Quanta Services, Inc. (PWR) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Quanta Services Fourth Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, February 22, 2012. I would now like to turn the conference over to our host, Kip Rupp. Please go ahead, sir.

Great. Thanks, Jackie, and welcome, everyone, to the Quanta Services conference call to review fourth quarter and full year 2001 (sic) [2011] results. Before I turn the call over to management, I have the normal housekeeping details to run through. If you would like to have Quanta news releases and other information e-mailed to you when they occur, please sign up for the e-mail information alerts by going to the Investors & Media section of the Quanta Services website at quantaservices.com. 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 7 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 22, 2012, and therefore, you're advised that any time-sensitive information may no longer be accurate as of the time of any replay on this call. This conference call will include forward-looking statements intended to qualify under the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include all statements reflecting Quanta's expectations, intentions, assumptions or beliefs about future events or performance or that do not solely relate to historical or current facts. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expected or implied as forward-looking statements. Management cautions that you should not place undue reliance on Quanta's forward-looking statements. 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 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're hosting the Quanta Services 2012 Investor Day in New York City on March 7. Attendance of this event is limited to the institutional investment community. If you're an institutional investor or sell-side analyst and would like to attend our Investor Day, please contact me for registration information. For those that can't attend the meeting in person, we will be webcasting the event and will also be -- have archived audio and other material available after the event on our website. With that, I would like to now turn the call over to Mr. Jim O'Neil, Quanta's President and CEO. Jim?

Thanks, Kip. Good morning, everyone, and welcome to Quanta Services Fourth Quarter and Full Year 2011 Earnings Conference Call. I will start the call with an operational overview before turning the call over to James Haddox, Quanta's CFO, to provide a detailed review of our fourth quarter and full year financial results. Following James' comments, we will welcome your questions. Our fourth quarter results are reflective of strong execution by our operations. Our revenues grew 37% compared to the fourth quarter of 2010, and our GAAP and non-GAAP adjusted diluted earnings per share increased 100% and 78%, respectively, over the same period last year. The overall momentum in our business, particularly the number of electric transmission projects in construction, drove revenues higher in the fourth quarter versus the third quarter. As a result, we experienced sequential revenue growth of 21% and growth in GAAP and non-GAAP adjusted diluted earnings per share of 28% and 41%, respectively, versus the third quarter of 2011. Here's some additional financial data to put our comments about the momentum in our business into context. Revenues in the last 6 months of 2011 increased almost 49% over revenues from the first 6 months of 2011, and operating income increased more than fivefold when comparing the same periods. Further, revenues for the last 6 months of 2011 increased approximately 20% over revenues for the last 6 months of 2010, and operating income increased about 25% for the same period comparison. Our strong fourth quarter and second half of 2011 results support our optimism for continued profitable growth in 2012. For the full year of 2011, revenues increased approximately 18% despite project delays across all of our operating segments in the first half of the year, caused mainly by heightened regulatory environment. The primary driver of our 2011 revenue growth came from our Electric Power and telecommunications segments, which increased revenues year-over-year by approximately 48% and 23%, respectively. Our Natural Gas and Pipeline segment had a challenging year from both a revenue and profit perspective. But as I will discuss later in my comments, there are indications that 2012 should be a better year than 2011 for this segment. Both our 12-month and total backlog at year end were at record levels. Our 12-month backlog at the end of 2011 increased about 24%, and total backlog increased approximately 15% compared to backlog at year-end 2010. Turning to our Electric Power segment. 12-month backlog at the end of 2011 for the Electric Power segment increased nearly 32%, and total backlog for this segment increased nearly 11% compared to the end of 2010. We believe we are still in the early stages of a multiyear transmission build out in the United States and Canada and expect our Electric Power segment backlog to remain strong throughout 2012 and beyond. The large electric transmission projects that we have in progress continued to proceed as expected without meaningful delays. I would like to take a moment to highlight a few of the large transmission projects we have for additional color. The Sunrise Powerlink project for San Diego Gas & Electric, our CREZ project for Lone Star Transmission and the Bruce to Milton line for Hydro One should all be completed around the middle of this year. However, our CREZ work for ETP and Sharyland, BC Hydro's Northwest Transmission Line and the Devers-Palo Verde 2 line for Southern Cal Edison will all be ramping into construction about the same time. I would point out that we expect the timing of large transmission project awards to be lumpy going forward. Therefore, we recommend that investors focus on new award activity over a longer term rather than on a quarterly basis. As we highlighted in our third quarter 2011 earnings call, the smaller transmission market remains very active. And due to the significant increase in overall transmission spending and activity, we're seeing pricing on smaller transmission projects improve as industry construction resources approach capacity. I would like to recognize our employees' dedication to safely executing projects during a period of significant ramp-up in transmission project activity. Our employee count at the end of 2011 was approximately 17,500 or a 28% increase over the same period last year, primarily driven by the increase in our electric transmission operations. In 2011, our electric distribution business experienced modest recovery for the first time since 2008. In addition, we recently executed a 3-year extension to our electric distribution system outsourcing agreement with Puget Sound Energy. We are cautiously optimistic that our distribution revenues will be flat to slightly up in 2012. Due to the delays on several solar project awards in 2011, our renewable revenues for the full year were $219 million, a decrease of 30% over 2010. We believe the delays were caused in large part by developers waiting for solar panel prices to settle at lower price levels. However, we are seeing a good pipeline of solar engineer, procure and construct, or EPC opportunities, moving forward in 2012 and 2013. The wind market was also significantly impacted in 2011 because of low natural gas prices and project financing challenges. However, we are seeing signs that the market for wind power generation is recovering. Overall, we expect double-digit revenue growth in our renewable segment in 2012 versus 2011, driven mostly by solar EPC opportunities. Note that we expect the timing of solar project awards could be less predictable due to the regulatory environment, availability of project financing and other factors. We entered the fourth quarter of 2011 with about $250 million in pipeline projects that we're moving into construction, giving us a reason to be optimistic about our Natural Gas and Pipeline segment. During the fourth quarter, we began working on several pipeline projects in various shales in the United States and a pipeline project in Canada. One of our projects in the Marcellus experienced challenges due to excessive rain that impacted production. We also experienced reduced profitability on a few Marcellus projects due to a 10-day union labor strike that negatively impacted the production on those projects. The short-lived strike occurred due to a dispute over pension plan obligations between the International Brotherhood of Teamsters labor union and the Pipe Line Contractors Association, of which certain Quanta operating units are members. The parties are currently in the process of negotiating a collective bargaining agreement. Our Natural Gas and Pipeline segment 12-month and total backlog at the end of 2011 increased about 3% and approximately 31%, respectively, as compared to the end of 2010. 2011 was a very challenging year for our Natural Gas and Pipeline segment, but we are encouraged by what we see so far in 2012 and believe our Natural Gas and Pipeline segment is better positioned today for profitable growth than it was at this time last year. Since the end of 2011, we have been awarded an additional $200 million of pipeline projects to date and are currently bidding or negotiating approximately $2 billion of additional pipeline projects, which we expect to be awarded to contractors this year. As a result of our efforts to diversify our transmission pipeline service offering, of the pipeline projects that we have been awarded in the fourth quarter of 2011 and to date in 2012, more than half of these projects are shale gathering system projects. This compares to having no shale gathering system projects in hand at this time last year. In addition to seeing projects materialize in the backlog, we are also seeing projects expected to move into construction earlier this year than what we traditionally see. Both are positive signs. Our telecommunications segment continues to experience momentum and improved financial performance, which we believe will continue through 2012. 12-month backlog for this segment increased about 47% at the end of 2011 as compared to the end of 2010. The increase in revenues, margins and 12-month backlog for this segment was driven by increases in the engineering and start-up of broad-based stimulus projects, fiber-to-cell site projects and wireless-related work. We continue to see opportunities from wireless and fiber-to-cell site initiatives, driven by strong wireless data growth, efforts to improve 3G wireless networks and from 4G and LTE wireless network upgrades and deployments. Further, we are in late-stage discussions with several wireline companies for master service agreements that should generate additional recurring revenue from our Telecom segment going forward. We anticipate this segment's revenues will continue to grow at double-digit rates, with attractive margins through this year. For our Fiber Optic Licensing segment, 12-month backlog increased about 4% at the end of 2011 as compared to the end of 2010. We continue to build out our networks and believe that the increase in sales activity we experienced in 2011 will continue in 2012, setting the stage for a pickup in revenue growth in the latter part of this year and into 2013. In our earnings release this morning, we provided our financial expectations for the first quarter and full year of 2012. James will review that detail in his comments, but I wanted to provide some additional color as to our approach in developing our expectation. One difficulty in forecasting our final -- financial expectations is that we have been and are operating in a very challenging environment due to the economic uncertainty and, in particular, tougher permitting requirements, heightened environmental sensitivities, new regulations and the inconsistent interpretation of existing regulations. These factors are outside of our control, and they impacted the timing of project awards and project starts for us last year. Considering our experience in the first half of 2011, we continue to implement a financial forecasting approach that strives to properly align ongoing regulatory and economic uncertainties in our business, with the backlog we are executing on and the opportunities we expect to materialize in 2012. In summary, we continue to see positive trends across all of our operating segments as we move through the first quarter of 2012. We believe we are better positioned, and indications are improved operating environment in our Natural Gas and Pipeline segment should produce better results for this segment in 2012 versus 2011. We have record levels of backlog and expect meaningful increases in projects ramping up across all of our segments throughout 2012. With that, I would like to turn the call over to James.

