Quanta Services Inc (PWR) 2014 Q4 法說會逐字稿

Good day and welcome to the Quanta Services fourth-quarter and full-year 2014 earnings conference call. As a reminder, today's presentation is being recorded.

At this time I would like to turn the conference over to Kip Rupp. Please go ahead, sir.

Great. Thank you, Doris; and welcome, everyone, to the Quanta Services conference call to review fourth-quarter and full-year 2014 results. Before I turn to call over to management, I have the normal housekeeping details to run through.

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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. That can be accessed as set forth in the press release.

Please remember that information reported on this call speaks only as of today, February 19, 2015; 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, 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 expressed or implied in any forward-looking statements. 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, 2013; its quarterly reports on Form 10-Q for the first, second, and third quarters of 2014; 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.

Management cautions that you should not place undue reliance on Quanta's forward-looking statements, and Quanta does not undertake and disclaims any obligation to update or revise any forward-looking statements based on new information, future events, or otherwise; and disclaims any written or oral statements made by any third party regarding the subject matter of this call.

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

Thank you, Kip. Good morning, everyone, and welcome to Quanta Services' fourth-quarter and full-year 2014 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 fourth-quarter results. Following Derrick's comments, we welcome your questions.

Quanta's fourth quarter capped another successful year. Compared to the full year of 2013, revenues increased 20%; non-GAAP adjusted diluted earnings per share increased 16%; and backlog increased nearly 12%, to record levels. These results reflect Quanta's leadership position in the industry, strong and safe project execution by our operating units, and the ability to execute on our strategic plan to broaden the infrastructure solutions we provide our customers.

As we close out 2014 with this call, I want to thank our employees, who I believe are the best in the industry and the primary reason we consistently differentiate ourselves from our competitors in an ever-changing market environment.

The significant decline in oil prices over the past several months has created considerable concern in the investment community about how low oil prices could impact our oil and gas infrastructure services operations. I think it is important that I spend some time this morning discussing how the current oil price dynamic may impact our operations going forward. I will do so in more detail shortly but wanted to share early on in my remarks that despite the uncertain oil price environment we are experiencing, we believe Quanta can achieve double-digit earnings-per-share growth in 2015 versus the prior year.

I want to highlight that our electric power segment is the largest portion of our business, which in 2014 accounted for 67% of revenues and almost 69% of the operating income generated by our three segments, excluding unusual items. Our electric power segment grew revenues nearly 17% in 2014 over 2013. Acquisitions during the year contributed to the growth, but organically the electric segment grew approximately 12%.

This growth was driven by solid demand for our transmission, distribution, substation, and other electric power infrastructure services throughout North America. We believe the industry drivers that have fueled this segment's growth over the past several years should continue through 2015 and beyond.

In 2014 Quanta was awarded two large electric transmission projects in Canada: the Labrador Island Link HVdc Transmission Project for Nalcor Energy; and, more recently, the Fort McMurray West 500 kV Transmission Project for the Alberta Electric System Operator. These are the largest project awards in Quanta's history.

The Fort McMurray West 500 kV Transmission Project was a concession awarded under the Alberta Electric System Operator's, or AESO's, newly created competitive transmission process. Quanta partnered with ATCO Group, a longtime customer, to compete for this project. The AESO received interest for this project from companies around the world. And after an extensive process that examined technical, financial, and developmental expertise, they selected the Quanta and ATCO team.

Our utility customers have made significant investment in their electric power infrastructure throughout North America over the past several years, and we expect continued strong levels of investment by utilities in transmission and distribution infrastructure going forward. The dynamics spurring North America transmission and distribution investment that we have discussed on our earnings calls for the past several years continue to drive our customers to invest in the electric power infrastructure.

The most significant drivers include: an aging power grid, the majority of which is approaching or beyond the end of its useful life, that is largely not configured to serve the population centers of today; the changing mix of power generation, including the increase in renewable generation development to switch from coal to natural gas-fired generation and continued hydro-generation development in Canada. As a result of these dynamics, new transmission and related infrastructure is required to interconnect these new generation sources to the grid; and existing infrastructure needs to be upgraded, replaced, and modified to accommodate the shifting generation mix.

And finally, new regulation and the implementation of existing regulation are significant drivers of infrastructure investment, such as the Energy Policy Act of 2005, NERC reliability requirements, Mercury/Air Toxics Standards, the recently passed critical infrastructure protection standard, and the implementation of FERC Order 1000.

Turning your attention to our oil and gas infrastructure segment, I would like to share our outlook for both the near and long term and provide commentary about our business as it relates to the current oil price environment. Importantly, our qualitative outlook for our business and my commentary today is largely shaped by collaborative relationships with our customers, which gives us valuable insight into their multiyear infrastructure capital programs.

We continue to have a favorable outlook for the mainline pipe market for the next several years. Our customers' capital programs are larger than they have ever been. And the number and project value of mainline projects that could move to construction over the next several years is larger than we have ever seen. The midstream gathering and mainline infrastructure bottlenecks in North America that existed before the decline in oil prices still exist today and will be further challenged with oil and gas production and demand growth going forward.

