might ramp in 2014 and that you might see a reaccelerating of large transmission work in 2015. Is that at all accurate?

All we can tell you -- we are probably closer to most of our utility customers throughout -- most of the utilities throughout North America and that we see a continued ramp in activity. Now, you're going to have some quarters where you don't get awards, you're going have that quarter-over-quarter cyclicality in announcements, but overall we see a continued acceleration of electric transmission through 2015. We don't see the cyclicality that a lot of you guys see through the industry publications and so forth. And so that's the best way to describe it.

Got it. I wanted to ask about the acquisitions. I mean, lots of deals in the back half of last year and also in January. What kind of accretion are you baking in those deals in 2014 guidance? And then also just on the buyback. What are your thoughts on putting that to work?

This is Derrick. From an accretion standpoint, we strive to make all of our acquisitions accretive transactions, depending upon the timing of how they close. As an example, the fourth quarter deals in the fourth quarter were actually slightly diluted. But overall for 2014, I would say that they are a component of that and they're slightly accretive. All of the acquisitions themselves have a margin profile that are comparable to our historical business, but they're -- it's partially offset by the amortization that comes in and the transaction costs themselves.

And then what was your second question? Oh, stock buyback. On the stock buyback, as it stands right now, the biggest driver for us is what we see on the opportunistic acquisition and investment side of the equation, that wherever we see continued acquisitions and investments and the need for capital there, that will really drive a big portion of what we do from a stock buyback prospective.

The next question comes from Craig Irwin from Wedbush Securities. Please go ahead, your line is now open.

Thank you. Jim, was hoping you might be able to update us on your number of spreads now relative to the industry and whether or not you think you might be able to split a couple of those moving into 2015?

And then historically, when you bought Price Gregory, right, we were coming off of the back end of a cycle. Not as strong as it sounds like the one that you're looking at in 2015 and probably 2016 as well, but they're operating performance was materially better than the target model you've laid out for this business. Was hoping you could maybe discuss for us a little bit whether or not you would take a philosophical approach of not just gouging customers, executing on the work, growing as much as you can, or if there's potential for execution above the target model as we see 2015 unfold?

Well, there's several questions in there. I mean, I'll tell thank you we don't report Price Gregory's profitability separate. We report the segment's profitability, which has other services in there. Gas distribution is one, and gathering work. So the segment revenues in the 9% to 12% range -- target range certainly could have contributions from Price Gregory that are comparable to what they did in he 2008, or previous to us acquiring it.

We're also mitigating some of the risk through contract terms, and sometimes you'll take -- you've got to weight taking a hundred basis points less to mitigate a lot of risks, which [you] have seen in the past, some of the project execution risks we've taking the past. So we've done a great job of mitigating that over the last several years to profitability. We've been very -- we've been consistently profitable in that segment for the last two years.

The other questions about the amount of spreads and our ability to execute, we've got plenty of capacity. We're not concerned about having capacity to capitalize on opportunities that come up through the end of this year and in 2015 and beyond on main line pipe.

The next question comes from Brian Lee from Goldman Sachs. Please go ahead, your line is now open.

Hey, guys, thanks for taking the questions. I guess first off, it seems like there's a slightly lower earnings growth implied in the 2014 guidance versus revenue at the midpoint. So I was just wondering, is that something below the line or maybe a mix issue that's impacting margins? If you could help reconcile that a bit, it would be great.

Yes, I mean, basically it comes back to us trying to put a little bit of prudentcy into our margin guidance, basically to address execution risks. As we think about electric power, I'd say that we're in a 10% to 12% operating margin and probably looking at something in the midpoint of that in the current guidance. And on the pipeline side, at the high end we think maybe a 9%. But other than that, it factors in the typical type of weather impacts and execution risk you have potentially there in pipeline. So it's the combination of those things that are factor into our 2014 expectation right now.