Thanks, Jim, and good morning, everyone. Today, we announced revenues of $1.51 billion for the fourth quarter of 2011 compared to $1.11 billion in the prior year's fourth quarter, reflecting growth of 36.8% quarter-over-quarter. Net income attributable to common stock for the quarter was $66.3 million or $0.32 per diluted share. Included in net income attributable to common stock for the fourth quarter of 2011 is a $32.6-million charge to cost of services, or $20.4 million net of tax, related to a pension plan withdrawal liability. Also included in net income attributable to common stock for the fourth quarter of 2011 is $10.7 million of income from the release of income tax contingencies and settlements of certain tax audit. The net impact of these 2 items to the fourth quarter of 2011 resulted in a $0.04 reduction in diluted earnings per share. The growth in consolidated revenues in 4Q '11 was driven by strong growth in the Electric Power and Telecom Infrastructure Services segments, partially offset by a decrease in revenues from our Natural Gas and Pipeline Infrastructure Services segment. Contributing to our increased revenues in the fourth quarter of 2011 was the incremental contribution of approximately $52 million in revenues in the quarter from companies acquired since the beginning of 4Q 2010. Excluding revenues from these acquisitions, consolidated revenues would have grown 32% quarter-over-quarter. Our consolidated gross margin decreased from 14.4% in 4Q '10 to 13.3% in 4Q '11. This decrease was due to the impact of the previously mentioned $32.6-million pretax charge for the pension plan withdrawal liability, which affected the Natural Gas and Pipeline Infrastructure Services segment. Consolidated gross margins without the effects of this charge were 15.4%, an increase of 100 basis points over 4Q of '10. Selling, general and administrative expenses increased $5 million in the 2011 fourth quarter to $99.5 million as compared to last year's fourth quarter. This increase is primarily attributable to $8 million in higher salary and benefits costs associated with the increased levels of activity, as well as $4.8 million in additional administrative expenses associated with companies acquired since October 1, 2010. These increases are partially offset by $7.4 million in lower acquisition costs. As a percentage of revenues, selling, general and admin expenses decreased from 8.5% in the fourth quarter of 2010 to 6.6% in the fourth quarter of 2011, primarily due to the higher overall revenues as previously discussed. Our consolidated operating margin before amortization expense increased from 5.9% in 4Q '10 to 6.7% in 4Q '11. Excluding the pension plan withdrawal charge, operating margin before amortization expense would have been 8.9% in the fourth quarter of 2011. Drilling further down into the details of our results by segment, the Electric Power segment's revenues were up about $378 million quarter-over-quarter or approximately 63%. Revenues were positively impacted by higher revenues from Electric Power transmission services resulting from an increase in the number and size of projects that were ongoing in Q4 '11 compared to Q4 '10. Also contributing to this increase was the incremental contribution of $46 million in revenues from acquired companies and $29 million in higher emergency restoration services resulting from early winter storm weather in the Northeast. Excluding revenues from the acquisitions completed since the beginning of 4Q '10, the Electric Power segment's revenues would have grown approximately 56% quarter-over-quarter. Operating margin in the Electric Power segment was 13.4% in the fourth quarter of 2011 compared to 9.8% in last year's fourth quarter, primarily due to higher overall revenues, which resulted from an increase in services on higher-margin transmission projects, as well as from the increases in higher-margin emergency restoration services. Additionally, these increased revenues contributed to this segment's ability to cover fixed and overhead costs. Natural Gas and Pipeline segment revenues decreased quarter-over-quarter by 5.1% to $379 million in 4Q '11, due to a decrease in the number and size of transmission pipeline projects, primarily as a result of delays in spending by our customers. These decreases were partially offset by increases in revenues from natural gas distribution services, due to the Puget Sound Energy distribution work, which we started in the second quarter of 2011, as well as increased spending by certain of our customers. Operating income in the Natural Gas and Pipeline segment as a percentage of revenues decreased to negative 9.6% for 4Q '11 from a positive 5.5% for 4Q '10. This decrease was primarily due to the $32.6-million charge to this segment's operating results in the fourth quarter of 2011, associated with a pension plan withdrawal liability. Excluding this expense, operating margins for natural gas would have been a negative 0.1% in 4Q '11. The recognition of the pension plan withdrawal liability in the fourth quarter of 2011 resulted from the withdrawal from the Central States Plan by certain of our subsidiaries, following an amendment to a collective bargaining agreement with the International Brotherhood of Teamsters that eliminated our obligation to contribute to the Central States Plan. The Central States Plan's obligations for vested benefits are significantly underfunded, and Quanta believes that withdrawal from the Central States Plan was advantageous because it limited Quanta's exposure to increased liabilities from a future withdrawal if the funding status of the Central States Plan deteriorates further and additional plan participants withdraw from the plan. Also contributing to the decrease in margins quarter-over-quarter was the impact of increased project costs related to performance issues caused by adverse weather conditions. As Jim mentioned, we also experienced reduced profitability on certain shale-related projects due to a Teamsters union labor strike that negatively impacted the production on those projects. The effect of the strike reduced profitability of those projects in the fourth quarter and will carry a reduced profitability assumption in 2012 for the remainder of the affected projects, due to percentage-of-completion accounting requirements. Revenues from our telecommunications segment increased $47.4 million or 57% to $130.8 million in 4Q '11, primarily due to an increase in the volume of work associated with stimulus-funded fiber optic construction projects and higher revenues from "fiber to the cell" site initiatives resulting from higher capital spending by our customers. Operating margin in the telecommunications segment was 11.9% in 4Q '11 compared to 2.8% in 4Q '10. This increase in margin is primarily due to increased demand for our services allowing for