Of the mainline project opportunities we are following that are in various stages of planning and approval, more than half of them are natural gas projects. These projects are driven by production of the abundant supply of natural gas in North America, particularly from the Marcellus Shale. As more coal-fired generation plants are retired and shut down, development of new natural-gas-fired generation is expected to increase, which require pipelines.

Several large pipeline projects are in development to supply natural gas to current and future gas-fired generation plants. In addition, demand for natural gas in the Northeast United States for power generation and home heating is growing, and there is not enough pipeline in place to meet this demand. As a result there are several natural gas pipelines in development to meet that need.

Canada has experienced takeaway capacity problems for several years, and pipeline infrastructure remains inadequate to move large volumes of oilsand product to refining centers, particularly in the United States. We have seen a couple of mainline projects slide to the right that could have begun construction in 2015; however, these delays are due to permitting and environmental factors and not due to the price of oil.

Canadian producers and pipeline operators are taking a long-term view and are committed to moving forward with needed infrastructure development programs. There are a number of mainline oil projects in North America in various stages of planning, permitting, and approval. A substantial majority of these projects already have secured contractual commitments from producers under minimum buying or take-or-pay contracts.

Given that these mainline projects are already commercially secured, they should move forward, assuming the required permits and approvals are obtained. For example, several weeks ago we announced that Quanta was selected by Enbridge for the Line 78 pipeline project, which is expected to address market demand for increased pipeline capacity along the pipeline routes Enbridge has operated in Illinois and Indiana for many years. Our scope of work for Line 78 project includes the construction and installation of approximately 79 miles of new 36-inch diameter crude oil mainline pipe, as well as building and installing a pumping station and terminal modifications for the new pipeline.

The unconventional shales in North America and the Canadian oilsands are also an energy game-changer in the energy industry. We believe our customers are strategically planning and investing in the long-term infrastructure they need to harvest and transport these new sources of hydrocarbons over the next several decades, not just years. The complexity, costs, and challenges to design and obtain regulatory approvals/permits of right-of-way for large infrastructure projects such as mainline projects requires long-term planning and commitment.

Regarding our midstream gathering business, the vast majority of our midstream gathering work is performed in the Marcellus and Utica Shale formations, which are primarily driven by natural gas. Demand for our infrastructure services in these shales remains robust. For the minority of midstream gathering work that we perform in oil-influenced shales, we do expect some impact on activity levels this year.

Other services we perform in the oil and gas infrastructure service segment include pipeline integrity, pipe transportation and logistic management, natural gas distribution, horizontal directional drilling, offshore specialty infrastructure services, facility construction, trenching and other services. Demand for some of these services could be impacted by lower oil prices going forward, but we are not experiencing significant impacts currently.

We do not expect our oil and gas segment to be materially impacted by the lower oil price and remain optimistic about the opportunities we anticipate to profitably grow our oil and gas segment in 2015 and beyond. However, a prolonged period of depressed oil prices could negatively impact our business. We are mindful of this uncertainty, which is reflected in the low end of our annual guidance range, which Derrick will discuss in detail in his prepared remarks.

And finally, our fiber optic licensing operation performed well in 2014. Our lit services rollout continues to progress in our Northeast markets, and demand for our dark fiber network remains solid. We continue to invest in our lit services strategy and are engaging current and potential new customers with the broad platform of private networked communication solutions that we offer. We believe attractive growth opportunities will materialize over the next several years as our lit service offering gains traction this year and beyond.

In summary, Quanta had another strong year. End-market drivers remain firmly in place, and demand for our specialty infrastructure services is solid. We have visibility into significant new project awards this year that could drive higher levels of backlog.

As electric power and oil and gas infrastructure projects become 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, expertise, the resources, and track record of safe execution that differentiates us in the markets we serve.

We continue to execute on strategies that position Quanta for both the near- and long-term growth. While lower oil prices create investor concern and uncertainty, I hope you have taken away from my comments this morning that we continue to have confidence that opportunities exist for our oil and gas infrastructure segment to grow profitably in 2015 and beyond.

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

Thanks, Jim, and good morning, everyone. Today we announced revenues of $2.05 billion for the fourth quarter of 2014 compared to $1.82 billion in the prior year's fourth quarter, reflecting an increase of 12.9% in quarter-over-quarter revenues.

Net income from continuing operations attributable to common stock for the quarter was $67.2 million or $0.30 per diluted share as compared to $166.7 million or $0.70 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 2014 was a $49.9 million or $30.3 million net of tax charge to provision for long-term contract receivable as a result of the settlement agreement with San Diego Gas & Electric, a subsidiary of Sempra Energy, regarding an outstanding change order dispute associated with an electric power infrastructure services project completed in 2012. The net impact of this provision on Quanta's results for the fourth quarter of 2014 was a reduction of $0.14 per diluted share.

Also impacting the current fourth-quarter results were acquisition costs of $6 million net of tax or $0.03 per diluted share. Although we had had acquisition costs in previous periods, the amounts recorded in this period were more sizable as compared to the $2 million net of tax or $0.01 per diluted share in 4Q 2013.