Okay, great, that's helpful. Second question was just on electric power. Was wondering how do you expect mix from Canada to trend here versus the run rate you've seen historically and 2013? I know Jim touched on it a bit, but wondering if you could elaborate a bit more. And then, secondary, if there's any impact that it would have on the segment margins? Thanks.

Sure. We see Canada as continued opportunity. We think that Canada will have growth, and solid growth -- double digit type opportunity growth. But we see the same type of thing happening in the US, although Canada as a percentage may grow a little bit more because it's a smaller level of revenues. The overall opportunities are somewhat comparable between the two. And then from a margin prospective, we see Canada margins being comparable to our US margins.

The next question comes from William Bremer from Maxim Group. Please go ahead, your line is now open.

Love the consistency, gentlemen. Congratulations.

Thanks.

Thanks, Bill.

All right, first question. Can you give us an update on the Gulf region? We're hearing a lot in terms of just the Gulf magnitude of the build-out of the next few years. And how you guys are situating yourself there's?

Second question is an update on Integrity. The projects there. The length of them. And has that truly picked up or what you're seeing there?

And then finally, just on the corporate -- and this is just a housekeeping question -- on the corporate expense line, can you give us a figure of a run rate to utilize going forward?

Let me address your Integrity question first, because I think it's an umbrella over the Gulf and what we're seeing on land. I mean, Integrity continues to ramp that business as our customers comply with regulations for pipeline safety. I'll tell you that it is a smaller portion of the segment, but its ability to grow as a percentage of its own base is probably greater than any other part of our business. That takes us to offshore.

Integrity programs with the [bessy and simms] regulations that are out to comply with pipeline safety as well as platform safety. That is an area that we feel is a significant opportunity for us, and we've positioned ourself to take advantage of those opportunities, which is providing an engineering program management technology solution to our pipeline -- identification, remediation of pipelines in the Gulf of Mexico.

Derrick, you can --

Yes, as far at corporate non-allocated, I think the way I look at that is it's going to fluctuate based upon the seasonality impact of revenues, but overallfor 2014, I'll say in the 2.5% to 2.9% range, with it fluctuating [primarily] based upon that revenue fluctuation.

The next question comes from Noelle Dilts from Stifel. Please go ahead, your line is now open.

Hi, thanks. First question, there hasn't been a lot of commentary on electric distribution. I'm curious to know what you're hearing from our utility customers in terms of spending spend plans for 2014 and what your thoughts are on continued -- a continued shift towards outsourcing in 2014?

Well, electric distribution as grown at double digit revenue rates for the last three years, and we don't see that trend slowing down. Customers are focused on either storm hardening programs, or they're modernizing the grid for demand response, smart grid, DG programs. So we continue to see the level of activity in distribution increase, and for the first time in many years, we're seeing housing starts become more material and could have a positive impact on our business -- or it will have a positive impact on our distribution business this year if it continues to ramp as we expect.

Great. Then my second question, I want to circle back to the pipeline -- or, I'm sorry, oil and gas now, but the guidance there. So it sounds like, if you compare on the revenue side, if you compare to how you guided last year, heading into 2013 you were really not forecasting any new pipeline project wins aside what you all ready had in backlog, and then flattish growth in the existing business. This year, Derrick, it sounds like on the high end, you are including some unallocated project activity. Can you maybe put some numbers around that, what you would have to book to hit that high end of guidance?

Noelle, this is Jim. I would say, yes, the big one difference, and Derrick mentioned it, is we have some aspect of uncommitted main line on our guidance. And I would just tell you that number, which I don't want to get into and quantify it, but that number will allow us the opportunity to achieve double digit growth in the segment.

The next question comes from Dan Mannes from Avondale. Please go ahead, your line is now open.

Thanks. Good morning, everyone, and I'll pile on and say nice quarter as well.

Good morning, Dan.

Thanks, Dan.