margin expansion, as well as the impact of revenue increases on this segment's ability to cover fixed costs. Fiber Optic Licensing segment revenues were $29.6 million for the fourth quarter of 2011, reflecting an increase of 5.6% over 4Q '10. Operating margin was 49.9% in 4Q '11 compared to operating margins of 48.0% in 4Q '10. When calculating operating margins by segment, we don't allocate certain selling, general and administrative expenses and amortization expense to our segments. Therefore, the previous discussion about operating margins by segment excludes the effects of such expenses. Corporate and unallocated costs decreased $9.5 million in the fourth quarter of 2011 as compared to the fourth quarter of 2010, primarily due to lower acquisition and integration costs of $7.4 million and lower amortization expense of intangible assets of $1.7 million. Adjusted diluted earnings per share, as calculated in today's press release, was $0.41 for the fourth quarter of 2011 or a 78% increase when compared to adjusted diluted earnings per share of $0.23 for 4Q '10. Our year-to-date negative free cash flow position as of 9/30/11 turned around to positive free cash flow in the fourth quarter of '11, despite revenue in the fourth quarter being $262 million higher than in the third quarter of '11. Cash flow from operations of $126 million, less net capital expenditures of about $39 million, resulted in approximately $87 million in free cash flow for the quarter. For the full year of 2011, cash flow from operations of $218 million, less net capital expenditures of about $162 million, resulted in approximately $56 million in free cash flow despite revenue growth of 37% in the fourth quarter. EBITA for the fourth quarter of 2011 was $96.8 million or 6.4% of revenues, compared to approximately $64.3 million or 5.8% of revenues for the fourth quarter of 2010. Adjusted EBITDA was approximately $165 million or 11% of revenues for the fourth quarter of 2011, compared to $105 million or 9.5% of revenues for the fourth quarter of 2010. For the 12 months ended 2011, adjusted EBITDA was $407.1 million or 8.8% of revenues, compared to $434.2 million or 11% of revenues for 2010. Our days sales outstanding or DSOs were 68 days at December 31, 2011, versus 75 days at September 30, '11, and 68 days at December 31, 2010. And the calculation of EBITA and the EBITDA and adjusted EBITDA, all non-GAAP measures, and the definitions of these and DSOs can be found in the Investors & Media section of our website at quantaservices.com. At December 31, 2011, we had $191.4 million in letters of credit outstanding, primarily to secure our insurance program, and had no other borrowings. In addition, at the end of the quarter, we have $350 million in cash. Considering our cash on hand and availability under our credit facility, we have nearly $824 million in total liquidity as of December 31. We closed one Electric Power acquisition during the fourth quarter for a purchase price of approximately $35 million, comprised of $25.3 million in cash and $9.7 million in Quanta stock. Concerning our outlook for 2012, we expect revenues for the first quarter of 2012 to range between $1.25 billion and $1.35 billion, and diluted earnings per share to be $0.14 to $0.16 on a GAAP basis. This estimate compares to revenue of $849 million and a loss of $0.08 in GAAP EPS in the first quarter of '11. Our GAAP EPS forecast for 1Q '12 includes an estimate of $6.1 million for noncash compensation expenses and $9.2 million for amortization expenses. Excluding these expenses, our non-GAAP adjusted diluted earnings per share for the quarter is expected to be $0.19 to $0.21 and compares to non-GAAP adjusted diluted loss per share of $0.05 in the first quarter of '11. This non-GAAP measure is calculated on the same basis as the historical calculations of adjusted diluted earnings per share presented in the press release. On an annual basis, we expect revenues for 2012 to range between $4.9 billion and $5.3 billion and diluted earnings per share to be $0.90 to $1.10 on a GAAP basis. This estimate compares to revenues of $4.6 billion and $0.62 in GAAP EPS in 2011. Our GAAP EPS forecast for 2012 includes an estimate of $25 million for noncash compensation expenses and $34 million of amortization expenses. Excluding these expenses, our non-GAAP adjusted diluted earnings per share for 2012 are expected to be $1.08 to $1.28. We're currently forecasting net income attributable to noncontrolling interest to be approximately $3 million in the first quarter of 2012 and $16.4 million for the year. For additional guidance, we are currently projecting our GAAP tax rate to be approximately 37% for 2012, and we expect our diluted share count to be about 211 million shares for 2012. We expect CapEx for all of 2012 to be approximately $190 million to $225 million, which includes CapEx for our fiber licensing segment of about $40 million to $50 million. This compares to CapEx for all of 2011 of $172 million. Looking back at 2011, the first half of the year was challenging due to abnormal weather patterns and project delays across all of our operating segments as a result of a significantly more difficult regulatory environment. Despite project delays during the first 6 months of 2011, we continued to win work, which drove our backlog to record levels at the end of each quarter throughout 2011. The delayed projects in all of our operating segments began moving into construction in the second half of the year, which resulted in significant revenue growth, better margins and strong earnings growth relative to the first half of the year. We also had several financially oriented accomplishments in 2011. We announced a $100-million stock repurchase program in May, increased the authorization level by an additional $50 million in June and completed the $150-million stock repurchase program in August. In total, we repurchased about 8.1 million shares at an average price of $18.39. In August, we amended and expanded our credit facility from $475 million to $700 million and extended the maturity date to August 2016. We leveraged our balance sheet strength over the course of the year to win work and provided significant working capital to our operations to fund the simultaneous ramp-up of a number of large projects. And we funded an investment in the pipeline company in the Eagle Ford Shale and the acquisition of 5 companies in 2011 that strategically expanded our geographic presence and provided us with unique technologies to further differentiate our service offerings from the competition. As Jim commented, we entered 2012 with quite a bit of momentum in our business. We believe that we're operationally and financially well-positioned for solid growth in 2012 and beyond. This concludes my prepared remarks, and we're now happy to take your questions. Operator?