Also in 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. Adjusted diluted earnings per share from continuing operations as presented in today's press release was $0.51 for the fourth quarter of 2014 as compared to adjusted diluted earnings per share from continuing operations of $0.50 for the fourth quarter of 2013.

The increase in consolidated revenues in the fourth quarter of 2014 as compared to the same quarter of last year was primarily due to an 11.4% increase in revenues from our electric power infrastructure services segment and a 15.9% increase in revenues from our oil and gas infrastructure services segment.

Our consolidated gross margin was 15.9% in the fourth quarter of 2014, which is slightly lower than the 16.7% in the fourth quarter of 2013. This decrease in gross margin was primarily due to lower margins recognized on certain electric transmission projects ongoing during the three months ended December 31, 2014, as compared to similar projects completed during the three months ended December 31, 2013.

Selling, general, and administrative expenses as presented in this quarter's press release were $158.8 million in the fourth quarter of 2014, reflecting an increase of $15.5 million as compared to last year's fourth quarter. This increase is primarily due to $17.5 million in incremental G&A costs associated with acquired companies and $1.9 million in higher professional fees, partially offset by lower compensation and incentive costs associated with current levels of profitability.

Selling, general, and administrative expenses as a percentage of revenues were 7.7% in the fourth quarter of 2014 as compared to 7.9% in the fourth quarter of 2013. Our consolidated operating margin before amortization expense was 5.8% in 4Q 2014, which was impacted by approximately 240 basis points due to the charge to provision for long-term contract receivable as compared to an 8.8% consolidated operating margin before amortization expense in 4Q 2013. Amortization and intangible assets decreased to $9.5 million in the fourth quarter of 2014 from $10.1 million in 4Q 2013.

To further discuss our segment results, electric power segment revenues were $1.34 billion, reflecting an increase of $137.2 million quarter over quarter or approximately 11.4%. Revenues during the quarter were positively impacted by increased activity from both electric transmission and distribution projects as well as the contribution of additional power generation projects, in addition to approximately $40 million in revenues generated by acquired companies.

Operating margin in the electric power segment decreased to 7.4% in the fourth quarter of 2014 as compared to 12.1% of last year's fourth quarter, primarily due to the effects of the charge to provision for long-term contract receivable, which impacted this segment's operating margin by approximately 370 basis points. Also contributing to the decrease were slightly lower margins earned quarter over quarter associated with typical project variability, associated with major transmission projects ongoing during the fourth quarter of 2014 as compared to the fourth quarter of 2013.

As of December 31, 2014, 12-month backlog for the electric power segment decreased sequentially 3.9% from the third quarter of 2014 due to burn on jobs during the fourth quarter of 2014. However, total backlog increased $140.8 million sequentially, primarily due to the inclusion of the backlog associated with the Fort McMurray West Transmission project.

Year-over-year electric power segment 12-month backlog remained relatively flat while total backlog increased 11.1%, primarily due to organic growth when compared to the fourth quarter of 2013. As we have stated in previous quarters, backlog will at times fluctuate based on the timing of awards.

Oil and gas segment revenues increased quarter over quarter by $91.2 million or 15.9% to $663.5 million in 4Q 2014, largely as a result from (technical difficulty) contributions of approximately $100 million from acquired companies. The timing of mainline pipeline awards and start date impacted the comparability of legacy operations quarter over quarter.

Operating income for the oil and gas segment as a percentage of revenues decreased to 8.1% in 4Q 2014 from 8.9% in 4Q 2013. This decrease was partly due to certain acquired companies in this segment having slightly higher G&A structures as well as the timing of incentive awards at certain other operating units.

Sequentially, oil and gas segment 12-month backlog increased by 11.8% due to the impact of the Enbridge Line 78 pipeline project and the fourth-quarter 2014 acquisition of Banister. Total backlog, however, remained relatively flat. Year over year, 12-month and total backlog for the oil and gas segment increased by 20.4% and 13.6% when compared to the fourth quarter of 2013, both as a result of acquisitions and, to a lesser extent, new project towards.

Our fiber optic licensing and other segment revenues were up $7.1 million or 17.4% to $47.4 million in 4Q 2014 as compared to $40.3 million in 4Q 2013, primarily due to higher levels of ancillary telecommunications services revenues. Operating margin increased to 30.2% in 4Q 2014 as compared to 25.1% in 4Q 2013, primarily due to the operating margin of 4Q 2013 being impacted by a $3.2 million charge associated with gross receipts taxes on fiber optic licensing revenues in certain state jurisdictions.

I typically do not comment on the impact of foreign exchange rates on consolidated or segment results, but the recent strengthening of the US dollar makes the topic more relevant than it has been in the past. Looking at our fourth-quarter results on a constant currency basis, which effectively quantifies the impact of changes in foreign exchange rates between the quarters, consolidated revenues were negatively impacted by approximately 2% when compared to the fourth quarter of last year; and diluted earnings per share has been negatively impacted by approximately 3%. Using a similar approach to compare the effects of exchange rate movements between the year-end 2014 and Q2 2014 for sequential backlog indicates that both 12-month and total backlog balances reported at December 31 were negatively impacted by 1% due to changes in currency.

