Quanta Services, Inc. (PWR)

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Quanta Services (PWR)

Q1 2011 Earnings Call

May 04, 2011 9:00 am ET

Executives

Kenneth Trawick - President of Telecommunications & Renewables Division

James O'Neil - President and Chief Operating Officer

James Haddox - Chief Financial Officer

John Colson - Chairman, Chief Executive Officer, Chairman of Merger, Acquisition & Disposition Committee and Chairman of Small Merger, Acquisition & Disposition Committee

Kip Rupp - Founder and Managing Partner

Analysts

Steven Gambuzza - Longbow Capital

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Quanta Services First Quarter 2011 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, May 4, 2011. I would now like to turn the conference over to Kip Rupp, with DRG&L. Please go ahead.

Kip Rupp

Great. Thank you, Alicia, and welcome, everyone, to Quanta Services conference call to review our first quarter of 2011 results. Before I turn the call over to management, I have the normal housekeeping details to run through. If you would like to be on the email or fax distribution list to receive future press releases for Quanta, or if you had any technical difficulty this morning and did not receive your email or fax, please call our offices at DRG&L at (713) 529-6600. You can also sign up for email information alerts by going to the Investors & Media section of Quanta Services website at quantaservices.com.

A replay of today's call will be available via webcast on Quanta's website at quantaservices.com. In addition, a telephonic recorded instant replay will be available for the next 7 days, 24 hours a day, that can be accessed as set forth in the press release. Please remember that the information reported on this call speaks only as of today, May 4, 2011, and therefore you are advised that any time-sensitive information may no longer be accurate as of the time of any replay of this call. This conference call will include forward-looking statements intended to qualify under the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any statements reflecting Quanta's expectations, intentions, assumptions or beliefs about future events or performance or that do not solely relate to historical or current facts. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict to or are beyond Quanta's control, and actual results may differ materially from those expected or implied as forward-looking statements. Management caution is that you should not place undue reliance on Quanta's forward-looking statements, and Quanta does not undertake any obligation to update any forward-looking statements to reflect events or circumstances after this call. For additional information concerning some of the risks, uncertainties and assumptions that could affect Quanta's forward-looking statements, please refer to the company's annual report on Form 10-K for the year ended December 31, 2010, its quarterly reports on Form 10-Q and its other documents filed with the Securities and Exchange Commission, which may be obtained through the SEC's website at sec.gov. With that, I would now like to turn the call over to Mr. John Colson, Quanta's Chairman and CEO. John?

John Colson

Good morning, everyone, and welcome to Quanta Services First Quarter 2011 Conference Call. To start the call this morning, I will provide a summary of the quarter results with added insight on the impact of current industry circumstances and overall economic conditions. My comments will be followed by an operational review by Jim O'Neil, President and Chief Operating Officer; and the review of financial results by James Haddox, Chief Financial Officer. Following our remarks, we'll welcome your questions.

Revenues for the first quarter increased [Audio Gap] is related to permitting and regulatory issues. This, coupled with other items, had a significant negative impact on operating income for the quarter. Our expectation at the time of our fourth quarter conference call was to achieve diluted earnings per share between $0.02 and $0.03. However, we are reporting today a first quarter of 2011 loss of $0.08 per diluted share. The first quarter shortfall was attributable to the following issues: 2 gas transmission pipeline projects underperformed; 1 project incurred cleanup costs of $10 million more than expected as the project schedule required it to be completed; and unpredictable winter weather. Restrictive regulations imposed by the Bureau of Land Management compounded this negative outcome. Another pipeline project was $16 million less profitable than forecasted. This project had been bid before we owned the company and was delayed 2 years, resulting an additional costs which are currently being negotiated under a change order. A small portion of the project was performed during the fourth quarter of 2010. However, the substantial majority of the work was performed and completed in the first quarter. The project was located northwest of Edmonton, Alberta, Canada and was significantly impacted by exceptional snowfall and warm weather, as well as complicated directional growth.

Also, construction start delays occurred on 3 major electric power transmission projects: Southern California Edison's Tehachapi project Segment 6 was delayed due to the prolonged permitting process for construction in the Angeles National Forest.

The overhead portion of San Diego Gas & Electric Sunrise PowerLink project and Northeast Utilities Greater Springfield Reliability project were also impacted by similar environmental forbidding delays. Lastly, mostly due to these and other project delays, we had higher unallocated equipment costs as transmission equipment remained idle, while waiting on these jobs to start. These costs and delays, along with other circumstances, resulted in submitted and pending change orders and claims in excess of over $60 million. Because of existing ongoing negotiations, uncertainly regarding the timing of booking these change orders and the potential for additional delays and subsequent costs that could impact the amounts claimed. None of the claims are included in our first quarter results. We expect positive contribution to the future earnings as these negotiations progress throughout the remainder of the year.

Two other issues affected the quarter. We reorganized the distribution portion of our Natural Gas division to reflect current demand and to effectively meet customer needs. Severance and other reorganization costs of approximately $2 million were incorporated in the quarter results. The more majority of which, were originally anticipated to occur later in the year. Additionally, we mobilized under our new gas outsourcing agreement with Puget Sound Energy. This resulted in approximately $2 million of start up costs that will be recouped as the job progresses. A portion of these costs were originally anticipated to occur later in the year, but these costs were, nonetheless, higher than we anticipated during the first quarter. Jim will provide additional information on the near and far term expectations of these projects and current timelines.

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