[Operator Instructions] And our first question comes from the line of Will Gabrielski with Lazard Capital Markets.

So I have 2 questions. The first is, on the projects you have winding down this year, then you're replacing that work in transmission with a few projects that are ramping up, can you talk about how your visibility is on the ramp-up and mobilization for those projects compared to what we saw last year when there were some challenges?

Yes, Will. We don't see any challenges with those projects. They for the most part have gone through the permitting process. And they're not in poor service lands. So we don't expect any issues. Certainly in Texas, in the CREZ project, they should go forward. The Devers project should go forward without any issue and so should the Northwest Transmission Line. So we don't anticipate any delays.

Okay. And then as a follow-up, I'm just curious. If you can give a little more detail now that the shale work, the gathering work is increasing as a percentage of your pipeline business, what the average length of project is there, the type of visibility you have, margin and risk, and how that could impact the gas business over the next few years.

Yes. The projects are smaller diameter pipes, smaller distances. They typically can -- the range can vary from $8-million, $10-million project to a $40-million, $50-million project. But it's recurring work. There's a significant amount of activity for several customers. It's almost like an MSA-type work. We've got a lot better visibility in that work than we do in the big pipe business. But there's a significant amount of gathering systems that need to be built, specifically in the shale areas that have a liquid component. We're very active in the Marcellus right now. The margin profile is very similar to what we see on the big pipework, and the visibility is a lot better.

Our next question comes from the line of Jeff Beach with Stifel, Nicolaus. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: My questions are -- revolve around the pipeline operations. First, the fourth quarter profitability, you were hit by weather and a strike, but it still looks like disappointing profitability in the fourth quarter on what looked to be reasonably good revenues. Can you just expand, maybe talk about profitability without the onetime items and a little bit more about profitability going into 2012 in this business?

Yes, Jeff. And I would add to that, there were some regulatory delays, too, that affect the business, which continues to hamper that segment throughout the year. I mean, we've had $1.8 billion worth of projects that I think probably less than half -- actually, more than half have been canceled or delayed. So -- but I think we would have been pretty close to what we forecasted for that segment. The 10-day strike that we had certainly impacted us a couple of pennies, and the weather issues as well. We -- and the regulatory delays impact us as far as trying to efficiently mobilize people and equipment. So for that segment, we should have -- without those issues, we would have been close to our forecast for that segment for the quarter. Going forward, we're very excited. I mean, we certainly -- first quarter is typically not a busy time for -- typically from a seasonal standpoint, this segment is typically very -- not very active, would typically ramp up in the second and third quarter. We've got a lot of activity in the first quarter right now. Certainly, there's some weather risks because of that. It's typically why pipeliners don't build in the first quarter. But we think that going into this year, we've got great visibility. We've got a good book of business to get us into the first part of the year. We're seeing some opportunities this year that we believe will convert into construction opportunities. And we certainly feel like we'll have a very profitable year in our pipeline segment this year. But we've got the regulatory issues. We've got to keep in mind, that hasn't eased at all. So we've got to take in account that the regulatory environment is still very onerous in that segment. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: If you were able to exclude, kind of take out the large pipeline projects in 2011, can you put kind of a range around the growth of everything else, all the shale work, the smaller pipelines, the pipeline inspection, the gas distribution? Can you give us an idea how much that underlying business is growing?

Well, why don't I put it in context of what we're going to do in '12? I mean, going into '12, backlog in that segment at the end of '11 was about $768 million. We've added about $200 million of work into backlog since then. We've had some burn. But I would say that more than half of that backlog is associated with shale gathering work and the collections system work in these shales, particularly the Marcellus and the Eagle Ford and the Bakken. So a significant part of our backlog has transitioned to shale work going into 2012. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: And last question, on your -- I don't know if it's described -- joint venture with Howard Energy, can you give us an update on what's happening there?

Yes, I mean, that project continues to -- that pipeline is continuing to perform nicely. James could probably give you some updates on that. But I'll talk to you about the construction synergy opportunities first. We're still in the very early stages, the top of the first inning in developing Eagle Ford collection system infrastructure or in building infrastructure. And we feel that if that relationship is going to bring us some pull-through value -- it already has to some degree. We've had some smaller engineering opportunities and construction opportunities there because of that relationship. And we believe that we'll be able to build on that over the next few years because we've got that presence with Howard Energy in the Eagle Ford. So it's still early. But I expect some opportunities because of that investment due to come, to see evidence of as we move forward and develop -- as that field develops.