Corporate and unallocated costs increased $0.5 million in the fourth quarter of 2014 as compared to 4Q 2013, primarily as a result of $3.5 million in higher acquisition and integration costs and $3.6 million in higher consulting fees, business development activities, and other expenses. These increases were partially offset by a $6 million net decrease and lower compensation and incentive costs associated with current levels of profitability.

EBITA for the fourth quarter of 2014 was $113.4 million or 5.5% of revenues compared to $268.2 million or 14.8% of revenues for the fourth quarter of 2013. Adjusted EBITDA was $223.8 million or 10.9% of revenues for the fourth quarter of 2014 compared to $202.8 million or 11.2% of revenues for the fourth quarter of 2013.

For the 12 months ended 2014, adjusted EBITDA was $845.2 million or 10.8% of revenues compared to $712.1 million or 10.9% of revenues for 2013. The calculation of EBITA, EBITDA, and adjusted EBITDA are all non-GAAP metrics; and the definitions of these and days sales outstanding, or DSO, can be found in the investors and media section of our website at quantaservices.com.

For the full year of 2014 cash flow provided by operating activities plus continuing operations was approximately $311 million, and net capital expenditures were approximately $287 million, resulting in approximately $24 million of free cash flow as compared to free cash flow of approximately $198 million for the full year of 2013, which was influenced favorably by substantially higher storm revenues in the fourth-quarter 2012 that were collected in the first quarter of 2013.

The fourth quarter of 2014 had strong free cash flow of approximately $203 million, which contributed to the overall year and is somewhat typical seasonal effect due to lower sequential revenues and, often, fewer new jobs ramping up at the end of the year, reducing working capital demand. DSO was 83 days at December 31, 2014, which was flat compared to 83 days at September 30, 2014; and up compared to 72 days at December 31, 2013.

However, the 2014 year-end DSO calculation reflects an additional seven days due to the impact of reclassifying the $65 million remaining Sunrise receivable as well as certain other repayment amounts from long-term to current assets as of December 31, 2014, as well as the impact of including the acquired net position of Banister in late November of 2014. These items negatively affect the year-end calculation of DSO, as there are no material current-quarter revenues associated with the balances.

Investing cash flows during the fourth quarter of 2014 were impacted by aggregate cash consideration paid of approximately $101 million relating to the closing of one acquisition in Canada during the quarter. Financing cash flows during the fourth quarter of 2014 were impacted by the repurchase of 1.7 million shares of our common stock for approximately $48.5 million.

At December 31, 2014, we had approximately $190.5 million in cash, with approximately $127.2 million in US funds and $63.3 million relating to our foreign operations. In addition, at the end of the quarter we had about $336.7 million in letters of credit and guarantees outstanding to secure our casualty insurance program and other contractual commitments; and we had $68.8 million of borrowings in Canada outstanding under our credit facility.

Including our cash on hand and availability under our credit facility, we had nearly $1.1 billion in total liquidity as of December 31, 2014. However, subsequent to the end of the year, we utilized a large portion of our cash on hand and acquired an additional 6.7 million shares of common stock for approximately $182 million. Including previous share repurchases through 2014, this puts our aggregate repurchases at 9.7 million shares or $275.5 million out of our $500 million program announced in the fourth quarter of 2013.

Also, subsequent to the end of the fourth quarter, we completed three additional acquisitions for aggregate combined consideration of approximately $36.3 million in cash subject to post-closing network and capital adjustments. Due to the timing of these acquisitions, they have not been included in our current guidance for the first quarter or year-end of 2015 due to the need to complete the associated purchase price accounting. However, although they are expected to be accretive transactions, they will not have a material effect.

Concerning our outlook for 2015, we expect revenues for the first quarter of 2015 to range between $1.8 billion and $1.9 billion and diluted earnings per share from continuing operations to be $0.31 to $0.37 on a GAAP basis. These estimates compare to revenues of $1.76 billion and GAAP diluted earnings per share from continuing operations of $0.25 in the first quarter of 2014, which included $38.8 million or $25.8 million net of tax of incremental expense as a result of an arbitration decision related to a contract dispute on a directional drilling project that occurred in 2010. The net impact of this decision on Quanta's first quarter of 2014 results was a $0.12 reduction in diluted earnings per share from continuing operations.

Our GAAP EPS forecast for the first-quarter 2015 includes an estimate of $11.5 million for non-cash stock-based compensation expense and $9.1 million for amortization expense. Excluding these expenses, our non-GAAP adjusted diluted earnings per share from continuing operations for the first quarter of 2015 is expected to be $0.37 to $0.43 and compares to our non-GAAP adjusted diluted earnings per share from continuing operations of $0.44 in the first quarter of 2014.

For Quanta, the first half of any year -- and often the first quarter -- is the most affected by seasonal weather conditions. For the first quarter of 2015 we currently see substantial precipitation in the form of snow; ice; and, in some cases, rain that is impacting the productivity on various projects. These conditions have been factored into our current expectations for the quarter, and we see margins in the electric power segment for the quarter slightly below our annual guidance range, which therefore affects the comparability of our results to last year's first quarter. Although the first quarter of 2014 was also impacted by harsh weather throughout much of North America, for many projects, it was only a matter of temperature, not precipitation. And as such, although productivity was impacted, many jobs executed within previously expected margin profiles.