So a couple of follow-up questions. First on oil and gas. Certainly heard your dialogue as it relates to abnormal bidding and the tightening of capacity that's coming and getting more severe in 2015. [Enbridge] has certainly been on record talking about entering into framework agreements with key contractors. I believe some of the other developers have as well. Can you talk about maybe what you've done in that regard in terms of aligning with key relationships and what may allow you to get both in terms of visibility and/or contractual terms?

Look, I'm not going to get into any specific conversations with customers, Dan, but we've got to be competitive on our pricing. It's just that the bidding process has changed. These capital programs are become so large that it takes a higher degree of coordination an effort and planning, and so the whole environment has changed from a preparing to capitalize or to execute on these types of projects, and it leads to more negotiations or more discussions with our customers.

And it's just a different environment because of the scope and size of projects and the amount of activity that's coming out from our customers. Those two things drive that change in communications, from going from a straight bidding process to a higher level -- degree of discussion with our potential customers.

Got it. Makes sense. And then real quickly on the fiber business. It looks like -- and it's a little hard to tell over the last couple of years, but it doesn't look like the dark fiber business was growing as materially as maybe would you have hoped. When you look at your decision to shift into lit fiber, was there a consideration, as you mentioned, given the consolidation of competitors and this is a bit of an evolution to you, are you guys the right guys to be growing that business in this fashion, or was there also considerings that divesting of the business might also be an alternative, given the high value placed on these types of assets?

Hi, Dan, it's Derrick. Actually, we continue to deal with this as far as this segment reporting that the reality is that the fiber business itself is growing, and in fact has double digit growth. And as we're going into the future, the high end of our range can still consider double digit growth opportunity in the fiber business.

What's misleading is that you have the telecom component of our historical business that is still within there, so as an example, our decline from last year is all associated with the change of telecom revenues, and it's offset by the growth that is actually there on the fiber side of the business. So we see high single digit and double digit growth opportunities continuing for that group, but it probably will hedge a little bit in 2014 and 2015, just because the fact that as we're shifting from the dark fiber to lit fiber model.

They've historically performed quite well, historically have been able to achieve the double digit growth. We have no issues with seeing our continued able to achieve those types of growth on that side of the business.

And I do want to add that we're just -- we did provide lit services to the K through 12 school districts, which was our founding -- first vertical that we entered into. So all we're doing is expanding that to other verticals, and that requires a degree in investment in people and equipment to do that.

So it's nothing -- it's not new to us. It's not foreign to us. It's just an expansion of the service capability into broader areas of that business for us.

The last question comes from Cory Mitchell from D.A. Davidson. Please go ahead, your line is now open.

Good morning.

Good morning.

Good morning.

My question revolves around Canada and electric power. I was just curious to hear how is the competition [has] evolved over the last year, and if the acquisitions in January were at all in response to that?

Repeat the question, Cory. I didn't catch what the question was.

I was just curious on how competition has evolved in Canada regarding electric power, and then also if the four acquisitions in January were at all in response to that?

No. I mean, we -- I mean, obviously, when we make an acquisition, it's to add to our capabilities to provide solutions to our customers. Did we do it as a defensive move? No. We did it because it provided -- we're advancing solutions for customers.

But we see the same competitors in Canada as we do in the US. Every one of our publicly traded competitors are trying to move into Canada, so the competitive landscape is no different in Canada.

Okay. And then also, Derrick, you talked a little bit about oil and gas infrastructure, saying 9% operating margins. Is it unreasonable to think that as capacity starts to tighten in 2015, 2016 that you could reach 11% and 12%?

Yes, I mean, we continue to look at that segment as having a 9% to 12% margin profile and/or capability, so I think that we would say it's preliminary to say that now, but we think that the dynamic exists for us to be able to bring the segment into the 9% to 12% range.

I will now turn the call back to Mr. O'Neil for closing comments.

We'd like to thank all of you for participating our fourth quarter and full-year 2013 conference call. We appreciate your questions and your ongoing interest in Quanta Services, and hope to see you in New York at our Investor Day. Thank you. This concludes our call.