Yes, Jeff. I mean, there's -- there continues to be significant drilling activity in the Eagle Ford, which results into opportunities for Howard Energy both on the development of additional pipelines and on the construction side. Howard Energy is actually made up of a small construction company and a pipeline system. So they're seeing opportunities. Both of them were performing -- the construction company is performing better than we expected it to, and the pipeline company is performing about where we expected it to. But there's still significant activity going on in the Eagle Ford, which gives them opportunities for construction and pipeline development.

Our next question comes from the line of Dan Mannes from Avondale Partners.

Two quick questions. First, on the electric segment, as far as we can tell, this is probably the best margin you put up in any single quarter, along with the best revenue. When you think about the margin contribution, was there anything materially different about this quarter aside from just a higher utilization? I mean, was there any weather benefit, whether from storm work or alternatively from pull-forward work because of fairly benign weather? Anything else we should think about in terms of sustainability?

Yes, Dan. There weren't any -- I mean, if you're asking if there were any closeout -- big profits booked on closeouts of jobs, no, we didn't see anything like that. We did get some benefit, as I mentioned in my prepared remarks, about increased weather -- I mean, increased storm activity, increased emergency restoration services. It was about $29 million over the prior year. It was $45 million in total. So you do get some boost from that. But it's not a real significant number. It was just improving margins basically on the ramp-up of some of these jobs. I mean, you're going to see some quarterly variances just based on seasonality, but sustainability should be fine in that segment.

Okay. And then real quick on another topic on the fiber business. It looked like the rate of growth in revenue and in backlog was a little bit lower in '11 than where we've seen. Anything changing there in terms of your strategy? Or I don't know, if there's been any change in terms of the universal service line and the E-rate program that might be slowing that?

No, actually, we think you will see a pickup in that. I mean, we -- this year, in 2011, we spent probably -- I think somewhere between $17 million and $20 million in capital on that. And that was because of the slowdown, predominantly in California, with budgetary constraints by the school districts. So we only spent $17 million this year. But their sales season doesn't really -- is ramping up about right now. So you don't see it flow through their backlog numbers or anything else at year end because their sales season is still underway. But we are projecting that we're going to spend $40 million to $50 million next year. So that shows you that, that business is recovering.

Our next question comes from the line of William Bremer with Maxim Group.

Can you give us a little bit more color on the strike on the United Steelworkers union? I mean, is it going have any other effects in any other projects going forward as this continues with the bargaining with the union?

Well, we are in negotiations -- or the PLCA, which is the Pipe Line Contractors Association, in which Quanta -- certain Quanta entities as well as 70 other pipeline contractors are members of, is currently in negotiation on a new agreement. From what I understand, those negotiations are going well, and I don't expect to see any other strike impacts on our work going forward.

So we shouldn't expect to hear of any additional charges in the first half of '12?

Because the strike occurred in January -- many of the jobs that we're on occurred from December into January. You will have some impact of the strike in the first quarter performance. But that's already baked into our guidance.

Okay. And then going to the pipeline segment, you called out that pricing there starting to -- on the smaller scale, just as strong as the larger, which I find quite surprising but also very solid for you guys. What does the large scale pipes and the channel there look like currently?

The large scale pipeline opportunities, we see those opportunities there. The regulatory environment is much more difficult. So it's hard for us to forecast when those projects will be awarded to a contractor and moved to construction. The shale work is more predictable. It's more recurring. The margin profile is similar because the projects that we're working on -- that we work on are large -- larger scale projects in those shales are very difficult to negotiate. They're in very difficult terrain, or in very populated areas where they use contractors like Quanta to do the work. And that certainly commands margins that are very similar to the big pipe work.

Our next question comes from the line of Tahira Afzal with KeyBanc.

Obviously, great work on the electric transmission side. I would love to know about some of the prospects there. I know they're going to be lumpy. But if you can talk about what you see in Canada, which seems to be a fairly exciting market, any update there? And then number two, in terms of the pipeline prospects, there's a bit of skittishness in the market on account of natural gas rigs in the shale plays, et cetera, on the traditional dry side really coming down. So any comfort you can provide in terms of your prospects being more oriented towards liquids plays and oil plays will be helpful.

Yes, I mean, I'll address the gas question first. You are seeing some of the developers curtailing operations in the dry gas fields, but on the contrary, we're seeing significant opportunities where assets are being moved to these areas of liquid-rich plays. We have customers that are behind on their capital programs. They've got significant amount of infrastructure that they need to build. So we're very comfortable that these liquid-rich plays will continue to be very active through 2012 and beyond. There's just a significant amount of infrastructure that needs to be built despite the low natural gas prices. I mean, for instance, in the Eagle Ford, it costs $0 to produce gas because the oil production covers the capital cost for all of the development and infrastructure that needs to be built. On the transmission side, gee, there's a significant amount of projects out there. Certainly, Canada is a very active area for us. You've got CapX2020, the rest of that. You've got Gateway. You've got some more projects in California. The Northeast still is in the very early stages of building out infrastructure. Midwest with ATC and ITC. You've just got a significant amount of activity, and we continue to think that backlog will be strong. Going into this year, we will have additional awards. But the permitting and regulatory process continues to be a concern, and we don't have that visibility on how that will impact awards for the end of this year.

Our next question comes from the line of Ahmar Zaman with Piper Jaffray.

This is Shawn for Ahmar. Could you come back to your comments you made on the solar business? If you could just provide some visibility to what you're seeing this year in terms of -- the U.S. market is supposed to be -- have a very strong year in terms of solar installs. And if you could just give us some idea of what you're seeing there in terms of opportunity and increased activity for Quanta.

Yes. And we had a hard time understanding, but I think the question is giving some color on the solar market in 2012. A lot of the opportunities that we're seeing in '12 and '13 are from developers taking advantage of the 1603 Cash Grant. And we're hopeful or very -- there's some promising opportunities for us that we believe will come to fruition soon to fill out our backlog for 2012 and '13. But that's what's driving the business that we see. I think over the long term, we don't have the visibility. But I think as we've always said, that the RPS standards in the states, the 30 states that have the mandatory RPS standards, at the end of the day, that's going to drive activity regardless of what government subsidies that we -- that developers receive. So certainly in '12 and '13, we see a very active year, largely driven by the expiration of the 1603 Cash Grant and developers taking advantage of that opportunity.