We expect revenues for the full year of 2015 to range between $8.2 billion and $8.6 billion and diluted earnings per share from continuing operations to be $1.80 to $2.05 on a GAAP basis. Our GAAP EPS forecast for 2015 includes an estimate of $43 million for non-cash stock-based compensation expense and around $36 million of amortization expense. Excluding these expenses, comparable to our historical calculations our non-GAAP diluted earnings per share from continuing operations for 2015 is expected to be between $2.04 and $2.29, which compares to $1.99 in 2014.

Our forecasted non-GAAP measures are estimated on a basis similar to the calculations of historical adjusted diluted earnings per share from continuing operations presented in our release. As Jim commented in his prepared remarks, our range of expectations for 2015 reflects the opportunity for double-digit growth. However, partly due to the continued growth of the Company, as well as the results we anticipate in the first quarter, we have narrowed our operating margin guidance for the year to 10% to 11% in the electric power segment. Although we believe we may still find opportunities to perform within the 11% to 12% range, we feel it is prudent at this stage to slightly narrow our range of operating margin guidance for this segment.

In addition, as it relates to the oil and gas segment, consistent with the previous quarter's commentary on 2015, we believe the midpoint and higher aspects of our range reflect our ability to be at or above 9% operating margin for the segment. And the lower end of our range contemplates comparable results to 2014.

We are currently forecasting net income attributable to noncontrolling interest to be approximately $1.7 million in the first quarter and second quarters of 2015. However, these joint venture relationships expire by the middle of the year; and, therefore, we expect no noncontrolling interest deductions in the latter half of 2015.

For additional guidance, we are currently projecting our GAAP tax rate to be between 34.5% and 34.8% for 2015; and our diluted share count to be about 213 million shares, reflecting the shares repurchased that I discussed previously. Both our first-quarter and annual 2015 guidance reflect the current foreign exchange rate environment. Continued movement of foreign exchange rates in the future could make comparisons to prior periods difficult.

We expect CapEx for all of 2015 to be approximately $275 million to $300 million, which includes CapEx for our fiber licensing and other segment of about $50 million to $60 million; and this compares to CapEx for all of 2014 of $301 million. Overall our capital priorities remain the same, with a focus on ensuring adequate resources for working capital and capital expenditure growth and an opportunistic approach towards acquisitions, investments, and the repurchase of Quanta's stock.

2014 was another great year for Quanta. We continued to leverage our balance sheet strength over the course of the year to win work and simultaneously ramp up on a number of large projects, while ultimately maintaining a strong balance sheet and leaving us well-positioned for continued internal growth and strategic initiatives. We closed nine acquisitions for an aggregate consideration of $284.3 million in cash and $134.5 million in securities, which significantly enhanced our electric power and oil and gas infrastructure service capabilities.

We continue to make opportunistic repurchases of stock and have significantly utilized the availability under our Board-authorized program. And, as Jim mentioned, we ended the year with many record-breaking achievements, including record annual revenues and adjusted diluted earnings per share from continuing operations as well as backlog. We continue to execute within all of our segments, and we believe that we are operationally and financially well positioned for continued solid growth in 2015 and beyond.

This concludes our formal presentation. And we will now open up the line for Q&A. Operator?

(Operator Instructions) Tahira Afzal, KeyBanc.

First question is -- in terms of the fourth quarter, Jim, how did it play out versus your internal expectations? Is the first-quarter wide guidance largely tied to weather?

Was the question about the fourth quarter playing out versus our expectations?

Yes. Internally, how did it play out? I guess because I can only ask two, I wrapped two questions in one. So the second part of the first question is really around first-quarter guidance -- why it's so wide. It seems it's related to weather, but just wanted to make sure.

Sure. As it relates to the fourth quarter, yes, very, very similar to our expectations. We had anticipated that we would have some level of decline from the fourth quarter of last year relative to certain margin profiles, simply because of the way that some of those trials contributed to profits last year. There was just -- it's typical variability. So it played out very similar to our expectations.

And then as it relates to the first quarter, very much the range is to contemplate the aspect of the weather dynamics that we see at play. I will say that I would anticipate that as we get to the latter quarters, that you will see a wider range than you have historically seen -- something that is contemplating both the larger size of the segments as well as some of the variability you will see in the timing of awards. But predominantly in the first quarter, it's largely due to the weather impacts.

Noelle Dilts, Stifel.

My first question -- I just wanted to dig into your 2015 revenue guidance a little bit more. Particularly if I look at the low end, and you strip out Banister and some of your other acquisitions, you are looking at kind of flattish organic revenues. Maybe up a little bit, excluding FX.

But maybe you could talk a little bit about what your expectations are. Does that low end reflect maybe some growth in electric, offset by a decline in oil and gas? How are you thinking about that? And then how are you specifically thinking about the percentage of your revenues that are oil-exposed and somewhat vulnerable to this low oil price environment?