Great. And if I could just ask one more renewable energy-related question. On the -- in terms of -- I guess on your transmission business or your electricity business, any visibility out there that you guys -- or any impact on the business right now in terms of just smart grid-related installs, what you guys are seeing just on smart grid side? Or is it mostly just on transmission that you're seeing everything? Anything smart grid-related that is a good opportunity out there for you guys?

I mean, smart grid continues to progress within our company. We're doing mostly distribution installations for smart grid. The CenterPoint program is the poster child of our smart grid implementation that we're doing now with IBM and Itron, where we're installing 2.2 million meters. We are continuing with smart grid programs in the Midwest and in Florida and in some of the smaller munis and co-ops. So that continues. It's not a meaningful part of what we do, but we are seeing still robust activity largely on distribution systems, not on transmission systems.

Our next question comes from the line of Joe Ritchie with Goldman Sachs.

So sticking with the gas business for a second, could you just provide a little bit of detail on the margin profile for the business? I know that you've mentioned that the small diameter work is -- or the gathering systems are comparable to some of the large diameter work that you're doing. And so I'm wondering, what's it going to take to get back to, let's say, normalized margins of mid to upper single digits in that business?

We need the regulatory environment to improve first and foremost so that our customers can plan, work and move projects to construction in a predictable manner. And we can participate in that on the construction side. But let me get back, the margin profiles are higher on these smaller projects, too, because our margins are driven by the type of contract more than the type of work. So these smaller projects are firm, fixed-price bids, and they have risks associated with them, and so we are able to command higher margins in that business. And it's on the higher end of the scale of margins. It's probably in that 18% to 20% gross margin range. But what we need is the regulatory environment to improve, and we need to see more activity, more work to keep the people and equipment busy. And certainly, the shale activity that we're pursuing will give us a more recurring revenue stream, we hope, going into 2012 and beyond.

Okay, that's helpful commentary. And then just one follow-up question. On the transmission side of your business, you said that pricing was improving. I think you had mentioned earlier as well that you felt that margins could be sustained. So just to be clear, 2012, you would expect then margin improvement -- it should be pretty material improvement in that business versus 2011 just based on the trends that you're seeing.

Yes. I mean, it's based off the trends we're seeing in the second half of this year. Now you have to take in account again the regulatory environment and the normal seasonality of the first quarter. But because we have better utilization of our people and equipment, we should be able to sustain those margins going forward.

Our next question comes from the line of Scott Levine with JPMorgan. Scott J. Levine - JP Morgan Chase & Co, Research Division: Question regarding the permitting environment. It sounds, Jim, in listening to you talk about the permitting environment -- I don't know if it's as bad as it's been; it just hasn't gotten better. We were sensing that visibility was improving around timing in the back half of last year. Now we're hearing that it doesn't seem to be. I'm wondering if you can provide a little bit more color on the permitting environment and maybe whether there's a difference in terms of the impact on your transmission business as opposed to the pipeline business, and whether there's any expectation or thought that things could get better this year, or whether it's just a wait-and-see.

Well, that's a good question. The point we're trying to make and the reason why the environment's improved in the third and fourth quarters, because the projects that were facing those challenges, those regulatory challenges, moved through that process and moved to construction. But almost every one of the projects in the third and fourth quarter that we were working on were delayed. They should have started earlier in the year or the prior year. So any new awards that we receive may quite possibly face the same challenges. And so it's the new awards that we'll receive. And it's many projects, particularly that's in Forest Service lands or BLM lands, that are going to probably experience some delays. So that's why we're saying that we expect this to be a very active year in awards. But whether those projects move into construction in 2012 or not, we don't have that visibility. And that's what hurt us last year when we were trying to provide guidance, that exact thing. Because our customers told us projects were going to start, we put them in our forecast, and it didn't happen because of things beyond their control and our control, which is the regulatory process. Scott J. Levine - JP Morgan Chase & Co, Research Division: And that comment is relevant to both the pipeline and the transmission?

Absolutely, absolutely. We had $1.8 billion worth of projects that we were shortlisted on or exclusively negotiating, not including Keystone. And almost -- over half of those were delayed or canceled last year. And we practically won $200 million, $250 million of that, and the other $500 million, $600 million went to competitors. And you look at every transmission project we're on, from Tehachapi to Sunrise to Greater Springfield to -- even CREZ had some delays. And we don't -- that landscape hasn't changed. So it's the new awards. And the reason it seems like it's better right now is because we had projects finally move through that bottleneck and move to construction. So that's the point. So any future awards are subject to being delayed. That's the way we're approaching it. Scott J. Levine - JP Morgan Chase & Co, Research Division: Okay. And that expectation is -- a more conservative expectation on timing is assumed within guidance.

Well, I don't like to use the word "conservative." I'm just trying to say, we're guiding to what the environment that we experienced in 2011. We're guiding to that -- that overall environment is what we're guiding to. Scott J. Levine - JP Morgan Chase & Co, Research Division: Right. You're not assuming any improvement...

And if projects get awarded this year and they do move to construction like in a normal year before this administration or what we experienced 5 years ago, then it would probably be additive to guidance. But we want to see how that works out, how that plays out. We don't have that visibility. We have visibility into the first half of this year but not second half. Scott J. Levine - JP Morgan Chase & Co, Research Division: Got it. And then one follow-up, if I may, and sorry if this was asked before. The strike-related charge, the impact associated with the cost percentage-of-completion accounting, did you quantify what the impact was in the first quarter of '12? Or would you be willing to?

No, not at this time. It's too early to do that. I would just say we baked it into guidance, and leave it at that for now.

Our next question comes from the line of Adam Thalhimer with BB&T Capital Markets. Adam R. Thalhimer - BB&T Capital Markets, Research Division: First question here is on the guidance. I'm having a hard time getting to the low end of guidance, to $0.90. Can you kind of explain what will be the scenario that would produce that type of result?