On the low end of guidance, Noelle, in the oil and gas segment we are pretty much taking into account what backlog we have in hanging on mainline pipe. And then there is some impact of probably 5% of our oil and gas segment; offshore services is a good example, up to 10%. And we baked that into the lower end of our guidance.

On electric it's really about what we have in hand right now on large transmission projects. Doesn't really count any slippages on transmission; but we have baked in some of the downturn, potentially, in the oil and gas segment on the low end of the guidance, which could be project slippages or some impact from oil pricing in some of our businesses, which we think is a very small minority.

Steven Fisher, UBS.

Just to follow-up on that a little bit, Jim, can you just talk about what your expectation is for the growth rate overall of your regional oil and gas business in 2015 versus what it was in 2014?

Sure. At the midpoint we are expecting double-digit growth in both our oil and gas segment and in our electric power segment. So projects are there. I would say that backlog is up in our oil and gas segments for mainline.

And mainline is playing out like we expected in 2015, except we have probably seen a few projects slip into 2016, which is a little disappointing. But certainly we still see the uptick. But we've seen a couple of projects in Canada slip. It's more about permitting, though, and siting, which -- I mean, these projects are getting bigger. It just becomes more difficult for projects to move to construction when we expect them to.

But it just looks like we are going to have more work to do in 2016, is what it looks like right now. But we expect double-digit growth in both segments at the midpoint of our guidance.

And wondering how you are thinking about electric backlog over the course of 2015? How confident are you you can sustain it or grow it from here?

You know, quarter over quarter you are going to see some variability. But I think the overall trends on backlog and electric is we continue to see opportunities for growth. Our man hours continue to increase. Our customer capital programs continue to get bigger and larger.

But, you know, I've got to warn everybody again -- and we caution about -- quarter over quarter you could have some fluctuations. But over the long haul right now, it looks like we've got the backlog -- you know, the growth is there for backlog over the long term.

Alex Rygiel, FBR Capital Markets.

Thanks, and I need to apologize if I have a bad connection. A couple of quick questions: first, electrical power margins were down for the last three quarters in a row on kind of a year-over-year consecutive basis. Jim, you are kind of guiding towards 2015 for electric power margins to be in the 10% to 11% range. What structurally has changed in the last 12 months such that electric power margins are a little bit lower? Directionally, can they go back up to where they had been in a year or two?

I'll make some initial comments, and I'll let Derrick follow on. But nothing's changed, okay, as far as margins in backlog or the way we contract with our customers. Nothing's really changed.

We just -- we're in a tighter range here as far as margins as what we've done over the last several years. We have some projects in Canada that are starting up. It's very difficult going right now early on. As projects move through to completion, you have more contingencies to release. We are taking conservative positions on some of these projects. We are trying to set foundations in 4 foot, 6 foot of snow. So that's a big part of it right now.

And, of course, the first quarter is going to impact the year. So I think we should be back in hopefully that higher-end range as we move into 2016. But the first quarter is going to impact the overall year. So we just wanted to come out and give that guidance now for the full year.

Alex, it's Derrick. I mean, I think what you will see is that as it relates to the quarters, you can see that the margin profile can still be up into our typical 10% to 12% range; but as for the year, right now it's definitely impacted by the weather.

There's an aspect of that that when you look at these periods -- I mean, our first quarter years ago happened to be very, very low; and the benefits of Canada are such that the contributes to the first and second quarter can be much flatter than what they had been. But at the same time, there are aspects of weather that will impact that and that will carry through the year.

I do need to make one clarification, as I recognize that my prepared remarks made the reference to an annual guidance of $8.2 billion versus $8.6 billion versus the press release, and that's the difference in foreign currency. Our actual guidance in the press release includes the impact of foreign currency, a reduction of about $100 million.

Andy Wittmann, Baird.

Maybe, Derrick, for you -- the stock compensation expense guidance of $43 million compares to $24 million last year. I know that the Banister deal contained -- I think 40% of that consideration was in stock, so maybe that's part of it. But can you explain the sharp increase there?

Yes. Maybe I misspoke in the prepared remarks. I see my 2014 as actually having stock comp of about $39 million and guidance is about $43 million.

Okay.

We are going to see a degree of increase in stock comp associated with both acquisitions as well as a new program that we put out last year relative to the overall for the Company, with some longer-term three-year targets in our compensation program. And we'll be accruing against those targets, so that will have a bit of an increase in the stock comp program as well.

Okay. Thanks. Maybe I had something tweaked in my model here. Just on the outlook here for mainline, have there been any discussions that have clearly advanced -- that you are feeling like there might be some in the year for the year mainline contributing? I know it seemed like towards the end of the last calendar year you are still kind of having expectations that were fairly modest. I want to understand if there has been any change from that -- that we might get some more content this year?

I want to let you know -- we are going to be executing on some pretty significant mainline work, probably more than what we've done since 2010, this year. It's just that we have had a few projects slip that were back-end loaded into 2016. So I'm not concerned about that.

It's certainly not the oil price dynamic that's creating that. But we still anticipate double-digit growth in that segment at our midpoint of our guidance. And a lot of that -- the biggest contributor to that is going to be mainline, and I think we will be on more mainline work this year than anything since 2010.