A year in the pipeline segment or more specifically in the large diameter pipework, which it would include the shales, that would give us a break-even year. The pipeline is pretty much a range. Last year, we talked about the range being when these big transmission projects occurred, because we were going through the regulatory process. This year, it's the regulatory process around pipeline. I'm not talking about necessarily performance. I'm talking about delays. Of course, we have to perform, but it's delays and what we expect to come down the pipeline this year, no pun intended, but the regulatory environment could delay that. And that would give us a $0.90 scenario. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Okay. And then, I guess, this is kind of a good follow-up to that. But, Jim, on your long-haul pipeline equipment, what's your near-term strategy for what to do with that equipment?

Well, you have to remember that there's a significant rental or lease model in -- where 40% to 50% of that equipment, of the non-core equipment, the common equipment that's used, dozers for instance, can be returned. So we've got the capability to do non-spreads, but you've got that rental model. And then there is some of our equipment that is -- that can be used in the smaller shales or in the shale work on that smaller pipework. It's just the specific equipment designed around 20-inch and larger pipe that's on the sidelines. And certainly, we need that capability. It's strategic, and we do see some big pipework coming down the pipeline, if it can get permitted. Then we'll need that equipment and that will be very profitable work for us.

Our next question comes from the line of Alex Rygiel with FBR. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: Jim, how disappointed are you at the performance of the pipeline business in the fourth quarter?

Well, that's kind of a loaded question. Sure, certainly, I'm disappointed because we didn't hit the forecast. But we -- because of the regulatory delays that we experienced, we saw an anomaly this year where we had an increasing activity in the fourth quarter and into the first quarter, which would typically be a low year for any pipeline operation, because they don't want to risk the weather and the weather elements. And we have weather elements in the Marcellus in the Northeast. And I think we've done very well performing in the environment that we're under. The strike certainly was disappointing, but I'm very -- I think I would like to characterize it as I'm more excited about the outlook for pipeline. We had one bad year in pipeline. We had a great year in 2010, made $100 million in operating income or thereabouts. And we can return this group to profitability in 2012. I'm confident that we can, especially since we've repositioned our presence in the shale formations. The second and third quarter is where you really start getting some really good margins in that business. And I think you've got to look at pipeline on a full year basis in '12. And, yes, I'm disappointed in the fourth quarter. But I'm more optimistic about what we see in '12 for pipeline. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: You mentioned earlier that you've seen some improved pricing or profitability on smaller transition transmission projects, and I recognize that it's the different type of contract, like you said. But are you also seeing improved pricing in larger transmission projects? And if not yet, at what point do you think it might kind of work up the ladder?

Well, I think pricing improvement in big -- in the electric transmission market is going to be driven by what labor rates do going forward. I think that's going to be a big driver because if people come -- become scarce and we renegotiate agreements, it could be a factor. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: And then lastly, you mentioned something about a pending Telecom MSA. Can you give us a little bit more color on that? Is it in the wireline or wireless space? How sizable is it? Is it with a new customer or an existing customer?

They are existing customers and it's wireline. What happens is, when, typically, you get this amount of activity going on -- the wireline carriers are very active right now -- they need assistance in managing -- program managing their capital programs. So we're doing more of that function for them. It's more deployment of capital over a larger footprint. And so they tend to outsource that to folks like Quanta to do that work. So there's opportunities with existing customers that are meaningful, that should occur here this year, early this year.

Our next question comes from the line of Jamie Cook with Crédit Suisse. Jamie L. Cook - Crédit Suisse AG, Research Division: Two questions. Sorry to harp on the gas business again. But I guess, Jim or James, is there anything that we can do to restructure, rightsize, divest or potentially diversify the gas business to give us sort of more consistent margin or profitability? Just because, I mean, you can't really control the regulatory environment. So I guess I just get concerned that this will continue to be a drag. And then, James, I guess, how do you think about -- over what -- the long-term margin targets for Quanta, which have been in the 9% to 12% range, I guess, given the revenue base that we're going to be on in 2012, I would have hoped we would have been closer to that range. So what's the revenue number that you need to get to the 9% to 12% operating margin? Or what needs to happen to get to that margin target?

Jamie, let me address it this way. The diversity of our service offerings is one of the core strengths of this company. Back in 2010, we didn't have a very good year in electric transmission. And the pipeline business was what carried this company, with $100 million in operating income. And, yes, we've had some regularity issues in pipeline, but we had the same regulatory issues in 2010 that pushed projects on the electric transmission side to where they are today. So I know we had a bad year in '11 in pipeline, but we're very bullish on the pipeline business... Jamie L. Cook - Crédit Suisse AG, Research Division: But I guess my problem is I never remember. Even with the difficulty and regulatory hurdles on Electric Power, you've never had losses. Or my recollection, I don't ever remember you -- the Electric Power division, even in the worst of times, putting up this type of performance.

No, we didn't have losses like that, but I can tell you that price recovery to date has given us a great return from the date of acquisition. And we expect that it will return to profitability in '12 and beyond. It is a more cyclical business. It is -- does have less visibility. And I know that frustrates investors, but we're doing what we can to diversify that risk. That's why we're moving into the shale. So I think you're going to see a different profile this year. We've got $450 million in backlog already for this year in local shale work, which is at good margins. It's recurring revenue and there's more visibility there. So we are repositioning ourselves in that segment to be more profitable and have more recurring revenue over time. Jamie L. Cook - Crédit Suisse AG, Research Division: And then just the last question on the longer-term margin targets. What needs to happen? Over what time period do you think you can get to the 9% to 12% targeted range?

Yes. I mean, if we can get pipeline where it needs to be -- I mean, we're almost there. When you look at Telecom and electric and what they've done in the second half of this year, we're there. We need to get there in pipeline and we can. If we can get the regulatory environment to improve and we will reposition ourselves in these shales, we should be able to get there in pipeline as well.

In just normal years, Jamie, the pipeline business has created margins that would get us into that range. So we just need to have a good, normal year in pipeline to get there.

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

First question I wanted to ask was about these multibillion-dollar pipeline integrity programs that are going in front of commissions right now. I think there is about 4 or 5 of them in front of the California Utility Commission (sic) [California Public Utilities Commission], and then there's others around the country. Can you talk a little bit about the potential opportunity in these programs for Quanta, given that you've worked with a number of these utilities over the years, and how we should look at this as a potential contribution, if there's anything in there in your guidance right now for '12?