So it's not like we are not going to be busy. It's just not what we expected six months ago. We thought we would be on a project or two more. But anyway, it's still building; it's a multiyear build. And we will see. It's early in the process. And we think stacking up, that hopefully at the end of this year, 2016/2017 is going to play out like we all anticipate.

Dan Mannes, Avondale Partners.

I want to belabor the point on 2015 guide on the revenue side. Jim, you keep reiterating the double-digit growth. And I just want to clarify, because the midpoint of your guidance range is mid-single digits; and ex-Banister, it's low. So when you are talking about double-digit growth, are you really referring to the bottom line? Because it sounds like -- I mean, the top line, obviously, you are not being nearly that aggressive.

Dan, this is Derrick. Definitely an aspect on the bottom line; but on the top line, part of it is the example of when you are making reference to Banister -- some of the dialogue that Jim has referenced relative to oil and gas is also impacting Banister. Even from the standpoint of what we included in our press release regarding Banister, there is a bit of decline associated, really, with the push-out of some of their projects. So you will see a difference in timing. That's partly what's impacting that math as far as from an organic growth perspective.

Yes, and FX, too, obviously.

Canada is clearly where we are seeing the bigger delays, and Banister is -- being the largest mainline pipe contractor in Canada, will be impacted by that. And that just -- it is what it is. But certainly there's going to be significant mainline pipe activity in Canada. It's just getting pushed to the right.

Sure. And I wanted to follow up just on the current environment as it relates to bidding. A quarter ago you were kind of in discussions on multiyear-type agreements. I was wondering if you could fast-forward that discussion to today, and also talk about maybe just the level of bidding you are seeing now -- maybe even for late this year and next year versus maybe what you were seeing even a few months ago?

That's playing out -- the multiyear agreements with customers is playing out as we expected. Even more so. So again, that's playing out really nicely.

The bidding environment -- obviously, there are oil projects that are being bid out, but there are also customers moving to more of a supplier relationship. So all I can say at the end of the day is we see capacity tightening when some of these bigger projects start. Capacity is tight now, and it's going to get tighter as we move through 2015 and into 2016.

William Bremer, Maxim Group.

Let's just go into the bookings figures here on the oil and gas side. Maybe get a little more granular -- any particular months showed a significant increase in the bookings, or was it pretty much even throughout? And then subsequent to the quarter?

It's hard to say, Bill. The timing of projects are sporadic. I can't say that I would call out one particular month of award versus another relative to that. I mean, we do clearly have the contribution of Banister into that -- you know, the acquisition of Banister there in the fourth quarter, which -- I would say that was, in an order of magnitude, around $125 million of additional backlog. But after the end of the year, I can't call out that there is any particular way that -- a month of fluctuation that's relevant.

And then outside of Canada, can we talk about pricing? How is the pricing in the oil and gas arena right now, primarily for midstream and gathering?

We haven't changed seen any change, Bill, than what it was a year ago. So pricing remains consistent. And I would expect that we will deliver margins consistent with what Derrick described in his release -- in his prepared remarks. So we are not seeing any change in the pricing environment.

Mike Shlisky, Global Hunter Securities.

I just wanted to ask about -- you mentioned storm stuff here in Q1. Are you seeing any opportunities for any winter storm recovery work here -- you know, snow and ice that's on the powerlines and infrastructure? And perhaps once the snow melts, just maybe commentary on what some customers might be thinking about strengthening their infrastructure to the power side to prevent issues next winter?

Well, we are not really seeing the outages. So it's really just less snow. It's not a lot of ice. There's been some ice, but it's been in areas that really haven't created any power outages or storm work for us.

Storm hardening efforts for our customers continue. And that's one of the biggest drivers of our business, especially on the distribution side. So there is regulation in place, and particularly in the Northeast and Midwest, where utilities our operating and strengthening their grids. So that will continue. The first quarter is typically a soft quarter for that type of work. But that work typically ramps up in the second and third quarter of the year and well into the fourth quarter.

Storm hardening issues initiatives are underway, and they have been underway for several years. And we don't anticipate those to back off. We expect them to continue to grow over the next several years.

Got it. Thank you.

Adam Thalhimer, BB&T Capital Markets.

Nice quarter. I wanted to ask about -- on the oil and gas side, your primary customers are the MLPs. And then the CapEx there is holding up much better than what you are seeing on the E&P side. And my question is: how long can that continue? Where do oil prices need to go to take a slowdown in MLP CapEx off the table?

That's, I guess, the big question, where it was -- on the lower end of our guidance, is how prolonged does oil need to be at these lower prices to impact us? We haven't seen it today. I know that E&Ps want to drill in less wells. They are focused on cash flow and increasing production.

And as long as they are focused on cash flows and increasing production, you are going to need pipelines for takeaway capacity. And they may even make more sense now than they did when oil prices were at $100, because rail is looking really costly right now. So the infrastructure programs -- in the areas that we work, we have not seen any infrastructure programs back off. We have continued to be very active.