Craig, that's a huge opportunity for us over time. It's growing off a smaller base. It's probably less than 10% of the segment's revenues today, but I think that business can grow -- that segment of the business can grow at rates greater than any other segment because of the new things and requirements and so forth that are requiring more intrusive testing of the pipeline integrity. We just bought a pigging company. So now we are able to do our own internal assessment and provide data to the customer. I think we're the only full-service construction company that can now do pipeline, integrity and remediation and provide external and internal data to the customer on the integrity of that pipeline. So that's a huge opportunity for us. We're excited about it, and I think that is another area where we're going to further diversify the pipeline segment over time. That's recurring revenue and it's at good margins.

Great. Then the next question I had was on the regulatory environment. So Susquehanna-Roseland is the local line for me that, I guess, I have the most experience looking at from a regulatory standpoint. And there, we have an environmental impact report from parks that blatantly disregards the pre-existing easements, the pre-existing access roads, rights-of-way, and is myopic to the point where they don't even acknowledge that it's only 20 additional feet on one existing right-of-way that's really the additional land that's requested. Can you talk a little bit about these really cumbersome, almost obstruction-ary situations where the need is there to build the lines where the system operators are really calling for an in-service date that's unachievable at this point to preserve reliability? Can you talk a little bit about the recourse actions that could be taken by the different owners of these lines? I mean, you don't have to talk specifically to Susquehanna. But do you see more of these things actually moving into the courts given that there really is a reliability need?

Yes, I mean, I think that's a perfect example of what our customers are facing. That's the reinterpretation of existing regulations. And this is a project that was delayed 2 years ago in June, and it's back on the drawing board again. But who knows what's going to happen? And if it goes into the court system because of reliability issues and if the line is determined to be needed, all that does is delay the construction of that line. And that's exactly the regulatory environment that we're facing today and why we've taken our approach on guidance, and I'm getting off track a little bit from your question, but that's a project that should be coming out soon and should be going to construction. So -- but is that really going to happen or not? I don't know. I'm not going to get into the other questions or comments you want me to make because I think that's more for our customers. I could just say that, that's the state of what our customers are going through today, and it impacts us as well.

And, Jim, I just want to touch on something you mentioned in there that I think is pretty important, just if you could clarify. So my takeaway from what you just said is that your guidance completely excludes all projects where there is this sort of political or regulatory uncertainty. And it strictly includes projects where you have a very high level of confidence that everything is green-lighted for construction and where there's reasonable expectations for significant increase in activity this year.

I would say that's fair for large projects that we expect to be awarded in the latter half of this year.

Our next question comes from the line of -- with Andrew Wittmann of Robert W. Baird.

My question is on the Telecom business. And you mentioned a number of factors are really driving that business, Jim. The -- I guess my question is really regarding the stimulus benefit that you're experiencing. Can you just remind us how much of just maybe the work that you're doing today is really stimulus-driven and how long you expect the tail to be on that work?

Yes, I think a significant amount of that is stimulus-driven, and we should see positive results from that well into 2013 on Telecom -- Telecom stimulus. And we're largely associated with it, obviously, everyone knows, but the wireline to unserved areas throughout the country. I mean, that's another example where these jobs should have started a year ago, but the environmental impact statements that needed to be filed delayed the process a year. And we all are now seeing the -- we're in the height of the construction period, and that should continue through most of '12 and probably start -- we'll still see some significant revenues in '13, but it will start winding down in '13. And then by that time, we should -- we think that there will be several customers -- or we know for a fact that there are several customers that received the benefit of stimulus that have additional capital programs that they want to bolt on to that program. So we think the spending will be very poor beyond 2013 because there's many customers that have capital they want to deploy as well. And then 4G and LTE should be increasing. So we think that we're not going to see this big drop-off in '13 because, certainly, we've got wireless opportunities increasing and customers that have capital programs on the wireline side that will continue.

Our next question comes from the line of John Rogers with D.A. Davidson. John Rogers - D.A. Davidson & Co., Research Division: Just a couple of different questions. First of all, how much of your work are you expecting in 2013 to be in Canada -- or sorry, 2012?

Probably close to 10%. I'm just giving you that directionally, 10%. Everything is going to go up, so the revenue in Canada should increase as well. But it should be approximately 10% of our revenues. John Rogers - D.A. Davidson & Co., Research Division: Okay. And in terms of the large pipeline projects up there, I mean, it doesn't sound like you're banking on any of those moving forward in 2012 at that revenue rate.

The large projects that would be done in Canada would be occurring right now probably. Because of the permafrost loss, most of that work is done in the first quarter. So that's probably a good assessment. And in '12, it would relate to the big pipe. John Rogers - D.A. Davidson & Co., Research Division: Okay. And then secondly, just back to the electrical business for a second. You talked -- or you mentioned that the distribution side of it was picking up a little bit. Is that -- and I know it's still relatively weak compared to what it was years ago, but is that helping margins? Or does it add revenue but dilute the margins a little bit?

No, it should help margins. I mean, primarily -- I mean, overall, it's definitely going to help margins because you have a lot of distribution resources going to the small transmission market. So now that you've had distribution pick up, you've got some of those folks going back into distribution. And then it's making the small transmission market, the resources to perform that work even more scarce. Commodity is scarce. So -- but the distribution margins, we operate under MSAs and we've just had less people on those MSAs. So as they return under those agreements, the margins will improve.

Our next question comes from the line of Morris Ajzenman with Griffin Securities.

Question is, 2012, clearly it looks like we'll have a material improvement versus 2011. With that as a backdrop, which sort of acquisitions for 2012 would you prefer to just keep low there and allow the better results to come to surface and be able to see that? Or are there still areas where you have a laser focus where you want some strategic acquisitions as far as this year is concerned?

Our acquisition strategy really doesn't change in good times or bad. I mean, we're going to be opportunistic. And if we can find an acquisition candidate that adds a geographical footprint or enhances our core service offering or provides some technology differentiator or customer relationship, we'll look hard at making that acquisition. So, again, our approach to acquisition is pretty consistent, and it hasn't changed over the last 10 to 12 years.

Thank you. I'll turn it back over to management for any closing remarks.

I'd like to thank you all for participating in our fourth quarter and full year 2011 conference call. We appreciate your questions and your ongoing interest in Quanta Services. Thank you. This concludes our call.

Ladies and gentlemen, this concludes the Quanta Services Fourth Quarter Earnings Conference Call. If you would like to listen to a replay of today's conference, please dial (303) 590-3030, with access code 4514544. Thank you for your participation. You may now disconnect.