Does that change six months from now if the price of oil stays where it's at? I don't know; I don't know how to know that. Many of our customers are taking a long-term approach, especially on the mainline side. They've got billions of dollars invested, years of trying to get projects sited and permitted. And they are moving forward. So that's where we are at.

And then, Jim, on the gas side I'm trying to figure out -- because that was one of the reasons you said, hey, we are less exposed, because we have more exposure in the Marcellus. But gas prices are down a lot, too. I'm trying to figure out what matters more for you? It's hard, because low gas prices are good for natural gas power plants, maybe, for the demand side of the equation. But I'm just -- how does it impact the level of activity in the Marcellus?

Well, I've seen statistics where the Marcellus today provides 16% of the gas supply East of the Mississippi. And by the middle of the next decade, it's going to be over 40%. And the low cost and abundance of natural gas is not only -- it's driving the economy. We are seeing more appliances switch from electric to gas in homes.

You've got this coal to gas switching legislation -- the MATS rules. Power plants will be the number one consumer of natural gas in this country, but you don't have the pipeline infrastructure in place to do any of that. It's severely lacking.

And so that's why you are seeing all these big pipelines proposed predominantly in the Northeast and Midwest. Many of them are going to move toward construction. So regulation is driving a lot of this. The economy is driving it. The shales are an energy game-changer. You've got this 100-year supply plus of natural gas today. That's very cheap, and it's a preferred fossil fuel of choice.

John Rogers, D.A. Davidson.

Jim, one thing I wanted to ask you is: in terms of the acquisitions, how are you looking at this market? Presumably there's some companies that are going to be more interested in selling themselves or not. Could you see this as an opportunity to step up that activity and -- or to diversify your operations internationally, or push more into the offshore work? Maybe some thoughts there?

You know, that's a great question, John. I mean, we are always opportunistic on acquisitions. We could acquire the same dollar value of companies this year that we did the last several years, but maybe not.

I think in this marketplace you need to be very engaged and thoughtful about what steps you take going forward, especially if you don't know how this is going to play out over the long term with a low oil price. Right now we don't see any impact to our business.

But anyway, yes, I think it's a good question. And I think the short answer is we are going to continue to be opportunistic and find good deals, because I do think that we are still in the most prolific time in the history of both the electric power and oil and gas industries. And I think some of the strategic moves we make over the next several years will help establish our leadership position for the next few decades. And I truly believe that.

And then maybe for Derrick: CapEx this year -- what are you looking at?

For 2015 I think we will see probably about $275 million to $300 million, which is fairly comparable to what we saw in 2014 -- about $301 million.

Vishal Shah, Deutsche Bank.

This is Jerimiah on the line for Vishal. You touched on this briefly a second ago, but in the Northeast specifically, we are seeing big differentials in gas prices on a localized basis. So could you just speak a little bit to the shifting dynamics between regions and how that's impacting pipeline activity? Can we expect more in certain regions?

The big driver is the coal to gas switching -- the Mercury emission rules and the necessary infrastructure needed to fuel these power plants. They need to have redundant power plants in place.

The second thing is you've got aging infrastructure in the Northeast throughout the US that needs to be upgraded, not only to serve the population centers today, but the growth in consumption of product that's occurring. So that's one reason you have differentials, is because you've got the lack of takeaway capacity to get the products to the consumers.

I can't speak to it regionally. Every region is different. Every municipality is different. They've got different needs. But I can tell you that there is a -- on a global basis, when you look at it at a very high level, there is a sufficient lack of pipeline infrastructure to serve customers in load centers. And one of the bigger issues is in the Northeast and in the Midwest.

Jamie Cook, Credit Suisse.

This is actually Ben Zhao on for Jamie. I guess most of my questions have been answered, but just two quick ones, probably for Derrick. First, on FX impact for 2015, I think I know you said $100 million in revenues. How much is that non-EPS or operating income?

And second, your share repurchase: seems like you are guiding to -- the share count you are guiding to implies no incremental repurchase. Is that the right way to think about it, or could we see some additional repurchase this year? Thanks.

Sure. Actually, I would say that currency as it stands here has probably impacted us in the 3% to 5% range. And that is factored into our guidance that is in the release, so based upon current FX rates. Again, we have not factored in any additional movements between now and the end of the year. So to the extent that things move, then those numbers would have an impact on us. But as it stands, we've baked into our guidance the current FX rates as it stands today.

From a share repurchase -- yes, we have not forecasted any additional repurchases. That reflects only activity through today. We will be opportunistic with share repurchases, much as we have been throughout 2013 and 2014. We focus on capital available for working capital, CapEx, and acquisitions; and then we look at the aspect of a share repurchase.

I do believe that we will be mindful of all those activities as we think about the future. And we will definitely be considering where share repurchases will play. But as it stands today, we have not forecasted any additional repurchases.

And at this time there are no further questions in the queue. I'll turn the call back to management for any closing or additional remarks.

Well, I'd like to thank you all for participating in our fourth-quarter and full-year 2014 conference call. We appreciate your questions and your ongoing interest in Quanta Services. Thank you, and this concludes our call.

And ladies and gentlemen, that does conclude today's conference. We thank you for your participation.